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KOMERCIJALNA BANKA AD SKOPJE Kej “Dimitar Vlahov” No. 4, 1000 Skopje

Pursuant to the Securities and Exchange Commission` Decision number UP1 07-4 adopted on 27.01.2011, the Decision on increasing the initial capital of Komercijalna Banka AD Skopje with issue of ordinary shares through a public offer – 6th issue number 02-1600-1 adopted on 11.01.2011, is hereby

A N N O U N C I N G

P R O S P E C T U S

on increasing the initial capital of Komercijalna Banka AD Skopje through a public offer – VI-th (sixth) issue

“The Securities and Exchange Commission is neither responsible for the truthfulness and completeness of the information given in the Prospectus for subscription and payment of securities, nor for the ability of the issuer to fulfill the obligations under the securities issue thereby.” �

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1.� PERSONS RESPONSIBLE 4�

1.1.� DATA ABOUT THE PERSONS RESPONSIBLE FOR THE INFORMATION CONTAINED IN THE

PROSPECTUS 4�

2.2.� STATEMENT GIVEN BY ALL AFOREMENTIONED RESPONSIBLE PERSONS 4�

2.� INFORMATION ON AUTHORIZED SECURITIES MARKET PARTICIPANT

THAT PREPARED THE PROSPECTUS 5�

3.� AUDITOR INFORMATION 5�

3.1.� NAME AND HEAD OFFICE OF AUDIT COMPANIES THAT AUDITED THE FINANCIAL STATEMENTS

OF THE COMPANY OVER THE PRECEDING THREE YEARS 5�

3.2.� INFORMATION ON THE REASONS BEHIND THE CHANGE IN THE AUDIT COMPANY OVER THE

PRECEDING THREE YEARS 5�

4.� RISK FACTORS 5�

4.1.� INFORMATION ON RISK FACTORS SPECIFIC FOR THE ISSUER AND ITS INDUSTRIAL SECTOR 5�

4.2.� INFORMATION ON RISK FACTORS SUBSTANTIVELY RELEVANT TO THE SHARES SUBJECT TO

OFFERING, FOR THE PURPOSES OF ASSESSING THE MARKET RISK RELATED TO SUCH SHARES 6�

5.� ISSUER INFORMATION 10�

5.1.� INFORMATION ON THE ISSUER’S BACKGROUND AND DEVELOPMENT 10�

6.� BUSINESS OVERVIEW 11�

6.1.� MAIN ACTIVITIES 11�

6.2.� MARKETS OF BUSINESS OF THE ISSUER 15�

7.� ORGANIZATIONAL STRUCTURE 16�

7.1.� IF THE ISSUER IS A PART OF A GROUP (COMPLEX BUSINESS SYSTEM), A SHORT

DESCRIPTION OF THE ISSUER’S POSITION IN THAT GROUP 16�

8.� TRENDS 16�

9.� PROFIT FORECASTING – OPTIONAL 17�

10.� ISSUER’S BODIES 18�

10.4. CONFLICT OF INTERESTS AMONG THE MEMBERS OF THE ISSUER’S BODIES 51�

11.�EMPLOYEES 52�

11.1.� NUMBER OF EMPLOYEES AND QUALIFICATION STRUCTURE AT THE YEAR END IN THE

PRECEDING THREE YEARS AND CHANGES AS OF THE PROSPECTUS PREPARATION DATE, AND

INFORMATION ON THE GEOGRAPHIC DISTRIBUTION OF THE EMPLOYEES 52�

12.�MAJOR SHAREHOLDERS 53�

12.1.� PURSUANT TO THE ISSUER’S KNOWLEDGE, DATA ON THE PERSONS (EXCEPT FOR THE

MEMBERS OF THE BOARD OF DIRECTORS AND SUPERVISORY BOARD OF THE ISSUER) WHO, ALONG

WITH THE RELATED PARTIES, DIRECTLY OR INDIRECTLY, HOLD MORE THAN 5% OF ANY KIND OR

CLASS OF SHARES ISSUED BY THE ISSUER, INCLUDING THE AMOUNT OF THAT SHARE (ABSOLUTE

AND RELATIVE VALUE IN TERMS OF THE CAPITAL OF THE ISSUER AND IN TERMS OF THE ISSUER’S

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VOTING STRUCTURE). IF THERE ARE NO SUCH PERSONS OR THERE IS NO KNOWLEDGE FOR

EXISTENCE OF SUCH PERSONS, A RESPECTIVE NEGATIVE STATEMENT IS REQUIRED 53�

12.2.� DESCRIPTION OF ANY AGREEMENT OR OTHER ACTS THE ISSUER IS AWARE OF, THE

EXECUTION OF WHICH ON A SPECIFIC DATE COULD RESULT IN A CHANGE IN THE MAJORITY CONTROL

OVER THE ISSUER 53�

13.�FINANCIAL INFORMATION 53�

13.1.� FINANCIAL STATEMENTS 53�

13.2.� AUDIT OF ANNUAL FINANCIAL STATEMENTS 54�

13.3.� PERIODICAL AND OTHER FINANCIAL INFORMATION 54�

13.4.� DIVIDEND POLICY 55�

13.5.� LITIGATIONS 56�

13.6.� SIGNIFICANT CHANGES IN THE ISSUER’S FINANCIAL OR TRADE POSITION 56�

14.�ADDITIONAL INFORMATION 57�

14.1.� INFORMATION ON THE ISSUER’S EQUITY 57�

14.2.� RELATIVE INDICATORS FOR THE ISSUER’S OPERATIONS AS OF THE DATE OF THE LAST

FINANCIAL STATEMENTS PRESENTED IN THE PROSPECTUS AND THE LAST QUARTER TO THE

PROSPECTUS PREPARATION DATE 60�

14.3.� TOTAL INTERNATIONAL PAYMENT OPERATIONS FOR THE PRECEDING YEAR AND FOR THE

CURRENT YEAR 63�

14.4.� LIQUIDITY DEVELOPMENTS: COVERAGE OF BANK’S LIABILITIES WITH HIGHLY LIQUID ASSETS

(CASH AND SECURITIES ISSUED BY THE NBRM AND THE REPUBLIC OF MACEDONIA 63�

14.5.� ISSUER’S STATUTE AND ARTICLES OF INCORPORATION 64�

15.�AGREEMENTS OF ESSENTIAL RELEVANCE TO THE ISSUER’S

BUSINESS 68�

16.� INFORMATION DISCLOSED BY THIRD PARTIES AND REPORTS OF

EXPERTS AND STATEMENT ON INTERESTS 69�

16.1.� WHERE THE PROSPECTUS INCLUDES A REPORT OF A THIRD PARTY – EXPERT,

INFORMATION ON SUCH A PARTY SHALL BE INCLUDED, AS FOLLOWS: NAME AND SURNAME,

BUSINESS ADDRESS, QUALIFICATIONS, AND INFORMATION ON THE MATERIAL INTEREST, IF ANY, OF

SUCH A PARTY WITH THE ISSUER; INFORMATION ON THE CONTEXT AND THE FORM IN WHICH THE

REPORT OF SUCH A PARTY WILL BE USED, WITH APPROVAL BY THE INDIVIDUAL THAT VERIFIED THE

CONTENTS OF THAT PART OF THE PROSPECTUS 69�

16.2.� WHEN A THIRD PARTY IS THE SOURCE OF SOME INFORMATION, SUCH INFORMATION

SHOULD BE VERIFIED IN TERMS OF WHETHER IT HAS BEEN ACCURATELY AND PRECISELY

REPRODUCED AND THAT, TO THE BEST OF THE ISSUER’S KNOWLEDGE, NONE OF THE FACTS THAT

WOULD MAKE THE REPRODUCED INFORMATION INCOMPLETE OR INACCURATE, HAS BEEN

CONCEALED. THE SOURCE OF INFORMATION SHALL ALSO BE INDICATED 69�

17.� INFORMATION ON OFFER OF SECURITIES 69�

17.1.� REASONS BEHIND THE OFFER AND PURPOSE OF THE FUNDS RAISED FROM THE OFFER 69�

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17.2.� GENERAL INFORMATION ON SECURITIES 71�

17.3.� INFORMATION ON EQUITY SECURITIES 74�

18.�TERMS AND CONDITIONS OF THE OFFER 75�

18.1.� PRICE OF SECURITIES 75�

18.2.� TERMS, CONDITIONS AND ACTIONS REQUIRED FOR SUBSCRIPTION AND PAYMENT IN OF

SECURITIES SUBJECT TO OFFER PURSUANT TO THE RULES OF THE AUTHORIZED STOCK EXCHANGE,

THROUGH WHICH THE PUBLICLY OFFERED SHARES SHALL BE SUBSCRIBED, THE ISSUER HAD

CONCLUDED AGREEMENT WITH AS WELL AS THE RULES OF THE AUTHORIZED DEPOSITORY WHERE

THE SECURITIES SHALL BE REGISTERED 76�

18.3.� PLACEMENT OF SECURITIES 81�

19.�ACCEPTANCE FOR LISTING 84�

20.� INFORMATION ON GUARANTOR 84�

21.�AVAILABLE DOCUMENTS 85�

21.1.� STATEMENT FOR AVAILABILITY OF THE DOCUMENTS 85�

21.2.� PLACE WHERE THE DOCUMENTS ARE AVAILABLE FRO CONSIDERATION 85�

ATTACHMENTS:

ATTACHMENT 1: AUDITED FINANCIAL STATEMENTS WITH AUDITORS OPINION FOR 2007 PREPARED

IN ACCORDANCE WITH INTERNATIONAL ACCOUNTING STANDARDS AND INTERNATIONAL FINANCIAL

REPORTING STANDARDS;







ATTACHMENT 4: UNAUDITED FINANCIAL STATEMENTS AS AT 30.06.2010;

ATTACHMENT 5: UNAUDITED INCOME STATEMENT WITH COMMENTS AS AT 30.09.2010;

ATTACHMENT 6: PROGRAM OF MEASURES AND ACTIVITIES OF THE BUSINESS POLICY AND

FINANCIAL PLAN OF KOMERCIJALNA BANKA AD SKOPJE FOR 2010 AND

ATTACHMENT 7: DEVELOPMENT PLAN OF KOMERCIJALNA BANKA AD SKOPJE WITH FINANCIAL

PROJECTIONS FOR THE PERIOD 2010-2014.

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1. PERSONS RESPONSIBLE

0.1. Data about the persons responsible for the information contained in the prospectus

Members of the Board of Directors of Komercijalna Banka AD Skopje: 1. Hari Kostov – Chief Executive Officer 2. Ilija Iloski – Chief Operative Officer 3. Maja Stevkova Sterieva – Chief Financial Officer Members of the Supervisory Board of Komercijalna Banka AD Skopje: 1. Sava Dimitrova – President 2. Taki Fiti – Vice President 3. Zvone Taljat – Member 4. Kiyoshi Nishimura – Member 5. Aleko Angelovski – Independent member 6. Simon Naumoski – Independent member

0.2. Statement given by all aforementioned responsible persons

“Pursuant to our assurance and knowledge and in accordance with the data available to us, under moral, material and criminal responsibility, we hereby state that the Prospectus contains all the data needed to the investor to make a proper decision regarding investment in securities that are subject of this offer; that the disclosed data are true and corresponds to the actual state of the Company and that no data that could have influence on the decision for investing or non-investing in the securities that are subject of the offer have been missed out.”

Members of the Board of Directors: Members of the Supervisory Board: Hari Kostov – Chief Executive Officer ________________________

Sava Dimitrova – President ________________________

Ilija Iloski – Chief Operative Officer ________________________

Taki Fiti – Vice President ________________________

Maja Stevkova Sterieva – Chief Financial Officer ________________________

Zvone Taljat – Member ________________________

Kiyoshi Nishimura – Member ________________________ Aleko Angelovski – Independent member ________________________

Simon Naumoski – Independent member ________________________

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2. INFORMATION ON AUTHORIZED SECURITIES MARKET PARTICIPANT THAT PREPARED THE PROSPECTUS

Komercijalna Banka AD Skopje Kej “Dimitar Vlahov” No. 4, 1000 Skopje, R. Macedonia (hereinafter referred to as: the Bank or the issuer)

3. AUDITOR INFORMATION

3.1. Name and head office of audit companies that audited the financial

statements of the company over the preceding three years PricewaterhouseCoopers AUDIT DOO, bul. Oktomvriska revolucija bb. Hiperium business centre, 2nd floor, 1000 Skopje, Republic of Macedonia performed the audit of the financial statements for years 2007, 2008 and 2009.

3.2. Information on the reasons behind the change in the audit company over the preceding three years The audit company was not changed in the recent three years.

4. RISK FACTORS

4.1. Information on risk factors specific for the issuer and its industrial

sector In its operation the Bank is exposed to a variety of risks. Therefore, the Bank’s main objective is adequate management thereof. The efforts to maintain adequate balance between acceptable level of risk from one, and stability and profitability from the other side are permanent. The most significant types of risks are:

� credit risk (risk that a counterparty will not be able to pay amounts

partially or in full when due);

� liquidity risk;

� market risk, which includes:

• risk from change of the interest rates in the portfolio of banking activities;

• currency risk;

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• other market risks;

• operational risk (which includes the legal risk).

Equally, the Bank monitors the reputation risk and strategic risk.

According to the Bank’s risk management policies, which include a set of respective limits and risk controls, specific risks are identified, current risks are monitored and analyzed on daily bases. We can say that the foregoing types of risks are characteristic for the entire banking system in the Republic of Macedonia. Komercijalna Banka AD Skopje makes efforts to manage the foregoing risks and restriction of the risk exposure through a set of policies and other internal acts.

4.2. Information on risk factors substantively relevant to the shares subject to offering, for the purposes of assessing the market risk related to such shares�

4.2.1. Credit risk

Credit risk of the Bank from an aspect as loan administrator – is a risk of loss for banks as a result of inability of the client to settle its liabilities, in the agreed amount and/or agreed terms. Within the procedure for credit risk management, pursuant to law regulative of the National Bank of Macedonia and internal acts, the Bank classifies balance sheet and off-balance sheet positions according to their risk level and establishes a level and amount for impairment loss and a special reserve for impairment of financial assets. Bank’s exposure to the credit risk as at 31.12.2009 is in amount of 63,544,366.00 thousand denars, for which impairment is allocated based on credit risk in amount of 4,697,016.00 thousand denars. As at 30.09.2010 exposure to the credit risk is in amount of 75,044,990.00 thousand denars for which impairment is allocated in amount of 5,188,334.00 thousand denars. For purposes of protection against the credit risk the Bank establishes collateral over property and movable things, securities, receivables and other rights, guarantees and money deposits. The established collateral with the Bank for protection against the credit risk as at 31.12.2009 is in amount of 56,248,248.00 thousand denars, with percentage coverage of 88.5%, and as at 30.09.2010 is in the amount of 64,817,390.00 thousand denars, with percentage coverage of 86.4%.

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The Bank follows the law regulated limit for capital adequacy and maintains it at the required level by law of 8%, and as at 31.12.2009 the capital adequacy ratio is 10.6% and as at 30.09.2010 is 11.3%. Credit risk of the Bank from an aspect as an issuer – credit risk represents a risk of Bank’s inability to settle its liabilities towards clients in the agreed amount and/or agreed terms, because of reasons such as financial weakness, bankruptcy procedure, liquidation procedure or similar. Taking into consideration that the sixth issue of shares of the Bank refers to issuance of ordinary shares, appropriately to the characteristics of this instrument described in the Prospectus, the credit risk from an aspect as an issuer is not a factor of risk with material significance.

4.2.2. Liquidity risk

Liquidity risk is the risk that the Bank will not be able to settle its current liabilities when they fall due, or to provide the necessary proceeds at pretty higher costs. Liquidity or ability to finance increase of assets and to settle the liabilities when they are due is important for every banking institution. For performing financial activities it is necessary for the bank to sustain an adequate liquidity level. The importance of liquidity management for the bank it is reflected from the aspect of systematic consequences which liquidity deficiency can cause. From this reasons, liquidity management and liquidity risk is one of the Bank’s paramount activities. The Bank has established the Policy for undertaking and managing the liquidity risk and Procedures for identification, undertaking, measuring, monitoring and control of the liquidity risk, where the activities which the Bank is undertaking in order for successful management and protections against liquidity risk are defined. Qualitative and quantitative information about the liquidity risk are presented in the Notes to the financial statements (for 2007 – Attachment 1; for 2008 – Attachment 2 and for 2009 – Attachment 3).

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4.2.3. Market risk

4.2.3.1. Risk from change of the interest rates in the portfolio of banking activities

�Risk from change of the interest rates in the portfolio of banking activities is a risk of loss arising from unfavorable changes of the interest rates, which affect the positions in the portfolio of banking activities of the Bank.

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Exposure to the risk from change of the interest rates in the portfolio of banking activities is a risk of loss of net interest income, and in long term could have a negative effect on the maintaining the capital value and profitability. The Bank has established the Policy for undertaking and managing the interest rate risk in the portfolio of the banking activities and Procedures for identification, undertaking, measuring, monitoring and control of the interest rate risk in the portfolio of the banking activities, where the activities which the Bank is undertaking in order for successful management and protections against interest rate risk in the portfolio of the banking activities are defined. Qualitative and quantitative information about the rosk from change of the interest rates in the portfolio of the banking activities are presented in the Notes to the financial statements (for 2007 – Attachment 1; for 2008 – Attachment 2 and for 2009 – Attachment 3).

4.2.3.2. Currency risk

Currency risk is the risk of loss due to change of the exchange rates and/or change of the denar value in terms of the value of other currencies. Exposure of the Bank to the currency risk, which arises from the foreign positions or denar positions with a foreign clause, has a certain influence on Bank’s stability and profitability. The Bank has established Policy for undertaking and managing the currency risk and Procedures for identification, undertaking, measuring, monitoring and control of the currency risk, where the activities which the Bank is undertaking in order for successful management and protections against currency risk are defined. Qualitative and quantitative information about the currency risk are presented in the Notes to the financial statements (for 2007 – Attachment 1; for 2008 – Attachment 2 and for 2009 – Attachment 3).

4.2.3.3. Other market risk

Market risk is the risk of loss as a result of changed price of financial instruments for trading. Exposure to the market risk has a certain influence on Bank’s stability and profitability, which depends of the value, structure and movements in

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price of the financial instruments which are part of Bank’s trading portfolio. The Bank has established Policy for undertaking and managing the market risk and Procedures for identification, undertaking, measuring, monitoring and control of the market risk, where the activities which the Bank is undertaking in order for successful management and protections against market risk are defined. Qualitative and quantitative information about the market risk are presented in the Notes to the financial statements (for 2007 – Attachment 1; for 2008 – Attachment 2 and for 2009 – Attachment 3).

4.2.3.4. Operational (which includes the legal risk)

�Operational risk is the risk of loss as a result of: (a) inadequate or poor internal processes; (b) inadequate persons and inadequate or poor systems in the Bank; and (c) external events. The operational risk includes the legal risk. The legal risk means current or future risk for the profit and own funds of the Bank, caused by breach or disobeyance of the laws and by-laws, agreements, prescribed practices, ethical standards, or as consequence from the wrong interpretation of the regulations, rules, agreements and other legal documents. Management of the operational risk entails establishing and administering a rational policy for operational risk management, developing and application of adequate methodology for evaluation of operational risk, as well as establishing and application of control procedures. The Bank has established Policy for managing the operative risk, Procedures for identification, measuring, monitoring and control of the operative risk and Methodology for assessment of the operative risk and key indicators, where the activities which the Bank is undertaking in order for successful management and protections against operational risk are defined. Qualitative and quantitative information about the operational risk are presented in the Notes to the financial statements (for 2007 – Attachment 1; for 2008 – Attachment 2 and for 2009 – Attachment 3).

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5. ISSUER INFORMATION

5.1. Information on the issuer’s background and development

5.1.1. Issuer’s full name, company and head office (address and telephone number)

Komercijalna Banka AD Skopje with its Head Office at Kej “Dimitar Vlahov” No. 4, 1000 Skopje, Republic of Macedonia. Telephone number: +389 (2) 3125273; Fax No.: +389 (2) 3124064.

5.1.2. Date of registration in the Trade Register and unique identification number of the company

The number of the Register Court Decision is Sreg.No.2330 of 27.12.1989 and the number of the Trade Register Decision is Treg.No.388 of 17.05.2001. Current state of the legal entity from the ordinary trade register and the register of other legal entities is of 10.01.2011. Decision for issuing a license to establish Komercijalna Banka AD Skopje No.221 of 27.12.1989 from the National Bank of Yugoslavia. Decision for replacement of the license for founding and operating of Komercijalna Banka AD Skopje No. 02-14/627 of 23.12.2003. Decision for adjustment as per the Decision for issuing approvals and the Banking Law No. 2064 of 24.03.2008. Decision No. 5791 of 31.08.2010 on issuing previous approval to the Bank to perform financial activity “sale of stakes in investment funds”. The unique identification number of Komercijalna Banka AD Skopje is 4065573.

5.1.3. Date of incorporation of the company and the period for which the company has been incorporated for, unless incorporated for an indefinite time period

The date of foundation of the Bank as a shareholding company is 29.12.1989.

5.1.4. Legal form of the company and the laws governing its operations

Komercijalna Banka AD Skopje is organized as a shareholding company in accordance with the Companies Act.

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Komercijalna Banka AD Skopje operates pursuant to the Companies Act, Banking Law, Law on Securities, Law on Domestic Payment Operations, Law on International Payment Operations, Law on Obligation relations and all other laws and by-laws that are relevant for banking operation.

6. BUSINESS OVERVIEW

6.1. Main activities

6.1.1. Description of activities performed by the issuer defined by law, and information on the main categories of products and services sold over the preceding three financial years

The Bank is authorized to perform the following financial activities:

1. Accepting deposits and other repayable sources of funds;

2. Lending in the country, including factoring and financing commercial transactions;

3. Lending abroad, including factoring and financing commercial

transactions;

4. Issuance and administration of means of payment (payment cards, checks, traveller’s checks, bills of exchange);

5. Issuance of e-money, if regulated by special law;

6. Financial leasing;

7. Currency exchange operations;

8. Domestic and international payment operations, including

purchase and sale of foreign currency;

9. Fast money transfer;

10. Issuance of payment guarantees, backing guaranties and other forms of collateral;

11. Lease of safe deposit boxes, depositories and depots;

12. Trade in instruments on the money market (bill of exchange,

checks, deposit certificates);

13. Trade in foreign assets, including trade in precious metals;

14. Trade in securities;

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15. Trade in financial derivatives;

16. Asset and securities portfolio management on order and for the account of clients;

17. Providing services of a custodian bank;

18. Purchasing and selling, underwriting and placement of

securities issue;

19. Intermediation in sale of insurance policies;

20. Intermediation in concluding credit and loan agreements;

21. Processing and analyzing information on the legal entities' creditworthiness;

22. Economic and financial consulting;

23. Other financial services specified by law.

Main categories of services and products sold in the last three financial years.

• Accepting deposits and other repayable sources of funds;

• Lending in the country, including factoring and financing commercial transactions;

• Lending abroad, including factoring and financing commercial transactions;

• Issuance and administration of means of payment (payment cards, checks, traveller’s checks, bills of exchange);

• Currency exchange operations;

• Domestic and international payment operations, including purchase and sale of foreign currency;

• Issuance of payment guarantees, backing guaranties and other forms of collateral;

• Lease of safe deposit boxes, depositories and depots;

• Trade in instruments on the money market (bill of exchange, checks, certificates of deposit);

• Trading with foreign assets, including trade in precious metals;

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• Trading with securities;

• Providing services of a custodian bank;

• Intermediation in sale of insurance policies;

• Intermediation in concluding credit and loan agreements;

• Economic and financial consulting;

6.1.2. Information on introducing a new important product or service, i.e. launching a new activity

6.1.2.1. New products and services:

�• Introduction of new functionalities in the e-banking –

alternative channel for distribution of bank products and services: Internet, mobile banking (SMS, Internet) and e-mail:

• Realization of the project on business intelligence, as more sophisticated model of Management Information System and the systems for external institutions informing;

• In the domain of cards operations, introduction of new cobranding cards in cooperation with respectable companies – clients of the Bank, issuing other cards from the premium segment, introducing additional privileges and facilities for all cardholders, introducing new chip technology, introducing E-commerce for payments with VISA cards, additional ATM functionalities, Pin and TopUp replacement (payment for credit on mobile phones), payment of bills and alike, introducing contactless payment technology in cooperation with MasterCard and VISA for small and quick payments, introducing pre-paid technology, as well as different financial kiosks, implementation of the new module for monitoring and control of transactions in order to enhance the security of card operation;

• More aggressive extension of the card acquiring network in order to provide complete coverage of the whole territory of the country. The Bank has planned to install ATMs in all residential areas having over 20,000 population, as well as installation of ATMs with legal entities – Bank’s clients where the employees receive their salaries on bank cards. In addition, the Bank has planned completion of ATMs branding (branding with the logo of the Bank and logos of the brands of cards acquired by installing light advertisements over the ATMs, in order to make them more transparent);

• In the domain of marketing communications the Bank shall organize campaigns in order to keep its corporative image, as

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well as promotional campaigns for VISA cards, for the new functionalities of the ATMs and for the standing order services and SMS banking, for introduction of chip technology of the Bank’s cards, respective promotional support to introducing personal bankers and mobile bankers in operation with specially segmented groups of clients, realization of one or two promotional campaigns for the products intended for citizens etc.;

• Offering services from the domain of investment banking operations, such as: capital market research, advising clients at issuance and trading with securities, portfolio management, management of the portfolio of the Bank’s securities, advice-giving and organization and preparation of documentation for the issuance of securities, undertaking risk at realization of new issue, financing projects and special transactions etc.;

• In conditions of increased competition and yet unrestored optimism of the investors, the Bank shall try to keep the existing clients and to increase the number of new large clients of the type of Global custodians, offering service which pursuant to the regulations and conditions in the Republic of Macedonia shall be adjusted with the international standards and the established business practice in this segment of operation;

• Development of new service as intermediary in settlement of the realized transactions of purchasing foreign securities for private investment funds.

Pursuant to the Decision on risk management, when introducing any new product or system, the Bank is obliged to make documentary analysis which includes: description of risks arising from introduction of a new product or system, analysis of the impact of the new product or system on the capacity of the Bank to undertake risks, analysis of the impact of the new product or system on the risk management by the Bank. Prior to introducing a new product or system in the Bank, all necessary consultation with other competent organization parts should be made (e.g. organization part from the domain of law, accounting and monitoring compliance of the Bank with regulations). New products that could have significant influence on the risk profile of the Bank shall be approved by the Supervisory Board.

6.1.2.2. New activities

�• New share issue that would provide capital adequacy rate

corresponding to the planned credit activities;

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• As per the objectives of the business policy of the Bank, if the shareholders of Komercijalna Banka provide control package of shares and set appropriate parameters, the Bank’s management shall undertake appropriate measures and activities to attract a potential strategic investor that should fulfill the conditions defined by the consortium of the Bank’s shareholders, as follows:

- to be a bank with a renowned international brand;

- the offer should reflect the real value of the shares of

Komercijalna Banka AD Skopje and

- to present a strategic plan for the future development of the Bank.

6.2. Markets of business of the issuer

Komercijalna Banka AD Skopje performs its activities in an ambient characteristic for the overall activity in the country. It is prospected that the Bank’s operation in the forthcoming period shall be carried out in sustained macroeconomic stability. The stable macroeconomic ambient would be supported by maintenance of the price stability, so that the average annual inflation rate would be from 2% to 3%. The Central Bank shall keep on applying the monetary strategy of targeting the nominal denar exchange rate in relation to the euro. Regarding the general level of economic activity, real GDP growth of 3,5% is projected for 2011. The intensified process of recovery of the world economy and Euro-Atlantic integration of the Republic of Macedonia by 2014 should make the Macedonian economy return on the way for faster economic growth of about 5%. In 2010, the Central Bank commenced to relax the monetary policy, decreasing the T-bill rate from 9% to 5%. As a consequent of more optimistic perceptions for economic movements in the country, especially in the second half of the year, increased lending activity of the banking sector is prospected, whereas the annual rate of growth of the total loans should be 12,1%. The main resources for lending activity shall be used from the deposit base, supported by funds of the foreign credit lines, such as the credit line of the European Investment Bank. Yet, there are risks existing regarding the projected monetary and credit activities, which are mostly declining. Prospects for further growth of lending are mainly conditioned by realization of the assumption for continuity in recovery of the domestic and global economy. This assumption has effects on fulfillment of the projections for source of financing of banks, as well as for risk identification by banks. Movements in the previous two years showed that considerations and prospects of banks for future economic trends have a significant role in running the credit policy. Possible lower realizations of

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the real sector would have direct impact on the financial statement of enterprises and citizens, and consequently on the quality of the credit portfolios of banks and their risk identification. Taking into account that banks shall also be led by the need of keeping stability and safety in assets management in future, this could lead to lending activities lower than the planned ones1.

7. ORGANIZATIONAL STRUCTURE

�7.1. If the issuer is a part of a group (complex business system), a short

description of the issuer’s position in that group The issuer is not part of a bank group (complex business system). At the same time, the issuer has investment in subsidiaries and affiliates not subject to consolidation, pursuant to the Decision for consolidated supervision issued by the National Bank of the Republic of Macedonia (Official Gazette of RM No. 17/2008) and therefore, together they do not represent a group. Given below is a table for the percentage share in ownership and voting rights of the subsidiaries and affiliates.

Name of subsidiaries and affiliates

Country

Percentage of share in ownership

Percentage of voting right

Current year 2009

Previous year 2008

Current year 2009

Previous year 2008

KB Prvo Penzisko Drustvo AD Skopje

R. Macedonia 49,00% 49,00% 49,00% 49,00%

KB Publikum Invest AD Skopje

R. Macedonia 50,00% 50,00%

Detailed information of investment in subsidiaries and affiliates are given in the Notes to the audited financial statements (for 2007 – Attachment 1, for 2008 – Attachment 2 and for 2009 – Attachment 3).

8. TRENDS

The most important developments relating to the issuer’s business that could substantively affect the issuer’s perspectives over the preceding financial year, and to the date of preparing the prospectus

• Pursuant to decreasing of the interest rate on the Treasury bills by the National Bank of the Republic of Macedonia, as well as for compliance with the extent of the loan interest rates for citizens with maximal allowed interest rate, pursuant to the Law on Obligation relations, Komercijalna Banka AD Skopje has lowered all loan interest rates which were over 13%, thus relaxing the lending conditions and increasing the lending activity to clients-individuals;

• Intensive expansion of network of ATMs and their installment especially in those towns where the Bank does not have its city-branch or branch,

��1 Source of data: Development Plan of Komercijalna Banka AD Skopje with financial projections for the

period 2010-2014, and Projections of monetary policy for 2011. The data contained in the Development Plan of the Bank for the period 2010-2014 are not audited by an authorized auditors.

�

17

�

in each newly opened city-branch, as well as in the companies having a sizeable number of cards;

• Continuous expansion of branch and city-branch network of the Bank;

• Further increase of the number of issued debit and credit cards, especially the new Visa Electron debit cards, as well as the new types of credit cards Visa Classic Revolving and Visa Classic Standard for individuals and Visa Business Revolving cards for legal entities. There is growth also noticed for the Gold Visa cards – Visa Gold Revolving and Visa Gold Standard;

• In the previous period, the first e-commerce transactions were exercised, so that in the pilot phase the first merchant was open with option to acquire with MasterCards on Internet. During this period, the Bank obtained the license for acquiring chip cards of the brands of MasterCard on POS terminals of the Bank. Procurement of modules for protection against misuse of cards is in progress;

• In order to increase the use of cards in trading as well as improvement of market share in this segment, the bank organized a winning game for all holders of VISA debit and credit cards with the slogan “Use your Visa card of Komercijalna Banka AD Skopje and win journey to FIFA World Cup 2010”;

• In the course of the year the whole concept of payment from transaction accounts by standing order was changed. The Bank made out new types of standing orders, tested and implemented application solutions for opening, closing and collection of different types of standing orders;

• Widening the offer with new services for legal entities through the Internet Bank, such as: Payment abroad through Internet Bank and sending advice (SWIFT message) for executed payment abroad by e-mail;

• Activities for the conduct of the Project for implementation of the Bank Business Intelligence Integral System;

• Development of the function of a bank custodian/deposit bank for pension/investment funds registered in the Republic of Macedonia and modification and improvement of the bank’s services as a bank custodian for non-residents (local bank custodian).

9. PROFIT FORECASTING – optional

The Bank’s Assembly at its meeting held on 24.03.2010 adopted the Development Plan of Komercijalna Banka AD Skopje, with financial projections for the period 2010-2014 (Attachment 7). This document contains planned Balance Sheet and Income Statement for the period 2010-2014, however, the Bank did not ask for the opinion of an authorized auditor which would confirm the correctness of the projections and their compliance with the accounting procedures of the Bank.

�

18

�

10. ISSUER’S BODIES

�Detailed data on the persons – members of the Supervisory Board, Risk Management Committee, Audit Committee, Board of Directors, Credit Committee and IT Supervision Committee of Komercijalna Banka AD Skopje are given below:

�- Members of the Supervisory Board:

10.1. Name and surname and date of birth

Sava Dimitrova – 13.10.1949

Business address 808 Str., No. 8, Skopje, Gazi Baba

The function carried out with the issuer

President of the Supervisory Board; Member of the Audit Committee

Data on the most significant activities of these persons outside the activities carried out with the issuer (if those activities are important for the issuer)

General Manager of AD Factory Evropa Skopje

10.2.

Data on the nature of any relation of the person with other members of the Supervisory Board, Risk Management Committee, Audit Committee, Board of Directors and other bodies regulated by the Statute (Credit Committee, etc.)

There is no relation with other members of the Supervisory Board, Risk Management Committee, Audit Committee, Board of Directors and other bodies regulated by the Statute (Credit Committee, etc.)

10.3. Detailed data

10.3.1. Data on the relevant managerial and professional working experience

1973 – 1979 AD Factory Evropa Skopje

Production Controller


Production Manager


General Manager

1991 – AD Factory Evropa Skopje

President of the Board of Directors

10.3.2.

Names of the companies where the person is member of the Board of Directors or the Supervisory Board or is founder or shareholder at any time during the last five years, and data whether the person is still or is not any more member or founder or shareholder

Member of the Board of Directors of AD Factory Evropa Skopje and shareholder of AD Factory Evropa Skopje

10.3.3.

Data whether the person had been member of Board of Directors or Supervisory Board of any legal entity against which bankruptcy, pre-bankruptcy or liquidation procedure has been initiated within the last five years

The person had not been member of Board of Directors or Supervisory Board of any legal entity against which bankruptcy, pre-bankruptcy or liquidation procedure has been initiated within the last five years

�

19

�

10.3.4.

Data whether the person had been sentenced any security measure or ban for conducting profession, business activities or duties for certain profession which is partially or completely covered by the subject of the business activity of the issuer during the last five years (including when it had been sentenced and the duration thereof)

The person had not been sentenced any security measure or ban for conducting profession, business activities or duties for certain profession which is partially or completely covered by the subject of the business activity of the issuer during the last five years

10.3.5.

Data whether the person has own participation in the equity capital of the issuer and in the voting structure of the issuer, including data on the extent of such participation

230 ordinary shares


Taki Fiti – 07.11.1950

Business address

“Ss Cyril and Methodius” University, Faculty of Economics, Blvd Krste Misirkov bb, Macedonian Academy of Sciences and Arts, Blvd Krste Misirkov No. 2, Skopje


Vice President of the Supervisory Board; Member of the Audit Committee


Member of the Academy, Professor at the Faculty of Economics at “Ss Cyril and Methodius” University Skopje

10.2.


There is no relation with other members of the Supervisory Board, Risk Management Committee, Audit Committee, Board of Directors and other bodies regulated by the Statute (Credit Committee, etc.).

10.3. Detailed data


1974 - 1983

“Ss Cyril and Methodius” University, Faculty of Economics, Skopje

Assistant

1983 – 1988


Assistant Professor

1988 – 1993 “Ss Cyril and Methodius”

Associate Professor

�

20

�

University, Faculty of Economics, Skopje

1993 – 1996


Full Professor

1996 – 1998 Government of the Republic of Macedonia

Minister of Finance

1998 – 2007


Full Professor

10.3.2.


Until July 2007 – member of the Supervisory Board of Makosped

10.3.3.



10.3.4.



10.3.5.


112 ordinary shares


Aleko Angelovski - 06.12.1938

Business address


Independent member of the Supervisory Board; Member of the Audit Committee

�

21

�


Does not carry significant activities outside the activities carried out with the issuer

10.2.



10.3. Detailed data


1969 – 1972 AD Factory Karpos Head of Laboratory

1972 – 1978 AD Factory Karpos Head of Technical Control

1978 – 1988 AD Factory Karpos Production Manager

1988 – 2007 AD Factory Karpos General Manager

10.3.2.


Until 31.12.2006 – member of the Board of Directors of AD Factory Karpos

10.3.3.



10.3.4.



10.3.5.


200 ordinary shares

�

22

�


Simon Naumoski - 21.10.1941

Business address


Independent Member of the Supervisory Board



10.2.



10.3. Detailed data


1964 – 1968 Factory “Partizan”

1968 – 1968 Factory “8 November”

��

1968 – 1970 Chemical High School “Borka Taleski”

Professor

1970 – 1974 Factory “Paertizan” Technical Manager

1974 – 1990 Factory “Vitaminka" AD Prilep

General Manager

1990 – 1990 Federal Assembly of former SFRY

Delegate of RM

1990 – 2007 Factory “Vitaminka" AD Prilep

General Manager

10.3.2.


The person is: - member of the Board of Directors of PI Vitaminka AD Prilep; - member of the Board of Directors of the Economic Chamber of RM; - member of the Board of Directors of Vedrina Prilep; - member of the Board of Directors of Vedrina 2, Belgrade; - member of the Board of Directors of GS1 Macedonia and - shareholder of PI Vitaminka AD Prilep

10.3.3.



10.3.4. Data whether the person had been sentenced any security

The person had not been sentenced any security measure or ban for conducting

�

23

�

measure or ban for conducting profession, business activities or duties for certain profession which is partially or completely covered by the subject of the business activity of the issuer during the last five years (including when it had been sentenced and the duration thereof)

profession, business activities or duties for certain profession which is partially or completely covered by the subject of the business activity of the issuer during the last five years

10.3.5.


The person does not have own participation in the equity capital and in the voting structure of the issuer


Zvone Taljat - 14.07.1950

Business address Mikloši�eva cesta 38, Ljubljana, Slovenia


Member o fthe Supervisory Board


Does not carry significant activities in Republic of Macedonia outside the activities carried out with the issuer

10.2.



10.3. Detailed data


1987 – 2004 Odvetniska Druzba Taljat, Tratnik, Socan

Manager of law firm

1996 – 2000

Ljubljanska borza d.d., Slovenska cesta 56, 1000 Ljubljana, Slovenia

Member of the Supervisory Board

1998 – 2002

Lek d.d. Verovškova 57, 1000 Ljubljana, Slovenia


2002 – 2005

Metals-Banka AD Novi Sad, Stražilovska 2, 21000 Novi Sad, Srbija


�

24

�

2002 - DDOR osiguranje AD Novi Sad, Srbija


2002 -

Publikum Holding

d.o.o., Miklosiceva

c. 38, 1000

Ljubljana, Slovenia

Manager

2007 -

Privredna banka Beograd AD, Bulevar kralja Aleksandra 70, Beograd, Srbija


10.3.2.


- Publikum Holding d.o.o. – Manager; - Publikum d.d. – President of the Supervisory Board; - Publikum PDU Nalozbe d.d. – Member of the Supervisory Board; - Lesnina d.o.o. – Member of the Supervisory Board; - Alta Skupina d.d. – Member of the Board of Directors; - Privredna banka Beograd AD – Member of the Board of Directors and shareholder; - Lucrator d.o.o. – Manager, Member of the company; - DDOR osiguranje AD – Member of the Board of Directors; - DDOR banka AD – Member of the Board of Directors; - Kovinar – Gradnje ST d.o.o. – Member of the company;

10.3.3.



10.3.4.



10.3.5.



�

25

�


Kiyoshi Nishimura - 28.03.1956

Business address One Exchange Square, London EC2A 2JN, United Kingdom




Does not carry significant activities in Republic of Macedonia outside the activities carried out with the issuer

10.2.



10.3. Detailed data


April 1979 – June 1988 Export – Import Bank of Japan

Assistant Manager / credit officer

July 1988 – June 1991 IMF Economist

July 1991 – September 1994 Export – Import Bank of Japan

Senior Economist

October 1994 – January 2001

Japan Bank for International Cooperation (JBIC)

Manager

February 2001 – June 2004

European Bank for Reconstruction and Development (EBRD)

Senior Banker

July 2004 – April 2008 Japan Bank for International Cooperation (JBIC)

General Manager

April 2009 – January 2010


Acting Director

April 2008 –


Senior Banker

10.3.2.


Member of the Board of Directors of Belorussian Bank for small enterprises

�

26

�

10.3.3.



10.3.4.



10.3.5.



- Members of the Risk Management Committee;


Hari Kostov - 13.11.1959

Business address Kej Dimitar Vlahov No. 4, Skopje


Chief Executive Officer; President of the Board of Directors; President of the Risk Management Committee



10.2.



10.3. Detailed data


july 1983 – January 1986 Government of RM Expert

February 1986 – August 1988 Government of RM Advisor

�

27

�

September 1988 – February 1994

Government of RM

Advisor to the Prime Minister on the economy system and economic policy

February 1994 – August 1995 Ministry of Finance Vice Minister of Finance

August 1995 – October 1996 World Bank, USA Assistant to the Chief Executive Officer

October 1996 – October 2002 Komercijalna Banka AD Skopje

General Manager

November 2002 – June 2004 Ministry of Interior Minister of Interior

June 2004 – December 2004 Government of RM Prime Minister

December 2004 – March 2008 Komercijalna Banka AD Skopje

First General Manager

March 2008 - Komercijalna Banka AD Skopje

Chief Executive Officer; President of the Board of Directors

10.3.2.


The person had not been member of Board of Directors or Supervisory Board or founder or shareholder at any time during the last five years

10.3.3.



10.3.4.



10.3.5.


4.000 ordinary shares

�

28

�


Maja Stevkova Sterieva -10.12.1970

Business address Kej Dimitar Vlahov No. 4, 1000 Skopje


CFO; Member of the Board of Directors; Vice President of Risk Management Committee; Vice President of Credit Committee



10.2.



10.3. Detailed data


Ocober 1993 – July 1994 Komercijalna Banka AD Skopje

Apprentice

August 1994 – October 1998 Komercijalna Banka AD Skopje

FX assets and liquidity Unit Officer

November 1998 – July 1998 Komercijalna Banka AD Skopje

Senior Officer at Assets, Liquidity, FX market and Securities Department

August 1998 – August 1999 Komercijalna Banka AD Skopje

Senior Officer at Planning and Analyses Department


Komercijalna Banka AD Skopje

Coordinator at Business Policy Division

March 2001 – February 2002 Komercijalna Banka AD Skopje

Senior Coordinator at Business Policy Division

March 2002 – August 2005 Komercijalna Banka AD Skopje

Risk Management Department Manager

September 2005 – April 2008 Komercijalna Banka AD Skopje

Risk Management and Planning Division Manager

April 2008 - Komercijalna Banka AD Skopje

BD Member, CFO

10.3.2.

Names of the companies where the person is member of the Board of Directors or the Supervisory Board or is founder


�

29

�

or shareholder at any time during the last five years, and data whether the person is still or is not any more member or founder or shareholder

10.3.3.



10.3.4.



10.3.5.


26 ordinary shares


Suzana Moskovska -29.03.1960

Business address Kej Dimitar Vlahov 4, 1000 Skopje


Manager of the Liquidity and Financial Market Division; Member of the Risk Management Committee; Member of the Credit Committee.



10.2.



10.3. Detailed data


�

30

�

17.01.1983 – 01.06.1985 Komercijalna Banka AD Skopje

Apprentice, Junior Officer


Officer


Senior Officer for relarions with merchants


Senior Customers Relationship Officer


Head of Denar Assets and Liquidity Unit


Liquidity and Backup Operations Department Manager

03.05.2005 – Komercijalna Banka AD Skopje

Liquidity and Financial Market Division Manager

10.3.2.


Up to May 2008 – member of the Supervisory Board of the Insurance Company QBE Makedonija AD Skopje

10.3.3.



10.3.4.



10.3.5.


332 ordinary shares

�

31

�


Biljana Maksimovska Popovik - 03.12.1973



Corporate Lending Division Manager; Member of Risk Management Committee; Member of Credit Committee



10.2.



10.3. Detailed data


September 1997 – June 2000 Komercijalna Banka AD Skopje

Credit Officer at Construction and Transport Department

June 2000 – December 2002 Komercijalna Banka AD Skopje

Senior Officer at Corporate Lending Division

December 2002 – June 2003 Komercijalna Banka AD Skopje

Coordinator at Corporate Lending Division

June 2003 – January 2007 Komercijalna Banka AD Skopje

Lending to Industry Sector Department Manager

January 2007 - Komercijalna Banka AD Skopje

Corporate Lending Division Manager

10.3.2.



10.3.3.





�

32

�



10.3.5.


31 ordinary shares


Teodora Guskova Prodanova - 17.06.1968



Legal Affairs, Problem Loans Workout and Managing Division Manager; Member of Risk Management Committee; Member of IT Supervision Committee



10.2.



10.3. Detailed data


January 1987 – October 1989

Termovent Beograd, Representative Office Skopje

Secretary

July 1992 – January 1994 Elektrovodomont Skopje and Zito Makedonija Skopje

Legal Affairs Officer

January 1994 – May 1997

Asiba MG Skopje – exclusive importer for VW, Audi and Porshe in Macedonia

Sales Manager for Audi and Porsche

May 1997 – November 1997 Automobile SK – importer of Fiat in Macedonia

Sales and Marketing Executive Manager

�

33

�

January 1998 – October 1998 Asiba ING DOO, Skopje

Executive Manager

November 1998 – June 2002 Komercijalna Banka AD Skopje

International Credit-Guarantee Department Officer

June 2002 – December 2004 Komercijalna Banka AD Skopje

Head of Internal Control and Inspection Unit

December 2004 – December 2006


Advisor to the Legal Affairs, Problem Loans Workout and Managing Division Manager

January 2007 – Komercijalna Banka AD Skopje

Legal Affairs, Problem Loans Workout and Managing Division Manager

10.3.2.



10.3.3.



10.3.4.



10.3.5.


305 ordinary shares

�

34

�

- Members of the Audit Committee


Sava Dimitrova – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.;

10.3.3.; 10.3.4. and 10.3.5. are given above)


Taki Fiti – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.; 10.3.3.; 10.3.4. and 10.3.5. are given above)


Aleko angelovski – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.;



Blazo Nedev - 24.03.1948

Business address Blvd Krste Misirkov bb


President of the Audit Committee


Professor at the Faculty of Economics, “Ss Cyril and Methodius” University, Skopje

10.2.



10.3. Detailed data


November 1971 –


Full Professor – Managing Accounting and International Accounting, Faculty of Economics, Skopje Head of Accounting and Audit Department

�

35

�

10.3.2.



10.3.3.



10.3.4.



10.3.5.




Marjan Andonov - 18.11.1961

Business address Mito Hadzivasilev Jasmin No. 52 c. 1/7 Skopje


Vice president of the Audit Committee


Grand Thronton, Partner and authorized Auditor responsible for planning, organization, allocation and supervision of different auditing projects, customers relations and preparation of audited financial statements

10.2.



�

36

�

10.3. Detailed data


June 1986 – February 1996 Zito Luks AS Skopje

Senior Officer – finance operations

March 1996 – December 1999 Deloitte&Touche, ��

Supervisor

January 2000 – May 2003

MBC Excel, Representing Arthur Andersen in Macedonia, Skopje

Manager, Partner, responsible for planning, organization, allocation and supervision of different auditing projects, customers relations and preparation of audited financial statements

June 2003 – Grant Thornton, ��

Partner and authorized Auditor responsible for planning, organization, allocation and supervision of different auditing projects, customers relations and preparation of audited financial statements

10.3.2.



10.3.3.



10.3.4.

Data whether the person had been sentenced any security measure or ban for conducting profession, business activities or duties for certain profession which is partially or completely covered by the subject of the business activity of the issuer during the last five years


�

37

�

(including when it had been sentenced and the duration thereof)

10.3.5.


9 ordinary shares

�

�- Members of the Board of Directors:


Hari Kostov – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.; 10.3.3.; 10.3.4. and 10.3.5. are given above)


Ilija Iloski - 30.07.1958



COO; Member of the Board of Directors; President of the Credit Committee; Member of the IT Supervision Committee



10.2.



10.3. Detailed data


March 1984 – March 1995 EMO Ohrid

Finance Officer; Head of Finance Department; Finance Department Manager; Assistant General manager for Finance; Deputy General Manager; General Manager

March 1995 – December 1998

Customs Administration of the Republic of Macedonia

General Manager

�

38

�

December 1998 – September 2002

Assembly of the Republic of Macedonia

Member of the Parliament

September 2002 – March 2003 Appanage

March 2003 – December 2004 Macedonian Bank for Development Promotion

General Manager

December 2004 – March 2006

Customs Administration of the Republic of Macedonia

General Manager

March 2006 – July 2006 Appanage

July 2006 – March 2008 Komercijalna Banka AD Skopje

General Manager

March 2008 - Komercijalna Banka AD Skopje

COO; Member of the Board of Directors

10.3.2.


Shareholder of AD EMO Ohrid

10.3.3.



10.3.4.



10.3.5.


2.000 ordinary shares


Maja Stefkova Sterieva – (data of items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.; 10.3.3.; 10.3.4. � 10.3.5. . are given

above)

�

39

�

- Members of the Credit Committee:


Ilija Iloski – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.; 10.3.3.; 10.3.4. and 10.3.5. are given above)


Maja Stevkova Sterieva – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.;



Biljana Maksimovska Popovik – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.; 10.3.3.; 10.3.4. and 10.3.5. are

given above)


Suzana Moskovska – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.;



Gabriela Stojanovska - 24.01.1974



Retail Banking Division Manager; Member of Credit Committee; Member of the IT Supervision Committee



10.2.



10.3. Detailed data


February 1997 – September 1997

M&M – International forwarding agency

Officer

September 1997 – September 2003


Credit Officer

September 2003 – November 2004


Lending to Citizens Department Manager

�

40

�

November 2004 – May 2006 Komercijalna Banka AD Skopje

Advisor in the Retail Banking Division

May 2006 – October 2006 Komercijalna Banka AD Skopje

Bank Cards and Current Accounts Department Manager

October 2006 – Komercijalna Banka AD Skopje

Retail Banking Division Manager

10.3.2.



10.3.3.



10.3.4.



10.3.5.


16 ordinary shares

- Members of the IT Supervision Committee:


Igor Bislimovski - 02.06.1972



Responsible for IT System Security; Member of the IT Supervision Committee

Data on the most significant activities of these persons outside the activities carried out


�

41

�

with the issuer (if those activities are important for the issuer)

10.2.



10.3. Detailed data


01.10.1997 – 28.02.1998 InetX �� IT service officer

01.11.1998 – 01.04.2002 Payment Operations Office

Database Administrator


Administrator – IT Division

01.12.2005 - Komercijalna Banka AD Skopje

Responsible for IT System Security

10.3.2.



10.3.3.



10.3.4.



10.3.5.



�

42

�


Ilija Iloski – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.; 10.3.3.; 10.3.4. and 10.3.5. are given above)

��


Zorica Cherepnalkoska - 05.09.1968



IT Division Manager; Member of the IT Supervision Committee



10.2.



10.3. Detailed data


May 1991 – August 1993 Software Company Grnarov

Computer Program Officer

September 1993 – March 1994 Jugobanka Computer System Program Officer

April 1994 – May 1999 Komercijalna Banka AD Skopje

Senior Computer Program Officer

June 1999 – October 2000 Komercijalna Banka AD Skopje

Senior Coordinator

November 2000 – January 2004 Komercijalna Banka AD Skopje

IT Department Manager

February 2004 – Komercijalna Banka AD Skopje

IT Division Manager

10.3.2.



10.3.3.



�

43

�

10.3.4.



10.3.5.


170 ordinary shares

��


Nikolcho Petrov - 04.12.1964



Infrastructure Support Department Manager; Member of the IT Supervision Committee



10.2.



10.3. Detailed data


1990 – 1995 Komercijalna Banka AD Skopje

Computer Program Officer


Computer System Organizer


Head of Unit


Senior Coordinator

2004 – Komercijalna Banka AD Skopje

Infrastructure Support Department Manager

�

44

�

10.3.2.



10.3.3.



10.3.4.



10.3.5.


18 ordinary shares

��


Vesna Tashkovska - 14.03.1966



Software Development and Maintenance Department Manager; Member of the IT Supervision Committee



10.2.



�

45

�

10.3. Detailed data


June 1990 – 1996 Komercijalna Banka AD Skopje

Senior Computer Program Officer, IT Division

1996 – July 2001 Komercijalna Banka AD Skopje

Coordinator, IT Division

July 2001 – February 2004 Komercijalna Banka AD Skopje

Head of Software Maintenance and Operative Activities Unit

February 2004 – Komercijalna Banka AD Skopje

Software Development and Maintenance Department Manager

10.3.2.



10.3.3.



10.3.4.



10.3.5.


20 ordinary shares

��

�

46

�

�


Teodora Guskova Prodanova – (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.; 10.3.3.; 10.3.4. and 10.3.5. are

given above)


Gabriela Stojanovska– (the data under items 10.1.; 10.2.; 10.3.; 10.3.1.; 10.3.2.;


��


Irena Zivkovik Zareva - 17.11.1971



Management and Informing Department Manager; Member of the IT Supervision Committee



10.2.



10.3. Detailed data


June 1995 – February 2000 Ministry of Finance Advisor, International Finances Division

February 2000 – September 2003

Ministry of Finance Advisor to the Minister of Finance



Coordinator, Legal Affairs, Problem Loan Workout and Managing Division

February 2004 - Komercijalna Banka AD Skopje

Management and Informing Department Manager

10.3.2.

Names of the companies where the person is member of the Board of Directors or the Supervisory Board or is founder or shareholder at any time during the last five years, and data whether the person is still

Member of the Supervisory Board of KB Prvo drustvo za upravuvanje so zadolzitelni i dobrovolni penziski fondovi (First Company for Management of Obligatory and Voluntary Pension Funds) AD Skopje and shareholder in Toplifikacija AD Skopje

�

47

�

or is not any more member or founder or shareholder

10.3.3.



10.3.4.



10.3.5.



��


Biljana Blazevska - 27.07.1973



Advisor to the IT Division Manager; Member of the IT Supervision Committee



10.2.



10.3. Detailed data


September 1996 Faculty of Electrical Engineering, Ljubljana, Slovenia

Exchange Student

June 1997 – October 1997 Spec, S.A., Barcelona, Spain

Exchange Student

�

48

�

January 1998 – March 1998 Mak-Sistem Computer Program Officer

March 1998 – July 1999 Government of RM System Engineer

July 1999 – October 2000 Komercijalna Banka AD Skopje

Senior Computer Program Officer

November 2000 – November 2001


IT Coordinator

November 2001 – February 2004


Head of Project for development and services

February 2004 – March 2010 Komercijalna Banka AD Skopje

Senior Coordinator, IT Division

March 2010 – Komercijalna Banka AD Skopje

Advisor to the IT Division Manager

10.3.2.



10.3.3.



10.3.4.



10.3.5.



��


Tatjana Leskaroska - 17.01.1976



Other Risks Management Department Manager; Member of the IT Supervision Committee

�

49

�



10.2.



10.3. Detailed data



Officer, International Division


Senior Officer, International Division


Senior Officer, Planning and Analyses Department


Senior Officer, Risk Management Department


Coordinator, Resk Management Division


Risk Management Department Manager

01.06.2008 - Komercijalna Banka AD Skopje

Other Risks Management Department Manager

10.3.2.



10.3.3.





�

50

�



10.3.5.


30 ordinary shares

��


Ana Madevska Bogdanova - 01.11.1967

Business address Gazi Baba Str., bb, 1000 Skopje


Member of the IT Supervision Committee


Assistant Professor at Ss Cyril and Methodius” University, Faculty of Natural Science and Mathematics, Skopje

10.2.



10.3. Detailed data


1991 – 1992 VHS Rade Jovcevski Korcagin

Teacher of mathematics

1992 - 2004

“Ss Cyril and Methodius” University, Faculty of Natural Science and Mathematics, Skopje

Assistant

2004 -

“Ss Cyril and Methodius” University, Faculty of Natural Science and Mathematics, Skopje

Assistant Professor

10.3.2. Names of the companies where the person is member of the

The person had not been member of Board of Directors or Supervisory Board

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Board of Directors or the Supervisory Board or is founder or shareholder at any time during the last five years, and data whether the person is still or is not any more member or founder or shareholder

of any legal entity against which bankruptcy, pre-bankruptcy or liquidation procedure has been initiated within the last five years

10.3.3.



10.3.4.



10.3.5.



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10.4. Conflict of interests among the members of the issuer’s bodies

10.4.1. Information on a potential conflict of interests between the business responsibilities of the members of the issuer’s bodies and their private interests or other responsibilities

There isn’t any potential conflict of interests in the responsibilities that the persons – members of the Bank’s managing bodies have with the Bank and their private interests or other responsibilities. The Bank has also made a separate internal act – Policy for elimination of conflict of interests, which defines the basic principles for elimination of any events of conflict of interests in the operation of the Bank. Pursuant to the law regulations and the internal acts, in case of any conflict of interests when considering actual decisions, agreements or activities, the members of the Bank’s bodies are providing written statement for the existence of conflict of interests and do not participate in the decision making, concluding the respective agreement or carrying out any business activity.

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11. EMPLOYEES

�11.1. Number of employees and qualification structure at the year end

in the preceding three years and changes as of the prospectus preparation date, and information on the geographic distribution of the employees

The number of employees according to the qualification structure:

No. Level of education As of 31.12.2007

As of 31.12.2008

As of 31.12.2009

As of 31.12.2010

1 Ph.D 1 1 1 3

2 MA 23 26 33 34

3 University graduate 401 462 477 485

4 Advance School graduate 89 88 86 81

5 High School-IV 638 619 610 587

6 High School-III 24 23 20 20

7 Elementary School 11 4 4 3

8 Qualified workers 0 1 0 0

�� 1,187 1,224 1,231 1,213

Data on geographic dispersion of the employees:

No. City As of 31.12.2007

As of 31.12.2008

As of 31.12.2009

As of 31.12.2010

1 Skopje 920 951 956 938

2 Prilep 95 90 89 85

3 Ohrid 33 31 30 29

4 Veles 13 14 14 14

5 Strumica 17 17 18 18

6 Stip 17 20 21 21

7 Kocani 14 14 13 13

8 Kumanovo 12 15 16 16

9 Gostivar 10 9 9 9

10 Gevgelija 4 4 4 4

11 Bitola 8 8 8 9

12 Bogdanci 3 3 3 3

13 Vinica 4 5 5 4

14 Kavadarci 7 11 12 12

15 Resen 3 3 3 3

16 Struga 3 3 3 3

17 Kicevo 3 4 4 5

18 Tetovo 6 6 5 8

19 Delcevo 3 4 4 4

20 Mak. Brod 4 4 4 4

21 Mak. Kamenica 2 2 2 3

22 Negotino 3 3 4 3

23 Radovis 3 3 3 3

24 Pehcevo 0 0 1 1

25 Debar 0 0 0 1

Total 1,187 1,224 1,231 1,213

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12. MAJOR SHAREHOLDERS

�12.1. Pursuant to the issuer’s knowledge, data on the persons (except

for the members of the Board of Directors and Supervisory Board of the issuer) who, along with the related parties, directly or indirectly, hold more than 5% of any kind or class of shares issued by the issuer, including the amount of that share (absolute and relative value in terms of the capital of the issuer and in terms of the issuer’s voting structure). If there are no such persons or there is no knowledge for existence of such persons, a respective negative statement is required According to the issuer` information acquired on the basis of the Shareholders Register and the statements of related parties, the major shareholder holding more than 5% of the issued shares of Komercijalna Banka AD Skopje is the European Bank for Reconstruction and Development (EBRD). As at 31.12.2010, EBRD holds 119,540 ordinary shares or 5.935% of the total number of Bank’s shares issued.

12.2. Description of any agreement or other acts the issuer is aware of, the execution of which on a specific date could result in a change in the majority control over the issuer According to the issuer`s information, there are no agreements or other acts known to the issuers whose realization as at certain date might cause change of the control for the issuer.

13. FINANCIAL INFORMATION

13.1. Financial statements

The constituent part of the Prospectus are the audited financial statements with independent audit opinion for 2007 (Attachment 1), for 2008 (Attachment 2) and for 2009 (Attachment 3), prepared in accordance with the International Accounting Standards and the International Financial Reporting Standards, as well as the International Standards on Auditing. The audited financial statements contain the prescribed obligatory elements:

(a) Balance Sheet (b) Income Statement (c) Statement on changes in equity (d) Cash flow statement (e) Accounting policies and Notes

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13.2. Audit of annual financial statements

13.2.1. Indication that the financial statements have been audited and reference to the auditor’s report on the financial statements of the issuer for the preceding three years

The financial statements for the last three years (2007, 2008 and 2009) had been audited and together with the Auditors Reports on the financial statements of the Bank are constituent part of the Prospectus (Attachment 1, Attachment 2 and Attachment 3).

13.2.2. Indication to other information in the prospectus that has been audited by an independent auditor

Except for the enclosed audited financial statements for the last three years (2007 – Attachment 1, 2008 – Attachment 2 and 2009 – Attachment 3), there are no other information contained in the Prospectus that had been audited by an independent auditors.

13.2.3. Wherever financial information are presented in the prospectus that have not been derived from the audited financial statements of the issuer, the source of such information shall be indicated, including the information that they have not been audited

The financial data from sources other than the audited financial statements and presented in the Prospectus text are indicated as not being audited.

13.3. Periodical and other financial information

13.3.1. When the issuer publishes quarterly or semi-annual financial statements after the date of its last audited financial statements, they shall be included in the prospectus. If the quarterly or semi-annual financial information/statements have not been verified or audited by a certified auditor, the prospectus shall specify that fact

The financial reports for the first half of 2010 (Attachment 4), prepared in accordance with the relevant law regulations, are constituent part of the Prospectus. The financial reports for the first half of 2010 are not audited by authorized auditors.

13.3.2. If the prospectus is as of the date following nine months from the date of the last audited annual financial statements, it shall contain periodical financial statements which could be non-audited (indicating that they have not been subject to audit), and refer to at least the period of the first half of the financial year

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As the Prospectus is as at a date following the end of nine months from the date of the last audited annual financial statements, the Income Statement as at 30.09.2010, which is not audited by an authorized auditors, is constituent part thereof (Attachment 5).

13.3.3. The periodical financial statements shall also include comparative reports on the same period of the preceding financial year, other than the balance sheet, where the balance as of the end of the last financial year could serve as a comparison

The interim financial reports (as at 30.06.2010 – Attachment 4 and the Income Statement as at 30.09.2010 – Attachment 5) that are constituent part of the Prospectus and are not audited by an authorized auditors, include comparative reports for the same period of the previous year, except for the Balance Sheet where the comparison is as of 31.12.2009.

13.4. Dividend policy

13.4.1. Description of the issuer’s policy on distribution of dividends and any restriction applicable thereof

The owners of the ordinary shares have the right on the part of the profit (dividend) of the Bank. The Bank pays dividend once a year from the earned profit, in accordance with the decision made by the Shareholders Assembly of the Bank, which regulates the manner of payment and the dividend extent. No dividend is paid to the owners of ordinary shares for the business years for which the Bank did not realize profit. The extent of the ordinary shares dividend is determined in percentages from the nominal value.

13.4.2. Amount of dividend per share paid over the preceding three financial years, respectively corrected for the changes, if any, in the shares of the issuer, for the purposes of information comparison

The dividend for the last three financial years (2007, 2008 and 2009) was paid out based on the following decisions: 1. Decision on determining the dividend amount and dates of

dividend pay out for 2007, No. 02-1600-12886 of 25.03.2008; 2. Decision on determining the dividend amount and dates of

dividend pay out for 2008, No. 02-1600-12608 of 25.03.2009 and 3. Decision on determining the dividend amount and dates of

dividend pay out for 2009, No 02-1600-13298 of 24.03.2010.

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Year Gross dividend per

ordinary share Gross dividend per

preferred share

2007 190.00 denars 95.00 denars

2008 190.00 denars 99.50 denars

2009 170.00 denars 114.00 denars

13.5. Litigations

Within the frames of the usual banking activities for collection of claims under loans approved, the Bank has initiated litigations with individual litigation value of over 5% of the capital. For the purpose of collection of claims under loans approved, the Bank initiated legal proceedings against the companies MZT FAM Skopje (in 2001) and Skopski leguri DOOEL Skopje (in 2009) and allocated special reserve, i.e. impairment loss for the above stated claims. In case of negative results from these litigations, the Bank is not expecting any negative impact on its financial standing or profitability. During the last 18 months, the Bank initiated two litigations with individual value of over 5% of the Bank’s capital each, and for collection of its claims from the following entities:

1. Skopski leguri DOOEL Skopje – Upon initiation of the litigation for enforced collection, the Bank and the legal entity concluded an agreement for extrajudicial settlement, after which the company Skopski leguri DOOEL Skopje regularly repays its liabilities and the current Bank’s claim is less than 5% of its capital.

2. UNI-M DOO Skopje – The Bank’s claim from UNI-M DOO Skopje is

fully regulated by the takeover of the company’s administration building in the procedure of mortgage realization established as security for the Bank’s loans to UNI-M DOO Skopje.

13.6. Significant changes in the issuer’s financial or trade position The Bank has acquired property – administrative business building in amount of 814,846,921.00 denars through a process of pledge realization for collection of receivable from UNI-M DOO Skopje. The value of the acquired property represents 11.71% of the Bank’s equity calculated as per the last audited financial statements for 2009. We hereby declare that except for the litigation for enforced collection from UNI-M DOO Skopje, there have been no significant financial or trade changes in the period after the end of the preceding financial year the published audited financial statements refer to, or after the end of the last half of the year the published periodical financial information refers to.

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14. ADDITIONAL INFORMATION

14.1. Information on the issuer’s equity

14.1.1. Amount of the core capital and the number, type, and class of securities constituting the core capital, as of the date of the last balance sheet included in the prospectus and the balance after the changes in the core capital that occurred after the preparation of the last balance sheet until the prospectus preparation date

Data on the capital of the Bank as at 31.12.2009 and 30.06.2010:

31.12.2009 30.06.2010

Subscribed capital 2,014,067,000.00 denars 2,014,067,000.00 denars

Share premia 109,027,000.00 denars 109,027,000.00 denars

Reserves 3,759,230,000.00 denars 4,458,775,000.00 denars

Retained earnings 1,074,008,000.00 denars 495,726,000.00 denars

*�The data as of 30.06.2010 are not audited by authorized auditors

31.12.2009 30.06.2010

Number of ordinary shares 1,998,204 2,014,067

Number of preferred shares 15,863 0

* The data as of 30.06.2010 are not audited by authorized auditors

As at 31.12.2009, the capital of Komercijalna Banka AD Skopje is comprised of 1,998,204 ordinary shares with nominal value of 1,000.00 denars per share and 15,863 preferred shares with nominal value of 1,000.00 denars per share, while as at 30.06.2010, the capital of the Bank is comprised of 2,014,067 ordinary shares with nominal value of 1,000.00 denars per share. As at 31.12.2010, the capital of the Bank is 2,014,067,000.00 denars and is comprised of 2,014,067 ordinary shares with nominal value of 1,000.00 denars per share.

14.1.2. Amount of issued convertible securities and securities with guarantees, including the description of the conversion and subscription terms and procedures

The preferred shares issued up to 05.05.2010 may be converted into ordinary shares in a proportion expressed through the nominal value, in a manner and under conditions determined in accordance with the Decision made by the Bank’s Assembly (Decision on conversion of the preferred shares into ordinary shares issued by Komercijalna Banka AD Skopje No.02-1600-11398/25.03.2004 and its amendments and supplements). The determined proportion for conversion of the preferred into ordinary shares was 1:1. The process of conversion was carried out by submitting an application by the holder of the preferred shares for their conversion into ordinary

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shares. Pursuant to the Decision on conversion of the preferred into ordinary voting shares issued by Komercijalna Banka AD Skopje No. 02-1600-13299/24.03.2010, made at the 23rd General Meeting of the Bank’s Assembly held on 24.03.2010, on 05.05.2010, the Bank submitted the Request No. 03-800-20181/05.05.2010 to the Central Securities Depository for all preferred shares issued by Komercijalna Banka AD Skopje in total number of 15,863 and total nominal value of 15,863,000.00 denars to be converted into ordinary voting shares in total number of 15,863 and total nominal value of 15,863,000.00 denars. Upon the respective conversion made, as at 05.05.2010, the number of shares issued by the Bank by their type was changed as follows: - preferred shares - total number 0 (zero) with total nominal value

of 0 (zero) denars and - ordinary voting shares – total number 2,014,067 with total

nominal value of 2,014,067,000.00 denars.

14.1.3. Information on whether the management body has been empowered by the issuer’s statute to increase the core capital (registered capital) and information on the amount of registered capital and on the period of validity of the provision of the Statute that concerns the registered capital

According to the Bank’s Statute the managing body is not authorized to increase the core capital (registered capital). The Statute of the Bank prescribes for increasing the core capital by registered capital as one of the possibilities for increasing the core capital, but the same is not regulated in accordance with article 436 and 437 of the Companies Act (Official Gazette No. 28/2004, 84/2005, 25/2007, 87/2008, 42/2010 � 48/2010). According to the Companies Act, this method is possible only upon a Decision for change of the Bank’s Statute.

14.1.4. Previous issues:

� I issue II issue III issue IV issue V issue

Date and number of SEC Decision

01.01.1990

01.10.1992 01-1/1-92

02.06.1999 01-168/1

04.09.2001 07-719/5

25.09.2008 07-2893/7

Number of securities approved by SEC in total and by types and classes

total=250,000

ordinary =150,000

preferred =100,000

total=280,000

ordinary =180,000

preferred =100,000

total=16,977

ordinary =16,977

total=39,387

ordinary =31,922

preferred =7,465

total=471,000

ordinary =471,000

Nominal value per share

NV per share �ordinary =5,000.00

denars

NV per share �preferred =1,000.00

denars


denars


denars


denars


denars


denars


denars

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Number of securities sold, in total and by types and classes

total=237.715

ordinary =137,715

preferred =100,000

total=274.160

ordinary =174,843

preferred =99,317

total=16.977

ordinary =16,977

total=39.387

ordinary =31,922

preferred =7,465

total=471.000

ordinary =0 (zero)

Total nominal value of the securities issued

total NV =788,575,000

denars

total NV =973,532,000

denars

total NV =84,885,000

denars

total NV =167,075,000

denars

total NV =0 (zero) denars

Total sale value of the securities issued

788,575,000 denars

973,532,000 denars

87,728,647.50 denars

177,183,037.50 denars

0 (zero) denars

The rights from the securities by types and classes

Ordinary shares provide the rights on: �voting at the Bank’s Assembly, according to the principle one share one vote; �payout of part from the profit (dividend); �payout of part of the remaining part of the liquidation or bankruptcy estate of the Bank Preferred shares provided the rights on: �dividend to the extent of the interest rate of 2 percentage points over the interest rate of the 12 months term deposits and part of the profit of the Bank but not exceeding the participation of the holders of common shares, according to the Assembly’s Decision; �collection of accumulated, unpaid dividends from previous years prior to payment of any dividends to the holders of ordinary shares; �conversion into common shares in a proportion 1:1, according to the Decision made by the Bank’s Assembly


Ordinary shares provide the rights on: �voting at the Bank’s Assembly, according to the principle one share one vote; �payout of part from the profit (dividend); �payout of part of the remaining part of the liquidation or bankruptcy estate of the Bank


Ordinary shares provide the rights on: �voting at the Bank’s Assembly, according to the principle one share one vote; �payout of part from the profit (dividend); �payout of part of the remaining part of the liquidation or bankruptcy estate of the Bank

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For the purpose of compliance with the Companies Act, and according to the Decision on amendments and supplements to the Statute of the Bank made by the Bank’s Assembly on 22.03.2005, the shares were divided in proportion 1:5, i.e. each ordinary share with nominal value of 5,000.00 denars was divided into 5 ordinary shares with nominal value of 1,000.00 denars per share. Upon the division made, with the IV-issue the Bank had issued 1,807,285 ordinary shares and 206,782 preferred shares. Pursuant to the Decision on conversion of the preferred into ordinary voting shares issued by Komercijalna Banka AD Skopje No. 02-1600-13299/24.03.2010, made at the 23rd General Meeting of the Bank’s Assembly held on 24.03.2010, on 05.05.2010, the Bank submitted the Request No. 03-800-20181/05.05.2010 to the Central Securities Depository for all preferred shares issued by Komercijalna Banka AD Skopje in total number of 15,863 and total nominal value of 15,863,000.00 denars to be converted into ordinary voting shares in total number of 15,863 and total nominal value of 15,863,000.00 denars. Upon the respective conversion made, as at 05.05.2010, the number of shares issued by the Bank by their type was changed as follows: - preferred shares - total number 0 (zero) with total nominal value

of 0 (zero) denars and - ordinary voting shares – total number 2,014,067 with total

nominal value of 2,014,067,000.00 denars. As at 31.12.2010, the capital of the Bank is 2,014,067,000.00 denars and is comprised of 2,014,067 ordinary shares with nominal value of 1,000.00 denars per share.

14.2. Relative indicators for the issuer’s operations as of the date of the last financial statements presented in the prospectus and the last quarter to the prospectus preparation date

14.2.1. Capital adequacy as defined by the methodology prescribed by the National Bank of the Republic of Macedonia

�Bank’s capital adequacy

As at 31.12.2009

As at 30.06.2010

As at 30.09.2010

10.6% 11.6% 11.3% *The data as of 30.06.2010 and 30.09.2010 are not audited by authorized auditors

14.2.2. Share of own funds in the liabilities

�Share of own funds in the liabilities

As at 31.12.2009

As at 30.06.2010

As at 30.09.2010


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14.2.3. Share of household deposits in the liabilities

�Share of household deposits in the liabilities

As at 31.12.2009

As at 30.06.2010

As at 30.09.2010


14.2.4. Short-term placements – to – short-term sources ratio

�Short-term placements – to – short-term sources ratio

As at 31.12.2009

As at 30.06.2010

As at 30.09.2010

0.45 0.49 0.50 *The data as of 30.06.2010 and 30.09.2010 are not audited by authorized auditors

14.2.5. Aggregate open currency position

�Aggregate open currency position

As at

31.12.2009 As at

30.06.2010 As at

30.09.2010

in thousand denars 622,948 537,783 682,638 % of own funds 10.82% 8.37% 10.62%

*The data as of 30.06.2010 and 30.09.2010 are not audited by authorized auditors

14.2.6. Large credit exposure – to – own funds

The data on the large credit exposure of the Bank are in accordance with Article 72 of the Banking Law (“Official Gazette of RM” No. 67/2007, 90/2009 and 67/2010), according to which the total amount of large exposures must not exceed the eightfold amount of the Bank’s own assets.

�Large credit exposure – to – own funds

As at

31.12.2009 As at

30.06.2010 As at

30.09.2010

in thousand denars 27,094,807 27,758,456 28,715,666 % of own funds 472.73% 431.83% 446.71%


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14.2.7. Capital investments in non-financial institutions (in 000 denars)

Capital investments in non-financial institutions (without trading portfolio)

As at

31.12.2009 As at

30.06.2010 As at

30.09.2010

MZT Oprema AD Skopje 2 2 2 MZT FOP AD Skopje 1 1 1 MZT Komerc DOO Skopje 4 4 4 MZT Energoinvest AD Skopje 4 4 4 MZT Metalna DOO Stip 4 4 4 MZT Monting AD Bitola 4 4 4 RZ Skopje (9 companies) 1 1 1 CIK Kumanovo 115 115 115 Sloga 2000 AD Krivogashtani 2,502 2,502 2,502 Total: 2,637 2,637 2,637


14.2.8. Capital investments in banks, savings houses, and other financial institutions

(in 000 denars)

Capital investments in banks, savings houses, and other financial institutions

As at

31.12.2009 As at

30.06.2010 As at

30.09.2010 Osiguruvanje QBE Macedonia AD Skopje 41,458 41,458 41,458

Consortium Vardarska dolina Skopje 1,730 1,730 1,730

Macedonian Stock Exchange AD Skopje 15,117 15,117 15,117

Swift Belgium 1,255 1,263 1,265

Clearing Interbanking System KIBS AD Skopje 11,700 13,000 13,000

Central Securities Depository AD Skopje 5,502 5,502 5,502

KB Prvo Penzisko Drustvo AD Skopje 76,583 76,583 76,583

MasterCard International 385 455 408

KB Publikum AD Skopje 12,217 12,217 12,217

Total: 165,947 167,325 167,280 *The data as of 30.06.2010 and 30.09.2010 are not audited by authorized auditors

14.2.9. Share of own funds in the total bank’s own funds

Share of own funds in the total bank’s own funds

As at 31.12.2009

As at 30.06.2010

As at 30.09.2010


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14.2.10. Share of credit exposure in risk categories C, D, and E in the total credit exposure

Pursuant to National Bank of Macedonia’s Decision on determining the methodology for classification of the performing balance sheet and off-balance sheet positions of the banks according to their risk level, the participation of the credit exposure of C, D and E risk category in the total credit exposure is as follows: - as at 31.12.2009: 7.5%; - as at 30.06.2010: 8.4% (the data are not audited by authorized auditors);

- as at 30.09.2010: 8.1% (the data are not audited by authorized auditors).

Participation of the credit exposures under certain risk categories (A, B, C, D and E) in the total credit exposure as at 31.12.2009, 30.06.2010 and 30.09.2010 is as follows:

Participation of the credit exposures under certain risk categories in

the total credit exposure

As at

31.12.2009 As at

30.06.2010 As at

30.09.2010

A 88.0% 88.9% 88.7% B 4.6% 2.7% 3.2% C 2.1% 3.2% 2.1% D 0.6% 0.6% 1.6% E 4.8% 4.6% 4.4%


14.3. Total international payment operations for the preceding year and for the current year

(in millions USD))

Total international payment operations

2008 2009

3,177 2,629

14.4. Liquidity developments: coverage of bank’s liabilities with highly liquid assets (cash and securities issued by the NBRM and the Republic of Macedonia

Coverage of bank’s liabilities with highly liquid assets

As at 31.12.2009

As at 30.06.2010

As at 30.09.2010


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14.5. Issuer’s Statute and Articles of Incorporation

The Statute No. 02-960-786 of 05.02.2001 of Komercijalna Banka was adopted at the 12th General Meeting of the Bank’s Assembly held on 05.02.2001, and its respective amendments and supplements are as follows: Statutory Decision on amendments and supplements to the Bank’s Statute, made on the 13th General Meeting of the Bank’s Assembly on 03.04.2001 under No. 02-950-7519 of 05.04.2001, Statutory Decision on amendments and supplements to the Bank’s Statute, made on the 14th General Meeting of the Bank’s Assembly on 23.07.2001 under No. 02-950-15883 of 23.07.2001, Decision on amendments and supplements to the Bank’s Statute, made on the 18th General Meeting of the Bank’s Assembly on 23.03.2005 under No. 02-1600-11319 of 23.03.2005, Decision on amendments and supplements to the Statute of Komercijalna Banka AD Skopje, made on the 19th General Meeting of the Bank’s Assembly on 22.03.2006 under No. 02-1600-11958 of 22.03.2006, Decision on amendments and supplements to the Statute of Komercijalna Banka AD Skopje No. 02-1600-47504 of 20.11.2007, Decision on amendments and supplements to the Statute of Komercijalna Banka AD Skopje No. 02-1600-12884 of 25.03.2008 and Decision on amendments and supplements to the Statute of Komercijalna Banka AD Skopje No. 02-1600-13300 of 24.03.2010.

14.5.1. Subject of issuer’s operations as specified by the Statute

�1. Accepting deposits and other repayable sources of funds; 2. Lending in the country, including factoring and financing commercial

transactions;

3. Lending abroad, including factoring and financing commercial transactions;

4. Issuance and administration of means of payment (payment cards,

checks, traveler's checks, bills of exchange);

5. Issuance of e-money, if regulated by special law;

6. Financial leasing;

7. Currency exchange operations;

8. Domestic and international payment operations, including purchase and sale of foreign currency;

9. Fast money transfer;

10. Issuance of payment guarantees, backing guarantees and other

forms of collateral;

11. Lease of safe deposit boxes, depositories and depots;

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12. Trade in instruments on the money market (bill of exchange, checks, deposit certificates);

13. Trade in foreign assets, including trade in precious metals;

14. Trade in securities;

15. Trade in financial derivatives;

16. Asset and securities portfolio management on order and for the

account of clients;

17. Providing services of a custodian bank;

18. Purchasing and selling, underwriting and placement of securities issue;

19. Intermediation in sale of insurance policies;

20. Intermediation in concluding credit and loan agreements;

21. Processing and analyzing information on the legal entities'

creditworthiness;

22. Economic and financial consulting;

23. Other financial services specified by law.

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14.5.2. Description of rights, privileges, and restrictions arising from any class of shares issued by the issuer

Ordinary shares are shares providing for the owners right to: 1. vote at the General Meeting of the Assembly; 2. payout of a part of the profit (dividend); and 3. payout of a part of the rest of the liquidation or bankruptcy estate

of the Bank. The shares are on name. Each voting share provides one vote in the Assembly.

14.5.3. Description of the activity that is to be undertaken to change some of the shareholders’ rights, specifying whether the conditions for such activity are stricter, compared to the law

When the Bank’s Assembly has to decide upon issues regarding an amendment or limitation of any right related to any type of shares and upon the cases determined by law, the decision made shall be considered valid if the shareholders representing the appropriate (the subject) type of shares give their approval by making the decision. Depending on the items of the Agenda, and at the assessment of the

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body that convenes the General Meeting, the decision may be made at the same General Meeting of the Assembly by individual voting of all shareholders or at separate General Meeting of the Assembly. The decision shall be passed if voted by the majority of not less than 2/3 of the shares represented at the General Meeting of the Assembly. The Statute of the Bank does not prescribed more strict conditions compared to the law regulations.

14.5.4. Description of the conditions for convening the shareholders’ annual general assembly and extraordinary shareholders’ assembly, including information on the method of application for the shareholders regarding participation

The Bank’s shareholders realize their rights and interests in the Bank at the General Meeting. The Bank’s Assembly is composed of all shareholders. Each shareholder may authorize a proxy at the General Meeting, with a written notarised power of attorney, in accordance with the Companies Act. Each ordinary shareholder has the right to participate at the Assembly’s meeting and the right to vote, unless otherwise provided by the law. The General Meeting, with the agenda and decisions related to the agenda, is convened by the Board of Directors based on previously obtained approval from the Supervisory Board upon completion of the year-end accounts, financial statements and annual report for the Bank’s performance in the previous business year, within six months of the calendar year for the previous year. A Bank’s Assembly meeting may be convened between two general meetings by the Board of Directors upon previously obtained approval of the Supervisory Board or by the Supervisory Board at its initiative or at request of shareholders. Requests for convening meetings of the Assembly may be submitted by the shareholders having at least 1/10 of the voting shares. The purpose and reasons for convening the meeting, the matters to be decided on and data on shareholders shall be stated in the request. Attached to the request, the shareholders shall submit statement of account for securities issued by the Central Securities Depository, having the number of voting shares stated therein. The Board of Directors, based on opinion of the Supervisory Board, is obliged at request of the shareholders to make a decision within 8 days from the date of receipt of the request, i.e. make a decision by which it shall accept or deny the request, stating the reasons therefor. As an exception, if within the defined term there is no opinion obtained from the Supervisory Board, at request of the shareholders the decisions will be made by the Board of Directors.

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If, at request of shareholders having majority of all voting shares, the board of Directors does not convene meeting of the assembly within 24 hours from the date of submission of the request, the shareholders shall realize their rights in accordance with the Companies Act. The Assembly's session is convened upon an invitation to shareholders in the way which shall provide a confirmation that the invitation had been received by the shareholder or upon an announcement to the shareholders published in at least one daily newspaper. The way of convening the General Meeting is determined by the decision on convening the General Meeting. The invitation or the announcement for participation at the Bank’s Assembly meeting shall contain: - title and Head Office of the Bank; - place and date of holding the General Meeting; - other procedural formalities of significance for presence at the

General Meeting and the way of voting; - agenda under which the General Meeting will be run; - way of making the materials under items of the agenda available; - possibility of appointing a proxy of the shareholder and the way of

his/her appointment and - other information depending on the items on the agenda. The period from the invitation date or from the announcement date until the Assembly’s meeting date, must neither be shorter than 21 days, nor longer than 50 days. Materials for the meeting of the Bank’s Assembly shall be made available for the shareholders as from the date of sending the invitation, or publishing the announcement, in the Bank’s premises determined therefor and on the web side of the Bank as well. Each shareholder shall report its participation at the general meeting before beginning of the convened Meeting. The list of the reported shareholders shall be available for inspection in the Head Office of the Bank. The list of reported shareholders shall be compared to the statement of the shareholder register obtained from the Central Securities Depository forty-eight hours before the Meeting of the Assembly. The list shall be signed before beginning of the Meeting by each present shareholder or proxy, thus verifying presence at the Meeting of the Assembly. The list shall be verified by signatures of the chairman and the recording secretary of the Assembly. Prior to the first voting, the verified list is given to the present shareholders for their consideration.

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14.5.5. Description of the conditions specified in the issuer’s Statute or any other act that regulates the change in the core capital, where such conditions are stricter, compared to those specified by law

Pursuant to the Statute of Komercijalna Banka AD Skopje and the Companies Act, the increase of the initial capital of the Bank is carried out: - by deposits; - by conditional increase; - by approved capital; - by the Bank’s resources. The increase of the initial capital is carried out upon a decision made by the Bank’s Assembly. The decision on consent is made with the majority not less than 2/3 of the shares present at the General Meeting. Decrease of the initial capital of the Bank is carried out by: - decrease of the nominal amount of shares; - joint of shares, and - withdrawal of treasury and other shares Decrease of the initial capital is carried out upon a decision made by the Bank’s Assembly. The decision on consent is made with the majority not less than 2/3 of the shares present at the General Meeting. The Statute of the Bank does not prescribed more strict conditions compared to the law regulations.

15. AGREEMENTS OF ESSENTIAL RELEVANCE TO THE ISSUER’S BUSINESS

�Information on each agreement (outside the everyday business of the issuer) of essential relevance to the issuer’s business, where the issuer or other group member (in the case where the issuer is a part of a group) is a party, for the last two years that precede the preparation of the prospectus There is no agreement outside of the usual daily operation of the issuer which is of essential significance for the operation of the issuer, where the Komercijalna Banka AD Skopje is one of the agreement parties.

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16. INFORMATION DISCLOSED BY THIRD PARTIES AND REPORTS OF EXPERTS AND STATEMENT ON INTERESTS

16.1. Where the prospectus includes a report of a third party – expert,

information on such a party shall be included, as follows: name and surname, business address, qualifications, and information on the material interest, if any, of such a party with the issuer; information on the context and the form in which the report of such a party will be used, with approval by the individual that verified the contents of that part of the prospectus The Prospectus does not include any report from any third party – expert.

16.2. When a third party is the source of some information, such

information should be verified in terms of whether it has been accurately and precisely reproduced and that, to the best of the issuer’s knowledge, none of the facts that would make the reproduced information incomplete or inaccurate, has been concealed. The source of information shall also be indicated The Prospectus does not include information which source is any third party.

17. INFORMATION ON OFFER OF SECURITIES

�17.1. Reasons behind the offer and purpose of the funds raised from

the offer For the past two years there have been qualitative changes, marked with expanded offer of products and services, as well as improved structure in the account statements. In addition to dynamic credit activity, increase in card activities and electronic banking, contingent activities grew as well, and the Bank swiftly and promptly responded to clients requests for letter of credits and guarantees issuance, which contributed to keeping the market share in spite of the increased competition. One of the Bank’s main objectives is capital increase by keeping the dividend payout to a maximum of 40%, which would allow significant part of the profit to be allocated to the reserves, and would in turn contribute to straightening of the capital. However, this goal is challenging to sustain by this strategy only. The new issue is not a necessity caused by a lack of resource funds, but it is a question of certain bounding factors which, if additional capital issuance is not carried out, will limit Bank’s growth and development. The main aspect is the level of capital needed for a given degree of risk, represented by the capital adequacy ratio. This is not only regulatory

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requirement, but also is a question of prudent risk management, in combination with dynamic increase in activities. The new issue will be in accordance to the recommendations of NBRM, and at the same time would facilitate additional and continuous growth and development, in line with the nature, type and size of the Bank’s activities and the risk which is facing in relation to those activities. During the 2008 the Bank conducted actions for organizing new issue of shares by a public offer, which would contribute to gathering additional capital. The public offer was open for one year, starting 18.10.2008, however because of the financial crisis, lower liquidity and changes in the market price movements, it was unsuccessful. Inclusive 31.12.2009, Bank’s capital adequacy ratio was 10.64% which is above the regulatory minimum level of 8%, but nevertheless is below 12% as was recommended by the National Bank of the Republic of Macedonia. According to the Decision on the General Meeting of the Bank’s Assembly held on 24.03.2010, part of the net-profit for 2009 was allocated in the Bank’s reserves, after which the capital adequacy ratio as of 31.03.2010 reached 11.86%. As of 30.11.2010 the capital adequacy ratio is 11.11% and with the new issue is expected to increase to a level, which in combination with continuous growth of the reserves, would allow attaining a 12%, as recommended. In comparison to the previous year, the Financial Plan for 2010 anticipated the following:

- Total assets increase of 6%; - Gross customer loans to increase by 5%; - Placements in and short-term loans to other banks higher by 1%; - Increase in deposits by 3%, thus reaching 82.2% of the Bank’s

assets; - Net-interest income increase of 6%; - Other income to increase by 10%; - Decrease in operating expenses by 2% and - Increased gross profit before tax by 2%.

In conditions of improved liquidity and more favorable macroeconomic ambience, as at 30.09.2010, Komercijalna Banka AD Skopje realized positive financial results from its operation in the amount of 784.0 million denars. This result is for 10.3% higher than the one realized for the same period last year, thus reaching 95% realization of the Plan for the nine months in 2010. Based on this result, profitability trend continued expressed with an increase in return on equity (ROE) and return on assets (ROA), as well as increase in earnings per share and the book value per share.

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in denars 2008 2009 �� Q1

2010 TTM Q2

2010 TTM Q3

2010 Earnings per share 689 537 545 612 569 Book value per share 3,110 3,454 3,529 3,702 3,843 ROA 2.50% 1.77% 1.75% 1.90% 1.70% ROE 21.99% 15.44% 16.32% 17.43% 15.58% Book value per share after dividend payment

3,341

3,514

3,655

*As of 30.09.2010, without taking into account the new issue. The data for 2010 are not audited by authorized auditor.

The new issue will contribute to fulfilling the supervisory standards to a greater effect, and will also accelerate Bank’s dynamic growth and will advance its market share. Pursuant to the growth of main parameters that influence the supervisory standards, it is appraised that optimal level for the new issue is 927,500,000.00 denars. With an increase of the Bank’s capital in the suggested amount of 927,500,000.00 denars and slight increase in credit activity, the calculation of the risk weighted assets, as well as the corresponding corrections to the open foreign exchange position, the capital adequacy ratio estimate is 12.70%. According to the strategic postulate of Komercijalna Banka AD Skopje for maintaining the capital value and its increase through the policy of allocating a significant amount of the net-profit for reserves, if the Bank’s General Assembly reaches a decision for distributing 10 million euro of the 2010 net-profit into the reserves, then a capital ratio of 13.77% would be achieved, which corresponds to the planned activities. Taking into consideration the anticipated increase of the credit activity in the following period, it is expected slightly lower capital adequacy ratio in the next few years however, in accordance with the strategy the Bank will strive to maintain a level of 12%. Given the assumptions of the capital increase in the proposed amount, assigning part of the Bank’s net-profit into the reserves and minimal changes in the deposit base, it is expected that in 2011 the Bank’s total assets would increase by 6%. Based on the data for the movement of market share price of Komercijalna Banka AD Skopje in the past one month, the average share price was 3,201.80 denars and is noticeable a stabilizing trend at level close to the book value.

17.2. General information on securities

17.2.1. Number and date of the equity securities issuance act

The Decision on increasing the initial capital of Komercijalna Banka AD Skopje with issue of ordinary shares through a public offer – 6th issue No. 02-1600-1 from 11.01.2011 made at the Shareholders Assembly on 11.01.2011.

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17.2.2. Information on consent and approvals underlying the issue of securities The Decision on increasing the initial capital of Komercijalna Banka AD Skopje with issue of ordinary shares through a public offer – 6th issue No.02-1600-1 from 11.01.2011 was accepted and approved by the Shareholders Assembly on 11.01.2011. With the announcement No.10-200-2260 from 11.01.2011, the National Bank of the Republic of Macedonia is notified about the adopted Decision on increasing the initial capital of Komercijalna Banka AD Skopje with issue of ordinary shares through a public offer – 6th issue, according to article 61 of the Banking Law, section about agreements and announcements. This issue is approved by the Decision of the Securities and Exchange Commission of the Republic of Macedonia No. UP1 07-4 from 27.01.2011. In case of successful closing of the public offer i.e. after subscription of the shares in the Central Securities Depository AD Skopje, the Bank will make amendments of the Statute of the Bank, and will apply for consent from the National Bank of the Republic of Macedonia, in compliance with the article 57 from the Banking Law.

17.2.3. Number of securities issued and nominal value of securities (individual and aggregate nominal value of the issue) With the VI-th (sixth) issuance of shares 265,000 ordinary shares with nominal value of 1,000.00 denars per share will be issued i.e. the total nominal value is 265,000,000.00 denars.

17.2.4. Laws underlying the securities issue The securities are issued in accordance with the Law of Securities, the Law on Banks and the Companies Act.

17.2.5. Name and address of the securities registration entity The securities will be registered in the Central Securities Depository AD Skopje – CDS AD Skopje, with the headquarters on ul. “Kuzman Josifovski Pitu” No. 1, 1000 Skopje, Republic of Macedonia.

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17.2.6. Time and method of submitting the securities to an authorized depositary for registration with the authorized depository

In a period of 8 days after successful subscription of the VI-th (sixth) share issuance, the Bank will report the increase of the initial capital in the Trade Register. Within 3 working days from the day of the subscription of the initial capital in the trade register, the Bank will submit the shares of the VI-th (sixth) share issuance to the Central Securities Depository AD Skopje for registration. Central Securities Depository within two days after receiving the Decision for registration of the initial capital, i.e. after notification of subscribed and paid-in securities, will make the settlement, i.e. distribution of the shares to the accounts of the investors which subscribed and paid shares of the VI-th (sixth) issue through a public offer.

17.2.7. Information on taxation of securities income

Data for taxation of share incomes for non-resident legal entities: According to article 29-b from the Profit Tax Law and article 5-b from the Regulation for calculation and payment of the profit tax and prevention of double exemption or double taxation, the detained tax is applied on the incomes from dividend. The tax rate on incomes from dividend for non-resident legal entities is 10%. If the Republic of Macedonia has signed an agreement for double tax avoidance with the country where the non-resident legal entity is a resident, than the conditions from the agreement may be applied in a way prescribed with an article 5-c of the Regulations for calculation and payment of the profit tax and prevention of double exemption or double taxation. Data for taxation of share incomes for domestic and foreign individuals: According to article 7 from the Income Tax Law , an income tax payer is each individual resident of the Republic of Macedonia for the income attained in the country and abroad. According to article 9 from the same law the tax payer is an individual non-resident which attains income on the territory of the Republic. According to article 12, the tax rate on incomes is 10%.

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Dividends and incomes attained by participation in the profit of legal entities and individuals are included in the incomes of equity, according to article 47 from the Income Tax Law and a calculation basis for the dividend tax is the gross dividend, i.e. incomes from participation in the equity distributed to the tax payer (article 49 from the Income Tax Payer)

17.3. Information on equity securities

17.3.1. Description of the type and class of securities issued, including the ISIN securities number, if any

Issued ordinary shares are with ISIN number MKKMBS101019.

17.3.2. Description of the rights arising from securities, restrictions on the rights, and the method of exercising such rights

Ordinary shares are shares providing for the owners right to:

1. vote at the General Meeting of the Assembly; 2. payout of a part of the profit (dividend) and

3. payout of a part of the rest of the liquidation or bankruptcy estate of the Bank. The shares are on name. Each voting share provides one vote in the Assembly. The dividend is paid on the basis of the Decision of the Assembly of the Bank, by which the manner of payment and ration of the dividend is settled. The dividend is not going to be paid in the business years without profit for the Bank. The owners of the shares of the VI-th (sixth) issue have all the rights and obligations projected with the laws, the Statute of the Bank and the Decision for the issuance from the day of subscription in the Shares book of the Bank with the Central Securities Depository AD Skopje. The Bank has not issued shares with a right of purchase by the company. The shares of the VI-th (sixth) issue do not carry a right of purchase by the Bank, nor carry conversion rights.

17.3.3. Negotiability of securities

Securities are with the right of transferability.

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17.3.4. Information on the existence of obligation for making a takeover bid (public purchase offer)

Until this Prospectus is published, there is no legal entity or individual, that even in case of total realization, i.e. purchase of this public issuance would fulfill conditions for making a public offer for purchase, according to the existing legislation.

17.3.5. Information on existence of offers for taking over (public purchase offers) issuer’s securities during the preceding financial year and during the current financial year, including information on the price or terms for replacement of the securities - subject to a takeover bid, and the outcome of such a takeover bid

During the 2009 and 2010, until this Prospectus publishing, there has not been any takeover offer (public offer) for the Bank.

17.3.6. Dilution (the amount and the percentage of dilution of the earning per share as a result of the offer)

Projected gross-profit according to the Program of measures and activities of the business policy and financial plan of the Komercijalna Banka AD Skopje for 2010 is 1,100 million denars. On the basis of the projected gross-profit of the Bank, earnings per share for 2010 will be 546.16 denars and the new issue will not have a dilution effect thereof. Because of the fact that public offer is expected to be realized in the beginning of 2011, the new issuance will have insignificant dilution effect on the earnings per share for 2011.

18. TERMS AND CONDITIONS OF THE OFFER

18.1. Price of securities

18.1.1. The price of the offered shares, as well as the way of pricing pursuant to the rules of the authorized stock exchange, through which the publicly offered shares shall be subscribed, the issuer had concluded agreement with

The price of the offered shares is 3,500.00 denars per share. When subscribing and distributing the subscribed ordinary shares, the model of fixed price applying the principle of priority of an earlier time of entry of the order in the BEST system is applied.

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18.1.2. Information on costs, i.e. fees payable by the subscriber, i.e. buyer

There are no other additional costs or commissions on the account of the subscriber, except the costs for the payment operations and fees charged by each authorized member of the stock exchange.

18.2. Terms, conditions and actions required for subscription and

payment in of securities subject to offer pursuant to the rules of the authorized stock exchange, through which the publicly offered shares shall be subscribed, the issuer had concluded agreement with as well as the rules of the authorized depository where the securities shall be registered

18.2.1. Total value of offer

The total value of the offered shares is 927,500,000.00 denars.

18.2.2. Time period within which the offer will be opened; commencement date of the subscription period (day, month, year); date of closing the subscription period (day, month, year); commencement date of the payment-in period (day, month, year); date of closing the payment-in period (day, month, year), and description of the securities` subscription and payment-in procedure

The procedure for subscription and payment in of shares commences within 30 days of the receipt of the approval for issuing shares granted by the Securities and Exchange Commission. The Bank shall announce the Invitation for subscription and payment in of the securities in Macedonian and in Cyrillic letters in one of the dailies published on the territory of the Republic of Macedonia on 28.01.2011. At the same time, the Bank shall announce the Prospectus and Invitation for subscription and payment in of the shares on its web site and on the web site of the Macedonian Stock Exchange. The commencement date for subscription and payment in of shares is 14 calendar days after the publication of the Invitation for subscription and payment in of shares, i.e. on 11.02.2011. The date of closing the subscription period is 15 days from the commencement date for subscription and payment in of shares, i.e. on 25.02.2011. The process of subscription and payment of shares shall be carried out through the Macedonian Stock Exchange, and shall be exercised through authorized participants in the securities market – members of the Macedonian Stock Exchange and the Central Securities

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Depositary, in accordance with the law and by-law regulations and the rules of the Macedonian Stock Exchange (Decision No. 02-2426/1 for adoption of the Trading rules of the Macedonian Stock Exchange AD Skopje and Decision No.UP1 08-5 of 07.12.2009 of the Securities and Exchange Commission; Decision No.02-1599/1 of 16.12.2010 on the amendments and supplements to the Trading rules of the Macedonian Stock Exchange AD Skopje, Decision No.UP1 08-180 of 30.12.2010 of the Securities and Exchange Commission and Decision No. 02-16/2 of 10.01.2011 on implementation of Decision No. UP1 08-180 of 30.12.2010 of the Securities and Exchange Commission) and the Central Securities Depositary (Rules for operation of Central Securities Depository AD Skopje No.23 of 07.12.2001; Decision No.02-7055/1 of 06.12.2010 on the amendments and supplements to the Rules for operation of Central Securities Depository AD Skopje and Decision No.UP1 08-161 of 24.12.2010 of the Securities and Exchange Commission). Payment shall be effected in cash and in one lump sum. When subscribing and distributing the subscribed ordinary shares, the model of fixed price applying the principle of priority of an earlier time of entry of the order in the BEST system is applied. When subscribing shares each buyer shall fill in a written statement for subscription of securities which is presented along with the order for purchasing securities under the public offer with an authorized participant in the securities market – member of the authorized stock exchange and the authorized depositary and it shall become legally valid as of the time of realization of the purchase order. The authorized participant in the securities market – member of the authorized stock exchange and authorized depositary shall give a report on concluded transaction to each party that had subscribed and paid in securities from the public offer, within two days after the date of conclusion. Presentation of the report shall be as agreed with the client. Prospectus on increasing the initial capital of Komercijalna Banka AD Skopje through a public offer – VI-th (sixth) issue will be available to all interested parties, on the premises of the authorized market participants of securities - members of the Macedonian Stock Exchange AD Skopje:

- Komercijalna Banka AD Skopje – Performance of Services

Related to Securities Department - Ilirika Investments AD Skopje;

- Eurohouse AD Skopje;

- NLB Tutunska Banka AD Skopje;

- Auktori&Hita Brokeri AD Skopje;

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- Inovo Broker AD Skopje;

- TTK Banka AD Skopje;

- Investbroker AD Skopje;

- Alta Vista Broker AD Skopje;

- Moj Broker AD Skopje;

- Euro Broker AD Skopje;

- Novi Triglav AD Skopje;

- Stopanska Banka AD Skopje;

- Peon Broker AD Skopje;

- Fersped Broker AD Skopje;

- Bro-Dil AD Skopje;

- Bitola Broker AD Bitola;

- Ohridska Banka AD Ohrid – Brokerage Department;

- Postel Broker AD Skopje; and

- Centralna Kooperativna Banka AD Skopje.

If, before the deadline for subscription and payment in, 100% of the offered shares of the VI-th (sixth) issue are subscribed and paid, the Bank will cease the procedure, and inform the Security Exchange Commission and the public with the announcement for the successfully realized issue. Upon defining the transaction, the overpaid assets of payment of shares more than the offered or subscribed shares under the public offer, shall be refunded to the buyers on daily basis.

18.2.3. Performance percentage, i.e. securities’ subscription and payment-in percentage that makes the public offer successful

The Public offer shall be considered successful if at least 60% of the offered shares from the VI-th (sixth) issue are subscribed and paid.

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18.2.4. Terms for closing the public offer

The Bank shall close the procedure for the public offer upon expiry of the determined term of 15 days from the date of commencement of subscription and payment of shares and if the total amount of shares are paid and subscribed before expiry of 15 days from the date of commencement of the subscription.

18.2.5. Description of the terms under which the public offer may be declared as unsuccessful, and the method of refunding the investors

The public offer will be proclaimed as unsuccessful if, in the determined period 60% of the shares which are subject of the public offer are not subscribed and paid. If the public offer ends unsuccessfully, all subscription of ordinary shares shall be cancelled and all received payments for ordinary shares, increased for deposit interest set in Article 2, paragraph 1 item 12 of the Law on Securities shall be returned within 7 days as from the date of announcement of the unsuccessful public offer.

18.2.6. Securities’ distribution procedure, in cases where more securities are subscribed and/or paid in than offered

When subscribing and distributing the subscribed ordinary shares, the model of fixed price applying the principle of priority of an earlier time of entry of the order in the BEST system is applied. Upon defining the transaction, the overpaid assets of payment of shares more than the offered or subscribed shares under the public offer, shall be refunded to the buyers on daily basis.

18.2.7. If the securities issuance act allows for selling the securities in lots, information on the lowest and/or highest amount that could be subscribed or paid in shall be indicated

The Act does not provide selling the shares in lots.

18.2.8. Method of payment in of securities

Payment shall be effected in cash. The payment of the shares will be in Macedonian denars and in accordance with the law and by-law regulations and the rules of the Macedonian Stock Exchange (Decision No. 02-2426/1 for adoption of the Trading rules of the Macedonian Stock Exchange AD Skopje and Decision No.UP1 08-5 of 07.12.2009 of the Securities and Exchange Commission; Decision

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No.02-1599/1 of 16.12.2010 on the amendments and supplements to the Trading rules of the Macedonian Stock Exchange AD Skopje, Decision No.UP1 08-180 of 30.12.2010 of the Securities and Exchange Commission and Decision No. 02-16/2 of 10.01.2011 on implementation of Decision No. UP1 08-180 of 30.12.2010 of the Securities and Exchange Commission) and the Central Securities Depositary (Rules for operation of Central Securities Depository AD Skopje No.23 of 07.12.2001; Decision No.02-7055/1 of 06.12.2010 on the amendments and supplements to the Rules for operation of Central Securities Depository AD Skopje and Decision No.UP1 08-161 of 24.12.2010 of the Securities and Exchange Commission). Payment shall be effected in one lump sum. The funds shall be paid in by buyers on the accounts of authorized legal entities – members of the Macedonian Stock Exchange Skopje. Members of the Macedonian Stock Exchange shall transfer the paid in funds for subscription and purchase of shares from the VI-th (sixth) issue on daily basis to the special account of Komercijalna Banka AD Skopje opened for that purpose, to keep all payments of buyers until closure of the public offer.

18.2.9. Method and time of occurrence of the rights from securities

The shares that are subject of the public offer, after the registration to the accounts of the subscribers in the Central Securities Depository, are transferable, and they bear all the rights stipulated in the point 17.3.2. in this Prospectus.

18.2.10. Method and time of reporting the outcome of the public offer

Upon expiry of realization of public offer of securities, or upon subscription and payment of 100% of the offered shares, but not later than 15 calendar days after closure of the public offer, the Bank shall notify the Securities Commission in written and in a dailies published on the territory of the Republic of Macedonia on subscribed and paid in securities. Upon registration of the increase of the capital in the Trade Register and upon registration of securities in the Securities Depositary, the Bank shall immediately, but not later than 5 working days of registration of the securities in the Central Securities Depository, submit to the Securities and Exchange Commission and in one of the dailies published on the territory of the Republic of Macedonia notification on realization of the public offer of securities in a form and contents as defined by law. The notification on subscribed and paid securities of the public offer and notification on realization of the public offer will be also published on the web site of the Macedonian Stock Exchange and of the Bank

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18.2.11. If, as defined by the share issuance decision, the offer is divided into tranches, i.e. segmented in parts reserved for specific groups of investors, the prospectus shall also include the following information

The public offer is neither divided into tranches nor is segmented into parts reserved for different groups of investors.

18.2.12. To the best of the issuer’s knowledge, information shall be presented on whether the majority shareholders with the issuer or members of the Management and the Supervisory Board, i.e. the Board of Directors, or other bodies of the issuer, intend to subscribe some of the offered securities, or whether some other party intends to subscribe over 5% of the public offer

According to the Bank’s knowledge, the company East Capital Explorer Investments AB Stockholm, Sweden (controlled by East Capital Holding AB) intends to subscribe more than 5% of the VI-th (sixth) issue of shares, for which it has obtained approval from National Bank of the Republic of Macedonia.�

18.2.13. Process of reporting to parties that subscribed or paid in securities, on the amount payable to them

The authorized participant in the securities market – member of the authorized stock exchange and authorized depositary shall give a report on concluded transaction to each party that had subscribed and paid in securities from the public offer, within two days after the date of conclusion. Presentation of the report shall be as agreed with the client. All persons who subscribed and paid the securities, will be officially informed in written about the entitled amount of shares, in the period of 7 days upon registration of the securities with the Central Securities Depository AD Skopje, by the officials of Komercijalna Banka AD Skopje.

18.3. Placement of securities

18.3.1. Information (name, head office, address and telephone number) about the authorized stock exchange through which the subscription of the publicity offered securities is made, with which the issuer concluded a contract therefor, and about the authorized legal entities – members of the authorized stock exchange and the authorized depository and the term within which any interested parties may subscribe and buy securities

The subscription of the publicly offered shares of the VI-th (sixth) issue shall be made through the Macedonian Stock Exchange AD Skopje, ul. “Orce Nikolov” No. 75, 1000 Skopje, (tel.:

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+389(2)3122055) – authorized stock exchange with which Komercijalna Banka AD Skopje concluded agreement on 12.01.2011, registered with the issuer under No. 02-100-200-23 and with the Macedonian Stock Exchange under No. 03-52/1. Provided below are the data on the authorized legal entities – members of the Macedonian Stock Exchange AD Skopje and the Central Securities Depository AD Skopje, through which the parties interested in may subscribe and buy shares from the VI-th (sixth) issue:

Member of the Macedonian Stock Exchange AD Skopje

Telephone:

Komercijalna Banka AD Skopje - Performance of Services Related to Securities Department, Kej Dimitar Vlahov No. 4, 1000 Skopje

+389(2)3218218; +389(2)3218212; +389(2)3218228; +389(2)3218219; +389(2)3218213.

Ilirika Investments AD Skopje, Dame Gruev Str., No. 16, SM Paloma Bjanka, mezzanine, shop 1, 1000 Skopje and Turisticka Str., No. 1/4, 6000 Ohrid

+389(2)3296853; +389(2)3296854; +389(2)3296856.

Eurohouse AD Skopje, Dame Gruev Str., No. 5, building 1, entrance 2, mezzanine, 1000 Skopje

+389(2)3217095; +389(2)3217035.

NLB Tutunska Banka AD Skopje, Vodnjanska Str., No. 1, 1000 Skopje

+389(2)5100354; +389(2)5100352; +389(2)5100357; +389(2)5100387; +389(2)5100351

.

Auctory&Hita Brokeri AD Skopje, Partizanski odredi Str., No. 43b/shop 5, 1000 Skopje

+389(2)3248980; +389(2)3248981.

Inovo Broker AD Skopje, blvd Teodosij Gologanov No. 60/1 floor 2, 1000 Skopje

+389(2)3120941; +389(2)3110949.

TTK banka AD Skopje, Marsal Tito Str., No. 16, 7000 Bitola and Naroden Front Str., No. 19�, 1000 Skopje

+389(47)226360; +389(47)203691; +389(2)3236400.

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Investbroker AD Skopje, Istarska Str., No. 33, 1000 Skopje

+389(2)3110290; +389(2)3110280; +389(2)3103293.

Alta Vista Broker AD Skopje, blvd Koco Racin No. 30, entrance 2/2, 1000 Skopje Jane Sandanski Str., No. 91/3, 1200 Tetovo

+389(2)3217103

Moj Broker AD Skopje, Veljko Vlahovik Str., No. 1�/1-1, 1000 Skopje

+389(2)3221012; +389(2)3221081; +389(2)3221082.

Euro Broker AD Skopje, Veljko Vlahovik Str., No. 1/2-2, 1000 Skopje

+389(2)3215198; +389(2)3215199; +389(2)3298815.

Novi Triglav AD Skopje, Partizanski odredi No. 62/2-9, 1000 Skopje

+389(2)3092740; +389(2)3092743.

Stopanska Banka AD Skopje, blvd 11 Oktomvri No. 7, 1000 Skopje

+389(2)3295405; +389(2)3295406; +389(2)3295407.

Peon Broker AD Skopje, Kole Nedelkovski Str., No. 50, shop No. 2, 1000 Skopje

+389(2)3203850; +389(2)3203840; +389(2)3203841; +389(2)3203845.

Fersped Broker AD Skopje, Marsal Tito Str., No. 11�, 1000 Skopje

+389(2)3219333; +389(2)3219310; +389(2)3219309.

Bro-Dil AD Skopje, 27-mi Mart Str., No. 5/4, 1000 Skopje

+289(2)3298850; +389(2)3298851; +389(2)3298852; +389(2)3203163.

Bitola Broker AD Bitola, Vasko Karangeleski Str., bb, local area market, floor 1, shop 29, 7000 Bitola

+389(47)258830

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84

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Ohridska Banka AD Ohrid – Brokerage Department, Naroden front Str., No. 19, 1000 Skopje

+389(2)3216250; +389(2)3222902.

Poshtel Broker AD Skopje, 27-mi Mart Str., bb, small ring, next to Hotel Jadran, 1000 Skopje

+389(2)3224300; +389(2)3103210; +389(2)3103211; +389(2)3103200.

Centralno Kooperativna Banka AD Skopje, Gradski stadion, bb, 1000 Skopje

+389(2)3249360; +389(2)3249361; +389(2)3249362

18.3.2. Information on whether the issuer has concluded a contract with the authorized legal entity on performing securities services for conducting transactions and activities for the account of the issuer necessary for successful public offering of securities with compulsory purchase of the securities that remain unsold or without compulsory purchase of the securities that remain unsold. If the obligation for compulsory purchase does not refer to the overall issue, a statement shall be given on the uncovered portion of such issue

Komercijalna Banka AD Skopje does not have any agreement concluded with an authorized legal entity for carrying out services related to securities, for carrying out transactions and activities for its account and necessary for successful public offer of securities with obligatory purchase of the securities unsold or without obligatory purchase of the securities unsold.

19. ACCEPTANCE FOR LISTING

Information on whether and when the issuer shall request that acceptance for the securities be listed on an authorized stock exchange Komercijalna Banka AD Skopje will apply for admission on listing of the shares at the authorized stock exchange upon successful completion of the public offer.

20. INFORMATION ON GUARANTOR

The issue does not have any guarantor. The Prospectus refers to the issue of ownership shares, where the issuer is the only one liable for the obligations arising from the shares.

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85

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21. AVAILABLE DOCUMENTS

21.1. Statement for availability of the documents

We hereby declare that, during the validity of this Prospectus, the following documents or copies of the documents shall be available for consideration: a) The Statute of the issuer; b) Audited financial statements with Auditors opinion, for the last three

years (2007 – Attachment 1; 2008 – Attachment 2 and 2009 – Attachment 3);

c) Unaudited financial statements as at 30.06.2010 (Attachment 4) and 30.09.2010 (Attachment 5);

d) Program of measures and activities of the Business Policy and financial plan of Komercijalna Banka AD Skopje for 2010 (Attachment 6) and

e) Development Plan of Komercijalna Banka AD Skopje with financial projections for the period 2010-2014 (Attachment 7).

21.2. Place where the documents are available fro consideration The documents shall be available for consideration at the Bank’s web site – www.kb.com.mk and in the premises of the authorized legal entities – members of the Macedonian Stock Exchange AD Skopje and the Central Securities Depository AD Skopje, through which the parties interested in may subscribe and buy shares from the VI-th issue of shares.�

Members of the Board of Directors: Members of the Supervisory Board: Hari Kostov – Chief Executive Officer ________________________

Sava Dimitrova – President ________________________

Ilija Iloski – Chief Operative Officer ________________________

Taki Fiti – Vice President ________________________

Maja Stevkova Sterieva – Chief Financial Officer ________________________

Zvone Taljat – Member ________________________

Kiyoshi Nishimura – Member ________________________ Aleko Angelovski – Independent member ________________________

Simon Naumoski – Independent member ________________________

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ATTACHMENT 1:

AUDITED FINANCIAL STATEMENTS WITH AUDITORS OPINION FOR 2007 PREPARED IN ACCORDANCE WITH INTERNATIONAL

ACCOUNTING STANDARDS AND INTERNATIONAL FINANCIAL REPORTING STANDARDS

Translation

KOMERCIJALNA BANKA AD SKOPJE Financial Statements

For the year ended 31 December 2007

KOMERCIJALNA BANKA AD-SKOPJE Financial statements for the year ended 31 December 2007 Translation

Content Page Independent auditor’s report 1 Income statement 2 Balance sheet 3 Statement of changes in equity 4 Cash flow statement 5-6 Notes to the financial statements 7-62

1

PricewaterhouseCoopers dooel ul. Marshal Tito 12, "Palata Makedonija" IV floor 1000 Skopje Republic of Macedonia Telephone +389 (02) 3116 638 +389 (02) 3111 012 +389 (02) 3110 623 Facsimile +389 (02) 3116 525 www.pwc.com/mk

Independent auditor’s report To the Shareholders and the Board of Directors of Komercijalna Banka AD - Skopje

Report on the Financial Statements We have audited the accompanying financial statements of Komercijalna Banka AD - Skopje, which comprise the balance sheet as of 31 December 2007 and the income statement, statement of changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the law regulations applicable in the Republic of Macedonia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying financial statements give a true and fair view of the financial position of Komercijalna Banka AD – Skopje as of 31 December 2007, and of its financial performance and its cash flows for the year than ended in accordance with law regulation applicable in the Republic of Macedonia.

PricewaterhouseCoopers dooel Skopje, 28 February 2008

KOMERCIJALNA BANKA AD-SKOPJE Translation Financial statements for the year ended 31 December 2007 (All amounts in MKD thousands unless otherwise stated)

The notes on pages 7 to 62 are an integral part of these financial statements. 2

Income statement Note 31 December 2007 2006 Interest and similar income 5 3.123.544 2.288.603 Interest expense and similar charges 5 (1.001.630) (689.773) Net interest income 2.121.914 1.598.830 Fee and commission income 6 940.776 743.130 Fee and commission expense 6 (113.894) (91.443) Net fee and commission income 826.882 651.687 Dividend income 7 8.106 1.227 Foreign exchange gains (net) 124.667 89.899 Net trading income 76.279 54.387 Other operating income 8 217.257 241.211 Administrative expenses 9 (705.223) (713.522) Other operating expenses 10 (840.945) (779.703) Impairment charge for credit losses 11 (763.346) (335.470) Operating profit 1.065.591 808.546

Share of profit/loss from associate

3.621

(1.359) Profit before taxation 1.069.212 807.187 Income tax 12 (57.315) (81.351) Profit for the year 1.011.897 725.836 Basic earnings per share (denars) 508 374 Diluted earnings per share (denars) 504 370



Balance sheet Note 31 December 2007 2006 ASSETS Cash and balances with the National Bank of Republic of Macedonia

14

7.364.628

5.073.904

Treasury bills 15 3.191.943 797.962 Financial assets at fair value through profit or loss 16 1.003.542 83.174 Loans and advances to banks 17 13.833.618 17.337.237 Loans and advances to customers 18 24.668.256 17.519.696 Investment securities 19 296.981 352.854 Investments in associates 20 35.520 31.899 Property and equipment 21 1.453.777 1.458.094 Investment property 22 57.855 58.950 Intangible assets 23 41.233 30.941 Accrued interest and other assets 24 1.002.561 1.018.954 Total assets 52.949.914 43.763.665 LIABILITIES Deposits from banks 25 792.918 646.400 Other deposits 26 45.272.556 36.775.773 Borrowings 27 1.065.592 1.430.854 Current income tax liabilities 9.665 28.239 Provisions 29 255.788 205.073 Accrued interest and other liabilities 28 287.857 291.974 Total liabilities 47.684.376 39.378.313 SHAREHOLDERS’ EQUITY Share capital 32 2.014.067 2.014.067 Share premium 109.026 32.146 Retained earnings 1.146.103 747.906 Statutory reserves 1.886.667 1.590.600 Revaluation reserves 33 109.675 122.285 Treasury shares - (121.652) Total shareholders’ equity 5.265.538 4.385.352 Total equity and liabilities 52.949.914 43.763.665



Statement of changes in equity

Share capital

Share premium

Treasury Shares

Retained Earnings

Special

Reserves for

Treasury Shares

Statutory Reserves

Revalu.

reserves Total

capital

Balance at 1 January 2006 2.014.067 16.523

(22.123)

418.718 22.123

1.468.948 122.285 4.040.541 Net profit for the year - - - 725.836 - - - 725.836 Dividends - - - (297.119) - - - (297.119) Treasury shares acquired - - (147.340) - - - - (147.340) Treasury shares sold - 15.623 47.811 - - - - 63.434 Allocation for special reserves for treasury shares acquired - - - (99.529) 99.529

- - - Balance at 31 December 2006 2.014.067 32.146

(121.652) 747.906 121.652

1.468.948 122.285 4.385.352 Balance at 1 January 2007 2.014.067 32.146 (121.652) 747.906 121.652

1.468.948 122.285 4.385.352

Net profit for the year - - - 1.011.897 - - - 1.011.897 Transfer from retained earning to statutory reserve - - - (417.719) -

417.719 - -

Transfer from revaluation reserve to retained earnings - - - 12.610 -

- (12.610) -

Dividends - - - (330.243) - - - (330.243) Treasury shares acquired - - - - - - - - Treasury shares sold - 76.880 121.652 - - - - 198.532 Allocation for special reserves for treasury shares acquired - -

- 121.652 (121.652)


- 1.146.103 -

1.886.667 109.675 5.265.538

Equity capital of the Bank is comprised of 1.992.590 ordinary and 21.477 preferred shares.

Nominal value per share is MKD 1.000 or total MKD 2.014.067.000. Detailed information is provided in Note 32.

Reserves are Bank’s own resources, which serve for coverage of losses arising from the risks the Bank is faced with in its operation. Pursuant to the law regulations, the Bank should calculate and allocate 15% of the net profit for the year for the statutory reserve until it reaches an amount equal to one fifth of the equity capital.

According to the extent of the capital the Bank should have reserves of MKD 402.813.000. As at 31.12.2007 the Bank has reserves of MKD 1.886.667.000, which means that there is no obligation to allocate from the net profit, yet, the Bank plans to keep allocating reserves for maintenance of firm capital base.



Cash flow Note 31 December 2007 2006 Cash flows from operating activities Profit before taxation 1.069.212 807.187 Adjustments for: Depreciation of property and equipment and amortization of intangible assets

177.216 171.456

Decrease in value of rented immovable property 10 1.844 1.828 Decrease in value of assets acquired through foreclosure procedure 10 - 21.873 Capital gains 8 (3.003) (9.546) Loss on sale of claims under acquired property and equipment 10 22.529 7.279 Expenses for bad and doubtful debts 763.346 335.470 Dividend income 7 (8.106) (1.227) Net trading income (76.279) (54.387) Interest income 5 (3.123.544) (2.288.603) Interest expense 5 1.001.630 689.773 Share of loss from associate (3.621) 1.359 Interest and fees and commission receipts 2.975.223 2.216.519 Interest paid (778.607) (437.339) Cash flows from operating profits before changes in operating assets

2.017.840 1.461.642

Increase (decrease) in operating assets Restricted accounts (25.320) 4.872 Balances with NBRM (1.960.184) (627.767) Financial trading instruments (920.368) (75.917) Placement with and loans to banks 3.503.619 (1.361.334) Loans and advances to customers (7.872.149) (4.927.302) Other assets 16.393 337.802

Increase (decrease) in operating liabilities Deposits from banks and other financial institutions 146.518 126.100 Deposits received from other depositors 8.496.783 6.112.356

Other liabilities (10.333) 158.263 Net cash flow from operating activities 3.392.799 1.208.715



Cash flow (continuation) Note 31 December 2007 2006 Cash flows from investment activities

Acquisition of property and equipment (236.130) (209.195) Proceeds from sale of property and equipment 8.409 23.195 Investments in securities 55.873 38.445 Dividends received 4.549 987 Net cash flow from investment activities

(167.299) (146.568)

Cash flows from financing activities Treasury shares sold 198.532 63.434 Increased liabilities under loans 1.359.277 585.159 Proceeds from borrowed funds Repaid loans (1.726.536) (590.628) Dividends paid (368.813) (300.076) Treasury shares acquired - (147.339) Net cash flow from financing activities

(537.540) (389.450)

Effects from special reserves for cash and cash equivalents 11 12.776 167 Net increase (decrease) in cash and cash equivalents

2.700.736 672.864

Cash and cash equivalents at 1 January 2.317.615 1.644.751 Cash and cash equivalents at 31 December

34 5.018.351 2.317.615


7

1 General Information

Komercijalna Banka AD Skopje (hereinafter “the Bank”) is a joint stock company

incorporated and domiciled in the Republic of Macedonia. The Bank is listed on the Macedonian Stock Exchange a.d. Skopje under the ID code KMB. The Bank is licensed to perform all banking activities in accordance with the Banking Law, and its main activities include corporate and retail lending, deposit operations, FX transactions, payment operations services in the country and abroad and similar banking services. In addition, it provides trade finance facilities to companies for export and import purposes.

The address of its registered office is as follows:

Kej Dimitar Vlahov 4 1000 Skopje Republic of Macedonia

These financial statements have been approved by the Board of Directors on 27

February 2008 for disclosure.

Directors The names of the managers of the Bank serving during the financial year and to the date of this report are as follows:

First General Manager Hari Kostov General Manager Ilija Iloski Liquidity and Financial Market Division Manager Suzana Moskovska

Risk Management and Planning Division Manager Maja Stevkova

Sterieva

Corporate Lending Division Manager Biljana Maksimovska

Popovik International Division Manager Vesela Curilova Retail Banking Division Manager Gabriela Stojanovska Human Resources and General Affairs Division Manager Slavko Razmilik Legal Affairs, Problem Loans Workout and Management Division Manager

Teodora Guskova Prodanova

Information Technology Division Manager Zorica Cerepnalkoska

Finance Department Manager Violeta Markovska

Valjak Domestic Payment Operations Department Manager Biljana Mitevska Credit Review Department Manager Vesna Kiprijanova Valut Operation Department Manager Aneta Velevska Marketing Department Manager Jasmina Bucevska Branch Network Managing Department Manager Margarita Ognenovska


8

Chief Internal Auditor Vesna Maslinko

2. Accounting policies

The principal accounting policies applied in the preparation of these financial

statements are set out below: 2.1 Basis of presentation

The financial statements of Komercijalna Banka AD - Skopje have been prepared in accordance with: the Companies Act (Official Journal of RM No. 28/2004), Banking Law and Book of Regulations on Accounts Keeping (Official Journal of RM No. 294/2004 and 11/2005 and Official Journal No. 40/1997 and 73/1999) and are presented in Macedonian Denars (MKD).

The preparation of financial statements is in conformity with commonly accepted accounting policies and requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on management’s best knowledge of current events and actions.

Further information are disclosed in accounting policies and related notes to the financial statements.

2.2 Associate enterprises

Associate enterprise is an enterprise in which the Bank has significant influences in the decisions on the financial and operative policies of the enterprise, but does not have control of those polices. The financial statements include the share of the Bank in the total recognized profits and losses of the associate enterprise according to the method of capital as of the date of commencement of the significant influence until termination of the significant influence. If the share of the Bank in the loss of the associate enterprise is equal to, or exceeds, the accounting value of the investment, the investor usually stops to include its share in the further losses. The investment is reported with zero value.

Additional losses are taken into account to the extent to which the investor had undertaken liabilities or had effected payment on behalf of the associate enterprise for which the investor had guaranteed or had undertaken an obligation otherwise.

2.3 Foreign currencies

Assets and liabilities denominated in foreign currency are converted in MKD using the

medium exchange rate of NBRM applicable at the end of the accounting period. The FX gains and losses arising ynder this basis are included in the Income Statement. Exchange rate: 31 December 2007 31 December 2006 MKD MKD USD 41,66 46,45 EUR 61,20 61,17


9

Significant accounting policies (continuation) 2.4 Offsetting financial instruments

Financial assets and liabilities are offset and their net amount is reported in the

balance sheet on a net basis when there is a legally enforceable right to set off the recognized amounts and when there is possibility to report on a net basis.

2.5 Interest income and expense

Interest income and expense are presented as calculated income and expenses on the basis of all interest bearing claims and liabilities. Interest income and expense are calculated and charged in accordance with the law regulations in the Republic of Macedonia or subject to agreement between the creditor and debtor. Provisioning is made when collection of the calculated interest is bad and doubtful.

2.6 Fee and commission income

Fees and commissions consist mainly of fees received from enterprises arising from

loans, guarantees and letter of credits and other banking services. Fees and commissions are generally recognised on an accrual basis when the service has been provided.

2.7 Financial instruments Classification Financial trading instruments are those held by the Bank for short-term profit-taking.

Loans and receivables approved by the Bank are those loans and receivables used for provision of cash to the customer and are different from those created for the purpose of short-term profit-taking. Loans and receivable approved by the Bank are comprised of loans and advance payments granted to banks and other customers. Held-to-maturity assets are financial assets with fixed or determinable payments and fixed maturities intended for and with a possibility to be held by the Bank to maturity. Held-to-maturity investments include debtors investments. Available-for-sale assets are those that are not held for trading, are neither loans or receivables approved by the Bank, nor are held to maturity. Available-for-sale investments include investments in securities.


10

Significant accounting policies (continuation) 2.7 Financial instruments (continuation) Recognition The Bank recognizes the financial trading instruments, available-for-sale assets, held-

to-maturity assets and loans and receivables approved by the Bank at the date they have been assigned to the Bank.

Measuring Financial instruments are initially disclosed at their fair value, which is objective value

of the provided (for assets) and received (for liabilities) fees. The transaction costs are included in the initial measuring of all financial assets and liabilities. Consequently to the initial recognition all the trading instruments and available-for-sale assets are disclosed according to their objective value, except for the financial assets without listed market value and whose objective value can not be adequately measured. All financial assets that are not subject to trade, loans and receivables approved by the Bank and held-to-maturity assets are assessed at deprecated value less special reserve for bad and doubtful debts. Deprecated vale is calculated on the method of effective interest rate basis. The assets that do not have fixed maturity should be measured according to the fair value.

Principle of measuring according the fair value Fair value of the financial instruments is based on their listed market price at the date

of the Balance Sheet, without any deductions for transaction costs. Gains and losses from repeated measuring according to the fair value Gains or losses of financial trading instruments is recognized in net gain or loss for

the period. 2.8 Investments

Investments of the Bank for short-term profit gaining are disclosed as financial trading

assets. Debt instruments for which the Bank has intention and possibility to hold to maturity are classified as held-to-maturity assets.


11

Significant accounting policies (continuation) 2.8 Investments (continuation) Other investments are disclosed as available-for-sales assets. Investment property on disposal is disclosed at fair or revaluated price for

accumulated depreciation. Gains or losses arising from the change of the objective value of the investments

property is included in the net profit or loss for the period. Gains from property on disposal are recognized only for the period they refer to, in accordance with the accounting policy.

2.9 Loans and provisions for bad and doubtful debts

Loans arising from granting assets directly to the borrower are classified as loans

approved by the Bank and are disclosed in the Balance Sheet less special reserve. Costs to third parties, for example court charges arising for the loan security are treated as transaction costs. All loans are disclosed when the cash is paid out to the borrowers.

Special reserve arises as a result of the analysis made on the credit portfolio by the

management of the Bank in accordance with the law regulations in the Republic of Macedonia.

In case of uncollectible loans, and all legal possibilities have been exhausted, and final loss has been determined, it is written off directly. The amount of the collected prior described receivables is recognized as income in the income statement at the moment of collection. If the amount of the provisioning for bad and doubtful debts decreases as a result of an event after the provisioning, the release of provisioning reflects as decrease of provisioning for losses under loans. Structure of the provisioning for bad and doubtful debts is given in Note 11.


12

Significant accounting policies (continuation) 2.10 Property and equipment and intangible assets Property and equipment and intangible assets are stated at cost or valuation less

accumulated depreciation and accumulated loss due to demage. Assets in course of construction are reported at their cost of construction including costs which increase their value. No depreciation is charged on current investments. Upon completion, all accumulated costs of the asset are transferred to the relevant category of tangible and intangible investments and are subject to calculation of respective ineterest rates relevant to the respective category of assets. Decrease of property and equipment and intangible assets includes sales and their recognition as losses less their accumulated depreciation. Gains and losses arising from these transactions are recognised in the income statement. Depreciation on all assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives. Depriciation rates determined are spread in costs in the assessed period of useful lives of tangible and intangible assets. The annual depreciation rates applies are as follows:

Useful life Buildings 40 Furniture and equipment 4-10

2.11 Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash

balances and deposits with with NBRM, treasury bills and government treasury bills with maturity up to 90 days.


13

Significant accounting policies (continuation)

2.12 Employee benefits The Bank, in the normal course of business, makes payments on behalf of its

employees for pensions, health care, employment and personnel tax that are calculated on the basis of gross salaries and wages, food allowances and travel expenses according to the legislation. The Bank makes these contributions to the Pension and Disability Insurance Fund of the Republic of Macedonia and to the Health Insurance Fund of the Republic of Macedonia, at the statutory rates in force during the year. The regular contributions constitute costs for employees for the current year. The cost of these payments is disclosed in the income statement in the same period as the related salary cost. The Bank does not operate any other pension scheme or post retirement benefits plan and consequently, has no obligation in respect of pensions.

In addition, the Bank is not obliged to provide further benefits to current and former

employees. The Bank recognizes liability and expense for share in profit and payments for bonuses to employees, members of the Board of Directors and to the management of the Bank.

2.13 Income tax

The income tax is calculated and paid in accordance with the provisions of the Law

on Income Tax. Payment of the monthly tax is executed in advance. The final tax at the rate of 12% is calculated on the profit determined in the Income Statement, corrected for some items in accordance with the law provisions.

2.14 Borrowings

Borrowings are recorded at their fair value, which is objective value of the transaction

costs incurred.

2.15 Share capital Preference shares Preference shares that can not be purchased by the Bank, and may be traded on the

Macedonian Stock Exchange, are recognized as capital.


14


2.15 Share capital (continuation) Purchase of treasury shares When the Bank buys treasury shares, the amount of the paid fees, including directly

connected costs, are recognized as capital changes. Acquired shares are classified as treasury shares acquired and are presented as item that decreases the total equity.

Dividends Dividends are recognised as a liability in the period in which they are declared.

2.16 Comparatives Comparative figures have been adjusted in order to conform with changes in

presentation in the current year.


15

3. Financial risk management

The Bank’s activities expose it to a variety of financial risks, so the adequate risk management is basic Bank’s aim. The efforts to maintain adequate balance between accepted risk level and business stability and profitability are permanent. Thus, operative risk is monitoring, evaluating and managing on regular basis The most important types of risk are credit risk, liquidity risk, market risk and operative risk. Market risk includes interest rate risk, currency risk and price risk. Risk management framework Bank’s Shareholders Assembly appoints the members of the Board of Directors and the Audit Committee. Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The Board of Directors has established the Management Board, Credit Committee, Risk Management Committee, and Liquidity Committee, which are responsible for monitoring and developing risk management policies in specific areas. Regarding the organizational structure of the Bank, the Risk Management and Planning Division is responsible for monitoring and reporting of global risk exposure, while the organizational units of the Bank, which create risk exposure, are responsible for operative risk management. Internal audit is responsible for the independent reporting regarding the risk management. According to the Bank’s risk management policies, which include set of appropriate risk limits and controls, identifying, monitoring and risk analysis are made on regular basis.

3.1 Credit risk

The Bank takes on exposure to credit risk, which is the risk that counterparty will be

unable to pay in full when due. Credit risk is the most important risk of the Bank’s business, so the Bank carefully manages its exposure to credit risk. Principally, credit exposure arises in the lending activities and investment activities.

3.1.1 Credit risk management

Decision-making authorities of the Board of Directors are defined by law and by-law regulations of the National Bank of the Republic of Macedonia, according to which the Board of Directors makes decisions for rescheduling of claims and write-off of Bank’s claims.

• Board of Directors is responsible for creation and implementation of the Credit Policy and Procedures for monitoring the implementation of the policy and procedures, for assessment of loans and their management. All credit exposures exceeding 10% of the regulatory capital of the Bank up to the legally determined limit of exposure towards single client (up to 25% of regulatory capital) are subject to approving of the Board of Directors.

• Credit Committee oversees the overall credit operation of the Bank and is


16

responsible for approving and proposing to the Risk Management Committee and Board of Directors, all policies, procedures and amendments thereto relating to the extension of credit, to ensure that these policies are applied consistently and complied with throughout the Bank, to approve credit exposure between 3% and 10% from the regulatory capital.

• Management Body, Corporate Lending Division Manager and Department

Managers of the Bank are authorized for approving credit exposures up to 3% of the Bank's regulatory capital.

3.1.2 Credit risk assessment

(a) Loans

In assessing credit risk of loans approved to retail customers, legal entities and to banks at a counterparty level, the Bank uses three components: (I) the probability of default by the client or counterparty on its contractual obligation (expected cash flows); (ii) the likely recovery ratio on the defaulted obligations, the ‘loss given default’; (iii) the amount and quality of the collateral for the exposure. These credit risk assessments, which reflect expected loss and are required by the IAS 39, are based on losses that have been incurred at the balance sheet data rather than expected losses, as well as on the information the Bank relies upon for the client’s industry. (1) The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judgment and are validated, where appropriate, by comparison with externally available data. The clients in the group are ranged in 5 risk categories. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. These means that, in principal, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their predictive power with regard to default events. Bank’s internal rating scale Bank’s rating Description of the grade A Pass/acceptable for financing B Watch (careful) C Sub-standard D+E Suspicious (doubtful)+Loss

Bank’s rating grade A (Pass/acceptable for financing) includes:

• Claims from National Bank of the Republic of Macedonia and the Republic of Macedonia

• Credit exposure towards customer who settles its obligation towards the Bank at maturity or up to 15 days overdue

• Credit exposure being fully secured by first class security instruments, as defined in NBRM Decision on classification of claims of banks, up to realization


17

of the instrument, provided that the realization is not in term longer than 30 days after the claim's maturity.

Bank’s rating grade B (Watch (careful)) includes: • Credit exposure towards customer, for whom on the basis of credit worthiness

evaluation, the Bank assesses that the cash flow will be sufficient for regular settlement of the due obligations, regardless to the presented current financial weaknesses, showing no signs of further worsening of the customer's condition;

• Credit exposure towards customer who repays its due obligations up to 30 days or by exception in period from 31 up to 90 days, if the delay is only periodical in the interval of 31 to 90 days.

Bank’s rating grade C (Sub-standard) includes: • Credit exposure towards customer who is confirmed and assessed to have

inadequate cash flow which will enable fulfillment of its obligations at the maturity;

• Credit exposure towards customer being inadequately capitalized; • Credit exposure towards customer with inadequate term structure of the assets

and liabilities, i.e. insufficiency in the long-term sources for financing customer's long-term activities;

• Credit exposure towards customer for which the Bank does not have satisfactory information available, i.e. the Bank does not have the required documentation for the Credit File in accordance with the Guidelines for keeping credit files passed by NBRM;

• Credit exposure towards customer who has restructured obligations or other prolongation of repayment of loan or other types of credit exposure due to serious financial difficulties;

• Credit exposure towards customer for whom payment has been settled for the issued letters of credit, guarantees, backing guarantees and other forms of guarantee (warranty);

• Credit exposure towards customer who usually fulfils its obligations with a delay from 31 up to 90 days, or as an exception from 91 up to 180 days, if the delay is only periodical in the interval from 91 up to 180 days.

Bank’s rating grade D+E (Suspicious (doubtful) loss) includes: • Credit exposure towards customer who is illiquid or insolvent and credit

exposure towards customer in bankruptcy or liquidation; • Credit exposure towards customer whose creditors has written-off their claims; • Credit exposure towards customer in financial recovery; • Credit exposure towards a customer for whom a proposal is submitted to the

authorized court for initiating a procedure for liquidation or bankruptcy and out of which the Bank fairly expects to collect a part of its claims;

• Credit exposure towards customer with a suspicious legal base; • Credit exposure towards customer whose debts collection depends on the

realization of the security instruments; • Credit exposure with expectations that the Bank will collect only a part of its

claims from the customer; • Credit exposure towards customer that is being subject to litigation and at the

same time it is not being secured with a qualitative security instrument; • Customer with undefined legal status; • Credit exposure towards customer for whom there are firm expectations that the

Bank will not be in position to collect its claims from the customer; • Credit exposure towards customer who usually fulfils its obligations with a delay

from 91 up to 180 days, or as an exception from 181 up to 365 days, if the delay


18

is only periodical in the interval from 181 up to 365 days and credit exposure towards customer who fulfils its obligations with delay longer than 365 days or does not fulfill them at all.

(2) Loss given default or loss severity represent the Bank’s expectations of the extent of loss on a clime should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit mitigations. (3) Amount and quality of the collateral depends on the terms, type (non movables, movables (inventories, receivables) and the possibility for its enforcement. The Bank divides the clients in two groups: one where the exposure of the bank is secured with value of the collateral that is lower than the amount of the exposure and second where the value of the collateral is higher than the amount of the exposure. (b) Debt securities

The Bank is striving to maintain acceptable level of credit risk exposure regarding debt securities, so investment activities are dominantly in government debt securities.

3.1.3 Risk limit control and mitigation policies

The Bank manages and controls concentration of credit risk to individual and group

basis, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. As measures for specific control and mitigation of credit risk prescribed in Bank’s act that regulates credit activities and procedures are obtaining collateral and credit-related contingencies. (a) Collateral Collateral is always considered as a secondary factor in granting a credit facility. Security by itself, in lack of ability to generate cash flow, is insufficient to justify the granting of credit facilities. The principal collateral types for loans and advances are: (1) For corporate entities

• Cash • Property • Equipment and vehicles • Inventory • Receivables • Guarantees (bank guarantees, guarantees from legal entities)


19

• Securities (Debt securities issued by the Government of RM, Securities issued by legal entities)

Loans to corporate entities are generally secured. .


20

(2) For individuals

• Property • Cars • Deposits • Securities (Debt securities issued by the Government of RM, bonds, Securities

issued by legal entities) • In some cases draft or draft with endorsers covering the total receivables.

Loans to individuals are generally secured. (b) Credit-related contingencies

The primary purpose to these instruments is to ensure that funds are available to a customer as required. Guarantees and letters of credit carry the same credit risk as loans. The Bank issues collateralized and uncollateralized guarantees and letters of credit. The Bank monitors the term of maturity of these credit commitments, because long-term commitments have greater degree of credit risk than short-term commitments, also as uncollateralized commitments regarding collateralized commitments.

3.1.4 Impairment and provisioning policies

The Bank establishes an allowance for impairment losses that represents its estimate

of incurred losses in its loan portfolio. The main components of this allowance are specific loss component that relates individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been occurred but have not been identified on loans subject to individual assessment impairment, by using the available historical experience, experienced judgment and statistical techniques. According to the Bank’s policy, there are four internal rating grades. The majority of the impairment provision comes from the bottom two grading. The table below shows the structure of Bank’s loans and advances portfolio regarding internal rating system and the associated impairment provision for each internal rating grade:


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2007 2006 Risk categories

Loans % Impairment%

Loans % Impairment %

Pass/acceptable for financing (A)

73.5 1.0 72.9 0.8

Watch (careful) (B) 10.2 10.0 9.3 10.0 Sub-standard ( C ) 6.2 25.0 3.1 24.9 Suspicious (doubtful)+Loss (D) + (E)

10.1

85.3 14.6 82.2

Total 100.0 11.9 100.0 14.3

3.1.5 Maximum exposure to credit risk before collateral held or other credit

enhancement

2007 2006 Loans and advances to banks 13,833,618 17,337,237 Loans to customers Loans to individuals - overdrafts (exemption off-balance sheet exposure) 712,249 376,284 - credit cards (exemption off-balance sheet exposure)

576,820 253,198

- loans 4,024,274 3,369,892 - other 18,934 20,189 Loans to corporate entities - Large corporate clients 5,918,975 5,091,755 - Small and medium size companies (SMEs) 13,417,004 8,408,378 Financial derivative instruments Financial assets held for trading 4,195,485 83,174 Financial assets at fair value trhough Profit and loss Financial assets available for sale Financial assest held to maturity 228,544 1,087,382 Other assets 1,002,561 1,018,954 Off balance sheet items Financial guaranties 8,244,795 4,753,431 Latters of credit 903,511 1,023,420 Other liabilities related to lending Unused overdrafts for current accounts 1,485,047 945,787 Unused overdrafts for Master card 716,460 551,086 Overdrafts for legal entities for salary payments 552,161 39,657


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The above table presents a worse case scenario of credit risk exposure to the Bank

as at 31 December 2007 and 2006, without taking account of any collateral held or other credit enhancements attached. For balance sheet items, the exposure set out above are based on net carrying amounts as reported in the balance sheet. As shown above, 69% of the total maximum exposure is derived from loans and advances to banks and customers (2006: 79%); 21% represents off-balance-sheet items (2006: 17%). Management is confident that in its ability to continue to control and sustain minimum exposure to credit risk to the Bank resulting from both loans and advances portfolio and off balance sheet items based on following:

• 83.7% of the loans and advances are categorized in top two grades on the internal rating system (2006: 82.2%)

• Loans and advances to customers are collateralized and loans to banks are mostly in first class banks;

• 59% of loans and advances are considered as to be neither past due nor impaired;

• The increase of off-balance-sheet items generally resulting of increase of issued guarantees as a result of the need in the whole economy for this kind of bank service. According statistical data, the expected need to perform on these guarantees by the Bank is very low.

3.1.6 Loan and advances

Loans and advances are summarized as follows:

31 December 2007 31 December 2006

Loans and advances to

customers


banks


customers


banks Neither past due nor impaired 10,986,630 13,653,705 6,368,346 17,337,237 Past due but not impaired 2,804,981 - 1,619,293 - Impaired 14,206,243 181,731 12,452,803 - Gross 27,997,854 13,835,436 20,440,442 17,337,237 Less: allowance for impairment (3,329,598) (1,818) (2,920,746) - Net 24,668,256 13,833,618 17,519,696 17,337,237


23

The total impairment provision for loans and advances is MKD 3,331,416.000 (2006: MKD 2,920,746.000) of which MKD 1,714,906.000 (2006: MKD 1,513,516.000) represents the individually impaired loans and the remaining amount of MKD 1,616,510.000 represents the portfolio provision. Further information of the impairment allowance for loans and advances is provided in Notes 17 and 18. (a) Loans and advances neither past due or impaired

The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the Bank’s internal rating system.

Degree of investment (A)

2007


2006

Loans and advances to banks

13,653,705

17,337,237 Loans to customers Loans to individuals - loans 334,347 218,865 Loans to corporate entities - Large corporate clients 4,279,257 2,470,382 - Small and medium size companies (SMEs) 6,373,026 3,679,099 Total 24,640,335 23,705,583


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(b) Loans and advances past due but not impaired

Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. Gross amount of loans and advances by class of customer that were past due but not impaired were as follows:

31 December 2007 Up to 30

days Up to 90

days Over 90

days Total

Loans to corporate entities - Small and medium size companies (SMEs)

2.678.418 126.563 - 2.804.981

Total 2.678.418 126.563 - 2.804.981 Value of collateral 4.431.350

31 December 2006

Up to 30 days

Up to 90 days

Over 90 days

Total


1.546.230 73.063 - 1.619.293


(c) Loans and advances individually impaired

(1) The breakdown of individually impaired loans and advances to customers by class and the fair value of related collateral held by the Bank as security are as follows:

31 December 2007

Loans individually

impaired Value of

collateral Loans to corporate entities - Large corporate clients 2.323.540 2.265.300 - Small and medium size companies (SMEs)

3.163.837 2.231.294

Total 5.487.377 4.496.594


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31 December 2006

Loans individually

impaired Value of


4.600.258 5.790.255

Total 8.379.660 10.540.607

2) The total gross amount of individually impaired loans and advances to banks and the amount of collateral are as folows:

2007 2006 Loans

individually impaired

Value of collateral

Loans individually

impaired Value of

collateral Loans and advances to banks 181.731 - - - Total 181.731 - - -

.


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(d) Loans and advances renegotiated

Loans with renegotiated terms are loans that have been rescheduled due to deterioration in the borrower’s financial position and when the Bank has made concession that it would not otherwise consider. Once the loan is rescheduled it remains in the same rating grade at least two quarters independent of satisfactory performance after rescheduling, except when the quality of the loan was improved and the loan was transferred in a less risky category.

31 December 2007 Carrying amount

Rescheduled loans 575.543 31 December 2006 Carrying amount

Rescheduled loans 542.414

3.1.7 Debt securities, treasury bills and other securities The table below presents an analysis of debt securities, treasury bills and other

securities by issuers as at 31 December 2007:

Issuer Treasury bills

and other bills

Trading securities

Investment securities Total

National Bank of the Republic of Macedonia 3.191.943 - - 3.191.943 Republic of Macedonia - 923.979 228.544 1.152.523 Total 3.191.943 923.979 228.544 4.344.466

3.1.8 Repossessed collateral During 2007, the Bank obtained assets by taking possession of collateral held as

security as follows:

Carrying amount

Nature of assets 2007

2006

Residential property 798,489

854,625


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3.1.9 Concentration of risks of financial assets with credit risk exposure

(a) Geographic sectors The following table breaks down the Bank’s credit exposure at their carrying amount, categorized by geographic region, based on the country of domicile of our counterparties:

Total Republic of Macedonia

EU Countries

Non-EU Countries in Europe

Other countries

ASSETS Cash and balances with the National Bank of Republic of Macedonia 7.364.628 6.473.586 659.308 69.420 162.314 Treasury bills 3.191.943 3.191.943 - - - Financial assets at fair value through P&L 1.003.542 1.003.542 - - - Loans and advances to banks 13.833.618 3.341 10.706.201 3.124.076 - Loans and advances to customers 24.668.256 24.637.562 1.683 29.011 - Loans to individuals 5.332.278 5.332.278 - - - - loans 4.024.274 4.024.274 - - - - overdrafts 712.249 712.249 - - - - credit cards 576.820 576.820 - - - - other 18.935 18.935 - - - Loans to corporate entities 19.335.978 19.305.284 1.683 29.011 - - large corporate customers 5.918.975 5.918.975 - - - - SMEs 13.417.003 13.386.309 1.683 29.011 - Investment securities 296.981 290.870 1.243 - 4.868 Other assets 1.002.561 1.002.561 - - - Total assets at 31 December 2007 51.361.529 36.603.405 11.368.435 3.222.507 167.182 Total assets at 31 December 2006 42.183.781 24.065.032 15.631.698 1.616.901 870.150


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(b) Industry sector

The following table breaks down the Bank’s credit exposure at their carrying amount, categorized by industry sector of our counterparties.

Total Industry Commerce

and finance Retail

customers Agriculture

Gove. instit. and local

authorities Construc-

tion Transport Other Total ASSETS Cash and balances with the National Bank of Republic of Macedonia 7.364.628 - 891.042 - - - - - - 6.473.586 Treasury bills 3.191.943 - 3.191.943 - - - - - - - Financial assets at fair value through P&L 1.003.542 - 1.003.542 - - - - - - - Loans and advances to banks 13.833.618 - 13.833.618 - - - - - - - Loans and advances to customers 24.668.256 6.952.576 5.300.983 5.332.278 678.274 814.651 2.597.367 1.346.016 165.737 1.480.374 Loans to individuals 5.332.278 - - 5.332.278 - - - - - - - loans 4.024.274 - - 4.024.274 - - - - - - - overdrafts 712.249 - - 712.249 - - - - - - - credit cards 576.820 - - 576.820 - - - - - - - other 18.935 - - 18.935 - - - - - - Loans to corporate entities 19.335.978 6.952.576 5.300.983 - 678.274 814.651 2.597.367 1.346.016 165.737 1.470.374 - large corporate customers 5.918.975 2.129.784 1.623.851 - 207.776 249.552 795.652 412.325 50.770 449.265 - SMEs 13.417.003 4.822.792 3.677.132 - 470.498 565.099 1.801.715 933.691 114.967 1.031.109 Investment securities 296.981 - 296.981 - - - - - - - Other assets 1.002.561 - - - - - - - - 1.002.561 Total assets at 31 December 2007 51.361.529 6.952.576 24.518.109 5.332.278 678.274 814.651 2.597.367 1.346.016 165.737 8.956.521 Total assets at 31 December 2006 42.183.781 6.807.226 21.971.459 4.292.007 957.336 187.820 1.574.022 1.540.288 165.348 4.688.275


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3.2 Market risk

The Bank takes on exposure to market risk. Market risk arises from open positions in

interest rate, and currency, all of which are exposed to general and specific market movements. The Bank estimates the market risk of positions held and the maximum losses expected based upon a number of assumptions for various changes in market conditions. The Board of Directors sets limits on the value of risk that may be accepted, which is monitored on a regular basis.

3.2.1 Market risk measurement

Regarding market risk managing and measuring, the Bank’s management on a

regular basis through adequate analysis and reporting process, is monitoring: • interest rate changes regarding market movements and internal decisions, and

the influence on interest bearing assets and liabilities and the interest rate margin;

• changes of foreign currency rates regarding foreign currency assets and liabilities and maintain adequate structure regarding foreign exchange risk exposure;

The aim of the Bank is maximizing the stability and profitability, by applying the optimum combination of foreign currency and interest rate structure of the assets and liabilities.


30

3.3 Foreign currency risk

The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board of Directors sets out the FX risk management policies. The FX position of the Bank is monitored on daily basis. The table below summarizes the Bank’s exposure by foreign currency at 31 December. Included in the table are the Bank’s assets and liabilities at carrying amounts categorized by currency.

Bank’s exposure to foreign currency risk Total assets and liabilities in thousand of MKD analized as denar and foreign

currency balances are as follows: As at 31 December 2007 EUR USD MKD Other Total

Assets Cash and balances with the NBRM 3.093.397 311.640 3.583.120 376.471 7.364.628 Treasury bills - - 3.191.943 - 3.191.943 Financial assets at fair value through profit or loss 9.718 - 993.824 - 1.003.542 Loans and advances to banks 10.416.112 2.331.384 1.523 1.084.599 13.833.618 Loans and advances to customers 8.584.824 85.803 15.848.050 149.579 24.668.256 Investment securities 229.800 4.917 62.264 - 296.981 Investments in associates - - 35.520 - 35.520 Property and equipment - - 1.453.777 - 1.453.777 Investment property - - 57.855 - 57.855 Intangible assets - - 41.233 - 41.233 Accrued interest and other asset 58.805 27.387 916.346 23 1.002.561

Total assets 22.392.656 2.761.131 26.185.455 1.610.672 52.949.914

Liabilities Deposits from banks 85.890 115.298 549.259 42.471 792.918 Other deposits 19.961.256 2.634.924 21.877.153 799.223 45.272.556 Borrowings 901.118 1.254 163.220 - 1.065.592 Provisions 86.214 12.857 149.649 7.068 255.788 Accrued interest and other liabilities 1.464 21.252 273.874 932 297.522

Total liabilities 21.035.942 2.785.585 23.013.155 849.694 47.684.376

Off-balance sheet liabilities 4.011.597 598.263 6.963.244 328.871 11.901.975 Net exposure 1.356.714 (24.454) 3.172.300 760.978 5.265.538

As at 31 December 2006 Total assets 19.630.343 3.391.541 19.284.242 1.457.539 43.763.665 Total liabilities 18.395.651 3.382.273 16.813.191 787.198 39.378.313 Net exposure 1.234.692 9.268 2.471.051 670.341 4.385.352

Off-balance sheet liabilities 2.319.319 646.105 4.144.919 203.039 7.313.381


31

The currency risk management is preformed through adjustment of the total open FX position of the Bank, which is targeted through Bank’s internal acts, depending of the total risk position by all types of risks and separately by currencies depending on the fluctuation of the exchange rate. The Bank manages the open FX positon by its decrease or increase depending on the market changes. The sensitive analisys of the exchange rate changes is implemented by exchange rate changes in sertain curencies, based on the statistic data that shows exchange rate stability of the euro v.s denar and fluctuating exchange rate of the US dollar. At 31 December 2007, had the exchange rate between the MKD and EUR increased or decreased by 0.5%; between MKD and USD increased or decreased by 3%; between MKD and other foreign currencies increased or decreased by 1%, the potential effect on the income statement for 2007 would have been approximately MKD 13,660,000 (2006: MKD 13,155,000) lower or higher.


32

3.4 Interest rate risk

The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and interest-bearing liabilities mature or reprice at different times or in differing amounts. In the case of floating rate assets and liabilities, the Bank is also exposed to basic risk, which is the difference in reprising characteristics of the various floating rate indices, such as the savings rate, and three or six months EURIBOR/LIBOR and different types of interest. Risk management activities are aimed at optimizing net interest income, given market interest rate levels consistent with the Bank’s business strategies. Assets-liability risk management activities are conducted in the context of the Bank’s sensitivity to interest rate changes. In general, the Bank is asset sensitive because of the majority of the interest-earning assets and liabilities; the Bank has the right simultaneously to change the interest rates. In decreasing interest rate environments, margins earned will narrow, as liabilities interest rates will decrease with a lower percentage compared to assets interest rate. However the actual effect will depend on various factors, including stability of the economy, environment and level of the inflation.

Up to 1 month

1-3 months

3-12 months 1-5 years

Over 5 years

Non-interest bearing Total

At 31 December 2007 Assets Cash and balances with the NBRM 2.948.548 - - - - 4.416.080 7.364.628 Treasury bills 3.191.943 - - - - - 3.191.943 Financial assets at fair value through profit or loss 212.569 533.072 28.338 150.000 - 79.563 1.003.542 Loans and advances to banks 9.520.364 3.766.243 487.553 2.000 - 57.458 13.833.618 Loans and advances to Customers 10.862.690 3.931.416 6.877.919 2.123.128 721.747 151.356 24.668.256 Investment securities - - 54.058 163.824 9.342 69.757 296.981 Investments in associates - - - - - 35.520 35.520 Property and equipment - - - - - 1.453.777 1.453.777 Investment property - - - - - 57.855 57.855 Intangible assets - - - - - 41.233 41.233 Accrued interest and other

assets 179 - - 109 9.693 992.580 1.002.561 Total assets 26.736.293 8.230.731 7.447.868 2.439.061 740.782 7.355.179 52.949.914 Liabilities Deposits from banks 425.245 147.225 115.833 44.000 - 60.615 792.918 Other deposits 28.739.721 6.544.096 8.259.191 184.128 - 1.545.420 45.272.556 Borrowings 231.079 87.080 155.437 429.962 29.200 132.834 1.065.592 Provisions - - - - - 255.788 255.788 Accrued interest and other liabilities - - - - - 297.522 297.522

Total liabilities 29.396.045 6.778.401 8.530.461 658.090 29.200 2.292.179 47.684.376 Net interest risk 2007 (2.659.752) 1.452.330 (1.082.593) 1.780.971 711.582 5.063.000 5.265.538 As at 31 December 2006 Total assets 25.129.201 3.990.828 8.473.993 664.692 25.869 5.479.081 43.763.665 Total liabilities 24.886.067 5.456.162 5.351.742 550.369 - 3.133.973 39.378.313

Net interest risk 2006 243.134 (1.465.334) 3.122.251 114.322 25.869 2.345.108 4.385.352


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The interest rate change sensitivity analysis has been determined based on the aggregate open interest position at the reporting date. At 31 December 2007, if interest rates had been 100 basis points higher/lower, the potential effect on the income statement for 2007 would be for 2,025,000 MKD positive or negative (2006:20,402,000 MKD). There is no impact of interest rate change to equity because the available for sale securities are non interest bearing.

3.5 Analysis by maturity

Liquidity risk is the risk that the Bank is unable to meet its payment obligations

associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence of liquidity risk may be the failure to meet obligations to repay depositors and fulfill commitments to lend.

3.5.1 Liquidity risk management process

Liquidity risk management policy of the Bank defines the method of managing the

Bank’s liquidity. Perception and monitoring of Bank’s liquidity is precondition for its stability and successful working. Implementation of the liquidity risk management policy is done using defined risk management process which includes planning and managing with cash flows, maintaining adequate structure of assets and liabilities, financial instruments for liquidity risk management, adequate diversification of deposits and other liabilities by maturity and client, procedures for identification and monitoring the deposits stability, monitoring the maturity of assets and liabilities, monitoring the off-balance sheet items, monitoring liquidity ratios, liquidity stress testing and continuity plan in irregular conditions reporting to Bank’s bodies and adequate management information system and responsibilities of Bank’s organizational units in liquidity risk management process. The aim of the Bank is maximizing the profitability, by applying the optimum combination of maturity and foreign currency structure of the assets and liabilities. The table below analyses assets and liabilities of the Bank into relevant maturity buckets based on the remaining period at balance sheet date to the contractual maturity date for liabilities and expected maturity for assets. Although the Bank has shortage of short-term assets over short-term liabilities maturing within one month, one to three months and three to twelve months, the Bank’s management considers its deposit base as being stabile and liquidity not jeopardized. This is based on statistical data and calculations of expected maturity in order to determine the funding and stability of the deposit base.


34

Maturities of assets and liabilities

As at 31 December 2007 Up to 1 month

1-3 months


Over 5 years Total

Liabilities Deposits from banks 483.916 148.454 116.548 44.127 - 793.045 Other deposits 29.771.208 6.650.284 8.377.810 495.698 85 45.295.085 Borrowings 50.535 16.925 155.437 700.737 234.960 1.158.594 Provisions 82.694 50.458 64.976 46.194 11.466 255.788 Accrued interest and other liabilities 192.336 103.214 1.972 - - 297.522

Total liabilities 30.580.689 6.969.335 8.716.743 1.286.756 246.511 47.800.034 Total assets 23.231.406 5.461.710 7.042.537 11.017.166 6.256.337 53.009.157


1-3 months


Over 5 years Total

Liabilities Deposits from banks 426.150 177.517 42.733 - - 646.400 Other deposits 26.252.026 5.108.358 5.167.627 249.961 - 36.777.972 Borrowings 43.683 38.491 237.013 1.070.341 162.125 1.551.653 Provisions 80.177 32.225 57.861 34.810 - 205.073 Accrued interest and other liabilities 317.895 - - - 2.318 320.213

Total liabilities 27.119.931 5.356.591 5.505.234 1.355.112 164.443 39.501.311 Total assets 23.585.701 3.072.712 5.863.237 7.469.281 4.337.341 44.328.271 3.5.2 Off-balance sheet items (uncollateralized) (a) Guarantees

The maturity buckets based on the remaining period to the contractual maturity date of guarantees are summarized in the table bellow.

(b) Letters of credit The maturity groupings based on the remaining period to the contractual maturity date of letter of credit are also included in the table bellow.

(c) Other This item includes approved undistributed overdrafts on current accounts and cards and loans in MKD for out limiting of the condition of the funds on the current accounts of legal entities in domestic payment operation. The maturity buckets based on the remaining period to the contractual maturity date are summarized in the table bellow.


35

As at 31 December 2007

Up to 1 year 1-5 years Over 5 years Total

Guarantees 5.566.423 2.149.425 533.530 8.249.378 Letters of credit 901.648 - - 901.648 Other 2.750.949 - - 2.750.949 Total 9.219.020 2.149.425 533.530 11.901.975



Guarantees 3.530.462 1.236.074 - 4.766.536 Letters of credit 1.026.543 - - 1.026.543 Other 1.514.986 5.317 - 1.520.303 Total 6.071.991 1.241.390 - 7.313.381

3.6 Financial Instruments Fair value Fair value represents the amount at which an asset could be replaced or a liability

settled on an arms length basis. Fair values have been based on management assumptions according to the profile of the asset and liability base. The following table summarizes the carrying amounts and fair values to those financial assets and liabilities not presented on balance sheet at their fair value.

Carrying value Fair value 2007 2006 2007 2006 Financial assets Loans and advances to banks 13.833.618 17.337.237 13.833.618 17.337.237 Loans and advances to customers 24.668.256 17.519.696 24.541.276 17.348.204 - Retail customers(individuals) 5.332.277 4.019.563 5.332.277 4.019.563 -large corporate customers 5.918.975 5.091.755 5.918.975 5.091.755 -SMEs 13.417.004 8.408.378 13.290.024 8.236.886 Investment securities 296.981 352.854 372.404 329.863 Financial liabilities Deposits from banks 792.918 646.400 792.918 646.400 Other deposits 45.272.556 36.775.773 45.272.556 36.775.773 Borrowings 1.065.592 1.430.854 1.065.592 1.430.854


36


Loans and advances to other banks comprise inter-bank placements. The fair value of placements and overnight deposits is their carrying amount due to their short-term nature. Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Investment securities Investment securities include interest-bearing assets held to maturity and assets classified as available for sale are measured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. Other financial assets The fair value of monetary assets that includes cash and cash equivalents is considered to approximate their respective carrying values by definition and due to their short-term nature. Deposits and borrowings The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The fair value of the term deposits at variable interest rates approximates their carrying values as of the balance sheet date. Borrowed funds carry predominantly floating rates and due to the interest rate re- pricing carrying value is not materially different from their fair value.


37

3.7. Capital management The Bank’s objectives regarding capital managements are:

• To comply with the capital requirements in accordance with the regulations of the National Bank of the Republic of Macedonia;

• To safeguard the Bank’s ability to provide returns to shareholders; • To maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are regularly monitored by the Bank’s management, using techniques prescribed by national regulatory authority (National Bank of Republic of Macedonia). The required information is submitted to regulatory authority on a quarterly basis. The regulatory authority requires that each bank has to maintain capital adequacy ratio above 8%. As a result of changes in the local legislative which have occurred in 2007, there is difference approach in regulatory capital calculations in 2007 regarding 2006. The Bank’s regulatory capital is divided in two groups:

• Tier 1 that includes: ordinary and non-cumulative non-voting shares and share premium, statutory reserves and retained earnings or loss, items as result of consolidation, less: intangible assets.

• Tier 2 that includes: cumulative non-voting shares and share premium, hybrid capital liabilities and subordinated liabilities.

Investments in other banks or financial institutions over 10% and investments in insurance and re-insurance companies and pension fund management companies are deducted from Tier 1 and Tier 2 capital to arrive at the regulatory capital. According to national regulations, the risk-weighted assets (on-balance and off-balance) are measured by means of a hierarchy of four risk weights classified according to nature of assets, taking into consideration the collateral or guarantees. Calculation of capital adequacy ratio includes regulatory capital and total of credit risk-weighted assets and FX risk-weighted assets. The table bellow summarizes the compositions of regulatory capital and the capital adequacy ratio of the Bank for the years ended 31 December regarding the requirement of regulatory authority. During these two years, the Bank complied with all of the regulatory imposed capital requirements to which the Bank is subject.


38

Tier 1 capital 2007 Ordinary and non-cumulative non-voting shares and share premium

2.209.660 Statutory reserves and retained earnings or loss 2.020.929 Items as result of consolidation - Deductions from Tier 1 capital 57.922 Total qualifying Tier 1 capital 4.172.667 Tier 2 capital Cumulative non-voting shares and share premium 23.108 Hybrid capital liabilities - Subordinated liabilities - Total qualifying Tier 2 capital 23.108 Deductions from regulatory capital 82.009 Total regulatory capital 4.113.766 Credit risk-weighted assets On-balance sheet 29.646.630 Off-balance sheet 7.847.258 Total credit risk-weighted assets 37.493.888 Assets weighted according to credit risk

1.602.001

Capital adequacy ratio 10,5%


39

2006 Tier 1 capital 1.Issued ordinary shares or directly deposited funds 2.155.887 2. Reserves 1.468.948 3. Retained earnings 22.126 4. Half year earnings discounted for 50% - 5. Less uncovered loss form previous years - 6. Less current loss - 7. Less goodwill - Total Tier 1 capital 3.646.961 Tier 2 capital 8. Issued preference shares - 9. Revaluation reserve 12.611 10. Hybrid capital liabilities - 11. Subordinated liabilities - Total Tier 2 capital 12.611 12. Less investments in other banks 95.312 13. Less no allocated provision for impairment - Total regulatory capital 3.564.260 Risk-weighted assets On-balance sheet 23.266.555 Off-balance sheet 5.841.870 Less items 5, 6, 7, 12 and 13 95.312 Total risk-weighted assets 29.013.113 Total aggregate open FX position 1.187.986 Capital adequacy ratio 11,8%

The increase of the regulatory capital in 2007, in relation to 2006, is mainly result of including a part of the profit realized in 2006 in the Bank’s reserves. The increase of risk-weighted assets reflects the expansion of lending and off-balance activities.


40

4 Critical accounting estimates and judgments in applying accounting policies

The Bank makes estimates and assumptions that affect the reported amounts of

assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Impairment losses on loans and advances The Bank reviews its loan portfolios to assess impairment on a monthly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the bank. The Bank uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio. (b) Held to maturity investments The Bank holds debt securities issued by the Republic of Macedonia, received in exchange for the settlement of certain non-performing loans, bearing interest at a rate of 2% per annum. The principal of bonds for frozen deposits is repayable in 20 equal semi-annual installments commencing from April 2002 to October 2011. The principal of bonds for denationalization IV issue is repayable in 10 equal annual installments commencing from June 2006 to June 2015, and, the principal of bonds for denationalization V issue is repayable in 10 equal annual installments commencing from June 2007 to June 2016. As at 31 December 2007 the outstanding balance of these receivables amounts MKD 228,544,000 (2006: MKD 276,673,000). 15 year government bonds issued by the Republic of Macedonia, bearing interest at a rate equal to the prime rate of the NBRM, that the Bank held in its portfolio as a held-to-maturity asset (2006: MKD 12,747,000) in 2007 were called and fully repaid by the Government before the maturity date.


41

5. Net interest income

2007 2006 Interest income Loans: - To customers 2.252.972 1.605.268 - To banks 42.769 30.490 Cash and short term funds 776.850 559.245 Investments in securities 28.598 54.888 Other 22.355 38.712

3.123.544 2.288.603 Interest expense Deposits from banks 9.296 4.426 Due to customers 918.922 622.316 Other liabilities 57.157 52.728 Other 16.255 10.303

1.001.630 689.773

6. Net fee and commission income

2007 2006 Fee and commission income Payment operations - domestic 348.518 315.747 - international 240.927 201.994 Letters of credit and guarantees 136.093 90.212 Brokerage fees 75.252 49.500 Other 139.986 85.677

940.776 743.130 Fee and commission expense Payment operations - domestic 29.004 26.057 - international 66.163 48.117 Brokerage fees 2.002 1.321 Other 16.725 15.948

113.894 91.443

7. Dividend income

2007 2006 Investments in securities 8.106 1.227 8.106 1.227


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8. Other operating income

2007 2006 Capital gains 3.003 9.546 Rental income 12.323 11.887 Recoveries on loans and advances previously written–off 124.684 138.185 Other 77.247 81.593

217.257 241.211

9. Administrative expenses 2007 2006 Salaries and wages 424.231 422.639 Pension insurance costs 131.177 130.785 Other staff costs 75.977 83.233 Taxes and contributions 73.838 76.865

705.223 713.522

10. Other operating expenses

2007 2006 Materials and services 242.732 221.510 Insurance premiums 191.041 159.970 Depreciation of property and equipment and intangible assets 177.216 171.456 Administration and marketing costs 76.268 81.239 Bonuses to the Managing Board, management and the employees 100.000 55.000 Impairment of assets 3.250 37.887 Decrease in value of assets kept for sale - 21.873 Capital loss 22.529 7.279 Other taxes and contributions 5.236 4.982 Court taxes 2.557 2.133 Depreciation of investment property 1.844 1.828 Other 18.272 14.546 840.945 779.703


43

11. Impairment charge for credit losses 2007 2006 Cash and bank balances with the NBRM (Note 14) (12.776) (167) Loans and advances to banks (Note 17) 1.818 - Loans and advances to customers (Note 18) 723.589 337.291 Contingencies and commitments (Note 29) 50.715 (1.654)

763.346 335.470

12. Income tax expenses 2007 2006 Income before taxation 1.069.212 807.187 Tax calculated at a tax rate of 12% (2006: 15%) 128.305 121.078 Increase for: - expenses non tax deductible according to local regulations 18.343 36.997

Decrease for: - tax exempt revenue (4.779) (4.511) - non-taxable income according to local

regulations (84.554) (72.213) Total income tax expenses 57.315 81.351

The tax authorities are competent to conduct full tax control for the year ended 31 December 2006. The tax authorities may at any time inspect the books and records up to 5 to 10 years subsequent to the reported tax year, and may impose additional tax liabilities. The Bank's management is not aware of any circumstances, which may give rise to a potential material liability in this respect.


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13. Earnings per share

Basic earnings per share The calculation of basic earnings per share at 31 December 2007 was based on the net profit attributable to ordinary shareholders of MKD 1.009.874.000 (2006: MKD 723.217.000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2007 of MKD 1.987.804 (2006: 1.931.974), calculated as follows:

2007 2006

Net profit for the year 1.011.897 725.836 Dividends on non-redeemable preference shares (2.023) (2.619) Net profit attributable to ordinary shareholders 1.009.874 723.217 Weighted average number of ordinary shares 2007 2006 By number of shares Issued ordinary shares at 1 January 1.953.528 1.872.372 Effect of treasury shares sold 30.132 - Effect of conversion of preference shares into ordinary

shares in January 77 16.127 Effect of conversion of preference shares into ordinary

shares in February 424 20.631 Effect of treasury shares sold in February - 8.410 Effect of conversion of preference shares in March - 808 Effect of conversion of preference shares into ordinary

shares in April 935 5.227 Effect of conversion of preference shares into ordinary

shares in May 659 14.382 Effect of treasury shares acquired in May - (20.548) Effect of conversion of preference shares in June 1.058 10.692 Effect of conversion of preference shares into ordinary

shares in July 665 537 Effect of conversion of preference shares in August 199 2.001 Effect of conversion of preference shares into ordinary

shares in September 79 942 Effect of conversion of preference shares into ordinary

shares in October 27 305 Effect of conversion of preference shares into ordinary

shares in November 18 64 Effect of conversion of preference shares into ordinary

shares in December 3 24 Weighted average number of ordinary shares at 31

December 1.987.804 1.931.974


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Diluted earnings per share The calculation of diluted earnings per share at 31 December 2007 was based on the net profit for the year (diluted) attributable to ordinary shareholders of MKD 1,011,897,000 (2006: MKD 725,836,000) and the weighted average number of ordinary shares (diluted) during the year ended 31 December 2007 of 2,009,281 (2006: 1,961,000), calculated as follows:

Net profit attributable to ordinary shareholders (diluted) 2007 2006

Net profit for the year (diluted) 1.011.897 725.836 Net profit (diluted) attributable to ordinary shareholders 1.011.897 725.836 Weighted average number of ordinary shares (diluted) 2007 2006 Issued ordinary shares at 1 January 1.987.804 1.931.974 Effect of issued potential ordinary shares 21.477 29.026 Weighted average number of ordinary shares (diluted)

at 31 December 2.009.281

1.961.000


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14. Cash and bank balances with the National Bank of Republic of Macedonia

2007 2006 Cash in hand 974.734 772.933 Current accounts with local banks 6.616 5.210 Current accounts with foreign banks 822.421 716.104 Other short term highly liquid investments 22.637 25.406 Included in cash and cash equivalents (Note 34) 1.826.408 1.519.653 Restricted accounts 39.831 14.511 Current accounts with foreign banks 66.294 80.605 Balances with NBRM 5.499.924 3.539.740 Less: Provision for impairment (67.829) (80.605)

7.364.628 5.073.904

The item cash include the receivables under interest of MKD 2,350,000 (2006: nil).

The Bank is obliged to maintain mandatory reserve in MKD and to allocate mandatory

reserve in foreign currency at the National Bank of the Republic of Macedonia. The Bank has to set aside mandatory reserve in MKD at a rate of 10 % on the average daily balance of the total MKD deposits on legal entities and retail customers during the preceding month. National Bank of Republic of Macedonia pays 2% p.a. (2006: 2%) interest on the mandatory reserve amount in MKD. The Bank has to set aside mandatory reserve in foreign currency at a rate of 10 % on the average daily balance of the total foreign currency deposits on legal entities and retail customers during the preceding month denominated in EUR by applying the middle exchange rate of the National Bank of Republic of Macedonia applicable on the last date of the calculation. National Bank of Republic of Macedonia pays no interest on the foreign exchange mandatory reserves. The Bank is obliged to keep the amount of the calculated foreign currency mandatory reserve at a foreign Bank on a separate account with the National Bank of Republic of Macedonia. Restricted accounts represent deposits for opened letters of credit, on behalf of the Bank’s customers.


47

Movement in provisions for impairment are as follows: Cash and bank balances with the National Bank of Republic of Macedonia

2007 2006 Balance at 1 January 80.605 80.772 Net new provisions for imapirment (Note 11) (12.776) (167) Write-off - - Balance at 31 December 67.829 80.605

15. Treasury bills

2007 2006 Treasury bills issued by the National bank of the Republic of Macedonia

3.191.943 797.962

Included in cash and cash equivalents (Note 34) 3.191.943 797.962

3.191.943 797.962

Treasury bills issued by the National Bank of Republic of Macedonia are with maturity due of 28 days. Current income is categorized as interest income.

16. Financial trading instruments 2007 2006 Financial trading instruments Government bonds 159.718 55.353 Government treasury bills 764.261 14.960 923.979 70.313 Listed 923.979 70.313 Shares and other debt instruments Equity investments 79.563 12.861 79.563 12.861 Listed 72.259 6.619 Unlisted 7.304 6.242 1.003.542 83.174 Income from debt instruments with fixed interest is recognized in the Income Statement.

Income from shares is recognized as income from dividends.


48

17. Loans and advances to banks

2007 2006 Placements with foreign banks 13.639.318 17.245.354 Placements with domestic banks 196.118 91.883 Less: Provision for impairment (Note 11) (1.818) - 13.833.618 17.337.237 Current 12.819.221 17.337.237 Non-current 1.014.397 -

Loans and advances to banks include receivables under interest of MKD 57,458,000

(2006: MKD 12,156,000).

Movement in provisions for impairment are as follows: Loans and advances to banks 2007 2006 Balance at 1 January - - Net new provisions for imapirment (Note 11) 1.818 - Balance at 31 December 1.818 -

18. Loans and advances to customers

2007 2006 Individuals (retail customers): - Overdrafts 794.634 431.880 - Credit cards 630.500 279.110 - Loans 4.329.747 3.558.306 - Other 19.796 22.711

5.774.677 4.292.007 Corporate entities: - Large corporate customers 7.021.931 6.283.964 - SMEs 15.201.246 9.864.471

22.223.177 16.148.435 Less: allowance for impairment (3.329.598) (2.920.746)

24.668.256 17.519.696 Current 10.986.529 8.398.018 Non- current 13.681.727 9.121.678

Loans and advances to customers include accrued interest and other receivables of

MKD 145,669,000 (2006: MKD 114,591,000).


49

Movement in provisions for impairment for retail customers for 2006 are as follows:

Loans

Overdrafts Credit cards Loans Other Total

Balance at 1 January 2006 54.292 14.387 163.056 2.494 234.229 Net new provisions for impairment 1.304 11.525 27.938 28 40.795 Write off - - (2.580) - (2.580) Net bookkeeping value 55.596 25.912 188.414 2.522 272.444

Movement in provisions for impairment corporate entities for 2006 are as follows: Loans

Large corporate

customers SMEs Total Balance at 1 January 2006 990.158 1.387.694 2.377.852 Net new provisions for impairment 228.097 68.399 296.496 Write off (26.046) - (26.046) Net bookkeeping value 1.192.209 1.456.093 2.648.302


Loans

Overdrafts

Credit cards Loans Other Total

Balance at 1 January 55.596 25.912 188.414 2.522 272.444 Net new provisions for impairment 26.975 27.768 117.723 (1.660) 170.806 Write off (186) - (664) - (850) Net bookkeeping value 82.385 53.680 305.473 862 442.400


50

Movement in provisions for impairment corporate entities for 2007 are as follows:

Loans

Large corporate customers SMEs Total

Balance at 1 January 1.192.209 1.456.093 2.648.302 Net new provisions for impairment 219.958 332.825 552.783 Write off (309.211) (4.676) (313.887) Net bookkeeping value 1.102.956 1.784.242 2.887.198

19. Investment securities 2007 2006 Debt and other fixed-income investments

held-to-maturity

Government bonds 228.544 276.673 Debt and other non-fixed-income investments held-to-maturity Government bonds - 12.747 228.544 289.420 Listed 228.544 289.420

Equity investment available for sale� Equity investment Shares and other debt instruments available-for-sale� 68.437 63.434 68.437 63.434 Unlisted 68.437 63.434 296.981 352.854 Current 55.378 55.769 Non- current 241.603 297.085

Investments securities include claims under interest of MKD 1,320,000 (2006:

1,578,000 MKD).

Government bonds held-to-maturity in the amount of MKD 228,544,000 (2006: 276,673,000) comprise bonds nominated in EUR which are recorded in MKD with interest rate of 2% p.a. (2006: 2% p.a.).

This amount is comprised of the value of the bonds of the so called “frozen” foreign currency savings (RM01) in the amount of MKD 209.515 thousand, V issue of the bonds


51

for denationalization (RMDEN05) MKD 12.161 thousand and the IV issue of the bonds for denationalization (RMDEN04) MKD 1.220.000 thousand and the VI issue of the bonds for denationalization (RMDEN06) MKD 4.329.000 thousand. The Bank received these bonds in replacement for the non-performing loans, except those from the VI issue. These bonds are presented in nominal value. The bonds are traded at the official market and at 28.12.2007 (last date of trade at the Stock Exchange) the price of RM01 is 85%, RMDEN04 83,82%, RMDEN05 84,9% and RM06 85,52% (29.12.2006 the price of RM01 was 85,87%, RMDEN04-79,52%, RMDEN05-79,00%, and RMDEN06-none). The bonds for the frozen savings are payable in 20 equal semi-annual installments commencing from April 2002 up to October 2011, IV issue of bonds for denationalization is payable in 10 equal annual installments commencing from June 2006 up to June 2015, V issue of bonds for denationalization is payable in 10 equal annual installments commencing from June 2007 up to June 2016, and VI issue of bonds for denationalization is payable in 10 equal annual installments commencing from June 2008 up to June 2017.

Income from debt instruments held-to-maturity is recognized as interest income. Income from equity investments is recognized in dividend income.


52

20. Investments in associate 2007 2006

KB Prvo Penzisko Drustvo AD Skopje 45.138 45.138 Share of results (9.618) (13.239) 35.520 31.899 Summary financial information on associate is presented below:

2007 Assets Liabilities Equity Income Profit Participation KB Prvo Penzisko

Drustvo AD Skopje 102.775 30.297 72.478 90.403 7.388 49% 102.775 30.297 72.478 90.403 7.388 2006 Assets Liabilities Equity Income Loss KB Prvo Penzisko

Drustvo AD Skopje 103.239 38.148 65.091 63.481 (2.773) 49% 103.239 38.148 65.091 63.481 (2.773)


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21. Property and equipment Fair value of property and equipment and the respective depreciation at 31 December 2007 is shown below:

Buildings Furniture & Equipment

Assets in course of

construction Leasehold

improvements Total At 1 January 2006 Cost 1.411.135 733.753 32.097 20.905 2.197.891 Accumulated depreciation (285.899) (472.453) (7.853) (766.205) Net book amount 1.125.236 261.301 32.097 13.051 1.431.685 Year ended December 2006 Opening net book amount 1.125.236 261.301 32.097 13.051 1.431.685 Additions - 149 213.082 - 213.231 Transfers 61.444 127.238 (192.532) 3.850 - Transfer to intangible assets - (2.895) - (2.895) Transfer to investment property (10.574) - - - (10.574) Disposals and write-off (8.661) (856) (7.223) (1.351) (18.091) Depreciation charge (36.472) (115.495) - (3.295) (155.262) Closing net book amount 1.130.973 272.337 42.529 12.255 1.458.094 At 31 December 2006 Cost 1.461.478 832.295 42.529 21.319 2.357.621 Accumulated depreciation (330.505) (559.958) - (9.064) (899.527) Net book amount 1.130.973 272.337 42.529 12.255 1.458.094 Year ended December 2007 Opening net book amount 1.130.973 272.337 42.529 12.255 1.458.094 Additions - - 193.098 - 193.098 Transfers 9.619 170.605 (188.271) 8.047 - Transfer to intangible assets - - (25.055) - (25.055) Transfer from leasehold improvements 1.487 - - (1.487) - Transfer to investment property (749) - - - (749) Disposals and write-off (6.773) (2.022) - (363) (9.158) Depreciation – transfer from leasehold improvements (1.487) - - 1.487 - Depreciation charge (37.688) (121.515) - (3.250) (162.453) Closing net book amount 1.095.382 319.405 22.301 16.689 1.453.777 At 31 December 2007 Cost 1.451.905 936.258 22.301 27.515 2.437.979 Accumulated depreciation (356.523) (616.853) - (10.826) (984.202) Net book amount 1.095.382 319.405 22.301 16.689 1.453.777


54

22. Investment property

Value of the investment property and the respective depreciation at 31 December 2007 is shown below:

2007 At 1 January 2007 58.950 Transfer from property and equipment 749 Decrease - Depreciation (1.844)

As at 31 December 2007 57.855 As at 31 December 2006 58.950

23. Intangible assets 2007 2006 Cost Balance at 1 January 94.567 91.672 Transfer from property plant and equipment 25.056 2.895 Balance at 31 December 119.623 94.567 Accumulated amortisation Balance at 1 January 63.626 47.431 Charge for the year 14.764 16.195 Balance at 31 December 78.390 63.626 Net book value at 31 December 41.233 30.941 Net book value at 1 January 30.941 44.241


55

24. Other assets 2007 2006 Collected collateral 798.489 854.625 Advances for property and equipment 59.334 16.302 Receivable for sold collateral previously collected 39.831 7.190 Receivable from KB Prvo Penzisko Drustvo 24.038 25.548 Inventory of office materials 18.208 17.963 Inventory of numismatic collections 16.559 17.184 Other assets 46.102 80.142 1.002.561 1.018.954 Current 339.998 296.016 Non- current 662.563 722.938

Collected collateral of MKD 798,489,000 (2006: MKD 854,625,000) represents

collected business premises and apartments, received by foreclosure of collateral. The market for certain types of collateral in Macedonia is in an early stage of

development. Management has made an estimate of the expected recoverable amount net of costs to realise the assets, based on a number of factors, including independent assessment. However, given the foregoing, actual amounts realised may differ from the estimates made.

Other assets include operating lease receivables as follows: 2007 2006 Not later than one year 12.566 12.566 Later than one year and not later than five years 4.372 4.372 Later than five years 6.485 7.359 23.423 24.297

The Bank has operating leases on an indefinite lease term. The minimum lease

payments for these operating leases not later than one year are MKD 1,121,000 (2006: MKD 1,121,000).


56

25. Deposits from banks

2007 2006 Demand deposits:

Banks and other financial institutions 132.238 190.650 Insurance companies 125.362 68.171

Time deposits: Banks and other financial institutions 535.283 244.181 Insurance companies - 143.398

Restricted deposits: Banks and other financial institutions 35 -

792.918 646.400 Current 748.918 646.400 Non-current 44.000 -

Deposits from banks and other financial institutions include accrued interest payable

of MKD 3,319,000 (2006: MKD 3,348,000).

26. Deposits from customers

2007 2006 Public institutions - Demand deposits 53.685 - - Time deposits 113.572 248.547 Companies - Demand deposits 9.022.515 7.178.602 - Time deposits 5.654.619 3.694.633 Retail customers - Demand deposits 12.348.481 11.321.062 - Time deposits 16.938.478 13.399.096 Restricted deposits - Retail customers 660.116 588.827 - Companies 481.090 345.006

45.272.556 36.775.773 Current 44.799.302 36.528.011 Non-current 473.254 247.762

Retail customers deposits include accrued interest payable of MKD 160,199,000 (2006:

MKD 116,651,000).


57

Restricted deposits represent deposits made by companies for payments to be made abroad by the Bank on their behalf, to facilitate the issuance of letters of credit, the purchase of foreign currencies, as well as collateral for loans and guarantees extended by the Bank to certain customers, deposits as collateral under consumtion loans and loans to retail customers and advance payments under consumption and housing loans.

27. Borrowings 2007 2006 Short-term Long-term Short-term Long-term Domestic borrowings�

Macedonian Bank for Development Promotion - 395.393 124.592 399.463

Agency for Managing Accounts - 115.970 11.070 115.970

NBRM - 8.809 4.578 9.987 Ministry of Finance - 53.412 11.198 37.827 Foreign borrowings� Macedonian Bank for

Development Promotion 59.979 168.325 108.963 280.667 IBRD - - 1 109 ICDF Taiwan 218 1.036 309 1.522 Council of Europe Social

Development Fund 15.754 122.568 7.801 137.782 European Investment Bank 31.950 92.178 56.733 122.282 107.901 957.691 325.245 1.105.609 Current 222.897 319.187 Non-current 842.695 1.111.667

Borrowings include accrued interest payable of MKD 8,056,000 (2006: MKD 6,058,000). The

Bank’s borrowings are secured with promissory notes.


58

28. Other liabilities

2007 2006 Dividend payables 23.853 19.233 Suppliers payable 18.876 28.340 Fee and commission 5.154 3.558 Bonuses to the Managing Board, management and the employees

100.000

50.000

Liabilities to Ministry of Finance 31.868 23.568 Advances for treasury shares - 124.628 Other liabilities 108.106 42.647

287.857 291.974 Current 287.857 289.656 Non-current - 2.318

29. Contingencies and commitments

2007 2006 Guarantees - in domestic currency 5.025.311 3.070.587 - in foreign currency 3.409.281 1.840.976

Letters of credit: - in foreign currency 921.026 1.055.328 Credit limits to legal entities for salary 557.616 40.332 Undrawn overdraft facilities 1.504.068 946.446 Unused limits on credit cards 740.460 564.785 12.157.762 7.518.454 Less: provision for impairment (255.788) (205.073) 11.901.974 7.313.381

Movement in provisions for impairment are as follows: Contingencies and commitments 2007 2006 Balance at 1 January 205.073 206.727 Net charge to income statement (Note 11) 50.715 (1.654)

Balance at 31 December 255.788 205.073


59

30. Related party transactions A number of banking transactions are entered into with related parties in the normal

course of business. These include loans, deposits and borrowings. These transactions were carried out on commercial terms and at market rates. The volumes of related party transactions, outstanding balances at the year-end, are as follows:

Companies with members in

the Bank' s Board of Directors

Associated companies

Income statement 2007 2006 2007 2006 Interest income 26.048 7.886 1.887 3.765 Interest expense 2.292 265 1.056 1.518 Balance Sheet Loans Loans outstanding at 1 January 135.006 33.623 20 - Loans approved during the year 404.725 173.262 150 - Loan repayments during the year 193.643 71.892 148 - Balance at 31 December 346.088 134.993 22 - Other assets Receivables - - 24.038 25.548 Deposits Balance at 1 January 48.627 82.864 123.059 45.256 Deposits received during the year 4.163.010 3.647.273 3.827.433 237.072

Deposits repaid during the year 4.148.323 3.674.313 3.711.719 273.480 Balance at 31 December 63.314 55.824 238.773 8.848


60

31. Funds managed on behalf and for the account of third parties

2007 2006 Banks 247.621 117.974 Companies 64.442 174.085 Individuals 54.489 18.596

366.552 310.655

The Bank manages funds on behalf and for the account of companies and retail customers placed mainly as loans without purpose identified to companies. These funds are kept separately from the Bank’s assets. The loan and deposit interest under these funds are recorded in favor of or on the account of the respective resources, and the Bank does not bear the risk related to it. For the services provided, the Bank charges fees on the account of these funds. The temporary deposits with the Bank arise as a result of the difference occurring between the moment of receiving the funds from third parties and their placement by as loans.

32. Share capital and share premium

Ordinary shares Preference shares 2007 2006 2007 2006 In number of shares At 1 January – fully paid in 1.985.041 1.882.372 29.026 131.695 Conversion of preference

shares 7.549 102.669 (7.549) (102.669) At 31 December – fully paid in 1.992.590 1.985.041 21.477 29.026

Ordinary shares are with nominal value of MKD 1,000 (2006: MKD 1,000). Holders of

ordinary shares have the right on dividend, when disclosed, and the right on one vote at the Bank’s Assembly for an equivalent of 1 ordinary share. Preference shares give the right on preference in payment of the dividend and are without voting right. All shares impose the right on proportional share in the distribution of the bankruptcy or liquidation estate.


61

The below stated shareholders have more than 5% ownership of the Bank’s ordinary shares:

% of voting share

capital Shareholders 2007 2006 European Bank for Reconstruction and

Development 5,99 6,02

33. Revaluation reserves 2007 2006 Revaluation reserves 109.675 122.285 109.675 122.285

Revaluation reserves represent non-distributable reserves. 34. Cash and cash equivalents

For the purposes of the cash flow statement, cash and deposits with with NBRM, as well

as cash equivalents comprise the following items with maturity less than 90 days:

2007 2006 Cash and deposits with the NBRM (Note 14) 1.826.408 1.519.653 Treasury bills (Note 15) 3.191.943 797.962

5.018.351 2.317.615

35. Post balance sheet events

Significant part of the profit for 2007 shall be allocated in reserves, which shall increase

the reserves for 41% or for MKD 766,000,000, thus increasing the capital of the Bank.

�

ATTACHMENT 2:



Translation

KOMERCIJALNA BANKA AD SKOPJE Financial Statements

For the year ended 31 December 2008

KOMERCIJALNA BANKA AD-SKOPJE Financial statements for the year ended 31 December 2008 Translation

Content Page Independent auditor’s report 1 Income statement 2 Balance sheet 3 Statement of changes in equity 4 Cash flow statement 5-6 Notes to the financial statements 7-64

1

PricewaterhouseCoopers dooel ul. Marshal Tito 12, "Palata Makedonija" IV floor 1000 Skopje Republic of Macedonia Telephone +389 (02) 3116 638 +389 (02) 3111 012 +389 (02) 3110 623 Facsimile +389 (02) 3116 525 www.pwc.com/mk

Independent auditor’s report To the Shareholders and the Supervisory board of Komercijalna Banka AD - Skopje

Report on the Financial Statements We have audited the accompanying financial statements of Komercijalna Banka AD - Skopje, which comprise the balance sheet as of 31 December 2008 and the income statement, statement of changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the law regulations applicable in the Republic of Macedonia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying financial statements give a true and fair view of the financial position of Komercijalna Banka AD – Skopje as of 31 December 2008, and of its financial performance and its cash flows for the year than ended in accordance with law regulation applicable in the Republic of Macedonia. Manager Ljube Gjorgjievski Chartered auditor Skopje Ljube Gjorgjievski 26 February 2009



Income statement Note 31 December 2008 2007 Interest and similar income 5 3.886.908 3.123.544 Interest expense and similar charges 5 (1.309.455) (1.001.630) Net interest income 2.577.453 2.121.914 Fee and commission income 6 899.384 940.776 Fee and commission expense 6 (135.191) (113.894) Net fee and commission income 764.193 826.882 Dividend income 7 20.119 8.106 Foreign exchange gains (net) 101.194 124.667 Net trading income (16.442) 76.279 Other operating income 8 301.677 217.257 Administrative expenses 9 (722.182) (705.223) Other operating expenses 10 (1.003.077) (840.945) Impairment charge for credit losses 11 (487.004) (763.346) Operating profit 1.535.931 1.065.591

Share of profit/loss from associate

14.174

3.621 Profit before taxation 1.550.105 1.069.212 Income tax 12 (172.515) (57.315) Profit for the year 1.377.590 1.011.897 Basic earnings per share (denars) 13 689 508 Diluted earnings per share (denars) 13 684 504



Balance sheet Note 31 December 2008 2007 ASSETS Cash and balances with the National Bank of Republic of Macedonia

14

7.708.973

7.364.628

Treasury and government bills 15 3.353.838 3.191.943 Financial assets at fair value through profit or loss 16 222.781 1.003.542 Loans and advances to banks 17 5.550.640 13.833.618 Loans and advances to customers 18 35.128.669 24.668.256 Investment securities 19 557.222 296.981 Investments in associates 20 49.693 35.520 Property and equipment 21 1.586.867 1.453.777 Investment property 22 8.488 57.855 Intangible assets 23 40.191 41.233 Accrued interest and other assets 24 976.138 1.002.561 Total assets 55.183.500 52.949.914 LIABILITIES Deposits from banks 25 1.572.461 792.918 Other deposits 26 45.769.870 45.272.556 Borrowings 27 984.103 1.065.592 Current income tax liabilities 62.649 9.665 Provisions 29 261.573 255.788 Accrued interest and other liabilities 28 269.405 287.857 Total liabilities 48.920.061 47.684.376 SHAREHOLDERS’ EQUITY Share capital 32 2.014.067 2.014.067 Share premium 109.026 109.026 Retained earnings 1.377.535 1.146.103 Statutory reserves 2.653.136 1.886.667 Revaluation reserves 33 109.675 109.675 Total shareholders’ equity 6.263.439 5.265.538 Total equity and liabilities 55.183.500 52.949.914




Share capital

Share premium

Treasury Shares

Retained Earnings

Special

Reserves for

Treasury Shares

Statutory Reserves

Revalu.

reserves Total

capital

Balance at 1 January 2007 2.014.067 32.146

(121.652) 747.906 121.652

1.468.948 122.285 4.385.352 Net profit for the year - - - 1.011.897 - - - 1.011.897 Transfer from retained earning to statutory reserve - - - (417.719) -

417.719 - -

Transfer from revaluation reserve to retained earnings - - - 12.610 -

- (12.610) -

Dividends - - - (330.243) - - - (330.243) Treasury shares acquired - - - - - - - - Treasury shares sold - 76.880 121.652 - - - - 198.532 Allocation for special reserves for treasury shares acquired - -

- 121.652 (121.652)


- 1.146.103 -

1.886.667 109.675 5.265.538 Balance at 1 January 2008 2.014.067 109.026 - 1.146.103 -

1.886.667 109.675 5.265.538

Net profit for the year - - - 1.377.590 - - - 1.377.590 Transfer from retained earning to statutory reserve - - - (766.469) -

766.469 - -

Transfer from revaluation reserve to retained earnings - - - - -

- - -

Dividends - - - (379.689) - - - (379.689) Treasury shares acquired - - - - - - - - Treasury shares sold - - - - - - - - Allocation for special reserves for treasury shares acquired - -

- - -


- 1.377.535 -

2.653.136 109.675 6.263.439

Equity capital of the Bank is comprised of 1.997.135 ordinary and 16.932 preferred shares. Nominal value per

share is MKD 1.000 or total MKD 2.014.067.000. Detailed information is provided in Note 32.

Reserves are Bank’s own resources, which serve for coverage of losses arising from the risks the Bank is faced with in its operation. Pursuant to the law regulations, the Bank should calculate and allocate 15% of the net profit for the year for the statutory reserve until it reaches an amount equal to one fifth of the equity capital.

According to the extent of the capital the Bank should have reserves of MKD 402.813.000. As at 31.12.2008 the Bank has reserves of MKD 2.653.136.000, which means that there is no obligation to allocate from the net profit, yet, the Bank plans to keep allocating reserves for maintenance of firm capital base.



Cash flow Note 31 December 2008 2007 Cash flows from operating activities Profit before taxation 1.550.105 1.069.212 Adjustments for: Depreciation of property and equipment and amortization of intangible assets 10 188.474 177.216 Decrease in value of rented immovable property 10 546 1.844 Decrease in value of assets acquired through foreclosure procedure 10 12.677 - Capital gains 8 (11.593) (3.003) Loss on sale of claims under acquired property and equipment 10 18.953 22.529 Expenses for bad and doubtful debts 487.004 763.346 Dividend income 7 (20.119) (8.106) Net trading income 16.442 (76.279) Interest income 5 (3.886.908) (3.123.544) Interest expense 5 1.309.455 1.001.630 Share of loss from associate (14.174) (3.621) Interest and fees and commission receipts 3.658.396 2.975.223 Interest paid (1.192.856) (778.607) Cash flows from operating profits before changes in operating assets

2.116.402 2.017.840

Increase (decrease) in operating assets Restricted accounts (13.788) (25.320) Balances with NBRM 908.888 (1.960.184) Financial trading instruments 780.761 (920.368) Placement with and loans to banks 8.282.978 3.503.619 Loans and advances to customers (11.009.469) (7.872.149) Other assets 26.423 16.393

Increase (decrease) in operating liabilities Deposits from banks and other financial institutions 779.543 146.518 Deposits received from other depositors 497.314 8.496.783

Other liabilities (15.217) (10.333) Net cash flow from operating activities 2.353.835 3.392.799



Cash flow (continuation) Note 31 December 2008 2007 Cash flows from investment activities

Acquisition of property and equipment (289.850) (236.130) Proceeds from sale of property and equipment 9.376 8.409 Proceeds from investment securities 674.203 64.614 Investments in securities (934.444) (8.741) Dividends received 18.929 4.549 Net cash flow from investment activities

(521.786) (167.299)

Cash flows from financing activities Treasury shares sold - 198.532 Increased liabilities under loans 322.580 1.359.277 Loans paid (438.778) (1.726.536) Dividends paid (383.325) (368.813) Net cash flow from financing activities

(499.523) (537.540)

Effects from special reserves for cash and cash equivalents 11 67.549 12.776 Net increase (decrease) in cash and cash equivalents

1.400.075 2.700.736

Cash and cash equivalents at 1 January 5.018.351 2.317.615 Cash and cash equivalents at 31 December

34 6.418.426 5.018.351


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1 General Information

1.1 Introduction

Komercijalna Banka AD Skopje (hereinafter “the Bank”) is a joint stock company incorporated and domiciled in the Republic of Macedonia. The Bank is listed on the Macedonian Stock Exchange a.d. Skopje under the ID code KMB. The Bank is licensed to perform all banking activities in accordance with the Banking Law, and its main activities include corporate and retail lending, deposit operations, FX transactions, payment operations services in the country and abroad and similar banking services. In addition, it provides trade finance facilities to companies for export and import purposes.

The address of its registered office is as follows:

Kej Dimitar Vlahov 4 1000 Skopje Republic of Macedonia

These financial statements have been approved by the Supervisory Board on 26

February 2009 for disclosure.

Directors The names of the managers of the Bank serving during the financial year and to the date of this report are as follows:

Chief Executive Officer Hari Kostov Chief Operative Officer Ilija Iloski Chief Financial Officer Maja Stevkova

Sterieva Liquidity and Financial Market Division Manager

Suzana Moskovska

Corporate Lending Division Manager Biljana Maksimovska

Popovik International Division Manager Vesela Curilova Retail Banking Division Manager Gabriela Stojanovska Risk Management and Planning Division Manager Maja Stevkova

Sterieva Human Resources and General Affairs Division Manager

Slavko Razmilik

Legal Affairs, Problem Loans Workout and Management Division Manager

Teodora Guskova Prodanova

Information Technology Division Manager Zorica Cerepnalkoska Finance Department Manager Violeta Markovska

Valjak


8

Domestic Payment Operations Department Manager

Biljana Mitevska Vault Operation Department Manager Aneta Velevska Marketing Department Manager Jasmina Bucevska Branch Network Managing Department Manager Margarita Ognenovska Compliance and Anti Money Laundering Department Manager

Milica Georgieva

Internal Audit Department Manager Vesna Maslinko


9

1.2 Operating Environment of the Bank

The year 2008 was a year with outstanding growth rates compared to the previous

few years. �he whole picture of strong domestic demand and increasing investment would have been favourable if it hasn't been the slowdown of fourth quartile, influenced by financial turmoil. Industrial production growth reached double digits and unemployment decreased to 33%, although still high. Still, strong investment growth (reflecting higher foreign direct investment and higher investment in tangible assets), and the high unemployment rate, suggested few capacity constraints in domestic economy and considerable scope for continuing favourable supply response.

The slowdown in the world economy especially EU countries as strategic export markets for Macedonian companies put under a pressure the whole operating environment and decreasing of exports, increasing of the foreign currency outflows of the companies and decreasing of the private individual remittances. Reduced export demand, falling export prices, and slightly weaker remittances boosted foreign trade deficit over 2 billion EUR and significantly pressed the current account.

The year was characterized by increasing inflation, mainly due to external influences and price spill over. Thus it has jumped to around 10% in early 2008, similar to other countries in the region, mostly because of oil, electricity and food price increases, by the end of the year it has stabilized around 8.3%. Higher nominal wage increases prevented a fall in real incomes.

In 2008 the central government budget was in balance, although fiscal policy has been turning expansionary. Tax revenue increased despite substantial tax cuts in previous years, owing to improved tax administration, domestic demand growth (which boosts VAT), and a near-doubling of corporate income tax revenues. During 2008 the growth rate of loans increased to almost 40% annually, stimulating the domestic demand and import and increasing the potential risk in the banking system. In order to protect the system from potential worsening of credit portfolio combined with intention of providing stable macroeconomic indicators NBRM started to undertake various measures and to tighten the monetary policy. NBRM has increased treasury bill rates to 7% p.a. (5% p.a. in 2007), raised capital requirements for overdrafts and credit card loans up to 125%, and introduced controls on household credit growth. These measures significantly inhibited the commercial financing to citizens in the last two months of 2008. This trend of inhibiting the retail credit will continue in the course of 2009, taking into consideration that NBRM imposed stricter limits of 11% annual growth on household loans for 2009. Republic of Macedonia has an exchange rate pegged to euro. Despite the pressure on currency market, Macedonian denar (MKD) in 2008 has slightly depreciated (0.34%) against Euro. The official EUR exchange rate of NBRM increased from MKD 61.2016 at 31 December 2007 to MKD 61.4123 at 31 December 2008 [and MKD 61.4090 at 26 January 2009], while the foreign currency reserves of Macedonia decreased from EUR 1,524 billion at 31 December 2007 to EUR 1,495 billion at 31 September 2008.

It is expected that the current account deficit will be the main risk to continued growth in 2009. The forecasts for growth are at 3% with expectations for further slowdown of the world economy. The declining export which has started to fall in


10

second half of 2008, lower foreign direct investments, portfolio investments, and remittances could additionally create pressure on balance of payments. Despite the fact that Macedonian Banks were not directly influenced by the impact of the crisis, the negative impact in the real sector is very likely to grow. Additionally recent increases in commercial interest rates and measures of NBRM to limit the credit growth will have strong influence on the banking growth and profits. Yet, liquidity of the banking sector in Republic of Macedonia remains strong, mostly supported by stable private savings. Future economic direction of the Republic of Macedonia is largely dependent upon the effectiveness of economic, fiscal and monetary measures undertaken by the Government and NBRM and their timely adjustment. It is expected that the protection of the exchange rate will remain priority of monetary policy in 2009. Having into consideration the daily changes in the global economic and financial flows and uncertainties related to it, the Bank's management is unable to predict all developments which could have an impact on the banking sector and the wider economy and consequently what effect, if any, they could have on the future financial position of the Bank. Recent volatility in global and Macedonian financial markets The ongoing global liquidity crisis which started in spring 2008 has mostly resulted in a lower level of capital market funding while liquidity levels across the banking sector remained high. It is expected that there will be no liquidity shocks in domestic banking in 2009. Hence, to preserve structural liquidity NBRM has imposed minimum 100% fulfillment of obligatory one and six month liquidity limits. Additionally, to maintain a higher foreign currency liquidity, starting from 2009 NBRM will organize foreign currency deposits auctions with interest rates equal to those of Central Banks in euro zone, international financial institutions and yields of government bills of countries in euro zone. Impact on liquidity The funding base of the Bank is mostly dependant on stable deposit base, which is to be under pressure of increasing interest rates bidding by the Banks' that are changing financing strategies. This may influence the costs' of funding, but it is not expected to have significant influence on the deposit base. Impact on customers/borrowers The Banks clients both the borrowers and depositors may be affected by declining market consumption which could in turn impact their liquidity and their ability to repay the amounts owed or deposits placed with the Bank. Deteriorating operating conditions for borrowers may also have an impact on management's cash flow forecasts and assessment of the impairment of financial and non-financial assets. To the extent that information is available, management has properly reflected revised estimates of expected future cash flows in its impairment assessments. Impact on collateral (especially real estate) The amount of provision for impaired loans is based on management's appraisals of these assets at the balance sheet date after taking into consideration the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.


11

The market in Macedonia for many types of collateral, especially real estate, has not been severely affected by the recent volatility in global financial markets since the supply of real estate especially residential is still lower than demand. Nevertheless, expected lower incomes of households and possible lower liquidity of companies in 2009 may decrease liquidity for certain types of assets. As a result, the actual realizable value on foreclosure may differ from the value ascribed in estimating allowances for impairment. Fair value of financial assets and liabilities The fair values of quoted investments in active markets are based on current bid prices (financial assets) or offer prices (financial liabilities). If there is no active market for a financial instrument, the Bank establishes fair value using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. The valuation models reflect current market conditions at the measurement date which may not be representative of market conditions either before or after the measurement date. As at the balance sheet date management has reviewed its models to ensure they appropriately reflect current market conditions, including the relative liquidity of the market and credit spreads.


12

2. Accounting policies The principal accounting policies applied in the preparation of these financial

statements are set out below: 2.1 Basis of presentation

The financial statements of Komercijalna Banka AD - Skopje have been prepared in accordance with: the Companies Act (Official Journal of RM No. 28/2004), Banking Law and Book of Regulations on Accounts Keeping (Official Journal of RM No. 94/2004, 11/2005, 116/2005 and Official Journal No. 40/1997 and 73/1999) and are presented in Macedonian Denars (MKD).

The preparation of financial statements is in conformity with commonly accepted accounting policies and requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on management’s best knowledge of current events and actions.

Further information are disclosed in accounting policies and related notes to the financial statements.

2.2 Associate enterprises

Associate enterprise is an enterprise in which the Bank has significant influences in the decisions on the financial and operative policies of the enterprise, but does not have control of those polices. The financial statements include the share of the Bank in the total recognized profits and losses of the associate enterprise according to the method of capital as of the date of commencement of the significant influence until termination of the significant influence. If the share of the Bank in the loss of the associate enterprise is equal to, or exceeds, the accounting value of the investment, the investor usually stops to include its share in the further losses. The investment is reported with zero value.

Additional losses are taken into account to the extent to which the investor had undertaken liabilities or had effected payment on behalf of the associate enterprise for which the investor had guaranteed or had undertaken an obligation otherwise.

2.3 Foreign currencies

Assets and liabilities denominated in foreign currency are converted in MKD using the

medium exchange rate of NBRM applicable at the end of the accounting period. The FX gains and losses arising ynder this basis are included in the Income Statement. Exchange rate: 31 December 2008 31 December 2007 MKD MKD USD 43.56 41.66 EUR 61.41 61.20


13

Significant accounting policies (continuation) 2.4 Offsetting financial instruments

Financial assets and liabilities are offset and their net amount is reported in the

balance sheet on a net basis when there is a legally enforceable right to set off the recognized amounts and when there is possibility to report on a net basis.

2.5 Interest income and expense

Interest income and expense are presented as calculated income and expenses on the basis of all interest bearing claims and liabilities. Interest income and expense are calculated and charged in accordance with the law regulations in the Republic of Macedonia or subject to agreement between the creditor and debtor. Provisioning is made when collection of the calculated interest is bad and doubtful.

2.6 Fee and commission income

Fees and commissions comprise calculated fees received arising from loans,

guarantees and letter of credits and other banking services. Fees and commissions are stated in the Income Statement on a calculation basis at the moment when the services have been provided.

2.7 Financial instruments Classification Financial trading instruments are those held by the Bank for short-term profit-taking.

Loans and receivables approved by the Bank are those loans and receivables used for provision of cash to the customer and are different from those created for the purpose of short-term profit-taking. Loans and receivable approved by the Bank are comprised of loans and advance payments granted to banks and other customers. Held-to-maturity assets are financial assets with fixed or determinable payments and fixed maturities intended for and with a possibility to be held by the Bank to maturity. Held-to-maturity instruments include debtors instruments. Available-for-sale assets are those that are not held for trading, are neither loans or receivables approved by the Bank, nor are held to maturity. Available-for-sale instruments include investments in securities.


14

Significant accounting policies (continuation) 2.7 Financial instruments (continuation) Recognition The Bank recognizes the financial trading assets, available-for-sale assets, held-to-

maturity assets and loans and receivables approved by the Bank at the date they have been assigned to the Bank.

Measuring Financial instruments are initially disclosed at their cost value, which is fair value of

the provided (for assets) and received (for liabilities) fees. The transaction costs are included in the initial measuring of all financial assets and liabilities, except for the financial trading assets. Consequently to the initial recognition all the trading instruments and available-for-sale assets are disclosed according to their fair value, except for the financial assets without listed market value and whose fair value can not be adequately measured. All financial assets that are not subject to trade, loans and receivables approved by the Bank and held-to-maturity assets are assessed at depreciated value less special reserve for bad and doubtful claims. Depreciated value is calculated on the method of effective interest rate basis. The assets that do not have fixed maturity should be measured according to the cost value.

Principle of measuring according the fair value Fair value of the financial instruments is based on their listed market price at the date

of the Balance Sheet, without any deductions for transaction costs. Gains and losses from repeated measuring according to the fair value Gains or losses of financial trading instruments is recognized in net gain or loss for

the period. 2.8 Investments

Investments of the Bank for short-term profit gaining are disclosed as financial trading

assets. Debt instruments for which the Bank has intention and possibility to hold to maturity are classified as held-to-maturity assets.


15

Significant accounting policies (continuation) 2.8 Investments (continuation) Other investments are disclosed as available-for-sale assets. Investment property on disposal is disclosed at cost or revaluated price decreased

for accumulated depreciation. Gains or losses arising from the change of the fair value of the investments property

is included in the net profit or loss for the period. Gains from property on disposal are recognized only for the period they refer to, in accordance with the accounting policy.

2.9 Loans and provisions for bad and doubtful debts

Loans arising from granting assets directly to the borrower are classified as loans

approved by the Bank and are disclosed in the Balance Sheet less special reserve. Costs to third parties, for example court charges arising for the loan security are treated as transaction costs. All loans are disclosed when the cash is paid out to the borrowers.

Special reserve arises as a result of the analysis made on the credit portfolio by the

management of the Bank in accordance with the law regulations in the Republic of Macedonia.

In case of uncollectible loans, and all legal possibilities have been exhausted, and final loss has been determined, it is written off directly. The amount of the collected prior described receivables is recognized as income in the Income statement at the moment of collection. If the amount of the provisioning for bad and doubtful debts decreases as a result of an event after the provisioning, the release of provisioning reflects as decrease of provisioning for losses under loans. Structure of the provisioning for bad and doubtful debts is given in Note 11.


16

Significant accounting policies (continuation) 2.10 Property and equipment and intangible assets Property and equipment and intangible assets are stated at cost value less

accumulated depreciation and accumulated loss due to demage. Assets under construction are reported at their cost value including costs which increase their value. No depreciation is charged on assets under construction. Upon activation of the assets under construction, all accumulated costs of the asset are transferred to the relevant category of property and equipment and intangible assets and are subjected to calculation of depreciation by respective prescribed annual rates relevant to the respective category of assets. Decrease of property and equipment and intangible assets includes sales and their recognition as losses less their accumulated depreciation. Capital gains and losses arising from these transactions are recognised in the Income statement. Depreciation on property and equipment and intangible assets is calculated using the straight-line method for allocation on system basis in course of the best estimation over their useful lives. Depriciation rates determined are spread in costs in the assessed period of useful lives of property and equipment and intangible assets, as stated below:

Useful life Buildings 40 Furniture and equipment 4-10

2.11 Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash

balances and deposits with NBRM, treasury bills and government bills with maturity up to 90 days.


17


2.12 Employee benefits The Bank, in the normal course of business, makes payments on behalf of its

employees for pensions, health care, employment and personnel tax that are calculated on the basis of gross salaries and wages, food allowances and travel expenses according to the legislation. The Bank makes these contributions to the Pension and Disability Insurance Fund of the Republic of Macedonia and to the Health Insurance Fund of the Republic of Macedonia, at the statutory rates in force during the year. The regular contributions constitute costs for employees for the current year. The cost of these payments is disclosed in the Income statement in the same period as the related salary cost. The Bank does not operate any other pension scheme or post retirement benefits plan and consequently, has no obligation in respect of pensions.

In addition, the Bank is not obliged to provide further benefits to current and former

employees. The Bank recognizes liability and expense for share in profit and payments for bonuses to the members of Supervisory board, Board of directors, management and the employees of the Bank.

2.13 Income tax

The income tax is calculated and paid in accordance with the provisions of the Law

on Income Tax. Payment of the monthly tax is executed in advance. The final tax at the rate of 10% is calculated on the profit determined in the Income Statement, corrected for some items in accordance with the law provisions.

2.14 Borrowings

Borrowings are recorded at their cost value, which is fair value of the allowance

received.

2.15 Share capital Preference shares Preference shares that can not be purchased by the Bank, and may be traded on the

Macedonian Stock Exchange, are recognized as capital.


18


2.15 Share capital (continuation) Purchase of treasury shares When the Bank purchases treasury shares, the amount of the paid fees, including

directly connected costs, are recognized as capital changes. Acquired shares are classified as treasury shares acquired and are presented as item that decreases the total equity.

Dividends Dividends are recognised as a liability in the period in which they are declared.

2.16 Comparatives Where was necessary, comparative figures have been adjusted in order to conform

with changes in presentation in the current year.


19

3. Financial risk management

The Bank’s activities expose it to a variety of financial risks, so the adequate risk management is basic Bank’s aim. The efforts to maintain adequate balance between accepted risk level and business stability and profitability are permanent. Thus, operative risk is monitoring, evaluating and managing on regular basis. The most important types of risk are credit risk, liquidity risk, currency risk, interest rates risk of the bank’s activities portfolio, market risk and operative risk. Risk management framework Bank’s Shareholders Assembly appoints the members of the Supervisory board and the Audit Committee. Supervisory board has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The Supervisory board has established the Board of directors, Credit Committee, Risk Management Committee and Liquidity Committee. These bodies are responsible for monitoring and developing risk management policies in specific areas. Regarding the organizational structure of the Bank, the Risk Management and Planning Division is responsible for monitoring and reporting of global risk exposure, while the organizational units of the Bank, which create risk exposure, are responsible for operative risk management. Internal audit is responsible for the independent reporting regarding the risk management. According to the Bank’s risk management policies, which include set of appropriate risk limits and controls, identifying, monitoring and risk analysis are made on regular basis.

3.1 Credit risk

The Bank takes on exposure to credit risk, which is the risk that counterparty will be

unable to pay partially or in full when due. Credit risk is the most important risk of the Bank’s business, so the Bank carefully manages its exposure to credit risk. Principally, credit exposure arises in the lending activities and investment activities.


Supervisory board and Board of directors (partially) according to the Banking Law as well as the law regulations of the National Bank of the Republic of Macedonia (the Central Bank) have the decision making authority for rescheduling of claims and write-off of Bank’s claims.


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• Supervisory board is responsible for creation and implementation of the Credit Policy and Procedures for monitoring the implementation of the policy and procedures, for assessment of loans and their management. All credit exposures exceeding 10% of the regulatory capital of the Bank up to the legally determined limit of exposure towards single client (up to 25% of regulatory capital) are subject to approving of the Supevisory board.

• Credit Committee oversees the overall credit operation of the Bank and is responsible for approving and proposing to the Risk Management Committee and Supervisory board, all policies, procedures and amendments thereto relating to the extension of credit. Also, this Committee should ensure that these policies are applied consistently and complied with throughout the Bank and to approve credit exposure between 3% and 10% from the regulatory capital.

• Board of directors, Corporate Lending Division Manager and Department

Managers of the Bank are authorized for approving credit exposures up to 3% of the Bank's regulatory capital.

3.1.2 Credit risk assessment

(a) Loans

In assessing credit risk of loans approved to retail customers, legal entities and to banks at a counterparty level, the Bank uses three components: (1) the probability of default by the client or counterparty on its contractual obligation (expected cash flows); (2) the likely recovery ratio on the defaulted obligations, the ‘loss given default’; (3) the amount and quality of the collateral for the exposure. These credit risk assessments, which reflect expected loss and are required by the IAS 39, are based on losses that have been incurred at the balance sheet data rather than expected losses, as well as on the information the Bank relies upon for the client’s industry. (1) The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judgment and are validated, where appropriate, by comparison with externally available data. The clients in the group are ranged in 5 risk categories. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. These means that, in principal, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their predictive power with regard to default events.


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Bank’s internal rating scale Bank’s rating Description of the grade A Pass/acceptable for financing B Watch (careful) C Sub-standard D+E Suspicious (doubtful)+Loss

Bank’s rating grade A (Pass/acceptable for financing) includes:

• Claims from National Bank of the Republic of Macedonia and the Republic of Macedonia;

• Credit exposure towards customer who settles its obligation towards the Bank at maturity or up to 15 days overdue;

• Credit exposure being fully secured by first class security instruments, as defined in NBRM Decision on classification of claims of banks, up to realization of the instrument, provided that the realization is not in term longer than 30 days after the claim's maturity.

Bank’s rating grade B (Watch (careful)) includes: • Credit exposure towards customer, for whom on the basis of credit worthiness

evaluation, the Bank assesses that the cash flow will be sufficient for regular settlement of the due obligations, regardless to the presented current financial weaknesses, showing no signs of further worsening of the customer's condition;

• Credit exposure towards customer who repays its due obligations up to 30 days or by exception in period from 31 up to 90 days, if the delay is only periodical in the interval of 31 to 90 days.

Bank’s rating grade C (Sub-standard) includes: • Credit exposure towards customer who is confirmed and assessed to have

inadequate cash flow which will enable fulfillment of its obligations at the maturity;

• Credit exposure towards customer being inadequately capitalized; • Credit exposure towards customer with inadequate term structure of the assets

and liabilities, i.e. insufficiency in the long-term sources for financing customer's long-term activities;

• Credit exposure towards customer for which the Bank does not have satisfactory information available, i.e. the Bank does not have the required documentation for the Credit File in accordance with the Guidelines for keeping credit files passed by NBRM;

• Credit exposure towards customer who has restructured obligations or other prolongation of repayment of loan or other types of credit exposure due to serious financial difficulties;

• Credit exposure towards customer for whom payment has been settled for the issued letters of credit, guarantees, backing guarantees and other forms of guarantee (warranty);

• Credit exposure towards customer who usually fulfils its obligations with a delay from 31 up to 90 days, or as an exception from 91 up to 180 days, if the delay is only periodical in the interval from 91 up to 180 days.

Bank’s rating grade D+E (Suspicious (doubtful) + loss) includes: • Credit exposure towards customer who is illiquid or insolvent and credit

exposure towards customer in bankruptcy or liquidation; • Credit exposure towards customer whose creditors has written-off their claims;


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• Credit exposure towards customer in financial recovery; • Credit exposure towards a customer for whom a proposal is submitted to the

authorized court for initiating a procedure for liquidation or bankruptcy and out of which the Bank fairly expects to collect a part of its claims;

• Credit exposure towards customer with a suspicious legal base; • Credit exposure towards customer whose debts collection depends on the

realization of the security instruments; • Credit exposure with expectations that the Bank will collect only a part of its

claims from the customer; • Credit exposure towards customer that is being subject to litigation and at the

same time it is not being secured with a qualitative security instrument; • Customer with undefined legal status; • Credit exposure towards customer for whom there are firm expectations that the

Bank will not be in position to collect its claims from the customer; • Credit exposure towards customer who usually fulfils its obligations with a delay

from 91 up to 180 days, or as an exception from 181 up to 365 days, if the delay is only periodical in the interval from 181 up to 365 days and credit exposure towards customer who fulfils its obligations with delay longer than 365 days or does not fulfill them at all.

(2) Loss given default or loss severity represent the Bank’s expectations of the extent of loss on a clime should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type of claim and availability of collateral or other credit mitigations. (3) Amount and quality of the collateral depends on the terms, type (non movables, movables - inventories, receivables) and the possibility for its enforcement. The Bank divides the clients in two groups: one where the value of the collateral is higher than the amount of the exposure and second where the exposure of the bank is secured with value of the collateral that is lower than the amount of the exposure. (b) Debt securities

The Bank is striving to maintain acceptable level of credit risk exposure regarding debt securities, so investment activities are dominantly in government debt securities.


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3.1.3 Risk limit control and mitigation policies

The Bank manages and controls concentration of credit risk to individual and group

basis, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to fullfil their obligations towards the Bank and by changing these lending limits where appropriate. As measures for specific control and mitigation of credit risk prescribed in Bank’s act that regulates credit activities and procedures are obtaining collateral and credit-related contingencies. (a) Collateral Collateral is always considered as a secondary factor in granting a credit facility. Security by itself, in lack of ability to generate cash flow, is insufficient to justify the granting of credit facilities. The principal collateral types for loans and advances are: (1) For corporate entities

• Cash • Property • Equipment and vehicles • Inventory • Receivables • Guarantees (bank guarantees and guarantees from legal entities) • Securities (Debt securities issued by the Government of RM, Securities issued

by legal entities)

Loans to corporate entities are generally secured.


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(2) For individuals

• Property • Cars • Deposits • Securities (Debt securities issued by the Government of RM, bonds, Securities

issued by legal entities) • In some cases draft or draft with endorsers covering the total receivables.

Loans to individuals are generally secured. (b) Credit-related contingencies

The primary purpose to these instruments is to ensure that funds are available to a customer as required. Guarantees and letters of credit carry the same credit risk as loans. The Bank issues collateralized and uncollateralized guarantees and letters of credit. The Bank monitors the term of maturity of these credit commitments, because long-term commitments have greater degree of credit risk than short-term commitments, also as uncollateralized commitments regarding collateralized commitments.

3.1.4 Impairment and provisioning policies

The Bank establishes an allowance for impairment losses that represents its estimate

of incurred losses in its loan portfolio. The main components of this allowance are specific loss component that relates individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been occurred but have not been identified on loans subject to individual assessment impairment, by using the available historical experience, experienced judgment and statistical techniques. According to the Bank’s policy, there are five internal rating grades. The majority of the impairment provision comes from the bottom two grading. The table below shows the structure of Bank’s loans and advances portfolio regarding internal rating system and the associated impairment provision for each internal rating grade:


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2008 2007 Risk categories

Loans % Impairment%

Loans % Impairment %

Pass/acceptable for financing (A)

72.8 1.0 73.5 1.0

Watch (careful) (B) 14.4 10.0 10.2 10.0 Sub-standard ( C ) 5.1 25.0 6.2 25.0 Suspicious (doubtful)+Loss (D) + (E)

7.7

85.3 10.1 85.3

Total 100.0 9.9 100.0 11.9

3.1.5 Maximum exposure to credit risk before collateral held or other credit enhancement

2008 2007 Loans and advances to banks 5.550.640 13.833.618 Loans to customers Loans to individuals - overdrafts (exemption off-balance sheet exposure) 1.044.527 712.249 - credit cards (exemption off-balance sheet exposure)

735.990 576.820

- loans 5.094.198 4.024.274 - other 14.136 18.934 Loans to corporate entities - Large corporate clients 8.898.237 5.918.975 - Small and medium size companies (SMEs) 19.341.581 13.417.004 Financial assets held for trading 3.353.838 3.191.943 Financial assets at fair value trhough Profit and loss 222.781 1.003.542 Financial assets available for sale 380.746 68.437 Financial assest held to maturity 176.476 228.544 Other assets 976.138 1.002.561 Off balance sheet items Financial guaranties 8.211.030 8.434.592 Letters of credit 853.353 921.026 Other liabilities related to lending Unused overdrafts for current accounts of individuals 2.262.602 1.504.068 Unused overdrafts for Master cards 788.651 740.460 Unused overdrafts for current accounts of legal

entities 628.584 557.616


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The above table presents a worse case scenario of credit risk exposure to the Bank

as at 31 December 2008 and 2007, without taking account of any collateral held or other credit enhancements attached. For balance sheet items, the exposure set out above are based on net carrying amounts as reported in the balance sheet. As shown above, 69% of the total maximum exposure is derived from loans and advances to banks and customers (2007: 69%); 22% represents off-balance-sheet items (2007: 21%). Management is confident that in its ability to continue to control and sustain minimum exposure to credit risk to the Bank resulting from both loans and advances portfolio and off balance sheet items based on following:

• 87.2% of the loans and advances are categorized in top two grades on the internal rating system (2007: 83.7%);

• Loans and advances to customers are collateralized and loans to banks are mostly in first class banks;

• 57.64% of loans and advances are considered as to be neither past due nor impaired;

• The increase of off-balance-sheet items generally resulting of increased issue of unused overdrafts for current accounts of individuals as a result of the need in the whole economy for this kind of bank service.

3.1.6 Loan and advances

Loans and advances are summarized as follows:

31 December 2008 31 December 2007


customers


banks


customers


banks Neither past due nor impaired 20.164.196 5.507.638 10.986.630 13.653.705 Past due but not impaired

4.862.725 - 2.804.981 -

Impaired 13.956.047 44.532 14.206.243 181.731 Gross 38.982.968 5.552.170 27.997.854 13.835.436 Less: allowance for impairment (3.854.299) (1.530) (3.329.598) (1.818) Net 35.128.669 5.550.640 24.668.256 13.833.618


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The total impairment provision for loans and advances is MKD 3.855.829.000 (2007: MKD 3.331.416.000) of which MKD 1.908.770.000 (2007: MKD 1.714.906.000) represents the individually impaired loans and the remaining amount of MKD 1.947.059.000 (2007: MKD 1.616.510.000) represents the portfolio provision. Further information of the impairment allowance for loans and advances is provided in Notes 17 and 18. (a) Loans and advances neither past due or impaired

The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the Bank’s internal rating system.


2008


2007


5.507.638

13.653.705 Loans to customers Loans to individuals - loans 378.000 334.347 Loans to corporate entities - Large corporate clients 6.982.055 4.279.257 - Small and medium size companies (SMEs)

12.804.141 6.373.026

Total 25.671.834 24.640.335


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(b) Loans and advances past due but not impaired

Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. Gross amount of loans and advances by class of customer that were past due but not impaired were as follows:

31 December 2008 Up to 30

days Up to 90

days Over 90

days Total


4.155.931 706.794 - 4.862.725


31 December 2007

Up to 30 days

Up to 90 days

Over 90 days

Total


2.678.418 126.563 - 2.804.981


(c) Loans and advances individually impaired

(1) The breakdown of individually impaired loans and advances to customers by class and the fair value of related collateral held by the Bank as security are as follows:

31 December 2008

Loans individually

impaired Value of


3.910.288 3.832.082

Total 6.834.074 7.340.625


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31 December 2007

Loans individually

impaired Value of


3.163.837 2.231.294

Total 5.487.377 4.496.594

2) The total gross amount of individually impaired loans and advances to banks and the amount of collateral are as folows:

2008 2007 Loans

individually impaired

Value of collateral

Loans individually

impaired Value of

collateral Loans and advances to banks 44.532 - 181.731 - Total 44.532 - 181.731 -


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(d) Loans and advances renegotiated

Loans with renegotiated terms are loans that have been rescheduled due to deterioration in the borrower’s financial position and when the Bank has made concession that it would not otherwise consider. Once the loan is rescheduled it remains in the same rating grade at least two quarters independent of satisfactory performance after rescheduling, except when the quality of the loan was improved and the loan was transferred in a less risky category.

31 December 2008 Carrying amount

Rescheduled loans 373.144 31 December 2007 Carrying amount

Rescheduled loans 575.543

3.1.7 Debt securities, treasury bills and other securities The table below presents an analysis of debt securities, treasury bills and other

securities by issuers as at 31 December 2008:

Issuer

Treasury bills and

government bills

Government bills and

trading bonds Investment

securities Total National Bank of the Republic of Macedonia 3.186.502 - - 3.186.502 Republic of Macedonia 167.336 200.597 176.476 544.409 Banks - - 306.071 306.071 Total 3.353.838 200.597 482.547 4.036.982

3.1.8 Repossessed collateral Bank obtained assets by taking possession of collateral held as security as follows:

Carrying amount

Nature of assets 2008

2007

Residential property 767.201

798.489


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3.1.9 Concentration of risks of financial assets with credit risk exposure

(a) Geographic sectors The following table breaks down the Bank’s credit exposure at their carrying amount, categorized by geographic region, based on the country of domicile of our counterparties:

Total Republic of Macedonia

EU Countries

Non-EU Countries in Europe

Other countries

ASSETS Cash and balances with the National Bank of Republic of Macedonia

7.708.973 5.759.612 923.314 94.294 931.753

Treasury bills and government bills

3.353.838 3.353.838 - - -

Financial assets at fair value through P&L

222.781 222.781 - - -

Loans and advances to banks 5.550.640 398.301 4.897.113 255.226 - Loans and advances to customers

35.128.669 35.123.975 - 4.694 -

Loans to individuals 6.888.851 6.888.851 - - - - loans 5.094.198 5.094.198 - - - - overdrafts 1.044.527 1.044.527 - - - - credit cards 735.990 735.990 - - - - other 14.136 14.136 - - - Loans to corporate entities 28.239.818 28.235.124 - 4.694 - - large corporate customers 8.898.237 8.898.237 - - - - SMEs 19.341.581 19.336.887 - 4.694 - Investment securities 557.222 555.586 1.247 - 389 Other assets 976.138 976.138 - - - Total assets at 31 December 2008 53.498.261 46.390.231 5.821.674 354.214 932.142 Total assets at 31 December 2007 51.361.529 36.603.405 11.368.435 3.222.507 167.182


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(b) Industry sector

The following table breaks down the Bank’s credit exposure at their carrying amount, categorized by industry sector of our counterparties:

Total Industry Commerce

and finance Retail

customers Agriculture

Gove. instit. and local

authorities Construc-

tion Transport

Catering industry and

tourism Other ASSETS Cash and balances with the National Bank of Republic of Macedonia

7.708.973 - 7.708.973 - - - - - - -

Treasury bills and government bills 3.353.838 - 3.353.838 - - - - - - - Financial assets at fair value through P&L

222.781 2.676 203.623 - - - - 8.138 8.344 -

Loans and advances to banks 5.550.640 - 5.550.640 - - - - - - - Loans and advances to customers 35.128.669 9.158.173 8.788.231 6.888.851 1.259.496 564.797 3.699.416 1.683.093 395.357 2.691.255 Loans to individuals 6.888.851 - - 6.888.851 - - - - - - - loans 5.094.198 - - 5.094.198 - - - - - - - overdrafts 1.044.527 - - 1.044.527 - - - - - - - credit cards 735.990 - - 735.990 - - - - - - - other 14.136 - - 14.136 - - - - - - Loans to corporate entities 28.239.818 9.158.173 8.788.231 - 1.259.496 564.797 3.699.416 1.683.093 395.357 2.691.255 - large corporate customers 8.898.237 2.885.698 2.769.131 - 396.861 177.965 1.165.669 530.335 124.575 848.003 - SMEs 19.341.581 6.272.475 6.019.100 - 862.635 386.832 2.533.747 1.152.758 270.782 1.843.252 Investment securities 557.222 2.637 554.585 - - - - - - - Other assets 976.138 - 976.138 - - - - - - - Total assets at 31 December 2008 53.498.261 9.163.486 27.136.028 6.888.851 1.259.496 564.797 3.699.416 1.691.231 403.701 2.691.255

Total assets at 31 December 2007 51.361.529 6.952.576 24.518.109 5.332.278 678.274 814.651 2.597.367 1.346.016 165.737 8.956.521


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3.2 Market risk

Market risk is a risk of loss araising from the change in the price of the financial

instruments intended for trade, i.e. instruments which are part of the trading book. The Supervisory Board sets out the Policy for undertaking and managing the market risk, and the Board of Directors sets out the Procedures for identifiying, undertaking, measuring, monitoring and controlling the market risk. The aim of the Bank is maximizing the stability and profitability, by applying the optimum combination of trading portfolio.

3.3 Foreign currency risk

Foreign currency risk is a risk of loss due to change of cross-currency exchage rates and/or change in the value of the Denar against other foreign currencies. The Bank is exposed to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Supervisory Board sets out the Policy for undertaking and managing the foreign currency risk, and the Board of Directors sets out the Procedures for identifiying, undertaking, measuring, monitoring and controlling the foreign currency risk. The aim of the Bank is maximizing the stability and profitability, by applying the optimum combination of foreign currency and interest rate structure of the assets and liabilities. The FX position of the Bank is monitored on daily basis. The table below summarizes the Bank’s exposure by foreign currency at 31 December. Included in the table are the Bank’s assets and liabilities at carrying amounts categorized by currency.

Bank’s exposure to foreign currency risk Total assets and liabilities in thousand of MKD analized as denar and foreign

currency balances are as follows:


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As at 31 December 2008 EUR USD MKD Other Total

Assets Cash and balances with the NBRM 3.353.501 1.134.743 2.886.182 334.547 7.708.973 Treasury and government bills - - 3.353.838 - 3.353.838 Financial assets at fair value through profit or loss 8.281 - 214.500 - 222.781 Loans and advances to banks 2.814.782 2.039.547 170.666 525.645 5.550.640 Loans and advances to Customers 15.546.951 281.636 18.637.416 662.666 35.128.669 Investment securities 486.878 393 69.951 - 557.222 Investments in associates - - 49.693 - 49.693 Property and equipment - - 1.586.867 - 1.586.867 Investment property - - 8.488 - 8.488 Intangible assets - - 40.191 - 40.191 Accrued interest and other asset 64.589 73 911.350 126 976.138

Total assets 22.274.982 3.456.392 27.929.142 1.522.984 55.183.500

Liabilities Deposits from banks 794.722 218.660 548.882 10.197 1.572.461 Other deposits 19.856.004 3.135.242 22.073.415 705.209 45.769.870 Borrowings 835.985 926 147.192 - 984.103 Provisions 82.635 15.136 163.042 760 261.573 Accrued interest and other liabilities 3.424 10.210 317.461 959 332.054

Total liabilities 21.572.770 3.380.174 23.249.992 717.125 48.920.061

Net exposure 2008 702.212 76.218 4.679.150 805.859 6.263.439 Off-balance sheet liabilities 3.943.442 722.319 7.780.619 36.267 12.482.647

As at 31 December 2007 Total assets 22.392.656 2.761.131 26.185.455 1.610.672 52.949.914 Total liabilities 21.035.942 2.785.585 23.013.155 849.694 47.684.376 Net exposure 2007 1.356.714 (24.454) 3.172.300 760.978 5.265.538

Off-balance sheet liabilities 4.011.597 598.263 6.963.244 328.871 11.901.975

The currency risk management is preformed through adjustment of the total open FX position of the Bank, which is targeted through Bank’s internal acts, depending of the total risk position by all types of risks and separately by currencies depending on the fluctuation of the exchange rate. The Bank manages the open FX positon by its decrease or increase depending on the market changes. The sensitive analisys of the exchange rate changes is implemented by exchange rate changes in sertain curencies, based on the statistic data that shows exchange rate stability of the euro v.s denar and fluctuating exchange rate of the US dollar. At 31 December 2008, had the exchange rate between the MKD and EUR increased or decreased by 0.5%; between MKD and USD increased or decreased by 3%; between MKD and other foreign currencies increased or decreased by 1%, the potential effect on the income statement for 2008 would have been approximately MKD 13,856,000 (2007: MKD 13,660,000) lower or higher.


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3.4 Interest rate risk

Risk of change in the interest rates in the banking book is risk of loss arrisinf from the unfavourable change in the interest rates, and which influence on the items in the Bank’s banking book. The Supervisory Board sets out the Policy for undertaking and managing the interest rate risk in the banking book, and the Board of Directors sets out the Procedures for identifiying, undertaking, measuring, monitoring and controlling the interest rate risk in the banking book. The aim of the Bank is maximizing the stability and profitability, by applying the optimum combination of interest rates. The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and interest-bearing liabilities mature or reprice at different times or in differing amounts. In the case of floating rate assets and liabilities, the Bank is also exposed to basic risk, which is the difference in reprising characteristics of the various floating rate indices, such as the savings rate, and three or six months EURIBOR/LIBOR and different types of interest. Risk management activities are aimed at optimizing net interest income, given market interest rate levels consistent with the Bank’s business strategies. Assets-liability risk management activities are conducted in the context of the Bank’s sensitivity to interest rate changes. In general, the Bank is asset sensitive because of the majority of the interest-earning assets and liabilities; the Bank has the right simultaneously to change the interest rates. In decreasing interest rate environments, margins earned will narrow, as liabilities interest rates will decrease with a lower percentage compared to assets interest rate. However the actual effect will depend on various factors, including stability of the economy, environment and level of the inflation.

Up to 1 month

1-3 months


Over 5 years

Non-interest bearing Total

At 31 December 2008 Assets Cash and balances with the NBRM 4.298.012 - - - - 3.410.961 7.708.973 Treasury and government bills 3.182.634 167.056 - - - 4.148 3.353.838 Financial assets at fair value through profit or loss 8.281 - 149.776 - - 64.724 222.781 Loans and advances to banks 4.302.822 534.509 704.148 667 - 8.494 5.550.640 Loans and advances to customers 2.802.471 2.001.504 10.749.339 11.601.537 4.825.167 3.148.651 35.128.669 Investment securities - - 355.223 120.444 - 81.555 557.222 Investments in associates - - - - - 49.693 49.693 Property and equipment - - - - - 1.586.867 1.586.867 Investment property - - - - - 8.488 8.488 Intangible assets - - - - - 40.191 40.191 Accrued interest and other

assets - - - - 6.023 970.115 976.138 Total assets 14.594.220 2.703.069 11.958.486 11.722.648 4.831.190 9.373.887 55.183.500 Liabilities Deposits from banks 765.014 102.251 401.562 116.998 - 186.636 1.572.461 Other deposits 29.152.828 6.974.568 7.567.237 519.965 - 1.555.272 45.769.870 Borrowings 40.630 181.535 224.031 333.668 73.032 131.207 984.103


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Provisions - - - - - 261.573 261.573 Accrued interest and other liabilities - - - - - 332.054 332.054

Total liabilities 29.958.472 7.258.354 8.192.830 970.631 73.032 2.466.742 48.920.061 Net interest risk 2008 (15.364.252) (4.555.285) 3.765.656 10.752.017 4.758.158 6.907.145 6.263.439 As at 31 December 2007 Total assets 26.736.293 8.230.731 7.447.868 2.439.061 740.782 7.355.179 52.949.914 Total liabilities 29.396.045 6.778.401 8.530.461 658.090 29.200 2.292.179 47.684.376

Net interest risk 2007 (2.659.752) 1.452.330 (1.082.593) 1.780.971 711.582 5.063.000 5.265.538

The interest rate change sensitivity analysis has been determined based on the aggregate open interest position at the reporting date. At 31 December 2008, if interest rates had been 100 basis points higher/lower, the potential effect on the income statement for 2008 would be for 6,437,000 MKD positive or negative (2007:2,025,000 MKD), and on the rest of the capital components MKD 3,061,000 negative or positive (2007:null).

3.5 Analysis by maturity

Liquidity risk is the risk that the Bank is unable to meet its payment obligations

associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence of liquidity risk may be the failure to meet obligations to repay depositors and fulfill commitments to lend.

3.5.1 Liquidity risk management process

The Supervisory Board sets out the Banks Policy for liquidity risk management, and

the Board of directors sets out the Procedures for identifying, undertaking, measurement, monitoring and controls the liquidity risk. Liquidity risk management policy of the Bank defines the method of managing the Bank’s liquidity. Perception and monitoring of Bank’s liquidity is precondition for its stability and successful working. Implementation of the liquidity risk management policy is done using defined risk management process which includes planning and managing with cash flows, maintaining adequate structure of assets and liabilities, financial instruments for liquidity risk management, adequate diversification of deposits and other liabilities by maturity and client, procedures for identification and monitoring the deposits stability, monitoring the maturity of assets and liabilities, monitoring the off-balance sheet items, monitoring liquidity ratios, liquidity stress testing and continuity plan in irregular conditions reporting to Bank’s bodies and adequate management information system and responsibilities of Bank’s organizational units in liquidity risk management process. The aim of the Bank is maximizing the profitability, by applying the optimum combination of maturity and foreign currency structure of the assets and liabilities. The table below analyses assets and liabilities of the Bank into relevant maturity buckets based on the remaining period at balance sheet date to the contractual maturity date for liabilities and expected maturity for assets. Although the Bank has shortage of short-term assets over short-term liabilities maturing within one month, one to three months and three to twelve months, the Bank’s management considers its deposit base as being stabile and liquidity not jeopardized. This is based on statistical data and calculations of expected maturity in order to determine the funding and stability of the deposit base.


37

Maturities of assets and liabilities


1-3 months


Over 5 years Total

Liabilities Deposits from banks 949.582 102.433 94.683 486.621 - 1.633.319 Other deposits 30.647.381 6.981.381 7.537.511 634.468 - 45.800.741 Borrowings 47.411 28.482 171.353 557.739 250.473 1.055.458 Provisions 88.441 26.756 95.720 33.628 17.028 261.573 Accrued interest and other liabilities 197.012 133.130 202 1.710 - 332.054

Total liabilities 31.929.827 7.272.182 7.899.469 1.714.166 267.501 49.083.145 Total assets 15.366.463 2.308.854 9.821.073 14.469.529 12.575.946 54.541.865


1-3 months


Over 5 years Total

Liabilities Deposits from banks 483.916 148.454 116.548 44.127 - 793.045 Other deposits 29.771.208 6.650.284 8.377.810 495.698 85 45.295.085 Borrowings 50.535 16.925 155.437 700.737 234.960 1.158.594 Provisions 82.694 50.458 64.976 46.194 11.466 255.788 Accrued interest and other liabilities 192.336 103.214 1.972 - - 297.522

Total liabilities 30.580.689 6.969.335 8.716.743 1.286.756 246.511 47.800.034 Total assets 23.231.406 5.461.710 7.042.537 11.017.166 6.256.337 53.009.157 3.5.2 Off-balance sheet items (uncollateralized) (a) Guarantees

The maturity buckets based on the remaining period to the contractual maturity date of guarantees are summarized in the table bellow.

(b) Letters of credit The maturity groupings based on the remaining period to the contractual maturity date of letter of credit are also included in the table bellow.

(c) Other This item includes approved undistributed overdrafts on current accounts and cards and loans in MKD for out limiting of the condition of the funds on the current accounts of legal entities in domestic payment operation. The maturity buckets based on the remaining period to the contractual maturity date are summarized in the table bellow.


38







3.6 Financial Instruments Fair value Fair value represents the amount at which an asset could be replaced or a liability

settled on an arms length basis. Fair values have been based on management assumptions according to the profile of the asset and liability base. The following table summarizes the carrying amounts and fair values to those financial assets and liabilities not presented on balance sheet at their fair value.

Carrying value Fair value 2008 2007 2008 2007 Financial assets Loans and advances to banks 5.550.640 13.833.618 5.550.640 13.833.618 Loans and advances to customers 35.128.669 24.668.256 34.855.501 24.541.276 - Retail customers(individuals) 6.888.851 5.332.277 6.888.851 5.332.277 -large corporate customers 8.898.237 5.918.975 8.862.131 5.918.975 -SMEs 19.341.581 13.417.004 19.214.577 13.290.024 Investment securities 557.222 296.981 565.766 372.404 Financial liabilities Deposits from banks 1.572.461 792.918 1.572.461 792.918 Other deposits 45.769.870 45.272.556 45.769.870 45.272.556 Borrowings 984.103 1.065.592 948.103 1.065.592


39


Loans and advances to other banks comprise inter-bank placements. The fair value of placements and overnight deposits is their carrying amount due to their short-term nature. Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Investment securities Investment securities include interest-bearing assets held to maturity and assets classified as available for sale are measured at fair value. Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. Other financial assets The fair value of monetary assets that includes cash and cash equivalents is considered to approximate their respective carrying values by definition and due to their short-term nature. Deposits and borrowings The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The fair value of the term deposits at variable interest rates approximates their carrying values as of the balance sheet date. Borrowed funds carry predominantly floating rates and due to the interest rate re- pricing carrying value is not materially different from their fair value.


40

3.7. Capital management The Bank’s objectives regarding capital managements are:

• To comply with the capital requirements in accordance with the regulations of the National Bank of the Republic of Macedonia;

• To safeguard the Bank’s ability to provide returns to shareholders; • To maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are regularly monitored by the Bank’s management, using techniques prescribed by national regulatory authority (National Bank of Republic of Macedonia). The required information is submitted to regulatory authority on a quarterly basis. The regulatory authority requires that each bank has to maintain capital adequacy ratio above 8%. The Bank’s regulatory capital is divided in two groups:

• Tier 1 that includes: ordinary and non-cumulative non-voting shares and share premium, statutory reserves and retained earnings or loss, items as result of consolidation, less: intangible assets.

• Tier 2 that includes: cumulative non-voting shares and share premium, hybrid capital liabilities and subordinated liabilities.

Investments in other banks or financial institutions over 10% and investments in insurance and re-insurance companies and pension fund management companies are deducted from Tier 1 and Tier 2 capital to arrive at the regulatory capital. According to national regulations, the risk-weighted assets (on-balance and off-balance) are measured by means of a hierarchy of four risk weights classified according to nature of assets, taking into consideration the collateral or guarantees. Calculation of capital adequacy ratio includes regulatory capital and total of credit risk-weighted assets and FX risk-weighted assets. The table bellow summarizes the compositions of regulatory capital and the capital adequacy ratio of the Bank for the years ended 31 December regarding the requirement of regulatory authority. During these two years, the Bank complied with all of the regulatory imposed capital requirements to which the Bank is subject.


41

Tier 1 capital 2008

Ordinary and non-cumulative non-voting shares and share premium

2.214.206 Statutory reserves and retained earnings or loss 2.653.136 Items as result of consolidation - Deductions from Tier 1 capital (4.937) Total qualifying Tier 1 capital 4.862.405 Tier 2 capital Cumulative non-voting shares and share premium 18.563 Hybrid capital liabilities - Subordinated liabilities - Total qualifying Tier 2 capital 18.563 Deductions from regulatory capital (96.267) Total regulatory capital 4.784.701 Credit risk-weighted assets On-balance sheet 38.940.270 Off-balance sheet 7.696.428 Total credit risk-weighted assets 46.636.698 Assets weighted according to credit risk

1.711.792

Capital adequacy ratio 9,9%


42

2007 Ordinary and non-cumulative non-voting shares and share premium 2.209.660 Statutory reserves and retained earnings or loss 2.020.929 Items as result of consolidation - Deductions from Tier 1 capital (57.922) Total qualifying Tier 1 capital 4.172.667 Tier 2 capital Cumulative non-voting shares and share premium 23.108 Hybrid capital liabilities - Subordinated liabilities - Total qualifying Tier 2 capital 23.108 Deductions from regulatory capital (82.009) Total regulatory capital 4.113.766 Credit risk-weighted assets On-balance sheet 29.646.630 Off-balance sheet 7.847.258 Total credit risk-weighted assets 37.493.888 Assets weighted according to credit risk 1.602.001 Capital adequacy ratio 10,5%

The increase of the regulatory capital in 2008, in relation to 2007 is mainly result of including a part of the profit realized in 2007 in the Bank’s reserves. The increase of risk-weighted assets reflects the expansion of lending and off-balance activities.


43

4 Critical accounting estimates and judgments in applying accounting policies

The Bank makes estimates and assumptions that affect the reported amounts of

assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Impairment losses on loans and advances The Bank reviews its loan portfolios to assess impairment on a monthly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the bank. The Bank uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio. (b) Held to maturity investments The Bank holds debt securities issued by the Republic of Macedonia, received in exchange for the settlement of certain non-performing loans, bearing interest at a rate of 2% per annum. The principal of bonds for frozen deposits is repayable in 20 equal semi-annual installments commencing from April 2002 to October 2011. The principal of bonds for denationalization IV issue is repayable in 10 equal annual installments commencing from June 2006 to June 2015, and, the principal of bonds for denationalization V issue is repayable in 10 equal annual installments commencing from June 2007 to June 2016. As at 31 December 2008 the outstanding balance of these receivables amounts MKD 176,476,000 (2007: MKD 228,544,000).


44

5. Net interest income

2008 2007 Interest income Loans: - To customers 3.088.928 2.252.972 - To banks 58.804 42.769 Cash and short term funds 441.299 776.850 Investments in securities 285.692 28.598 Other 12.185 22.355

3.886.908 3.123.544 Interest expense Deposits from banks 26.330 9.296 Due to customers 1.228.187 918.922 Other liabilities 39.010 57.157 Other 15.928 16.255

1.309.455 1.001.630

6. Net fee and commission income

2008 2007 Fee and commission income Payment operations - domestic 347.209 348.518 - international 258.253 240.927 Letters of credit and guarantees 176.819 136.093 Credit cards 23.128 17.469 Brokerage fees 14.429 75.252 Other 79.546 122.517

899.384 940.776 Fee and commission expense Payment operations - domestic 31.645 29.004 - international 65.343 66.163 Brokerage fees 535 2.002 Other 37.668 16.725

135.191 113.894

7. Dividend income

2008 2007 Investments securities 20.119 8.106 20.119 8.106


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8. Other operating income

2008 2007 Capital gains 11.593 3.003 Rental income 11.658 12.323 Recoveries on loans and advances previously written–off 151.670 124.684 Other 126.756 77.247

301.677 217.257

9. Administrative expenses 2008 2007 Salaries and wages 442.362 424.231 Pension insurance costs 136.381 131.177 Other staff costs 73.153 75.977 Taxes and contributions 70.286 73.838

722.182 705.223

10. Other operating expenses

2008 2007 Materials and services 303.354 242.732 Insurance premiums 222.214 191.041 Depreciation of property and equipment and intangible assets 188.474 177.216 Administration and marketing costs 115.309 76.268 Bonuses to the Supervisory Board, Board of Directors, management and the employees 130.000 100.000 Impairment of assets - 3.250 Decrease in value of assets acquired through foreclosure procedure 12.677 - Capital loss 18.953 22.529 Other taxes and contributions 5.466 5.236 Court taxes 3.777 2.557 Depreciation of investment property 546 1.844 Other 2.307 18.272 1.003.077 840.945


46

11. Impairment charge for credit losses 2008 2007 Cash and bank balances with the NBRM (Note 14) (67.549) (12.776) Loans and advances to banks (Note 17) (288) 1.818 Loans and advances to customers (Note 18) 549.056 723.589 Contingencies and commitments (Note 29) 5.785 50.715

487.004 763.346

12. Income tax expenses 2008 2007 Income before taxation 1.550.105 1.069.212 Tax calculated at a tax rate of 10% (2007: 12%) 155.010 128.305 Increase for: - expenses non tax deductible according to local regulations 23.699 18.343

Decrease for: - tax exempt revenue (6.194) (4.779) - non-taxable income according to local

regulations - (84.554) Total income tax expenses 172.515 57.315

The tax authorities are competent to conduct full tax control for the year ended 31 December 2008. The tax authorities may at any time inspect the books and records up to 5 to 10 years subsequent to the reported tax year, and may impose additional tax liabilities. The Bank's management is not aware of any circumstances, which may give rise to a potential material liability in this respect.


47

13. Earnings per share

Basic earnings per share The calculation of basic earnings per share at 31 December 2008 was based on the net profit attributable to ordinary shareholders of MKD 1.375.937.000 (2007: MKD 1.009.874.000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2008 of MKD 1.995.551.000 (2007: 1.987.804.000), calculated as follows:

2008 2007

Net profit for the year 1.377.590 1.011.897 Dividends on non-redeemable preference shares (1.653) (2.023) Net profit attributable to ordinary shareholders 1.375.937 1.009.874 Weighted average number of ordinary shares 2008 2007 In number of shares Issued ordinary shares at 1 January 1,992,590 1,953,528 Effect of treasury shares sold in January - 30,132 Effect of conversion of preference shares in January 63 77 Effect of conversion of preference shares in February 107 424 Effect of conversion of preference shares in April 2,398 935 Effect of conversion of preference shares in May 135 659 Effect of conversion of preference shares in June 83 1,058 Effect of conversion of preference shares in July 64 665 Effect of conversion of preference shares in August - 199 Effect of conversion of preference shares in September 55 79 Effect of conversion of preference shares in October 55 27 Effect of conversion of preference shares in November - 18 Effect of conversion of preference shares in December 1 3 At 31 December 1,995,551 1,987,804


48

Diluted earnings per share The calculation of diluted earnings per share at 31 December 2008 was based on the net profit for the year (diluted) attributable to ordinary shareholders of MKD 1,377,590 (2007: MKD 1,011,897) and the weighted average number of ordinary shares (diluted) during the year ended 31 December 2008 of 2,012,483 (2007: 2,009,281), calculated as follows:

Net profit attributable to ordinary shareholders (diluted) 2008 2007

Net profit for the year (diluted) 1.377.590 1.011.897 Net profit (diluted) attributable to ordinary shareholders 1.377.590 1.011.897 Weighted average number of ordinary shares (diluted) 2008 2007 Issued ordinary shares at 1 January 1.995.551 1.987.804 Effect of issued potential ordinary shares 16.932 21.477 Weighted average number of ordinary shares (diluted)

at 31 December 2.012.483

2.009.281


49

14. Cash and bank balances with the National Bank of Republic of Macedonia

2008 2007 Cash in hand 1.098.663 974.734 Current accounts with local banks 7.229 6.616 Current accounts with foreign banks 1.949.561 822.421 Other short term highly liquid investments 9.135 22.637 Included in cash and cash equivalents (Note 34) 3.064.588 1.826.408 Restricted accounts 53.619 39.831 Current accounts with foreign banks 10 66.294 Balances with NBRM 4.591.036 5.499.924 Less: Provision for impairment (280) (67.829)

7.708.973 7.364.628

The item cash include the receivables under interest of MKD 2,569,000 (2007:

2,350,000).

The Bank is obliged to maintain mandatory reserve in MKD and to allocate mandatory reserve in foreign currency and mandatory deposit in MKD at the National Bank of the Republic of Macedonia. The Bank has to set aside mandatory reserve in MKD at a rate of 10 % on the average daily balance of the total MKD deposits on legal entities and retail customers during the preceding month. National Bank of Republic of Macedonia pays 2% p.a. (2007: 2%) interest on the mandatory reserve amount in MKD. The Bank has to set aside mandatory reserve in foreign currency at a rate of 10 % on the average daily balance of the total foreign currency deposits on legal entities and retail customers during the preceding month denominated in EUR by applying the middle exchange rate of the National Bank of Republic of Macedonia applicable on the last date of the calculation. National Bank of Republic of Macedonia pays no interest on the foreign exchange mandatory reserves. The Bank is obliged to keep the amount of the calculated foreign currency mandatory reserve at a foreign Bank on a separate account with the National Bank of Republic of Macedonia. The Bank has to set aside MKD mandatory deposit in amount which equals the difference between the actual loan retail balance at the end of each month and the balance determined in accordance with the prescribed limits for growth for each month. This mandatory deposit was for the first time set aside on 18 August 2008. The mandatory deposit as at 31 December is MKD 150,533,000 and National Bank of Republic of Macedonia pays 1% interest rate per annum. Restricted accounts represent deposits for opened letters of credit, on behalf of the Bank’s customers.


50

Movement in provisions for impairment are as follows: Cash and bank balances with the National Bank of Republic of Macedonia

2008 2007 Balance at 1 January 67.829 80.605 Net new provisions for imapirment (Note 11) (67.549) (12.776) Write-off - Balance at 31 December 280 67.829

15. Treasury bills

2008 2007 Treasury bills issued by the National bank of the Republic of Macedonia 3.186.502 3.191.943 Government bills with maturity up to 90 days 167.336 - Included in cash and cash equivalents (Note 34) 3.353.838 3.191.943

3.353.838 3.191.943

Treasury bills issued by the National Bank of Republic of Macedonia are with maturity due of 28 days. Current income is categorized as interest income. Government bills of MKD 167,336,000 are with maturity up to 90 days bearing interest at a rate of 7.52% – 7.59% per annum.

16 Financial assets at fair value through profit and loss 2008 2007 Debt and other fixed-income investments Government bonds 159,334 159,718 Government treasury bills 41,263 764,261 200,597 923,979 Listed 200,597 923,979 Equity investments and other non-fixed-income

instruments

Equity investments 22,184 79,563 22,184 79,563 Listed 19,226 72,259 Unlisted 2,958 7,304 222,781 1,003,542

Income from debt instruments with fixed interest is recognized in the Income Statement. Income from shares is recognized as income from dividends.


51

17. Loans and advances to banks

2008 2007 Placements with foreign banks 5.152.706 13.639.318 Placements with domestic banks 399.464 196.118 Less: Provision for impairment (Note 11) (1.530) (1.818) 5.550.640 13.833.618 Current 4.409.764 12.819.221 Non-current 1.140.876 1.014.397

Loans and advances to banks include receivables under interest of MKD 8,494,000

(2007: MKD 57,458,000).

Movement in provisions for impairment are as follows: Loans and advances to banks 2008 2007 Balance at 1 January 1.818 - Net new provisions for imapirment (Note 11) (288) 1.818 Balance at 31 December 1.530 1.818

18. Loans and advances to customers

2008 2007 Individuals (retail customers): - Overdrafts 1.156.031 794.634 - Credit cards 823.963 630.500 - Loans 5.504.902 4.329.747 - Other 15.077 19.796

7.499.973 5.774.677 Corporate entities: - Large corporate customers 10.000.379 7.021.931 - SMEs 21.482.616 15.201.246

31.482.995 22.223.177 Less: allowance for impairment (3.854.299) (3.329.598)

35.128.669 24.668.256 Current 14.778.766 10.986.529 Non- current 20.349.903 13.681.727

Loans and advances to customers include accrued interest and other receivables of

MKD 217,812,000 (2007: MKD 145,669,000).


52


Loans

Overdrafts Credit cards Loans Other Total

Balance at 1 January 2007 55.596 25.912 188.414 2.522 272.444 Net new provisions for impairment 26.975 27.768 117.723 (1.660) 170.806 Write off (186) - (664) - (850) Net bookkeeping value 82.385 53.680 305.473 862 442.400

Movement in provisions for impairment corporate entities for 2007 are as follows: Loans

Large corporate

customers SMEs Total Balance at 1 January 2007 1.192.209 1.456.093 2.648.302 Net new provisions for impairment 219.958 332.825 552.783 Write off (309.211) (4.676) (313.887) Net bookkeeping value 1.102.956 1.784.242 2.887.198


Loans

Overdrafts

Credit cards Loans Other Total

Balance at 1 January 2008 82.385 53.680 305.473 862 442.400 Net new provisions for impairment 34.223 34.334 105.612 79 174.248 Write off (5.104) (41) (381) - (5.526) Net bookkeeping value 111.504 87.973 410.704 941 611.122


53

Movement in provisions for impairment corporate entities for 2008 are as follows:

Loans

Large corporate customers SMEs Total

Balance at 1 January 2008 1.102.956 1.784.242 2.887.198 Net new provisions for impairment (814) 375.622 374.808 Write off (18.829) (18.829) Net bookkeeping value 1.102.142 2.141.035 3.243.177

19 Investment securities 2008 2007 Debt and other fixed-income investments held -

to - maturity

Government bonds 176,476 228,544 176,476 228,544 Listed 176,476 228,544 Equity investments and other debt investments

available-for-sale

Debt non-fixed income investments available for sale

Bonds issued by banks 306,071 - Equity investments available-for-sale Equity investments 74,675 68,437 380,746 68,437 Unlisted 380,746 68,437 557,222 296,981 Current 54,461 55,378 Non-current 502,761 241,603

Investments securities include claims under interest of MKD 3,384,000 (2007:

1,320,000 MKD).

Government bonds held-to-maturity in the amount of MKD 176,476,000 (2007: 228,544,000) comprise bonds nominated in EUR which are recorded in MKD with interest rate of 2% p.a. (2007: 2% p.a.).


54

This amount is comprised of the value of the bonds of the so called “frozen” foreign currency savings (RM01) in the amount of MKD 159.302 thousand, IV issue of the bonds for denationalization (RMDEN04) MKD 1.083 thousand, the V issue of the bonds for denationalization (RMDEN05) MKD 10.986 thousand and the VI issue of the bonds for denationalization (RMDEN06) MKD 5.105 thousand. The Bank received these bonds in replacement for the non-performing loans, except those from the VI issue. These bonds are presented in nominal value. The bonds are traded at the official market and at 30.12.2008 (last date of trade at the Stock Exchange) the price of RM01 is 92,7%, RMDEN04 85%, RMDEN05 84,6% and RM06 84% (28.12.2007 the price of RM01 was 85%, RMDEN04-83,82%, RMDEN05-84,9%, and RMDEN06-85,52%). The bonds for the frozen savings are payable in 20 equal semi-annual installments commencing from April 2002 up to October 2011, IV issue of bonds for denationalization is payable in 10 equal annual installments commencing from June 2006 up to June 2015, V issue of bonds for denationalization is payable in 10 equal annual installments commencing from June 2007 up to June 2016, and VI issue of bonds for denationalization is payable in 10 equal annual installments commencing from June 2008 up to June 2017.

Corporate bonds issued by domestic Banks classified as available for sale of MKD 306,071,000, represent bonds denominated in EUR, with variable interest rate, six months EURIBOR +1.2% annual. The corporate bonds were issued by NLB Tutunska Banka AD Skopje, with maturity of three years and semi-annual payment of interest. The bonds were acquired through Public announcement from NLB Tutunska banka AD Skopje- NLB TB1 and were registered in the Central depository for securities of Republic of Macedonia on 17 November 2008. The corporate bonds are not quoted on an official market. Income from debt securities available for sale is recognised in interest income. Income from debt instruments held-to-maturity is recognized as interest income. Income from equity investments is recognized in dividend income.


55

20. Investments in associate 2008 2007

KB Prvo Penzisko Drustvo AD Skopje 45.138 45.138 Share of results 4.555 (9.618) 49.693 35.520 Summary financial information on associate is presented below:

2008 Assets Liabilities Equity Income Profit Participation KB Prvo Penzisko

Drustvo AD Skopje 135.823 34.418 101.405 105.387 28.926 49% 135.823 34.418 101.405 105.387 28.926 49% 2007 Assets Liabilities Equity Income Loss KB Prvo Penzisko

Drustvo AD Skopje 102.775 30.297 72.478 90.403 7.388 49% 102.775 30.297 72.478 90.403 7.388 49%


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21. Property and equipment Fair value of property and equipment and the respective depreciation at 31 December 2008 is shown below:

Buildings Furniture & Equipment

Assets in course of

constructionLeasehold

improvements Total At 1 January 2007 Cost 1.461.478 832.295 42.529 21.319 2.357.621 Accumulated depreciation (330.505) (559.958) - (9.064) (899.527) Net book amount 1.130.973 272.337 42.529 12.255 1.458.094 Year ended December 2007 Opening net book amount 1.130.973 272.337 42.529 12.255 1.458.094 Additions - - 193.098 - 193.098 Transfer 9.619 170.605 (188.271) 8.047 - Transfer to intangible assets - - (25.055) - (25.055) Transfer from leasehold improvements 1.487 - - (1.487) - Transfer to investment property (749) - - - (749) Disposals and write off (6.773) (2.022) - (363) (9.158) Depreciaion – transfer from leasehold improvements (1.487) - - 1.487 - Depreciaion charge (37.688) (121.515) - (3.250) (162.453) Closing net book amount 1.095.382 319.405 22.301 16.689 1.453.777

At 31 December 2007 Cost 1.451.905 936.258 22.301 27.515 2.437.979 Accumulated depreciation (356.523) (616.853) - (10.826) (984.202) Net book amount 1.095.382 319.405 22.301 16.689 1.453.777 Year ended December 2008 Opening net book amount 1.095.382 319.405 22.301 16.689 1.453.777 Additions - - 317.832 - 317.832 Transfer 26.840 126.407 (154.990) 1.743 - Transfer to intangible assets - - (14.240) - (14.240) Direct transfers 59 61 - - 120 Transfer from leasehold improvements 5.977 - - - 5.977 Disposals and write off (461) (2.575) - (363) (3.399) Depreciaion charge (38.831) (129.690) - (4.679) (173.200) Closing net book amount 1.088.966 313.608 170.903 13.390 1.586.867 At 31 December 2008 Cost 1.485.540 1.000.967 170.903 28.344 2.685.754 Accumulated depreciation (396.574) (687.359) - (14.954) (1.098.887) Net book amount 1.088.966 313.608 170.903 13.390 1.586.867


57

22. Investment property

Value of the investment property and the respective depreciation at 31 December 2008 is shown below:

2008 2007 At 1 January 2008 57.855 58.950 Transfer (to)/from property and equipment (5.977) 749 Decrease (42.844) - Depreciation (546) (1.844)

As at 31 December 2008 8.488 57.855

23. Intangible assets 2008 2007 Cost Balance at 1 January 119.623 94.567 Transfer from property plant and equipment 14.240 25.056 Disposals and write off (80) - Balance at 31 December 133.783 119.623 Accumulated amortisation Balance at 1 January 78.390 63.626 Charge for the year 15.274 14.764 Disposals and write off (72) - Balance at 31 December 93.592 78.390 Net book value at 31 December 40.191 41.233 Net book value at 1 January 41.233 30.941


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24. Other assets 2008 2007 Collected collateral 767.201 798.489 Advances for property and equipment 31.353 59.334 Receivable for sold collateral previously collected 38.013 39.831 Receivable from KB Prvo Penzisko Drustvo 24.087 24.038 Inventory of office materials 19.780 18.208 Inventory of numismatic collections 15.850 16.559 Other assets 79.854 46.102 976.138 1.002.561 Current 253.606 339.998 Non- current 722.532 662.563

Collected collateral of MKD 767,201,000 (2007: MKD 798,489,000) represents

collected business premises and apartments, received by foreclosure of collateral. The market for certain types of collateral in Macedonia is in an early stage of

development. Management has made an estimate of the expected recoverable amount net of costs to realise the assets, based on a number of factors, including independent assessment. However, given the foregoing, actual amounts realised may differ from the estimates made.

Other assets include operating lease receivables as follows: 2008 2007 Not later than one year 2.592 12.566 Later than one year and not later than five years 7.751 4.372 Later than five years 5.611 6.485 15.954 23.423

The Bank has operating leases on an indefinite lease term. The minimum lease

payments for these operating leases not later than one year are MKD 676,000 (2007: MKD 1,121,000).


59

25. Deposits from banks

2008 2007 Demand deposits:

Banks and other financial institutions 299.763 132.238 Insurance companies 149.764 125.362

Time deposits: Banks and other financial institutions 1.021.538 535.283

Restricted deposits: Banks and other financial institutions 101.396 35

1.572.461 792.918 Current 1.146.698 748.918 Non-current 425.763 44.000

Deposits from banks and other financial institutions include accrued interest payable

of MKD 5,384,000 (2007: MKD 3,319,000).

26. Deposits from customers

2008 2007 Public institutions - Demand deposits 384.243 53.685 - Time deposits 89.933 113.572 Companies - Demand deposits 10.053.815 9.022.515 - Time deposits 1.816.174 5.654.619 Retail customers - Demand deposits 12.008.485 12.348.481 - Time deposits 20.281.837 16.938.478 Restricted deposits - Retail customers 856.649 660.116 - Companies 278.734 481.090

45.769.870 45.272.556 Current 45.166.273 44.799.302 Non-current 603.597 473.254

Retail customers deposits include accrued interest payable of MKD 234,274,000 (2007:

MKD 160,199,000).


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Restricted deposits represent deposits made by companies for payments to be made abroad by the Bank on their behalf, to facilitate the issuance of letters of credit, the purchase of foreign currencies, as well as collateral for loans and guarantees extended by the Bank to certain customers, deposits as collateral under consumtion loans and loans to retail customers and advance payments under consumption and housing loans.

27 Borrowings 2008 2007 Short-

term Long-term

Short-term

Long-term

Domestic borrowings

Macedonian Bank for Development Promotion - 284,566 - 395,393

Agency for Managing Accounts - 115,970 - 115,970

NBRM - 8,809 - 8,809 Ministry of Finance 36,381 144,764 - 53,412 Foreign borrowings Macedonian Bank for

Development Promotion 39,790 135,543 59,979 168,325 ICDF Taiwan 179 748 218 1,036 Council of Europe Social

Development Fund 15,820 107,663 15,754 122,568 Ministry of finance –

Agriculture Credit Discount Fund (former lender European Investment Bank – EIB) 30,716 63,154 31,950 92,178

122,886 861,217 107,901 957,691

Current 247,246 - 222,897 - Non-current - 736,857 - 842,695

Borrowings include accrued interest payable of MKD 6,428,000 (2007: MKD 8,056,000). The

Bank’s borrowings are secured with promissory notes.


61

28. Other liabilities

2008 2007 Dividend payables 21.872 23.853 Suppliers payable 18.866 18.876 Fee and commission 3.900 5.154 Bonuses to the Supervisory Board, Board of Directors, management and the employees 130.000

100.000

Liabilities to Ministry of Finance 19.422 31.868 Other liabilities 75.345 108.106

269.405 287.857 Current 267.695 287.857 Non-current 1.710 -

29. Contingencies and commitments

2008 2007 Guarantees - in domestic currency 4.416.484 5.025.311 - in foreign currency 3.794.546 3.409.281

Letters of credit: - in foreign currency 853.353 921.026 Credit limits to legal entities for salary 628.584 557.616 Undrawn overdraft facilities 2.262.602 1.504.068 Unused limits on credit cards 788.651 740.460 12.744.220 12.157.762 Less: provision for impairment (261.573) (255.788) 12.482.647 11.901.974

Movement in provisions for impairment are as follows: Contingencies and commitments 2008 2007 Balance at 1 January 255.788 205.073 Net charge to income statement (Note 11) 5.785 50.715

Balance at 31 December 261.573 255.788


62

30. Related party transactions A number of banking transactions are entered into with related parties in the normal

course of business. These include loans, deposits and borrowings. These transactions were carried out on commercial terms and at market rates. The volumes of related party transactions, outstanding balances at the year-end, are as follows:

Companies with members in

the Bank' s Board of Directors

Associated companies

Income statement 2008 2007 2008 2007 Interest income 7.346 26.048 1.624 1.887 Interest expense 180 2.292 2.045 1.056 Balance Sheet Loans Loans outstanding at 1 January 346.088 135.006 22 20 Loans approved during the year 99.561 404.725 17 150 Loan repayments during the year (393.267) (193.643) (22) (148) Balance at 31 December 52.382 346.088 17 22 Other assets Receivables - - 24.087 24.038 Deposits Balance at 1 January 63.314 48.627 238.773 123.059 Deposits received during the year 2.579.669 4.163.010 3.418.034 3.827.433

Deposits repaid during the year (2.589.019) (4.148.323) (3.342.444) (3.711.719) Balance at 31 December 53.964 63.314 314.363 238.773


63

31. Funds managed on behalf and for the account of third parties

2008 2007 Banks 118.154 247.621 Companies 66.463 64.442 Individuals 40.309 54.489

224.926 366.552

The Bank manages funds on behalf and for the account of companies and retail customers placed mainly as loans without purpose identified to companies. These funds are kept separately from the Bank’s assets. The loan and deposit interest under these funds are recorded in favor of or on the account of the respective resources, and the Bank does not bear the risk related to it. For the services provided, the Bank charges fees on the account of these funds. The temporary deposits with the Bank arise as a result of the difference occurring between the moment of receiving the funds from third parties and their placement by as loans.

32. Share capital and share premium

Ordinary shares Preference shares 2008 2007 2008 2007 In number of shares At 1 January – fully paid in 1.992.590 1.985.041 21.477 29.026 Conversion of preference

shares 4.545 7.549 (4.545) (7.549) At 31 December – fully paid in 1.997.135 1.992.590 16.932 21.477

Ordinary shares are with nominal value of MKD 1,000 (2007: MKD 1,000) and Non-

voting shares have a par value of MKD 1,000 (2007: MKD 1,000). Holders of ordinary shares have the right on dividend, when disclosed, and the right on one vote at the Bank’s Assembly for an equivalent of 1 ordinary share. Non-voting shares give the right on preference in payment of the dividend and are without voting right. All shares impose the right on proportional share in the distribution of the bankruptcy or liquidation estate.


64

The below stated shareholders have more than 5% ownership of the Bank’s ordinary shares:

% of voting share

capital Shareholders 2008 2007 European Bank for Reconstruction and

Development 5,98 5,99

33. Revaluation reserves 2008 2007 Revaluation reserves 109.675 109.675 109.675 109.675

Revaluation reserves represent non-distributable reserves. 34. Cash and cash equivalents

For the purposes of the cash flow statement, cash and deposits with with NBRM, as well

as cash equivalents comprise the following items with maturity less than 90 days:

2008 2007 Cash and deposits with the NBRM (Note 14) 3.064.588 1.826.408 Treasury bills (Note 15) 3.186.502 3.191.943

Government bills (Note 15) 167.336 - 6.418.426 5.018.351

35. Post balance sheet events

Based on the Decision from the Supervisory Board’s meeting, dated 26 February 2009,

part of the 2008 profit of MKD 996,420,000 will distributed in the Bank’s reserves, which will increase the reserves for 38%.

�

�

ATTACHMENT 3:



TRANSLATION

KOMERCIJALNA BANKA AD SKOPJE

Audited financial statements

for the year ended 31 December 2009

KOMERCIJALNA BANKA AD SKOPJE TRANSLATION

Audited financial statements for the year ended 31 December 2009

Sumary

Page

Independent audit opinion

Income statement 1

Balance sheet 1

Statement of changes in capital and reserves 2

Cash flow statement 3-4

Notes to financial statements 5-119



Independent auditor’s report To the Shareholders of Komercijalna Banka AD - Skopje

We have audited the accompanying financial statements of Komercijalna Banka AD - Skopje, which comprise the balance sheet as of 31 December 2009 and the income statement, statement of changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the law regulations applicable in the Republic of Macedonia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.



Opinion In our opinion, the accompanying financial statements give a true and fair view of the financial position of Komercijalna Banka AD–Skopje as of 31 December 2009, and of its financial performance and its cash flows for the year than ended in accordance with the law regulations applicable in the Republic of Macedonia.

Manager Ljube Gjorgjievski Chartered auditor Skopje Ljube Gjorgjievski 26 February 2010



1

Income statement

for the period from 01.01.2009 to 31.12.2009

Note

in thousands of MKD

current year 2009

previous year 2008

Interest income 3,928,194 3,534,467

Interest expense (1,612,749) (1,309,455)

Net - interest income/(expense) 6 2,315,445 2,225,012

Fee and commission income 861,103 1,091,668

Fee and commission expense (145,201) (135,191)

Net - fee and commission income/(expense) 7 715,902 956,477

Net-trading income 8 16,468 (55,354)

Net-income from other financial instruments recorded at fair value 9 - -

Net-foreign exchange gains/(losses) 10 91,317 101,194

Other operating income 11 368,458 626,620

Share in profit of affiliates 24 20,326 14,174

Value adjustment of financial assets, on a net basis 12 (604,855) (475,352)

Impairment losses upon non-financial assets, on a net basis 13 - (12,677)

Costs for employees 14 (940,363) (862,117)

Depreciation 15 (195,826) (189,019)

Other operating expense 16 (709,788) (778,853)

Share in loss of affiliates 24 (3,076) -

Profit/(loss) before taxation 1,074,008 1,550,105

Income tax 17 - (172,515)

Profit/(loss) for the financial year from continouos activity 1,074,008 1,377,590

Profit/(loss) from assets held for sale * - -

Profit/(loss) for the financial year 1,074,008 1,377,590

Profit/(loss) for the period that belongs to*:

Bank shareholders - -

Minority share - -

Earnings per share 41

basic earning per share (in MKD) 537 689

diluted earnings per share (in MKD) 533 684



1

Balance sheet as at 31.12.2009 Note in thousands of MKD

current year 2009

Assets:

Cash and cash equivalents 18 16,595,011 15,280,014 Assets for trading 19 30,591 181,648 Financial assets at fair value via the income statement determined as such at initial recognition 20 - -

Derivative assets held for risk management 21 - -

Placements with and loans to banks 22.1 1,330,614 1,382,378

Placements with and loans to other clients 22.2 38,851,929 35,049,418

Investments in securities 23 502,875 557,202 Investments in affiliates (recorded by accounting as per "method of principal") 24 88,799 49,693

Income tax receivables (current) 30.1 32,226 -

Other receivables 25 402,397 217,179

Collateralized assets 26 - -

Foreclosed assets 27 1,139,601 767,201

Intangible assets 28 56,864 41,191

Property and equipment 29 1,681,290 1,594,355

Deferred tax assets 30.2 - -

Non-current assets held for sale and group for sale 31 - -

Total assets 60,712,197 55,120,279

Liabilities

Trading payables 32 - - Financial liabilities at fair value via the income statement determined as such at initial recognition 33 - -

Derivative liabilities held for risk management 21 - -

Deposits from banks 34.1 463,100 797,045

Deposits from other clients 34.2 51,040,428 46,413,604

Issued debt securities 35 - -

Loans payable 36 1,587,233 984,276

Subordinated debt 37 - -

Special reserve and provisions 38 169,469 261,573

Income tax payables (current) 30.1 1,975 59,068

Deferred tax liabilities 30.2 - -

Other liabilities 39 493,660 341,219

Liabilities directly related to group of assets for sale 31 - -

Total liabilities 53,755,865 48,856,785

Equity and reserves

Subscribed capital 40 2,014,067 2,014,067

Share premia 109,027 109,027

Registered shares - -

Capital component of hybrid financial instruments - -

Other equity instruments - -

Revalued reserves - -

Other reserves 3,759,230 2,762,810

Retained earnings/(Accumulated loss) 1,074,008 1,377,590

Total equity and reserves that belong to Bank shareholders 6,956,332 6,263,494

Minority share* - -

Total equity and reserves 6,956,332 6,263,494

Total liabilities and equity and reserves 60,712,197 55,120,279

Contingent liabilities 42 12,969,262 12,826,089

Contingent assets 42 - -



2

Statement of changes in capital and reserves

for the period from 1 January 2009 до 31 December 2009

Equity Other reserves Revalued reserves Retained earnings

Accumulated

los

Total capital and

reserves that

belong to Bank

shareholder

Minority

share*

Total

capital

and

reserves

Subscribed capital

Share premia

Registered shares

Capital component of

hybrid financial

instruments

Other equity instruments

Statutory reserve

Other reserves

Revalued reserve for assets

available for sale

Reserve for

protection against risk

Foreign exchange

gains/losses reserves

Other revalued reserves

available for distribution to shareholders

limited for distribution to shareholders

in thousands of MKD

As at January 1, 2008 2,014,067 109,027 - - - 402,813 1,593,528 - - - - 1,146,158 - - 5,265,593 - 5,265,593 Adjustments to initial balance

As at January 1 2008 adjusted

2,014,067 109,027 - - -

402,813 1,593,528 - - - -

1,146,158 - -

5,265,593 -

5,265,593

Changes in fair value of assets available for sale - - - - - - - - - - - - - - - - -

Changes in fair value of protection against cash flow risk - - - - - - - - - - - - - - - - - Changes in fair value of protection against risk of net investment in international operations - - - - - - - - - - - - - - - - - Foreign exchange gains/losses recognized in equity - - - - - - - - - - - - - - - - -

Deferred tax (assets)/liabilities recognized in equity - - - - - - - - - - - - - - - - -

Other

Total unrealized profit/(loss) recognized in equity - - - - - - - - - - - - - - - - -

Issued shares within the period - - - - - - - - - - - - - - - - -

Profit/(loss) for the financial year - - - - - - - - - - - 1,377,590 - - 1,377,590 - 1,377,590

Allocation of statutory reserve - - - - - - 766,469 - - - - (766,469) - - - - - Allocation of other reserves - - - - - - - - - - - - - - - - -

Dividends - - - - - - - - - - - (379,689) - - (379,689) - (379,689)

Purchase of registered shares - - - - - - - - - - - - - - - - -

Sold registered shares - - - - - - - - - - - - - - - - -

Other changes in capital and reserves - - - - - - - - - - - - - - - - -

As at December 31 2008 2,014,067 109,027 - - - 402,813 2,359,997 - - - - 1,377,590 - - 6,263,494 - 6,263,494

As at January 1, 2009

2,014,067 109,027 - - -

402,813 2,359,997 - - - -

1,377,590 - -

6,263,494 -

6,263,494

Changes in fair value of assets available for sale - - - - - - - - - - - - - - - - - Changes in fair value of protection against cash flow risk - - - - - - - - - - - - - - - - - Changes in fair value of protection against risk of net investment in international operations - - - - - - - - - - - - - - - - - Foreign exchange gains/losses recognized in equity - - - - - - - - - - - - - - - - - Deferred tax (assets)/liabilities recognized in equity - - - - - - - - - - - - - - - - -

Other - - - - - - - - - - - - - - - - -

Total unrealized profit/(loss) recognized in equity - - - - - - - - - - - - - - - - -

Issued shares within the period - - - - - - - - - - - 0 - - - - - Profit/(loss) for the financial year - - - - - - - - - - - 1,074,008 - - 1,074,008 - 1,074,008 Allocation of statutory reserve - - - - - - - - - - - 0 - - - - - Allocation of other reserves - - - - - - 996,420 - - - - (996,420) - - - - - Dividends - - - - - - 0 - - - - (381,170) - - (381,170) - (381,170) Purchase of registered shares - - - - - - 0 - - - - 0 - - - - - Sold registered shares - - - - - - 0 - - - - 0 - - - - - Other changes in capital and reserves - - - - - - 0 - - - - 0 - - - - -

As at December 31 2009 2,014,067 109,027 - - - 402,813 3,356,417 - - - - 1,074,008 - - 6,956,332 - 6,956,332



3

Statement of cash flows

for the period from 01.01.2009 to 31.12.2009

Note

in thousands of MKD

current year

2009 previous year

2008

Operating cash flows

Profit/(Loss) before taxation 1,074,008 1,550,105

Adjusted for: Minority share, included in the consolidated income statement*

Depreciation of: 195,826 189,019

Intangible assets 20,020 15,274

Property and equipment 175,806 173,745

Capital gain from: (6,095) (11,593)

Sale of intangible assets - -

Sale of property and equipment (6,008) (11,370)

Sale of foreclosed assets (87) (223)

Capital loss from: 8,864 18,953

Sale of intangible assets - -

Sale of property and equipment 787 -

Sale of foreclosed assets 8,077 18,953

Interest income (3,928,194) (3,534,467)

Interest expense 1,612,749 1,309,455

Net-trading income (16,468) 55,354

Value adjustment of financial assets, on a net basis 604,855 475,352

Additional value adjustment (3,224,007) (735,263)

Release of value adjustment 2,619,152 259,911 Impairment losses of non-financial assets, on a net basis - 12,677

Additional impairment losses - 12,677

Release of impairment losses - -

Special reserves (92,040) 5,785

Additional provisions (290,942) (99,247)

Release of provisions 382,982 93,462

Income from dividend (12,903) (20,119)

Share in profit/(loss) of affiliates (17,250) (14,174)

Other adjustments 1,459 5,365

Interest receipts 3,795,370 3,428,471

Interest paid (1,506,437) (1,235,942)

Operating profit before changes in operating assets 1,713,744 2,234,241

(Increase)/Decrease of operating assets:

Trading assets 150,158 86,930

Derivative assets held for risk management - -

Placements with and loans to banks 44,618 -369,162

Placements with and loans to other clients (4,302,295) (10,922,855)

Collateralized assets - -

Foreclosed assets (380,390) (119)

Mandatory reserve in foreign currency (530,738) 42,476

Mandatory deposit to NBRM according to special regulations 150,786 (150,533)

Other receivables (185,170) (9,314)

Deferred tax assets - -

Non-current assets held for sale and group for sale - -


Notes to the financial statements for the year ended 31 December TRANSLATION

(All amounts in MKD thousands unless otherwise stated)

The notes on pages 5 to 119 are an integral part of these financial statements 4

Statement of cash flows (continue) for the period from 01.01.2009 to 31.12.2009

Note in thousands of

MKD

current year 2009

Increase/(Decrease) of operating liabilities:

Trading liabilities - -

Derivative liabilities held for risk management - -

Deposits from banks (332,628) 530,801

Deposits from other clients 4,518,718 767,449

Other liabilities 152,441 (111,786)

Liabilities directly related to group of assets for sale - -

Net operating cash flows before taxation 999,244 (7,901,872)

(Paid)/Return on income tax (89,319) (100,744)

Net operating cash flows 909,925 (8,002,616)

Cash flows from investing activities

(Investments in securities) - (316,692)

Inflows from sale of investments in securities 54,802 97,765

(Outflows for investments in subsidiaries and affiliates) (8,992) (15,293)

Inflows from sale of investments in subsidiaries and affiliates - -

(Acquisition of intangible assets) (36,056) (14,240)

Inflows from sale of intangible assets - -

(Acquisition of property and equipment) (306,060) (345,813) Inflows from sale of property and equipment 10,903 56,924

(Outflows for non-current assets held for sale) - -

Inflows from non-current assets held for sale - -

(Other outflows from investing activities) - -

Other inflows from investing activities 12,903 18,929

Net cash flows from investing activities (272,500) (518,420)

Cash flows from financing activities

(Repayment of issued debt securities) - -

Inflows from issued debt securities - -

(Repayment of loan payables) (12,065,946) (437,353)

Increase in loan payables 12,668,904 358,945

(Repayment of issued subordinated debt) - -

Inflows from issued subordinated debt - -

Inflows from issued shares/equity instruments within the period - -

(Acquisition of registered shares) - -

Sold registered shares - -

(Paid dividends) (381,819) (383,325)

(Other outflows from financing activities) - -

Other inflows from financing activities - -

Net cash flows from financing activities 221,139 (461,733)

Effects from adjustment of value of cash and cash equivalents 1,089 68,563

Effects from foreign exchange gains/losses of cash and cash equivalents (17,631) (74,029)

Net-increase/(decrease) of cash and cash equivalents 842,022 (8,988,235)

Cash and cash equivalents as at January 1 12,818,470 21,806,705

Cash and cash equivalents as at December 31 13,660,492 12,818,470

* only for consolidated financial statements





1. NOTE 1

а) General information

Komercijalna Banka AD - Skopje (hereinafter “the Bank”), is a shareholding company having its registered office in the Republic of Macedonia. The Bank is listed on the Macedonian Stock Exchange A.D. Skopje, under the code KMB. The Bank is authorized to perform all banking activities pursuant to the Banking law and its main activities are corporate lending and lending to citizens, deposit operations, foreign currency transactions, services for domestic and international payment operations and alike. In addition, it provides favourable trade-finance climate for the companies performing export-import operations.

Address of the registered office of the Bank Is as follows:

Kej Dimitar Vlahov 4

1000 Skopje

Republic of Macedonia

These financial reports are approved for disclosure by the Supervisory Board of the Bank on 26 February 2010.

b) Base of the financial statements

Financial statements of Komercijalna Banka AD Skopje (individual) have been prepared in accordance with: the Companies Act (Official Journal of RM No. 28/2004), Banking Law and the Decision on Methodology on recording and valuation of the accounting items and on preparation of the financial statements (Official Journal of RM No. 118/2007) and are expressed in thousand Macedonian denars (MKD) The reporting and functional currency of the Bank is the Macedonian denar MKD

Preparation of the individual financial statements is in accordance with the generally accepted accounting policies and requires use of assessments and assumptions having influence on the presented assets and liabilities, potential assets and liabilities as at the date of the financial statements and the presented amounts of income and expenses during the reporting period. These assessments are based on the best knowledge of the management about the current events and activities.

Additional information is shown in the accounting policies and respective notes to the financial statements.





c) Important accounting policies

The main accounting policies applied at preparation of the financial statements are stated hereunder.

Cash and cash equivalent

For the needs of the cash flow, cash and cash equivalents comprise cash and deposits with NBRM, treasury bills and government bonds with maturity to 90 days. Cash includes cash in the treasury and on the account as well as demand deposits.

Foreign currency assets

Assets and resources presented in foreign currency (monetary items) are expressed in

denars at the mid-exchange rate of NBRM at the end of the calculating period. Non-

monetary items which are recorded at historic purchase value, denominated in foreign

currency, are calculated at the foreign exchange rate on the date of transaction.

Foreign exchange gains and foreign exchange losses (realized and not realized)

occurred on these basis are included in the Profit and Loss Account.

Foreign exchange rate: 31 December 2009 31 December 2008

MKD MKD

USD 42,66 43,56

EUR 61,17 61,41





Financial instruments netting

Financial assets and liabilities are netted and their net value is presented in the

Balance Sheet on net basis if there are lawful applicable netting rights and possibility

for presentation on net basis.

Interest income and expenses

Interest income and expenses are presented as calculated income and expenses on

the basis of all interest bearing receivables and payables except for those being

classified for trading or as financial assets at objective value through the Profit and

Loss Account as such at the initial recognition.

Interest income/expenses are recognized using the method of effective interest rate. The effective interest rate is the rate which exactly discounts the assessed future cash flows for the expected useful life of the financial instrument. Calculation includes all paid or received fees, transaction charges and premiums/discounts between the agreement parties.

The interest income and expenses are calculated and collected in accordance with the

law regulations of the Republic of Macedonia or subject to agreement between the

creditor and the debtor.

Correction is made when collection of the calculated interest is bad and doubtful.

Income from fees and commission

Income from fees and commission encompasses the calculated fees under loans,

letters of guarantee, letters of credit and other banking services. Income from fees and

commission are recognized in the Profit and Loss Account on calculation basis at the

time of execution of the respective service.





Financial assets

Classification

Financial assets are classified in four groups:

� Financial assets by objective value through the Profit and Loss Account;

� Financial assets held to maturity;

� Financial assets available for sale; and

� Loans and claims

Financial assets by objective value through the Profit and Loss Account

Financial assets by objective value through the Profit and Loss Account are comprised of:

� assets for trading;

� Financial assets by objective value through the Profit and Loss Account defined as such at the inigtial recognition; and

Financial assets by objective value through the Profit and Loss Account are recognized initially by the objective value. Transaction charges of these assets do not include the amount according to which the instrument is initially measured. They are immediately recorded in the Profit and Loss Account in the position of “Income/expenses from fees and commission”.

Assets for trading

Assets for trading are the assets acquired by the Bank or occurred mainly for trading purposes, or to realize income from their sale on a short term and/or to realize income as a result of the occurred or expected short-term changes of the prices on the market.

Financial assets are classified as held for trading if it is:

� acquired or occurred for the purposes of sale in near future;

� a part of the portfolio of identified financial instruments being managed in

groups and for which there is evidence of recent, actual/real model of trading and realization of short-term profits;

Assets for trading are comprised of:





� government debt securities;

� treasury bills;

� ownership instruments with listed market price

Net income from trading represents the realized and non-realized changes of the objective value at consequent measuring, profit or loss at sale, dividends,

interest income and expenses of the assets for trading and liabilities for trading.

Investments held to maturity

Financial assets held to maturity are financial assets with fixed or definable payments and with fixed maturity, for which the bank has an intention and possibility to hold to maturity.

If in the course of the financial year, or in the previous two financial years, the Bank had sold or reclassified more than insignificant amount of the investments held to maturity, before their maturity, the Bank must not use this category, i.e. the whole category is classified as available for sale.

Investments held to maturity are measured by the amortized purchase value, applying the method of effective interest rate.

Profits and losses are recognized in the Profit and Loss Account when the assets are derecognized or impaired and through the amortization process.

Financial assets available for sale

Financial assets available for sale are the assets being defined as available for sale and not classified as:

� loans and claims;

� financial assets held to maturity; or

� financial assets at objective value through the Profit and Loss Account

After the initial recognition, the Bank measures the financial assets at their objective value, without reduction of the transaction charges that may occur at sale.





Profits and losses from the consequent measuring at the objective value of financial assets available for sale are equal to the difference between the amortized purchase value and the objective value of the assets and they are directly included in the capital in the position of “Revaluation reserves/differences from valuation of the assets available for sale”.

The impairment losses/correction of value and foreign exchange gains and losses of the financial instruments available for sale are recognized in the Profit and Loss Account for the current period. At the time of derecognition of the assets available for sale (e.g. the assets are sold or due), cumulative gains/losses which are previously recognized in the capital are derecognized from the capital and the net profits or losses are recognized in the Profit and Loss Account in the position of “Other income form operation/Other expenses from operation”.

Joined companies

Joined company is a company where the Bank has significant impact in the process of decision-making on the financial and operative policies of the company, but without control over these policies. Financial statements include the share of the Bank in the total recognized profit and loss of the joined company, according to the method of principal, from the date the significant impact starts until the date the significant impact stops. When the Bank’s share in the loss of the joined company is equal to or exceeds the investment accounting value, the investor usually stops including its share in further losses. The investment shall be reported as zero value.

Additional loss shall be taken into account up to the extent to which the investor undertook obligations or effected payments in the name of the joined company guaranteed by the investor or otherwise undertaken as obligation.

Immovables and equipment

Immovables and equipment are material investments by the Bank, for carrying out the business, that are expected to have useful fife of more than one year.

Initially, the immovables and the equipment are measured at the purchase value of the respective asset and other costs necessary for making the asset operative.

The operative costs that are not part of the purchase value of the asset, arising before putting of the asset into operation, are recognized as expenditure in the Profit and Loss Account.

The consequential expenses for the immovables and equipment shall be capitalized when the conditions for recognizing it as an asset have been fulfilled. The daily maintenance costs for the immovables and equipment shall not be recognized in the accounting value of the respective asset.





After the initial recognition, the immovables and the equipment shall be measured according to their purchase value, decreased for the accumulated mortization and for the accumulated impairment loss.

The total amount of amortization of the asset shall be distributed in accordance with its useful life. The amortization costs for each period shall eb recognized in the Profit and Loss Account under the item “Amortization”. All assets of the same group are properly amortized. The amortization for the accounting purposes shall follow the useful life of the asset.

The Bank is applying the straight method of amortization, which reflects the future economic benefit of the asset.

The amortization of the asset shall start when it is available for use, and shall terminate on the date of derecognising or the date of reclassification of the asset, whichever is the first, as asset held for sale.

The immovables and equipment shall be amortized by applying the annual amortization rates, arising

from the assessed useful life of the used property.

The amortization of the material assets is made by applying the proportional method during the year

on monthly basis. The amortization is calculated for each material asset separately.

The useful life of certain categories of immovables and equipment is as follows:

Useful life

Buildings 40 years

Furniture and equipment 4-10 years

Intangible assets

An intangible asset is any non-material asset, without any physical content, that can be independently identified

The intangible assets include the capitalized costs for development, software and other non-material

assets, such as rights and licenses, which are protected by the law and the owner may not be

deprived of, against his/her will (for example, patents, copyrights and other commercial rights).

At the beginning, the intangible assets are measured at their purchase value. Consequently, intangible assets are measured at their purchase value decreased for the accumulated amortization





and for the accumulated impairment loss.

The amortization shall start when the asset is available for use. All assets of the same group are

properly amortized. The amortization for the accounting purposes shall follow the useful life of the

asset.

The value of the asset remaining upon expiry of its useful life shall be assumed to be zero.

The Bank shall assess the useful life of the intangible asset. For the intangible assets, the Bank shall

define the following useful life:

Useful life

Other intangible assets 5 years

Software purchased 5 years

Assets taken over under uncollected claims

This category includes land, buildings (or parts of buildings), equipment and other valuables got in exchange for bad and doubtful claims. Certain asset shall be considered taken over at the moment of acquiring the legal basis for registration of the title thereon.

At the date of taking over, the asset taken over shall be recognized in the bank’s accounts at its initial value. The initial accounting value shall be the lower amount of the assessed value and the purchase value of the asset taken over.

For the needs of consequential measuring of the assets taken over, the assessed value shall be the amount of the lowest assessment made by three authorized evaluators.

In case when the assessed value of the asset taken over is less than the purchase or accounting value, the Bank shall show impairment loss in the Profit and Loss Account, to the extent of the difference between both values.





Special reserve and provisioning

The provisioning are defined as obligations with uncertain maturity period or amount. The obligation is current commitment of the Bank, which arises from previous transactions or events, which amount may accurately be determined and which settlement is expected to result in outflow of Bank’s resources.

Employees’ benefits

In the course of its operations, the Bank is making payments of compensations for pension and health insurance, employment and personal income tax, in favour of its employees, calculated on the basis of gross salaries. The Bank is paying these contributions to the Pension and Disability Insurance Fund of the Republic of Macedonia and to the Health Insurance Fund of the Republic of Macedonia, calculated at the legally prescribed rates.

These contributions paid shall comprise the employees costs for the current year. The costs for these compensations are presented in the Profit and Loss Account for the same period when the employees’ salaries costs are presented.

The Bank is not performing any activities in the field of any pension schemes or plan for benefits after retirement, and consequently, does not have any obligations regarding the pensions.

Income tax

The income tax is calculated and paid in accordance with the provisions of the Law on

Income Tax.





Deposits from banks and other clients

The deposits from banks are mainly comprised of: current accounts, time deposits of banks and transactions at money market, except those which are determined as liabilities under loans (including the transactions for repurchasing).

In general, the deposits from other clients are: current accounts and time deposits from legal entities or individuals.

The deposits of banks and clients are measured at their objective value, increased for the transaction costs, which are directly related to the undertaking or issuing of the financial obligation.

The deposits from banks and clients shall consequently be measured according to their amortized value, by using the method of effective interest rate.

Liabilities under loans

The liabilities under loans are mainly comprised of transactions with other parties with

which the Bank has loan agreements signed with.

The liabilities under loans are initially measured at their objective value, increased for

transaction costs, which are directly related by acquiring or issuing the financial liability.

Liabilities under loans are consequently measured according to their amortized

purchase value, by using the method of effective interest rate.

Equity capital

The capital is the remaining part of the share in the Bank’s assets after deduction of all its liabilities.





Issued capital

The issued capital is the total subscribed and paid in capital of the Bank.

Share premium

The share premium is the difference between the nominal value and the market price of the shares.

Treasury shares

The treasury shares are presented as item deductible from the capital, and not

as an asset. As the capital covers all subscribed and paid in shares, the treasury

shares actually decrease the capital of the Bank. The changes occurring with sale,

issuance or cancellation of treasury shares of the Bank, shall not be recognized as

profit or loss in the Profit and Loss Account but as changes in the capital of the Bank.

The difference between the purchase and sale price of the purchased/sold treasury

shares by the Bank, should be presented in the position “Share premium”.

Preferred shares

The preferred shares that are not purchasable by the Bank, and are traded at the Macedonian Stock Exchange AD Skopje, shall be presented as capital.

Retained earning

The retained earning/accumulated loss means retained earning or accumulated loss carried over from the previous years.

Dividends

The dividends are recognized as liabilities in the period of their disclosure.





d) Use of assessments and evaluations

The Bank is making assessments and evaluations that have impact on the amounts

in the assets and liabilities report for the next financial year. The evaluations and

judgements are permanently evaluated and are based on previous experience and

other factors, including expectations for future events which are believed to be

accurate, in accordance with the current conditions.

(a) Correction of value on loans approved

The Bank is revising its credit portfolio on monthly basis, in order to make reassessment regarding the correction of value. When deciding whether any loss under correction of value is to be presented in the Profit and Loss Account, the Bank is making assessment whether there are any actual data that indicate that there is any quantified decrease of the future assessed cash flow, reflected on the credit portfolio as a whole, before the decrease is a result of an individual loan from that portfolio. These evaluations may arise from the deterioration of the creditability of the borrowers within the frames of the group, or from the national or local economic circumstances that correspond to the loss of the assets with the Bank. The Bank is using evaluations based on the experience from the previous loss of assets with characteristics of credit risk and objective indicators for corrections of value, similar to those of the portfolio.

(b) Investments held to maturity

The Bank holds to maturity the debt securities issued by the Republic of Macedonia,

which are with nominal interest rate of 2% p.a., and are acquired as compensation

when settling certain uncollectible claims. The principal amount under the

government bonds issued for the so called frozen savings deposits is paid in 20

equal semi-annual instalments, starting from April 2002 until October 2011. The

principal amount under the government bonds for denationalization (04) is paid in 10

equal annual instalments, starting from June 2006 until June 2015, and the principal

amount under the government bonds for denationalization (05) is paid in 10 equal

annual instalments, starting from June 2007 until June 2016. As at 31 December

2009, the balance of these claims amount in MKD 120.476.000 (2008: MKD

176.476.000).

e) Amendments of the accounting policies, accounting assessments and correction of errors

The positions in the Financial Statements and the Notes to the Financial Statements for the current

2009 are presented in accordance with the Methodology for recording and evaluation of the

accounting items and on preparation of the financial reports for the previous year, in accordance with

the law regulations applicable in the Republic of Macedonia.





f) Compliance with the law regulations

One of the main principles the operation of the Bank is based upon is the compliance with the

applicable law regulations. Although incorporated in the processes of operation of the Bank, this

principle, pursuant to the Banking Law, is adhered to by establishing separate organizational unit -

Operation Compliance Control and Money Laundering Prevention Department, which through its

activities and competences contributes not only in adherence to this principle but also to the

elimination, i.e. minimization of the incompliance in the operation with the applicable law regulations.

This Operation Compliance Control and Money Laundering Prevention Department is permanently

monitoring and following the new regulations and the amendments and supplements to the applicable

ones, makes evaluation of their impact on the operation of the Bank, and especially in regards to the

activities that have to be undertaken within the Bank, duly undertaking the necessary activities and

providing regular reports to the Board fo Directors and other organizational units of the Bank.

The Department takes active participation in the implementation of the regulations, and depending on

the complexity of the regulations, it provides suggestions for their implementation and assistance in

the process of implementation.

The Department takes active participation in the creation of the internal regulations and especially

from the aspect of their compliance with the external regulations, in the revision of the applicable

regulations, makes initiatives for improvement of the operative processes, provides interpretations

regarding the implementation of the law regulations and indicates the consequences and risk that

may arise from late or improper implementation of the law regulations, default implementation of

certain decisions, complaints, etc.

These measures and activities, as well as other mechanisms provided through the corporate

activities of the Bank, ensure operation of the Bank complied with the regulations prescribed by the

National Bank of the Republic of Macedonia.

In 2009, there were no measures issued, requirements or decisions made by the National Bank of

the Republic of Macedonia in accordance with the Banking Law regarding the Bank’s compliance

with the law regulations.

As for the measures passed by the National Bank of the Republic of Macedonia in 2008, the Bank

acted in accordance with these measures and within the terms defined by the Recommendation and

the Written Notification, and provided regular reports on the activities undertaken by the Bank under

the obligations provided thereby.

2.

Financial risk management

Revealing of risk management

The Banks activities expose it to a variety of financial risks, so the adequate risk

management is basic Banks aim. The efforts to maintain adequate balance

between accepted risk level and profitability are permanent.

The Bank has established Strategy for undertaking and managing risks, adopted





by the Supervisory Board of the Bank and it is revised regularly.

The Strategy defines the main objectives and general directions in undertaking

and managing risks, general approach to the risk management, general

approach to the internal determining and assessment of the bank's necessary

capital adequacy, general review of the business strategy of the bank, as well as

the possible changes in the bank's business strategy and acceptable level of risk

the bank can be exposed to during its operations.

Compliance to the nature, size and complexity of the financial activities, the

banks system for managing the risks covers at least the following types of risks:

credit risk, liquidity risk, currency risk, market risk, risk from changes of the

interest rates in the portfolio of banking activities, operative risk, including the

legal risk, reputation risk and strategic risk.

Risk management framework

Bank’s Shareholders Assembly appoints the members of the Supervisory Board and the Audit Committee. Supervisory Board has overall responsibility for the establishment and oversight of the Bank’s risk management framework. Supervisory Board has established the Management Board, Credit Committee, Risk Management Committee, and Liquidity Committee, which are responsible for monitoring and developing risk management policies in specific areas.

Regarding the organizational structure of the Bank, the Risk Management and

Planning Division is responsible for monitoring and reporting of global risk

exposure, while the organizational units of the Bank which creates risk exposure

are responsible for operative risk management. Internal audit, in the function of

adequately monitoring and risk managementis responsible for the independent

review of risk management processes.

The Bank has established organizational structure, with clearly defined

competences and responsibilities among organizational parts of the bank where

credit risk is originated and where is managed.

According to the Bank’s risk management policies and procedures appropriate risk, identification, estimation, measurement, monitoring and contol are made on regular basis.





2.1 Credit risk

The Bank takes on exposure to credit risk, which is the risk that a counterparty will be

unable to pay amounts in full when due. Credit risk is the most important risk of the Bank’s

business, so the Bank carefully manages its exposure to credit risk. Principally, credit

exposure arises in the lending activities and investment activities.


The Bank has established organizational structure, with clearly defined

competences and responsibilities given taking up and managing risks.

The organization of the credit risk management is established on the following levels

of hierarchy:

- Strategic level - the risk management function shall be performed by the members

of Supervisory Board and the Board of Directors; Risk Management Board and

Auditing Board;

- Macro level - the function of the risk management risks at the level of business unit,

or business line shall be performed by other persons with special rights and

responsibilities performing managing function and/or by special organizational unit

responsible for monitoring the management with all, or specific risks;

Credit risk management at the level of business unit in the Bank mean each Division

where the credit risk is undertaking and the persons with special rights and

responsibilities who performs the management function in that Division.

Duties of these organizational units in the Bank are regulated in the appropriate

Policies adopted from the Bank’s Supervisory Board.

Special organizational unit in the Bank competent for credit risk management is Risk

Management and Planning Division – Credit Risk Management Department.

2.1.2 Credit risk valuation

According Methodology, there is classification of the credit risk exposure:

а) On individual basis, for all credit risk exposures which are considered individualy significant;





б) On a group basis for retail portfolio and for similar financial instruments.

а) Estimation of credit risk for the bank’s clients which are individualy significant is by means of the tools from the bank’s internal rating system.

If total limit to a client is exceeding 0.007% of the total credit risk exposure of the Bank, its exposures are clasified as credit risk exposures on individual basis.

As an exeption, credit risk exposure on individual basis exists also in these cases:

If the Bank is exposed on credit risk to banks and equity investments; If exposures are classified as non-performing.

The internal rating system is consistent to the nature, size and complexity of the

bank’s activities and in accordance to credit risk regulations.

The estimation of the credit risk of the individually significant credit exposures is upon the score of the client and the grade of the transaction, in the risk categories A,B, C, D and E and acoording to that the impairment/special reserve is calculated.

b) Estimation of credit risk for the bank’s clients which are impaired on a group basis

- Determination of the homogenic characteristics of the subportfolios;

- Segmentation of the retail portfolio to homogenic portfolios according to

credit risk behavior (type of product, collateral, source of repayment);

- Statistical models for estimating the loss probability of the subportfolios and

for determination of the criteria for homogenity.

Classification of exposure to credit risk (Credit item) of active balance sheet and off-balance receivables.

“A” Credit risk category

In the “A” credit risk category are classified:

• The NBRM receivables, Republic of Macedonia, European Central Bank and governments and Central Banks of the EU countries participants, Switzerland, Canada, Japan, Australia, Norway and the U.S;

• Exposure to credit risk for the client whose current financial situation and the

estimated future cash inflows do not affect to its further operation and the possibility of paying the whole liabilities and some of the following conditions are met:





• principal and interest are paid in accordance with the agreed conditions, or delay up to 30 days if the delay is justified or incidental and for which the bank in the last two years hasn’t made restructuring of requirements;

The Bank has enough updated information on the financial condition of the debtor and the sources of financing his liabilities, as well as other documents related to

its activities

“B” Credit risk category

In the “B” credit risk category are classified:

• Exposure to credit risk of the client for which the bank, based on the assessment of creditworthiness, estimates that cash inflows will be

enough for fully payment of outstanding liabilities, regardless of the displayed current financial weakness, with no signs of further worsening of the situation of the client;

• Exposure to credit risk of the client which liabilities often carry a delay of 31 to 60 days, or with the exception of 61 to 90 days if the delay is only

occasionally at intervals of 61 to 90 days and that the bank in the last six months didn’t make restructuring of requirements;

• Exposure to credit risk of the client, which is classified in category "A", if

the client has other outstanding exposures more than 90 days.

“C” Credit risk category

In the “C” credit risk category are classified:

• Exposure to credit risk of the client for which is estimated that cash flows are inadequate for regular payment of outstanding liabilities;

• Exposure to credit risk of the client who is not adequately capitalized;

• Exposure to credit risk of the client with inadequate maturity structure of assets and liabilities;

• Exposure to credit risk of the client for which the bank does not have the necessary and updated information to assess the creditworthiness of the

client;

• Exposure to credit risk against the client, whose liabilities are restructured;

• Exposure to credit risk of the client who usually carry out its liabilities with

delay of 61 to 120 days, or excluding from 121 to 180 days if the delay is only occasionally in the interval from 121 to 180 days;

• Exposure to credit risk of the client, which is classified in category B, if

client or group of common credit risk has other exposures due more than 90 days.





“D” Credit risk category

In the “D” credit risk category are classified:

• Exposure to credit risk of the client who is insolvent;

• Exposure to credit risk of the client whose creditors written off the client’s claims;

• Exposure to credit risk of the client for who the bankruptcy proceeding is begun and the bank expects a partial refund of their claims;

• Exposure to credit risk of the client for who a procedure for liquidation is

begun;

• Exposure to credit risk, whose payment depends on the activation of the

collateral instruments;

• Exposure to credit risk where there is expectation that the bank will collect

only part of its claims towards the client;

• Exposure to credit risk of the client who often carry its liabilities with delay

of 121 to 270 days, or with the exception of occasional delay of more than 270 days.

“E” Credit risk category

In the “E” credit risk category are classified:

• Exposure to credit risk of the client who carry its liabilities with delay

longer than 270 days or did not perform;

• Exposure to credit risk of the client in bankruptcy, which also is not

secured with quality collateral instrument;

• Exposure to credit risk which is the subject of litigation;

• Exposure to credit risk for which there are strong expectations that the Bank will not be able to collect its claims from the client in full or will collect

only a small insignificant part.

The value and quality of the collateral depends on the type (real estate, pledge, inventory, receivables) and the probability of its activation to recovery requirements. The collateral is divided into two types: first-class, high liquid

collateral which is taken by 100% when calculating the net-realizing value, and other collateral.





2.1.3 Control of risk exposure limits and policies for protection of risk

The bank manages and controls the concentration of credit risk to any number of clients, some categories of clients, industries, currencies structure, geographic location, collateral instruments.

The Bank structures the level of credit risk taken by setting limits on the amount of acceptable risk in a more separate clients, separate categories of clients, industries, currencies structure, geographic location, collateral instruments.

Identification and assessment of credit risk in the phase of the approval of the credit risk exposure is possible through a regular analysis of ability of credit borrowers and potential credit borrowers to fulfill their liabilities to the Bank and by changing the credit limits where necessary.

As a measure of protection and mitigation of credit risk, provided into internal acts of the Bank to regulate credit activities and procedures, collateral and other collaterals are included.

Collateral is always considered as a secondary factor in the evaluation of creditworthiness. Pledge, in itself, without the ability to generate cash flow is not sufficient to justify approval of the loan. Basic types of collateral to secure loans are:

(1) For legal entities

• Cash

• real estate property

• Equipment and vehicles

• Inventory

• Claims

• Guarantees (bank guarantees and guarantees of legal entities)

• Securities (Debt Securities value issued by the Government of RM, securities issued by legal entities).

(2) For individuals

• real estate property

Passenger vehicles

• Deposits

• Securities (debt securities issued by the Government of R.Macedonia, bonds, securities issued by legal entities)

In some cases endorsed bills or own bills that cover total claims.





2.1.4 Policies for impairment / special reserve

a) The amount of impairment for active balance sheet claims on an individual basis is determined as the difference between the book value of balance sheet claims and their present value (calculated recoverable amount). The current value is obtained by discounting of expected future cash flows of these claims.

Impairment on an individual basis is done according to internal procedures that are in accordance with existing legislation and Methodology

b) The balance exposures that are impaired on the group basis, the amount of the impairment is calculated with the estimated rate of loss (Loss given default) which reflects the losses that are expected to occur in the future.

Impaired on the group basis is made according to internal procedures that are in accordance with existing legislation and Methodology.





Table 2.1.А Analysis of maximum exposure to credit risk

Placements with and

loans to banks

Placements with and loans

to other clients

Investment in financial

assets available for

sale


assets held to maturity

Cash and cash

equivalents Fee and commission

receivables

Other receivables Off balance sheet

exposures Total

in thousands of MKD

Current

year 2009

Previous

year 2008

Current

year 2009

Previous

year 2008

Current

year

2009

Previous

year 2008

Current

year

2009

Previous

year 2008

Current

year 2009

Previous

year 2008

Current

year

2009

Previous

year 2008

Current

year

2009

Previous

year 2008

Current

year 2009

Previous

year 2008

Current

year 2009

Previous

year 2008

I. Carrying amount of

exposures with

impairment/special reserve

Carrying amount of

individual significant

exposures without


on individual basis 1,331,625 1,384,309 36,309,303 38,923,976 386,458 389,389 120,784 176,476 9,668,534 9,580,653 9,070 73,616 400,205 173,254 9,732,567 12,768,475 57,958,546 63,470,147

A risk category 1,328,343 1,384,309 28,442,972 28,350,615 382,091 384,572 120,784 176,476 9,668,534 9,580,643 2,946 25,592 335,212 123,494 9,559,173 11,973,260 49,840,055 51,998,961

B risk category 3,282 0 2,923,887 5,617,686 0 0 0 0 0 0 403 693 38 15,865 106,123 698,998 3,033,733 6,333,242

C risk category 0 0 1,402,168 1,967,322 0 0 0 0 0 0 2,284 244 60 6,840 14,434 38,806 1,418,945 2,013,211

D risk category 0 0 387,587 940,926 0 0 0 0 0 0 582 1,486 44 8,412 18,641 53,245 406,855 1,004,069

E risk category 0 0 3,152,688 2,047,427 4,367 4,817 0 0 0 10 2,855 45,601 64,852 18,643 34,196 4,166 3,258,958 2,120,664

(impairment/special

reserve on individual basis) (821) (1,874) (4,240,662) (3,848,005) (4,367) (8,663) 0 0 0 (1,090) (4,133) (46,731) (65,401) (27,366) (62,701) (261,573) (4,378,085) (4,195,300)

Carrying amount of


exposures reduced by


on individual basis 1,330,804 1,382,435 32,068,641 35,075,971 382,091 380,726 120,784 176,476 9,668,534 9,579,564 4,937 26,885 334,804 145,888 9,669,866 12,506,902 53,580,462 59,274,848





Carrying amount of

exposures on group basis

without impairment/special

reserve on group basis 0 0 7,143,658 0 0 0 0 0 0 0 1,035 0 1,199 0 3,132,198 0 10,278,090 0

individula insignificant

exposures (portfolio of small-

amount loans) 0 0 7,143,658 0 0 0 0 0 0 0 1,035 0 1,199 0 3,132,198 0 10,278,090 0


exposures that are not

impaired on individual basis 0 0

(impairment/special

reserve on group basis) 0 0 (212,137) 0 0 0 0 0 0 0 (1) 0 (25) 0 (106,769) 0 (318,931) 0

Carrying amount of

exposures on group basis

reduced by


on group basis 0 0 6,931,522 0 0 0 0 0 0 0 1,035 0 1,173 0 3,025,429 0 9,959,159 0

II. Carrying amount of

exposures without


matured claims

Time structure of matured

claims without


to 30 days 0 0 131,916 81,452 0 0 0 0 0 1,599,599 3,425 311 0 0 1,616,543 0 1,751,884 1,681,362

Carrying amount of matured

claims without

impairment/special reserve 0 0 131,916 81,452 0 0 0 0 0 1,599,599 3,425 311 0 0 1,616,543 0 1,751,884 1,681,362





Non-matured claims

restructured claims 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

other claims 1,328,340 1,314,242 771,317 631,669 382,091 0 120,784 176,476 9,668,534 7,873,068 743 8,911 296,342 1,468 7,662,695 71,409 20,230,846 10,077,243

Carrying amount of non-

matured claims without

impairment/special reserve 1,328,340 1,314,242 771,317 631,669 382,091 0 120,784 176,476 9,668,534 7,873,068 743 8,911 296,342 1,468 7,662,695 71,409 20,230,846 10,077,243

Total carrying amount of

claims with credit risk

without impairment/special

reserve 1,331,625 1,384,309 43,452,962 38,923,976 386,458 389,389 120,784 176,476 9,668,534 9,580,653 14,851 82,851 401,403 173,254 12,864,765 12,768,475 68,241,382 63,479,382

(Total impairment/special

reserve) (821) (1,874) (4,452,799) (3,848,005) (4,367) (8,663) 0 0 0 (1,090) (4,134) (46,731) (65,426) (27,366) (169,469) (261,573) (4,697,016) (4,195,300)

Total carrying amount of

claims with credit risk

reduced by

impairment/special reserve 1,330,804 1,382,435 39,000,163 35,075,971 382,091 380,726 120,784 176,476 9,668,534 9,579,564 10,717 36,120 335,977 145,888 12,695,296 12,506,902 63,544,366 59,284,082





Table 2.1.B Value of collateral (fair value) taken for protection of credit risk

Placements with and loans to banks

Placements with and loans to other clients

Investment in financial assets available for sale

Investment in financial assets held to maturity Cash and cash equivalents Other receivables

Total Off balance sheet exposures Total

in thousands of MKD

Current

year

2009

Previous

year

2008

Current

year 2009

Previous

year

2008

Current

year 2009

Previous

year 2008

Current

year 2009

Previous

year 2008

Current

year 2009

Previous

year 2008

Current

year

2009

Previous

year 2008

Current

year

2009

Previous

year 2008

Current

year 2009

Previous

year

2008

Value of collateral of credit exposure assessed for impairment on a individual basis

First-class collateral instruments cash deposits (in vault and/or restricted in accounts held with the Bank) 0 0 850,369 0 0 0 0 0 0 0 43,694 0 92,398 0 986,462 0

government securities 0 0 148,139 0 0 0 0 0 0 0 0 0 0 0 148,139 0

government unconditional guarantees 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 bank guarantees 0 0 197,282 0 0 0 0 0 0 0 1,105 0 36,340 0 234,727 0

guarantees from insurance companies and insurance policies 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Corporate guarantees (besides bank Guarantees and guarantees from insurance companies) 0 0 1,343,595 0 0 0 0 0 0 0 0 0 63,791 0 1,407,386 0 Guarantees from individuals 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Mortgage on real estate property for private use (flats, houses) 0 0 4,484,234 0 0 0 0 0 0 0 28,693 0 559,443 0 5,072,371 0

business facility 0 0 23,793,795 0 0 0 0 0 0 0 6,581 0 4,241,87

6 0 28,042,253 0

Pledge over movables 0 0 8,725,145 0 0 0 0 0 0 0 11,963 0 2,858,62

0 0 11,595,728 0

Other types of collateral 0 0 924,079 0 0 0 0 0 0 0 133 0 14,534 0 938,747 0

Total value of collateral of credit exposure assessed for impairment on a individual basis 0 0 40,466,639 0 0 0 0 0 0 0 92,171 0

7,867,002 0 48,425,812 0

Value of collateral of credit exposure assessed for impairment on a group basis

First-class collateral instruments cash deposits (in vault and/or restricted in accounts held with the Bank) 0 0 14,262 0 0 0 0 0 0 0 0 0 9,985 0 24,247 0 government securities 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

government unconditional guarantees 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 bank guarantees 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Guarantees from insurance companies and insurance policies 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Corporate guarantees (besides bank guarantees and guarantees from insurance companies) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0





Table 2.1. C Concentration of credit risk by industry and geographic location

C Concentration of credit risk by

industry and geographic

location



Investment in financial assets available for sale

Investment in financial assets held to maturity Cash and cash equivalents

Fee and commission receivables Other receivables

Total Off balance sheet exposures Total

in thousands of MKD

Current

year 2009

Previous

year 2008

Current

year 2009

Previous year

2008

Current

year 2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year 2009

Previous

year 2008

Industry

Non-residents 0 0 6 296 1,640 1,636 0 0 0 0 184 22 0 0 289,374 127,157 291,203 129,111

Agriculture, hunting and forestry 0 0 880,420 512,837 0 0 0 0 0 0 84 38 0 321 27,686 92,235 908,189 605,432

Fishing 0 0 27,308 32,945 0 0 0 0 0 0 21 0 0 0 2,500 0 29,830 32,945

Ore and stone extraction 0 0 919,948 1,014,391 0 0 0 0 0 0 6 36 0 3 21,707 25,775 941,661 1,040,205

Processing industry 0 0 9,857,140 10,349,885 0 0 0 0 0 0 3,042 4,951 5,039 13,968 2,888,045 2,384,933 12,753,266 12,753,737

Electricity, gas and water supply 0 0 1,652,029 1,155,049 0 0 0 0 0 0 1,437 11 8 432 1,046,459 1,828 2,699,933 1,157,321

Construction 0 0 3,371,939 2,296,847 0 0 0 0 0 0 665 149 0 727 2,280,075 1,637,464 5,652,678 3,935,187

Wholesale and retail trade; repair of motor vehicles, motorcycles, and items for personal use and for households 0 0 10,931,341 9,401,699 0 0 0 0 0 0 1,125 9,309 37,615 9,500 2,354,322 4,192,913 13,324,403 13,613,422

Hotels and restaurants 0 0 670,258 390,983 0 0 0 0 0 0 64 31 147 499 3,266 1,544 673,735 393,057

Transport, warehousing and 0 0 1,263,918 1,298,656 0 0 0 0 0 0 688 8,212 441 7,512 704,942 902,598 1,969,988 2,216,977

Guarantees from individuals 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Mortgage on real estate property for private use (flats, houses) 0 0 6,078,417 0 0 0 0 0 0 0 459 0 170,672 0 6,249,548 0 business facility 0 0 801,187 0 0 0 0 0 0 0 33 0 259,904 0 1,061,123 0

Pledge over movables 0 0 423,330 0 0 0 0 0 0 0 13 0 61,669 0 485,013 0

Other types of collateral 0 0 2,506 0 0 0 0 0 0 0 0 0 0 0 2,506 0

Total value of collateral of credit exposure assessed for impairment on a group basis 0 0 7,319,702 0 0 0 0 0 0 0 505 0 502,229 0 7,822,436 0





communications

Financial mediation 1,150,871 1,383,608 1,523 27,933 380,451 379,090 696,573 0 9,151,892 9,375,864 1,690 4,337 1 24 8,696 30,274 11,391,697 11,201,132

Activities related to real estate, renting and business activities 0 0 1,761,589 1,239,059 0 0 0 0 0 0 120 35 10,032 16,668 207,654 204,679 1,979,395 1,460,441

Public administration and defence; mandatory social security 0 0 97 117 0 0 120,784 176,476 0 203,699 464 8,282 24,469 23,550 8,738 12,489 154,552 424,613

Education 2 0 236,616 28,819 0 0 0 0 0 0 4 3 0 7,643 26,217 16,794 262,839 53,258

Health care and social work 0 0 76,623 78,769 0 0 0 0 0 0 19 1 98 149 3,104 2,735 79,844 81,654

Other utility, cultural, general and personal service activities 0 0 300,845 341,678 0 0 0 0 0 0 224 9 374 834 62,529 62,833 363,972 405,354

Private households with employed persons 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Exterritorial organizations and bodies 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Individuals 0 0 7,020,584 6,878,035 0 0 0 0 0 0 821 693 257,753 63,646 2,758,533 2,841,992 10,037,691 9,784,367

Individual merchants and individuals not regarded as merchants 0 0 27,980 28,114 0 0 0 0 0 0 59 0 0 412 1,450 865 29,488 29,391

Total 1,150,873 1,383,608 39,000,163 35,076,112 382,091 380,726 817,357 176,476 9,151,892 9,579,564 10,717 36,120 335,977 145,888 12,695,296 12,506,902 63,544,366 59,284,082

Placements with and loans

to banks

Placements with and loans to

other clients


assets available for sale


assets held to maturity

Cash and cash

equivalents

Fee and commission

receivables Other receivables

Total Off balance

sheet exposures Total

во МКД илјади Current

year 2009

Previous

year 2008

Current

year 2009

Previous year

2008

Current

year 2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year

2009

Previous

year

2008

Current

year 2009

Previous

year 2008

Geographic location

Republic of Macedonia 20 169,576 39,000,157 35,075,816 380,451 379,090 817,357 176,476 223,370 3,626,764 9,255 35,145 335,977 145,888 12,405,922 12,386,822 53,172,509 51,995,577

EU member countries 1,148,392 1,209,339 1 13 1,255 1,247 0 0 6,656,315 4,695,543 1,016 817 0 0 48,281 49,601 7,855,260 5,956,560

Europe (other) 2,462 4,694 5 283 0 0 0 0 1,439,866 335,811 372 95 0 0 237,590 102,686 1,680,294 443,568

OECD member countries (without European OECD member countries) 0 0 0 0 385 389 0 0 832,340 921,446 74 64 0 0 3,503 0 836,302 921,900

Other 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

(state, on a separate basis, the exposure that represents more than 10% of total credit exposure)

Total 1,150,873 1,383,608 39,000,163 35,076,112 382,091 380,726 817,357 176,476 9,151,892 9,579,564 10,717 36,120 335,977 145,888 12,695,296 12,506,902 63,544,366 59,284,082





2.2 Liquidity risk

Liquidity risk is when the bank cannot provide enough funds intended for settlement of its short-term

liabilities at their maturity, or it provides the necessary funds at very higher costs. Liquidity risk arises,

from both the disability for precise management with unsuspected changes in assets and disability of

the banks to convert the assets in monetary fund precisely and on time, at minimal cost. Liquidity risk

management defines managing with assets and liabilities in a way that provides regularly and on time

payment of the liabilities, both in normal or exceptionally conditions.

Exposure on the liquidity risk depends on partial categories in balance sheet according to maturity

dates (residual maturity) and the level of compliance.

Exposure to insolvency risk depends on the level of capital and reserves, i.e banks own funds.

The purpose of managing this risk is to maximize stability and profitability, by implementing optimal

combination of maturity and foreign currency structure of assets and liabilities.

The Bank has established Procedures for identification, undertaking, assessment, monitoring and

control of the liquidity risk. This act is issued by the Bank’s Supervisory Board and is subject of

regular revision. The Procedures gives in detail the proceedings (processes) for liquidity risk

management as: identification and undertaking the liquidity risk, assessment of the liquidity and

liquidity risk, testing the operational liquidity and liquidity stress-testing, monitoring, control and

reporting for the liquidity and liquidity risk.

Planning the requirements for liquidity on daily basis, movement and stability of the liabilities and their

concentration, maturity structure of the assets and liabilities, liquidity ratios, internal liquidity

indicators, concentration level, fulfilling the law obligation for compulsory reserves in denars and

foreign currency, analysis of the denar and foreign currency operational liquidity, own funds and

capital adequacy ratio, testing, stress-testing etc. are methods that are used for liquidity risk

assessment.

Regarding the previous period, legal regulative has been changed regarding the implementation of

the liquidity ratios, internal liquidity indicators and concentration level.

Quantitative information for liquidity risk – Table 2.2.

2.2. Liquidity risk Maturities of assets and liabilities (residual maturity)

in thousands of MKD

up to 1

month

1-3

months

3-12

months 1-2 years 2-5 years

over 5

years Total

current year 2009

Financial assets

Cash and cash equivalents

13,679,643 0 0 2,787,967 0 127,401 16,595,011

Assets for trading 1,060 0 914 914 203 27,500 30,591

Financial assets

at fair value via the income statement

determined as such at initial recognition

0 0 0 0 0 0 0





Derivative assets held for risk

management

0 0 0 0 0 0 0

Placement with and loans to banks

185,462 16,506 0 0 180,461 948,185 1,330,614

Placement with and loans to other clients

3,518,682 2,372,766 11,330,123 5,811,794 10,590,287 5,228,277 38,851,929

Investments in securities

1,506 0 54,683 360,549 6,188 79,949 502,875

Investments in affiliates

0 0 0 0 0 88,799 88,799

Income tax receivables (current)

0 32,226 0 0 0 0 32,226

Other receivables

245,007 53,325 32,653 51,845 7,670 11,897 402,397

Collateralized assets

0 0 0 0 0 0 0

Deferred tax assets

0 0 0 0 0 0 0

Total financial assets

17,631,360 2,474,823 11,418,373 9,013,069 10,784,809 6,512,008 57,834,442

Financial liabilities

Trading payables

0 0 0 0 0 0 0

Financial liabilities at fair value via the

income statement determined as such at

initial recognition

0 0 0 0 0 0 0

Derivative liabilities held for risk

management

0 0 0 0 0 0 0

Deposits from banks

156,785 0 0 306,315 0 0 463,100

Deposits from other clients

30,194,205 8,922,302 10,259,362 675,962 448,459 540,138 51,040,428

Issued debt securities

0 0 0 0 0 0 0

Loans payable

66,842 84,988 226,834 358,914 608,653 241,002 1,587,233

Subordinated debt

0 0 0 0 0 0 0

Income tax payables (current)

0 1,975 0 0 0 0 1,975

Deferred tax liabilities

0 0 0 0 0 0 0

Other liabilities

493,483 0 177 0 0 0 493,660

Total financial liabilities

30,911,315 9,009,265 10,486,373 1,341,191 1,057,112 781,140 53,586,396

Liquidity gap

-13,279,955 -6,534,442 932,000 7,671,878 9,727,697 5,730,868 4,248,046





2.2. Liquidity risk Maturities of assets and liabilities

(residual maturity)

in thousands of MKD

up to 1

month

1-3

months 3-12 months 1-2 years 2-5 years

over 5

years Total

current year 2009

Financial assets

Cash and cash equivalents 12,342,565 251,171 0 2,686,278 0 0 15,280,014

Assets for trading

0 0 152,535 1,576 3,053 24,484 181,648

Financial assets at fair value

via the income statement

determined as such at initial

recognition 0 0 0 0 0 0 0


management 0 0 0 0 0 0 0

Placement with and loans to

banks 176,670 6,137 66,514 0 181,166 951,891 1,382,378

Placement with and loans to

other clients 3,036,586 2,190,652 8,967,694 6,131,467 9,279,675 5,443,344 35,049,418

Investments in securities 0 0 57,980 358,888 59,038 81,296 557,202

Investments in affiliates 0 0 0 0 0 49,693 49,693

Income tax receivables

(current) 0 0 0 0 0 0 0

Other receivables 73,629 59,154 57,081 5,563 7,667 14,085 217,179

Collateralized assets 0 0 0 0 0 0 0

Deferred tax assets 0 0 0 0 0 0 0

Total financial assets 15,629,450 2,507,114 9,301,804 9,183,772 9,530,599 6,564,793 52,717,532


Trading payables 0 0 0 0 0 0 0

Financial liabilities at fair value



recognition 0 0 0 0 0 0 0

Derivative liabilities held for

risk management 0 0 0 0 0 0 0

Deposits from banks 488,281 0 0 0 308,764 0 797,045

Deposits from other clients 30,434,781 7,214,633 7,674,413 234,510 669,082 186,185 46,413,604

Issued debt securities 0 0 0 0 0 0 0





2.3 Market risks

2.3.1 Risk of change in the interest rates in the banking book

Risk of change in the interest rates in the banking book is risk of loss arising from the unfavourable

changes in the interest rates, and which influence on the items in the bank's banking book. The risk of

change in the interest rates can also arise from the maturity mismatch of the assets and liabilities

items, which may have long term negative influence on Bank’s profitability and capital.

The exposure on this risk depends from the value of the balance and off-balance sheets which are

sensitive to interest rates, interest rates oscillation and the time period of the interest rate exposure.

The aim is maximization of the stability and profitability, through appliance of optimal structure and

optimal interest rates in the banking book.

The Bank has established Policy for undertaking and managing the risk of change in the interest rates

in the banking book, that is issued by the Supervisory Board and is subject of regular revision. The

Policy defines the main objectives, assessment of the bank capacity to take the risk of change in the

interest rates as well as assessment of its risk profile, organizational structure of the interest rate risk

management function, basic elements of the interest rate risk management (management system and

management process), adequate instruments for protection or reduction and internal control of the

Bank.

The Bank has established Procedures for identification, assessment, measurement, monitoring and

control or mitigation the risk of change in the interest rates in the banking book. This act is issued by

Banks Board of directors and is reviewed on regular bases. The Procedures gives in detail the

proceedings (processes) for interest rate risk management as: identification and assessment of

interest rate risk, measurement and monitoring the interest rate risk, control and reporting of the

interest rate risk.

Analysis of the realized interest incomes and expenses, analysis of the structure and dynamics of the

interest rate sensitive positions in the Balance sheet and analysis of the assets quality influence to

Bank’s profitability, average weighted interest rates and interest margin, analysis of reconciliation of

interest rates on financial assets and liabilities, ratio between interest-bearing assets and interest-

bearing liabilities, net interest margin, simulation models, stress-testing etc, are methods used for

measurement of this risk.

Loans payable 47,315 28,752 171,436 185,919 345,890 204,964 984,276

Subordinated debt 0 0 0 0 0 0 0

Income tax payables (current) 0 59,068 0 0 0 0 59,068

Deferred tax liabilities 0 0 0 0 0 0 0

Other liabilities 207,971 133,130 118 0 0 0 341,219

Total financial liabilities 31,178,348 7,435,583 7,845,967 420,429 1,323,736 391,149 48,595,212

Liquidity gap -15,548,898 -4,928,469 1,455,837 8,763,343 8,206,863 6,173,644 4,122,320





Note: The Banks has made no such analyses yet.

Note: Tables A and B of this note are filled out if the Bank conducts analysis of the value exposed to risk and analysis of sensitivity

А Analysis of value exposed to risk

2009 (current year) 2008 (previous year)

in thousands of MKD

As at December

31 Average value As at December 31 Average value

Value exposed to interest-bearing

instruments risk

Value exposed to FC instruments risk

Value exposed to equity instruments

risk

Variance

Total - - - -

B Analysis of sensitivity to changes in interest rates

in thousands of MKD

Increase of yield

curves by 1%

Decrease of yield

curves by 1 %

Increase of yield

curves by 0.5%

after first year

Decrease of

yield curves by

0.5% after first

year

2009 (current year)

As at December 31

Average value for the period

Highest value for the period

Lowest value for the period

2008 (previous year)

As at December 31

Average value for the period

Highest value for the period

Lowest value for the period





weighted

effective

interest rate

(in %)

Instruments

at floating

interest rate*

Instruments at fixed interest rate, hence including the instruments at floating interest rate,

subject to decision of Bank's bodies Non-interest

bearing Total

In thousands of MKD up to 1

month 1-3 months

3-12

months 1-2 years 2-5 years

over 5

years

2009 (current year)

Financial assets

Cash and cash equivalents 0.93% 1,047,981 14,373,977 0 0 0 0 0 1,173,053 16,595,011




recognition

0.00% 0 0 0 0 0 0 0 0 0


banks 0.95% 1,128,646 201,937 0 0 0 0 0 31 1,330,614


other clients 10.26% 2,920,526 34,089,549 84,456 195,562 228,222 327,325 44,217 962,072 38,851,929

Investments in securities 2.14% 305,866 0 0 54,683 54,683 6,188 4,532 76,923 502,875

Investments in affiliates 0.00% 0 0 0 0 0 0 0 88,799 88,799

Other receivables 0.00% 0 0 0 0 0 0 0 402,397 402,397

Collateralized assets 0.00% 0 0 0 0 0 0 0 0 0

Financial assets 7.42% 5,403,019 48,665,463 84,456 250,245 282,905 333,513 48,749 2,703,275 57,771,625


Financial liabilities at fair

value via the income

statement determined as

such at initial recognition

0.00% 0 0 0 0 0 0 0 0 0

Deposits from banks 0.97% 424,868 0 0 0 0 0 0 38,232 463,100

Deposits from other clients 3.64% 0 49,131,854 0 140,225 95,971 0 0 1,672,378 51,040,428

Issued debt securities 0.00% 0 0 0 0 0 0 0 0 0

Loans payable 2.45% 597,171 59,720 75,115 167,076 203,351 268,583 201,287 14,931 1,587,233

Subordinated debt 0.00% 0 0 0 0 0 0 0 0 0

Other liabilities 0.00% 0 0 0 0 0 0 0 493,660 493,660

3.58% 1,022,039 49,191,574 75,115 307,301 299,322 268,583 201,287 2,219,201 53,584,421

Non-reconciliation of

interest rates on

financial assets and

liabilities

3.84% 4,380,980 (526,111) 9,342 (57,056) (16,416) 64,930 (152,538) 484,074 4,187,204





* only financial instruments that have floating interest rate related to certain referential interest rate are taken into account.

weighted

effective

interest rate

(in %)

Instruments

at floating

interest

rate**

Instruments at fixed interest rate, hence including the instruments at floating interest rate,

subject to decision of Bank's bodies Non-interest

bearing Total

In thousands of MKD up to 1

month 1-3 months

3-12

months

1-2

years 2-5 years over 5 years


Financial assets

Cash and cash equivalents 2.84% 2,003,101 9,651,505 251,158 0 0 0 0 3,374,249 15,280,014




recognition

0.00% 0 0 0 0 0 0 0 0 0


banks 1.07% 1,133,057 179,679 0 61,412 0 0 0 8,229 1,382,378


other clients 9.75% 1,878,243 31,712,345 21,637 136,957 144,276 239,702 51,143 865,114 35,049,418

Investments in securities 4.23% 303,991 0 0 54,897 54,897 59,038 6,620 77,759 557,202

Investments in affiliates 0.00% 0 0 0 0 0 0 0 49,693 49,693

Other receivables 0.00% 0 0 0 0 0 0 0 217,179 217,179

Collateralized assets 0.00% 0 0 0 0 0 0 0 0 0

Financial assets 7.78% 5,318,392 41,543,530 272,795 253,266 199,173 298,740 57,764 4,592,224 52,535,884


Financial liabilities at fair

value via the income

statement determined as

such at initial recognition

0.00% 0 0 0 0 0 0 0 0 0

Deposits from banks 2.78% 425,245 306,965 0 0 0 0 0 64,835 797,045

Deposits from other clients 3.09% 0 44,864,600 0 0 0 92,002 0 1,457,001 46,413,603

Issued debt securities 0.00% 0 0 0 0 0 0 0 0 0

Loans payable 3.45% 258,561 40,630 16,384 130,620 138,486 234,467 149,718 15,410 984,276

Subordinated debt 0.00% 0 0 0 0 0 0 0 0 0

Other liabilities 0.00% 0 0 0 0 0 0 0 341,219 341,219

3.09% 683,806 45,212,195 16,384 130,620 138,486 326,469 149,718 1,878,465 48,536,144

Non-reconciliation of

interest rates on

financial assets and

liabilities

4.69% 4,634,586 (3,668,666) 256,411 122,646 60,687 (27,729) (91,955) 2,713,759 3,999,740





2.3.2 Currency risk

Currency risk is risk of loss due to change in the cross-currency exchange rates and/or change in the

value of the Denary against other foreign currencies.

The exposure to currency risk depends on the value of both balance and off balance positions

activities in foreign currency and denar with foreign currency clause and fluctuation of cross-currency

rates and /or denary rate compared to the other currencies value.

The purpose of the bank is to maximize the stability and profitability, by obtaining optimal currency

structure on both assets and liabilities.

The bank has established policy for undertaking and managing the currency risk, adopted by the Supervisory board of the Bank and it is revised regularly. The policy defines the primary goals, evaluation of the capacity of the bank for undertaking currency risk and risk profile, organizational structures for managing foreign exchange risk,basic elements for managing foreign exchange risk (system for managing foreign exchange risk and process of managing foreign exchange risk), acceptable instruments for protection from and decrease of foreign exchange risk, internal control and basic elements of the process of intern managing and evaluation of the necessary capital adequacy ratio. The bank has established Procedures for identification, undertaking, measurement, following and control of foreign exchange risk adopted by the Board of Directors of the Bank and it os revised regularly. In the Procedures processes for managing foreign exchange risk are thoroughly described as follows: identification and undertaking foreign exchange risk, measurements and following, control and reporting for exposure to foreign exchange risk. Exposure to foreign exchange risk both by single positions and in total, foreign exchange structure of the balance sheet, foreign exchange structure of FX assets, stress test et, are methods used for measuring foreign exchange risk. Compared to the previous period, changes have been made to the legal limit of aggregate foreign exchange position and calculation methods.





2,3 Market risk

2.3.2 Currency risk

list separately the currencies that represent

more than 10% of total monetary

assets/liabilitieс

in thousands of MKD MKD EUR USD

Other

currencies Total

2009 (current year)

Monetary assets

Cash and cash equivalents 4,357,632 6,910,603 4,548,980 777,796 16,595,011

Assets for trading 28,545 2,045 30,591

Financial assets at fair value via the income

statement determined as such at initial

recognition 0

Derivative assets held for risk management 0

Placement with and loans to banks 179,933 1,150,681 1,330,614

Placement with and loans to other clients 21,513,845 16,463,201 420,845 454,039 38,851,929

Investments in securities 73,777 428,713 385 502,875

Investments in affiliates 88,799 88,799

Income tax receivables (current) 32,226 32,226

Other receivables 120,707 239,191 42,304 195 402,397

Collateralized assets 0

Deferred tax assets 0

Total monetary assets 26,395,465 25,194,434 5,012,513

1,232,030 57,834,442

Monetary liabilities

Trading payables 0

Financial liabilities at fair value via the income


recognition 0

Derivative liabilities held for risk management 0

Deposits from banks - 436,591 20,373 6,136 463,100

Deposits from other clients 21,803,099 23,399,431 5,019,079 818,818 51,040,428

Issued debt securities 0

Loans payable 142,467 1,444,227 539 1,587,233

Subordinated debt 0

Income tax payables (current) 1,975 1,975

Deferred tax liabilities 0

Other liabilities 420,612 36,429 19,771 16,848 493,660

Total monetary liabilities 22,368,153 25,316,678 5,059,763

841,802 53,586,396

Net position 4,027,312 (122,244) (47,250)

390,228 4,248,046





list separately the currencies that represent

more than 10% of total monetary

assets/liabilitieс

in thousands of MKD MKD EUR USD

MKD EUR USD


Monetary assets

Cash and cash equivalents 6,280,847 4,964,865 3,174,192 860,110 15,280,014

Assets for trading 173,367 8,281 181,648

Financial assets at fair value via the income


recognition 0

Derivative assets held for risk management 0

Placement with and loans to banks 169,491 1,209,366 3,521 1,382,378

Placement with and loans to other clients 19,796,519 14,375,751 221,105 656,042 35,049,417

Investments in securities 73,039 483,770 393 557,202

Investments in affiliates 49,693 49,693

Income tax receivables (current) 0

Other receivables 147,844 27,697 41,513 125 217,179

Collateralized assets 0

Deferred tax assets 0

Total monetary assets 26,690,800 21,069,730 3,440,723

1,516,278 52,717,531

Monetary liabilities

Trading payables 0

Financial liabilities at fair value via the income


recognition 0

Derivative liabilities held for risk management 0

Deposits from banks 1 568,188 218,659 10,197 797,045

Deposits from other clients 22,521,373 20,048,337 3,132,119 711,775 46,413,604

Issued debt securities 0

Loans payable 147,364 835,985 927 984,276

Subordinated debt 0

Income tax payables (current) 59,068 59,068

Deferred tax liabilities 0

Other liabilities 284,167 37,247 13,333 6,471 341,219

Total monetary liabilities 23,011,973 21,489,758 3,365,039

728,443 48,595,211

Net position 3,678,828 (420,027) 75,684

787,835 4,122,320





2.3.3 Other market risks

Market risk is a risk of loss arising from the change in the price of financial instruments intended for

trade i.e. instruments that are part of the trading book.

The exposure depends on the trading book value and on the movement of the price of the financial

instruments which are part of the trading book.

The aim of the Bank is maximizing the stability and profitability, by applying the optimal structure of the trading book. The Bank has established Policy for undertaking and managing market risk, that is issued by the

Bank’s Supervisory Board and is subject of regular revision. The Policy defines the main objectives,

assessment of the Bank capacity to undertake market risk as well as assessment of its risk profile,

organizational structure of the market risk management function, main elements of the market risk

management (system for market risk management and process for market risk management),

acceptable instruments for protection or reduction of the market risk, internal control and main

elements of the process for internal determining and assessment of the required capital adequacy of

the Bank.

The Bank has established Procedures for identification, undertaking, assessment, monitoring and

control of the market risk. This act is issued by the Bank’s Supervisory Board and is subject of regular

revision. The Procedures gives in detail the proceedings (processes) for market risk management as:

identification and undertaking the market risk, assessment and monitoring, control and reporting for

the market risk exposure.

Analysis of each investment intended for trade, analysis of the trading book (type of the securities,

market segmentation, market value, participation in the issuer capital etc.) currency structure, realized

transactions of trading, fulfilling the law limits, fulfilling the internal limits and exceptions, trading

results, daily monitoring of the trading book regarding the Bank’s total activities, stress-testing etc. are

methods that are used for market risk assessment.

Regarding the previous period, legal regulative has been changed regarding the Bank’s obligation to

hold adequate capital requirements for covering market risk, after exceeding the conditions defined in

the Decision on the methodology for determining capital adequacy.

2.3.4 Operational Risk

Operational risk is a risk of loss as a result of inappropriate or weak internal processes, inappropriate

personnel and improper or weak systems in the bank as well as external events.The operational risk

shall also include the legal risk.

Legal risk shall denote current or prospective risk to the bank's profit and own funds, caused by

violation or non-adherence to the legal framework, agreements, prescribed practices, ethics

standards, or as a result of misinterpretation of the regulations, rules, agreements and other legal

documents.

The Operational Risk is possible in each business line and process and the potentional number of

operational risk events is unlimited.





The Bank has established Policy on operational risk management that aims to enable normal Bank

functioning and performance of all Bank activities against all type of potentional risk connected to

internal processes, systems, persons (all employees) in the Bank as well as external events which

are connected or have some kind of influence on performance of Bank activities.

The established Policy on operational risk management is issued by the Supervisory Board and is

subject of regular revision.

The Policy defines the basic aims, acceptable lever of operational risk exposure, operational risk

management (operational risk management system and process), data and information coverage,

organizational structure, internal control, organizational culture toward operational risk, current

analysis of the significant losses, reporting system as well as additional measures for

covering/mitigating the operational risk.

The Bank has established Pprocedures for identification, assessment, monitoring and control or

mitigation of the operational risk as well Methodology for operational risk assessment and key

indicators. These acts are issued by Banks Board of directors and are reviewed on regular bases.

The Procedures gives in detail the proceedings (processes) for operational risk management as:

identification and assessment (method and process), communication and reporting, monitoring and

revision as well operational key indicators.

The Bank has established self assessment method through qualitative approach and analyses of data

obtained through:

- identification both internal factors and external factors that could adversely affect the Banks profit,

own funds or the achievement of the bank’s objectives;

- analyses of identified risks (internal and external factors, activities or events) from aspect of the

probability to happened and theirs’ possible influence on Banks activities as well on Banks profit,

own funds or the achievement of the bank’s objectives;

- analyses of collected loss data (data from Banks database);

- Banks key risk Indicators;

- external loss data from other banks.

3. Capital adequacy

Within the overall process for menaging the credit risk of the bank, determination of the capital

adequacy is separate subprocess in the process of control.

The Bank has established a process of determination and assessing the adequacy of capital

depending on its risk profile in accordance with the Methodology for determination the adequacy of

capital provided by the NBRM. Within the established process of determination of the adequacy of

capital:

- Bank sets internal aims for the level of capital adequacy in accordance with risk profile,

size and complexity of the financial activities of bank;

- Bank analyzes current and future needs of its own funds in accordance with its

strategic objectives.





3.1 Determination of the adequacy of capital

Adequacy ratio of capital indicates the level of coverage of risk operations of the Bank and is

calculated as the relation between Bank’s own funds and assets risk weighted.

а) Own funds are category that is in function of determination the rate of the capital adequacy and

other prudential limits. Own funds represent a set of basic capital, additional capital 1 and additional

capital 2, reduced for the net capital invested in banks and other financial institutions as defined in the

Decision for the methodology for determination of the adequacy of capital

b) Assets weighted according the risks is a sum of assets weighted according to credit risk, weighted

assets by currency risk and weighted assets by other risks.

Determination of total assets weighted according to credit risk includes active balance sheet

positions multiplied by the appropriate risk ponder according credit risk and the total amount of

offbalance assets weighted according to credit risk.

- Assets weighted according to currency risk as data is calculated in summary form for

calculation of the rate of adequacy of capital. Currency risk is identified through consideration of all

activities and transactions that in balance and offbalance records are recorded in foreign exchange

and denars indexed with foreign currency clause, and that in accordance with accounting rules are

exchanged on a regular basis. Thus, the parts of the balance, in which the Bank may suffer losses

from changing the course of the denar in relation to the value of other currencies and/or the change of

the relations between currencies, are identified.

- Assets weighted according to other risks contains the capital required to cover the risk of

changing the prices of the goods and the capital required to cover the market risks.

c) Based on the previously prepared Forms, rate of capital adequacy is determined, as the

relationship between the Bank's own funds and total assets weighted by risk.

NRBM prescribes a rate of capital adequacy of the minimum 8%.

Determination of the adequacy of capital according the regulation is done on a quarterly basis, but

depending on internal needs, and towards the effective management with the credit risk, other

reports, analysis and simulations for potential changes of the rate of capital adequacy are made.





Report for capital adequacy rate in 000 denars

Nr. Description 31.12.2008 31.12.2009

1 2 3 4

I ASSETS WEIGHTED ACCORDING TO CREDIT RISK

1 Balance assets weighted according to credit risk 39,056,203 44,072,391

2 Off-balance assets weighted according to credit risk 7,696,428 8,020,064

3 Assets weighted according to credit risk (1+2) 46,752,631 52,092,455

4 Capital needed for credit risk covering 3,740,210 4,167,396

II ASSETS WEIGHTED ACCORDING TO VALUE RISK

5 Aggregate foreign exchange position 1,711,792 1,774,992

6 Net-position in gold -

7 Capital needed for value risk covering 136,943 141,992

8 Assets weighted according to value risk 1,711,792 1,774,992

III ASSETS WEIGHTED ACCORDING TO OTHER RISKS

9 Capital needed for covering the risk of changing the

prices of goods 0 0

10 Capital needed for market risks covering

(10.1+10.2+10.3+10.4+10.5+10.6+10.7+10.8) 0 0

10.1 Capital needed for covering the specific risk of debt

instruments investment 0 0

10.2 Capital needed for covering the general risk of debt

instruments investment 0 0

10.3 Capital needed for covering the specific risk of equities

investment 0 0

10.4 Capital needed for covering the general risk of equities

investment 0 0

10.5 Capital needed for settlement/delivery risk covering

0 0

10.6 Capital needed for other contract party risk covering

0 0

10.7 Capital needed for covering the surpass of exposure limits

0 0





10.8 Capital needed for market risks of positions in options

covering 0 0

11 Capital needed for other risks covering (9+10) 0 0

12 Assets weighted according to other risks

0 0

IV ASSETS WEIGHTED ACCORDING TO RISKS (3+8+12)

48,464,423 53,867,447

13 Capital needed for risks covering 3,877,154 4,309,396

V OWN FUNDS 4,784,785 5,731,506

VI CAPITAL ADEQUACY (V/IV) 9.87 10.64

in 000 denars





Report on Own Funds

Description As at

31.12.2008

As at

31.12.2009

2 3 4

CORE CAPITAL

1

Paid and registered ordinary and non-

cumulative preferred shares and their

premium 2,214,206 2,106,779

1.1 Nominal value 1,997,135 1,998,204

1.1.1 Nominal value of ordinary shares 1,997,135 1,998,204

1.1.2

Nominal value of non-cumulative preferred

shares

1.2 Premium 217,071 108,575

1.2.1 Premium from ordinary shares 217,071 108,575

1.2.2 Premium from non-cumulative preferred shares 0 0

2 Reserves and retained profit or loss 2,653,136 3,759,230

2.1 Reserved fund 2,653,136 3,759,230

2.2

Retained profit restricted for distributions to

shareholders

0 0

2.3 Accumulative loss from the previous year 0 0

2.4 Current profit 0 0

2.5

Unrealized loss of own securities available for

sale

0 0

3 Items as result of consolidation 0 0

3.1 Minority participation 0 0

3.2 Interest rate reserves 0 0

3.3 Other differences 0 0

4 Deduction items 4,937 15,058

4.1 Current losses 0 0

4.2 Own shares 0 0

4.3 Intangible assets 4,937 15,058





4.4 Net negative revaluation reserve 0 0

4.5

The difference between necessary special

reserve for potential loss and separately special

reserve

0 0

4.6

Amount of not allocated impairment of financial

assets and special reserve as a result od

accounting delay

0 0

5

Ordinary shares, reserves and retained

profit and deduction items

4,862,405 5,850,951

6

Amount of the others positions which are

included in the Care capital

0 0

I CORE CAPITAL 4,862,405 5,850,951

SUPPLEMENTARY CAPITAL I

7

Paid and registered cumulative preferred

shares and theirs premium 18,563 16,315

7.1 Nominal value 16,932 15,863

7.2 Premium 1,631 452

8 Revaluated reserves 0 0

9 Hybrid capital instruments 0 0

10 Subordinated instruments 0 0

11

Amount of subordinated instruments that

might be a part of additional capital I

0 0

II Supplementary I 18,563 16,315

Deductions from Core capital and

supplemantary capital I

12

Capital investment that are over 10% in other

banks or financial institutions (except

institutions from number 15)

5,447 17,719

13

Investment in subordinated and hybrid capital

instruments and other instruments of institution

from number 12

0 0

14

Aggregate amount of capital investment,

subordinated and hybrid instruments and other

0 0





instruments that exceed 10% from (I+II)

15

Direct capital investment in insurance and

reinsurance companies and managing with the

pension fund company

90,736 118,041

16

Investment in financial instruments issued by

the company from number 15 that are included

in their capital

0 0

17

Amount for exceed the limits for investment in

non-financials institution

0 0

18

The positions as results of consolidation

(negative amounts)

0 0

III DEDUCTION ITEMS 96,183 135,760

IV Core capital after deductions 4,784,785 5,731,506

V Supplementary capital I after deductions 0 0

SUPPLEMENTARY CAPITAL II

19 Subordinated instruments defined in

Supplemenatry capital II

0 0

20 Supplementary capital I and II 0 0

21 Approved amount of supplementary capital I

and II

0 0

21.1 Supplementary capital I 0 0

21.2 Supplementary capital II 0 -

22 Surplus of core capital 907,631 1,422,110

22.1 Surplus of core capital (150%) 1,361,447 2,133,165

22.2 Surplus of core capital (250%) 2,269,078 3,555,506

VI Approved amount of supplementary capital

II

0 -

Own Funds

VII Core capital 4,784,785 5,731,506





4. Reporting according to segments

Reporting according to segments is done by Primary business segments and Secondary

geographical segments.

Primary business segments according which the Bank is reporting are:

- Retail banking - given loans, credit cards, payment operational services, current and time

deposits, etc.

- Corporate banking (working with non-financial and financial companies) - given loans, bank

guarantees and accreds, time deposits;

- Investment banking - menaging financial assests of other persons/ entities, advisory services,

services connected with issuing securities etc.;

- Other (not included in listed segments above).

Quantitative information on reporting according to segments

Table 4A Primary business segments

Secondary geographical segments according which the Bank is reporting are:

- Member countries of European Union

- Europe (other)

- Member-countries of OECD (without European Member-countries of OECD)

- Other (not included in listed segments above)

Quantitative information on reporting according to segments

Table 4B Secondary geographical segments





4 Reporting according to segments

A Primary business segments

Retail banking Corporate banking

Invest- ment

banking

Other (significant business segments)

Unallocated Total in thousands of MKD

Banks and other

financial organizations

Government and non-profit

institutions serving to households

Other (non-

residents excluding foreign banks)

2009 (current year) Net interest income /(expense) (474,961) 2,806,426 5,577 19,941 (32,759) (8,779) 0 2,315,445 Net fees and commissions income / (expense) 92,436 653,509 263 (63,417) 17,459 15,652 0 715,902 Net trading income 0 0 16,468 0 0 0 0 16,468 Net income from other financial instruments recorded at fair value 0 0 0 0 0 0 0 0 Other operating income 110,595 218,617 11,740 171,458 9,242 2,573 87,215 611,440 Income realized between segments 0 0 0 0 0 0 0 0

Total income per segment (271,930) 3,678,552 34,048 127,982 (6,058) 9,446 87,215 3,659,255

Financial result per segment (1,321,117) 3,011,877 20,519 14,866 (38,500) (88,232) (525,405) 1,074,008

Income tax 0

Profit/(loss) for the financial year 1,074,008

Total assets per segment 7,642,358 32,504,119 1,336,597 17,277,328 159,837 73,913 58,994,152 Unallocated assets per segment 1,718,045 1,718,045

Total assets 60,712,197

Total liabilities per segment 37,026,680 11,303,826 34,843 2,848,362 1,711,411 764,462 53,689,584 Unallocated liabilities per segment 66,281 66,281

Total liabilities 53,755,865

Adjustment of value of financial assets, on net-basis (427,062) (140,529) 4,054 2,106 (427) (50,370) 7,373 (604,855) Impairment loss of non-financial assets, on net-basis 0 0 0 0 0 0 0 0 Depreciation (46,411) (78,918) (1,958) (5,287) (5,287) (8,029) (49,936) (195,826) Restructuring costs 0 0 0 0 0 0 0 0 Costs for investment in real estate and equipment 42,552 72,356 1,795 4,848 4,848 7,361 45,783 179,543 Other expense (575,714) (447,228) (15,625) (109,935) (26,728) (39,279) (570,057) (1,784,566)






Retail banking

Corporate banking

Invest- ment

banking

Other (significant business segments)

Unallocated Total in thousands of MKD

Banks and other

financial organization

s

Government and non-

profit institutions serving to households

Other (non-residents excluding

foreign banks)


Net interest income /(expense) (335,969) 1,893,073 35,829 430,535 206,695 (5,151) 0 2,225,012 Net fees and commissions income / (expense) 83,390 860,312 0 (72,001) 28,883 55,893 0 956,477

Net trading income 0 0 (55,354) 0 0 0 0 (55,354)

Net income from other financial instruments recorded at fair value 0 0 0 0 0 0 0 0

Other operating income 56,514 421,671 76,034 235,879 15,423 4,475 45,190 855,186 Income realized between segments 0 0 0 0 0 0 0 0

Total income per segment (196,065) 3,175,056 56,509 594,413 251,001 55,217 45,190 3,981,321

Financial result per segment (1,008,206

) 2,376,604 44,601 526,504 211,804 5,508 (606,710) 1,550,105

Income tax (172,515)


Total assets per segment 7,283,473 28,809,173 4,214,328 13,310,697 47,218 120,895 53,785,784

Unallocated assets per segment 1,334,495 1,334,495


Total liabilities per segment 33,125,65

1 10,953,541 38,350 2,272,740 1,596,617 695,496 48,682,395 Unallocated liabilities per segment 174,390 174,390


Adjustment of value of financial assets, on net-basis (166,010) (354,953) 1,115 67,115 (8,855) (3,978) (9,786) (475,352)

Impairment loss of non-financial assets, on net-basis 0 0 0 0 0 0 (12,677) (12,677)

Depreciation (44,287) (74,833) (2,004) (4,782) (5,085) (8,033) (49,995) (189,019)

Restructuring costs 0 0 0 0 0 0 0 0 Costs for investment in real estate and equipment 40,043 67,660 1,812 4,324 4,597 7,263 45,204 170,903

Other expense (601,844) (368,666) (11,019) (130,242) (25,257) (37,698) (579,442) (1,754,168)





4 Reporting according to segments B Secondary geographical segments


Member countries of European Union Europe (other)

Member-countries of

OECD (without European Member-

countries of OECD)

Other (significant geographical segments) Unallocated in thousands of MKD Total

2009 (current year)

Net interest income /(expense) 2,295,007 20,611 707 (1,264) (396) 779 2,315,445 Net fees and commissions income / (expense) 726,026 (20,453) 5,559 1,407 3,058 304 715,902

Net trading income 16,468 0 0 0 0 0 16,468

Net income from other financial instruments recorded at fair value 0 0 0 0 0 0 0

Other operating income 562,428 331 113 47,444 1,032 92 611,440

Income realized between segments 0 0 0 0 0 0 0

Total income per segment 3,599,930 489 6,379 47,588 3,694 1,176 3,659,255

Financial result per segment 1,040,439 517 (19,389) 47,571 3,694 1,176 1,074,008

Income tax 0


Total assets per segment 50,576,556 8,472,238 1,442,682 220,722 0 60,712,197

Unallocated assets per segment 0 0


Total liabilities per segment 52,914,440 421,061 167,095 187,118 60,404 53,750,118

Unallocated liabilities per segment 5,747 5,747


Adjustment of value of financial assets, on net-basis (604,645) 65 (259) (16) 0 0 (604,855)

Impairment loss of non-financial assets, on net-basis 0 0 0 0 0 0 0

Depreciation (195,826) 0 0 0 0 0 (195,826)

Restructuring costs 0 0 0 0 0 0 0 Costs for investment in real estate and equipment 179,543 0 0 0 0 0 179,543

Other expense (1,759,020) (38) (25,508) 0 0 0 (1,784,566)







Member countries of European Union

Europe (other)

Member-countries of

OECD (without European Member-

countries of OECD)

Other (significant geographical segments) Unallocated in thousands of MKD Total


Net interest income /(expense) 1,790,701 371,849 58,709 5,552 (892) (907) 2,225,012 Net fees and commissions income / (expense) 924,358 24,676 2,269 4,482 2,794 (2,101) 956,477

Net trading income (55,354) 0 0 0 0 0 (55,354)

Net income from other financial instruments recorded at fair value 0 0 0 0 0 0 0

Other operating income 762,229 0 92,957 0 0 0 855,186

Income realized between segments 0 0 0 0 0 0 0

Total income per segment 3,421,934 396,525 153,935 10,034 1,901 (3,008) 3,981,321

Financial result per segment 1,000,829 434,670 168,793 (43,366) 220 (11,041) 1,550,105

Income tax (172,515) 0 0 0 0 0 (172,515)


Total assets per segment 47,898,412 5,951,710 348,215 921,942 0 55,120,279

Unallocated assets per segment 0 0


Total liabilities per segment 48,056,196 368,067 216,887 178,039 37,595 48,856,785

Unallocated liabilities per segment 0 0


Adjustment of value of financial assets, on net-basis (556,342) 66,086 14,858 46 0 0 (475,352)

Impairment loss of non-financial assets, on net-basis (12,677) 0 0 0 0 0 (12,677)

Depreciation (180,986) 0 0 0 0 (8,033) (189,019)

Restructuring costs 0 0 0 0 0 0 0 Costs for investment in real estate and equipment 170,903 0 0 0 0 0 170,903

Other expense (1,671,100) (27,942) 0 (53,446) (1,681) 0 (1,754,168)





5 Fair value of financial assets and liabilities

Current year 2009 Previous year 2008

carrying amount fair value carrying amount fair value

in thousands of MKD

Financial assets

Cash and cash equivalents 16,595,011 16,595,011 15,280,014 15,280,014

Trading assets 30,591 30,591 181,648 181,648

Financial assets at fair value through

income statement, determined as such

upon initial recognition 0 0 0 0


management 0 0 0 0

Placements with and loans to banks 1,330,614 1,330,614 1,382,378 1,382,378

Placements with and loans to other

clients 38,851,929 38,849,163 35,049,418 34,855,501

Investments in securities 502,875 525,534 557,202 565,766

Investments in affiliates 88,799 88,799 49,693 49,693

Receivables for income tax (current) 32,226 32,226 0 0

Other receivables 402,397 402,397 217,179 217,179

Collateralized assets 0 0 0 0

Deferred tax assets 0 0 0 0


Trading liabilities 0 0 0 0

Financial liabilities at fair value

through income statement,

determined as such upon initial

recognition 0 0 0 0

Derivative liabilities held for risk

management 0 0 0 0

Deposits from banks 463,100 463,100 797,045 797,045

Deposits from other clients 51,040,428 51,040,428 46,413,604 46,413,604

Issued debt securities 0 0 0 0

Liabilities under loans 1,587,233 1,587,233 984,276 984,276





Subordinated debt 0 0 0 0

Income tax liabilities (current) 1,975 1,975 59,068 59,068

Deferred tax liabilities 0 0 0 0

Other liabilities 493,660 493,660 341,219 341,219

Fair value represents the amount at which an asset could be replaced or a liability settled on regular,

market conditions between informed and voluntary parties.

Fair value has been based on management assumptions according to the profile of the asset and

liability base.


Placement with and loans to banks comprise inter-bank placements. The fair value of placements

and overnight deposits is their carrying amount due to their short-term nature,

Placement with and loans to other clients

Placement with and loans to other clients are measure according to amortized

Purchase value decrease to impairment.

Placement with and loans to other clients in loan portfolio of the Bank mainly are at floating interest

rate.

Assets objective value of loans and placement to other clients is determinate by discounting of the

future money floats which are expected. Assessed future money floats for determination of the

objective value are discounted by current market interest rate investment securities.

Investment securities

Investment securities include interest bearing assets held to maturity and assets classified as

available for sale are measure at fair value.

Fair value for held-to-maturity assets is based on published prices on active market or published

prices available from stock exchange, diler, broker.

Where this information is not available, fair value is estimated by: information for

Other financial assets

The fair value of monetary assets that includes cash and cash equivalents, deferred tax assets and

other loans, as result to their respective carrying values by definition and due to their short-term

nature, while trading assets are recorded as fair value..

Deposits from banks and other clients

The estimated fair value of deposits with no stated maturity, which includes non interest bearing

deposits, is the amount repayable on demand.





The fair value of the term deposits at variable interest rates approximates their carrying values as of

the balance sheet date. Term deposits over 12 months represents insignificant part of the total

deposit and do not have material impact on the fair value of the total deposits of the banks and other

clients.

Liabilities under loans

At liabilities under loans with fluctuable interest rates, fair value is the same both in material and in

accounting value, due to adjustments to interest rates. Liabilities under loans that are regulated by

special conditions for witch there are no other financial instruments with equal or similar

characteristics, fair value approximately represents the accounting value.

Other liabilities

Fair value of other liabilities including diferet tax liabilities, and other liabilities as a result of their short

term nature, approximately represents accounting value.





6 Net interest income / (expenses) A Structure of income and expenses from interest according to the type of financial instruments

in thousands of MKD current year

2009 previous year

2008 Interest income Cash and cash equivalents 119.939 762.791 Financial assets at fair value through income statement,

- -

Derivative assets held for risk management - - Placements with and loans to banks 6.303 2.416 Placements with and loans to other clients 3.544.938 2.536.733 Investments in securities 11.231 20.867 Other receivables - - (Adjustment of value of income interest, on net-basis) 245.783 211.660 Collected previously written-off interest - -

Total interest income 3.928.194 3.534.467

Interest expense

Financial liabilities at fair value through income statement, - - Derivative assets held for risk management - - Deposits from banks 8.787 13.283 Deposits from other clients 1.558.308 1.277.885 Investments in securities - - Liabilities under loans 45.654 18.287 Subordinated debt - - Other liabilities - -

Total interest expense 1.612.749 1.309.455

Net interest income / (expense) 2.315.445 2.225.012





6 Net interest income / (expenses) - continue B Sector analysis of interest income and expense according to the sector

in thousands of MKD

current year 2009

current year 2009

Interest income Non-financial companies 2.763.549 1.923.410 State 7.828 276.939 Non-profit institutions servicing households 1.415 704 Banks 101.365 66.283 Other financial companies (non-banking) 527 2.729 Households 776.553 611.433 Non-residents 31.174 441.309 (Adjustment of value of interest income, on net-basis) 245.783 211.660 Collected previously written-off interest - -

Total interest income 3.928.194 3.534.467

Interest expense Non-financial companies 202.906 202.319 State 17.442 11.645 Non-profit institutions servicing households 18.984 27.102 Banks 47.921 27.461 Other financial companies (non-banking) 63.247 50.478 Households 1.251.513 983.452 Non-residents 10.736 6.998

Total interest expense 1.612.749 1.309.455 Net interest income / (expense) 2.315.445 2.225.012





7 Net fees and commissions income / (expenses) A Structure of fees and commissions income and expense according to the type of financial activities

in thousands of MKD

current year 2009

previous year 2008

Fees and commissions income Financing 100.840 255.140 Payment operations 456.381 530.938 domestic 261.113 310.799 international 195.268 220.139 L/Cs and L/Gs 224.528 224.064 Brokerage operations 5.453 14.429 Asset management - - Commission and creditor activities - - Issue of securities - - Other 73.901 67.097 (list separately income which represent more than 10% of the total fees and commissions income)

Total fees and commissions income 861.103 1.091.668

Fees and commissions expense Financing 58.342 53.112 Payment operations 67.800 60.185 domestic 38.623 33.519 international 29.177 26.666 L/Cs and L/Gs 39 237 Brokerage operations 476 536 Asset management - - Commission and creditor activities - - Issue of securities - - Other 18.544 21.121 (list separately expenses which represent more than 10% of the total fees and commissions expense)

Total fees and commissions expense 145.201 135.191

Net fees and commissions income / (expense) 715.902 956.477





7 Net fees and commissions income / (expenses) B Sector analysis of fees and commissions income and expense

in thousands of MKD

current year 2009

current year 2009

Fees and commissions income Non-financial companies 653.509 860.312 State 10.053 12.126 Non-profit institutions servicing households 9.409 16.757 Banks 22.238 5.802 Other financial companies (non-banking) 5.542 3.792 Households 92.436 83.392 Non-residents 67.916 109.487

Total fees and commissions income 861.103 1.091.668

Fees and commissions expense Non-financial companies - - State 1.740 - Non-profit institutions servicing households - - Banks 9.623 6.979 Other financial companies (non-banking) 55.798 50.842 Households - 2 Non-residents 78.040 77.368

Total fees and commissions expense 145.201 135.191

Net fees and commissions income / (expense) 715.902 956.477





8 Net trading income

in thousands of MKD

current year 2010

previous year 2009

Trading assets Profit /(loss) from the changes in fair value of debt securities, on net-basis

realized 360 425 unrealized 11 (121)

Profit /(loss) from the changes in fair value of equity instruments, on net basis

realized 630 - unrealized 1.880 (57.155)

Income from dividend from trading assets 1.209 1.182 Income from interest from trading assets 12.378 315 Trading liabilities Profit /(loss) from the changes in fair value of debt securities, on net-basis

realized - - unrealized - -

Profit /(loss) from the changes in fair value of trading deposits, on net-basis


Profit /(loss) from the changes in fair value of other financial liabilities for trading, on net-basis


Expenses for interest from financial liabilities held for trading - - Profit /(loss) from the changes in fair value of derivatives held for trading, on net-basis


Net trading income 16.468 (55.354)





9 Net income from other financial instruments recorded at fair value

in thousands of MKD

current year 2009

previous year 2008

Financial assets at fair value through the income statement determined as such at initial recognition

Profit / (loss) from the changes in fair value of debt securities, on net basis

realized - -

unrealized - -

Profit / (loss) from the changes in fair value of equity instruments, on net basis

realized - -

unrealized - -

Income from dividend from financial assets at fair value through the income statement - -

Profit / (loss) from the changes in fair value of loans and claims at fair value through the income statement, on net basis

realized - -

unrealized - -

Financial liabilities at fair value through the income statement determined as such at initial recognition

Profit / (loss) from the changes in fair value of debt securities, on net basis

realized - -

unrealized - -

Profit / (loss) from changes in fair value of deposits at fair value through the income statement, on net-basis

realized - -

unrealized - -

Profit / (loss) from the changes in fair value of loan liabilities at fair value through the income statement, on net basis

realized - -

unrealized - -

Profit / (loss) from the changes in fair value of other financial liabilities at fair value through the income statement, on net basis

realized - -

unrealized - -

Profit / (loss) from changes in fair value of derivative held for risk management at fair value through the income statement, on net-basis

realized - -

unrealized - -

Net income from other financial instruments recorded at fair value - -





10 Foreign exchange gains/(losses)

in thousands of MKD

current year 2009

previous year 2008

Realized foreign exchange gains/(losses), on net-basis 96.332 - Unrealized foreign exchange gains/(losses), on net-basis

foreign exchange gains/losses on value adjustment of financial assets on net-basis (870) -

other foreign exchange gains/losses on net-basis (4.145) 101.194

Net foreign exchange gains/(losses) 91.317 101.194

11 Other operating income

in thousands of MKD

current year 2009

previous year 2008

Profit from sales of assets available for sale - 38.969 Dividend from equity instruments available for sale 11.694 18.937 Net income from investments in subsidiaries and affiliates - - Capital gain from sales of: real estate and equipment 6.008 11.370 intangible assets - - foreclosed assets 87 223 non-current assets held for sale and group for sale - -

income from rent 4.088 11.658 income from won court disputes - - Collected previously written-off claims 47.737 305.254 Release of special reserves and provisions for: off-balance sheet credit exposures 92.040 - contingent liabilities based on court disputes - - pensions and other benefits for employees - - restructuring - - unfavorable agreements - - other provisions - -

Other (list separately income that represents more than 10% of the total remaining operating income)

Income based on fx operations 91.391 157.353 Extraordinary income 70.251

(list separately income that does not represent more than 10% of the total remaining operating income) 45.162 82.856

Total other operating income 368.458 626.620





12 Impairment of financial assets, on net-basis



Investments in financial assets available for sale

Investments in financial assets held to maturity

Cash and cash equivalents

Interest receivables

Other receivables

Total

in thousands of MKD

2009(current year)

Impairment on individual basis

Additional impairment 2,893 2,791,771 4,367 0 11 6,004 114,524 2,919,570

(Release of impairment) -3,964 -2,395,274 -8,213 0 -1,101 -6,096 -112,230 -2,526,878

-1,071 396,497 -3,846 0 -1,090 -92 2,294 392,692

Impairment on group basis

Additional impairment 0 304,401 0 0 0 6 30 304,437

(Release of impairment) 0 -92,265 0 0 0 -4 -5 -92,274

0 212,136 0 0 0 2 25 212,163

Total adjustment of value of financial assets, on net-basis -1,071 608,633 -3,846 0 -1,090 -90 2,319 604,855


Impairment on individual basis

Additional impairment 3,500 722,419 3,203 0 751 410 4,980 735,263

(Release of impairment) -8,879 -171,490 -49 0 -69,127 -2,681 -7,685 -259,911

-5,379 550,929 3,154 0 -68,376 -2,271 -2,705 475,352

Impairment on group basis

Additional impairment 0 0 0 0 0 0 0 0

(Release of impairment) 0 0 0 0 0 0 0 0





13 Impairment loss of non-financial assets, on net-basis

Real estate and

equipment Intangible assets

Foreclosed assets

Non-current assets held for sale and group for sale

Other non-financial assets Goodwill Total

in MKD thousands

2009 (current year) Additional impairment loss - - - - - - - (Release of impairment loss) - - - - - - -

Total impairment loss of non-financial assets, on net-basis - - - - - - -

2008 (previous year) Additional impairment loss - - 12,677 - - - 12,677 (Release of impairment loss) - - - - - - -

Total impairment loss of non-financial assets, on net-basis - - 12,677 - - - 12,677





14 Costs for employees

in MKD thousands

current year

2009 previous year

2008

Short-term benefits for employees

Salaries 630.337 441.576 Compulsory contributions for social and health insurance 214.870 206.667 Short-term paid leaves 1.378 786 Costs for temporary employment - - Share in profit and remuneration 86.347 130.000 Non-monetary benefits 452 9.935

933.384 788.964

Benefits after termination of employment Defined pension benefit plans - - Retirement benefits - -

Increase of liability for defined pension benefit plans - - Increase of liability for other long term benefits - - Other benefits upon termination of employment 593 539

593 539

Benefits due to termination of employment 1.546 1.570 Payments to employees based on shares, settled with equity instruments - - Payments to employees based on shares, settled with monetary assets - - Other 4.840 71.044 (list separately those costs for employees that represent more than 10% of the total costs for employees)

Total costs for employees 940.363 862.117





15 Depreciation

in MKD thousands

current year 2009

previous year 2008

Depreciation of intangible assets Internal developed software - - Software acquired from external suppliers 17.166 14,331 Other internal developed intangible assets - - Other intangible assets 2.854 943 Intangible leasehold improvements - -

20.020 15.274

Depreciation of property and equipment Buildings 41.846 39,376 Means of transport 21.737 19,942 Furniture and equipment 27.553 31.250 Other equipment 79.544 78.498 Other items of property and equipment - - Property and equipment leasehold improvements 5.126 4.679

175.806 173.745

Total depreciation 195.826 189.019





16 Other operating expense

in MKD thousands

current year 2009

previous year 2008

Loss from sale of assets available for sale - - Software licensing expense 6.062 - Deposit insurance premia 241.313 222.214 Premia on property and employee insurance 6.680 22.892 Materials and services 248.841 262.712 Administrative and marketing expense 107.153 108.581 Other taxes and contributions 1.188 5.466 Rental expense 16.657 14.543 Court dispute expense 5.313 3.777 Special reserve for off – balance sheet exposure, on a net basis - 5.785

Provisions for pension and other employee benefits, on a net basis - -

Provisions for contingent liabilities based on court disputes, on a net basis - -

Other provisions, on a net basis restructuring - - unfavorable contracts - - other provisions - - Loss from sale of: Property and equipment 787 - Intangible assets - - foreclosed assets 8.077 18.953 non – current assets held for sale and group for sale - - Other

(list separately the expenses that represent more than 10% of total other operating expense)

expenses under F/X operations 46.356 106.282

(list separately the expenses that do not represent more than 10% of total other operating expense) 21.361 7.648

Other operating expense 709.788 778.853





17 Income tax А Expense/income based on current and deferred tax

in MKD thousands

current

year 2009 previous year 2008

Current income tax Expense/(income) based on current income tax for the year - 172.515 Adjustments for previous years Benefits of previous unrecognized tax losses, tax loans or temporary differences from previous years Changes in accounting policies and errors Other

- 172.515

Deferred income tax

Deferred income tax that arises from temporary differences for the year Recognition of previous unrecognized tax losses Change in tax rate Introduction of new taxes Benefits of previous unrecognized tax losses, tax loans or temporary differences from previous years Other

- -

Total expense/(return) on income tax - 172.515

in MKD thousands

current

year 2009 previous year 2008

Current income tax Recognized in income statement - 172.515 Recognized in capital

- 172.515

Deferred income tax Recognized in income statement Recognized in capital

- -

Total expense/(return) on income tax - 172.515





17 Income tax (continue)

B Reconciliation between average effective tax rate and applicable tax rate

in % In MKD

thousands in % In MKD

thousands

current year 2009 previous year 2008

Profit/ (loss) before taxation 1.074.008 1.550.105

Income tax as per applicable tax rate 89,85% 155.010 Effects from different tax rates in other countries Corrections for previous years and changes in tax rate Taxed income abroad Expense unrecognized for tax purposes 46.855 Tax-exempt income 13,74% 23.699 Tax exemption unrecognized in income statement (3,59%) (6.194) Recognition of previous unrecognized tax losses Benefits of previous unrecognized tax losses, tax loans or temporary differences from previous years (46.855) Changes in deferred tax Other

Total expense/(return) on income tax - 100% 172.515

Average effective tax rate - 11,12%

The tax credit for 2009 is in the amount of MKD 65.447 thousand. According to the Profit tax Law, the

tax credit can be utilized only up to the amount of the unrecognized expenses for tax purposes.





18 Cash and cash equivalents

in thousands of MKD

current year 2009

previous year 2008

Cash on hand 959.242 1.098.663 Accounts and deposits with NBRM, besides mandatory FC deposits 3.169.813 2.179.827 Current accounts and transaction deposits with foreign banks 1.029.770 1.949.571 Current accounts and transaction deposits with local banks 6.091 7.229 T-bills that may be traded in the secondary market 696.573 3.186.501 Government bills that may be traded in the secondary market - 208.599 Time deposits up to 3 months 7.785.679 4.177.206 Other short-term highly liquid assets 9.455 9.135 Claims upon interest 3.870 2.829 (Value adjustment) - (1.089)

Included in cash and cash equivalents for the needs of the Statement on cash flows 13.660.492 12.818.470

Mandatory FC deposits 2.787.967 2.257.392 Restricted deposits 146.551 204.152 (Value adjustment) - -

Total 16.595.011 15.280.014

in thousands of MKD

current year 2009

previous year 2008

Movements in value adjustment As at January 1 1.089 69.652 Value adjustment for the year

Additional value adjustment 11 751 (Release of value adjustment) (1.101) (69.127) Foreign exchange gain/losses Discount effects - -

(written-off receivables) - (188)

As at December 31 - 1.089





19 Trading assets

in thousands of MKD

current year 2009

previous year 2008

Trading securities

Debt securities for trading T-bills for trading - - Government bills for trading - - Other instruments in the money market - - Government bonds 3.091 159.240 Corporate bonds - - Other debt instruments - -

3.091 159.240

Quoted 3.091 159.240 Unquoted - - Equity instruments for trading Equity instruments issued by banks 60 - Other equity instruments 27.440 22.408

27.500 22.408

Quoted 21.140 22.408 Unquoted 6.360 - Trading derivatives Agreements dependant on interest rate change - - Agreements dependant on exchange rate change - - Agreements dependant on changes in price of securities - - Other agreements that meet IAS 39 criteria - -

- - Total trading assets 30.591 181.648

The part of bonds issued by the government in the amount of MKD 3.091 thousand (2008:159.240

thousand) refers to structural government bonds, as well as to continued government bonds. From

the total amount, 55% refers to bonds under old foreign currency savings RM01, that carry an interest

rate of 2% a year and are due in October 2011.

In the financial trading assets, the part of the equity instruments in the amount of MKD 27.500

thousand (2008:22.408 thousand) includes investments in shares in the amount of MKD 6.360

thousand (2008:none) and refers to shares in the opened investment fund KB Publikum-Balansiran.

The rest of that portfolio share refers to securities investments issued by domestic companies.

All the incomes from financial assets for trading are recognized as net trading incomes.





20 Financial assets at fair value via the income statement determined as such at initial recognition

in thousands of MKD

current year 2009

previous year 2008

Debt securities T-bills - - Government bills - - Other instruments in the money market - - Government bonds - - Corporate bonds - - Other debt instruments - -

- -

Quoted - - Unquoted - - Equity instruments Equity instruments issued by banks - - Other equity instruments - -

- -

Quoted - - Unquoted - - Placements with and loans to banks - - Placements with and loans to other clients - -

Total financial assets at fair value via the income statement determined as such as initial recognition - -





21 Derivative assets and liabilities held for risk management

in thousands of MKD


derivative assets

(derivative liabilities)

derivative assets

(derivative liability)

A

Derivatives fr protection against risk/Derivatives held for risk management

А.1 By type of variable Derivatives held for risk management

Agreements dependant on interest rate change - - - -

Agreements dependant on exchange rate change - - - -

Agreements dependant on changes in price of securities - - - -

Other agreements that meet the IAS 39 criteria - - - -

Total derivatives held for risk management - - - -

А.2 By type of protection against risk Protection against risk to fair value - - - - Protection against risk to cash flows - - - -

Protection against risk to net investment in international operations - - - -


B Inherent derivatives

Agreements dependant on interest rate change - - - -

Agreements dependant on exchange rate change - - - -

Agreements dependant on changes in price of securities - - - -

Other agreements that meet the IAS 39 criteria - - - -

Total inherent derivatives - - - -






22.1 Placements with and loans to banks

in thousands of MKD


short-term long-term short-term long-term

Loans to banks Domestic banks 179.920 - 170.027 - Foreign banks - - - -

Time deposits over 3 months Domestic banks - - - - Foreign banks - 1.128.646 61.412 1.133.057 Repo Domestic banks - - - - Foreign banks - - - - Other receivables Domestic banks - - - - Foreign banks 22.838 - 11.526 - Claims upon accrued interest 31 - 8.230 - Current maturity - - - -

Total placements with the loans to banks before value adjustment 202.789 1.128.646 251.195 1.133.057

(Value adjustment) (821) - (1.874) -

Total placements with and loans to banks redused by value adjustment 201.968 1.128.646 249.321 1.133.057

in thousands of MKD

Current year 2009

Previous year 2008

Movements in value adjustment As at January 1 1.874 7.253 Value adjustment for the year Additional value adjustment 2.893 3.500 (Release of value adjustment ) (3.964) (8.879) Foreign exchange gains/losses Discount effects 17 - (Written of receivables) - -

As at December 31 821 1.874





22.2 Placements with and loans to other clients А Structure of placements with and loans to other clients by debtor type

in thousands of MKD



Non-finance companies Receivables upon principal 12.710.707 22.239.452 12.302.036 18.919.980 Interest receivables 221.085 - 174.993 - Goverment Receivables upon principal 146 62.091 82 - Interest receivables 71 - - - Non-profit institutions that serve households Receivables upon principal 7.060 12.078 3.663 - Interest receivables 123 - 8 - Financial companie, besides banks Receivables upon principal 41 1.333 44 2.000 Interest receivables 4 - 4 - households Receivables upon principal Housing loans 75.915 1.257.026 79.693 1.118.366 Customer loans 510.047 3.534.973 339.634 3.769.011 Auto loans 25.434 91.745 24.801 56.917 Mortgage loans - - - - Credit cards 301.664 712.182 227.032 596.931 Other loans 1.373.868 79.493 1.152.705 49.823 Interest receivables 37.991 33.876 Non-residents, except banks Receivables upon principal 50.470 - 51.034 - Interest receivables 3 - 1 - Current maturity 5.700.171 (5.700.171) 4.971.243 (4.971.243)

Total placements with the loans to banks before value adjustment 21.014.800 22.290.202 19.360.849 19.541.785

(Value adjustment) (3.715.055) (738.018) (2.906.407) (946.809)

Total placements with and loans to banks redused by value adjustment 17.299.745 21.552.184 16.454.442 18.594.976





22.2 Placements with and loans to other clients (continue)

in thousands of MKD

Current year

2009 Previous year

2008 Movements in value adjustment As at January 1 3.853.217 3.326.642 Value adjustment for the year Additional value adjustment 2.791.770 722.419 (Release of value adjustment ) (2.395.274) (171.490) Foreign exchange gains/losses Discount effects 916 - (Written of receivables) (9.692) (24.354)

As at December 31 4.240.936 3.853.217

Movements in value adjustment on a group basis As at January 1 - - Value adjustment for the year Additional value adjustment 304.401 - (Release of value adjustment ) (92.265) - Foreign exchange gains/losses Discount effects - - (Written of receivables) - -

As at December 31 212.137 -

Total value adjustment for placements with and loans to other clients 4.453.073 3.853.217

B. Structure of placements with and loans to other clients by security type

in thousands of MKD

Current year

2009 Previous year

2008

(current carrying amount of placements and loans) First-class security instruments Cash deposits (in vault and/or restricted in accounts held with the bank) 712.893 413.527 Government securities 29.062 51.291 Government unconditional guarantees - - Bank guarantees 124.361 33.559 Guarantees from insurance companies and insurance policies - - Corporate guarantees(besides banks and gurantees from insurance companies) 668.178 652.633 Guarantees from individuals - - Mortgage on real estate Property for private use( flats, houses) 3.957.333 3.807.259 Property for performing activity 15.332.047 9.815.598 Pledge over movables 5.436.622 2.570.107 Other types of security 539.664 215.945 Unsecured 12.051.770 17.489.499 Total placements with and loans to other clients redused by value adjustment 38.851.929 35.049.418





23.1 Investments in financial assets available for sale

in thousands of MKD

Current year

2009 Previous year

2008

Debt securities T-bills - - Government bills - - Other instruments in the money market - - Government bonds - - Corporate bonds 306.674 309.142 Other debt securitis - -

306.674 309.142

Quoted - - Unquoted 306.674 309.142 Equity investments Equity investments issued by banks - - Other equity investments 79.784 79.797

79.784 79.797

Quoted - - Unquoted 79.784 79.797

Total investment in financial instruments available for sale before value adjustment 386.458 388.939

(Value adjustment) (4.367) (8.213)

Total investment in financial instruments available for sale redused value adjustment 382.091 380.726

in thousands of MKD

Current year 2009

Previous year 2008

Movements in value adjustment As at January 1 8.213 5.059 Value adjustment for the year Additional value adjustment 4.367 3.203 (Release of value adjustment ) (8.213) (49) Foreign exchange gains/losses Discount effects - - (Written of receivables) - -

As at December 31 4.367 8.213





23.1 Investment in financial assets available for sale (proceeds)

Corporate bonds issued by domestic banks classified as available for sale in amount of MKD 306.674

thousands (2008: 309.142 thousands) are presenting bonds denominated in EUR, with variable

interest rate, 6M EURIBOR + 1.2% annually. These corporate bonds were issued by NLB Tutunska

Banka AD Skopje, with maturity of three years and interest payment every six months.The bonds are

received through Public advertisment from NLB Tutunska Banka AD Skopje –NLB TB1 and are

registered in the Central Securities depositary of the Republic of Macedonia on 17.11.2008.The

corporate bonds issued by domestic banks are measured and noted by the method of fair value, and

as fair value is determined their buying price.This assesment is done with the reason that the fair

value can not be measured objectively for the not existance of the active market. Also, the method for

quoting of the current market price of other instrument, which essentially is the same, can not be

used, as in Republic of Macedonia there are no corporate bonds issued by another issuer.

The incomes from the debt securities available for sale are recognized as income from interest.

In the investments in equity instruments available for sale in amount of MKD 79.784 thousand (2008: 79.797 thousands) belong the investments in securities, with which the Bank is being obtained according to the positive legal provisions, and investments in securities, which the Bank has bought on the primary market based upon basic investment in the capital of the Society. The investment in securities available for sale are expressed at their buying price, as for them there is no active market and no recent transactions, which could be taken as evidence for their current fair value.The market for these securities is inconsistent and not well developed, and the fair value can not be mesured authentically.The rest of the part of the investments in equity instruments available for sale is related to investment in loss making companies, which the Bank has obtained according to the legal provisions, and according to which the Banks claims in the societies were transformed in permanent deposits, shares.The Bank for the part of the portfolio, which relates to the investments in loss making companies has sorted out previous reservation for the total amount of the investment.





23.2 Investments in financial assets held to maturity

in thousands of MKD

Current year

2009 Previous year

2008

Debt securities T-bills - - Government bills - - Other instruments in the money market - - Government bonds 120.784 176.476 Corporate bonds - - Other debt securitis - -

120.784 176.476

Quoted 120.784 176.476 Unquoted - -

Total investment in financial instruments held to maturity before value adjustment 120.784 176.476

(Value adjustment) - -

Total investment in financial instruments held to maturity redused value adjustment 120.784 176.476

in thousands of MKD

Current year 2009

Previous year 2008

Movements in value adjustment As at January 1 - - Value adjustment for the year - - Additional value adjustment - - (Release of value adjustment ) - - Foreign exchange gains/losses Discount effects - - (Written of receivables) - -

As at December 31 - -

Debt instruments with fix interest rate –held to maturity in amount of MKD 120.784 thousand (2008:MKD 176.476 thousand) are structured government bonds , which are received as payment of certain un-functional loans and bear interest rate of 2% p.a. About 90% from the total amount are the bonds for the old foreign exchange savings RM01, with maturity in October 2011. The Bank has intention and is able to keep this securities until their maturity. Incomes from debt securities held to maturity are recognized as interest income.





24 Investment in subsidiaries and affiliates А percentage of Bank’s share in subsidiaries and affiliates во %

Name of subsidiaries and affiliates Country

Percentage of share in ownership Percentage of voting right

Current year 2009

Previous year 2008

Current year 2009

Previous year 2008

KB PRVO PENZISKO DRUSTVO AD SKOPJE R.MACEDONIA 49,00% 49,00% 49,00% 49,00%

KB PUBLICUM INVEST AD SKOPJE R.MACEDONIA 50,00% - 50,00% -

B Financial information on affiliates-100%

Name of affiliates

In thousands of MKD

Total assets Total liabilities Total capital and reserves

Income Profit/(loss) for the financial

year

Current year 2009 KB PRVO PENZISKO DRUSTVO AD SKOPJE KB PUBLICUM INVEST AD SKOPJE

190.282 24.515

34.002 82

156.280 24.433

130.174 1.694

41.482 (6.153)

214.797 34.084 180.713 131.868 35.329

Previous year 2008 KB PRVO PENZISKO DRUSTVO AD SKOPJE

135.823 34.418 101.405 105.387 28.926

135.823 34.418 101.405 105.387 28.926





25 Other receivables

in thousands of MKD

Current year 2009

Previous year 2008

Receivables on buyers

53.108 38.013 Costs paid in advance - - Calculated deferred income - - Receivables upon fees and commissions 13.073 10.101 Receivables on employers - 16 Advances for intangible assets - - Advances for property and equipment 10.894 31.353 Other (state separately the receivables representing more than 10% of the total other receivables) other receivables by other basis in foreign exchange currency 287.681 80.899 Other receceivables (state separately the receivables representing more than 10% of the total other receivables) 106.928 126.132

Total other receivables before value adjustment 471.683 286.513

(Value adjustment) (69.286) (69.334)

Total other receivables reduced by value adjustment 402.397 217.179

in thousands of MKD

Current year 2009

Previous year 2008

Movement of value adjustment As at January 1st 69.334 78.825 Value adjustment for the year Additional value adjustment 120.564 5.390 (release of value adjustment) (118.336) (10.366) Foreign exhchange gains – losses discount effects - - (Written-off receivables) (2.276) (4.515)

As at December 31 69.286 69.334





26 Collateralized assets

in thousands of MKD

Current year 2009

Previous year 2008

Debt securities - - Equity intruments - -

Total collateralized assets - -





27 Foreclosed assets

Land

Buildings

Equipment

Residential buildings and apartments

Other valuables

Total

in thousands of MKD

Purchase value

As at January 1st 2008 (previous year) - 736.325 7.755 63.097 535 807.712

Foreclosed in the course of the year - 36.300 793 18.784 (535) 55.343

(sold in the course of the year) - (65.491) - (24.345) - (89.836)

(transfer into registered assets) - - - - - -

As at December 31 2008 (previous year) - 707.135 8.549 57.535 - 773.219

As at January 1st 2009 (current year) - 707.135 8.549 57.535 - 773.219

Foreclosed in the course of the year 6.039 419.814 12.662 31.477 - 469.992

(sold in the course of the year) - (85.824) (3.060) (9.756) - (98.640)


As at December 31 2009 (current year) 6.039 1.041.125 18.150 79.257 - 1.144.571

Impairment

As at January 1st 2008 (previous year) - 9.223 - - - 9.223

Impairment loss in the course of the year - 12.194 - 484 - 12.677


(sold in the course of the year) - (15.399) - (484) - (15.882)

As at December 31 2008 (previous year) - 6.017 - - - 6.017

As at January 1st 2009 (current year) - 6.017 - - - 6.017

Impairment loss in the course of the year - - - - - -


(sold in the course of the year) - (1.047) - - - (1.047)

As at December 31 2009 (current year) - 4.971 - - - 4.971

Present carrying value

As at January 1st 2008 (previous year) - 727.103 7.755 63.097 535 798.489

As at December 31 2008 (previous year) - 701.117 8.549 57.535 - 767.201

As at December 31 2009 (current year) 6.039 1.036.154 18.150 79.257 - 1.139.601





Legal basis on obtaining ownership of the property – the administrative building Makedonija Tabak become with effective judgement decision on 08.11.2005 година, by which the оbject with total surface 10.074 м2 is granted in ownership to Komercijalna Banka AD Skopje. On 28.12.2005 the Bank had submitted demand to the Agency for the real estate-katastre for obtaining property list, but the katastre still has not implemented the effective judgement decision for writing in the ownership and publishing the property list on the name of the Bank, which is necessary proof for ownership, with aim further more the bank shall make sale of the property. The Bank has started with judicial and administrative processes for obtaining its ownership rights obtained by effective judicial decision. Capital gain from the sale of the foreclosed assets from non paid receivables for year 2009 is 87 thousands MKD (2008: MKD 223 thousands).





28 Intangible assets

A Reconciliation of the present carrying amount

Internally

developed

software

Software

bought from

external

suppliers

Other internally

developed

intangible assets

Other intangible

assets

Investments in

intangible assets

taken under lease

Goodwill*

Total

in thousands of MKD

Purchase value

As at January 1st 2008 (previous year) - 113,823 - 7,163 - - 120,986

Increases by new supplies - 11,454 - 2,785 - - 14,240

Increases by internal development - - - - - - -

Increases by business combinations - - - - - - -

(sale and entering as expenditure) - (80) - (363) - - (443)

(entering as expenditure through business combination) - - - - - - -

(transfer to non-current assets held for sale) - - - - - - -

Transfer from non-current assets held for sale - - - - - - -

As at December 31st 2008 (previous year) - 125,197 - 9,586 - - 134,783

As at January 1st 2009 (current year) - 125,197 - 9,586 - - 134,783

Increases by new supplies - 23,082 - 12,974 - - 36,056

Increases by internal development - - - - - - -

Increases by business combinations - - - - - - -

(sale and entering as expenditure) - - - (363) - - (363)

(entering as expenditure through business combinations) - - - - - - -

(transfer to non-current assets held for sale) - - - - - - -

Ransfer from non-current assets held for sale) - - - - - - -

As at December 31 2009 (current year) - 148,279 - 22,197 - - 170,475





28 Intagible assets (continue)


In thousands of MKD

Internally

developed

software

Software

bought from

external

suppliers

Other internally

developed

intangible

assets

Other intangible

assets

Investments in

intangible assets

taken under lease

Goodwill*

Total

Depreciation and impairment


Depreciation for the year - 14,331 - 943 - - 15,274

Impairment loss in the course of the year - - - - - - -

(release of impairment loss in the course of the year) - - - - - - -

(sale and entering as expenditure) - (72) - - - - (72)

As at December 31 2008 (previous year) - 89,944 3,648 - - 93,592

As at January 1 2009 (current year) - 89,944 - 3,648 - - 93,592

Depreciation for the year - 17,166 - 2,854 - - 20,020

Impairment loss in the course of the year - 17,166 - 2,854 - - 20,020

(release of impairment loss in the course of the year) - - - - - - -

(sale and entering as expenditure) - - - - - - -




As at December 31 2008 (previous year) - 35,253 - 5,937 - - 41,191






28 Intagible assets (continue) B Carrying amount of the intagible assets over which there is limited ownership and –or over which pledge was established as security for the

bank’s liabilities

in MKD thousands

Internally

developed

software

Software

bought from

external

suppliers

Other internally

developed

intangible assets

Other

intangible

assets

Investments in

intangible assets

taken under lease

Total

Present carrying value as at:

As at December 31 2008 (previous year) - - - - - -

As at December 31 2009 (current year) - - - - - -





29 Property and equipment


Land

Buildings

Transport

vehicles

Furniture and

office

equipment

Other

equipment

Other items of

property and

equipment

Property and

equipment in

progress

Investments in

property and

equipment taken

under lease

Total

In thousands of MKD

Purchase value

As at January 1 2008 (previous year) - 1,525,218 81,220 281,967 564,476 8,594 22,301 26,152 2,509,928

increases 59 26,840 30,520 16,353 79,534 62 317,832 1,743 472,942

Increases by business combinations - - - - - - - - -

(sale and entering as expenditure) - (56,053) (3,637) (10,017) (48,091) (15) - (551) (118,363)

(entering as expenditure through business combinations) - - - - - - - - -

(transfer to non-current assets held for sale) - - - - - - - - -

(transfer from non-current assets held for sale) - - - - - - - - -

Other assets - - - - - - (169,229) (169,229)

As at December 31 2008 (previous year) 59 1,496,006 108,103 288,303 595,919 8,641 170,903 27,344 2,695,278

As at January 1 2009 (current year) 59 1,496,006 108,103 288,303 595,919 8,641 170,903 27,344 2,695,278

Increases - 167,585 8,113 23,758 66,504 - 285,601 4,509 556,070

increases by business combinations - - - - - - - - -

(sale and entering as expenditure) - (14,622) (6,838) (11,308) (36,917) - - (211) (69,896)

(entering as expenditure through business combinations) - - - - - - - - -



Other assets - - - - - - (276,961) - (276,961)

As at December 31 2009 (current year) 59 1,648,969 109,378 300,753 625,506 8,641 179,543 31,642 2,904,491





29 Property and equipment (continue)

29 Property and equipment (continue) А Reconciliation of the present carrying amount

in MKD thousands

Land

Buildings

Transport

vehicles

Furniture and

office

equipment

Other

equipment

Other items of

property and

equipment

Property and

equipment in

progress

Investments in

property and

equipment taken

under lease

Total

Depreciation and impairment

As at January 1 2008 (previous year) - 371,981 39,037 202,656 375,160 - - 10,826 999,660

Depreciation for the year - 39,376 19,942 31,229 78,519 - - 4,679 173,744

Impairment loss in the course of the year - - - - - - - - -

(release of impairment loss in the course of the year) - - - - - - - - -



transfer from non-current assets held for sale - - - - - - - - -

Other transfers - - - - - - - - -

As at December 31 2008 (previous year) - 398,611 55,342 224,195 407,821 - - 14,954 1,100,922

As at January 1 2009 (current year) - 398,611 55,342 224,195 407,821 - - 14,954 1,100,922

Depreciation for the year - 41,846 21,737 27,553 79,544 - - 5,126 175,806

Impairment loss in the course of the year - - - - - - - - -

(release of impairment loss in the course of the year) - - - - - - - - -



Transfer from non-current assets held for sale - - - - - - - - -

Other transfers - - - - - - - - -

As at December 31 декември 2009 (current year) - 435,886 74,599 241,076 451,620 - - 20,020 1,223,201


As at January 1 2008 (previous year) 0 1,153,237 42,183 79,311 189,316 8,594 22,301 15,326 1,510,268

As at December 31 2008 (previous year) 59 1,097,395 52,761 64,108 188,098 8,641 170,903 12,390 1,594,355

As at December 31 2009 (current year) 59 1,213,083 34,779 59,677 173,886 8,641 179,543 11,622 1,681,290





B Carrying amount of the property and equipment over which there is limited ownership and –or which collateral was established as security for the bank’s liabilities

Land

Buildings

Transport

vehicles

Furniture

and office

equipment

Other

equipment

Other items

of property

and

equipment

Property and

equipment in

progress

Investments

in property

and

equipment

taken under

lease

Total

in thousands of MKD

Present carrying value as at:

As at December 31 2008 (previous year) - - - - - - - - -

As at December 31 2009 (current year) - - - - - - - - -

The amount for overtaken liabilities for purchase of property and equipment for 2009 is MKD 6.863 thousands (2008:MKD 261thousands denars). Capital income from the purchase of equipment and property during 2009 is MKD 6.008 thousands (2008: MKD 11.370 thousands).





30 Current and deffered tax assets and liabilities 30.1 Current tax assets and current tax liabilities

in thousands of MKD


Income tax receivables (current) 32,226 -

Income tax liabilities (current) 1,975 59,068

30.2 Deferred tax assets and deferred tax liabilities

A Recognized deferred tax assets and deferred tax liabilities


Deferred

tax

assets

(Deferred

tax

liabilities)

on net

basis

Deferred

tax assets

(Deferred

tax

liabilities)

on net

basis

In thousands of MKD

Derivative assets held for risk management placements with and loans to banks Placements with and loans to other clients


Intangible assets

Property and equipment

Other receivables

Derivative liabilities held for risk management

Other liabilities Unutilized tax losses and unutilized tax loans

Other

Deferred tax assets/liabilities recognized in the income statement - - - - - -


Protection against cash flow risk

Deferred tax assets liabilities recognized in the capital - - - - - -

Total recognized tax assets/liabilities - - - - - -





30 Deferred tax assets and deferred tax liabilities (continue)

B Unrecognized deferred tax assets

In MKD thousands


Tax losses - -

Tax loans - -

Total unrecognized deferred tax assets - -





C Reconciliation of movements deferred tax assets and deferred tax liabilities in the course of the year

Recognized in the course

of the year in:

in thousands of MKD

As at January 1

income

statement

capital

As at

December 31

Previous year 2008

Derivative assets held for risk maangement




Intаngible assets


Other receivables

Derivative liabilites held for risk management

Other liabilities

Unutilized tax losses and utilized tax loans

Other



Total recognized deferred tax assets-liabilities - - - -

Current year 2009

Derivative assets held for risk management


Placements weith and loans to other clients

Investment in securities

Intangible assets


Other receivables

Derivative liabilities held for risk management

Other liabilities

Unutilized tax losses and unutilized tax loans

Other



Total recognized deferred tax assets/liabilities - - - -





31 Non-current assets held for sale and group for sale

А Non current assets held for sale

In thousands of MKD

currrent year 2009 previous year 2008

Intangible assets - -

Property and equipment - -

Total non current assets held for sale - -

B Group for sale

In thousands of MKD


Group of assets for sale

Financial assets - -

Intangible assets - -

Property and equipment - -

Investments in аffiliates - -

Income tax receivables - -

Other assets - -

Total group of assets for sale - -

Liabilities directly related to the gtroup of assets for sale

Financial liabilities - -

Special reserve - -

Income tax liabilities - -

Other liabilities - -

Total liabilities directly related to the group of assets for sale - -

C Profit/(loss) recognized from sale of assets held for sale and group for sale

In thousands of MKD


Profit /(loss) recognized from sale of assets held for sale and group for sale - -





32 Trading liabilities

in thousands of MKD


Deposits from banks

Current accounts, sight deposits and overnight deposits - -

Time deposits - -

Other deposits - -

- -

Deposits from other clients

Current accounts, sight deposits and overnight deposits - -

Time deposits - -

Other deposits - -

- -


Money market instruments - -

Deposit certificates - -

Issued bonds - -

Other - -

- -

Other financial liabilities - -

Trading derivatives

Agreements depending on interest rate change - -

Agreements depending on exchange rate change - -

Agreements depending on the securities price change - -

Other agreements that fulfill the IAS 39 criteria - -

- -

Total trading liabilities - -





33 Financial liabilities at fair value through the profit and loss determined as such at initial recognition

in thousands of MKD


present

carrying value

agreed value, payable at maturity

present carrying value

agreed value, payable at maturity

Deposits from banks Current accounts, sight

deposits and overnight deposits - - - -

Time deposits - - - -

Other deposits - - - -

- - - -

Deposits from other clients Current accounts, sight

deposits and overnight deposits - - - -

Time deposits - - - -


- - - -


Money market instruments - - - -

Deposit certificates - - - -

Issued bonds - - - -

Other - - - -

- - - -

Subordinated debt - - - -

Other financial liabilities - - - -

Total financial liabilities at fair value through the profit and loss determined as such at initial recognition - - - -





34 Deposits

34.1 Deposits from banks

in MKD thousands



Current accounts

domestic banks 8,621 - 15,076 -

foreign banks 148,163 - 166,177 -

Demand deposits

domestic banks - - - -

foreign banks - - - -

Time deposits

domestic banks - 305,866 9,826 307,062


Restricted deposits

domestic banks - - 297,139 -


Other deposits

domestic banks - - - -


Deposit interest liabilities

domestic banks 449 - 1,766 -


Current maturity - - - -

Total deposits from banks 157,234 305,866 489,984 307,062





34 Deposits (continue)

34.2 Other deposits in MKD thousands



Non-financial companies

Current accounts 8,422,238 - 8,660,576 -

Demand deposits 2,904 - 11,769 -

Time deposits 1,957,572 258 1,740,073 -

Restricted deposits 395,130 394,095 143,111 132,619


Deposit interest liabilities 25,839 - 14,230 -

10,803,683 394,353 10,569,760 132,619

Government

Current accounts 209,814 - 388,394 -

Demand deposits 695 - 349 -

Time deposits 134,606 - - -

Restricted deposits 138 - - -


Deposit interest liabilities 1,169 - 270 -

346,421 - 389,013 -

Non-profit institutions in service of households


Demand deposits 905 - 95 -

Time deposits 275,792 2,665 173,983 2,665

Restricted deposits 2,250 1,215 451 103



801,610 3,880 868,982 2,768

Financial companies,other than banks

Current accounts 326,909 0 284,206 -

Demand deposits 19 0 3 -

Time deposits 866,267 143,967 317,602 160,998

Restricted deposits 539 - - 66



1,204,393 143,967 605,113 161,064

Households

Current accounts 4,369,707 - 4,058,203 -

Demand deposits 6,980,311 - 7,943,108 -

Time deposits 23,218,347 849,297 19,330,965 575,617

Restricted deposits 370,850 496,997 399,861 466,669



35,238,719 1,346,294 31,948,273 1,042,286

Non-residents, other than banks


Demand deposits 5,926 - 6,438 -

Time deposits 172,764 2,128 90,038 -

Restricted deposits 53,793 1,266 - 9,247


Deposit interest liabilities 1,546 - - -

753,714 3,394 684,478 9,247

Current maturity 252,036 (252,036) 270,100 (270,100)

Total other deposits 49,400,576 1,639,852 45,335,720 1,077,884




The notes on pages 5 to 119 are an integral part of these financial statements

100

Restricted deposits are deposits that the Bank in behalf of its clients makes payments abroad, opens letters of credit, acquires foreign currency assets for payment, and part of it serve as a collateral under loans and guaranties issued that the Bank has approved to certain companies, deposits as collateral under consumption loans and retail loans and earlier received payments under consumption and housing loans.

35 Issued debt securities

in MKD thousands

current year 2009

previous year 2008

Money market instruments - -

Deposit certificates - -

Issued bonds - -

Other - -

Interest liabilities under issued securities - -

Total issued debt securities - -





101

36. Borrowings

А Borrowings structure according to liability type and creditor's sector

in MKD thousands



Banks

Residents

Borrowings 82,584 946,487 - 704,303

Repo-transactions - - - -

Interest liabilities 5,365 - 4,958 -

Non-residents

Borrowings - - - -


Interest liabilities - - - -


Borrowings - - - -



Government

Borrowings 16,045 535,995 36,335 237,037


Interest liabilities 758 - 1,643 - Non-profit institutions in service of households

Borrowings - - - -



Borrowings - - - -



Non-residents, other than banks


Borrowings - - - -



Government

Borrowings - - - -



Non-profit institutions in service of households

Borrowings - - - -




Borrowings - - - -



Households

Borrowings - - - -


Current matirity 273,913 (273,913) 204,566 (204,566)

Total borrowings 378,665 1,208,568 247,502 736,774





102

36 Borrowings (continue)

B Borrowings according to the creditor

in MKD thousands



domestic sources:

MBPR 64,247 302,596 2,597 259,556

MBPR- CEB 147 33,596 582 42,160

MBPR-IKL 23,400 190,375 1,089 130,531

MBPR-KFW - - 12 960

MBPR-NEPA - 17,689 - 22,412

MF-EIB 282 62,908 1,374 92,495

MF-FSR 161 107,244 493 122,991

Ministry of finance 16,360 249,873 36,604 144,541

NBRM – Primary issue - 8,809 173 124,779

NBRM-ICDF 2 538 12 914

MBPR-EIB 153 392,885

Account managing agency - 115,970

104,752 1,482,481 42,936 941,339

foreign sources:

- - - -

Current maturity 273,913 (273,913) 204,566 (204,566)

Total borrowings 378,665 1,208,568 247,502 736,774

37 Subordinated liabilities

in MKD thousands


Subordinated deposits liabilities

Interest liabilities - -

Subordinated loans liabilities


Subordinated issued debt securities liabilities


Redeemable non-voting shares - -

Total subordinated liabilities - -





38 Special reserves and provisions

Special reserves for off-balance sheet credit

exposures

Provisions for contingent

liabilities based on court disputes

Provisions for pensions and other employee benefits

Provisions for restructuring

Provisions for unfavourable agreements

Other provisions

Total

in thousands of MKD

As at 1 January 2008(previous year) 255,788 0 0 0 0 0 255,788 additional provisions during the year 99,247 0 0 0 0 0 99,247 (utilized provisions during the year) 0 0 0 0 0 0 0 (provisions recovery during the year) (93,462) 0 0 0 0 0 (93,462) Exchange rate effect 0 0 0 0 0 0 0

As at 31 December2008 (previous year) 261,573 0 0 0 0 0 261,573

As at 1 January 2009(current year) 261,573 0 0 0 0 0 261,573 additional provisions during the year 290,942 0 0 0 0 0 290,942 (utilized provisions during the year) 0 0 0 0 0 0 0 (provisions recovery during the year) (382,982) 0 0 0 0 0 (382,982) Exchange rate effect (63) 0 0 0 0 0 (63)

As at 31 December2009 (current year) 169,469 0 0 0 0 0 169,469

Active off-balance positions exposed to credit risk, for which are determined special reserve, are classified into different risk categories respectively of the

estimated risk of potential losses. As at 31.12.2009 ,98.7% of the total active off-balance positions are classified in risk category A, while other categories

participate for less than 1% of the total off-balance exposure, risk category B participate with 0.8%, risk category C with 0.1% ,risk category D with 0.1% and risk

category E with 0.3%.

In the total special reserve determined on 31.12.2009 in the amount of 169.469 thousand MKD, which is referred to all active off-balance sheet positions exposed to credit risk, the special reserve for not covered approved performance guarantees is 6.8%, for approved not covered payment guarantees is 1.3%, not covered L/C less than 0.1%, special reserve for unused non callable frame loans, credit cards, and other contingent exposure with maturity up to 1 year is 36,2% and special reserve for unused non callable frame loans, credit cards, and other contingent exposure with maturity over 1 year is 55,7%.





104

39 Other liabilities

in MKD thousands


Suppliers payable 14,373 18,866

Advance payments received 15,743 17,359

Fee and commission liabilities 4,726 3,832

Calculated expenses 19,530 10,808

Distincted incomes from previous year - -

Short-term liabilities to employees 67,045 130,000

Short-term liabilities to employees’ benefits 19,667 -

Other

(liabilities more than 10% of the total other liabilities)

Other liabilities under other basis 244,171 54,961

Other liabilities

(liabilities less than 10% of the total other liabilities) 108,405 105,393

Total other liabilities 493,660 341,219





40 Subscribed capital

А Subscribed capital

in MKD number of issued shares in MKD thousands

nominal value ordinary shares non-redeemable non-

voting shares total subscribed capital

ordinary shares

non-redeemable non-voting shares

current year 2009

previous year 2008

current year 2009

previous year 2008

current year 2009

previous year 2008

As at 1 January-fully paid 1,000 1,000 1,997,135 1,992,590 16,932 21,477 2,014,067 2,014,067

Subscribed shares during the year

Realization of share options

Division/accumulation of share nominal value

Other changes during the year

Conversion of non-voting shares in ordinary shares 1,069 4,545 (1,069) (4,545)

As at 31 December – fully paid 1,000 1,000 1,998,204 1,997,135 15,863 16,932 2,014,067 2,014,067





106

B Dividends

B.1 Announced dividends and paid dividends by the Bank

in MKD thousands

current year 2009

previous year 2008

Announced dividends and paid dividends for the year - -

in MKD

current year 2009

previous year 2008

Dividend per ordinary share - -

Dividend per non-voting share - -

B.2 Announced dividends after the Balance sheet date( liabilities under dividends are not presented in the Balance sheet)

in MKD thousands

current year

2009 previous year

2008

Announced dividends after 31 december 341,503 381,170

in MKD

current year 2009

previous year 2008

Dividend per ordinary share 170.00 190.00

Dividend per non-voting share 114.00 99.50

C Shareholders whose stake exceeds 5% of the voting shares

in MKD thousands in %

current year 2009

previous year 2008

current year 2009

previous year 2008

Name of shareholder Subscribed capital (nominal

value)

Subscribed capital (nominal

value) voting right voting right

EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT 119,540 119,540 5.98% 5.99%

Total 119,540 119,540 5.98% 5.99%





107

41 Earnings per share А Basic earnings per share

in MKD thousands

current year 2009

previous year 2008

Net gain entitled to the holders of the ordinary shares

Net gain for the year 1,074,008 1,377,590

(Dividend for non-redeemable non-voting shares) (1,808) (1,653)

Correction of net gain entitled to the holders of the ordinary shares - -

Value of emitted shares - -

Value of withdrawn shares - -

Value of dividend paid in shares - -

Net gain entitled to the holders of the ordinary shares 1,072,200 1,375,937

number of shares

Weighted average number of ordinary shares

current year 2009

previous year 2008

Ordinary shares issued on 1 January 1,997,135 1,992,590

Effects from changes in the number of ordinary shares during the year - - Effect from conversion of non-redeemable non-voting shares into ordinary shares 584 2,961

Effect from sale of own shares on the market - -

Weighted average number of ordinary shares on 31 December 1,997,719 1,995,551

Basic earnings per share (in MKD) 537 689

B Diluted earnings per share

in MKD thousands

current year 2009

previous year 2008

Net gain entitled to the holders of the ordinary shares (diluted)

Net gain for the year entitled to the holders of the ordinary shares (diluted) 1,074,008 1,377,590

Correction of net gain entitled to the holders of the ordinary shares - -

Dividend from non-voting shares converted into ordinary shares - -

Incomes from realized options - -

Value of redeemable own shares - -

Net gain entitled to the holders of the ordinary shares (diluted) 1,074,008 1,377,590

number of shares

Weighted average number of the ordinary shares (diluted)

current year 2009

previous year 2008

Ordinary shares issued on 1 January 1,997,719 1,995,551

Effect from issue of potential ordinary shares 15,863 16,932

Weighted average number of the ordinary shares (diluted) on 31 December 2,013,582 2,012,483

Diluted earnings per share (in MKD) 533 685





108

42 Contingent liabilities and contingent assets 42.1 Contingent liabilities

in thousands of MKD

current year 2009

previous year 2008

Unsecured payment guarantees

in MKD 809,790 602,110

in foreign currency 2,221,363 2,928,493

in MKD with foreign currency clause 103,970 84,851

Unsecured performance guarantees

in MKD 3,917,317 3,514,245

in foreign currency 896,354 840,683

in MKD with foreign currency clause 180,645 240,648

Unsecured letters of credit

in MKD - -

in foreign currency 1,466,032 853,354

in MKD with foreign currency clause - -

Unutilized overdrafts under current accounts 2,177,806 2,262,602

Taken liabilities under credit cards 898,564 828,955

Taken liabilities for financing 192,925 652,835

Other unsecured contingent liabilities (secured and unsecured) - -

Issued secured guarrantees 225,002 178,087

Secured letters of credit 48,964 100,800

Other secured contingent liabilities - -

Total contingent liabilities before special reserve 13,138,731 13,087,662

(Special reserve) (169,469) (261,573)

Total contingent liabilities reduced by special reserve 12,969,262 12,826,089

42.2 Contingent assets

in thousands of MKD

current year 2009

current year 2009

State separately the more significant contingent assets:

Total contingent assets - -





109

43 Operations on behalf and for account of third parties/commission operations

in thousands of MKD


assets liabilities net

position assets liabilities net

position

Administration of assets on behalf and for account of third parties

MKD deposits 55,000 55,000 - 55,000 55,000 - Foreign currency deposits - - - - - - MKD loans 4,584 2,217 2,367 5,034 2,683 2,351 Foreign currency loans - - - - - - Other MKD claims - - - - - - Other foreign currency claims - - - - - -

Asset management on behalf and for account of third parties

MKD deposits - - - - - - Foreign currency deposits - - - - - - MKD loans - - - - - - Foreign currency loans - - - - - - Other MKD claims - - - - - - Other foreign currency claims - - - - - -

Custody accounts 41,217 54,213 (12,996) 141,032 165,545 (24,513) Other - 1,655 (1,655) - 1,698 (1,698)

Total 100,801 113,085 (12,284) 201,066 224,926 (23,860)





110

44 Related party transactions

A Balance sheet

Parent company Subsidiaries Affiliates

Management

personnel of the bank

Other related

parties Total in thousands of MKD

As at 31 December 2009(current year)

Assets

Current accounts - - - 1,067 - 1,067

Trading assets - - - - - -

Loans and claims

mortgage loans - - - 36,281 - 36,281

consumer loans - - - 38,807 - 38,807

claims under financial leasing - - - - - -

claims under factoring and forfeiting - - - - - -

other loans and claims - - 24,386 87,034 10 111,429

Investment in securities - - 88,800 - 32,319 121,119

Impairment - - (3) (2,800) (1) (2,804)

Other assets - - - - - -

Total - - 113,183 160,388 32,328 305,899

Liabilities

Trading liabilities - - - - - -

Deposits - - 23,911 224,110 16,430 264,451

Issued securities - - - - - -

Liabilities under loans - - - - - -

Subordinated debt - - - - - -

Other liabilities - - - 2,200 - 2,200

Total - - 23,911 226,310 16,430 266,651

Contingent liabilities

Issued guarantees - - - 8,471 - 8,471

Issued letters of credit - - - 10,288 - 10,288

Other contingent liabilities - - 274 12,319 898 13,492

(Special reserve) - - (27) (670) (90) (787)

Total - - 247 30,409 809 31,465

Contingent assets

Received guarantees - - - - - -

Other contingent assets - - - - - -

Total - - - - - -





111

Parent company Subsidiaries Affiliates

Management

personnel of the

bank

Other

related

parties Total in thousands of MKD

As at 31 December 2008(previous year)

Assets

Current accounts - - - 1,603 - 1,603

Trading assets - - - - - -

Loans and claims

mortgage loans - - - 37,563 - 37,563

consumer loans - - - 52,367 - 52,367

claims under financial leasing - - - - - -

claims under factoring and forfeiting - - - - - -

other loans and claims - - 17 59,662 235 59,915

Investment in securities - - 49,776 - 58,660 108,436

Impairment - - - (1,262) - (1,262)

Other assets - - - - - -

Total - - 49,793 149,934 58,895 258,622

Liabilities

Trading liabilities - - - - - -

Deposits - - 7,629 170,365 303,423 481,417

Issued securities - - - - - -

Liabilities under loans - - - - - -

Subordinated debt - - - - - -

Other liabilities - - - 2,632 - 2,632

Total - - 7,629 172,997 303,423 484,049

Contingent liabilities

Issued guarantees - - - 13,389 - 13,389

Issued letters of credit - - - 7,342 - 7,342

Other contingent liabilities - - 288 14,193 284 14,765

(Special reserve) - - (3) (349) (3) (355)

Total - - 285 34,575 281 35,141

Contingent assets

Received guarantees - - - - - -

Other contingent assets - - - - - -

Total - - - - - -





112

B Income and expenditures arising from related party transactions

in thousands of MKD

Parent company Subsidiaries Affiliates Management personnel of the

bank

Other related parties

Total

As at 31 December 2009(current year)

Income

Interest income - - - 12,750 - 12,750

Income from fees and commissions - - 578 8,102 92 8,772

Net gains from trading - - - - - -

Dividend income - - - - 11,690 11,690

Capital gains from sale of non-current assets - - - - - -

Other income - - 20,327 - - 20,327

Transfer between entities - - - - - -

Total

- - 20,905 20,852 11,782 53,539

Expenditures

Interest expenditures - - 115 4,053 152 4,320

Expenditures for fees and commissions - - - - - -

Net losses from trading - - - - - -

Expenditures for procurement of non-current assets - - - - - -

Impairment of financial assets, on net basis - - 27 1,859 88 1,974

Other expenditures - - 3,076 - - 3,076

Transfers between entities - - - - - -

Total

- - 3,218 5,912 240 9,370





113

in thousands of MKD Parent

company Subsidiaries Affiliates

Management personnel of the

bank

Other related parties Total

2008(previous year)

Income

Interest income - - - 10,349 - 10,349

Income from fees and commissions - - 131 3,402 1,748 5,281

Net gains from trading - - - - - -

Dividend income - - - - 8,390 8,390

Capital gains from sale of non-current assets - - - - - -

Other income - - 14,174 3 - 14,177

Transfer between entities - - - - - -

Total

- - 14,305 13,754 10,138 38,197

Expenditures -

Interest expenditures - - 421 3,408 7,413 11,242

Expenditures for fees and commissions - - - - - -

Net losses from trading - - - - - -

Expenditures for procurement of non-current assets - - - - - -

Impairment of financial assets, on net basis - - (593) (3,381) (587) (4,561)

Other expenditures - - - - - -

Transfers between entities - - - - - -

Total

- - (172) 27 6,826 6,681





114

C Remuneration for the management personnel of the bank

in thousands of MKD

current year

2009

previous year

2008

Short-term benefits for employees 165,201 137,038

Benefits after employment termination 0 0

Benefits due to employment termination 0 62

Payments to employees on the basis of shares,

settled by equity instruments 0 0

Payments to employees on the basis of shares,

settled by monetary funds 0 0

Other 1,512 1,363

Total 166,713 138,464





115

45 Lease

A Lessor

А.1 Claims under financial leasehold

Total claims under financial leasehold

Maturity period of claims under financial leasehold

In MKD thousands up to 1 year

from 1 to 5 years

over 5 years

As at 31 December 2009 (current year) Current value of minimum payment for the leasehold

Total - - - -

As at 31 December 2008 (previous year)

Current value of minimum payment for the leasehold

Total - - - -

А.2 Claims on irrevocable operating leasehold

Total claims under operating leasehold

Maturity period of claims under operating leasehold


from 1 to 5 years

over 5 years

As at 31 December 2009 (current year) Current value of minimum payment for the leasehold

Total - - - -

As at 31 December 2008 (previous year) Current value of minimum payment for the leasehold

Total - - - -





116

In MKD thousands Land Buildings Means of

transportation

Furniture and office equipmen

t

Other equipment

Other items of property

and equipment

Total

Value of property given under operating leasehold:

As at 31 December 2009 (current year)


Total - - - - - - -

45 Lease B. Lessor B.1 Liabilities under financial lease

total

liabilities under financial lease

Maturity period of liabilities under financial lease


from 1 to 5 year over 5 year


Total - - - -


Total - - - -





117

In MKD thousands Land Buildings Means of

transportation Furniture and

office equipment Other

equipment

Other items of property and equipment

Total

Value of the property taken

under financial leasehold:

Cost value

As at 1 January 2008 (previous

year)

increase

(disposal and write- off)

other


(previous year) - - - - - - -

As at 1 January 2009 (current

year)

increase


other


(current year) - - - - - - -

Accumulated depreciation and

impairment

As at 1 January 2008 (previous

year)

Depreciation for the year

impairment loss during the

year

(release of impairment loss

during the year)


оther



As at 1 January 2009(current

year)

depreciation for the year

impairment loss during the year

(release of impairment loss

during the year)


оther


(current year) - - - - - - -

Current carrying amount

As at 1 January 2008


As at 31 December

2008(previous year) - - - - - - -

As at 31 December

2009(current year) - - - - - - -





118

45 Lease B.2 Liabilities under irrevocable operating lease

total liabilities under

operating lease

Maturity period of liabilities under operating lease

up to 1 year

from 1 to 5 years

over 5 years


Total - - - -


Total - - - -

46 Share based payments

in MKD thousands


Date of giving the option Date of option expiry Price of option realization Price of the share on the date of giving the option Variance Expected dividend yield Interest rate Fair value on the date of giving the option - - - -





119


number of

options for share

Weighted average prices of options for share

number of

options for share

Weighted average prices of options for share

As at 1 January - - - - Changes during the year: options given to the members of Supervisory Board options given to the members of Board of Directors other given options forfeited options

realized options

options with expired deadline

As at 31 December - - - -

�

ATTACHMENT 4:

UNAUDITED FINANCIAL STATEMENTS AS AT 30.06.2010

Company KOMERCIJALNA BANKA AD SKOPJE

1

2

3

4

5

678

9

1011

1213

13a13�

13�

14

14a14�14�14�1516171819202122

Fee and commission expense

Fee and commission income 407,677 214,204

Net interest income

Reporting period 01.01.2010 - 30.06.2010

Interest expense and similar charges846,653

Net profit/loss under financial assets and liabilities at fair value

Foreign exchange gains (net) 37,025 8,639

Dividend income

Net fee and commission income342,513 176,141

Administrative expenses

Impairment losses of assets under credits and investments 364,382 96,577

Other operating income

Net profit/loss under financial assets and liabilities (available-for-sale and held-to-maturity)

0 0

Other operating expenses

Other administrative expenses189,299 95,576

Depreciation

Employees expenses 457,948 263,323

Other Operating leasing 0 0

Software costs

Loss from sale of property and equipment 2,825 817

Income taxNet profit/loss before taxationProfit/loss from associateOperating profit/loss 336,352 209,001

Minority interestCompany's ownersDistributed to:Net profit/loss for the financial year

Corporate number 4065573

INCOME STATEMENT

No. Position

Previous year Current year Index

cumulatively as from the beginning of the year current quarter

cumulatively as from the beginning

of the year current quartercompared to previous year

compared to previous quarter

Interest and similar income1,896,234 964,732 1,988,454 978,563 104.9% 101.4%

100.5%

1,049,581 533,521 1,113,125 545,118 106.1%

65,164 38,063 69,157 40,558 106.1%

431,211 875,329 433,445 103.4%

10,681 6,121 2,917 1,909 27.3%

102.2%

447,430 237,053 109.8% 110.7%

0 0 0 0

106.6%

378,273 196,495 110.4% 111.6%

190,861 79,450 97,107 57,165 50.9%

31.2%

95,548 72,305 258.1% 837.0%

735,552 403,124 696,259 366,546 94.7%

0 0

88,305 44,225 89,405 44,915 101.2%

72.0%

286,547 42,794 78.6% 44.3%

194,375 95,170 208,438 119,675 107.2%

90.9%

414,884 215,730 90.6% 81.9%

7,918 4,026 9,277 5,072 117.2%

101.6%

191,970 105,901 101.4% 110.8%

183,632 90,327 197,990 113,432 107.8%

125.7%

1,171 1,171 41.5% 143.3%126.0%

0 0

125.6%

495,726 343,977 147.4% 164.6%

Note to the Income Statement of Komercijalna Banka AD Skopje as at 30.06.2010

In the course of the first half of 2010, and in conditions of decreased liquidity characteristic for the whole economy in the Republic of Macedonia, still present indiscipline and unstable market conditions, Komercijalna Banka AD Skopje realized positive financial results from its operation in the amount of MKD 495.7 million. This result is 47.4% higher than the result realized during the same period last year, thus achieving 90.1% realization of the plan for the first half of 2010. On the assets side, the effects from the FX differences have the largest impact on the financial results realized, while on the liabilities side, the decrease of the administrative expenses and the expenses related to the quality of the credit portfolio, which is mainly due to the efficient collection of the loans approved. The realized net interest income showed increase of 6.1%, compared to the same period last year, with 100.8% realization of the Plan for the first six months. The achieved net positive effect from FX differences in the amount of MKD 95.548 thousand is more than twice higher than the one achieved in the same period last year, with 210% realization of the Plan for the first half of the year. In the period 01.01.-30.06.2010, the net income from fees and commissions reached the amount of MKD 378.273 thousand, which compared to the same period last year means an increase for 10.4% and realization of the Plan by 96.4%. On the liabilities side, administrative expenses showed decrease of 5.3%, while the impairment loss with the approved loans and investments in the amount of MKD 286.547 thousand showed decrease of 21.4%, compared to the same period last year. In the course of the reported period, the Bank showed normal and smooth realization of its activities, regular execution of its liabilities and no delay in realization of the services towards its clients, which shall continue in the future.

Reporting period 30.06.2010 Corporate number


All amounts in MKD thousands

4065573

BALANCE SHEET

ASSETS

Position Previous year Current year Index

Treasury bills

696,573 1,495,892 214.8%

Cash and balances with NBRM15,898,438 18,610,238 117.1%

Loans and advances to customers38,851,929 39,466,943 101.6%

Loans and advances to banks1,330,614 1,236,324 92.9%

Derivative financial instruments 0 0

Financial trading assets30,591 22,657 74.1%

Investments in instruments502,875 478,021 95.1%

Financial instruments at fair value0 0

Instruments-held-to maturity120,784 92,685 76.7%

Available-for-sale

382,091 385,336 100.8%

Investments in associates

88,799 88,799 100.0%

Pledged assets 0 0

Property and equipment1,640,253 1,683,703 102.6%

Investment property41,037 40,487 98.7%

Accrued interest and other assets 1,574,224 1,798,065 114.2%

Intangible assets56,864 66,913 117.7%

Total assets 60,712,197 64,988,042 107.0%

Deffered tax assets0 0

LIABILITIES AND EQUITY

OFF-BALANCE SHEET EVIDENCE-ASSETS 31,526,575 33,475,207 106.2%

Deposits from banks463,100 416,702 90.0%

LIABILITIES 53,755,865 57,910,447 107.7%

Other deposits0 0

Deposits from customers51,040,428 54,687,787 107.1%

Derivative financial instruments

0 0

Financial trading liabilities0 0

Borrowings1,587,233 1,901,427 119.8%

Issued securities0 0

Other liabilities403,611 396,174 98.2%

Financial liabilities at fair value0 0

Provisions169,469 185,941 109.7%

Current income tax liabilities1,975 0 0.0%

SHAREHOLDERS' EQUITY6,956,332 7,077,595 101.7%

Accrued interest and other liabilities90,049 322,416 358.0%

Retained earnings1,074,008 495,726 46.2%

Share capital2,123,094 2,123,094 100.0%

Other reserves3,759,230 4,458,775 118.6%

Statutory reserves0 0

Total equity and liabilities 60,712,197 64,988,042 107.0%

Minority participation0 0

OFF-BALANCE SHEET EVIDENCE-LIABILITIES31,526,575 33,475,207 106.2%

CompanyReporting period 01.01.2010 - 30.06.2010 Corporate number 4065573

Position Previous Period Curent Period Indexes

Cash flows from operating activities

Interest and similar income received 1,896,234 1,988,454 104.9%Interest paid -846,653 -875,329 103.4%Dividends received 10,681 2,917 27.3%Fee and commission receipts 407,677 447,430 109.8%Net trading and other incomes 227,886 186,651 81.9%Recoveries on loans previously written off 30,014 6,004 20.0%Cash payments to employees and suppliers -874,367 -769,509 88.0%Income taxes paid -66,957 -1,975 2.9%Cash flows from operating profits before changes in operating assets and liabilities 784,515 984,643 125.5%

Changes in operating assets and liabilities: -3,388,024 2,937,338 -86.7% – Net increase in trading assets -18,547 7,875 -42.5% – Net increase in derivative financial instruments 0 0 - – Net decrease/(increase) in loans and advances to banks 166,846 3,906 2.3% – Net increase in loans and advances to customers -3,393,903 -813,140 24.0% – Net (increase)/decrease in other assets 14,309 -80,656 -563.7% – Net increase in deposits from other banks -97,916 -46,395 47.4% – Net increase in other deposits -123,115 3,640,818 -2957.2% – Net increase in trading liabilities 0 0 - – Net increase in amounts due to customers, other borrowed funds and debt securities in issue 0 0 -

– Net increase in other liabilities 64,302 224,930 349.8%Net cash from operating activities -2,603,509 3,921,981 -150.6%Cash flows from investing activities

Acquisition of subsidiaries, net of cash acquired 0 0 -Disposal of subsidiaries, net of cash disposed 0 0 -Purchase of property and equipment -426,332 -160,124 37.6%Proceeds from sale of property and equipment 3,245 1,956 60.3%Purchase of securities 0 0 -Proceeds from sale and redemption of securities 40,278 28,583 71.0%Net cash used in investing activities -382,809 -129,585 33.9%Cash flows from financing activities

Proceeds from borrowed funds and debt securities 8,128,266 2,925,940 36.0%Repayments of borrowed funds and debt securities -7,922,375 -2,612,972 33.0%Issue of ordinary shares 0 0 -Purchase of treasury shares 0 0 -Sale of treasury shares 0 0 -Dividends paid -379,739 -358,010 94.3%Net cash from financing activities -173,848 -45,042 25.9%Net increase in cash and cash equivalents -3,213,037 3,747,354 -116.6%Cash and cash equivalents at beginning of year 12,609,871 13,660,492 108.3%Effect of exchange rate changes on cash and cash equivalents -52,871 0 0.0%Cash and cash equivalents at end of year 9,542,941 16,852,208 176.6%


CASH FLOW STATEMENT In 000 MKD

Consolidated report Reporting period

Company Corporate ID

Share capital

Share premium

Reserves Retained

profit (Loss)

Balance at January 1, previous year 2,014,067 109,027 2,762,810 1,377,590 6,263,494Issued shares 0Purchased treasury shares 0Sold treasury shares 0Conversion of securities 0Profit (Loss) for the financial period 1,074,008 1,074,008Alocated profit for reservers 996,420 -996,420 0Alocated profit for dividends and other rewards (premiums) to shareholders

-381,170 -381,170

Alocated profit for rewards, premiums and other employee benefits

0

Other reserves of the Bank 0Revaluation of assets 0Fair value adjustments of the investments available-for-sale 0Realized capital gain from disposal of Investments available-for-sale

0

Recorded losses from subsidiaries from previous years according to equity method

0

Minority Interes 0Defered tax assets 0Recognised revunues and expenses, net 0Exchange rate gains/losses 0Other Increase/Decrease in Assets, net 0Balance at December 31, previous year 2,014,067 109,027 3,759,230 1,074,008 0 6,956,332Issued shares 0Purchased treasury shares 0Sold treasury shares 0Conversion of securities 0Profit (Loss) for the financial period 495,726 495,726Alocated profit for reservers 694,564 -694,564 0Alocated profit for dividends and other rewards (premiums) to shareholders

-379,444 -379,444

Alocated profit for rewards, premiums and other employee benefits

0

Other reserves of the Bank 4,980 4,980Revaluation of assets 0Fair value adjustments of the investments available-for-sale 0Realized capital gain from disposal of Investments available-for-sale

0

Recorded losses from subsidiaries from previous years according to equity method

0

Minority Interes 0Defered tax assets 0Recognised revunues and expenses, net 0Exchange rate gains/losses 0Other Increase/Decrease in Assets, net 0Balance at June 30, current year 2,014,067 109,027 4,458,774 495,726 0 7,077,594


In 000 MKD

01.01.2010-30.06.20104065573KOMERCIJALNA BANKA AD SKOPJE

Attributable to equity holders of the parent

Minority Interes

Total equityChanges

�

�

ATTACHMENT 5:

UNAUDITED INCOME STATEMENT WITH COMMENTS AS AT 30.09.2010


1

2

3

4

5

678

9

1011

1213

13a13�

13�

14

14a14�14�14�1516171819202122

Fee and commission expense

Fee and commission income 631,454 223,777

Net interest income

Reporting period 01.01.2010 - 30.09.2010

Interest expense and similar charges1,302,277

Net profit/loss under financial assets and liabilities at fair value

Foreign exchange gains (net) 59,410 22,385

Dividend income

Net fee and commission income526,708 184,195

12,903 2,222

Administrative expenses

Impairment losses of assets under credits and investments 384,374 19,992

Other operating income

Net profit/loss under financial assets and liabilities (available-for-sale and held-to-maturity)

0 0

259,999 69,138

Other operating expenses

Other administrative expenses

277,581 88,282

Depreciation

Employees expenses 654,388 196,440

133,889 45,584

Other Operating leasing 0 0

Software costs

Loss from sale of property and equipment 7,271 4,446

12,470 4,552

Income taxNet profit/loss before taxationProfit/loss from associateOperating profit/loss 711,109 374,757

Minority interestCompany's ownersDistributed to:Net profit/loss for the financial year

Corporate number 4065573

INCOME STATEMENT

No. Position

Previous year Current year Indexcumulatively as

from the beginning of the year current quarter

cumulatively as from the beginning

of the year current quartercompared to previous year

compared to previous quarter

Interest and similar income2,884,641 988,407 2,946,837 958,383 102.2% 97.0%

455,624 1,290,738 415,409 99.1% 91.2%

1,582,364 532,783 1,656,099 542,974 104.7% 101.9%

700,067 252,637 110.9% 112.9%

104,746 39,582 114,521 45,364 109.3% 114.6%

585,546 207,273 111.2% 112.5%4,130 1,213 32.0% 54.6%

105,827 10,279 178.1% 45.9%

0 0 0 0

0 0

197,641 100,534 76.0% 145.4%

428,095 136,341 111.4% 682.0%1,065,858 330,306 1,028,833 332,574 96.5% 100.7%

613,597 198,713 93.8% 101.2%

134,537 45,132 100.5% 99.0%

280,699 88,729 101.1% 100.5%

280,043 85,668 308,274 105,043 110.1% 122.6%

6,072 4,901 83.5% 110.2%14,244 4,967 114.2% 109.1%

0 0

260,302 76,670 287,958 95,175 110.6% 124.1%

784,041 288,315 110.3% 76.9%

Note to the Income Statement of Komercijalna Banka AD Skopje as at 30.09.2010

In conditions of improved liquidity and more favorable macroeconomic ambience, as at 30.09.2010, Komercijalna Banka AD Skopje realized positive financial results from its operation in the amount of MKD 784.0 million. This result is for 10.3% higher than the one realized for the same period last year, thus reaching 95% realization of the Plan for the nine months in 2010. The realized net interest income showed increase of 4.7%, compared to the same period last year, with 100% realization of the Plan for the nine months of 2010. The Bank realized net positive effect from FX differences in the amount of MKD 105,827 thousand and it is 78.1% more than the one achieved in the same period last year, with 155.1% realization of the Plan. In the period 01.01.-30.09.2010, the net income from fees and commissions reached the amount of MKD 585.546 thousand, which compared to the same period last year means an increase for 11.2% and realization of the Plan by 99.5%. On the liabilities side, administrative expenses showed decrease of 3.5%, while the impairment loss with the approved loans and investments showed an increase of 11.4%, compared to the same period last year. In the course of the reported period, the Bank showed normal and smooth realization of its activities, regular execution of its liabilities and no delay in realization of the services towards its clients, which shall continue in the future.

�

ATTACHMENT 6:

PROGRAM OF MEASURES AND ACTIVITIES OF THE BUSINESS POLICY AND FINANCIAL PLAN OF KOMERCIJALNA BANKA AD SKOPJE FOR

2010


P R O G R A M OF BUSINESS POLICY MEASURES AND ACTIVITIES AND FINANCIAL PLAN OF

KOMERCIJALNA BANKA AD SKOPJE FOR 2010

Skopje, February 2010

According to the Policy Statement, Komercijalna Banka AD Skopje shall perform its activities on the basis of firm banking principles and shall undertake the necessary steps to provide a maximum profit for the shareholders in a long run. The key strategic objectives of Komercijalna Banka AD Skopje are: 1. To develop into a leading, independent, privately owned bank, which provides

services on the whole territory of the Republic of Macedonia. 2. Komercijalna Banka shall strive to be a universal bank, which will enable it to

strengthen its already significant position in the banking sector. 3. Komercijalna Banka shall strive to achieve the highest standards in providing

carefully selected quality products and services to its clients. 4. Komercijalna Banka shall strive to achieve timely reconciliation of its operational

policies and working procedures in line with best international practices. 5. Komercijalna Banka is committed to the basic principle of equal treatment of

shareholders and non-shareholders. The Business Policy Measures and Activities of Komercijalna Banka AD Skopje for 2010 along with its annual budget are at the same time a revision to the Development Plan of the Bank for the period 2006-2010 in 2010, depending on the newly created conditions and changes of the development assumptions of the Bank.

I. MACRO-ECONOMIC CONDITIONS IN WHICH THE BANK IS GOING TO PERFORM ITS ACTIVITIES In 2010 Komercijalna Banka AD Skopje shall perform its activities in an ambient of projected recovery of the domestic economy affected by the global economic crisis, whereas the dynamics of recovery of the world economy and stabilization of the global financial trends are pretty uncertain and they have strong impact on the economic growth of the Republic of Macedonia as an economy which is characterized by a high level of trade openness. The main objectives pf the Macroeconomic Policy of the Government of the Republic of Macedonia for 2010 are defined on the basis of its strategic determinations for increase of the economic growth and competitiveness in a long run, higher employment rate, improvement of the living standard and quality of life. The objectives refer to (1) conducting prudent macroeconomic policy that shall be directed towards neutralization of consequences from the world economic crisis, (2) increasing the competitiveness of the Macedonian economy, increasing the employment and improving the standard of living, (3) providing conditions for sustainable development that shall be based on rational use of natural resources and efficient use of energy for protection of the environment and (4) development of agriculture and support to the rural development by restructuring the agricultural-food sector. Pursuant to the NBRM projections for 2010, despite the existing uncertainty, it is expected that the monetary policy shall be run in conditions of decreased pressures on the denar foreign exchange rate and by maintaining appropriate level of foreign currency reserves, i.e. in more stable ambient compared to the previous year. Maintenance of a stable foreign exchange rate of the denar in terms of euro is a main precondition for maintenance of the price stability as a final aim of the Monetary Policy of NBRM. The projected inflation rate for 2010 is expected at approximately 1%, while the projected GDP growth is in the interval from 1% to 2%, having in mind that the economic growth in 2009 showed a decline of 1%.1 From the aspect of monetary movements, in the course of 2010, revival of the lending activity is expected, supported by appropriate growth of the total deposits. Namely, as per the assumptions for the available financing sources and the fiscal and monetary policy for 2010, it is expected that the loans to private sector would show a growth of 9%2. The increase of the volume of lending in 2010 is based on the decreased political and financial risk of the country, the expected stabilization of perception of banks, adequate liquidity level and more favorable conditions on the world financial market. It is expected to have additional impulse to the corporate lending from the funds provided through the EIB credit line. The gradual revitalization of the economy and more stable prospects are factors that will contribute to strengthening the total deposit potential. The widest monetary mass M4 is expected to raise for 7.5%3, and the total deposits for 6,1%. From the aspect of currency structure of the total deposit potential, orientation to foreign currency savings is expected to continue in the course of 2010 as well.

1 Revised projections of the NBRM (previously forecasted drop was 1.6%) 2 Revised projections of the NBRM (previously forecasted lending growth was 6.5%) 3 Revised projections of the NBRM (previously forecasted growth was 6%)

Despite the first signs of healing of the world economy and decrease of the restraints of the global financial courses, it is estimated that 2010 will be a difficult year in economic term, especially due to expectations for growth of prices of energy resources, uncertainty for the dynamics of healing of the export production, the limited access to foreign financing sources because of slow revitalization of the international financial market, uncertainty regarding the volume and structure of the expected capital inflows etc. Also, in the course of 2010 it is expected that the competition in the banking sector of the Republic of Macedonia shall be more focused on the segment of deposit operations, while the credit policy of banks shall be probably continued with bigger precaution for possible risks and in accordance with the actual conditions. In such conditions and undertaking appropriate additional measures, Komercijalna Banka shall strive to continue with its successful and profitable operation.

II. AIMS AND OBJECTIVES OF THE BANK’S BUSINESS POLICY The priority aims and objectives of the Bank are based on the Policy Statement of the Bank, realized results from operation and the level of realization of its strategic objectives. The priority aims and objectives of the Bank’s Business Policy for 2010 are as follows: 1. Maintenance of the capital value and its increase through a policy of further

allocation of significant part of the net profit into reserves, as well as through

issue of shares thus providing capital adequacy rate that would correspond to the

projected activities;

2. Profit maximization by undertaking acceptable risks;

3. Maintenance of participation of the Bank on the banking market of the Republic of

Macedonia, in conditions of increased competition;

4. Successful and timely compliance with the law regulations on financial reporting

as a part of the reforms in the banking system of the Republic of Macedonia;

5. Development and improvement of the information technology;

6. Continuous improvement of the working organization and adjustment with its

strategic aims and objectives and the law regulations;

7. Human resources management providing higher quality of services;

8. As bearer of the domestic payment operations, the Bank shall be actively

engaged in implementation of the solutions that shall provide fast and qualitative

services to the clients;

9. Development of the banking marketing;

10. Within the aims and objectives of the Business Policy of the Bank for 2010, the Bank shall still have the obligation that if the Bank’s shareholders provide control package of shares and set proper parameters, the Bank’s management shall take proper measures and activities for possible attraction of potential strategic investor that should fulfill the conditions defined by the consortium of shareholders of the Bank, as follows:

• to be a bank whose name is renowned international brand;

• the offer should reflect the real value of shares of Komercijalna Banka and

• to submit a strategic plan for future development of the Bank. However, in conditions of uncertain economic environment, and for the purpose of keeping the place of one of the best banks in the Country, the following additional aims and objectives are projected for 2010, assuming: - Undertaking appropriate measures and activities for successful operation and

adjustment with the newly occurred market conditions, having in mind the requirements of the existing and of the potential clients;

- Further improvement and modernization of operation, introduction of new bank products and services, development of new non-traditional banking functions (leasing, economic-financial consulting, factoring, forfeiting, insurance activities, investment banking, etc.), conquering new markets, strengthening the competition position of the Bank, being the basic characteristics of each modern and universal bank;

- Proper implementation of the Decision on the methodology for recording and

evaluation of the accounting items and preparation of financial statements; - Improvement of the electronic banking and information technology in all segments of the Bank’s operation Realization of the priority aims and tasks in 2010 shall be based on the realization of the Strategic priorities and Macroeconomic policy of the Government of the Republic of Macedonia for 2010, the Aims and Objectives of the Monetary Policy of NBRM for 2010 and other law regulations and by-laws of the Bank, following the principles of modern banking operation (liquidity, safety and profitability), in compliance with the economic rules and events in the country and abroad, flexible adjustment of the Bank with the needs of its clients and complete adherence to the financial and monetary-credit discipline in the realization of undertaken obligations towards the business partners.

III. MEASURES AND ACTIVITIES FOR ACHIEVING THE AIMS AND OBJECTIVES OF THE BANK’S BUSINESS POLICY The Bank shall undertake defined measures and activities in all segments of its operation for successful achievement of its priority aims and objectives and for realization of positive effects in 2010. LIQUIDITY AND FINANCIAL MARKET 1. In order to provide efficient denar and FX liquidity management in the way that shall provide execution of the prescribed, undertaken and planned obligations of the Bank as well as meeting the needs of its clients, the Bank shall undertake the following measures and activities: 1.1. Measures and activities for operative liquidity management: - fulfillment of the obligation for obligatory reserve in denars in accordance with the

law regulations and internal acts, whereby the Bank shall strive to maintain funds on its account in the interval from 98% to 103% of the amount of the obligation;

- placements of the excess of denar liquid assets in the NBRM bills or in

Government securities, for the purpose of providing high liquid assets that would redeem possible liquidity deteriorations and dependence of the Bank’s liquidity on certain resources;

- taking part in development of the secondary market for Government securities

and NBRM bills and repo transactions; - purchase and sale of FX cash for payment from and to domestic banks and

banks abroad; - purchase and sale of denar and FX deposits in the country and abroad; - keeping FX assets with foreign banks, in currencies and terms which shall

provide proper safety and interest income; 1.2. Measures and activities for currency risk management on operative level: - maintaining currency structure of the own FX assets in a structure that,

depending on the movement of the exchange rates, shall provide FX gains; 1.3. FX market and trading with financial instruments - optimal attractiveness of the FX market - creation of acceptable purchase/sale

exchange rates, in order to keep the existing and to attract new clients; - maintaining or increasing the participation in the FX market of RM; - development and offer of term purchase/sale of FX assets and other financial

instruments-derivatives, designed at request of clients; - technical improvement of communication with clients for exercising the

transactions on the FX market, by preparing and realizing a project for electronic platform for communication with clients regarding sale of foreign currency for

denars (and inter currency) – indicative and real time conclusion of the confirmed transactions.

2. In order to improve the quality of services, as well as to confirm and strengthen the market share in the segment of trading with securities, the Bank shall undertake the following measures and activities: 2.1 Improving the quality of services in the domain of trading with securities through: - applying the principles of lawfulness in trading with securities, completion of the

control procedures an their proper application in order to provide protection of the investors and minimize the risk of misuse by the employees;

- determining the needs and experience of clients in the domain of trading with securities in order to protect their interests, notifying on the possibilities and risks connected with investments in securities, issuance of educational brochures etc.;

- establishing and intensifying the cooperation with domestic companies from the aspect of listing their securities and development of the code of corporate management;

- establishing contacts with foreign investment funds as potential investors on the capital market of the Republic of Macedonia.

2.2 Confirming and strengthening the market share by keeping and increasing the number of clients in conditions of increased competition on the capital market an permanent decrease of fees for this type of services. 2.3. Developing new activities through: - implementation of software solutions for acquiring orders with electronic signature

and at the same time implementation of communication with the Stock Exchange and other clients with FIX protocol thus advancing and expanding the classical brokerage operations in trading on behalf and for the account of clients enabling higher efficiency and standardization of services as well as competitive advantage in terms of the other brokerage houses;

- offering services from the domain of investment banking, such as: research of the conditions on the capital market, advising clients while issuing and trading with securities, portfolio management, management of the portfolio of the Bank’s securities, advice-giving and organizing procedures for acquisition of shareholding companies, advice giving, organization and preparation of documentation for issue of securities, undertaking risk at realization of IPO’s, financing projects and special transactions etc.

3. After the period of introducing the new services of a custodian bank/depositary bank for the pension/investment funds registered in the Republic of Macedonia and modification and improving the services of a custodian bank for non-residents (local custody bank), the Bank shall take the following steps in the forthcoming period: 3.1. Maximal devotion and adherence to the legislation in operation from the aspect of valuation and control of payments from the funds of the investment and pension funds, for the purpose of protection of interests of their members, which is the ultimate obligation of the bank custodian. 3.2. Continuous follow-up of the control procedures and rules for prevention of misuse of confidential data received as a result of certain post position regarding investments of clients (investment, pension funds or non-residents) or planned investments by persons employed in the bank custodian.

3.3 Introducing and defining several control mechanisms, as well as introducing Strait-Through-Processing in all possible parts of the operation for the purpose of decreasing the operative risks. 3.4. Improving the service and offer to clients from the aspect of: - improving the way of notification and communication through opening an internet portal for the needs of clients. Thus, the Bank shall provide greater transparency and accessibility to information and reports, as well as simplifying the way of giving the payment instructions; and - expanding the use of MT SWIFT of category 5 – the world communication standard in the domain of trading with securities. 3.5. In conditions of increased competition and still not restored optimism of the investors, the Bank shall strive to keep the existing clients, however, first of all, to increase the number of new large clients of the type of a foreign global custodians, offering a service that, in accordance with the regulations and conditions in the Republic of Macedonia shall be adjusted to the world standards and the business practice laid down in this segment of operation. 3.6. Development and undertaking new activities - development of a new service as intermediary in settlement of the realized transactions of trading with foreign securities for private investment funds. RISK MANAGEMENT AND PLANNING The Bank’s Business policy for 2010 shall continue to be based on the methodology that provides adjustment of the assets and resources of the Bank with the aim to eliminate any kind of risk that may occur in case of any unbalance between these two extents. The equilibrium on the Balance Sheet in terms of volume, dynamics and in terms of currency and maturity structure of assets is starting point in preparation of the year financial plan of the Bank and setting the development priorities in operation. In the risk management domain, the Bank shall promote the risk management system aiming at complete and proper implementation of the entire law regulations, with simultaneous advancement of the identification models, monitoring and selection of methods for risk minimization as well as timely reporting to the Supervisory Board and the Risk Management Committee for the purpose of making qualitative and timely decisions therefore. In addition, the Bank shall undertake certain activities in the respective segment of operation, as follows: 1. Within credit risk management the following activities shall be undertaken: - proper implementation of the Policy for undertaking and managing the credit risk,

Policy and procedures for financial instruments impairment and Procedures for identification, assessment, measuring, follow up and control of the credit risk as well as the Methodology for defining the provisioning and special reserve on group basis;

- classification of assets balance sheet and off-balance sheet items of the Bank by

level of riskiness ;

- electronic transfer of classification of the Bank’s assets by credit files in the advanced Credit Register of NBRM;

- monitoring of the established processes and systems within the process of credit

risk management, such as:

• identification, measuring, follow up and control of the credit risk and process of impairment of the credit exposures on individual and on group basis;

• identification, measuring and follow-up of the concentration risk;

• analysis of migration matrices of the credit exposures by different categories;

• implementation of country risk within the credit risk;

• identification of the credit risk on client level through the developed system for internal ranking (scoring system) and on the level of credit exposure;

• analysis of the credit portfolio of the Bank, as well as of individual sub-portfolios;

- establishing the following new processes and systems within the process of credit risk management:

• determining internal limits for credit risk exposure by categories of clients, business lines, currency structure, geographic location, security instruments, i.e. measuring and following the exposure to risk from concentrations in the credit risk exposure;

• following, analyzing and assessment of adjusted FX position of a client;

• following, analyzing and assessment of adjustability of cash flows of the client, potentially changed level of total liabilities and liabilities towards the Bank, as a result of possible change of the denar exchange rate in terms of foreign currencies;

• determining internal capital adequacy rate and within this process monitoring of the statement of own funds of the Bank;

• following the criteria for ranking and assessment of their efficiency for determining and projecting the credit risk with the Score of the corporate clients;

• following and determining the risk level present at the new credit products which are planned to be introduced in the future;

• establishing a procedure for determining benchmarks for assessment of the quantitative score indicators for corporate clients by incorporating the industry sector and size of the company;

• developing a model for classification and impairment on a group basis through incorporation of new determinants and testing of the results by the end of 2010;

• establishing a system for monitoring, analyzing and assessing the credit risk arising from exposure of the client to currency risk and system for following the credit risk at FX loans and denar loans with FX clause;

• establishing methodology and implementation of stress-testing techniques of the credit risk and other risks which turn into credit risk;

• continuous monitoring of the designed clients’ scoring model as well as the model for group impairment, in order to determine if it adequately incorporates all functionalities which determine occurrence of the impairment;

• financial analyses of the client’s credit-worthiness from the aspect of the Bank’s credit risk;

• forecast of the amount of the Bank’s impairment loss/special provisions and development of forecasting techniques;

• following the Basel principles for credit risk management, as well as testing the possibilities for their implementation;

• following and implementation of the International Accounting Standards (IAS) and the International Financial Reporting Standards (IFRS) in the domain of credit risk management.

2. In the part of management of other risks the Bank shall undertake activities as follows:

- Activities for implementation of the Decision on managing the risk from change of interest rates in the portfolio of banking activities and the respective Guidelines, with adequate application support, as well as activities for implementation of the project for electronic submission of the regulatory reports related to the Decision and the respective Guidelines, as per requirements of NBRM;

- Advancement of Serenity – the application solution for range, storage and keeping data on operative risk, as well as report workout. Defining an application solution for credit risk identification and assessment;

- Preparation activities on setting the capital needed for coverage of the operative risk (that should start to be allocated as from 21.12.2011) – selection of appropriate access and provision of necessary data;

- Performing regular activities for identification, measuring and monitoring, control and reporting on other risks in accordance with the law regulations and internal acts of the Bank, workout of monthly information on risk exposure, as well as quarterly reports on risk profile;

- Keeping on with the activities for advancement of the system and risk management process and continuous following and adequate implementation of the law regulations and by-laws in the domain of risk management;

- Following and defining the risk level of the new products that are planned to be introduced in 2010;

- Conducting stress-tests as per requirements of the law regulations and the internal needs and simulations according to the needs of the Bank;

- Activities for workout of decisions on interest rates of Komercijalna Banka AD Skopje, Terms and Conditions Applicable to Customers of Komercijalna Banka AD Skopje and Terms and Conditions for Foreign Banks, with decisions on amendments and supplements and revised texts;

- Keeping on with the activities for implementation of the Decision on Methodology for recording and evaluating the accounting positions and preparation of financial statements;

- Keeping on with the activities for implementation of the Project for adjustment with the International Accounting Standards and with the International Financial Reporting Standards;

- Keeping on with the activities for implementation of the Project for implementation of the Bank Business Intelligence Integral System (from last year);

- Keeping on with the activities for implementation of the Decision on risk management;

- Professional training of employees in the domain of risk management in accordance with needs and follow up and implementation of actual trends in this segment of operation of the Bank; and

- Other regular and extraordinary activities. 3. In the segment of planning and analysis the following activities will be undertaken: - production of quarterly, semi-annual and annual reports on performance of the

Bank and its branches;

- development of Program for Measures and Activities of the Business Policy of

the Bank with Budget for 2009 applying modern market methodology;

- production of Development plan of the Bank with financial forecasts for the period 2010-2014;

- monthly monitoring of realization of the planned activities and budget for the current year with draft-measures;

- making analysis (quarter, semi-annual and annual) of the Bank’s market share in the banking sector of the Republic of Macedonia;

- monthly monitoring of the deposits and placements of legal entities and citizens and their market share in the banking system;

- preparation of regular monthly statistical reports on the overall operations of the Bank with some of the basic macroeconomic indexes of the Republic of Macedonia;

- monthly reporting on the material expenses and the expenses upon the Collective Agreement of the Bank;

- monthly analysis of the income realized from fees and commissions;

- making Report on the strategic risk;

- making reports on defining the net-debtors of the Bank, in accordance with the NBRM decision;

- making Report and Data on Komercijalna Banka AD Skopje according a decision by NBRM for announcing reports and data by the banks,

- developing a solution for adequate presentation of data within the reporting per segments in cooperation with other organizational units of the Bank,

- making reports for external financial institutions;

- analysis of certain segments of the operation of the Bank that may be imposed by the changes in the law regulations and the working environment;

- finding appropriate software model for financial planning; and

- production of application solution for comparable monthly follow up of the Bank’s accounts.

CORPORATE LENDING The activities and measures that are going to be undertaken in 2010 within the corporate lending shall be directed towards: - lower increase of the credit portfolio of non-financial legal entities compared to

the NBRM forecasts due to the global changes occurred in the finance sector, as well as downward trends noticeable in all segments of the economic activity in respective industries.

- conservative and restrictive approach in lending due to the potential influence of the financial and economic crisis on the credit portfolio quality;

- diversification of the credit portfolio by business lines, geographic areas and quality of security of placements in accordance with the Credit Policy of the Bank, paying attention to the industries for which it is expected that will not suffer losses from the economic crisis, such as: food industry, information technology and telecommunication services, service activities, trade and catering;

- realization of profitability having in mind the criteria for assessment and the Policy for undertaking and managing the credit risk; and

- offering of products and services in accordance with increased competition on the Macedonian banking market.

Thereby, the Bank is planning to undertake the following measures and activities: - selective attracting of new good standing clients as well as supporting profitable

project of the existing clients; - short-term lending for support of the current operation and financing certain trade

affairs with previously known repayment sources and repayment term; - long-term lending for investments in fixed assets and working capital based on

analysis of the prospected financial effects from the investment during the repayment period of the loan, applying accepted methods and criteria for defining the need and eligibility of the projects for lending and the security quality;

- approving loans from the proceeds of the existing credit lines as well as from the

new EIB credit line pursuant to the dynamics laid down for support to eligible and profitable projects to the existing and new clients;

- continuous assessment of the active interest rates and suggestion of changes

and amendments of the Bank’s interest policy, - proposing amendments and supplements to the Bank’s regulations in the domain

of corporate lending; - completion of the existing software solutions in order to simplify the process of

approval and administration of the Bank’s placements and preparing all the reports required in the course of operation of the Division.

INTERNATIONAL DIVISION The activities of this segment of the Bank’s operation in 2010 will continue within the frames of the prescribed banking principles, putting accent on the following priority tasks: - active support to the clients in financing of their export and import needs through

more intensive contacts and visits, for the purpose of observing and meeting their requests and needs, as well as gathering information on their opinion regarding the service provided by the Bank;

- approving FX loans and utilization of the EIB credit line and undertaking activity for approval of new FX loans from the Bank’ funds and from other foreign credit lines;

- activities and contacts with companies for the purpose of introducing and giving assistance regarding the new Publication for the rules and operation with FX letters of guarantee;

- improving the competitive position of the Bank in terms of providing services from the domain of international payment operations, giving more competitive terms for payments, opening letters of credit and issuing letters of guarantee;

- factoring is expected to be developed in the domain of export in order to meet the needs of export oriented clients adequately;

- undertaking continuous measures for collection of liabilities under FX loans, guarantees and letters of credit in cooperation with the Corporate Lending Division.

RETAIL BANKING DIVISION In order to meet the increasing demands of this significant segment of customers, in the course of 2010 the Bank shall undertake the following measures and activities in the domain of retail banking: 1. In the domain of deposit operations the activities will be focused on: - more active follow up of the market and prompt respond to the changes occurred, especially in the part of the interest rate; - introducing new products, as follows: • savings product for juveniles with the term up to coming of age, with strict

termination criteria that should be subject to appropriate promotion campaign; • introducing a new savings product – Family Savings Deposit; • savings deposit with promotional interest rates for a limited period of time; • savings deposit with advance calculation and payout of interest.

2. In the domain of the international payment operation for citizens the following activities will be undertaken: - keeping the trend of increase of the total international payment operations in both

directions i.e. incoming and outgoing payment orders, both by number and in value as well;

- introducing new forms of informing clients for received FX inflows. 3. In the domain of banking cards and transaction accounts, the main activities that are going to be undertaken by the Bank in 2009 refer to: - extending the range of services connected with use of debit cards, term-orders for execution of payment from transaction accounts and use of Internet banking; - increasing the number of issued cards and increase of the volume of operations with the cards; - expansion of network for acquiring cards (ATM-s and POS terminals); - technical-technological development; and - training and education of users. In the segment of card operation, the Bank has open possibilities for further development and increased income, having in mind the fact that the payment cards cover the domestic and international payment operations, the short-term lending and operation with individual borrowers and legal entities. In that term, the Bank shall pay special attention to attracting clients who receive their salary through the Bank, as well as stimulation of the existing and new clients to use more than one product through direct marketing and cross sale, promotion of package of products and

services, promotion campaigns through the contact center and more aggressive marketing activity. Having in mind the opened possibilities for development and profitability in this segment of operation, for 2010, the Bank has planned the following activities: a) Increasing the number of active cards of citizens For realization of this aim, the Bank has planned the following activities in the part of operation with citizens:

- issuance of debit cards to the largest possible number of users of transaction accounts;

- introducing new products; - introducing new co-branding cards in cooperation with respectable

companies, clients of the Bank; - issuance of cards from the premium segment; - introducing additional privileges/advantages for all users; - continuous segmentation of clients, in order to meet their needs and

proper treatment in the Bank; - correction of the overdraft facility and credit limits on the basis of card

operation; - activating cards or campaigns for clients who hold a card but had not

used it; - in addition, depending on the possibilities and offers of partners in

operation with MasterCard and Visa cards, it is planned to make promotion of cards issued by the Bank in occasion of an event sponsored by them through a concept for increasing the volume of payment in trade with cards or introducing a loyalty scheme whereas the card holders would choose a card as a first payment card and would use it continually.

It is planned that at the end of 2010 the Bank will have around 300.000 active cards being total of both brands (MasterCard and Visa). In the domain of legal entities it is planned to keep the increase of 2009 in terms of number of cards. b) Expanding the network for acquiring cards (ATMs and POS terminals), whereas in the course of 2010 the Bank plans to install 20 ATMs and 1.500 POS terminals and to relocate the devices that do not realize any turnover. The purpose of this activity is to achieve full coverage of the whole territory of the Republic with ATMs, i.e. the Bank plans to install one ATM for 20.000 citizens in large towns, as well as to install ATMs with legal entities – clients of the Bank whose employees receive salary on payment cards through the Bank. In addition, the Bank plans to put brands on the ATMs (marking the ATMs with the logo of the Bank and the logos of brands of the cards being acquired) by installing illuminated signboards at the points of ATMs thus providing bigger visibility. In the part of expansion of the sale network the Bank plans to conclude new agreements with legal entities, and first of all acquiring clients with big turnover with cards and maintaining good relations with the current key clients, taking over key tradesmen from the competitive banks and expanding the network throughout the country. The card acquiring network of the Bank has significantly increased its usage value due to the realization of the project for enabling VISA transactions at all devices of the Bank which is planned to be completely realized in the mid of 2010. Also the Bank plans to attract a large part of the existing clients to acquire the VISA cards especially due to favorable commission rate, as well as the previous good

cooperation and agreement with client for acquiring the cards from the MasterCard family that will be widened for acquiring of the new brand on the same infrastructure. c) Technical-technological development in order to keep the trend of continuous automation of the processes, to improve the level of services to clients and to increase the efficiency in operation by making decisions based application solutions for data analyses. The following key areas of the technical-technological developments shall also be subject of undertaking activities, such as:

- purchase of module for follow up and control of transactions for the purpose of increasing the safety of operation with cards and decreasing the risk from losses under transactions with cards;

- preparations for migration towards chip technology for MasterCard cards parallel to the projects for acquiring the VISA cards;

- e-commerce (possibility to execute transactions through Internet on web sites from Macedonia) for payment with VISA cards;

- introducing additional functionalities of ATMs: change of PIN and adding credit on mobile phones – Top-Up;

- introducing contactless payment technology in cooperation with MasterCard and VISA for small and quick payments.

d) Conduct of proper training and education for legal entities and citizens for advantages of using the bank cards as a payment instrument, as well as training of employees in the domain of misuse and risk management, introducing EMV technology, using techniques for increased activity of cards at points of sale, development of new products and services etc. e) Strengthening the partnership relations with the licensers for their bigger support, enabling promotion of the world novelties and keeping the leading position of the Bank in this segment of operation. 4. In the domain of lending to citizens, the following activities are planned:

- active following of the market conditions and quick respond to their changes, especially to the changes of the interest rates in order to keep the competitiveness of the Bank’s products for lending to individuals;

- further follow up and analysis of the market and needs of the potential clients

and developing new favorable products for lending, as well as new services which will improve the informing process for the applicants on the status of their application thus shortening the period from applying, approval to disbursement of funds;

- lenders of housing, mortgage and loans upon pledge of deposit will remain

target group;

- providing accessibility of application for approving loans to citizens for all city-branches in Skopje, improving the coordination and communication with them, as well as servicing clients in bigger city-branches in Skopje;

- improving the existing applicative solutions for loan servicing as well as

introduction of new program solutions for more efficient records of workout of the approved loans etc.

5. In the domain of claims under disbursed loans, credit cards, transaction accounts and denar and FX savings deposits in the course of 2010 the Bank

shall continue its usual activities encompassing: telephone contacts and written notifications and reminders to clients on due outstanding debts, activation of administrative bans and other collection instruments in case of impossibility to collect the claim on regular way, activation of the security if there is no way for collection, initiating procedures for forced collection of the claim in cooperation with the competent department of the Bank etc. 6. In the domain of client relationship management, the main goal thereof in 2010 will be provision of continuous and qualitative transfer of information, placement of products and services, qualitative and equal attitude and care for clients (key clients and clients citizens being served through the Contact center), placement of products and services, direct sale of products and services in accordance with the needs and habits of the key clients, offering new services “Personal banker” and “Mobile bankers”, attracting new clients, continuous staff training, improving their communication skills etc. HUMAN RESOURCES AND GENERAL AFFAIRS In the course of 2010, Komercijalna Banka shall continue to direct its activities towards modernization of its organization, improvement of its organization of the banking operations, harmonization of the Bank’s acts with the law regulations, keeping appropriate human resources policy, evaluation of the borrowers’ property, management of the immovable property acquired by way of realization of mortgages, as well as undertaking activities regarding the monitoring of the system, etc. Thus, the Bank shall undertake the following activities: - opening new organizational units and new position posts in the Bank’s Head

Office and in its organizational parts throughout the country, in accordance with the considered needs and changes in the current organizational units,

- eventual opening of new city-branches of the Bank in the city of Skopje and

throughout the country, depending on the needs and requirements of the Bank’s clients, in conditions of favorable market and financial ambient,

- modernization of the organizational units and parts of the Bank, from the aspect

of modern organization, equipment, equipping with highly professional personnel, improved managing and decision-making skills, improved control of the results, etc.,

- preparing acts (guidelines, operative procedures) that will regulate the existing

and new operative tasks with the respective subject of operation, as well as their harmonization with the law regulations in the domain of banking,

- monitoring of the employees’ engagement and the working hours fund in the

organizational units and parts of the Bank and proposing measures for better efficiency and organization of the work,

- strict adherence to the system of double control when performing the operative

tasks, - having in mind the significance of the human resources policy, it shall be

directed towards: • improvement of the quality of operation and the employees’ attitude towards

the realization of the operative tasks, especially of the employees that have direct contacts with the clients, and that is the professionalism shown in providing the banking services,

• strict adherence and implementation of the operative guidelines, • assigning the right officers at the right position post, • reassignment of the employees, in accordance with the current organization,

as well as the considered needs in the operation, • in order to improve the skills and efficiency of the employees, and for the

purpose of following the new and contemporary ways of operation, certain activities will be proposed in terms of sending the Bank’s employees in the country and abroad for further professional training,

• organizing internal trainings for the employees through sharing knowledge and experience among them that will contribute in increase of the readiness of the employees for realization of the assigned tasks,

• realization of activities regarding the overall procedure for timely and accurate preparing of the calculations, distribution and payment of the salary and the respective contributions for the employees, in accordance with the amendments in the law regarding the calculation and payment of the contributions under the obligatory social insurance, as well as monitoring and implementation of any further amendments and supplements related thereto,

• continuous implementation of stimulation policy of paying bonuses to employees based on the results from operation and contribution of the employees for timely and qualitative accomplishment of duties,

• pursuant to the Law on protection and improvement of health and safety at work, the Bank has an obligation to provide safety and health protection for all employees, from the aspect related to the work, including protection against professional risks, providing information, training and all necessary assets. On the basis of the aforesaid, and in accordance with the previous experience, in the course of 2010 the Bank shall continue to organize the protection against electrical power strike, harmful radiation, noise and vibrations, dangerous and harmful materials, security from fire and explosion, use of means for personal protection at work and of protection equipment, hygienic and healthy conditions for work, providing first aid, movement of the employees at work and at transport, providing conditions for safe operation in working and additional premises and areas, providing means for operation with protection devices and safe conditions with protection against harmful climate and atmosphere impact, etc.,

- representation of the Bank before the courts and other authorities, as well as

other activities at the level of the Bank regarding the employment relations, disciplinary procedures, etc.,

- procurement of fixed assets and stationery for the needs of the Bank,

investment, current maintenance and sale of fixed assets and stationery recognized as expenses,

- insurance of employees and property of the Bank through insurance companies

in the country, - management, records keeping and sale of the property owned by the Bank,

and acquired on the basis of uncollected claims (realized mortgages), - refurbishment of the Bank’s premises, modernization of the offices and other

business premises, - performing different technical and general operations, - activities related to safety and protection against fire, - activities regarding the monitoring system, - other activities and duties.

LEGAL AFFAIRS, BAD LOANS WORKOUT AND MANAGEMENT Within the frames of its competencies, in this segment of the Banks operations, the following measures and activities will be undertaken: - collection of the sued claims, updating the cases with written notifications and

direct contacts to the competent courts and institutions;

- collection of claims of the Bank by sale or acquisition of the pledged property, in the procedures conducted against 32 debtors legal entities, out of which 22 are recorded in the balance sheet and 10 are recorded in the off-balance sheet records. The total planned collection appraised on the basis of the security for all claims is approximately in the amount of 400 million denars;

- undertaking activities for notifying and sending reminders for voluntary debt settlement and concluding out-of-court agreements to all users of current accounts subject to initiated enforced collection;

- collection of claims from legal entities and individuals having the status of problem loans, using several methods or ways of collection: collection from the debtor or the mortgage debtor, sale of claims to interested citizens and legal entities, acquisition of pledged property for collection of the claim and other measures depending on the terms of security of the claims;

- establishing pledge right over the property accepted as security under loans approved to legal entities and individuals,

- appraisal of property and equipment accepted as security for loans approved to

legal entities and individuals;

- initiating court procedures for enforced collection of the claims from legal entities and individuals by order of competent organizational units of the Bank,

- reporting to the Bank’s bodies regarding the collection of the claims, the course and status of the legal procedures and established pledge rights,

- following the law regulations and providing legal opinions to the Bank’s bodies and the Bank’s organizational units regarding their implementation,

- preparation of contracts, general conditions and contract forms,

- legal adjustment of the decisions, contracts, agreements and other by-laws under the competence of the Bank’s bodies and its operation with the law regulations and the internal acts;

- conducting the professional and overall administrative work regarding arranging meetings of the Bank’s Assembly, Supervisory Board, Board of Directors, Risk Management Committee, Audit Committee, Credit Committee and other bodies and authorities of the Bank, workout minutes, decisions, conclusions and recommendations from the meetings of the Bank’s bodies and authorities;

- permanent updating of the Bank’s Register of Acts in electronic form;

- announcing information, announcements and other notifications through printed and electronic media;

- publishing printed publications (either regular or requested) informers, heralds, reports etc.;

- purchase and distribution of representative advertising material. INFORMATION TECHNOLOGY For the purpose of further improvement the Bank’s Information Technology, in the course of 2010, the following activities will be undertaken:

o workout of additional reports and analyses which shall use Business Data Warehouse system as a database;

o workout of integrated reports and analyses for the overall operation of a client (either individual or legal entity) or category of clients;

o receipt of the solution of Peksim by the employees of IT Department.

• incorporation of new functionalities in Internet Bank, as follows: - modernistic design of web portal of Komercijalna Banka AD Skopje using

contemporary information technologies; - supplementing the web solution with insight in the status of the loans, denar

and FX savings books and accounts of the Bank’s clients; - design of e-commerce solution for processing payments effected by transaction

accounts of the Bank’s clients; - migration of the Internet banking site to Net 3.5/ Net 4.0 and improvement of

the performances and functionalities of the web site

• widening the functionalities of the application solution for sending SMS messages on denar or foreign currency inflows received or outflows of legal entities and individuals under salaries and transactions through other distribution channels;

• implementation of the RS/2 module for credit on pre-paid vouchers, of the mobile operators in the country, on the ATMs of the Bank and its integration in the common information system of the Bank;

• implementation of the solution for e-mail notification to clients on sent payment orders (MT 103);

• designing application solutions and support in accordance with the new amendments and supplements of the Law on Money Laundering Prevention and the requirements of the respective Bank’s department;

- design of a scoring model for determining the risk category of the Bank’s

clients (legal entities and individuals); - implementation of lists of suspicious and undesired clients for the Bank.

• Design of application solution in accordance with the amendments to the Law on Obligation Relations referring to the application of the reference interest rate when calculating the penalty interest;

• Design of application solution for sending and using data from the Macedonian Credit Agency;

• Design of application solution for introducing a new product “Semejno stedenje” (Family savings).

• Implementation of a specialized safety system for following audit traces from the databases activities;

• Implementation of software for change and project management;

• Implementation of a system for following the physical parameters of the server environments;

• Project for system upgrading and backup procedures;

• Upgrade of the hardware infrastructure and completion of the existing processes from the Plan for continuity in operation of the alternative location – Stip;

• Implementation of the identity management system;

• Installation and configuration of two new disc systems;

• Upgrade of the document management software, Meridio, on a new version;

• Support to the project for electronic trading with securities;

• Procurement and implementation of sophisticated monitoring system and card misuse;

• Adjusting of the ATM and POS network for acquiring chip technology cards;

• Introducing the functionality of PIN replacement on the ATMs of the Bank;

• Introducing VISA-e-commerce transactions through Internet in the card operation;

• Procurement and installation of new Comm, BackOffice and Pin Management servers for operation of the card system;

• Migration of the Oracle server for databases on a new version;

• Regular training on the new technologies;

• Reorganization and refurbishment of the central WAN nod, projecting and installment of core rooters in the central WAN nod;

• Projecting and implementation of a system of firewalls for perimeter network protection;

• Projecting and implementation of a complete system (hardware and software) for e-mail massages archiving;

• Implementation of sub-system in the IKT system for encryption of the whole traffic from a part of the working station within the internal network to the critical resources;

• Projecting, procurement of equipment and implementation of the first phase of the IP telephony project;

• Projecting, procurement and installation of network devices-IPS (Intrusion Prevention System) and other types of systems for security of the information and communication infrastructure for timely detection and prevention of non-permitted activities towards the IT system;

• Performance of the project for penetration tests (Ethical Hacking) of the computer network of the Bank;

• Implementation of new services within the System for monitoring the critical banking systems and resources (servers, databases, network equipment, ATMs, POS terminals, etc.);

• Expansion of the network of ATMs and procurement and implementation of application solution for ATMs monitoring and management;

• Expansion of the Contact Center with new services;

• Implementation of a system for time synchronization;

• Projecting and implementation of communication solution for improvement of the communication performances between the IT systems on the primary location and the alternative computer center;

• Completion of the project for implementation of Payment Card Industry data Security Standard (PCI DSS);

o Encryption of the traffic from the point of sale to the card operation system;

o Data protection in the database;

• Expansion of the virtual environment by implementation of new services;

• Completion of the project for integration of the vide surveillance system and remote alarms from distant locations and of the project for implementation of the control systems for use of peripheral transferring digital devices.

DOMESTIC PAYMENT OPERATIONS

In the function of maintaining and increasing the number of legal entities - depositors of the Bank, as well as citizens – accountholders and increasing the quality of the services and offer of new products, the following measures and activities will be undertaken: - providing fast and qualitative services to the clients based on direct communication

with the clients and creation of new packages of services in order to meet the clients’ needs;

- pursuant to the new prescribed forms, graduate data updating on the first occasion

of clients’ contact with the Bank whether to conclude an agreement for opening a new account, submit documentation for change of the opened accounts, execute transactions, apply for a new type of service etc.;

- full and proper implementation of the Law on Payment Operations and the

amendments thereto; - pursuant to the requirements of the law regulations and by-laws from the domain

of money laundering prevention and financing terrorism introducing uniform client registration forms – admission forms by which clients are recorded when opening accounts;

- decentralization of activities and changes in terms of the products and services

offered through the city-branches, i.e. extension of the range of activities offered only at the Bank’s Head Office, so far, through reorganizing of the personnel, i.e. establishing several categories of counter officers with different level of education, different types of assignments and volume of activities;

- opening new city-branches, increasing the number of counters and permanent

monitoring of their performance; - standardization of the city-branches by types and their further modernization in

terms of equipment and place for access and servicing clients, in order to follow the competition;

- permanent training for the counter officers from the branches and city-branches

throughout the Country and in Skopje;

- extending cooperation with insurance companies, i.e. offer of their range of products and services at the Bank’s counters;

- permanent improvement of the overall E-Banking system in order to present to

the existing and potential clients the speed, efficiency and safety related to its use;

- correction of the Bank’s Terms and Conditions Applicable to Customers for the

services provided by the Bank in the domain of the payment operations, based on maximal competition and maximal profitability from operation;

VAULT OPERATION

For more efficient vault operation of the Bank, the following measures and activities are going to be undertaken: - advancement of the way of performing cash distribution in terms of shortening the

time of stay of the teams at destinations and raising the safety of the officers and of the cash transported by use of the newly installed GPS software;

- change in the way of filling the ATMs in the city branches and out of Skopje with

cash in order to decrease the amount in cash in the vaults and decrease of the amount of cash transported;

- the Bank shall keep on providing the service of transport of cash for the needs of

bigger and key existing and new clients of the Bank, which will request such service, in order to meet their needs and to acquire or keep their loyalty,

- strengthening of the control of the cash operation in the organizational parts and

units of the Bank, based on the recommendations provided by the Inspection and Control Unit and the Internal Audit of the Bank,

- continuous revision of the procedures and guidelines in this segment of operation

in order to provide their compliance with the amendments in the conditions of operation,

- decreasing risks and increasing efficiency in the domain of operation of the Vault

Operations Department, as well as during the transport of cash, delivery of cash, safe-deposit boxes operations and servicing of the ATMs, through permanent cooperation with other organizational units of the Bank and with external institutions, as well.

MARKETING ACTIVITIES In the planning period the main marketing activities of the Bank will be focused on maintenance of the existing client base and attracting new clients, building long-term partnership with clients, improvement of the classic distribution channels and offering new and modern alternative, pursuant to the needs and desires of clients, advancement of perception for the brand of the Bank and timely and accurate informing for the wide public regarding the range of products and services. The planned marketing activities of the Bank will be focused on the following:

a) in the domain of marketing research:

- carrying out primary and secondary market research in order to provide

necessary information on the trends in the banking, regarding products and services of the competition and regarding our position on the banking market, i.e. the position of the Bank’s products and services;

- conducting marketing research in order to assess the satisfaction of clients from the received services in the Bank’s branches and city-branches thus providing necessary information for the direction of further activities;

- using results from the conducted omnibus research for banks; - conducting regular researches and analyses of products and services of other

banks, through their web sites and printed promotion material. b) in the domain of development of new products, the planned activities shall be carried out in cooperation with the retail and corporate sector and will refer to introducing new products of the Bank: Visa brand payment cards, E-commerce – possibility for executing transactions through specialized web sites in Macedonia, family savings deposit, savings deposit with promotional interest rates, savings product for juveniles, savings deposit with anticipative calculation and payout of interest, standing order for legal entities, e-banking for international payment operations and time savings deposit for legal entities.

c) the activities regarding the Bank’s distribution channels, refer to providing increased efficiency of the existing distribution channels, minimizing the costs and introducing new distribution channels that would not burden budget of the Bank, for the purpose of improving the way of delivering products and services to the ultimate beneficiaries. In that term, the Bank shall undertake the following activities:

- continuation of the project for rebranding the ATMs and POS terminals in the colors of the Bank;

- introduction of multifunctional ATMs with possibility for non-cash payment operations 24 hours a day;

- unification (rebranding) and modernization of the Bank’s branches and city-branches in order to get their easy distinction and improving image of the Bank;

- promotion of services offered by e-banking for legal entities and individuals, introducing all services offered by the e-banking at the already existing info kiosks of the Bank, as well as installing terminals (computers) in the bigger city-branches and branches of the Bank where clients could execute transactions enabled by the e-banking or receive the necessary information on the web site of the Bank;

- introducing new service - mobile banking which would provide the clients the possibility to get information on the statement of their account, savings deposits, their liabilities towards the Bank (loans, interests, fees and commissions etc.) to pay bills (non-cash transactions), to get necessary information on the Bank etc. on their mobile phones;

- complete redesign of the web site of the Bank; - permanent updating of the information on the Bank’s web site, info kiosk and

contact center. d) the marketing communication activities for 2010 shall be designed to achieve better participation in the media compared to the previous year, without increasing expenses. As a result from the stated goal, in 2010 the Bank plans to realize the following marketing communication activities:

1. Refurbishment of the corporate image of the Bank and its positioning as

the first choice bank through a wide corporate campaign, whose main objective is to offer new distinction of the Bank’s brand;

2. Proper celebration of the 55 anniversary from foundation of the Bank with several activities among which is issuance of monograph in Macedonian and English language;

3. Redesign of the web site of the Bank, by making reorganization of the contents and new, modernized graphic look as per the new Bank’s standardization;

4. Regular preparation and update of the printed promotion materials and organization of their distribution to city-branches and branches;

5. Realization of one or two promotion campaigns for the products intended for citizens.

Realization of the foregoing communication objectives shall be conducted by use of the pull strategy, i.e. an approach that means using mass communication forms focused on attracting clients which derives from the need of promoting the new associations of the Bank’s brand. e) in the domain of sponsorships and donations, adhering to the policy on corporate social responsibility, the Bank shall keep on approving sponsorships to support projects in several domains, such as: sport, art, scientific research and publication, conferences, social events, media and spaces. FINANCE OPERATIONS The planned activities in the financial operations for 2010 shall be focused on the improvement of the financial accounting, as well as on expenses accounting of as a vital function, having in mind that the accounting (both financial accounting and the expenses accounting of) present data to the management accounting data which is essential for the current and strategic business decision making in the Bank. The system of the expenses accounting, besides the other, would represent a methodological procedure for analysis and expenses recording, their grouping and regrouping, in order to obtain relevant expenses for argumentation of relevant business decisions. Only upon the data received regarding the extent and structure of expenses by different cost centers, the management can plan and carry out control of the operation activities and conduct the business policy of the Bank as well. The primary aim of applying the expenses accounting is grouping, recording and analysis of expenses. Namely, the grouping, or allocation of expenses shall be carried out according to the so called cost objects, which may be certain activity of the Bank’s operation, certain products and services offered and used by the Bank, certain projects of the Bank - all this being intended and depending on the internal needs of the Bank in given periods. Also grouping of expenses can be performed through separate business segments in accordance with the external needs for financial reporting of the potential shareholders of the Bank. Spending time and paying attention to the allocation of expenses is important for the purpose of achieving certain aims that would be reached in the Bank, first of all, to provide measuring of the results from operation for the purpose of internal informing, to justify expenses, i.e. to calculate and consider their compensation, to motivate all

employees of the Bank, as well as to provide obtaining of the necessary data for a very short time and their timely presentation to the management for the sake of making efficient business decisions. Accordingly, the Bank is planning to undertake the following activities:

- upgrade of certain software solutions, in order to achieve complete and integral system of record-keeping, analysis and reporting, which will incorporate all elements, phases and organizational units in the Bank;

- developing a solution for adequate presentation of data within the reporting per segments in cooperation with other organizational units of the Bank;

- purchase of new business software package for financial-material operations; - additional staffing with highly professional staff in order to meet the

requirements arising under each amendments and supplements to the International Financial Reporting Standards (IFRS) and their implementation in the respective financial reporting.

BANK’S OPERATION COMPLIANCE CONTROL AND MONEY LAUNDERING PREVENTION The planned activities for compliance control of the Bank’s operation with the law regulations and money laundering prevention will be directed towards:

- permanent monitoring and following of the law regulations that regulate the operation of the Bank and giving instruction for their proper implementation;

- identifying and monitoring of the risks from the incompliance of the Bank’s operations with the law regulations and proposing corrective measures;

- regular reporting to the Board of Directors, Supervisory Board and other authorities; and

- respective training of the employees regarding the implementation of the law regulations.

The planned activities in the sphere of money laundering and financing terrorism prevention shall be directed towards:

- Adjustment of the Bank’s operation with the forthcoming amendments (in the course of 2010) in the law regulations for money laundering and financing terrorism prevention, which means:

• Adoption of a new program of the Bank on money laundering and financing terrorism prevention as per the new law;

• Revision, amendments and supplements to the internal acts of the Bank or adoption of new ones where necessary, pursuant to the standards laid down in the domestic and international regulations;

• Adoption of Guidelines for operation of the unit for money laundering and financing terrorism prevention; and

• Organization activities for development of the department for money laundering and financing terrorism prevention

- Implementation of new software for the unit for money laundering and financing

terrorism prevention pursuant to the adopted Book of Regulations of the Ministry of Finance and proper training of the employees in the department for money laundering and financing terrorism prevention, as per the new software solution;

- Adoption of internal act on methodology for determining a client profile and procedures depending on the determined profile and the level of risk from money laundering and financing terrorism prevention;

- Active participation in external commissions and other authorities, bodies and associations specialized for the domestic and international regulations from the domain of money laundering and financing terrorism prevention;

- Increase of the capacity of the Bank for protection against risk from money laundering and financing terrorism by allowing data browsing in the defined lists of risk countries and risk clients, as well as by purchasing access to the base of Due Diligence Repository of Bank Almanac;

- Identification and following the risk from incompliance with the regulations from the domain of money laundering and financing terrorism prevention and proposing solutions for overcoming the discrepancies;

- Common proposal for permanent relationship of the department for money laundering and financing terrorism prevention with the business area for proper implementation of the new applications for registration of clients when updating business relations;

- Cooperation with the Internal Audit and reporting any discrepancies in terms of implementation of the standards for money laundering and financing terrorism prevention;

- Permanent monitoring and analysis of the transactions and detecting suspicious transactions based on suspiciousness indicators,

- Regular training of the employees in terms of implementation of the regulations from the area of money laundering and financing terrorism prevention;

- Control of the Bank’s branches in terms of implementation of the introduced measures and activities by the unit for money laundering and financing terrorism prevention;

- Regular reporting to the Board of Directors, Supervisory Board and other authorities regarding the considered statement and proposed measures and activities.

BRANCH NETWORK MANAGEMENT In the course of 2010, the Branch Network Management Department shall undertake the following activities:

- Regular communication with branches and coordination between the branches and the organizational units in the Bank in terms of transfer of information, reporting and other matters;

- Monitoring of the overall operation of the branches and movements of the assets on the accounts and control of the reports submitted by branches to the Bank’s organizational units;

- Taking over preparation of the monthly reports of branches in order to enable the branches be more concentrated on the operative tasks;

- Preparation of the monthly and annual reports of branches, as follows:

• Report on the volume of operations realized by branches – monthly and cumulatively;

• Participation of the branches’ operation in the total Bank’s operation – monthly and cumulatively;

• Structure of income and expenses, monthly;

• Summary on volume of operation realized by branches; - Analysis of the justifiability of transformation of the existing city-branches into

branches and on joining branches by some city branches;

- Coordination of all activities in the processes of opening new city-branches under competence of branches and in functioning of the new organization;

- Making different analyses for the needs of branches; - Participation in the activities for providing new business premises for the

branches, in coordination with the respective organizational unit of the Bank, as well as in the processes of some procurements;

- Upgrading of changes of internal acts that refer to the performance of the Branches and sending instructions to the branches on the way of conduct;

- Preparing main Decisions on authorized signatories of the branches and amendments thereto;

INTERNAL AUDIT The efficient system of internal control is the basis for stable and safe operation of Komercijalna Banka AD Skopje, and it provides protection of the value of the assets and maximization of the value of the Bank, preparing accurate financial reports, increase of the efficiency of the overall Bank’s operation, as well as compliance with the internal policies of the Bank, the law and regulations related to the banking operations. The internal audit means continuous process realized on all levels of the Bank by the Supervisory Board, Board of Directors and all employees of the Bank. The organizational unit for internal audit is an independent organizational part, separated from the other organizational parts of the Bank in terms of function and organization, hierarchically over the operative parts, directly reporting to the Supervisory Board and the Audit Committee. The Internal Audit provides objective and independent assessment of the adequacy and efficiency of the system for internal control, the accuracy of the accounting records and financial reports, harmonization of the internal policies and procedures of the Bank with the applicable laws and regulations, as well as on the overall efficiency in the operation of the Bank. The Bank’s policy continues in the direction of implementation and maintenance of adequate internal audit, which is an independent and objective activity for assuring (controlling) and consulting, in order to increase the value of the assets and to improve the quality of operation of the Bank. This function enables the Bank to achieve the planned aims by implementation of systematic and disciplinary approach in the assessment and improvement of the efficiency in managing the risks, controls and the managing process4. In the course of 2010, the Internal Audit shall carry out its activities in accordance with the Annual Plan for Operation for 2010, which, according to article 96 of the Banking Law, article 121 of the Statute of the Bank and the internal acts for operation, has been approved by the Bank’s Supervisory Board. The Annual Plan for Operation of the Internal Audit is based on assessment and analyses of the risks in all current activities and subjects in the Bank, as well as of the whole system of internal control, taking into account the introduction of new activities, products and innovations, as well as the risks related to these new

4 The definition of the Board of Directors of the Institute of Internal Auditors. Source: Internal

audit in banks and the supervisor’s relationship with auditors, Basel Committee on Banking Supervision, August 2001.

activities, the changes in the environment, improvement of the information systems, etc. This Plan is prepared on the basis of preliminary analysis of the significant business processes in the Bank that manage the assets and resources and that generate significant income and expenses, as well as on the basis of the evaluation of the potential risks the important business processes and the overall operation of the Bank are exposed to. When preparing the Annual Plan for Operation, the Internal Audit keeps in mind that this plan should enable interim revision of all more important aspects in the operation of the Bank in form of regular and notified audits, organized unannounced controls depending on the nature of the actual control. When planning the volume and activities of the Internal Audit for 2010, the issues taken into account are the projects that are going to be realized in the course of the year and where largest part of the auditors shall be included in. In the part of the audits on the pre-implementations, the Internal Audit shall be focused on the assessment of the adequacy of the project methodology for implementation of the new financial activity and the adequacy of the project methodology for selecting and upgrade of the IT system of the Bank, while in the domain of post-implementation phases, the Internal Audit shall be focused on the assessment of the adequacy and quality of the system of internal controls in the revised processes. OPERATION OF THE BRANCHES Giving full support to the strategy of Komercijalna Banka AD Skopje in direction to its further development into a leading bank on the territory of the Republic of Macedonia, practicing the highest standards and policies of the international operations, the branches, as its integral part, are going to undertake activities towards realization of the determined priority current and development aims and objectives of the Bank’s business policy, as follows:

1. Maximization of the working profitability, as condition for maintaining and

increasing of the Bank’s capital value;

2. Further increase of the credit potential through mobilizing new deposits from individuals and legal entities from these regions, in function of increasing the Bank’s participation at the banking market of the Republic of Macedonia;

3. Financing and development of the entrepreneurship and the SME-s with

programs and projects that can be verified on the market and can guarantee profitability of the activities as well as support of the economy segments that are significant for growth and exports promotion;

4. Operation risk management in terms of their identification, control,

minimization and protection;

5. Intensifying the activities in the domestic payment operations through increment of the number of depositors and extension of the types of services, as well as taking care for the competitiveness following the extent of the fees of other banks;

6. Maximal support of export-import activities of Bank’s clients in function of

increasing the international payment operations with intention for attracting new clients from those regions;

7. Organizational and personnel improvement, in function of more successful

and efficient working and improvement of the quality of services in all domains of operation.

For the purpose of realization of these priority aims and tasks, the branches will undertake adequate measures and activities in compliance with the measures and activities of the Bank in overall and according the instructions, directions and conclusions set by the managing bodies of the Bank. IV. QUANTIFICATION OF THE MAIN INDEXES The realization of the aims and objectives of the Bank’s Business Policy for 2010 also means realization of actual financial effects expressed in quantified indexes. 1. The main assumptions when conceptualizing these indexes are as follows:

1.1. Macroeconomic assumptions: - stable denar exchange rate, - inflation rate of approximately 1%, - real increase of GDP of 1% to 2%, - increase of the broad money M4 of 7.5%, - increase of the total deposits of 6.1% and - increase of the loans to private sector of 9%.

1.2. Internal banking principles

a) Planned profitability expressed through ROE of 20% and ROA of 2%;

b) Targeted interest margin of over 3%;

c) Increase of the deposits to a level that will provide their participation in the

total assets of the Bank of over 80%;

d) Increase of the interest bearing placements in accordance with the movement of the open f/x position and through taking into consideration the ratio between denar and f/x component of the Bank’s assets, as well as maintaining the Bank’s exposure to foreign currency risk within the legally set limitations;

e) Allocation of significant part of the net profit into reserves, at a rate of dividend payment of about 20%;

f) Liquidity that will ensure minimum liquidity prescribed by NBRM and creating

an appropriate securities portfolio, as an instrument for securing secondary liquidity;

g) Maintaining the value of capital and increasing the capital adequacy ratio

through allocation of part of the profit into reserves;

h) Planned expenses ratio calculated as a ratio between operative expenses

and total income of approximately 44%.

2. Quantification of the items in the Balance Sheet and Income Statement

2.1. Balance Sheet

The forecast of the Balance Sheet reflecting the expected results for 2010 is shown in the table below:

ASSETS (in MKD million)

31.12.2009 Plan 31.12.2010 Index

Amount Structure Amount Structure 5:3

1 2 3 4 5 6 7

1 Money in cash and deposits with the NBRM 16,591 27.3% 17,982 28.0% 108

2 Assets for trading 30 0.1% 31 0.0% 102

3 Placements in and short-term loans to other banks 1,331 2.2% 1,349 2.1% 101

4 Loans to customers 38,667 63.6% 40,276 63.2% 104

5 Investments 590 1.0% 557 0.9% 94

6 Property (Fixed assets) 1,738 2.9% 1,936 3.0% 111

7 Other assets 1,829 3.0% 2,049 3.2% 112

Total assets 60,776 100.0% 64,180 100.0% 106

LIABILITIES

1 Liabilities upon short-term and long-term loans 1,581 2.6% 2,573 4.0% 163

2 Deposits from customers 51,217 84.3% 52,724 82.2% 103

3 Other liabilities 1,021 1.7% 1,205 1.9% 118

4 Shareholders capital 2,233 3.7% 2,233 3.5% 100

5 Own shares 0 0.0% 0 0.0% 0

6 Reserves 3,650

6.0% 4,345

6.8% 119

7 Unallocated profit 0 0.0% 0 0.0% 0

8 Gross profit 1,074

1.8% 1,100

1.7% 102

Total liabilities and capital 60,776 100.0% 64,180 100.0% 106

Total resources of the Bank are planned to increase from 60,776 million denars to 64,180 million denars or 6%. Significant items of the Bank’s assets for which an increase is planned are:

• Money in cash and deposits with the NBRM which are comprised of denar and f/x Mandatory reserve of the Bank, treasury bills and money in cash, are planned to increase by 8%, or by 1.391 million denars. Within this item, the money in cash is planned to increase by 1.242 million denars due to short-term deposits in foreign banks and purchased treasury bills, while the f/x mandatory reserve is planned to increase by 149 million denars.

• Total net-loans to customers are planned to increase by 1.609 million denars, or by 4% whereas the planned growth of gross loans is approximately 5%. In

the course of 2010 changes of maturity and currency structure of the gross loans to customers is not planned.

• Fixed assets (property) are planned to increase by 198 million denars due to purchase of new property. The planned amount does not exceed the legally prescribed limit for the multiplier.

• Placements in and short-term loans to other banks are planned to increase by 1%.

• Assets for trading which have insignificant participation in the total assets are planned to increase by 2%.

• Investments of the Bank refer to investments in securities available for selling, securities held to maturity and investments in associates. The total amount will mark a drop due to maturity of purchased securities. Investments in associates are planned to increase by 23 million denars due to net profit stake in the Bank’s associate companies.

Most significant items of the Bank’s liabilities for which growth was planned are:

• Liabilities upon short-term and long-term loans are planned to increase by 63% due to usage of new credit line from EIB fascilitated through the MBDP in the amount of 1,139 million denars.

• Total deposits of customers are planned to increase by 3%, or by 1,507 million denars, thus reaching participation of 82.2% of the Bank’s total resources. In the course of 2010 changes of maturity and currency structure of the total deposits is not planned.

• Reserves of the Bank are planned to increase by 695 million denars as a result of allocation of part of the profit for 2009. The planned capital adequacy ratio for 2010 calculated through growth of money in cash and unchanged off-balance sheet assets is 11.4%.

2.2. Income statement The forecast of the income and expenses of the Bank in the course of 2010 is shown in the table below:

(in MKD million)

Realization 01.01. -

31.12.2009 Plan 2010

Index (6:4)

1 2 4 6 7

1 Interest income 3,877 4,081 105

2 Interest expenses 1,795 1,873 104

3 Net interest income 2,082 2,208 106

4 Other income 1,014 1,110 110

5 Other expenses 1,803 1,763 98

6 Impairment loss 3,617 3,932 109

7 Released impairment loss and collected written-off claims 3,398 3,477 102

8 Gross profit before tax 1,074 1,100 102

• Gross profit before tax is planned to reach 1.100 million denars which is by 2% higer compared to 2009, due to expected recuperation of the economic environment in the country from the effects of the global recession.

• Total interest income which is comprised of income upon interest from loans approved to non-financial sector, government, financial organizations, households and non-profit organizations that serve the households, as well as non-residents, are planned to reach 4,081 million denars which is 5% increase, due to increased credit activity and implementation of differentiated lending interest rates according the clients creditworthiness.

• Total interest expenses are planned to reach 1,873 million denars which represents 4% increase due to planned increase of deposits.

• Due to increased growth dynamics of the interest income compared to the interest expenses, net-interest income is planned to reach 2,208 million denars, or 6% increase compared to 2009.

• Other income (comprised of net fee and commission income, net f/x gains, net gains from operation with securities, gains upon capital investments, income from previous years, income upon f/x operations, other and extraordinary income) are planned to increase by 10% mainly as a result of growth of the net fee and commission income, as well as from included profit from associates and collection of balance-sheet claims.

• Other expenses which are comprised of salaries and other personnel costs, deposit insurance premiums, material expenses, business trips, representations, advertising, amortization and other expenses are planned to decrease by 2% due to more efficient cost management.

• Impairment loss calculated according the new NBRM Methodology is planned to increase by 9% compared to the same period of 2009 due to additional loan portfolio impairment upon certain clients and increased credit exposure of other clients. Net growth of the total impairment provisions both for balance sheet and off-balance sheet exposures for 2010 is planned in the amount of 455 million denars.

• Release of impairments and collected written-off claims calculated according the new NBRM Methodology are planned to increase by 2%.

* *

* The Program of business policy measures and activities of Komercijalna Banka AD Skopje will be amended and adjusted in accordance with the law and other by-laws that will be passed in the course of the year.

BOARD OF DIRECTORS

TABLE 1

ASSETSPlanned increase Index

Amount Structure Amount Structure (5-3) 5:31 2 3 4 5 6 7 81 Money in cash 13.803.174 22,7% 15.045.000 23,4% 1.241.826 109

2 Deposits with the NBRM 2.787.967 4,6% 2.937.000 4,6% 149.033 1053 Assets held for trading 30.531 0,1% 31.000 0,0% 469 102

4Placements in and short-term loans to other banks 1.330.583 2,2% 1.349.000 2,1% 18.417 101

5

Short-term loans, due receivables and current receivables upon long-term loans

11.351.539 18,7% 11.960.000 18,6% 608.461 105

6 Long-term loans 27.314.175 44,9% 28.316.000 44,1% 1.001.825 104

7

Investments in securities – held for trading

381.283 0,6% 380.000 0,6% -1.283 100

8

Investments in securities – held until maturity

120.086 0,2% 65.000 0,1% -55.086 54

9

Investments in assotiates

88.799 0,1% 112.000 0,2% 23.201 126

10Fixed assets

1.738.154 2,9% 1.936.000 3,0% 197.846 111

11 Other assets 1.829.218 3,0% 2.049.000 3,2% 219.782 112

Total assets 60.775.509 100,0% 64.180.000 100,0% 3.404.491 106

LIABILITIES

Planned increase Index

Amount Structure Amount Structure (5-3) 5:31 2 3 4 5 6 7 8

1 Short-term borrowings 98.629 0,2% 99.000 0,2% 371 100

2 Long-term borrowings 1.482.481 2,4% 2.474.000 3,9% 991.519 167

3 Demand deposits 21.829.603 35,9% 22.474.000 35,0% 644.397 103

4 Short-term deposits 27.189.573 44,7% 27.990.000 43,6% 800.427 103

5 Long-term deposits 2.197.838 3,6% 2.260.000 3,5% 62.162 103

6 Other liabilities 1.021.053 1,7% 1.205.000 1,9% 183.947 118

7 Share capital 2.232.767 3,7% 2.233.000 3,5% 233 100

8 Own shares 0 0,0% 0 0,0% 0 09 reserves 3.649.557 6,0% 4.345.000 6,8% 695.443 119

10 Unallocated profit 0 0,0% 0 0,0% 0 011 Gross profit 1.074.008 1,8% 1.100.000 1,7% 25.992 102

Total liabilities 60.775.509 100,0% 64.180.000 100,0% 3.404.491 106

BALANCE SHEET OFKOMERCIJALNA BANKA AD SKOPJE

as at December 31, 2009 and Plan for 2010

(IN 000 MKD)

(IN 000 MKD)

Statement 31.12.2009 Plan 2010


TABLE 2

ASSETS 31.12.2009

Head office Prilep Ohrid Veles Strumica Kocani Stip Kumanovo KavadarciKB with the branches

1 2 3 4 5 6 7 8 9 10 11 121 Money in cash 10.667.591 841.497 75.098 204.216 42.200 669.202 694.342 378.167 230.861 13.803.174

2 Deposits with the NBRM 2.787.967 0 0 0 0 0 0 0 0 2.787.9673 Assets held for trading 30.531 0 0 0 0 0 0 0 0 30.531

4Placements in and short-term loans to other banks 1.330.583 0 0 0 0 0 0 0 0 1.330.583

5


9.250.942 715.677 438.746 284.932 317.529 123.689 159.641 55.642 4.741 11.351.539

6 Long-term loans 24.300.461 628.749 558.494 222.911 922.453 180.420 341.347 98.478 60.862 27.314.175

7 Investments in securities – held for trading 381.283 0 0 0 0 0 0 0 0 381.283

8


120.086 0 0 0 0 0 0 0 0 120.086

9 Investments in assotiates 88.799 0 0 0 0 0 0 0 0 88.799

10 Fixed assets 1.400.378 128.383 60.768 36.215 20.814 11.119 40.498 24.090 15.889 1.738.15411 Other assets -2.083.546 1.549.397 363.741 216.090 -112.926 -72.444 -220.947 1.572.335 617.518 1.829.218

Total assets 48.275.075 3.863.703 1.496.847 964.364 1.190.070 911.986 1.014.881 2.128.712 929.871 60.775.509

LIABILITIES 31.12.2009

Head office Prilep Ohrid Veles Strumica Kocani Stip Kumanovo Kavadarci branches1 2 3 4 5 6 7 8 9 10 11 12

1 Short-term borrowings 98.629 0 0 0 0 0 0 0 0 98.629

2 Long-term borrowings 1.366.511 115.970 0 0 0 0 0 0 0 1.482.481

3 Demand deposits 17.386.354 1.158.709 399.423 346.449 446.829 395.099 395.939 1.008.285 292.516 21.829.603

4 Short-term deposits 19.865.818 2.371.207 954.546 563.239 687.995 499.905 572.863 1.057.176 616.824 27.189.573

5 Long-term deposits 1.853.168 31.051 118.797 44.514 44.299 10.445 32.438 50.475 12.651 2.197.838

6 Other liabilities 899.058 40.769 19.283 10.162 10.947 6.537 13.641 12.776 7.880 1.021.053

7 Share capital 2.232.767 0 0 0 0 0 0 0 0 2.232.767

8 Own shares 0 0 0 0 0 0 0 0 0 09 reserves 3.520.046 129.511 0 0 0 0 0 0 0 3.649.557

10 Unallocated profit 0 0 0 0 0 0 0 0 0

11 Gross profit 1.074.008 0 0 0 0 0 0 0 0 1.074.008

12 *Difference (Assets - Liabilities) -21.284 16.486 4.798 0 0 0 0 0 0 0

Total liabilities 48.275.075 3.863.703 1.496.847 964.364 1.190.070 911.986 1.014.881 2.128.712 929.871 60.775.509** The diference between the Assets and Liabilities of the Branch is a result of unexecuted bookkeeping entries of internal relations

(IN 000 MKD)

BALANCE SHEET OFKOMERCIJALNA BANKA AD SKOPJE AND THEIR BRANCHES

as at December 31, 2009

(IN 000 MKD)

TABLE 3

ASSETSPLAN 2010

Head office Prilep Ohrid Veles Strumica Kocani Stip Kumanovo KavadarciKB with the

branches1 2 3 4 5 6 7 8 9 10 11 12

1 Money in cash 11.721.000 892.000 80.000 216.000 45.000 709.000 736.000 401.000 245.000 15.045.000

2 Deposits with the NBRM 2.937.000 0 0 0 0 0 0 0 0 2.937.0003 Assets held for trading 31.000 0 0 0 0 0 0 0 0 31.000

4 Placements in and short-term loans to other banks 1.349.000 0 0 0 0 0 0 0 0 1.349.000

5


9.734.000 754.000 462.000 300.000 334.000 130.000 168.000 69.000 9.000 11.960.000

6 Long-term loans 25.170.000 652.000 579.000 231.000 956.000 187.000 354.000 106.000 81.000 28.316.000

7


380.000 0 0 0 0 0 0 0 0 380.000

8


65.000 0 0 0 0 0 0 0 0 65.000

9

Investments in assotiates

112.000 0 0 0 0 0 0 0 0 112.000

10 Fixed assets 1.560.000 143.000 68.000 40.000 23.000 12.000 45.000 27.000 18.000 1.936.000

11 Other assets -1.913.000 1.607.000 374.000 235.000 -87.000 -64.000 -217.000 1.532.000 582.000 2.049.000

Total assets 51.146.000 4.048.000 1.563.000 1.022.000 1.271.000 974.000 1.086.000 2.135.000 935.000 64.180.000

LIABILITIES (IN 000 MKD)PLAN 2010

Head office Prilep Ohrid Veles Strumica Kocani Stip Kumanovo KavadarciKB with the

branches

1 2 3 4 5 6 7 8 9 10 11 12

1 Short-term borrowings 99.000 0 0 0 0 0 0 0 0 99.0002 Long-term borrowings 2.358.030 115.970 0 0 0 0 0 0 0 2.474.000

3 Demand deposits 17.924.000 1.197.000 413.000 358.000 462.000 408.000 409.000 1.010.000 293.000 22.474.000

4 Short-term deposits 20.485.000 2.445.000 984.000 581.000 710.000 516.000 591.000 1.059.000 619.000 27.990.000

5 Long-term deposits 1.904.000 32.000 123.000 46.000 46.000 11.000 34.000 51.000 13.000 2.260.000

6 Other liabilities 1.045.581 61.919 27.000 12.300 12.200 8.000 15.000 14.000 9.000 1.205.000

7 Share capital 2.233.000 0 0 0 0 0 0 0 0 2.233.0008 Own shares 0 0 0 0 0 0 0 0 0 09 reserves 4.215.489 129.511 0 0 0 0 0 0 0 4.345.000

10 Unallocated profit 0 0 0 0 0 0 0 0 0 011 Gross profit 881.900 66.600 16.000 24.700 40.800 31.000 37.000 1.000 1.000 1.100.000

Total liabilities 51.146.000 4.048.000 1.563.000 1.022.000 1.271.000 974.000 1.086.000 2.135.000 935.000 64.180.000

BALANCE SHEET OFKOMERCIJALNA BANKA AD SKOPJE AND ITS BRANCHES

Plan 2010

(IN 000 MKD)

TABLE 4

INCOME STATEMENTof the Bank's branches

01.01 - 31.12.2009

31.12.2009

PRILEP OHRID VELES STRUMICA KOCANI STIP KUMANOVO KAVADARCI

1 2 3 4 5 6 7 8 9 10

1 INTEREST INCOME 160.183 105.620 59.340 103.333 54.367 81.973 44.498 24.7732 INTEREST EXPENSE 124.443 44.420 34.281 35.553 21.886 30.760 49.837 33.1583 NET INTEREST INCOME 35.740 61.200 25.059 67.780 32.481 51.213 -5.339 -8.3854 Fee and commission income 29.445 12.734 16.667 16.954 16.256 21.329 9.310 14.7475 Fee and commission expense 4.285 700 1.117 1.341 1.003 1.506 671 8536 Net fee and commission income 25.160 12.034 15.550 15.613 15.253 19.823 8.639 13.8947 Net FX gains 32.653 165 3.696 3.052 7.014 3.547 22.567 5.4588 Other incomes 761 493 486 640 336 425 671 3199 Net securities incomes 0 0 0 0 0 0 0 010 Dividends 0 0 0 0 0 0 0 011 Other incomes 761 493 486 640 336 425 671 31912 Other expenses13 Net securities expense 0 0 0 0 0 0 0 014 Salaries 53.491 18.766 10.400 12.885 9.599 14.749 9.834 6.84415 Insurance premium 22.036 8.790 4.575 6.218 4.560 4.955 12.039 5.09616 Material expenses 7.876 5.796 2.901 3.467 3.134 6.105 3.579 1.995

17 Other administrative expenses and amortization 9.881 4.911 2.797 2.203 2.172 5.956 3.098 2.17718 Other expenses 493 2.289 38 80 47 82 182 7619 Total other expenses 93.777 40.552 20.711 24.853 19.512 31.847 28.732 16.18820 Impairment provision 186.249 132.751 29.189 43.972 22.058 30.210 7.934 3.94421 Release of impairment provision 250.932 114.717 28.297 21.792 16.760 22.523 4.934 1.30722 Collected written-off claims 0 28 0 0 57 0 0 0

Gross profit 65.220 15.334 23.188 40.052 30.331 35.474 -5.194 -7.539

(IN 000 MKD)

TABLE 5

INCOME STATEMENTof Komercijalna banka AD Skopje and its branches

PLAN 2010 Index

Head office

Prilep Ohrid Veles Strumica Kocani StipKumanov

oKavadarci

KB with the

branches13:3

1 2 3 4 5 6 7 8 9 10 11 12 13 14

1 INTEREST INCOME 3.876.658 3.407.000 167.000 110.000 62.000 108.000 57.000 85.000 51.000 34.000 4.081.000 1052 INTEREST EXPENSE 1.794.618 1.489.000 128.000 46.000 35.000 37.000 23.000 32.000 50.000 33.000 1.873.000 1043 NET INTEREST INCOME 2.082.040 1.918.000 39.000 64.000 27.000 71.000 34.000 53.000 1.000 1.000 2.208.000 1064 Fee and commission income 861.103 788.000 31.000 14.000 18.000 18.000 17.000 23.000 10.000 16.000 935.000 1095 Fee and commission expense 145.201 138.000 4.400 800 1.100 1.400 1.000 1.600 700 1.000 150.000 1036 Net fee and commission income 715.902 650.000 26.600 13.200 16.900 16.600 16.000 21.400 9.300 15.000 785.000 1107 Net FX gains 91.317 13.800 33.000 200 4.000 3.000 7.000 3.000 22.000 5.000 91.000 1008 Other incomes 206.740 230.265 800 540 500 730 345 420 500 200 234.300 1139 Net securities incomes 4.090 4.100 0 0 0 0 0 0 0 0 4.100 100

10 Dividends 38.115 45.200 0 0 0 0 0 0 0 0 45.200 11911 Other incomes 164.535 180.965 800 540 500 730 345 420 500 200 185.000 11212 Other expenses13 Net securities expense - 0 0 0 0 0 0 0 0 0 0 014 Salaries 939.911 764.100 50.900 17.800 9.900 12.300 9.100 14.000 9.400 6.500 894.000 9515 Insurance premium 241.313 200.945 18.370 7.600 4.925 6.090 4.675 5.170 10.600 4.625 263.000 10916 Material expenses 348.940 309.185 7.795 6.270 2.980 3.490 3.270 6.550 3.380 2.080 345.000 99

17 Other administrative expenses and amortization 232.731 203.615 8.205 5.270 2.840 2.550 2.250 6.000 3.150 2.120 236.000 10118 Other expenses 39.802 22.220 530 2.000 55 100 50 100 270 175 25.500 6419 Total other expenses 1.802.697 1.500.065 85.800 38.940 20.700 24.530 19.345 31.820 26.800 15.500 1.763.500 9820 Impairment provision 3.617.577 3.437.000 201.000 143.000 31.000 48.000 24.000 32.000 10.000 6.000 3.932.000 10921 Release of impairment provision 3.350.546 2.921.700 254.000 120.000 28.000 22.000 17.000 23.000 5.000 1.300 3.392.000 10122 Collected written-off claims 47.737 85.200 0 0 0 0 0 0 0 0 85.200 178

Gross profit 1.074.008 881.900 66.600 16.000 24.700 40.800 31.000 37.000 1.000 1.000 1.100.000 102

(IN 000 MKD)

KB with the branches 31.12.2008

TABLE 6

(IN 000 MKD)

Account Plan Index Plan Index Plan Index Plan Index Plan Index31.12.2009 2010 4:3 31.12.2009 2010 7:6 31.12.2009 2010 10:9 31.12.2009 2010 13:12 31.12.2009 2010 16:15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

623 Material and similar expenses 77.566 78.300 101 3.745 3.565 95 2.343 2.720 116 1.413 1.440 102 1.484 1.615 109

624 Expenses and services 169.122 167.100 99 3.647 3.720 102 2.854 2.990 105 1.101 1.180 107 1.537 1.695 110

625 Business trips expenses 11.224 8.200 73 100 110 110 55 60 109 73 30 41 41 30 73

627 Representation and marketing expenses 56.171 56.000 100 388 400 103 544 500 92 313 330 105 405 150 37

628 Other administrative expenses 27.717 23.700 86 3.285 3.205 98 1.724 1.870 108 536 540 101 743 1.050 141

629 Amortization and amortization revaluation 171.819 180.000 105 6.595 5.000 76 3.187 3.400 107 2.262 2.300 102 1.461 1.500 103

TOTAL 513.619 513.300 100 17.760 16.000 90 10.707 11.540 108 5.698 5.820 102 5.671 6.040 107

(IN 000 MKD)

Account Plan Index Plan Index Plan Index Plan Index Plan Index31.12.2009 2010 4:3 31.12.2009 2010 7:6 31.12.2009 2010 10:9 31.12.2009 2010 13:12 31.12.2009 2010 16:15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

623 Material and similar expenses 1.364 1.470 108 2.696 2.820 105 1.228 1.270 103 895 1.000 112 92.734 94.200 102

624 Expenses and services 1.531 1.580 103 3.025 3.340 110 2.154 1.890 88 989 920 93 185.960 184.415 99

625 Business trips expenses 36 20 56 27 30 111 47 60 128 45 60 133 11.648 8.600 74

627 Representation and marketing expenses 202 200 99 357 360 101 150 160 107 66 100 152 58.596 58.200 99

628 Other administrative expenses 723 750 104 867 800 92 732 750 102 579 520 90 36.906 33.185 90

629 Amortization and amortization revaluation 1.451 1.500 103 5.089 5.200 102 2.365 2.400 101 1.598 1.600 100 195.827 202.900 104

TOTAL 5.307 5.520 104 12.061 12.550 104 6.676 6.530 98 4.172 4.200 101 581.671 581.500 100

Branch Strumica

Komercijalna banka AD Skopje

Head office Branch Prilep Branch Ohrid Branch Veles

Branch Kocani Branch Stip Branch Kumanovo Branch Kavadarci

PLAN 2010of the operating expenses and amortization

of Komercijalna banka AD Skopje with the branches

TABLE 7

(IN 000 MKD)

Acc. Plan Index Plan Index Plan Index Plan Index Plan Index31.12.2009 2010 4:3 31.12.2009 2010 7:6 31.12.2009 2010 10:9 31.12.2009 2010 13:12 31.12.2009 2010 16:15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1762202 Payment upon pension dismissal 376 740 197 79 160 203 0 0 0 0 0 0 0 0 062204 Awards and rewards 468 720 154 177 100 56 0 0 0 0 0 0 0 0 062205 Social and funeral allowances 1.595 1.000 63 240 0 0 0 0 0 0 0 0 0 0 062206 Professional training 3.720 4.000 108 0 0 0 0 0 0 66 50 76 24 0 0

TOTAL: 6.159 6.460 105 496 260 52 0 0 0 66 50 76 24 0 0

Acc. Plan Index Plan Index Plan Index Plan Index Plan Index31.12.2009 2010 4:3 31.12.2009 2010 7:6 31.12.2009 2010 10:9 31.12.2009 2010 13:12 31.12.2009 2010 16:15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

62202 Payment upon pension dismissal 0 0 0 0 0 0 0 0 0 0 0 0 455 900 19862204 Awards and rewards 26 0 0 0 20 0 0 0 0 0 0 0 671 840 12562205 Social and funeral allowances 0 0 0 0 0 0 0 0 0 0 0 0 1.835 1.000 5462206 Professional training 24 0 0 82 100 122 62 40 65 42 70 167 4.020 4.260 106

TOTAL: 50 0 0 82 120 146 62 40 65 42 70 167 6.981 7.000 100

PLAN 2010of the expenses under collective agreement

of Komercijalna banka AD Skopje with the branches

Head office Branch Prilep Branch Ohrid Branch Veles Branch Strumica

Branch Kocani Branch Stip Branch Kumanovo Branch Kavadarci Komercijalna banka AD Skopje

Prof. head Branch Branch Branch Branch Branch Branch Branch Branch KB head Branch Branch Branch Branch Branch Branch Branch Branch KB

education office Prilep Ohrid Veles Strumica Kocani Stip Kumanovo Kavadarci total office Prilep Ohrid Veles Strumica Kocani Stip Kumanovo Kavadarci total

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

1 Ph.D. 1 - - - - - - - - 1 1 - - - - - - - - 1

2 MA 30 - - - 1 - 1 1 - 33 30 - - - 1 - 1 1 - 33

3 UG 376 21 17 11 12 6 15 11 8 477 391 20 17 12 13 7 16 12 8 496

4 ASG 47 30 1 2 - 3 2 - 1 86 45 28 1 2 - 3 2 - 1 82

5 SSG 560 38 12 1 5 4 3 4 3 630 549 37 12 1 5 4 3 4 3 618

7 ESG 4 0 - - - - - - 4 4 - - - - - - - - 4

Total 1018 89 30 14 18 13 21 16 12 1231 1020 85 30 15 19 14 22 17 12 1234

TABLE 8PLAN 2010

for needed personnel for Komercijlna banka AD Skopje with the branches

31.12.2009 Plan 2010

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ATTACHMENT 7:

DEVELOPMENT PLAN OF KOMERCIJALNA BANKA AD SKOPJE WITH FINANCIAL PROJECTIONS FOR THE PERIOD 2010-2014

�


DEVELOPMENT PLAN OF KOMERCIJALNA BANKA AD SKOPJE

WITH FINANCIAL PROJECTONS FOR 2010-2014

Skopje, February 2010

1

INTRODUCTION As an institution in the banking sector of the Republic of Macedonia, Komercijalna Banka AD Skopje is obliged to design and pass a development plan in accordance with the Banking Law, Companies Act and Statute of the Bank. For designing of the Development Plan for the period 2010–2014 the organizational units of the Bank have presented Programs of their activities with dynamics of realization. Also, macroeconomic assumptions and internal accounts proportions for layout of financial projections for the period 2010–2014 have been determined. The aims and objectives defined in the Policy Statement of Komercijalna Banka AD Skopje shall keep on being long-term strategic aims and objectives of the Bank’s development. Realization of the Development Plan of the Bank shall be followed by designing and adopting a Program of the Bank’s business policy measures and activities every year, thus updating the Development Plan.

2

I. MACROECONOMIC CONDITIONS IN WHICH THE BANK WILL PERFORM ITS ACTIVITIES

Mid-term macroeconomic forecasts for the period 2010-2014 are accompanied with significant uncertainties. Thereby, at least three limiting factors can be set. Firstly, the period for which the forecast is set is longer than the current political cycle which would regularly end in 2012. Consequently, the mid-term forecast set by the Government, presented in the Budget for 2010, finishes with the end of 2012, thus the Ministry of finance presents only several additional macroeconomic indicators for 2013. Only the IMF has mid-term forecast ending with 2014. The stated forecasts differ one from another. The Central Bank has released a forecast only for 2010. Secondly, there is significant uncertainty about the speed and the size of the recovery of the global economy, especially of the countries which are major trading partners of the Republic of Macedonia. The events in these countries reflect directly on the external demand for Macedonian commodities and services and indirectly influence the balance of payments, level of economic activity, f/x reserves and the exchange rate of the domestic currency. Thereby, it is of significant importance to learn in which manner these countries will abandon the policies for overcoming the effects of the global economic crisis and how this will reflect their economies. Thus, the man enigma remains whether the current global recovery is sustainable or is there a significant risk in terms of absence of governmental support of the economies which could lead in a certain extent for the crisis to repeat. Thirdly, a significant factor is the uncertainty of the euro-athlantic integration progress of the country. Speeding up of this process could result with significant positive effects in the forthcoming period. Considering the stated limitations and uncertainties, the main macroeconomic indicators presented in the Bank’s Development plan represent combination of projections set by the Government, the IMF and internal forecasts of the Bank. In the forthcoming mid-term period it is expected the Bank to perform its activities within sustainable macroeconomic stability. The consensus in the society is that this is the best environment for achieving sustainable long-term economic growth. The forecast for 2010 is that the prices will leave deflation zone and the average annual inflation rate will be 1.5%. Expected generator of the inflation trend are import prices, mainly the increase of the crude oil price due to increased global demand resulting from the expected economic recovery. The effect should be mitigated with the absence of inflation pressures deriving from domestic demand due to lower level of economic growth. The price stability is expected to remain until 2014, thus the average annual inflation rate would be somewhat higher and would range from 2% to 3%. Stable macroeconomic environment should be supported with the maintenance of stable exchange rate of the denar in terms of the euro. In the course of 2010 the Central Bank will continue with its monetary strategy of targeting the nominal foreign exchange rate of the denar in terms of the euro. It is optional that in the period until 2014, the Central Bank could shift to monetary strategy of targeting the inflation, thus in such conditions the Central Bank would show implicit determinacy to protect the exchange rate at a certain level.

3

Table Key macroeconomic indicators1

2010 2011 2012 2013 2014

1 GDP (real growth) 1.5% 3.5% 5.0% 5.0% 5.0%

2 Industry 2.4% 5.6% 7.3% 8.0% 8.0%

3

Inflation (life expenses,

average) 2.0% 2.0% 2.5% 2.8% 3.0%

4

Trade balance (f.o.b.) (% of

GDP) -24.8% -25.7% -25.8% -25.8% -25.8%

5

Current account deficit (%

of GDP) -11.6% -12.1% -11.6% -10.8% -10.1%

6 Exchange rate denar/euro 61.3242 61.3242 61.3242 61.3242 61.3242

7 Budget sufficit / deficit -2.5% -2.0% -2.0% -2.0% -2.0%

8

Unemployment rate (ILO

definition) 30.8% 29.4% 27.8% 26.8% 25.5%

Regarding the general level of economic activity, the forecasted real GDP growth is 1.5%. It refers to moderate recuperation of the Macedonian economy, due to expected increased export demand and expected growth of commodity market prices of metals. Intensified recuperation process of the world economy as well as the euro-athlantic integration of the Republic of Macedonia in the period to 2014 should return Macedonian economy to faster growth path of about 5%. On the production side of GDP, the assumptions for 2010 are based on the moderate growth of the industrial production, trade, transport and tourism. Slightly higher growth is expected with the construction sector due to he forecasts on the building of airports, regional and local roads. On the expenditures side of GDP, the expectations for 2010 are based on the moderate real growth of investments in the public as well as the private sector. The expected investors’ incentive will be the lowering of the social contributions, while the investment activity is expected to be financially supported by the increased credit activity of the banks. The GDP growth will also be supported by the low real growth of the private consumption. In the period to 2014 the increased investment activity is expected to continue, nevertheless the private consumption should remain the man force of the economic growth. The unemployment rate forecasts for 2010 are set at 30.8%, which should represent continuity in the trend of lowering the unemployment. The drop should be a result of the increased economic activity and realization of employment programs, as well as investments in human capital. In a longer period the forecast is set on approximately 1.5 percentage points annual drop of the unemployment. Regarding the fiscal policy for 2010, the Government predicts continuity in the conduction of contra-cyclic fiscal policy, which should additionally eliminate the effects of the global economic crisis on the Macedonian economy. Thus, the forecast is set based on expected budget restructuring through increasing of capital expenditures on the account of current expenditures. The expected budget deficit is 2.5%. The key risk for 2010 is whether the forecast of the revenues’ realization in the government budget is realistic enough. Should the budget revenues underperform and budget expenditures fail to be adjusted downwards, the budget deficit could end

1 Data from the NBRM, Ministry of finance and internal forecasts by the Bank

4

up significantly higher than projected. Regarding the financing of the projected budget deficit, it should be marked that the Government’s intentions rely on foreign borrowings and not on issuing of government bonds (securities). In a long run the fiscal policy is expected to be directed towards maintaining the public debt at the long-term sustainable level which Government projections set at 30% of the GDP. The projected public debt for 2010 is at 26.8% of the GDP. For the forthcoming years the Government predicts practicing of the fiscal policy through budget deficit at 2% of the GDP, for which it accounts that it is bearable for the Macedonian economy. Important element of the macroeconomic frame in which the private sector will operate in the projected mid-term period is the balance of the external account. The projected deficit of the current account for 2010 is 8.3% of the GDP. It will in a significant portion be a result of deterioration of the trade deficit, which is expected to reach 24.8% of the GDP. Thereby, the improvement of the export side should be a result of increased external demand for Macedonian goods and services and increased commodity market prices of metals. On the import side the expected increase would be mostly an effect of the expected increase of oil prices and import of intermediary goods used for finishing production and export. The traditionally high net inflow upon foreign private transfers is expected to mitigate the trade deficit, the former being projected at 16.2% of the GDP for 2010. The financing of the deficit in the balance of payments for 2010 is expected to be realized through increased net inflow upon foreign direct investments and trough public sector borrowings abroad. Also, continuation of postponed foreign investments in the country is expected. In case of realization of the forecast, the f/x reserves will enable adequate coverage of the import and support of the stability of the foreign exchange rate of the denar in terms of the euro. In the mid-term period the current account deficit is expected to drop to more acceptable levels, nonetheless, the sustainability of the current account in the balance of payments remains the greatest mid-term macroeconomic risk for the Republic of Macedonia. In that context, the greatness of this risk in a mid-term period will significantly depend on the speed of the euro-athlantic integration of the country. In 2010 the Central Bank started to relax its monetary policy through decrease of the reference interest rate from 9% to 7.5%. The broad money M4 is expected to increase by 7.5% annually. As a consequence to the more optimistic perceptions of the economic trends of the country, especially for the second half of the year, increased credit activity in the banking sector is predicted, thus the annual growth rate of total loans should reach 9.2%. Main financing source of the credit activity will remain the deposit base, coupled with funds from foreign credit lines such as the credit line from the European Investment Bank.

5

II. KEY STRATEGIC OBJECTIVES OF KOMERCIJALNA BANKA

According to the Policy Statement, Komercijalna Banka AD Skopje shall perform its activities under the basis of firm banking principles, by undertaking the necessary steps to provide a maximum profit for the shareholders in a long run. The key strategic objectives of Komercijalna Banka AD Skopje in the following five-year period shall be as follows:

1. To develop into leading, independent, privately owned Bank, which provides services on the whole territory of the Republic of Macedonia;

2. Komercijalna Banka shall strive to be a universal bank, which will enable it to strengthen its already significant position in the banking sector;

3. Komercijalna Banka shall strive to achieve the highest standards in providing carefully selected quality products and services to its clients;

4. Komercijalna Banka shall strive to achieve timely reconciliation of its operational policies and working procedures in line with best international banking practices;

5. Komercijalna Banka shall be committed to the principle of equal treatment of clients which are shareholders and non-shareholders.

6

III. PRIORITY AIMS AND OBJECTIVES The priority aims and objectives of Komercijalna Banka AD Skopje in the period 2010-2014 are based on the following: the Policy Statement of the Bank which determines the basic frame of its operation on sound banking principles and undertaking precise measures to provide maximal gain for the shareholders in a long run, realised results from operation and the basic macroeconomic projections. The priority aims and objectives are as follows: 1. Maintenance of the capital value and its increase through the policy of further

allocation of a significant part of the net-profit into reserves, thus providing capital adequacy rate corresponding to the planned activities;

2. Maximization of profitability of operation by undertaking acceptable risks in the way that will provide satisfactory return of capital for shareholders, stable growth of capital, adequate level of capital investments in the Bank and long-term safety in operation;

3. Maintenance and potential increase of the Bank’s market share at the banking

market of the Republic of Macedonia in conditions of increased competition, so that in the forthcoming mid-term period the Bank would maintain its leading position being present at the entire territory of the Republic of Macedonia;

4. Successful and timely compliance with the law regulations for financial reporting

as a part of reforms in the banking sector of the Republic of Macedonia; 5. Development and improvement of the information technology;

6. Continuous improvement of the organization of the Bank’s operation,

continuous undertaking activities for analysis of the volume of operation and engagement of employees and modernization of the organizational units and parts of the bank from the aspect of modern organization, higher number of university graduate staff, higher professionalism in managing and decision making processes, more stringent control of the result etc.;

7. Human resources management in order to keep the reputation of the Bank

which is recognizable for the professional attitude towards its customers; 8. Development of banking marketing; 9. As a bearer of the domestic payment operations the Bank shall be actively

engaged in implementation of the solutions providing quick and quality services to clients;

10. In the forthcoming mid-term period the Bank shall still have the obligation that if

the Bank’s shareholders provide control package of shares and set proper parameters, the Bank’s management shall take proper measures and activities for possible attraction of potential strategic investor that should fulfill the conditions defined by the consortium of shareholders of the Bank, as follows:

• to be a bank whose name is renowned international brand;

• the offer should reflect the real value of shares of Komercijalna Banka and

• to submit a strategic plan for future development of the Bank.

7

However, in conditions of uncertain economic environment and in order to keep its position as one of the best banks in the country, the following additional aims and objectives have been projected for the period 2010-2014, which means:

- Undertaking appropriate measures and activities for successful operation and

adjustment with the newly occurred market conditions, having in mind first of all the demands of the existing and potential clients;

- Further improvement and modernization of operation, introducing new bank

products and services, development of new non-classical banking functions, conquering emerging markets, strengthening the competitive position of the Bank, as the main characteristics of the modern and universal banks;

- Proper implementation of the Decision on methodology for record-keeping

and evaluation of the accounting positions and on preparation of the financial statements; and

- Improvement of the electronic banking and information technology in all segments of the Bank’s operation.

8

IV. THE AIMS AND PLANS FOR OPERATION OF THE BANK’S DIVISIONS AND BRANCHES

In the mid-term forthcoming period, the Bank shall undertake precise measures and activities in certain segments of its operation for successful realization of the priority aims and objectives and realization of positive effects from operation. LIQUIDITY AND FINANCIAL MARKET DIVISION The main aims that are going to be realised in this segment of the Bank’s operation in the forthcoming five-year period refer to Bank’s denar and FX liquidity management, improvement of the quality of services, increasing the number of custodian accounts, development of new activities and increasing the Bank’s share at the financial market of the Republic of Macedonia. 1. For the purpose of providing efficient denar and FX liquidity the Bank shall undertake the following measures and activities: - fulfillment of the obligations pursuant to the regulations prescribed by NBRM; - placements of the excess of denar liquid assets in the NBRM bills or in

Government securities, for the purpose of providing high liquid assets that would redeem possible liquidity deteriorations and dependence of the Bank’s liquidity on certain resources;

- taking part in development of the secondary market for Government securities, NBRM bills and repo transactions;

- purchase and sale of FX cash for payment from and to domestic banks and banks abroad;

- purchase and sale of denar and FX deposits in the country and abroad; - keeping FX assets with foreign banks, in currencies and terms which shall

provide proper safety and interest income; - maintaining currency structure of the own FX assets in a structure that,

depending on the movement of the exchange rates, shall provide FX gains; - creation of acceptable purchase/sale exchange rates in order to keep the existing

and to attract new clients; - offer of term purchase/sale of FX assets and other financial instruments-

derivatives, designed at request of clients; - technical improvement of communication with clients for execution of

transactions on the FX market, by preparing and realizing a project for electronic platform for communication with clients regarding sale of foreign currency for denars (and inter currency) – indicative and real time conclusion of the confirmed transactions.

- strengthening the role of the Bank in the interbanking FX market, as a bank supporter - market maker and proper maintaining or increasing the share in the total FX market in the Republic of Macedonia;

- more active use of opportunities of the open money market operations, with the expected inevitable progressive development thereof. It mainly refers to the market of government securities – development of OTC market with clients and the interbanking market, both for liquidity needs and as an additional possibility for earning (followed by expected confirmation of the role of a primary dealer on the market of government securities) providing significant role in development of the repo market with government securities;

- investing in safe foreign securities;

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2. In order to improve the quality of services, as well as to confirm and strengthen the market share in the segment of trading with securities, the Bank shall undertake the following measures and activities: 2.1 Improving the quality of services in the domain of trading with securities through: - applying the control procedures and their proper application in order to provide

protection of the investors and minimize the risk of misuse by the employees; - proper adherence to the rules of trading prescribed by the Securities Exchange

Commission and application of the principles of lawfulness in trading with securities;

- protection of clients in the domain of trading with securities through timely execution of orders and informing of realized transactions which will represent core activity, as well as protection of client’s interests through informing of riskis and possibilities connected to the investments in securities and timely informing on the trading novelties at the MSE;

- intensified activities for establishing contacts with foreign investment funds as potential investors on the capital market of the Republic of Macedonia, through submitiing daily trading reports, analyses, significant announcements made by companies etc.;

- intensifying the cooperation with domestic listed companies from the aspect of determining their needs for listing their securities, new issues of shares, IPOs etc.; and development of the code of corporate management; and

- Corporate management codex and its development. 2.2 Undertaking activities for confirming the leading market share which due to decreased fees is encountered with increased competition. Thus the following shall be undertaken: - increasing the number of clients through more active approach in the

establishing contacts; - additional activities for keeping exsisting clients through occasional contacts for

determining their needs and trading aims; and - etsblishing individual brokers for top turnover clients, thus introducing

personalized service and contact for timely realization of their needs. 2.3. Developing new activities through: - implementation of software solutions for acquiring orders with electronic signature and at the same time implementation of communication with the Stock Exchange and other clients with FIX protocol thus advancing and expanding the classical brokerage operations in trading on behalf and for the account of clients enabling higher efficiency and standardization of services as well as competitive advantage in terms of the other brokerage houses;

- offering services from the domain of investment banking, such as: research of the conditions on the capital market, advising clients while issuing and trading with securities, portfolio management, management of the portfolio of the Bank’s securities, advice-giving and organizing procedures for acquisition of shareholding companies, advice giving, organization and preparation of documentation for issue of securities, undertaking risk at realization of IPO’s, financing projects and special transactions etc.

3. Custodian activities 3.1. Considering that this is a relatively new type of service of a custodian bank for the pension funds registered in the Republic of Macedonia and modified service of sub-custodian bank for the local market for non-residents, in the forthcoming mid-

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term period measures and activities shall be undertaken for improvement of the services and assertion of Bank’s position in terms of its competitors. The following measures will refer to:

- Maximal devotion and adherence to the legislation in operation from the aspect of valuation and control of payments from the funds of the investment and pension funds, for the purpose of protection of interests of their members, which is the ultimate obligation of the bank custodian;

- Continuous follow-up of the control procedures and rules for prevention of misuse of confidential data received as a result of certain post position regarding investments of clients (investment, pension funds or non-residents) or planned investments by persons employed in the bank custodian;

- Introducing and defining several control mechanisms, as well as introducing Strait-Through-Processing in all possible parts of the operation for the purpose of decreasing the operative risks; and

- Undertaking initiatives in front of the regulatory authorities (at the capital market and the pension fund industry) and other institutions involved in the settlement process of securities operations in order to meet world practices of custodian banks which requires separating the trading process from the settlement process in case of existence of custodian agreement.

3.2. Improving the service and offer to exsisting and potential clients from the aspect of: - improving the way of notification and communication through opening an internet portal for the needs of clients. Thus, the Bank shall provide greater transparency and accessibility to information and reports, as well as simplifying the way of giving the payment instructions; and - expanding the use of MT SWIFT of category 5 – the world communication standard in the domain of trading with securities. 3.3. In conditions of increased competition and still not restored optimism of the investors, the Bank shall strive to keep the existing clients, however, first of all, to increase the number of new large clients of the type of a foreign global custodians. This will be achieved by offering a service that, in accordance with the regulations and conditions in the Republic of Macedonia shall be adjusted to the world standards and the business practice laid down in this segment of operation. The intention is for each potential client to be analysed separately, thus adjusting the Bank’s services on these clients’ requests and in accordance with the prescribed regulations. In the mid-term period a goal is set for the Bank to enroll the map of agent banks that perform custodian services at the local markets. The Bank shall apply to be announced at the web site of the most relevant magazine in this field – “Global custodian”. The magazine covers the international securities business and primarily distributes information directed to decision making professionals of the custodian banks, fund management companies, brokerage and dealing houses, thereby the Bank will have the opportunity to present its offer to a wider international investors’ audience. 3.6. Development and undertaking new activities - development of a new service as intermediary in settlement of the realized transactions of trading with foreign securities for private investment funds.

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RISK MANAGEMENT AND PLANNING DIVISION The Bank’s Business policy for the period 2010-2014 shall continue to be based on the methodology that provides adjustment of the assets and resources of the Bank with the aim to eliminate any kind of risk that may occur in case of any unbalance between these two extents. The equilibrium on the Balance Sheet in terms of volume, dynamics and in terms of currency and maturity structure of assets is starting point in preparation of the year financial plan of the Bank and setting the development priorities in operation. In the risk management domain, the Bank shall promote the risk management system aiming at complete and proper implementation of the entire law regulations, with simultaneous advancement of the identification models, monitoring and selection of methods for risk minimization as well as timely reporting to the Supervisory Board and the Risk Management Committee for the purpose of making qualitative and timely decisions therefore. In addition, following activities shall be undertaken in the respective segment of operation: 1. Within credit risk management the following activities shall be undertaken: - proper implementation of the Policy for undertaking and managing the credit risk, Policy and procedures for financial instruments impairment and Procedures for identification, assessment, measuring, follow up and control of the credit risk as well as the Methodology for defining the provisioning and special reserve on group basis;

- classification of assets balance sheet and off-balance sheet items of the Bank by level of riskiness ;

- electronic transfer of classification of the Bank’s assets by credit files in the advanced Credit Register of NBRM;

- monitoring of the established processes and systems within the process of credit

risk management, such as:

• identification, measuring, follow up and control of the credit risk and process of impairment of the credit exposures on individual and on group basis;

• identification, measuring and follow-up of the concentration risk;

• analysis of migration matrices of the credit exposures by different categories;

• implementation of country risk within the credit risk;

• identification of the credit risk on client level through the developed system for internal ranking (scoring system) and on the level of credit exposure;

• analysis of the credit portfolio of the Bank, as well as of individual sub-portfolios;

- establishing the following new processes and systems within the process of credit risk management:

• determining internal limits for credit risk exposure by categories of clients, business lines, currency structure, geographic location, security instruments, i.e. measuring and following the exposure to risk from concentrations in the credit risk exposure;

• following, analyzing and assessment of adjusted FX position of a client;

• following, analyzing and assessment of adjustability of cash flows of the client, potentially changed level of total liabilities and liabilities towards the

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Bank, as a result of possible change of the denar exchange rate in terms of foreign currencies;

• determining internal capital adequacy rate and within this process monitoring of the statement of own funds of the Bank;

• following the criteria for ranking and assessment of their efficiency for determining and projecting the credit risk with the Score of the corporate clients;

• following and determining the risk level present at the new credit products which are planned to be introduced in the future;

• establishing a procedure for determining benchmarks for assessment of the quantitative score indicators for corporate clients by incorporating the industry sector and size of the company;

• developing a model for classification and impairment on a group basis through incorporation of new determinants and testing of the results by the end of 2010;

• establishing a system for monitoring, analyzing and assessing the credit risk arising from exposure of the client to currency risk and system for following the credit risk at FX loans and denar loans with FX clause;

• establishing methodology and implementation of stress-testing techniques of the credit risk and other risks which turn into credit risk;

• continuous monitoring of the designed clients’ scoring model as well as the model for group impairment, in order to determine if it adequately incorporates all functionalities which determine occurrence of the impairment;

• financial analyses of the client’s credit-worthiness from the aspect of the Bank’s credit risk;

• forecast of the amount of the Bank’s impairment loss/special provisions and development of forecasting techniques;

• developing of the scoring model, research and testing of exisiting impairment criteria, as well as assigning new criteria;

• developing tolls and techniques for time transition of expected, future cash inflow for calculation of forecasted net present value of claims, which are planned to be implemented until 2014;

• also until 2014, in the process of calculation of forecasted net present value of claims, time transition of due uncollected claims has been planned based on developed and tested techniques;

- following the Basel principles for credit risk management, as well as testing the possibilities for their implementation; and

- following and implementation of the International Accounting Standards (IAS)

and the International Financial Reporting Standards (IFRS) in the domain of credit risk management.

2. In the part of management of other risks the following activities shall be undertaken:

- Continuing activities for identification, measuring and monitoring, control and reporting on other risks in accordance with the law regulations and internal acts of the Bank, workout of monthly information on risk exposure, as well as quarterly reports on risk profile;

- Keeping on with the activities for advancement of the system and risk management process and continuous following and adequate implementation of the law regulations and by-laws in the domain of risk management;

- Following and defining the risk level of the new products that are planned to be introduced in 2010;

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- Conducting stress-tests as per requirements of the law regulations and the internal needs and simulations according to the needs of the Bank;

- Activities for workout of decisions on interest rates of Komercijalna Banka AD Skopje, Terms and Conditions Applicable to Customers of Komercijalna Banka AD Skopje and Terms and Conditions for Foreign Banks, with decisions on amendments and supplements and revised texts;

- Keeping on with the activities for implementation of the Decision on Methodology for recording and evaluating the accounting positions and preparation of financial statements;

- Keeping on with the activities for implementation of the Project for adjustment with the International Accounting Standards and with the International Financial Reporting Standards;

- Keeping on with the activities for implementation of the Project for implementation of the Bank Business Intelligence Integral System (from last year);

- Professional training of employees in the domain of risk management in accordance with needs and follow up and implementation of actual trends in this segment of operation of the Bank; and

- Other regular and extraordinary activities. 3. Developing and monitoring of planning activities and quantification of the balances of the Bank and its branches through: - production of quarterly, semi-annual and annual reports on performance of the

Bank and its branches; - development of Program for Measures and Activities of the Business Policy of

the Bank with Budget by applying modern market methodology; - production of Development plan of the Bank with financial forecasts for the

following mid-term period; - monthly monitoring of realization of the planned activities and budget for the

current year with draft-measures; - making analysis (quarter, semi-annual and annual) of the Bank’s market share in

the banking sector of the Republic of Macedonia; - monthly monitoring of the deposits and placements of legal entities and citizens

and their market share in the banking system; - preparation of regular monthly statistical reports on the overall operations of the

Bank with some of the basic macroeconomic indexes of the Republic of Macedonia;

- monthly reporting on the material expenses and the expenses upon the Collective Agreement of the Bank;

- monthly analysis of the income realized from fees and commissions; - making Report on the strategic risk; - making reports on defining the net-debtors of the Bank, in accordance with the

NBRM decision; - making Report and Data on Komercijalna Banka AD Skopje according a decision

by NBRM for announcing reports and data by the banks, - developing a solution for adequate presentation of data within the reporting per

segments in cooperation with other organizational units of the Bank, - making reports for external financial institutions; - analysis of certain segments of the operation of the Bank that may be imposed

by the changes in the law regulations and the working environment; - finding appropriate software model for financial planning; and - production of application solution for comparable monthly follow up of the Bank’s

accounts.

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CORPORATE LENDING DIVISION The Development Plan of the Corporate Lending Division for the period 2010 – 2014 includes the following:

• Planned increase of credit portfolio

When approving placements with clients the Corporate Lending Division shall pay special attention to safety of placements, i.e. accepting lower riskiness of loans to legal entities, taking care for realization of high profitability, taking into account the criteria for assessment of the credit risk from the Bank’s Credit Risk Management Policy. The Policy for growth of placements shall also be accorded with the frames definied by the monetary and fiscal policy of the country. For the development period, the Bank plans lower dynamics of growth of the credit portfolio of non-financial companies compared to the previous period, all due to insecurity deriving from the effects of the global crisis in the financial sector which produced downward trends in some industries. The Bank shall keep on applying a conservative and restrictive approach in growth of placements having in mind the criteria for assessment of the credit risk from the Bank’s Credit Risk Management Policy. At the same time the Bank shall analyse the impact of the financial and economic crisis on the quality of the credit portfolio, especially the negative trends in some economic sectors and their implications on the overall operation of the companies - clients of the Bank. The Corporate Lending Division shall be focused on diversification of the credit portfolio, by lending to companies operating in industries that had not suffered bigger losses and which had succeeded to amortize the effects from recession, first of all in: food industry, information technology and telecommunication services, catering activities and other industries. The lending activities shall be directed towards attracting new good standing and credit worthy clients and towards providing support to the profitable projects of the existing clients. Parallel to the short-term lending, intended for current operation and for precised affairs with previously known source and term of repayment, the Bank shall consider and approve applications for long-term loans for working capital and investment in fixed assets. When approving this type of loan, the Bank shall take into consideration the analysis of the expected financial effects from the investment in the period of repayment of the loan, applying the accepted methods and criteria for determining the need and eligibility of the projects to be credited and the quality of security. By verification of the agreement on 03.09.2009, the IEB credit line, which was realized by MBDP, was serviced through the Bank, intended for small and medium-size enterprises as support to acceptable and profitable projects, for the period 2010-2011 as per set dynamics. In the course of 2010, the Bank shall work on a project with the European Bank for Reconstruction and Development (EBRD) for co-financing large risk sharing credit exposures, thus decreasing the concentration of credit risk for the Bank and reaching appropriate diversification of the credit portfolio. The co-financing project shall cover existing and new trade companies.

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• Improvement of the internal procedures and policies In cooperation with the IT Division, the commenced program solutions are planned to be completed, in order to simplify the process of approving and administering the Bank’s placements, as well as to make all the reports imposed in the course of operation of the Division.

• Interest policy of the Bank Having in mind on one side the projections of the monetary policy, movement of the interest rates, and on the other side the liquidity and needs of the Macedonian business entities, in the forthcoming period, the Division shall keep on being an active participant in assessing the extent of the loan interest rates on placements with enterprises, lead by the interest for profitable operation of the Bank.

• Employees The Bank plans to arrange additional education of employees in the country and abroad, on seminars and training courses in foreign banks – in the organizational pars for corporate lending, so that our customer relationship officers could acquire new knowledge and experience and improve the quality of the credit analyses.

INTERNATIONAL DIVISION In the period 2010-2014, the International Division shall perform its activities within the frames of the prescribed banking principles putting accent on the following priority tasks:

• Permanent follow up of the clients’ needs, especially of the first-class ones;

• Undertaking activities to attract the export-oriented clients for the purpose of increasing the FX deposits, FX inflows and international payment operations through the bank, as well as moderate continuous increase of volume of operation with payment orders as payment instrument (payments and collections in the international operations);

• Intensified activities in attracting new clients by improving and raising the quality of services in the Division with direct contacts with the existing clients and potential new clients;

• Moderate increase of volume of performance with annual rate from 4% to 6% in the part of credit-guarantee and letter of credit operation;

• Approving FX loans from foreign credit lines, first of all from the new EIB credit line administered through MBDP, out of which in 2010 it is planned to withdraw several tranches in total amount of 18.5 million euros, and a part of these funds shall be used in the course of 2011. Therefore in 2010 and 2011 there will be increased activity by this credit line, while for the period 2012-2014 there are considerations that there will be decreased use of funds from foreign credit lines administered through MBDP with concurrent administration of already existing credits and utilization of funds from other foreign credit lines;

• Approving FX loans from the funds of the Bank;

• Continuous activities for collection of due outstanding liabilities of clients towards the Bank under FX loans, FX letters of guarantee and opened letters of credit;

• Increasing the volume of forfeiting;

• Developing the factoring product as a new product in the domain of purchasing the invoiced export of clients in the international operation so that it could be possible to respond the needs of clients – exporters adequately; and

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• Development of electronic banking in the international payment operations. RETAIL BANKING DIVISION For the period 2010-2014, the Retail Banking Division is planning the following development aims and objectives by segments of operation:

1. In the domain of operation with transaction accounts for individuals the activities will be directed towards widening the range of services offered by the Bank to its debit card holders, standing payment orders for exercising payments from current accounts and internet bank. Special attention shall be paid to promotion of the advantage offered by these products and of informing of citizens.

2. In the domain of operation with bank cards the priority aims and planned

activities are as follows:

• Increasing the number of issued cards and of the trade with cards that shall be realized by:

- Introducing new products, completion of the whole range of products enabled by the international institutions the Bank has membership agreement with;

- Introducing new co-branded cards in cooperation with respectable companies, clients of the Bank;

- activating cards or campaigns for clients who hold a card but had not used it;

- introducing additional privileges/advantages for all users; and - continuous segmentation of clients, in order to meet their needs and

proper treatment in the Bank.

• Expanding the network for acquiring cards (ATMs and POS terminals), shall be carried out depending on the possibilities and conditions on the market. The Bank plans to use other brands on our POS terminals and ATMs. The target group shall be the state institutions, since there is opportunity for realization of payment transactions. For that purpose the activities shall be directed towards allowing use of cards for payment of scholarship, fines and other administrative services of the state.

• Technical-technological development means implementation of the technological changes in the IT Division which have direct impact on the card operation and their quick and efficient use in the daily operation, first of all for increased accessibility to clients, new services and new distribution channels (mobile banking, contactless technology and alike). In this domain of operation the Bank shall keep the trend of continuous activity of computerization of processes in the daily operation (especially in the application solutions maintained by the Bank), computerization of a part of activities that are still done manually, in cooperation with the IT Division;

• Proper staff training and education taking into account the habits and mentality of population in the Republic of Macedonia, the need of continuous education is obvious both for the employees and for the users regarding the advantages from use of the card as a payment instrument.

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3. In the domain of lending to citizens, the priority aims and activities planned are as follows: - Active follow up of the market conditions and timely respond to their changes,

especially to the changes of the interest rates in order to keep the competitiveness of the Bank’s products for lending to individuals;

- Follow up and analysis of the market and the needs of the existing and potential clients shall be directed towards development of new products for lending to individuals, as well as new services which will improve the process of informing applicants on the status of their loan application thus shortening the period from applying, approval to disbursement of funds;

- In order to improve communication with clients, the Bank plans to assign responsible persons in the bigger city-branches in Skopje, who will be trained to give complete information about products of lending to individuals, and depending on the dynamics of approving loans the Bank plans to make the loan applications accessible in these city-branches in Skopje.

- In cooperation with the IT Division it is planned to design several application solutions and reporting forms for analysis of data, which shall contribute to increasing the efficiency in operation;

- Raising the level of communication with clients by improving and enhancing the communicant and commercial skills of employees.

4. In the domain of deposit operation and international payment operations of

citizens the priority aims and activities are as follows: - In the part of deposit operation activities shall be focused on active follow up of

the market and prompt response to the changes occurred, especially in the part of the interest rates. The Bank is planning to introduce several new products in order to increase the offer of the Bank’s services covering many target groups of clients – individuals.

- In terms of the international payment operations further liberalization of the Foreign Exchange Law is expected, the so called “FX regime” as a result of which increased volume of operation is expected both for the FX inflows and FX payments. The Bank has planned to introduce modern ways of informing clients, such as SMS messages about received inflow and alike.

- Continuous education of employees shall be continued in the forthcoming period too. There will be regular tests made to check the knowledge in the field of the deposit operation and the international payment operations and interactive training organized as well.

5. For the purpose of improving collection of claims under loans, credit cards

and transaction accounts the Bank plans regular telephone contacts and/or written notifications and reminders to clients on due outstanding debts, activation of administrative bans for the co-applicant and/or guarantors, activation of the deposit if there is no way of servicing the outstanding claim, blocking the current (transaction) accounts of debtors and collection of the due claims therefrom, initiating procedures for forced collection of the claim when the regular possibilities for collection are exhausted.

6. In the domain of client relationship management, the main goal will be

provision of continuous and qualitative transfer of information, placement of products and services, qualitative and equal attitude and care for clients for the purpose of getting new clients, bigger loyalty and satisfaction of clients. In that manner the following will be undertaken:

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• In the part of segmented clients in the forthcoming five-year period the Division shall be focused on key clients, VIP clients and VVIP clients in terms of the following:

- providing controlled, continuous and quality system of communication with specially segmented group of clients;

- monitoring of possibilities and channels for sale of products; - personalized approach and analyses of portfolio of the key clients; - direct sale of the portfolio of products and services for citizens in

accordance with needs and habits of clients etc.

• The Bank shall pay attention to realization of the new services Personal banker (this services encompasses care for certain group of clients assigned to one person that should know them very well, understand their demands and needs and to offer and realize for them the best solutions) and Mobile banker (this service shall refer to the support in operation with specially segmented group of clients, as well as realization – offering help for making selection, preparation and processing of documentation, communication with clients to the final phase of use of the product). At the same time, the Bank shall make the products and services available through Personal and Mobile banker and for all clients of the Bank for which the terms and criteria are acceptable.

• Operation in the Contact Center shall be focused on providing controlled, continuous and quality system of telephone communication with clients regarding information issues. The future results from operation of the Conact Center shall be determined by the needs of clients, initiative of the organizational units of the Retail Banking Division in terms of outgoing calls, software support, update of the client database, improvement of communication skills of the officers in charge of contact with clients.

HUMAN RESOURCES AND GENERAL AFFAIRS DIVISION In the period 2010-2014, Human resources and general affairs Division shall continue to perform its regular activities with quality and in time, in accordance with with the legislation and Bank’s internal regulation. Thus, the activities shall be directed towards: - monitoring of current organization and structure of the Bank in order to initiate

and recommend measures for further modernization and development; - making up of the new acts in the domain of working organization and regulation

of employment – Collective agreement, organization guidelines, job description, procedures, rules of procedures, decisions etc.;

- activities for staff training in the country and abroad shall be continued for the purpose of raising the qualifications and abilities of employees;

- approving of scholarships for postgaraduate and doctorate degrees of employees;

- organizing internal training in the Bank; - organizing apprenticeship od domestic and foreign students; - monitoring of the quantity of work and employees’ engagement and the working

hours fund in the organizational units and parts of the Bank and proposing measures for better efficiency and organization of the work;

- monitoring and adjusting to the modern trends in the HR management; - undertaking activities for keeping existing qualified and trained employees and

possible employing of young staff with university education; - testing the knowledge of the potential employees;

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- according the determined needs, undertaking activities for recruiting and allocation of employees in separate organizational units and working posts in the Bank;

- activities regarding termination of employment; - representation of the Bank before the courts, as well as other activities at the

level of the Bank regarding the employment relations, disciplinary procedures, etc.;

- calculation and payment of salaries, contributions and other fees; - insurance of the employees; - continuous implementation of stimulation policy for awarding the employees; - other activities in accordance with the determined needs; - activities regarding the preparation of construction documents, construction

activities, refurbishment, modernization of the offices and other business premises of the Bank’s;

- going on with adaptation and modernization of the existing branches and city-branches;

- procurement, book-keeping and maintenace of fixed assets, movable assets and stationery;

- continuous insurance of fixed assets and cash of the Bank; - book-keeping of the Bank’s entire property, - continuing the activities regarding technical and general affirs (maintenance of

the library, copying of materials, transport of employees, mendings etc.); - management of fixed property acquired through uncollected calims and selling; - activites for providing healthy and safe working conditions for all amployees as

well as fire protection; - providing conditions for safe working operation, defense preparation,

management and control of video surveillance system and alarms; and - other activities in accordance with the determined needs

LEGAL AFFAIRS, BAD LOANS WORKOUT AND MANAGEMENT DIVISION In the period 2010-2014, the main aims and objectives of the Bank in the domain of legal affairs, problem loan workout and managing will be as follows: providing security loans approved to legal entities and citizens by creation of lien, initiating and running procedures before the competent courts, notaries and other bodies for enforced collection of secured and non-secured claims of the Bank from legal entities and citizens, collection of problem loans and management of bad placements, collection of claims classified in D and E risk category, as well as collection of the claims recorded on the off-balance sheet records. Professional and administrative work connected with preparation of meetings of the Bank’s bodies shall be continued, as well as follow of the latest amendments in the law regulations and their application in the operation, keeping the Register of internal acts of the Bank and informing in the Bank and out of the Bank through announcement of information in printed and electronic media. In this regard, the Banks shall undertake the following activities:

- more efficient collection of the sued claims; - more accurate actions taken under cases and direct contacts with judges and

notaries, for the purpose of faster completion of proceedings and settlement of older cases;

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- undertaking activities for concluding agreements for off-court settlement of sued claims from citizens under checking accounts, approved loans, bank cards and safe boxes;

- completion of the existing applications for legal affairs and creation of new software solutions which will provide computerization of the process of initiating procedure for enforced collection of claims from citizens, computer record keeping of all legal cases and their status, electronic record keeping of the lien agreed etc.;

- more efficient and faster settlement of the problem loans for improvement of the credit portfolio quality, using several methods of collection: collection from the debtor or the mortgage debtor, sale of the claims to third parties, acquisition of the pledged property, intensifying the procedures for enforced collection and other measures depending on the case and conditions of provision of collection;

- appraisal of property and equipment accepted as security for loans approved to legal entities and individuals, as well as appraisal of property and equipment of the Bank’s ownership;

- legal adjustment of the decisions, contracts, agreements and other by-laws under the competence of the Bank’s bodies and its operation with the law regulations and the internal acts and providing legal opinion on application of the law regulations connected with the Bank’s operation;

- conducting the professional and overall administrative work regarding arranging meetings of the Bank’s Assembly, Supervisory Board, Board of Directors, Risk management Committee, Audit Committee, Credit Committee and other bodies and authorities of the Bank, workout minutes, decisions, conclusions and recommendations from the meetings of the Bank’s bodies and authorities;

- permanent updating of the Bank’s register of acts in electronic form; - announcing information, notifications and other through printed and electronic

media; - purchase and distribution of representative advertising material; and - organisation of staff training for implementation of amendments in the law

regulations, as well as permanent improvement of the professional human resources through seminars etc.

INFORMATION TECHNOLOGY In order to formalize the significance of the information technology, Komercijalna Banka AD Skopje has developed a strategy presenting the bases it relies its operation on. The process of planning the IT strategy is examination of plans and priorities for use of and support to the information technology for realization of the main mission of the Bank. IT strategic planning is carried out for the following reasons:

1. Adoption of plans and priorities for use of the information technology for realization of the Bank’s vision;

2. Better understanding of the possibilities offered by IT and their successful implementation in the Bank’s operation;

3. Introduction of new technological trends in the banking operation; and 4. Meeting the requirements set as law regulations for banking operation by

high authorities in the country.

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Pursuant to the general strategy, the Bank adopted the aims and objectives for the IT Division in the period 2010 – 2014. In the period 2010 – 2014, the Bank shall strive in the IT part to establish environment in which the management, employees and clients shall have adequate access and use of the information necessary to meet their needs; the Bank shall create and maintain technological environment that would improve the acceptance, learning and use of new technologies for improvement of communication and establishing new relations with clients and business entities.; the technology shall be used to meet the specific and different demands of employees and clients; the Bank shall support any use of IT by the employees and clients to meet the professional needs; use of financial assets awarded for development of information technology shall be based on the principles of cost-effectiveness, prudence and efficiency; the Bank shall provide consistent and timely technical support to employees and clients and shall be striving to implement and maintain technology that shall keep the data and shall guarantee the confidentiality thereof. These principles of the information technology shall be estimated by the Bank while planning, financing and implementing its technological decisions in order to assure that they exactly reflect the values the Bank is aiming to. The planning process in the domain of the information technology is under direct impact of the global technological trends, as follows:

• Web presence – the technology provides better access to any place on Internet, creating virtual connection of the individual with wide range of information. In addition, people expect access to highly quality just-in-time information from expert sources.

• Quick connecting – quick networks, remote access and wireless connection provides the desired access.

• Increased liberty with mobile devices – more people now choose transferable, small and wireless devices for their needs for access to information and network.

• 24-hour service - users expect services and support 24 hours for seven days in a week.

• Electronic commerce – users expect benefits from many products and services through safe online systems for transactions and supplies.

• Sophisticated applications – use of advanced applications of standard platform and multimedia tools easy to use.

Acceptance and implementation of services and products in accordance with the technological trends should be supported by the management and all organizational units of the Bank. Pursuant to the defined principles of the information technology and pursuant to its general mission, the Bank defined aims and activities of the IT Division for the period 2010-2014. 1. Use of the information technology for realisation of the Bank’s services and improvement of the efficiency of operation of:

� Payment cards through:

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- Support to the software for card operation, setting new products (debit, credit an co-branding cards); - Installing new ATMs and POS terminals for the purpose of expanding the card network; - Introducing new services at the ATMs (TopUp, PIN change, payment of bills etc.); - Workout of interfaces for integration of the system of card operation with the common information system of the Bank; - Introducing chip cards supporting EMV technology and adjustment of the existing hardware infrastructure (ATMs, POS terminals, communication devices) for support to the chip cards; - Wider use of payment cards for e-commerce; - Introducing contactless technology for fast payments; - Introducing TCR-Cash recycling ATMs.

� Alternative distribution channels for bank products and services:

Internet, SMS and e-mail, by:

- Implementation of new services accessible through the Internet Bank; - Providing additional closer, but cheaper and safer alternative of the existing electronic trade with payment cards which basically covers the following services: supplementing pre-paid accounts for mobile phones and home phone services, possibility to pay utilities from credit accounts of clients and possibility to pay the ordered goods and services from the Internet sites for electronic trade. - Implementation of the campaign “All the ways leading to the Internet

Bank”. Implementation of the so called “open standards will commence in the part of services on the Internet Bank for legal entities and individuals, thus offering the users alternative of the WEB based solution for access to the Internet services of the Bank through the existing desktop applications of the companies developed by third parties, tiny (web service) client developed on PDA platforms or potential RIA (Rich Internet Application) solutions developed by the Bank in order to offer the clients more comfortable, more various and more efficient user interface in the daily operation with the Internet bank. Implementation of open standards additionally in the part of Internet banking for legal entities includes the following projects that will ease and accelerate the integration between the Internet Bank and ERP systems of medium and large-sized domestic and international companies: improving the existing MT 940 format for the accounts in the denar and FX payment operations for legal entities, standardization of the format of files for inputting orders applying the MT 102 format for payment which shall speed up the digital signing and processing the orders sent through Internet, realization and purchase/sale of foreign currency for denars and conclusion of the confirmed transactions and realization of electronic orders from the domain of the brokerage operation.

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- overall improvement of the quality and safety of services on the Internet

Bank and acceleration of its development cycles through: migration of the Internet Bank of the latest mass production and proved stable version of ASP.Net; sub-specialization and training of members of the team for development of the Internet Bank in accordance with implementation of the planned technologies and their role in the development cycle; implementation of Visual Studio Team System; redesign of the site of the Internet Bank with improved support of the existing CSS standards and support to additional Internet browsers and platforms; providing renewal of digital certificates through the site of the Internet Bank etc.

- improving the services available through the SMS channel for which the

Bank is planning many projects: implementation of SMS informing on inflow on denar and FX transaction account for individuals; migration of the SMS system for informing on inflow and outflow on the accounts of legal entities in the domestic payment operations; additional options of the informing criteria depending on whether the transaction was exercised abroad or in the country, whether it was executed at POS or ATM etc; implementation of small payments for which implementation of expensive and complex cryptographic techniques and double-factor authentication is not necessary, and they would be executed by sending SMS messages for payment of parking lots, purchasing tickets for cinema, theatre performances, sports matches etc.; upon enlarging the client base, the SMS channel could be used for marketing campaigns.

- Introducing electronic mail as an additional alternative channel, making

attempt in the information services to replace use of the fax messages by reports (statements of accounts, review of orders, information on sent SWIFT messages) sent in form of attachments to digitally signed e-mail messages. In addition, this channel may be used in accordance with the law regulations as a powerful medium for promotional marketing campaigns.

� Risk management through continuous enhancement of the software solutions for timely identification, measuring and monitoring, control and reporting on the liquidity risk, risk from change of interest rates in the portfolio of banking activities and operative risk;

� Record keeping of fixed assets in the Bank through implementation of

proper software solution of the Bank that shall enable: follow up of the lifetime of the fixed assets in the Bank from their procurement, storage, putting in function, amortization and recognizing them as expenses; record keeping on stationery and recordkeeping on operation with buyers and suppliers of equipment;

� Money laundering prevention through design of sophisticated software

solutions for proper implementation of the law regulations in the domain of money laundering and financing terrorism prevention, improving the electronic method of communication and sending data to the competent national institutions for combat against money laundering, workout of a model for making client profile, assessment and determination of the risk category and following the indicators for identification of risk transactions, clients and products;

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� Implementation of CALL and Contact centre for the whole Bank regarding

care for clients, collection of claims, marketing of new products, offer/sale of products and services;

� Upgrade and optimisation of the existing IT infrastructure through:

development of virtualization of the server resources, development of the concept visualization of work stations, providing sufficiently integrated disc capacity for the growing needs for intelligent data storage as well as for fulfilment of the law regulations for keeping data on the occurred transactions; improving and modernization of the quality of the communication links connecting the business units of the Bank, as well as the connections between the Bank and its business associates and replacement of the classical telephony by IP telephony and unified communication technologies;

� Upgrade and optimisation of the existing applicative solutions for

support to the new products, to the activities performed by the organisation part of the Bank in case of their reorganisation, support in case of amendment to the law regulations for certain parts of the banking operation; and

� Professional staff training in the ID Division, as well as training and support

to the users in the Bank. 2. Prompt, fast and simple access to the Bank’s data through: - design and implementation of a mechanism and procedures for selction, reprocessing and transformation of data from the transaction databases and their storage in the data storage in integrated revised form; - development of Business Intelligence programs for withdrawal of useful information and knowledge from the central data repository and widening the functionalities of BI solution; and - data archiving in order to keep the size of bases and to shorten the access time, implementation of the system for electronic archiving of documents in all organisational parts of the Bank and implementation of specialized archiving system of e-mail messages. 3. Undertaking activities for maintenance and protection of the information system of the Bank through: - creation of backup with development and maintenance of a complete reserve computer system, enabling synchronic data replication thereto and regular creation of backups of the data resources, programme code, configuration data of the hardware and documentation; - maintenance of the system security by implementation of protection mechanisms from attacks and implementation of Intrusion Prevention System, centralised protection of the computer system from viruses, spam and other malicious programs and implementation of devices and software for content inspection, implementation of the protection systems against card misuse and online video monitoring and integration with alarm system;

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- infrastructure management by implementing a software for management of the network resources and services, management of the hardware infrastructure and support to the overall equipment which is used for smooth functioning of the everyday activities in the Bank. 4. Providing security of the business processes in the Bank through: - maintenance of stringent policy for operative risk management in terms of assets of the information system of the Bank given in the technical book from the information book of the Bank; - maintenance of stringent policy for risk management of the business processes; and - continuous education of users of the information system of the Bank for consistent conduct of the security policy. 5. Providing modern environment for development of new solutions in the Bank through: - introduction of new modern technologies for design of software – introduction of Borland Delphi 2005 package for making software solutions, NET environment for making web applications and services as well as monitoring and introducing other novelties; - introduction of standards for making software which comprises standards and methodologies for running projects, for making programs and for user and technical documentation. INDEPENDENT DOMESTIC PAYMENT OPERATIONS DEPARTMENT

The activities that are going to be undertaken by the Department in the domain of performing domestic payment operations are mostly conditioned and depend on the Action Plan for implementation of the Strategy for development of the payment system of the Republic of Macedonia. The most significant activities that are to be realized and incorporated in the Development Plan are as follows: - Encouraging upward trends of non-cash payments, by introducing electronic duty

stamp and payment by mobile phone or by card. Increasing the number of individuals holding accounts and increasing the efficiency by giving faster and cheaper service, as well as better payment distribution at the payment service points on the territory of RM;

- Harmonization of payment instruments and introducing new instruments which would allow easy and efficient transfer from the national into Pan European payment infrastructure;

- Standardization of payment instruments for electronic credit transfers and revision of the way of their definition in the Guidelines for Payment Instruments. In these terms the Bank shall actively work on adjusting the payment instruments within the frames set by the SEPA standards and their harmonization with ISO standard 20022HML for mass transactions with quantitative measure;

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- Introducing a new payment instrument: electronic direct debits – adjusted with the SEPA standards, with concurrent preparation of participants in the payment operations (companies and individuals) for introduction of this payment instrument.

- Introduction of electronic money for which there is already law regulations prepared, and in the forthcoming period their practical operationalization is in turn.

- Amendments and supplements to the Guidelines regarding form and contents of payment instruments for exercising domestic payment operations encompassing: decrease of the number of instruments, decrease of the number of payment codes and their simplification.

Introduction of the new product “e-invoice” is in the part of providing new innovative services and additional services that may be provided by the operators of the payment systems. This product shall allow the companies to exercise electronic sending of invoices to their customers (either citizens or other companies) with their concurrent collection, which, for the Bank, as provider of payment services, is considerably interesting project. The project will result in three great benefits for the Bank: higher level of collection, which shall result in lower costs for processing and minimization of the operative risk, new business possibilities and building image of a modern bank. The other activities the Bank is going to be concentrated on are as follows: - In the part of following the law regulations and by-laws the activities will be

directed to prompt response and undertaking appropriate activities for their implementation in practice, as well as proper adjustment and follow up thereof;

- Improving the way and procedures for client identification from the aspect of increasing the safety performances of the system, by introducing electronic identification of the identity of clients;

- Merging database arising from the overall operation of the depositors of the Bank on the central level;

- Further upgrading of the electronic banking system in cooperation with the IT Division in order to provide additional services adjusted to the demands and needs of clients;

- Amendments to the range of products and services offered in city-branches, i.e. increase of the scope of activities which have been so far offered only in the Head Office. This centralization of activities causes new restructuring of personnel, i.e. forming of several categories of tellers-cashiers with different education degree, different assignments and volume of activities;

- Opening new city-branches, increasing the number of counters and permanent monitoring of their performance;

- Continuous training for the counter officers in the Bank; - Standardization of the city-branches by types and their further modernization in

terms of equipment and place for access and servicing clients, in order to follow the competition.

INDEPENDENT VAULT OPERATIONS DEPARTMENT For more efficient vault operation of the Bank, in the period 2010-2014 the following measures and activities are going to be undertaken:

- advancement of the way of performing cash distribution in terms of shortening the time of stay of the teams at destinations and raising the

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safety of the officers and of the cash transported by use of the newly installed equipment;

- change in the way of filling the ATMs in the city branches and out of Skopje with cash in order to decrease the amount in cash in the vaults and decrease of the amount of cash transported;

- the Bank shall keep on providing the service of transport of cash for the needs of bigger and key existing and new clients of the Bank, which will request such service, in order to meet their needs and to acquire or keep their loyalty,

- strengthening of the control of the cash operation in the organizational parts and units of the Bank,

- continuous revision of the procedures and guidelines in this segment of operation in order to provide their compliance with the amendments in the conditions of operation,

- increasing efficiency in the domain of operation of the Vault Operations Department, as well as during the transport of cash, delivery of cash, safe-deposit boxes operations and servicing of the ATMs.

INDEPENDENT MARKETING DEPARTMENT In order to keep the leading position on the Macedonian banking market, in the period 2010-2014 the Bank’s activities will be directed toward:

• Improving the Bank’s competitiveness by offering high quality products and services in order to become leading bank, confident and powerful partner for the clients and business partners in Republic of Macedonia;

• Full devotion to the clients through creating financial solutions adapted to their needs and improvement of the adequate distribution channels;

• Long-standing cooperation with the clients;

• Focusing on the services’ quality and increasing sale of the Bank’s products and services;

• Increasing Bank’s market share in all segments of banking operations and creating new values from the aspect of profitability and total Bank’s growth;

• Providing timely informations to shareholders, clients and public for the Bank;s activities;

• Development of the corporate social responsibility of the Bank by financial support of activities in the domain of culture, science, as well as humanitarian events in order to aprove better and more succesfull community.

The Bank will distribute its products and services through multichannel system of distribution. In the process of selection of the distribution channels (classical or alternative) the Bank will strive to realize its aim of profit maximization in a long run. In that context, the Bank will rationalize the classical distribution channels (branches and city-branches) as expensive distribution channels and financial transactions will be transferred to alternative inexpensive distribution channels (ATMs, or multifunctional ATMs, POS, e-banking, telephone banking, mobile banking etc.) In the period 2010-2014 the Bank’s promotion campaigns will be directed toward stimulation of the existing and potential clients’ preferences for the whole Bank’s activity.

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More efficient management with the marketing budget is planned, aiming at optimal allocation which means through less investments to obtain maximum effects. Thus the media buying will be based on market research of viewing, listening, reading of different media as well as the demographic structure of the audience. Thereby, market segmentation and more precise locating of the target groups will be conducted for the media that bears highest return of investment. Internet as a medium which enables multimediality and interactivity becomes relevant and widthly accepted comunication channel and source of information for the users of banking services. In forthcoming five-year period, Komercijalna Banka AD Skopje will use the Internet due to high information capability and the opportunity for measurement of the clients’ activities. Significant attention will be dedicated to the corporate social responsibility of the Bank due to its efforts to maintain its reputation of trustworthiness and in order to represent first choice for Macedonian citizens and entrepreneurs. In that manner the Bank will give financial support to cultural events, renown sport clubs and sport work-shops, scientific and research projects which will contribute to better quality of the social functioning. At the humanitarian level funds will be donated to socially jeopardized categories of citizen, persons with special needs and citizens’ organizations, which will confirm the Bank’s contribution in uplifting the public consciousness on certain problems of the citizens. INDEPENDENT FINANCE DEPARTMENT The planned activities in the financial operations for the period 2010-2014 shall be focused on the improvement of the financial accounting, as well as on expenses accounting as a vital function, having in mind that in the accounting (both financial and expenses accounting) present data to the management which is essential for the current and strategic business decision making in the Bank.

The system of the expenses accounting, besides the other, would represent a methodological procedure for analysis and expenses recording, their grouping and regrouping, in order to obtain relevant expenses for argumentation of relevant business decisions. Only upon the data received regarding the extent and structure of expenses by different cost centers, the management can plan and carry out control of the operation activities and conduct the business policy of the Bank as well. The primary aim of applying the expenses accounting is grouping, recording and analysis of expenses. Namely, the grouping, or allocation of expenses shall be carried out according to the so called cost objects, which may be certain activity of the Bank’s operation, certain products and services offered and used by the Bank, certain organizational parts of the Bank, certain projects of the Bank - all this being intended and depending on the internal needs of the Bank in given periods. Also grouping of expenses can be performed through separate business segments in accordance with the external needs for financial reporting of the potential shareholders of the Bank. Accordingly, the Bank is planning to undertake the following activities:

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- upgrade of certain software solutions, in order to achieve complete and integral system of record-keeping, analysis and reporting, which will incorporate all elements, phases and organizational units in the Bank;

- purchase of new business software package for financial-material operations; - continuous monitoring of the changes of financial reporting regulation and its

successful implementation for which adequate staff, hardware and software support is required;

- additional staffing with highly professional staff in order to meet the requirements arising under each amendments and supplements to the International Financial Reporting Standards (IFRS) and their implementation in the respective financial reporting.

- permanent reorganization of the working tasks within the Finance Department aiming at successful implementation of changes in current activities and coping with the challenges it brings.

INDEPENDENT DEPARTMENT FOR CONTROL OF COMPLIANCE OF THE BANK’S OPERATION AND MONEY LAUNDERING PREVENTION The main aims and objectives of the Independent Department for Control of Compliance of the Bank’s Operation and Money Laundering Prevention in the period 2010-2014 will be to provide lawful operation of the Bank, identification and elimination of risks from illegal operation, to prevent involvement of the Bank in the processes of money laundering and financing terrorism as well as full compliance of the Bank with the regulatory requirements in this area. In order to keep this course of operation of the bank, and having in mind the existing conditions in the country, often change of regulations and their adjustment with the regulations of the European Union, the priority aims and activities in the period 2010-2014 will be directed towards:

- permanent follow up of the newly adopted law regulations and assessment of their effect on the Bank’s operation;

- adjustment of the internal acts and operation of the bank with the external regulations;

- standardization of processes, procedures and conduct of the Bank; - making efforts for full implementation of principles of corporate management,

transparency, control of decision making processes and values arising from operation within ethical frames, in exercising its main task - control of compliance;

- permanent communication with management, that shall be realized both through permanent and regular informing on realization of the control function and compliance with regulations and through advice giving regarding some issues from the aspect of implementation of regulations;

- giving opinion and assistance in the current application of regulations in exercising duties and organization of training courses for the employees from the aspect of implementation of regulations;

- follow up of the Bank’s exposure to possible risk from incompliance of its operation and proposing measures to overcome or mitigate the consequences thereof;

- organization activities for development of the Department for Money Laundering and Financing Terrorism Prevention and division of activities within the department by : business areas and external institutions; for monitoring and analysis; training etc.;

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- implementation of new software for the unit for money laundering and financing terrorism prevention pursuant to the adopted Book of Regulations of the Ministry of Finance and proper training of the employees in the department for money laundering and financing terrorism prevention, as per the new software solution;

- adoption of internal act on methodology for determining a client profile, identification and monitoring the level of risk from money laundering and financing terrorism;

- strengthening the capacity of the Bank for protection against risk from money laundering and financing terrorism;

- assessment of risk at horizontal and vertical expansion of the Bank and new products;

- permanent monitoring and analysis of the transactions in the Bank and its subsidiaries for the purpose of detecting risk - suspicious transactions based on suspiciousness indicators; and

- regular training of the employees in terms of implementation of the regulations from the area of money laundering and financing terrorism prevention along with development of methods for training on workshops and video conferences.

INDEPENDENT BRANCH NETWORK MANAGEMENT DEPARTMENT In the period 2010-2014, Branch Network Management Department shall continue its activities for coordination, support and daily contacts and communication with the branches of the Bank. It is expected for these contacts and communication to be more intensive, because of the initiated activities for joining of the city-branches throughout the country with the closest branches of the Bank, which will increase the activities and operation of the branches and of this Department, as well. The daily support that, so far, was provided only to the branches and city-branches I shall be extended to the whole network of Komercijalna Banka throughout the country. It means providing mutual supply and exchange of data, information and reports, such as:

- monitoring of the overall operation of the branches, together with the city-branches included under their competence,

- preparing different types of monthly reports, control of the reports and their submission to the competent divisions of the Bank,

- preparing reports which present the volume of operations carried out by the branches and city-branches, cumulative for the respective month and with comparison to the same month in the previous year,

- making analyses for the purpose of transformation of the existing city-branches into branches, depending on the needs of the clients and the economic justifiability, as well as opening new city-branches throughout the country,

- consideration of the possibilities for new business premises for the branches, in cooperation with the respective organizational units of the Bank, as well as of the needs for certain supplies,

- providing notifications to the branches regarding the amendments and supplements to the law regulations, the updates in the application solutions, intermediation when assigning privileges to the employees for access to the resources, coordination in the process of solving the eventual problems occurred, by preparing appropriate software solutions therefor, as well as all

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other issues that may arise from the current needs, and refer to the branches and city-branches on the territory of the Republic of Macedonia,

- organizing trainings for the operative processes, depending on the information on the determined needs of the branches’ employees, in coordination with the organizational units of the Bank, etc.

INDEPENDENT INTERNAL AUDIT DEPARTMENT Having the main objective to provide independent assessment of the adequacy of the systems of internal control and the compliance with the established policies and procedures of the Bank, i.e. the compliance with the applicable law regulations, completeness of the financial reports and the reports to the managing bodies and efficient use of the assets and other resources of the Bank, in the period 2010-2014, the Internal Audit of the Bank shall be focused on:

• Realization of pre-implementation and post-implementation audits when undertaking certain activities and new projects in the Bank, in cooperation with the organizational units competent for their realization;

• Carrying out regular direct audits on the overall operation of the Bank’s branches, as well as indirect monitoring of their operation, in cooperation with the Branch Network Management Department;

• Carrying out regular and extraordinary audits on the operation of the Bank, covering the following range of operation: - control and assessment of the appropriateness and efficiency of the systems

of internal control, - insight and assessment of the implementation and efficiency of the

procedures and risk management methodology. - insight and assessment of the organization of the information system for

support of the operational processes and procedures for managing the risks, - insight and assessment of the accuracy and validity of the financial reports, - carrying out tests on certain transactions and on the functioning of certain

internal audit procedures with part of the revised processes, and - carrying out tests on the accuracy, validity and timeliness of the internal and

external reporting in accordance with the law regulations

• Undertaking regular activities for monitoring the manner and dynamics of implementation of the recommendations given for elimination of the weaknesses or defaults found during the individual audits and reporting to the managing bodies on the respective findings.

BRANCHES OF KOMERCIJALNA BANKA AD SKOPJE Giving full support to the strategy of Komercijalna Banka AD Skopje in direction to its further development into a leading bank on the territory of the Republic of Macedonia, preferring the highest standards and policies of the international practices, branches as its integral part in the following five years period are going to undertake activities towards realization of the determined priority current and development aims and objectives of the Bank’s business policy, as follows:

1. Maximization of the working profitability, as condition for maintaining and increasing of the Bank’s capital value.

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2. Further increase of the credit potential through mobilizing new deposits from individuals and legal entities from these regions, in function of increasing the Bank’s participation at the banking market of the Republic of Macedonia;

3. Financing and development of the entrepreneurship and the SME-s with programs and projects that can be verified on the market and can guarantee profitability of the activities as well as support of the economy segments that are significant for growth and exports promotion;

4. Operation risk management in terms of their identification, control, minimization and protection;

5. Intensification of the activities in the domestic payment operations through increment of the number of depositors and extension of the types of services, as well as taking care for the competitiveness following the extent of the fees of other banks;

6. Maximum support of import-export activities of Bank’s clients in function of increasing the international payment operations with intention for attracting new clients from those regions;

7. Organizational and personnel improvement, in function of more successful and efficient working and improvement of the quality of services in all domains of operation, by affiliation of the city branches to nearest branches, opening new city-branches through the country and opening regional centers.

For the purpose of realization of these priority aims and tasks, the branches will undertake the following measures and activities:

- increase of branches’ resources through: attracting new depositors from the respective regions by offering complete banking services; mobilization of individuals’ deposits, including deposits from non-residents; increase of number of employees and retired persons who will direct their earnings to pass-book or current accounts; modernization and enrichment of non-cash way of payment; extension of the network of POS terminals and providing more intensive use of MasterCard & VISA cards; increment of placements with individuals for purposes that are determined with the Banks’ acts; improvement of the quality of services and enrichment of forms and kinds of services (electronic banking, telephone banking, non-cash payments with payment-orders, intermediation in trading with securities listed on the Macedonian Stock Exchange, using safe boxes located in branches etc.);

- credit support for small and medium size enterprises, enterprises having sound and stable financial base, as well as clients which have proved the financial discipline in relations with the Bank and had offered qualitative collateral thus minimizing the risk of the credit exposure;

- efficient liquidity management by: maximum utilization of the advances of payment operations through which integration of the accounts of clients of the Bank provides real time total monitoring and control over cash flows and their influence on current liquidity of the Bank; regular daily reporting on the cash flow in order to achieve more efficient planning of the daily liquidity of the Bank; establishing proper method for managing with liquidity of Bank’s clients that acquire bigger sums of money (gas stations, supermarkets, etc.) and their regular transfer in the vault of Central Bank in the city where the branch is; rational policy of keeping foreign exchange in the vault of the Branches and care for permanent transfer of surplus in the main vault of the Bank;

- minimizing the risks from operation, their identification, control and security that shall be provided through: adjustment of the maturity and currency structure of the placements and resources; increase of the

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volume of non-cash payments of the clients; credit-guarantee support of the creditworthy clients and profitable projects for which the branches have documented credit analysis and are in compliance with the criteria prescribed by the Credit Policy of the Bank; more frequent control of the credit portfolio upon the standards and criteria of the Bank’s Credit Policy and the Decisions of NBRM; providing profitability from operation necessary flexibility, adaptability, efficiency and accuracy of operation;

- realization of the interest rates and fees policies of the Bank with the aim to increase income from credit activity of the Branches which will cover the total amount of the costs for deposit interest, as well as with fee and commission income for provided services to cover the administrative costs and also to provide reserves for potential losses of the credit portfolio of the Bank. The Branches will strive to rationalize all working expenses enabling more competitive prices of services in the distinctive parts of the Republic;

- in the domain of the domestic payment operations the Branches will strive to increase the participation both in terms of number of accounts and in the volume of transactions executed, first of all by keeping the existing and attracting new depositors and providing access to the services through the electronic banking;

- activities aimed towards keeping and attracting new clients in the domain of international payment operations, which will provide purchase/sale of foreign currencies at the internal FX market, affirmation and extension of the operation at the exchange market, following the needs of the clients and providing different types of services;

- Further professional training of the staff through the existing and new forms of education, adhering to the principle “right person for the right position” and enabling professional, loyal and efficient way of task fulfillment.

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V. FINANCIAL PROJECTIONS FOR THE PERIOD 2010-2014 1. Macroeconomic assumptions Financial projections for the period 2010-2014 are based on the expected moderate recuperation of the Macedonian economy based on the expected intensification of the recuperation of the world economy and euro-athlantic integration process of the Republic of Macedonia in the period until 2014, which should bring Macedonian economy on the path of intensified economic growth. Maintenance of stable exchange rate of the denar in terms of the euro will remain in the focus of the Monetary policy in order to achieve price stability as ultimate monetary goal, as well as to maintain the f/x reserves at approptiate level. 2. Internal banking principles

- Planned profitability expressed through ROE of up to 20% and ROA of up

to 2%; - Targeted interest margin of over 3%;

- Increase of the deposits to a level that will provide their participation in the

total assets of the Bank of over 80%; - Increase of the interest bearing placements in accordance with the

movement of the open f/x position and through taking into consideration the ratio between denar and f/x component of the Bank’s assets, as well as maintaining the Bank’s exposure to foreign currency risk within the legally set limitations;

- Allocation of significant part of the net profit into reserves, at a rate of

dividend payment of about 20%;

- Liquidity that will ensure minimum liquidity prescribed by NBRM and

creating an appropriate securities portfolio, as an instrument for securing secondary liquidity;

- Maintaining the value of capital and increasing the capital adequacy ratio

through allocation of part of the profit into reserves;

- Planned expenses ratio calculated as a ratio between operative expenses and total income of approximately 44%.

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3. Balance sheet

The forecast of the Balance Sheet reflecting the expected results for the period 2010-2014 is shown in the table below:

ASSETS (in MKD million)

31.12.2009

Plan

Index

Average annual growth

rate 2010 2011 2012 2013 2014

Amount Amount Amount Amount Amount Amount 8:3

1 2 3 4 5 6 7 8 9 10

1

Money in cash and deposits with the NBRM 16,591 17,982 19,056 20,284 21,555 23,099 139 6.8%

2 Assets for trading 31 31 32 34 36 38 124 4.4%

3

Placements in and short-term loans to other banks 1,331 1,349 1,376 1,431 1,474 1,518 114 2.7%

4 Loans to customers 38,666 40,276 42,894 46,055 49,865 54,122 140 7.0%

5 Investments 590 557 458 490 531 585 99 -0.2%

6 Property (Fixed assets) 1,738 1,936 2,091 2,258 2,461 2,683 154 9.0%

7 Other assets 1,829 2,049 2,264 2,567 2,905 3,227 176 12.0%

Total assets 60,776 64,180 68,171 73,119 78,827 85,272 140 7.0%

LIABILITIES

31.12.2009

Plan

Index

Average annual growth

rate 2010 2011 2012 2013 2014

Amount Amount Amount Amount Amount Amount 8:3

1 2 3 4 5 6 7 8 9 10

1

Liabilities upon short-term and long-term loans 1,581 2,573 2,352 2,159 2,021 1,911 121 3.9%

3 Deposits from customers 51,217 52,724 55,945 59,921 64,470 69,634 136 6.3%

6 Other liabilities 1,021 1,041 1,100 1,159 1,206 1,249 122 4.1%

7 Shareholders capital 2,233 2,233 2,233 2,233 2,233 2,233 100 0.0%

8 Own shares 0 0 0 0 0 0 0 0.0%

9 Reserves 3,650 4,509 5,389 6,311 7,380 8,594 235 18.6%

10 Unallocated profit 0 0 0 0 0 0 0 0.0%

11 Gross profit 1,074 1,100 1,152 1,336 1,517 1,651 154 9.0%

Total liabilities 60,776 64,180 68,171 73,119 78,827 85,272 140 7.0%

3.1. Total resources of the Bank are planned to increase from 60,776 million denars in 2009 to 85,272 million denars in 2014. The average annual growth rate would be approximately 7%. 3.2. Money in cash and deposits with the NBRM which are comprised of denar and f/x Mandatory reserve of the Bank, treasury bills and money in cash, by the end of 2014 are planned to reach the amount of 23,099 million denars, with average annual growth rate of 6.8%. Within this item, the money in cash is planned upon growth of short-term deposits in foreign banks and purchased treasury bills, while the growth of the f/x mandatory reserve is planned in accordance with the increase of the f/x deposits on the liability side of the Bank’s Balance sheet. 3.3. Total net-loans to customers by the end of 2014 are planned to reach the amount of 54.122 million denars, with average annual growth rate of 7%.

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3.4. In the period 2010-2014, the fixed assets of the Bank (property) are planned to increase by 945 million denars and to reach the amount of 2,683 million denars. The average annual growth rate is planned at 9% and the planned amount does not exceed the legally prescribed limit for the multiplier. 3.5. Placements in and short-term loans to other banks are planned to reach the amount 1,518 million denars with average annual growth rate of 2.7%. 3.6. Assets for trading which have insignificant participation in the total assets are planned to increase with average annual growth rate of 4.4%. 3.7 Investments of the Bank refer to investments in securities available for selling, securities held to maturity and investments in associates. The total amount will mark a drop due to maturity of purchased securities. Investments in associates are planned to increase due to net profit stake in the Bank’s associate companies. 3.8. Liabilities upon long-term loans are planned to increase for the amount of 1,139 million denars in 2010 due to usage of new credit line from EIB fascilitated through the MBDP. In the forthcoming period repayment of due liabilities is planned upon used credit lines by the Bank. 3.9. Total deposits of customers are planned to increase by 18,417 million denars and by the end of 2014 to reach the amount of 69,634 million denars. The average annual growth rate is planned at 6.3%. 3.10. Reserves of the Bank are planned to increase from 3,650 million denars to 8,594 million denars with average annual growth rate of 18.6% due to allocation of 80% of the Ban’s profit into reserves. 4. Income Statement The forecast of the income and expenses of the Bank for the period 2010-2014 is shown in the table below:

(in MKD million)

Realization 01.01. -

31.12.2009

Plan 2010

Plan 2011

Plan 2012

Plan 2013

Plan 2014

Index(8:3)

1 2 3 4 5 6 7 8 9

1 Interest income 3,877 4,081 4,309 4,611 4,960 5,353 138

2 Interest expenses 1,795 1,873 2,004 2,183 2,379 2,594 145

3 Net interest income 2,082 2,208 2,305 2,428 2,581 2,759 133

4 Other income 1,014 1,110 1,084 1,157 1,154 1,182 117

5 Other expenses 1,803 1,764 1,787 1,849 1,918 1,990 110

6 Impairment loss 3,618 3,932 4,698 5,123 5,521 5,823 161

7

Released impairment loss and collected written-off claims 3,398 3,477 4,248 4,723 5,221 5,523 163

Gross profit before tax 1,074 1,100 1,152 1,336 1,517 1,651 154

4.1. Total interest income which is comprised of income upon interest from loans approved to non-financial sector, government, financial organizations, households and non-profit organizations that serve the households, as well as non-residents, are planned to increase by 38% due to increased credit activity and implementation of differentiated lending interest rates according the clients creditworthiness. 4.2. Total interest expenses are planned to increase by 45% due to planned increase of deposits.

37

4.3. Net-interest income by the end of 2014 is planned to reach 2,759 million denars, which represents 33% increase compared to 2009. 4.4. Other income (comprised of net fee and commission income, net f/x gains, net gains from operation with securities, gains upon capital investments, income from previous years, income upon f/x operations, other and extraordinary income) are planned to increase by 17% mainly as a result of growth of the net fee and commission income, as well as from included profit from associates and collection of balance-sheet claims. 4.5. Other expenses which are comprised of salaries and other personnel costs, deposit insurance premiums, material expenses, business trips, representations, advertising, amortization and other expenses are planned to increase by 10% through practicing more efficient cost management. 4.6. Impairment loss calculated according the new NBRM Methodology is planned to increase by 61% due to additional loan portfolio impairment upon certain clients and increased credit exposure of other clients. Net growth of the total impairment provisions both for balance sheet and off-balance sheet exposures for 2010 is planned in the amount of 455 million denars, while for 2014 is planned in the amount of 300 million denars. 4.7. Release of impairments and collected written-off claims calculated according the new NBRM Methodology are planned to increase by 63%. 4.8. Gross profit before tax for 2014 is planned to reach 1,651 million denars or by 54% more compared to 2009, due to expected recuperation of the economic environment in the country from the effects of the global economic crisis.

SUPERVISORY BOARD

PLAN 2010-2014

ASSETS (IN 000 MKD)

Index Index Index Index Index Index

Amount Structure Amount Structure 5:3 Amount Structure 8:5 Amount Structure 11:8 Amount Structure 14:11 Amount Structure 17:14 17:3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

1 Money in cash 13.803.174 22,7% 15.045.000 23,4% 109 15.947.000 23,4% 106 16.954.000 23,2% 106 17.972.000 22,8% 106 19.229.000 22,6% 107 139 6,8%

2 Deposits with the NBRM 2.787.967 4,6% 2.937.000 4,6% 105 3.109.000 4,6% 106 3.330.000 4,6% 107 3.583.000 4,5% 108 3.870.000 4,5% 108 139 6,8%

3 Assets held for trading 30.531 0,1% 31.000 0,0% 102 32.000 0,0% 103 34.000 0,0% 106 36.000 0,0% 106 38.000 0,0% 106 124 4,4%

4Placements in and short-term loans to other banks 1.330.583 2,2% 1.349.000 2,1% 101 1.376.000 2,0% 102 1.431.000 2,0% 104 1.474.000 1,9% 103 1.518.000 1,8% 103 114 2,7%

5


11.351.539 18,7% 11.960.000 18,6% 105 12.659.000 18,6% 106 13.621.000 18,6% 108 14.840.000 18,8% 109 16.212.000 19,0% 109 143 7,4%

6 Long-term loans 27.314.175 44,9% 28.316.000 44,1% 104 30.235.000 44,4% 107 32.434.000 44,4% 107 35.025.000 44,4% 108 37.910.000 44,5% 108 139 6,8%

7


381.283 0,6% 380.000 0,6% 100 306.000 0,4% 81 306.000 0,4% 100 300.000 0,0% 98 300.000 0,4% 0 79 -4,6%

8

Investments in securities – held until maturity 120.086 0,2% 65.000 0,1% 54 11.000 0,0% 17 0 0,0% 0 0 0,0% 0 0 0,0% 0 0 0,0%

9 Investments in assotiates 88.799 0,1% 112.000 0,2% 126 141.000 0,2% 126 184.000 0,3% 130 231.000 0,3% 126 285.000 0,3% 123 321 26,7%

10 Fixed assets 1.738.154 2,9% 1.936.000 3,0% 111 2.091.000 3,1% 108 2.258.000 3,1% 108 2.461.000 3,1% 109 2.683.000 3,1% 109 154 9,0%

11 Other assets 1.829.218 3,0% 2.049.000 3,2% 112 2.264.000 3,3% 110 2.567.000 3,5% 113 2.905.000 3,7% 113 3.227.000 3,8% 111 176 12,0%Total assets 60.775.509 100,0% 64.180.000 100,0% 106 68.171.000 100,0% 106 73.119.000 100,0% 107 78.827.000 100,0% 108 85.272.000 100,0% 108 140 7,0%

LIABILITIES

Index Index Index Index Index Index

Amount Structure Amount Structure 5:3 Amount Structure 8:5 Amount Structure 11:8 Amount Structure 14:11 Amount Structure 17:14 17:3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

1 Short-term borrowings 98.629 0,2% 99.000 0,2% 100 90.000 0,1% 91 90.000 0,1% 100 80.000 0,1% 89 70.000 0,1% 88 71 >-5%

2 Long-term borrowings 1.482.481 2,4% 2.474.000 3,9% 167 2.262.000 3,3% 91 2.069.000 2,8% 91 1.941.000 2,5% 94 1.841.000 2,2% 95 124 4.4

3 Demand deposits 21.829.603 35,9% 22.474.000 35,0% 103 23.598.000 34,6% 105 25.013.000 34,2% 106 26.514.000 33,6% 106 28.360.000 33,3% 107 130 5,4%

4 Short-term deposits 27.189.573 44,7% 27.990.000 43,6% 103 29.949.000 43,9% 107 32.345.000 44,2% 108 35.206.000 44,7% 109 38.314.000 44,9% 109 141 7,1%

5 Long-term deposits 2.197.838 3,6% 2.260.000 3,5% 103 2.398.000 3,5% 106 2.563.000 3,5% 107 2.750.000 3,5% 107 2.960.000 3,5% 108 135 6,2%

6 Other liabilities 1.021.053 1,7% 1.205.000 1,9% 118 1.264.000 1,9% 105 1.323.000 1,8% 105 1.370.000 1,7% 104 1.413.000 1,7% 103 138 6,6%

7 Share capital 2.232.767 3,7% 2.233.000 3,5% 100 2.233.000 3,3% 100 2.233.000 3,1% 100 2.233.000 2,8% 100 2.233.000 2,6% 100 100 0,0%

8 Own shares 0 0,0% 0 0,0% 0 0 0,0% 0 0 0,0% 0 0 0,0% 0 0 0,0% 0 0 0,0%

9 reserves 3.649.557 6,0% 4.345.000 6,8% 119 5.225.000 7,7% 120 6.147.000 8,4% 118 7.216.000 9,2% 117 8.430.000 9,9% 117 231 18,2%

10 Unallocated profit 0 0,0% 0 0,0% 0 0 0,0% 0 0 0,0% 0 0 0,0% 0 0 0,0% 0 0 0,0%

11 Gross profit 1.074.008 1,8% 1.100.000 1,7% 102 1.152.000 1,7% 105 1.336.000 1,8% 116 1.517.000 1,9% 114 1.651.000 1,9% 109 154 9,0%Total liabilities 60.775.509 100,0% 64.180.000 100,0% 106 68.171.000 100,0% 106 73.119.000 100,0% 107 78.827.000 100,0% 108 85.272.000 100,0% 108 140 7,0%

Plan 2013 Plan 2014 Average rate

Plan 2012 Plan 2013 Plan 2014 Average rate

Plan 2012Statement 31.12.2009 Plan 2010 Plan 2011

Plan 2011

TABLE 1


BALANCE SHEET OF KOMERCIJALNA BANKA AD SKOPJE

TABLE 2

INCOME STATEMENTof Komercijalna Banka AD Skopje

01.01. - 31.12.2009

Plan 2010Index (4:3)

Plan 2011 Index (6:4) Plan 2012 Index (8:6) Plan 2013Index (10:8)

Plan 2014Index

(12:10)Index (12:3)

1 2 3 4 5 6 7 8 9 10 11 12 13 141 INTEREST INCOME 3.876.658 4.081.000 105 4.309.000 106 4.611.000 107 4.960.000 108 5.353.000 108 1382 INTEREST EXPENSE 1.794.618 1.873.000 104 2.004.000 107 2.183.000 109 2.379.000 109 2.594.000 109 1453 NET INTEREST INCOME 2.082.040 2.208.000 106 2.305.000 104 2.428.000 105 2.581.000 106 2.759.000 107 133

4 Fee and commission income 861.103 935.000 109 981.000 105 1.019.000 104 1.048.000 103 1.078.000 103 1255 Fee and commission expense 145.201 150.000 103 155.000 103 159.000 103 162.000 102 165.000 102 114

6 Net fee and commission income 715.902 785.000 110 826.000 105 860.000 104 886.000 103 913.000 103 1287 Net FX gains 91.317 91.000 100 90.000 99 90.000 100 90.000 100 90.000 100 99

8 Other incomes 206.740 234.300 113 168.000 72 207.000 123 178.000 86 179.000 101 87

9 Net securities incomes 4.090 4.100 100 4.000 98 4.000 100 4.000 100 4.000 100 9810 Dividends 38.115 45.200 119 52.000 115 65.000 125 68.000 105 75.000 110 197

11 Other incomes 164.535 185.000 112 112.000 61 138.000 123 106.000 77 100.000 94 61

12 Other expenses13 Net securities expense 0 0 0 0 0 0 0 0 0 0 0 014 Salaries 939.911 894.000 95 895.000 100 922.000 103 950.000 103 978.000 103 104

15 Insurance premium 241.313 263.000 109 279.000 106 298.000 107 321.000 108 347.000 108 144

16 Material expenses 348.940 345.000 99 345.000 100 355.000 103 366.000 103 377.000 103 10817

Other administrative expenses and amortization

232.731 236.000 101 243.000 103 250.000 103 258.000 103 265.000 103 114

18 Other expenses 39.802 25.500 64 25.000 98 24.000 96 23.000 96 23.000 100 58

19 Total other expenses 1.802.697 1.763.500 98 1.787.000 101 1.849.000 103 1.918.000 104 1.990.000 104 110

20 Impairment provision 3.617.577 3.932.000 109 4.698.000 119 5.123.000 109 5.521.000 108 5.823.000 105 16121 Release of impairment provision 3.350.546 3.392.000 101 4.232.000 125 4.707.000 111 5.207.000 111 5.463.000 105 16322 Collected written off claims 47.737 85.200 178 16.000 19 16.000 100 14.000 88 60.000 429 12623 Gross profit 1.074.008 1.100.000 102 1.152.000 105 1.336.000 116 1.517.000 114 1.651.000 109 154

(IN 000 MKD)

Plan 2010-2014

TABLE 3

(IN 000 MKD)

ACC. Index31.12.2009 2010 2011 2012 2013 2014 8:3

1 2 3 4 5 6 7 8 9 10

623 Material and similar expenses 92.734 94.200 94.100 96.800 99.800 102.800 111 2,1%

624 Expenses and services 185.960 184.415 184.200 189.500 195.400 201.200 108 1,5%

625 Business trips expenses 11.648 8.600 8.600 8.900 9.100 9.000 77 >-5%

627 Representation and marketing expenses 58.596 58.200 58.100 59.800 61.700 64.000 109 1,7%

628 Other administrative expenses 36.906 33.185 34.000 35.000 36.000 37.000 100 0,0%

629 Amortization and amortization revaluation 195.827 202.900 209.000 215.000 222.000 228.000 116 3,0%

TOTAL 581.671 581.500 588.000 605.000 624.000 642.000 110 1,9%

Average ratePLAN

PLAN 2010-2014 of the operating expenses and amortization of Komercijalna banka AD Skopje and the branches

PLAN 2010-2014

ASSETS (IN 000 MKD)

2010 2011 2012 2013 2014

Amount Structure Amount Amount Amount Amount Amount 9:3

1 2 3 4 5 6 7 8 9 10 11

1 Money in cash 841.497 21,8% 892.000 950.000 1.019.000 1.099.000 1.189.000 141 7,1%

2 Deposits with the NBRM 0 0,0% 0 0 0 0 0 0 0,0%

3 Assets held for trading 0 0,0% 0 0 0 0 0 0 0,0%

4Placements in and short-term loans to other banks 0 0,0% 0 0 0 0 0 0 0,0%

5


715.677 18,5% 754.000 798.000 858.000 935.000 1.021.000 143 7,4%

6 Long-term loans 628.749 16,3% 652.000 695.000 746.000 806.000 872.000 139 6,8%

7


0 0,0% 0 0 0 0 0 0 0,0%

8

Investments in securities – held until maturity 0 0,0% 0 0 0 0 0 0 0,0%

9 Investments in assotiates 0 0,0% 0 0 0 0 0 0 0,0%

10 Fixed assets 128.383 3,3% 143.000 145.000 156.000 168.000 181.000 141 7,1%

11 Other assets 1.549.397 40,1% 1.607.000 1.775.000 1.901.000 2.037.000 2.194.000 142 7,3%Total assets 3.863.703 100,0% 4.048.000 4.363.000 4.680.000 5.045.000 5.457.000 141 7,1%

LIABILITIES

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Short-term borrowings 0 0,0% 0 0 0 0 0 0

2 Long-term borrowings 115.970 3,0% 115.970 115.970 115.970 115.970 115.970 100

3 Demand deposits 1.158.709 30,0% 1.197.000 1.251.000 1.326.000 1.405.000 1.503.000 130 5,4%

4 Short-term deposits 2.371.207 61,4% 2.445.000 2.606.000 2.814.000 3.063.000 3.333.000 141 7,1%

5 Long-term deposits 31.051 0,8% 32.000 34.000 36.000 39.000 41.000 132 5,7%

6 Other liabilities 40.769 1,1% 61.919 156.619 177.519 200.519 234.519 575 >30%

7 Share capital 0 0,0% 0 0 0 0 0 0 0,0%

8 Own shares 0 0,0% 0 0 0 0 0 0 0,0%

9 reserves 129.511 3,4% 129.511 129.511 129.511 129.511 129.511 100 0,0%

10 Unallocated profit 0 0,0% 0 0 0 0 0 0 0,0%

11 Gross profit 0 0,0% 66.600 69.900 81.000 92.000 100.000 0 0,0%

12 *Difference (Assets - Liabilities) 16.486 0,4% 0 0 0 0 0 0 0,0%Total liabilities 3.863.703 100,0% 4.048.000 4.363.000 4.680.000 5.045.000 5.457.000 141 7,1%

* The diference between the Assets and Liabilities of the Branch is a result of unexecuted bookkeeping entries of internal relations

TABLE 4

Statement 31.12.2009

Plan

BALANCE SHEET OF BRANCH PRILEP

0.0

Average rate


Plan

IndexAverage

rate

Index

TABLE 5

(IN 000 MKD)

01.01. - 31.12.2009 Plan 2010 Plan 2011 Plan 2012 Plan 2013 Plan 2014 Index (8:3)

1 2 3 4 5 6 7 8 91 INTEREST INCOME 160.183 167.000 177.000 189.000 201.000 213.000 1332 INTEREST EXPENSE 124.443 128.000 136.200 141.600 147.000 154.200 1243 NET INTEREST INCOME 35.740 39.000 40.800 47.400 54.000 58.800 165

4 Fee and commission income 29.445 31.000 32.300 37.700 43.800 47.600 1625 Fee and commission expense 4.285 4.400 4.500 5.500 7.000 7.500 175

6 Net fee and commission income 25.160 26.600 27.800 32.200 36.800 40.100 1597 Net FX gains 32.653 33.000 33.000 33.000 33.000 33.000 101

8 Other incomes 761 800 800 850 1.000 1.200 158

9 Net securities incomes 0 0 0 0 0 0 010 Dividends 0 0 0 0 0 0 0

11 Other incomes 761 800 800 850 1.000 1.200 158

12 Oth

INCOME STATEMENTof Branch PrilepPlan 2010-2014

12 Other expenses13 Net securities expense 0 0 0 0 0 0 014 Salaries 53.491 50.900 50.900 52.500 54.075 55.700 104

15 Insurance premium 22.036 18.370 19.470 21.000 22.680 24.300 110

16 Material expenses 7.876 7.795 7.800 8.100 8.400 8.500 10817

Other administrative expenses and amortization 9.881 8.205

8.230 8.400 8.845 8.850 90

18 Other expenses 493 530 600 1.000 1.000 1.000 203

19 Total other expenses 93.777 85.800 87.000 91.000 94.000 98.350 105

20 Impairment provision 186.249 201.000 209.500 237.500 266.800 280.750 15121 Release of impairment provision 250.932 254.000 264.000 296.050 328.000 346.000 13822 Collected written off claims 0 0 0 0 0 023 Gross profit 65.220 66.600 69.900 81.000 92.000 100.000 153

TABLE 6

(IN 000 MKD)

ACC. Index31.12.2009 2010 2011 2012 2013 2014 8:3

1 2 3 4 5 6 7 8 9 10



625 Business trips expenses 100 110 110 110 120 120 120 3,7%

627 Representation and marketing expenses 388 400 400 430 430 440 113 2,5%


629 Amortization and amortization revaluation 6.595 5.000 5.016 5.120 5.390 5.390 82 -3,9%

TOTAL 17.760 16.000 16.030 16.500 17.245 17.350 98 -0,4%

Average ratePlan

PLAN 2010-2014 of the operating expenses and amortization of Branch Prilep

PLAN 2010-2014

ASSETS (IN 000 MKD)

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Money in cash 75.098 5,0% 80.000 85.000 92.000 99.000 107.000 142 7,3%




5


438.746 29,3% 462.000 494.000 531.000 579.000 632.000 144 7,6%

6 Long-term loans 558.494 37,3% 579.000 605.000 649.000 701.000 758.000 136 6,3%

7


0 0,0% 0 0 0 0 0 0 0,0%

8



10 Fixed assets 60.768 4,1% 68.000 69.000 74.000 80.000 87.000 143 7,4%

11 Other assets 363.741 24,3% 374.000 451.000 482.000 512.000 548.000 151 8,6%Total assets 1.496.847 100,0% 1.563.000 1.704.000 1.828.000 1.971.000 2.132.000 142 7,3%

LIABILITIES

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11


2 Long-term borrowings 0 0,0% 0 0 0 0 0 0

3 Demand deposits 399.423 26,7% 413.000 425.000 450.000 477.000 510.000 128 5,1%

4 Short-term deposits 954.546 63,8% 984.000 1.048.000 1.132.000 1.232.000 1.341.000 140 7,0%



7 Share capital 0 0,0% 0 0 0 0 0 0 0,0%

8 Own shares 0 0,0% 0 0 0 0 0 0 0,0%

9 reserves 0 0,0% 0 0 0 0 0 0 0,0%


11 Gross profit 0 0,0% 16.000 16.800 19.500 22.200 24.200 0 0,0%

12 *Difference (Assets - Liabilities) 4.798 0,3% 0 0 0 0 0 0 0,0%Total liabilities 1.496.847 100,0% 1.563.000 1.704.000 1.828.000 1.971.000 2.132.000 142 7,3%

* The diference between the Assets and Liabilities of the Branch is a result of unexecuted bookkeeping entries of internal relations

TABLE 7


Plan

BALANCE SHEET OF BRANCH OHRID

0

Average rate


Plan

IndexAverage

rate

Index

TABLE 8

(IN 000 MKD)



4 Fee and commission income 12.734 14.000 14.900 17.300 19.100 21.600 1705 Fee and commission expense 700 800 1.000 1.200 1.400 1.600 229

6 Net fee and commission income 12.034 13.200 13.900 16.100 17.700 20.000 1667 Net FX gains 165 200 200 200 200 200 121

8 Other incomes 493 540 630 750 800 900 183


11 Other incomes 493 540 630 750 800 900 183

12 Other expenses13 Net securities expense 0 0 0 0 014 Salaries 18.766 17.800 17.800 18.500 19.500 20.100 107




6.460 6.550 6.800 7.000 143

18 Other expenses 2.289 2.000 2.400 2.800 3.200 3.200 140


20 Impairment provision 132.751 143.000 150.000 174.000 202.200 222.800 16821 Release of impairment provision 114.717 120.000 126.000 142.500 165.400 181.000 15822 Collected written off claims 28 0 0 0 0 023 Gross profit 15.334 16.000 16.800 19.500 22.200 24.200 158

INCOME STATEMENTof Branch OhridPlan 2010-2014

TABLE 9

(IN 000 MKD)

ACC. Index31.12.2009 2010 2011 2012 2013 2014 8:3

1 2 3 4 5 6 7 8 9 10







TOTAL 10.707 11.540 12.730 13.550 14.700 15.100 141 7,1%

Average ratePLAN

PLAN 2010-2014 of the operating expenses and amortization of Branch Ohrid

PLAN 2010-2014

ASSETS (IN 000 MKD)

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Money in cash 204.216 21,2% 216.000 231.000 248.000 267.000 289.000 142 7,3%




5


284.932 29,5% 300.000 317.000 341.000 371.000 405.000 142 7,3%

6 Long-term loans 222.911 23,1% 231.000 242.000 259.000 280.000 303.000 136 6,4%

7


0 0,0% 0 0 0 0 0 0 0,0%

8



10 Fixed assets 36.215 3,8% 40.000 41.500 44.000 48.000 52.000 144 7,6%

11 Other assets 216.090 22,4% 235.000 259.500 278.000 295.000 315.000 146 7,9%Total assets 964.364 100,0% 1.022.000 1.091.000 1.170.000 1.261.000 1.364.000 141 7,1%

LIABILITIES

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11



3 Demand deposits 346.449 35,9% 358.000 378.000 400.000 424.000 454.000 131 5,6%

4 Short-term deposits 563.239 58,4% 581.000 629.000 679.000 739.000 805.000 143 7,4%


6 Other liabilities 10.162 1,1% 12.300 10.100 10.000 9.000 9.000 89 -2,3%

7 Share capital 0 0,0% 0 0 0 0 0 0 0,0%

8 Own shares 0 0,0% 0 0 0 0 0 0 0,0%

9 reserves 0 0,0% 0 0 0 0 0 0 0,0%


11 Gross profit 0 0,0% 24.700 25.900 30.000 34.000 37.000 0 0,0%

12 *Difference (Assets - Liabilities) 0 0,0% 0 0 0 0 0 0 0,0%Total liabilities 964.364 100,0% 1.022.000 1.091.000 1.170.000 1.261.000 1.364.000 141 7,1%

TABLE 10


Plan

BALANCE SHEET OF BRANCH VELES

0

Average rate


Plan

IndexAverage

rate

Index

TABLE 11

(IN 000 MKD)





8 Other incomes 486 500 510 550 560 560 115


11 Other incomes 486 500 510 550 560 560 115

12 Other expenses13 Net securities expense 0 0 0 0 014 Salaries 10.400 9.900 9.900 10.200 10.500 10.800 104




2.925 3.000 3.100 3.200 114

18 Other expenses 38 55 55 50 60 60 158


20 Impairment provision 29.189 31.000 32.550 37.700 43.000 46.400 15921 Release of impairment provision 28.297 28.000 28.900 33.900 38.900 42.400 15022 Collected written off claims 0 0 0 0 0 0 023 Gross profit 23.188 24.700 25.900 30.000 34.000 37.000 160

INCOME STATEMENTof Branch VelesPlan 2010-2014

TABLE 12

(IN 000 MKD)

ACC. Index31.12.2009 2010 2011 2012 2013 2014 8:3

1 2 3 4 5 6 7 8 9 10



625 Business trips expenses 73 30 30 35 35 35 48 >-5.0%


628 Other administrative expenses 536 540 560 570 590 600 112 2,3%


TOTAL 5.698 5.820 5.905 6.100 6.300 6.500 114 2,7%

Average ratePLAN

PLAN 2010-2014 of the operating expenses and amortization of Branch Veles

PLAN 2010-2014

ASSETS (IN 000 MKD)

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Money in cash 42.200 3,5% 45.000 48.000 52.000 56.000 60.000 142 7,3%




5


317.529 26,7% 334.000 354.000 381.000 416.000 454.000 143 7,4%

6 Long-term loans 922.453 77,5% 956.000 1.028.000 1.103.000 1.191.000 1.289.000 140 7,0%

7


0 0,0% 0 0 0 0 0 0 0,0%

8



10 Fixed assets 20.814 1,7% 23.000 24.000 26.000 28.000 30.000 144 7,6%

11 Other assets -112.926 -9,5% -87.000 -91.000 -100.000 -114.000 -128.000 113 2,5%Total assets 1.190.070 100,0% 1.271.000 1.363.000 1.462.000 1.577.000 1.705.000 143 7,4%

LIABILITIES

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11



3 Demand deposits 446.829 37,5% 462.000 472.000 500.000 530.000 567.000 127 4,9%




7 Share capital 0 0,0% 0 0 0 0 0 0 0,0%

8 Own shares 0 0,0% 0 0 0 0 0 0 0,0%

9 reserves 0 0,0% 0 0 0 0 0 0 0,0%


11 Gross profit 0 0,0% 40.800 42.800 49.600 56.600 61.700 0 0,0%

12 *Difference (Assets - Liabilities) 0 0,0% 0 0 0 0 0 0 0,0%Total liabilities 1.190.070 100,0% 1.271.000 1.363.000 1.462.000 1.577.000 1.705.000 143 7,4%

TABLE 13


Plan

BALANCE SHEET OF BRANCH STRUMICA

0

Average rate


Plan

IndexAverage

rate

Index

TABLE 14

(IN 000 MKD)





8 Other incomes 640 730 730 820 950 1.000 156


11 Other incomes 640 730 730 820 950 1.000 156

12 Other expenses13 Net securities expense 014 Salaries 12.885 12.300 12.300 12.700 13.100 13.500 105




2.700 2.900 3.100 3.300 150

18 Other expenses 80 100 120 150 180 200 250



INCOME STATEMENTof Branch Strumica

Plan 2010-2014

TABLE 15

(IN 000 MKD)

ACC Index31.12.2009 2010 2011 2012 2013 2014 8:3

1 2 3 4 5 6 7 8 9 10



625 Business trips expenses 41 30 30 35 40 40 98 -0,4%

627 Representation and marketing expenses 405 150 150 165 200 200 49 >-5.0%

628 Other administrative expenses 743 1.050 1.100 1.200 1.300 1.360 183 12,8%


TOTAL 5.671 6.040 6.200 6.770 7.270 7.600 134 6,0%

Average ratePLAN

PLAN 2010-2014 of the operating expenses and amortization of Branch Strumica

PLAN 2010-2014

ASSETS (IN 000 MKD)

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Money in cash 669.202 73,4% 709.000 751.000 805.000 867.000 939.000 140 7,0%




5


123.689 13,6% 130.000 139.000 149.000 163.000 178.000 144 7,6%

6 Long-term loans 180.420 19,8% 187.000 212.000 227.000 245.000 265.000 147 8,0%

7


0 0,0% 0 0 0 0 0 0 0,0%

8



10 Fixed assets 11.119 1,2% 12.000 12.000 13.000 14.000 16.000 144 7,6%

11 Other assets -72.444 -7,9% -64.000 -91.000 -97.000 -107.000 -119.000 164 10,4%Total assets 911.986 100,0% 974.000 1.023.000 1.097.000 1.182.000 1.279.000 140 7,0%

LIABILITIES

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11



3 Demand deposits 395.099 43,3% 408.000 425.000 450.000 477.000 510.000 129 5,2%



6 Other liabilities 6.537 0,7% 8.000 14.500 14.300 14.000 17.000 260 21,1%

7 Share capital 0 0,0% 0 0 0 0 0 0 0,0%

8 Own shares 0 0,0% 0 0 0 0 0 0 0,0%

9 reserves 0 0,0% 0 0 0 0 0 0 0,0%


11 Gross profit 0 0,0% 31.000 32.500 37.700 43.000 47.000 0 0,0%

12 *Difference (Assets - Liabilities) 0 0,0% 0 0 0 0 0 0 0,0%Total liabilities 911.986 100,0% 974.000 1.023.000 1.097.000 1.182.000 1.279.000 140 7,0%

TABLE 16


Plan

BALANCE SHEET OF BRANCH KOCANI

0

Average rate


Plan

IndexAverage

rate

Index

(IN 000 MKD)





8 Other incomes 336 345 390 450 520 560 167


11 Other incomes 336 345 390 450 520 560 167





2.350 2.400 2.500 2.600 120

18 Other expenses 47 50 60 70 90 100 213



TABLE 17

INCOME STATEMENTof Branch KocaniPlan 2010-2014

TABLE 18

(IN 000 MKD)

ACC. Index31.12.2009 2010 2011 2012 2013 2014 8:3

1 2 3 4 5 6 7 8 9 10



625 Business trips expenses 36 20 20 20 20 20 56 >-5.0%




TOTAL 5.307 5.520 5.650 5.800 6.100 6.300 119 3,5%

Average ratePLAN

PLAN 2010-2014 of the operating expenses and amortization of Branch Kocani

PLAN 2010-2014

ASSETS (IN 000 MKD)

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Money in cash 694.342 68,4% 736.000 792.000 850.000 916.000 992.000 143 7,4%




5


159.641 15,7% 168.000 177.000 191.000 208.000 227.000 142 7,3%

6 Long-term loans 341.347 33,6% 354.000 363.000 389.000 420.000 455.000 133 5,9%

7


0 0,0% 0 0 0 0 0 0 0,0%

8



10 Fixed assets 40.498 4,0% 45.000 46.000 49.000 53.000 58.000 143 7,4%

11 Other assets -220.947 -21,8% -217.000 -219.000 -236.000 -257.000 -282.000 128 5,1%Total assets 1.014.881 100,0% 1.086.000 1.159.000 1.243.000 1.340.000 1.450.000 143 7,4%

LIABILITIES

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11



3 Demand deposits 395.939 39,0% 409.000 425.000 450.000 477.000 510.000 129 5,2%




7 Share capital 0 0,0% 0 0 0 0 0 0 0,0%

8 Own shares 0 0,0% 0 0 0 0 0 0 0,0%

9 reserves 0 0,0% 0 0 0 0 0 0 0,0%


11 Gross profit 0 0,0% 37.000 38.800 45.000 51.300 56.000 0 0,0%


TABLE 19


Plan

BALANCE SHEET OF BRANCH STIP

0

Average rate


Plan

IndexAverage

rate

Index

(IN 000 MKD)





8 Other incomes 425 420 450 470 480 500 118


11 Other incomes 425 420 450 470 480 500 118





6.200 6.400 6.600 6.800 114

18 Other expenses 82 100 120 140 180 200 244



TABLE 20

INCOME STATEMENTof Branch StipPlan 2010-2014

TABLE 21

(IN 000 MKD)

ACC. Index31.12.2009 2010 2011 2012 2013 2014 8:3

1 2 3 4 5 6 7 8 9 10







TOTAL 12.061 12.550 12.800 13.200 13.600 14.000 116 3,0%

Average ratePLAN

PLAN 2010-2014 of the operating expenses and amortization of Branch Stip

PLAN 2010-2014

ASSETS (IN 000 MKD)

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Money in cash 378.167 17,8% 401.000 424.000 455.000 491.000 531.000 140 7,0%




5


55.642 2,6% 69.000 63.000 68.000 74.000 81.000 146 7,9%

6 Long-term loans 98.478 4,6% 106.000 121.000 130.000 140.000 152.000 154 9,0%

7


0 0,0% 0 0 0 0 0 0 0,0%

8



10 Fixed assets 24.090 1,1% 27.000 28.000 29.000 30.000 31.000 129 5,2%

11 Other assets 1.572.335 73,9% 1.532.000 1.750.000 1.877.000 2.024.000 2.190.000 139 6,8%Total assets 2.128.712 100,0% 2.135.000 2.386.000 2.559.000 2.759.000 2.985.000 140 7,0%

LIABILITIES

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Short-term borrowings 0 0,0% 0 0 0 0 0 0 0

2 Long-term borrowings 0 0,0% 0 0 0 0 0 0 0

3 Demand deposits 1.008.285 47,4% 1.010.000 1.086.000 1.151.000 1.220.000 1.305.000 129 5,2%

4 Short-term deposits 1.057.176 49,7% 1.059.000 1.168.000 1.261.000 1.373.000 1.494.000 141 7,1%



7 Share capital 0 0,0% 0 0 0 0 0 0 0,0%

8 Own shares 0 0,0% 0 0 0 0 0 0 0,0%

9 reserves 0 0,0% 0 0 0 0 0 0 0,0%


11 Gross profit 0 0,0% 1.000 1.100 1.200 1.400 1.500 0 0,0%


TABLE 22


Plan

BALANCE SHEET OF BRANCH KUMANOVO

Average rate


Plan

IndexAverage

rate

Index

(IN 000 MKD)


1 2 3 4 5 6 7 8 91 INTEREST INCOME 44.498 51.000 52.500 53.500 54.500 55.500 1252 INTEREST EXPENSE 49.837 50.000 51.000 51.500 52.000 52.500 1053 NET INTEREST INCOME -5.339 1.000 1.500 2.000 2.500 3.000 -56

4 Fee and commission income 9.310 10.000 10.500 12.300 14.100 15.400 1655 Fee and commission expense 671 700 800 1.000 1.200 1.400 209


8 Other incomes 671 500 550 600 650 700 104

9 Net securities incomes 010 Dividends 0

11 Other incomes 671 500 550 600 650 700 104

12 Oth

TABLE 23

INCOME STATEMENTof Branch Kumanovo

Plan 2010-2014

12 Other expenses13 Net securities expense 014 Salaries 9.834 9.400 9.400 9.600 9.800 10.000 102




3.200 3.250 3.300 3.350 108

18 Other expenses 182 270 280 290 300 310 170


20 Impairment provision 7.934 10.000 11.600 13.100 15.000 16.440 20721 Release of impairment provision 4.934 5.000 6.000 6.500 7.450 8.000 16222 Collected written off claims 0 0 0 0 0 0 023 Gross profit -5.194 1.000 1.100 1.200 1.400 1.500 -

TABLE 24

(IN 000 MKD)

ACC. Index31.12.2009 2010 2011 2012 2013 2014 8:3

1 2 3 4 5 6 7 8 9 10


624 Expenses and services 2.154 1.890 1.890 1.940 2.010 2.070 96 -0,8%





TOTAL 6.676 6.530 6.580 6.710 6.900 7.050 106 1,2%

Average ratePLAN

PLAN 2010-2014 of the operating expenses and amortization of Branch Kumanovo

PLAN 2010-2014

ASSETS (IN 000 MKD)

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Money in cash 230.861 24,8% 245.000 254.000 272.000 293.000 317.000 137 6,5%




5


4.741 0,5% 9.000 9.500 10.000 10.500 11.000 232 18,3%

6 Long-term loans 60.862 6,5% 81.000 85.000 90.000 95.000 100.000 164 10,4%

7


0 0,0% 0 0 0 0 0 0 0,0%

8



10 Fixed assets 15.889 1,7% 18.000 19.000 20.000 21.000 22.000 138 6,7%

11 Other assets 617.518 66,4% 582.000 655.500 705.000 762.500 829.000 134 6,0%Total assets 929.871 100,0% 935.000 1.023.000 1.097.000 1.182.000 1.279.000 138 6,7%

LIABILITIES

2010 2011 2012 2013 2014


1 2 3 4 5 6 7 8 9 10 11

1 Short-term borrowings 0 0,0% 0 0 0 0 0 0 0

2 Long-term borrowings 0 0,0% 0 0 0 0 0 0 0

3 Demand deposits 292.516 31,5% 293.000 307.000 325.000 345.000 369.000 126 4,7%




7 Share capital 0 0,0% 0 0 0 0 0 0 0,0%

8 Own shares 0 0,0% 0 0 0 0 0 0 0,0%

9 reserves 0 0,0% 0 0 0 0 0 0 0,0%


11 Gross profit 0 0,0% 1.000 1.100 1.200 1.400 1.500 0 0,0%

12 *Difference (Assets - Liabilities) 0 0,0% 0 0 0 0 0 0 0,0%Total liabilities 929.871 100,0% 935.000 1.023.000 1.097.000 1.182.000 1.279.000 138 6,7%

TABLE 25


Plan

BALANCE SHEET OF BRANCH KAVADARCI

Average rate


Plan

IndexAverage

rate

Index

(IN 000 MKD)


1 2 3 4 5 6 7 8 91 INTEREST INCOME 24.773 34.000 34.600 35.100 35.700 36.300 1472 INTEREST EXPENSE 33.158 33.000 33.100 33.100 33.200 33.300 1003 NET INTEREST INCOME -8.385 1.000 1.500 2.000 2.500 3.000 -36

4 Fee and commission income 14.747 16.000 16.800 17.470 18.100 18.800 1275 Fee and commission expense 853 1.000 1.050 1.070 1.100 1.100 129


8 Other incomes 319 200 250 300 350 400 125


11 Other incomes 319 200 250 300 350 400 125

12 Oth

TABLE 26

INCOME STATEMENTof Branch Kavadarci

Plan 2010-2014





2.170 2.170 2.180 2.200 101

18 Other expenses 76 175 180 180 200 210 276


20 Impairment provision 3.944 6.000 6.950 7.750 8.370 9.190 23321 Release of impairment provision 1.307 1.300 1.400 1.700 2.000 2.300 17622 Collected written off claims 0 0 0 0 0 0 023 Gross profit -7.539 1.000 1.100 1.200 1.400 1.500 -

TABLE 27

(IN 000 MKD)

ACC. Index31.12.2009 2010 2011 2012 2013 2014 8:3

1 2 3 4 5 6 7 8 9 10

623 Material and similar expenses 895 1.000 1.010 1.060 1.100 1.150 128 5,1%

624 Expenses and services 989 920 930 970 1.020 1.060 107 1,4%



628 Other administrative expenses 579 520 530 530 530 540 93


TOTAL 4.172 4.200 4.270 4.370 4.480 4.600 110 1,9%

Average ratePLAN

PLAN 2010-2014 of the operating expenses and amortization of Branch Kavadarci

OBOJ npesofl UJTO roKOJ MM e noflHecen HajasMK, npasunHO ro npeseflos naanrnncKM jasnK, TBPflAM,

I, the undersigned, certify thatthe foregoing is a true and correcttranslation into English made byme from the Macedonian original.

nornnc na

CKonje, 27.01.2011 r

Signature of the authorized translator,

JJ^_ / Mimoza Naur

Skopje, 27.01.2011

komercijalna banka ad skopje kej “dimitar vlahov ... ponuda...komercijalna banka ad skopje kej...

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