Societe Generale Banka Srbija AD Beograd
CONSOLIDATED FINANCIAL STATEMENT AND NOTES FOR THE YEAR ENDED ON DECEMBER 31st 2017
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
CONTENT
Page
INDEPENDENT AUDITORS’ REPORT 1
CONSOLIDATED FINANCIAL STATEMENT CONSOLIDATED INCOME STATEMENT 2
CONSOLIDATED OTHER COMPREHENSIVE INCOME STATEMENT 3
CONSOLIDATED BALANCE SHEET 4
CONSOLIDATED CHANGES IN EQUITY REPORT 5
CONSOLIDATED CASH FLOW REPORT 6 - 7
CONSOLIDATED NOTE 8 - 120
ANNEX: CONSOLIDATED ANNUAL REPORT
Deloitte Deloitte d.o.o. Beograd Terazije 8 11000 Belgrade Republic of Serbia
Tax Identification Number 100048772 Registration Number: 07770413
Tel: +381 (0)11 3812 100 Fax: +381 (0)11 3812 112 www.deloitte.com/rs
Translation of the Auditors' Report issued in the Serbian language
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Owners of Societe Generale banka Srbija a.d., Beograd
We have audited the accompanying consolidated financial statements of Societe Generale Banka Srbija ad., Beograd (hereinafter: the "Parent Entity' or the "Bank"), its subsidiary and its associate (collectively: the "Group") enclosed on pages 2 to 120, which comprise the consolidated statement of the financial position as of December 31, 2017 and the related consolidated income statement, consolidated statement of other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the International Financial Reporting Standards, as well as for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the Law on Audit and standards on auditing applicable in the Republic of Serbia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements present fairly, in all material respects, the financial position of the Group as at December 31, 2017, and its financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards.
Report on Other Legal and Regulatory Requirements
Management of the Group is responsible for the preparation of the annual consolidated business report in accordance with the requirements of the Law on Accounting of the Republic of Serbia. In accordance with the Law on Audit of the Republic of Serbia and Decision on Amendments and Supplements to the Decision on External Audit of Banks, it is our responsibility to express an opinion on the compliance of the Group's annual consolidated business report for the year 2017 with its audited consolidated financial statements for the same financial year. In our opinion, the financial information disclosed in the annual consolidated business report for 2017 is consistent with the Group's audited consolidated financial statements for the year ended December 31, 2017.
Belgrade, April 5,2018
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which Is a legally separate and independent entity. Please see www.deloitte.comirs/about for a detailed description of the legal structure of Deloitte Touche Tohmalsu Limited and its member firms.
0 2017 Deloitte d.o.o. Beograd
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
1. BASIC INFORMATION ABOUT THE GROUP
Banking group (hereinafter referred to as "the Group") consists of the Parent company Societe Generale banka Srbija a.d. Beograd (hereinafter: the "Parent entity" or the "Bank"), where the Parent entity owns 100% equity share of Sogelease Srbija d.o.o. Beograd and associate legal entity Societe Generale Osiguranje a.d. Društvo za životno osiguranje Beograd, in which the Parent company owns 49% equity share.
Societe Generale banka Srbija a.d. Beograd (hereinafter: the “Bank”) was founded on December 14th, 1990 and entered into the Registry with the Commercial Court in Belgrade by the decision no. Fi-95/91 from February 14th, 1991. The majority founder of the Bank is Societe Generale SA, Paris (100%), member of Societe Generale Group.
The Bank has executed a compliance with the Law on Banks and Other Financial Organizations, which was entered into the Registry with the Commercial Court in Belgrade by the Decision no. Fi-20525/96 from December 31st, 1996. The Bank is registered to, besides the performance of loan and deposit business, to perform payments and credit transactions with foreign countries, based on the Decision of the National Bank of Yugoslavia no. 65 from February 28th, 1991.
Tax identification number of the Bank is 100000303, and the registry number of the Bank is 07552335.
Decision of the Business Registers Agency number BD 165078 from October 13th, 2006 registers the Bank as a closed joint stock company.
Decision number 1431-70/2007 from November 1st, 2007 altered the name of the Bank from Societe Generale Yugoslav Bank A.D. Belgrade to Societe Generale Banka Srbija a.d. Beograd.
Bank's Headquarters office is located in Belgrade, Bulevar Zorana Đinđića street number 50 a/b. On December 31st, 2017 the Bank had 1,390 employees (2016.: 1,328) and 96 branches (2016.: 96 branches).
Basic activities of the Bank are: domestic and foreign payments, loans, deposit business and foreign currency acquisition business. Other activities include warranty issuance, letters of credit and other bank business and broker services. During 2005 the Bank registered for the execution of custody business.
Sogelease Srbija d.o.o. Belgrade
The subsidiary Sogelease Srbija d.o.o. Beograd was founded by the Bank on august 29th, 2005., with 100% participation in equity. Sogelease Srbija d.o.o. is a limited liability company, registered on January 19th, 2006 in the register of companies maintained by the Business Registers Agency under the number BD 103470/2006. The Company is registered for financial leasing. The National Bank of Serbia has passed a resolution on January 04th, 2006 on the issuance of the licence of Sogelease doo Belgrade to engage in financial leasing.
Total number of employees as of 31.12.2017. was 36 (31.12.2016.: 32).
Sogelease Srbija d.o.o. Beograd is located in Belgrade, Bulevar Zorana Djindjica 50 a/b.
Societe Generale Osiguranje a.d. Life Insurance Company
Societe Generale Osiguranje is a life insurance company, (hereinafter referred to as the Company), founded on July 30th, 2009. Business Registers Agency issued the decision on registration of the Company on August 07th, 2009, number BD 131615/2009. The Bank participated in the founding capital of the Company with 49% on December 31st, 2017. Total number of employees as of 31.12.2017. was 25 (31.12.2016.: 23). The Company is located in Belgrade, Bulevar Zorana Đinđića 50 a/b
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
1. BASIC INFORMATION ABOUT THE GROUP (continued)
The accompanying consolidated financial statements and notes to the consolidated financial statements represent the consolidated financial statements of the Group. The Bank is the parent entity of the Group and prepared the consolidated financial statements on the date, and for the year ending December 31st, 2017. The consolidated financial statements include the financial statements of the Sogelease doo Beograd, which is 100% owned by the Bank.
The separate financial statements of the Bank were issued on March 30th, 2018.
2. ACCOUNTING POLICIES 2.1. (a) Basis for the Production and Presentation of Financial Statements
Legal entities and entrepreneurs incorporated in Serbia are required to maintain their books of account, to recognize and value assets and liabilities, income and expenses, and to present, submit and disclose financial statements in conformity the Law on Accounting (hereinafter referred to as: the “Law”, Official Gazette of the Republic of Serbia no. 62/2013). As a large legal entity, the Bank is required to apply International Financial Reporting Standards (“IFRS”), which as per the aforementioned law comprise the following: the Framework for the Preparation and Presentation of Financial Statements (the “Framework”), International Accounting Standards (“IAS”), International Financial Reporting Standards (“IFRS”), as well as the related interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) and additional related interpretations issued by the International Accounting Standards Board (“IASB”), the translations of which to the Serbian language were approved and issued by the competent Ministry of Finance. In addition, in accordance with the Amendments and Supplements to the Law on Banks (Official Gazette of the Republic of Serbia no. 14/2015), upon preparation of the annual financial statements, banks in the Republic of Serbia are obligated to apply the International Financial Reporting Standards, subsequent revisions and amendments thereto and related interpretations as from their issue date by the competent authorities.
Consolidated financial statements of the Group for 2017 have been prepared in accordance with the International Financial Reporting Standards ("IFRS"), and the accompanying regulation of the National Bank of Serbia that regulate financial reporting of banks.
The accompanying consolidated financial statements are presented in the form prescribed by the Decision on the Form and Content of the Financial Statements of Banks („Official Gazette of the Republic of Serbia“ No. 71/2014 and 135/2014).
The accompanying financial statements represent the consolidated financial statements of the Group. The Bank, as the parent company of the Group, completed and presented a separate set of individual financial statements. The submitted consolidated financial statements have been prepared under the historical cost, except for the items that are measured at fair value: securities available for sale, derivatives, other financial assets and liabilities held for trading, financial assets and liabilities at fair value through profit and loss.
The amounts in the accompanying consolidated financial statements of the Group are presented in thousands of RSD, unless otherwise indicated. Dinar (RSD) is the functional and reporting currency of the Group. All transactions in currencies other than the functional currency are treated as transactions in foreign currencies.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
10
FINANCIAL STATEMENT NOTES
2. ACCOUNTING POLICIES (continued) 2.1. (a) Basis for the Production and Presentation of Financial Statements (continued)
Consolidated financial statements are prepared on the basis of going concern principle which foresees that the Group will continue with the business in the foreseeable future.
Basis of consolidation The consolidated financial statements include the financial statements of the Group and entities over which it has ownership. Ownership exists if the Group has control over the financial and operating policies of an entity so as to obtain benefits from its activities. Consolidation of the subsidiary begins when the Group obtains ownership over the subsidiary and ceases when the Group loses ownership of the subsidiary. Assets, liabilities, revenues and expenses of the subsidiary, acquired or disposed of during the year are included in the consolidated financial statements from the time when the Group acquired ownership until the moment when the Group has lost ownership of a subsidiary. The financial statements of the subsidiary, when necessary, are adjusted and harmonized with accounting policies used by the Bank as the Parent company of the Group. All transactions, balances, income and expenses within the Group are eliminated upon consolidation. Investment in associate entity over which significant influence is shown in these consolidated financial statements under the equity method.
The Group, in the preparation of these financial statements applied the accounting policies further described in Note 2.
2.1. (b) Initial application of new standards and amendments to the existing standards effective for the current reporting period
The following new standards and amendments to the existing standards issued by the International Accounting
Standards Board (IASB) have been effective over the current reporting period:
• Amendments to IAS 7 “Statement of Cash Flows” – Disclosure Initiative (effective for annual periods beginning on or after January 1, 2017);
• Amendments to IAS 12 “Income Taxes” - Recognition of Deferred Tax Assets for Unrealized Losses (effective for annual periods beginning on or after January 1, 2017); and
• Amendments to IFRS 12 due to “Improvements to IFRS (cycle 2014-2016)” resulting from the annual improvement project of IFRS (IFRS 1, IFRS 12 and IAS 28) primarily with a view to removing inconsistencies and clarifying wording (amendments to IFRS 12 are to be applied for annual periods beginning on or after January 1, 2017).
Adoption of these amendments to the existing standards has not led to any material changes in the Bank’s consolidated financial statements.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
2. ACCOUNTING POLICIES (continued) 2.1. (c) New standards and amendments to the existing standards in issue not yet adopted
At the date of authorization of these financial statements the following new standards, amendments to the existing standards and new interpretations were in issue but not yet effective:
• IFRS 9 “Financial Instruments” (effective for annual periods beginning on or after January 1, 2018); • IFRS 15 “Revenue from Contracts with Customers” and further amendments (effective for annual
periods beginning on or after January 1, 2018); • IFRS 16 “Leases” (effective for annual periods beginning on or after January 1, 2019); • IFRS 17 “Insurance Contracts” (effective for annual periods beginning on or after January 1, 2021); • Amendments to IFRS 2 “Share-based Payment” - Classification and Measurement of Share-based
Payment Transactions (effective for annual periods beginning on or after January 1, 2018); • Amendments to IFRS 4 “Insurance Contracts” - Applying IFRS 9 “Financial Instruments” with IFRS 4
“Insurance Contracts” (effective for annual periods beginning on or after January 1, 2018or when IFRS 9 “Financial Instruments” is applied first time);
• Amendments to IFRS 9 “Financial Instruments” - Prepayment Features with Negative Compensation (effective for annual periods beginning on or after January 1, 2019);
• Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred indefinitely until the research project on the equity method has been concluded);
• Amendments to IAS 19 “Employee Benefits” - Plan Amendment, Curtailment or Settlement (effective for annual periods beginning on or after January 1, 2019);
• Amendments to IAS 28 “Investments in Associates and Joint Ventures” - Long-term Interests in Associates and Joint Ventures (effective for annual periods beginning on or after January 1, 2019)
• Amendments to IAS 40 “Investment Property” - Transfers of Investment Property (effective for annual periods beginning on or after January 1, 2018);
• Amendments to IFRS 1 and IAS 28 due to “Improvements to IFRSs (cycle 2014-2016)” resulting from the annual improvement project of IFRS (IFRS 1, IFRS 12 and IAS 28) primarily with a view to removing inconsistencies and clarifying wording (amendments to IFRS 1 and IAS 28 are to be applied for annual periods beginning on or after January 1, 2018);
• Amendments to various standards due to “Improvements to IFRSs (cycle 2015-2017)” resulting from the annual improvement project of IFRS (IFRS 3, IFRS 11, IAS 12 and IAS 23) primarily with a view to removing inconsistencies and clarifying wording (effective for annual periods beginning on or after January 1, 2019);
• IFRIC 22 “Foreign Currency Transactions and Advance Consideration” (effective for annual periods beginning on or after January 1, 2018); and
• IFRIC 23 “Uncertainty over Income Tax Treatments” (effective for annual periods beginning on or after January 1, 2019).
The Bank’s management has elected not to adopt these new standards, amendments to existing standards and new interpretations in advance of their effective dates. The management anticipates that the adoption of these Standards, amendments to existing standards and new interpretations will have no material impact on the financial statements of the Bank in the period of initial application.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
12
FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued)
2.1. (d) IFRS 9 Disclosure
The Group analysed the estimated impact of the application of IFRS 9 in accordance with IAS 8, paragraph 30-31 and it is presented in the financial statements the following way.
IFRS 9 “Financial Instruments” replaces IAS 39 "Financial Instruments: Recognition and Measurement" for annual reporting periods commencing on or after 1 January 2018. It contains changes to the requirements relating to the recognition and measurement, impairment, derecognition and hedge accounting.
The Group started its preparation for IFRS 9 actively in 2016, led by the Bank’s Risk Management and Finance Divisions, and during 2017 much of the preparation was finalized centrally. The preparations covered the key challenges that the Bank faces with the new standard.
Revised model of hedge accounting, as one of the changes that were introduced by IFRS 9, was not it the scope of the project since hedge accounting is not applicable for the Bank.
(i) Classification and measurement
IFRS 9 introduced a new approach for the classification of financial assets driven by cash flow characteristics and the business model in which an asset is held. The Bank recognizes the financial liabilities on amortized cost except in those cases when the standard requires otherwise, or according to the fair value option the entity chose to recognize the financial instrument on the fair value through profit or loss. Preliminary analyses of the business models and contractual cash flows on the Bank’s significant portfolios were performed to determine by product segments those financial instruments that would be measured at amortised cost, at fair value through profit or loss, or at fair value through Profit or Loss and Other Comprehensive Income. The Group has no loans measured at fair value at the date January 1, 2018.
(ii) Impairment
IFRS 9 introduced an expected credit loss impairment model instead of the previously applied incurred loss model that requires a more timely recognition of credit losses. The standard requires entities to account for expected credit losses from the moment when financial instruments are first identified.
The use of a new, three stage model was implemented for IFRS 9 purposes. The new impairment methodology is used to classify financial instruments in order to determine whether credit risk has significantly increased since initial recognition and able to identify credit-impaired assets. For instruments with credit-impairment or significant increase of credit risk, lifetime expected losses will be recognized.
The increased credit-impairment is identified by transactions on the basis of predetermined conditions and beyond this the estimation is made on a portfolio level. Assets where no significant increase of credit risk has been identified will be provisioned based on a 12-month expected loss methodology.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
13
FINANCIAL STATEMENT NOTES
2. ACCOUNTING POLICIES (continued) For purchased or originated credit-impaired financial assets, the same lifetime expected loss methodology was extended in order to be able to capture the cumulative changes in lifetime expected credit losses since the initial recognition as a credit-impaired instrument.
The Group, together with the parent of the Group, started to further improve its risk management definitions, processes and methodological analysis in line with the expectations of IFRS 9. The Bank has started developing the methodology – using the behavioural scoring model – for the identification of significant increase of credit risk and the calculation of expected credit losses through the use of IFRS 9 compliant risk parameters.
Based on a gap analyses and the changes in methodology, the main principles regarding the IT solutions for IFRS 9 implementation were laid down. Preliminary specifications were prepared and IT implementation was mostly completed in 2017.
Bank Project IFRS 9 has been initiated by the parent of the Group. The local methodology was developed in accordance with the significance of the Bank in the local market. In the light of the initiative to harmonize approaches at the local and for the needs of the Group, it is possible to further adjust the IFRS9 methodology in accordance with Group guidelines in the following period. 2.2. Significant Accounting Evaluations and Judgement Production and presentation of consolidated financial statements demands usage of best possible evaluation and reasonable assumptions from the management, which have an effect on the presented values of assets, liabilities, income and expenses, accompanying disclosure and the disclosure of contingent liabilities at the date of the financial statements. These evaluations and assumptions are based on information available on the day of financial statement production. Real results can differ from stated evaluations. Estimates and judgments are continually reviewed and re-evaluated. Changes in accounting estimates are recognized in the period in which the estimate is changed if the change affects only that period or in the period in which the change occurred and future periods, if the change affects the assessment of current and future periods.
Further text includes key evaluations and assumptions used in preparing the consolidated financial statements.
Fair Value of Financial Instruments Fair value is the price that would be received for the selling of the assets or price paid for transfer of liabilities in a regular transaction between market participants at the valuation date. The determination of fair value is based on the assumption that the transaction took place on the primary asset or liability market or, in the absence of the primary market, the most favorable market for the asset or liability. In the event that a primary market exists for the asset or liability, fair value represents the price on that market. The fair value of the assets or liabilities is measured using the assumptions that market participants use when determining the price of an asset or liability, assuming that market participants act in their best economic interest.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
14
FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.2. Significant Accounting Evaluations and Judgement (continued)
The fair value of non-financial assets takes into account the ability of market participants to generate the highest and best use of the economic benefits of the asset sales or other participant in the market that would be the highest and best use of the asset. The Group uses valuation techniques that are appropriate in the circumstances and for which data are available to be used to determine fair value, whereby the use of relevant observable inputs is optimized and use of unobservable input data minimized. Valuation techniques are revised periodically, in order to appropriately reflect current market conditions. All assets and liabilities that are measured at fair value and whose fair value disclosed in the financial statements were classified into three levels of the fair value hierarchy: Level 1 - Quoted market prices (unadjusted) in active markets for identical assets or liabilities Level 2 – The use of valuation techniques for which is the lowest level of input data relevant for determining the fair value is directly or indirectly visible Level 3 - The use of valuation techniques for which the lowest level of significant input data relevant for the determination of fair value is not visible For the asset or liability that are continuously measured at fair value in the financial statements, the Group establishes re-evaluation of categorization at each balance sheet date in order to ensure transitions between levels of the hierarchy. Impairment of Financial Assets The Group assesses, on each reporting date, whether there is objective evidence that a financial asset or group of financial assets that are not measured at fair value, is reduced (impaired). A financial asset or group of financial assets is impaired and losses based on impairment are recognized when there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (loss event) and when loss event impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The Group considers evidence of impairment on an individual and group basis. For all individually significant financial assets impairment assessment is conducted on an individual basis. All significant funds for which impairment is not determined on individual basis, are estimated on a group basis in order to determine impairment that happened but has not yet been identified. Assets that are not individually significant and which are carried at amortized cost are grouped based on similar risk characteristics.
Objective evidence of impairment of financial assets, including share in equity which are not financial assets, including delay in the payment of the debtor, restructuring of a loan by the Group under terms that the Group in other circumstances would not consider, an indication that a borrower or issuer is in liquidation or bankruptcy, as well as any other available information such as adverse changes in the status of settlement of obligations of the debtor or issuer or economic conditions that indicate a default of obligations in the group.
When assessing impairment on an aggregate basis, the Group uses statistical models and historical trends of the probability of loss, recovery and collection and incurred losses. The Bank conducts regular back-testing models.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
15
FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.2. Significant Accounting Evaluations and Judgement (continued)
a. Impairment of Assets Carried at Amortized cost
Impairment of assets carried at amortized cost is calculated as the difference between the book value of the financial asset and the present value of estimated future cash flows discounted at the original effective interest rate of the asset. Losses are recognized in the income statement and reflect the changes in the allowance for loan. When a subsequent event lead to a reduction in the amount of impairment, the previously recognized impairment loss is reversed through the income statement.
b. Impairment of Financial Assets Available for Sale
In the case of financial assets available for sale, at the balance sheet date, the Group assesses whether there is objective evidence of impairment, based on the same criteria that are valid for financial assets carried at amortized acquisition cost.
If there is evidence of impairment of debt financial assets available for sale, the cumulative loss, measured as the difference between amortized cost and the current fair value, less any impairment loss previously recognized in the income statement, is transferred from equity to the income statement, while the increase in the fair value after impairment are recorded through the income statement. When a subsequent event leads to a reduction in the amount of impairment of debt financial assets intended for sale, the previously recognized impairment loss is reversed through the income statement.
In the case of participation in capital available-for-sale, objective evidence is considered a "significant" or "prolonged" decrease in the fair value of the capital instrument below its cost. In this case, the cumulative loss is measured as the difference between the acquisition cost and the current fair value, and the same is transferred from equity to the income statement. When a subsequent event leads to a reduction in the amount of impairment of equity investments, the loss is reversed and recognized directly in equity.
c. Restructured Loans When justified, the Group conducts a loan rescheduling rather than attempting to collect its exposure from sale of collaterals. Implementation of rescheduling implies any change in the original terms under which a certain exposure has been approved, including a change in the repayment term as well as new lending terms. When conditions are changed, the impairment is determined using the original effective interest rate, before changing the terms of the loan. After the change of conditions, it is not considered that the loan has defaulted. The management continuously controls the rescheduled loans to ensure the fulfillment of all the obligations of the client, as well as the enabling of unimpeded future repayment. Rescheduled loans are subject to a continuous impairment assessment. Useful life of Intangible Assets and Fixed Assets Useful lifetime of intangible assets and fixed assets are reviewed annually or when there is an indication that there has been significant changes in the underlying assumptions for determining useful life.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
16
FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.2. Significant Accounting Evaluations and Judgement (continued)
Provision for Llitigations
The Group is involved in a number of legal disputes arising from daily operations that relate to commercial and contractual issues, as well as issues with labor relations, which are handled and defended in the ordinary course of business. The Group periodically assesses the likelihood of negative outcomes to these matters as well as ranges of probable and reasonable estimated losses.
Reasonable estimates involve judgments made by management after considering information including notifications, settlements, estimates by the legal representatives of the Bank, available facts, identification of other potentially responsible parties and their ability to contribute, prior experience.
A provision is recognized when it is based on all available evidence and information that is estimated is likely to lead to litigation liabilities of the Group. Provision can be corrected in the future due to the emergence of new events or new information available.
Deferred Tax Assets
Deferred tax assets are recognized for all deductible temporary differences and unused amounts of transferable tax credits and tax losses, to the extent that it is probable that future taxable profit will be unused as tax losses / credits.
The book value of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that future taxable profit will allow the total value, or part of the deferred tax asset to be utilized. Deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be utilized.
Retirement Pension and Other Benefits to Employees upon Termination of Employment
The costs of defined benefits to employees upon termination of employment or retirement in accordance with the legal requirements are determined based on actuarial valuation. The actuarial valuation includes an assessment of the discount rate, future movements in salaries, mortality rates and employee turnover. Due to the long-term nature of these plans, significant uncertainties influence the outcome of the assessment.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
17
FINANCIAL STATEMENT NOTES 3. ACCOUNTING POLICIES (continued)
2.3. Overview of Significant Accounting Policies
2.3.1. Calculation of Foreign Currencies
Items included in consolidated financial statements of the Bank are measured with the usage of the currency of primary business environment in which the Group conducts business (functional currency). As it was stated in Note 2.1, the financial statements are presented in thousands of RSD which represents the functional and reporting currency of the Group. Business changes occurring in foreign currency are calculated in RSD by average exchange rate determined on the inter banking foreign currency market, valid on the day of the business change.
Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into dinars at the official exchange rate determined on the Interbank Market, prevailing at that date.
CURRENCY 31.12.2017 31.12.2016
EUR 118.4727 123.4723
CHF 101.2847 114.8473
USD 99.1155 117.1353
Positive or negative currency differences that occur when balance sheet positions are recalculated and during transactions in foreign currency, are recorded in favor of or charged to the income statement as income and expenses arising from exchange rate differences.
Gains and losses arising on translation of financial assets and liabilities indexed to foreign currency are recorded in the income statement as income or expense arising from exchange differences on foreign currency clause. Commitments and contingent liabilities denominated in foreign currencies are translated into dinars at the exchange rates prevailing at the balance sheet date.
2.3.2. Interest Income and Expenses
For all financial instruments measured at amortised cost, interest-bearing financial instruments available for sale and financial instruments at fair value through profit or loss, income or expense is recognized on an effective interest rate that exactly discounts estimated future cash payments or receipts through the expected life financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability.
In determining the effective interest rate into account are taken all contractual terms of the financial instrument, including fees or additional costs that are directly attributable to a financial asset and an integral part of the effective interest rate, except for future credit losses.
2.3.3. Income and Expenses from Fees and Commissions
Income and expenses from fees and commissions produced by providing, or using banking services are recognized per principle of causality of income and expenses or on calculation basis and are determined for the period when they were incurred, that is, when the service was provided.
Fees and commissions are mostly fees for payment services, warranties issued and other banking services.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Significant Accounting Evaluation and Judgement (continued) 2.3.4. Dividend Income
Dividend income is recognized with the Bank's right to receive the dividend, usually after shareholders approve the dividend.
2.3.5. Net Trading Result
Gains and losses on trading includes gains and losses on the sale of financial assets held for trading, based on changes in their fair value on the valuation of derivatives held for trading.
2.3.6. Cost of Operational Leasing
Payments made under operating leases are recognized in the income statement on a uniform basis throughout the life of the lease. Incentives for the lease are recognized as an integral part of the total cost of the lease throughout the duration of the lease.
2.3.7. Property and Equipment
Property and equipment are stated at purchased price lowered by the accumulated amortisation and any losses that arose from net value of assets. The purchase cost represents the invoiced value, and any related costs based on the supply and cost of bringing the asset into function. Subsequent costs are included in the asset's purchase cost or recognized as a separate asset only when it is probable that the Group will have future economic benefits of the asset and if their value can be reliably determined. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation of property and equipment is calculated using the straight-line depreciation, by which the purchase cost is written off over the estimated life of the asset and is recognized in the income statement. The applied principal annual depreciation rates are as follows: Annual depreciation rate
Buildings 2-10% Computers 20% Furniture and equipment 10-16% Motor vehicles 15.50%
The above depreciation rates, the Bank did not change in 2017 compared to those that were used for the purposes of calculating the depreciation charge for 2016.
Buildings are depreciated according to the estimated time it can be used, useful life, which is different for each object of the Bank. Plot of ground works of art are not subject to depreciation, as well as assets under construction. Changes in the expected useful life of an asset are calculated as changes in accounting estimates. Property and equipment are derecognized, upon disposal or when the Bank no longer expects future economic benefits from their use. Gains or losses arising that arise when property and equipment is no longer recognized, are in favor or against the income statement.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Significant Accounting Evaluation and Judgement (continued) 2.3.8. Intangible Assets Intangible assets consist of licenses and other intangible assets. Intangible assets are recognized only when their purchase cost can be reliably evaluated and it is probable that the Group will have expected future economic benefits from their use. Intangible assets are initially recorded at purchase cost, and are subsequently measured at cost less the accumulated depreciation and any losses arising from net value of assets. The time frame during which intangible assets can be used is assessed to be either definite or indefinite. Intangible assets with definite time frames, are depreciated over the economic life it can be used. The period and the depreciation method for intangible assets with definite life is used and reviewed at least annually. Changes in the expected life of use, or the expected pattern of use of future economic benefits embodied in the asset are accounted for by changing the amortization period or method of the assets and treated as changes in accounting estimates. Depreciation is calculated using the straight-line depreciation with the goal to lower the value of intangible assets to zero over their estimated lives of use. Most frequently estimated time, life span of the asset ranges from 2 to 10 years.
Depreciation of intangible assets with finite usage time frames is recognized in the income statement. Expenses for maintaining computer software programs are recognized as an expense when incurred. Intangible assets under preparation, are not subject to depreciation, as well as intangible assets with indefinite usage time frames. 2.3.9. Investment Property
Investment property of the Group brings income from rent. The initial assessment of the value of the investment property is measured at purchase cost or purchase cost, increased by attributable costs that can be accounted to the purchase cost or cost price. The subsequent measurement of investment property is carried at cost less accumulated depreciation and any losses on net worth.
Annual depreciation rate Investment property 2-10%
Investment property stops being recognised upon disposal or when the investment property is permanently withdrawn from use and no expected future economic benefits are assessed.
2.3.10. Impairment Non-Financial Assets
At the balance sheet date, the Group determines whether there is an indication that the asset is impaired. If any such indication exists, the Group estimates the recoverable amount of the asset, which is the use value or fair value of the asset less costs to sell, depending on which of these two values is greater. If the recoverable amount of the asset is less than its carrying value, the asset is considered impaired and the carrying value of the asset is reduced to its recoverable amount. An impairment review requires subjective judgments concerning estimates of future cash flows that are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLCIES (continued) 2.3. Review of Significant Accounting Policies (continued)
2.3.11. Financial Instruments
Classification of Financial Instruments
The Group determines the classification of its investments at initial recognition. The classification of financial instruments at initial recognition depends on the purpose for which the financial instruments were acquired and their characteristics.
The Group classified its financial assets in the following categories: financial assets at fair value through profit and loss, securities held to maturity, loans and receivables and financial assets available for sale.
The Initial Valuation of Financial Instruments
Financial instruments are initially recognized/assessed at fair value plus transaction costs (except for financial assets or financial liabilities that are measured at fair value through profit and loss) which are directly attributable to the acquisition or issue of the financial asset or financial liability.
Financial assets and financial liabilities are recognized in the balance sheet of the Group, from the moment when the Group is bound to the contractual provisions of the instrument. Purchases or sales of financial assets in "usual way" are recognized on the settlement date, ie the date the asset is delivered to the other side.
Subsequent Measurement of Financial Instruments
Subsequent valuation of financial instruments depends upon their classification, such as the following:
i. Financial Assets at Fair Value through Profit and loss
This category has two sub-categories: financial assets held for trading and designated as FVTPL at initial recognition. The management did not, during initial recognition, classify financial assets in the sub-category of assets carried at fair value through profit and loss. Financial assets are classified as assets for trading if they are acquired for the purpose of selling or repurchasing in the near term and generating profit from short-term price fluctuations or are derivatives. These assets are recorded in the balance sheet at fair value. All gains and losses arising upon valuation of financial assets at fair value are recognized in the income statement.
The Group uses derivatives such as FX forwards and currency swaps. Derivatives are accounted for at fair value and recorded as an asset when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are recognized in gains / losses on financial assets held for trading.
The currency clause represents an embedded derivative that is not accounted for separately from the basic contract since the economic characteristics and risks of the embedded derivative are closely related to the basic contract. Gains and losses arising from such application of the currency clause are recorded in the income statement as income or expenses from the effects of currency clause contracted.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of Significant Accounting Policies (continued) 2.3.11. Financial Instruments (continued) ii. Securities Held to Maturity Securities held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank has the positive intention and ability to hold to maturity.
After initial recognition, securities held to maturity are recorded at amortised cost using the effective interest method, less any impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition, over the period to maturity.
Revenues from accrued interest on these instruments is calculated using the effective interest method and are included in interest income. Losses from impairment are recognized in the income statement as expenses for impairment of financial assets.
iii. Financial Assets Available for Sale Securities that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, foreign exchange rates or equity prices, are classified as "securities available for sale". Securities available for sale include equity instruments of other entities and debt securities. Securities available for sale consist of shares of other legal entities as well as securities issued by the Republic of Serbia. After initial recognition, available for sale securities are stated at fair value. The fair value of securities listed on stock exchanges are based on current bid prices. Unrealized gains and losses on securities available for sale are recorded within other comprehensive income, until the security is sold, collected or otherwise realized, or until the securities are not impaired. When securities available-for-sale are sold or when they are impaired, the accumulated fair value adjustments previously recognized under other total results are reclassified in profit and loss. Interest income on debt securities is recognized in the income statement as interest income using the effective interest method. Income from dividends on securities available-for-sale are recognized in the income statement within other income when incurred Bank's right to receive the dividend. When it comes to shares in other legal entities and other securities available for sale, the Group at the balance sheet date assesses whether there is objective evidence that one or more investment is impaired. In the case of equity investments in other entities classified as available-for-sale, objective evidence are classified as significant or prolonged decline in the fair value of the investment below its acquisition cost. When there is evidence of impairment, the cumulative loss, measured as the difference between the purchase price and the current fair value, less any impairment loss on that investment previously recognized in the income statement, is removed from capital and recognized in the income statement. Allowances for impairment of equity investments are not reversed through the income statement, while the increase in fair value subsequent to the impairment is recognized directly in the equity.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of Significant Accounting Policies (continued)
2.3.11. Financial instruments(continued)
iii. Financial Assets Available for Sale (continued) Allowances for impairment of equity investments that are not quoted in an active market and whose fair value cannot be reliably measured are measured as the difference between the carrying amount and the present value of expected future cash flows, recognized in the income statement and not reversed until derecognition. In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortized cost. If, in a subsequent year, the fair value of a debt instrument increases and if this increase can be objectively related to an event occurring after the impairment loss recognized in the income statement, the loss due to the impairment is reversed through the income statement. iv. Investments in Shares of Associated Legal Entities Investments in associated legal entities are investments over which the Bank has significant influence. Investments in associated entities are accounted for by the equity method, under which the investment is first recognized at cost and then the changes that occur after the date of acquisition perform corrections in the books of the Group’s share of the net assets of the entity. The gain or loss of the Group includes the Group's share of the profit or loss of the entity in which it invested, and the same is shown within line item net gain / (loss) arising from investments in associates and joint ventures. After application of the equity method, the Group assesses whether it is necessary to recognize impairment of participation in an associated company, and if it finds that there is objective evidence of impairment, the impairment is recognized as the difference between the recoverable amount and the carrying value of the investment in an associated company in the income statement. Financial statements of associated entities are prepared for the same reporting period as the financial statements of the Group. The accounting policies of the associated companies, when necessary, adjust with the Group's accounting policies.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of significant accounting policies (continued) 2.3.11. Financial Instruments (continued) v. Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables include loans and advances to banks and customers. Loans and advances to banks and customers originated by the Group are recorded in the balance sheet when assets are transferred to the user of the loan. After initial recognition, loans and placements to banks and customers are stated at amortised cost using the effective interest rate, less any impairment. Amortised cost is calculated by taking into account any initial increase or decrease of the amount of the premium or discount, as well as fees and other costs that are an integral part of the effective interest rate. Depreciation is recognized as income in the income statement. Losses on impairment are recognized in the income statement as an expense for impairment of financial assets.
Impairment of Financial Assets and Provisions for Risks
In accordance with the internal policy of the Group, on the balance sheet date the Group assesses whether there is objective evidence for impairment of the value of a financial asset or group of financial assets. Impairment losses are recognized only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of an asset and when the same have an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the borrower or group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in the domain of unsettled liabilities or economic conditions that are in correlation with deviations from the contracted terms. When assessing impairment of loans and placements to banks and customers carried at amortised cost, the Group conducts a detailed assessment for each individaully significant financial asset an individual assessment to determine whether there is objective evidence of impairment, while financial assets that are not individually significant collectively assesses them on impairment of placements. If the Group determines that no objective evidence of impairment exists for financial assets that are individually assessed the Group classifies such assets in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which loss is declared based on the recognized impairment, are not included in a collective assessment of impairment. If there is objective evidence of impairment, the amount of the loss is measured as the difference between the book values amount and the present value of future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of expected future cash flows are discounted using contractual effective interest rates of financial assets. If a loan has a variable interest rate, the current effective interest rate is used. The calculation of the present value of estimated future cash flows of a collateralized financial asset takes into consideration the cash flows that may result from foreclosure less costs for obtaining and selling the collateral. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of an internal classification system used by the Group taking into account the credit risk characteristics.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of significant accounting policies (continued) 2.3.11. Financial Instruments (continued) Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with similar credit risk characteristics. Historical experience is corrected on the basis of available current data in order to reflect the effects of current conditions that did not have an impact on the years of historical experience, that does not exist on the date of the balance sheet. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Book value of the asset is reduced through the use of a loss allowance account, while losses arise from impairment of loans and receivables and other financial assets carried at amortised cost are recognized in the income statement as an expense from impairment of financial assets (Note 10). Loans together with the associated price adjustments are written off when there is no realistic prospect of future recovery and when collateral has been realized or has been transferred collateral to the Group. If, in a subsequent period, there is a reduction in the amount of recognized impairment loss, which occurs as a consequence of an event that occurred after the impairment was recognized, the previously recognized impairment loss is reversed by adjusting the allowance account, and the amount of the reversal is recognized in the income statement as income from the reversal of provisions (Note 10). Write-offs of uncollectible receivables is made on the basis of the court's decision, or based on the internal procedures of the Group when there is no realistic possibility of billing and when all collateral loan repayment are activated. vi. Securities Issued and other Borrowed Funds Liabilities on loans, deposits and issued securities are subsequently measured at amortised cost using the effective interest rate.
Derecognition of Financial Assets and Liabilities
The Group ceases to recognize a financial asset when the contractual rights to the cash flows expire or if the contractual rights to the cash flows are transferred in a transaction in which all the risks and rewards of ownership of the financial asset. Any interest of the transferred financial asset that is recognized and retained by the Group is recognized as a separate asset or liability.
Financial liabilities are derecognized when the contractual obligation under the liability is realised, canceled or expired. In the case where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference between the original and the new value of the liability are recognized in the income statement.
2.3.12. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash in dinars - on the bank’s account at the National Bank of Serbia and current accounts with commercial banks, cash in foreign currency - the regular and special (purpose) foreign currency bank accounts, as well as cash and effective foreign cash with cashiers, cash and foreign cash in the vault, cash and foreign cash in transit and other assets in dinars and foreign currency where the Group has no restrictions and that are readily convertible to known amounts of cash, subject to an insignificant risk of changes in value. Cash and cash equivalents are carried at amortized cost in the balance sheet.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of significant accounting policies (continued) 2.3.13. Reverse Repo Placements
Securities purchased under contract which stipulates that they will be sold at a specified future date are not recognized in the balance sheet.
Cash paid out on this basis, including accrued interest, is recognized in the balance sheet. The difference between the purchase price and the resale price is treated as interest income using the effective interest rate and is deferred over the life of the contract.
2.3.14. Leasing
Consideration of whether a particular contract is a contract for leasing, or contains leasing elements, is based on the contract and requires an assessment of whether the fulfillment of the contract depends on the use of a specific asset or group of assets and whether the agreement involves the transfer of rights to use the assets.
Operating Leasing - Group as Lessee Lease of assets where all the risks and rewards incidental to ownership with the lessor does not transfer to the lessee is classified as operating leasing. Payments under operating leasing are recognized as an expense in the income statement on a straight-line depreciation (when they occur) during the period of the lease. Operating leasing - Group as Lessor Lease is an agreement whereby the lessor conveys to the lessee the right to use the asset over an agreed period of time in exchange for one or more payments. When the tool is given in the operating lease that asset is recognized in the balance sheet depending on the type of asset. Lease income is recognized on a straight-line basis over the lease period. Finance lease - Group as lessor Long-term investments based on financial leasing are included in the amount of the net investment in the lease, while the interest contained in the long-term lending from finance lease are presented in the assets shown as interest receivables coming from finance lease. Financial income i.e. interest income from finance lease are recognized to reflect a constant return on the remaining balance of net investment in finance leases.
At each balance sheet date Group estimates if there are indications that the value of long-term loans from finance lease impaired.
2.3.15. Offsetting Financial Instruments
Financial assets and financial liabilities get offset, while the net amount is recognized in the balance sheet if and only if there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to, at the same time sell the asset and settle obligations.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of significant accounting policies (continued)
2.3.16. Provisions
Provisions are recognized when the Group has a present obligation, legal or constructive, as a result of past events, when it is probable that there will be an outflow of resources to settle the obligation and when there is a reliable estimate of the amount of the obligation. In order to maintain the best possible estimates, are considered, determined and, if necessary, adjusted at each balance sheet date.
Provisions are measured at the present value of the expenditures expected to settle the obligation. If the effect of the time value of money is material, present value is obtained by discounting, using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. When probable outflow of economic benefits to settle legal or constructive liabilities is no longer obvious, provisions are reversed to income. Provisions are followed by class and may be used only for expenditures for which it was originally recognized. Provisions are not recognized for future operating losses.
Contingent liabilities are not recognized in the financial statements. Contingent liabilities are disclosed in the notes to the financial statements, unless the possibility of an outflow of resources that contain economic benefits is remote. The Bank does not recognize contingent assets in the financial statements. Contingent assets are disclosed in the notes to the financial statements when an inflow of economic benefits is probable. 2.3.17. Employee Fees (а) Taxes and Contributions for Compulsory Social Insurance - Defined Contribution Plans
In accordance with the regulations that are applied in the Republic of Serbia, the Group makes contributions to various state social security funds. These obligations include contributions paid by employees and the employer, in an amount calculated by applying the statutory rates. The Group has a legal obligation to transfer the withhold funds to the appropriate government funds. The Group is not obliged to pay compensation to employees that represent an obligation of the Pension Fund of the Republic of Serbia. Taxes and contributions relating to the defined benefit plans based upon compensation, are recorded as expenses in the period in which they arise.
Also, the Executive Board of the Group and the management of Sogelease d.o.o., Beograd during 2009 made a decision, for all employees of the Group, who have over four years of service in the Bank and Sogelease d.o.o., that the Group will make payments of contributions in favor of the voluntary pension fund in the amount defined by the decision. Contributions relating to this plan are recorded as expenses in the period in which they arise.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of significant accounting policies (continued) 2.3.17. Employee Fees (continued) (b) Liabilities Based on Other Fees – Retirement Pension
In accordance with the regulations applicable in the Republic of Serbia, that regulate the employment status, the Group has an obligation to pay compensation to employees upon retirement (severance), at least in the amount prescribed by law. Costs and obligations under these plans are not provided for the funds. Liabilities for fees and related expenses are recognized at the present value of expected future cash flows using the actuarial method of projected unit. The Group recognizes the cost of past service as an expense in the income statement when there is a modified or significant reduction of the plan, or when the Group honors related restructuring costs or severance pay, depending on which moment occurs sooner. Interest expense is calculated using the discount rate determined by the amount of the liability for retirement benefits. Actuarial gains and losses are recognized in other comprehensive income, and the cost of services performed previously recognized in the income statement as incurred. (c) Short-term Paid Leave Accumulated paid leaves may be carried forward and used in future periods if not fully used in the current period. The expected costs of paid leave are recognized in the amount of accumulated unused rights on the balance sheet date, which are expected to be utilized in the future. In the case of non-accumulated paid leave, liability or expense is recognized at the time of the absence.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of Significant Accounting Policies (continued) 2.3.18. Equity
Equity consists of share equity (commom shares), emission premiums, reevaluated reserves, gain reserves and gain of the current and previous year (Note 30).
Dividends on shares are recorded as obligations in the period in which the decision on their payment was made. Dividends approved for the year after the balance sheet date are disclosed in the note on events after the balance sheet date.
In accordance with the Decision on Capital Adequacy ("Official Gazette of the Republic of Serbia" No.,103 / 2016), Group is obliged to maintain its capital at the level which is necessary to cover all risks to which it is exposed or can be exposed in its business activity, whereas the capital adequacy ratio can not be below the foolowing levels:
- 4.5%, for Common Equity Tier 1 capital ratio - 6%, for Tier 1 capital ratio - 8%, for capital ratio.
The National Bank of Serbia may determine the capital adequacy ratios to the Group higher than once prescribed if, on the basis of prudential supervision of the Group’s operation, it establishes that this is necessary for safe and sound operation of the Group, or for the fulfilment of obligations to its creditors. In addition, the Group is obliged to maintain capital adequacy ratios in a way that enables it to cover the combined buffer requirement of capital consisting of:
- Capital conservation buffer equal to 2.5% of its risk-weighted assets. The capital conservation buffer may consist only of Common Equity Tier 1 capital.In the event that the Group does not maintain the prescribed protection layer of the capital, it is obliged to apply the mesaures for the restriction of distribution of CET Tier 1 capital and capital conservation plan.
- Countercyclical capital buffer that is equal to the product of the Group's total risk weighted assets and the specific rates of Countercyclical capital buffer, calculated as the weighted average rate of the countercyclical protective buffer of capital for each individual country in which the Group has relevant credit exposures. The specific rates of Countercyclical capital buffer for the Republic Serbia has been established by the National Group of Serbia and amounts to 0%.
- Systemic risk buffer in amount of 3% of the total foreign exchange and foreign exchange indexed Group’s placements approved to the companies and individuals in the Republic of Serbia.
- Capital buffer for a systemically important Groupa, as determined by the NBS for SGS Group in the amount of 1% of the total Groupcredit risk weighted assets.
2.3.19. Special Reserve for Estimated Loss Incurred Based on Balance Assets and Out of Balance Items Special reserve for estimated loss incurred based on balance assets and out of balance items, the Bank determines following the Decision of the National Bank of Serbia on the classification of balance assets and out of balance items of the Bank („Official Gazette of Republic of Serbia“ 94/2011, 57/2012, 123/2012, 43/2013, 113/2013, 135/2014, 25/2015, 38/2015, 61/2016, 69/2016 ,91/2016,101/2017 I 114/2017). The Bank calculates the provision for estimated losses that may arise on the basis of balance sheet assets and off-balance sheet items. Total receivables from single debtor (balance assets and out of balance items) are classified in the category from A to D, depending on the collection probability. Collection of the receivables from single debtor is estimated based on the regularity of obligations servicing of the debtor and its financial position, number of days of lag for principal and interest payment, as well as quality of submitted security means.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of Significant Accounting Policies (continued) 2.3.19. Special Reserve for Estimated Loss Incurred Based on Balance Assets and Out of Balance Items (continued)
Based on the receivables classification, in accordance with the stated Decision of the National Bank of Serbia, special reserve for estimated loss is calculated with the application of the following percentage: A (0%), B (2%), V (15%), G (30%) and D (100%).
The Group determines the amount of required reserves for potential losses in accrodance with Section 32. and 33. of the Decision of the classification of balance assets and out of balance items of the Bank, which represents the sum of the positive difference between the reserve for estimated losses calculated in accordance with this decision and determined amount of impairment of balance sheet assets and provisions for losses on off-balance sheet items at the level of the debtor.
Due to fulfillment of conditions from Section 34.a. of the Decision on Classification of Balanced Assets and Off-balance-sheet Items of the Bank, the Bank uses the coefficient for adjusting the amount of required reserves for estimated losses priscibed with the same Section. On December 31, 2017. In the calculation of the required reserves, the Bank applied the coefficient for adjusting the amount of required reserves for estimated losses of 0.01. 2.3.20. Financial Guarantees
In the normal course of business, the Group gives financial guarantees, consisting of payment guarantees and performance bonds, letters of credit, acceptances and other warranties. Financial guarantees are contracts which obligate the issuer of a guarantee to make the payment or compensate the loss to the warranty, or if a certain creditor fails to perform its obligations in accordance with the terms of the contract.
Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee is given. After initial recognition, the Bank's obligations arising from the financial guarantee is measured at the amortized premium and the best estimate of expenditure required to settle any financial obligation arising as a result of guarantee, whichever is the greater.
The increase in the liability relating to financial guarantees is recognized in the income statement as net expense for impairment of financial assets and off-balance sheet credit risk items. Received fees are recognized in the income statement within net fee and commission income depending on the type of fees. Specific type of fees are recognised in income statment at the moment of collection, and other type of fees which are collected for known period of time are accruing.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
30
FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of Significant Accounting Policies (continued) 2.3.21. Taxes and contributions (a) Income tax
Current taxes
Income tax represents the amount calculated and paid in accordance with the regulations of the Legal Entity Income Tax Law of the Republic of Serbia. The Bank pays income tax in monthly installments throughout the year, estimated on the basis of the tax return for the previous year. Final tax base to which the tax rate applied to the bank profit of 15% determined on the corporate income tax. Taxable profit is determined by adjusting the income and expenses shown in the income statement in accordance with the Corporate Income Tax Law, as shown in the annual tax balance that is submitted within 180 days from the expiration of the period for which the tax liability is determined .
Taxpayers who by 2013 in accordance with the Corporate Income Tax Law of the Republic of Serbia have been entitled to a tax credit for investments in fixed assets, can use up to 33% of the calculated tax. Unused tax credits can be transferred to the account of income tax in future periods, but not longer than ten years.
Tax regulations in the Republic of Serbia do not allow tax losses of the current period to be used to recover taxes paid within a specific previous period. However, current year losses may be used to reduce the tax base in future periods, but not longer than 5 years.
Deferred taxes
Deferred income tax is calculated per method of obligation according to balance sheet to all temporary differences on balance sheet date between the current value and obligations in financial statements and their values for taxing purposes. Rate of 15% is used for the calculation of amounts of deferred taxes.
Deferred tax obligations are recognized to all taxable temporary differences, except if deferred tax obligation come out of the initial recognition of goodwill or funds and obligations in the transaction that is not a business combination and in the moment of occurrence has no influence on the accounting gain or taxable gain or loss, and if it refers to taxable temporary difference regarding the share in different companies, joint companies and mutual intestments where the moment of temporary difference can be controlled and it is probable that the temporary difference will not be cancelled in near future.
Deferred tax assets are recognized to all taxable temporary differences and unused amounts of transferable tax loans and tax losses, to the measure that it is probable that the level of future taxable gain is sufficient to use all taxable temporary differences, transferred unused tax loans and unused tax losses, except if deferred tax funds refer to temporary differences from initial recognition of funds or obligations in transaction that is not a business combination and in the moment of occurrence there is not influence on the accounting gain or taxable gain or loss or reduced temporary difference regarding the share in subsidiaries, joint companies and mutual investments, when the deferred tax funds are recognized only to measure to which it is probable that the temporary difference will be terminated in the near future and that the level of expected future taxable gain is sufficient that the temporary difference can be used.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
31
FINANCIAL STATEMENT NOTES 2. ACCOUNTING POLICIES (continued) 2.3. Review of Significant Accounting Policies (continued) 2.3.21. Taxes and Contributions
Deferred Taxes (continued)
Book value of deferred tax funds is reviewed on every reporting date and reduced to the mere where it is no longer certain that the level of excepted future taxable income is sufficient that the total value of part of the value of deferred tax assets can be used. Deferred tax funds that are not recognized are estimated on every reporting date and accepted to the merasure that it has become probable that the level of expected future taxable gain is sufficient that the deferred tax funds can be used.
Current and deferred taxes are recognized as income and expense and are included in the net gain/(loss) of the period.
Deferred income tax that relates to the items directly recorded for the benefit or at the burden of the equity are also recorded on the burden, or for the benefit of equity.
Deferred tax assets and deferred tax liabilities are offset when there is a legal opportunity to offset current tax assets with current tax liabilities and when the deferred income taxes relate to the same taxable entity and the same taxation authority.
(b) Taxes and Contributions not Dependent on Business Results
Taxes and contributions not dependent on business results include property tax, value added tax, employer earnings fees taxes, as well as other taxes and contributions paid in accordance with the republic and local tax regulations. These taxes and contributions are presented within other business expenses.
2.3.22. Earnings per Share
Basic earnings per share is calculated by dividing net profit belonging to shareholders, owners of common shares of the Bank, weighted by average number of issued common shares within the reporting period.
Decision of the Business Registers Agency number BD 165078/2006 of 13th October 2006, the Bank was registered as a closed joint stock company and is not obliged to calculate and disclose earnings per share in accordance with IAS 33 "Earnings per Share".
2.3.23. Managed Funds
Funds for business in favour and on behalf of third parties, which the Bank runs for a fee, are included in the out of balance records of the Bank. The Bank has no risk on given placements.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 3. SEGMENT REPORTING The Group looks at business through three segments: Retail, Corporate and the Bank. For the purposes of segment reporting of the Corporate segment, in addition to the corporate banking the exposure towards the state is included, as well as business with clients that follow the sectoral structure and belong to the financial service sector, except for banks that are denominated on a special position. Retail segment includes exposure to individuals and entrepreneurs. The Group monitors the operating results by segment on the level of the whole income statement. Positions, that are not currently managed by segments but at the level of the Group, are presented in the table under the category of Nonalocated. Balance sheet 2017 In RSD 000 Assets Note Retail Corporate Banks Nonalocated Total Cash and balances with central banks 15 - 25 10,785,873 19,810,235 30,596,133 Financial assets at fair value through profit or loss held for trading
16 - 1,945,893 18,206 - 1,964,099
Financial assets available for sale 17 - 37,005,636 - - 37,005,636 Loans and receivables to banks and other financial institutions
18 - 399,758 1,823,111 - 2,222,869
Loans and receivables to customers 19 108,068,253 109,204,296 - - 217,272,549 Investments in associates and joint ventures
20 - 242,701 - - 242,701
Intangible investments 21 - - - 781,002 781,002 Property, plant and equipment 21 - - - 2,968,306 2,968,306 investments immovable 21 - - - 18,384 18,384 Other assets 23 99,763 242,518 18,322 1,322,548 1,683,151 Total Assets 108,168,016 149,040,827 12,645,512 24,900,475 294,754,830 Liabilities Financial liabilities at fair value through income statement held for trading
24 - - 42,272 - 42,272
Deposits and other liabilities to banks, other financial organizations and central bank
25
- 25,232,606 47,199,284 - 72,431,890 Deposits and other liabilities to other customers
26 66,875,805 98,549,498 - - 165,425,303
Subordinated liabilities 27 - - 8,889,583 - 8,889,583 Provisions 28 - - - 1,002,735 1,002,735 Current tax liabilities 22 - - - 259,186 259,186 Deferred tax liabilities 22 - - - 38,238 38,238 Other liabilities 29 2,803,178 782,869 385,737 1,741,205 5,712,989 Total Liabilities 69,678,983 124,564,973 56,516,876 3,041,364 253,802,196 Capital Share capital 30 - - - 23,724,274 23,724,274 Profit 30 - - - 6,515,155 6,515,155 Reserves 30 - - - 10,713,205 10,713,205 Total Capital - - - 40,952,634 40,952,634 Total Liabilities 69,678,983 124,564,973 56,516,876 43,993,926 294,754,830
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
33
FINANCIAL STATEMENT NOTES 3. SEGMENT REPORTING (continued)
Balance sheet 2016 RSD 000 Note Retail Corporate Banks Nonalocated Total Assets Cash and balances with central banks 15 - 76 9,203,749 14,561,320 23,765,145 Financial assets at fair value through profit
16 - 14,100
2,988 - 17,088
Financial assets available for sale 17 - 40,611,993 - - 40,611,993 Loans and receivables to banks and other financial institutions 18
- 38,521 6,386,613 - 6,425,134
Loans and receivables to customers 19 80,639,846 87,727,263 - - 168,367,109 Investments in associates and joint ventures 20 - 245,786 - - 245,786
Intangible investments 21 - - - 684,302 684,302 Property, plant and equipment 21 - - - 3,214,410 3,214,410 investments immovable 21 - - - 19,655 19,655 Current tax assets 22 - - - 201,774 201,774 Deferred tax assets 22 - - - 131,760 131,760 Other assets 23 127,592 154,290 7,617 746,594 1,036,093 Total Assets 80,767,438 128,792,029 15,600,967 19,559,815 244,720,249 Liabilities Retail Corporate Banks Nonalocated Total Financial liabilities at fair value through income statement held for trading 24 - -
13,118 - 13,118
Deposits and other liabilities to banks, other financial organizations and central bank
25 - 24,203,154
20,873,619 -
45,076,773
Deposits and other liabilities to other customers 26 65,489,765
76,410,251 - -
141,900,016
Subordinated liabilities 27 - - 9,264,383 - 9,264,383 Provisions 28 - - - 1,053,249 1,053,249 Other liabilities 29 3,924,946 437,998 234,626 2,181,144 6,778,714 Total Liabilities 69,414,711 101,051,403 30,385,746 3,234,393 204,086,253 Capital
Share capital 30 - - - 23,724,274 23,724,274 Profit 30 - - - 5,968,994 5,968,994 Reserves 30 - - - 10,940,728 10,940,728 Total Capital - - - 40,633,996 40,633,996
Total Liabilities 69,414,711 101,051,403 30,385,746 43,868,389 244,720,249
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
34
FINANCIAL STATEMENT NOTES 3. SEGMENT REPORTING (continued) Income statement 2017 RSD 000 Note Retail Corporate Banks Nonalocated Total Interest income 4 7,284,963 6,123,755 270,538 - 13,679,256 Interest expense 4 (236,883) (1,325,199) (1,001,087) - (2,563,169) Net interest income 7,048,080 4,798,556 (730,549) - 11,116,087 Fee and commission income 5 2,759,792 1,560,888 457,568 - 4,778,248 Fee and commission expense 5 (678,293) (924,873) (676,802) - (2,279,968) Net income from fees and commissions 2,081,499 636,015 (219,234) - 2,498,280 Net losses on financial assets held for trading 6 - (4,980,194) 4,318,439 - (661,755) Net income / expense from exchange differences and the effects of currency clause 7
(2,306,678) (3,032,908) 5,915,906 (76) 576,244
Net income from investments in associates and joint ventures 8
- 29,223 - - 29,223
Other operating income 9 20,065 221,371 6,507 121,575 369,518 Net income on decrease in impairment of financial assets and credit risky off-balance items 10
(840,786) 3,144,061 - (825) 2,302,450
Wages, salaries and other personal expenses 11 (1,650,815) (692,284) (154,150) (958,491) (3,455,740) Depreciation and amortization expenses 12 (132,611) (25,784) (653) (342,830) (501,878) Other expenses 13 (2,000,403) (292,510) (4,886) (2,917,335) (5,215,134) PROFIT / LOSS BEFORE TAX 2,218,351 (194,526) 9,131,380 (4,097,982) 7,057,223 Income tax 14 - - - (521,889) (521,889) Loss on deferred taxes 14 - - - (209,871) (209,871) PROFIT / LOSS AFTER TAX 2,218,351 (194,454) 9,131,380 (4,829,742) 6,325,535
Income statement
2016
RSD 000 Note Retail Corporate Banks Nonalocated Total
Interest income 4 6,831,531 6,286,647 187,619 - 13,305,797
Interest expense 4 (493,781) (1,108,167) (1,112,763) - (2,714,711) Net interest income 6,337,750 5,178,480 (925,144) - 10,591,086
Fee and commission income 5 1,791,222 1,457,461 603,503 - 3,852,186
Fee and commission expense 5 (40,450) (1,083,981) (553,127) - (1,677,558) Net income from fees and commissions 1,750,772 373,480 50,376 - 2,174,628
Net losses on financial assets held for trading 6 - (3,970,085) 3,920,807 - (49,278)
Net income / expense from exchange differences and the effects of currency clause 7
688,063
953,679
(1,555,166) - 86,576
Net income from investments in affiliates and joint ventures 8
-
31,328 - -
31,328
Other operating income 9 8,133 110,750 6,913 233,370 359,166 Net losses on decrease in impairment of financial assets and credit risky off-balance items 10
(258,668)
(273,723) - 7,726
(524,665)
Wages, salaries and other personal expenses 11 (1,619,161) (678,677) (136,916) (936,989) (3,371,743) Depreciation and amortization expenses 12 (137,170) (24,854) (415) (273,060) (435,499)
Other expenses 13 (1,301,602) (265,886) (3,590) (3,148,038) (4,719,116) PROFIT / LOSS BEFORE TAX 5,468,117 1,434,492 1,356,865 (4,116,991) 4,142,483
Income tax 14 - - - (54,237) (54,237)
Loss on deferred taxes 14 - - - (277,438) (277,438)
PROFIT / LOSS AFTER TAX 5,468,117 1,434,492 1,356,865 (4,448,666) 3,810,808
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
35
FINANCIAL STATEMENT NOTES
4. INCOME AND EXPENSES FROM INTEREST
Revenues and expenses by class of financial instruments are given in the following table:
Interest income RSD 000 2017 2016
Loans 10,187,809 10,036,325 Deposits 4,540 2,433 Factoring 278,327 222,793 Forfaiting 50,649 118,821 Overnight with the National Bank of Serbia 26,888 19,021 Obligatory reserve with National Bank of Serbia 194,038 169,896 Activated guarantees 26,727 2,823 Cards 195,132 204,218 Treasury bills available for sale 2,172,784 2,089,797 Discounted bills 3,033 4,986 Reverse repo transaction with the National Bank of Serbia - 4,216 Other placements 526,158 426,323 Interest rate swap 13,154 4,131 Other 17 14 Total interest income 13,679,256 13,305,797
Interest expense RSD 000 2017 2016
Loans (533,835) (712,958) Deposits (1,628,934) (1,588,264) Other liabilities (1,889) (4,581) Subordinated liabilities (385,352) (404,778) Interest rate swap (13,159) (4,130) Total interest expense (2,563,169) (2,714,711) Net earnings from interest 11,116,087 10,591,086
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
36
FINANCIAL STATEMENT NOTES 4. INCOME AND EXPENSES FROM INTEREST (continued)
Revenues and expenses by customers are given in the following table:
Interest income RSD 000 2017 2016
National bank of Serbia 220,926 193,133 Related banks and financial institutions (note 32) 9,971 2,681 Other related parties (note 32) 2,318 7,844 Other banks and financial institutions 2,839 3,156 Companies 3,585,994 3,939,706 Public sector 2,214,789 2,213,056 Entrepreneurs 297,406 138,084 Retail 7,195,486 6,736,241 Foreign persons 59,788 18,904 Other customers 89,739 52,992 13,679,256 13,305,797 Interest expenses
RSD 000 2017 2016 Related banks and financial institutions (note 32) (833,209) (836,098) Other related parties (note 32) (574) (1,551) Other banks and financial institutions (313,476) (375,068) Companies (908,825) (602,098) Public sector (34,112) (39,582) Entrepreneurs (1,534) (1,590) Retail (224,699) (470,857) Foreign persons (27,382) (153,383) Other customers (219,358) (234,484) (2,563,169) (2,714,711) Net interest income 11,116,087 10,591,086
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
37
FINANCIAL STATEMENT NOTES 5. INCOME AND EXPENSES FROM FEES AND COMMISSIONS Income from fees and commissions
RSD 000 2017 2016 Payment transactions in the country 457,433 413,107 Payment transactions with foreign countries 388,906 309,461 Buying and selling of foreign currency 1,047,252 906,423 Credit transactions 74,427 46,632 Card operations 994,244 591,793 Guarantees and other warranties 361,957 363,323 Tasks related to management of funds for the benefit of other persons 37,549 30,826 Account maintenance 776,181 719,231 Collection and processing of cash 77,764 52,283 Insurance representation 150,899 125,808 Fee based on spot and swap transactions 200,757 79,253 Fee for electronic banking 78,789 65,482 Fee for Western union 1,700 16,648 Other 130,390 131,916 Total fee and commissions income 4,778,248 3,852,186
Expenses from fees and commissions
RSD 000 2017 2016 Payment transactions in the country (70,611) (61,404) Payment transactions with foreign countries (3,178) (5,697) Buying and selling of foreign currency (318,136) (265,197) Credit transactions (512,064) (446,827) Card operations (778,282) (275,807) Brokerage operations (694) (415) Electronic banking (21,632) (14,722) Guarantee operations (304,236) (240,764) The processing of credit cards (65,411) (244,904) Maintenance of accounts (46,049) (43,442) Fee based on spot and swap transactions (36,829) (4,100) Fee for factoring (4,229) (2,690) Expenses from fee for intermediation (62,793) (20,262) Other (55,824) (51,327) Total fee and commissions expense (2,279,968) (1,677,558) Profit from fees and commissions 2,498,280 2,174,628 6. NET LOSS FROM FINANCIAL ASSETS HELD FOR TRADING Net gains on financial assets held for trading
RSD 000 2017 2016 Income from changes in fair value of derivatives held for trading 4,372,832 3,958,161 Expense from changes in fair value of derivatives held for trading (5,034,587) (4,007,439) Total net gains (losses) on financial assets held for trading (661,755) (49,278)
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
38
FINANCIAL STATEMENT NOTES 7. NET FOREIGN EXCHANGE INCOME AND EFFECT OF FOREIGN EXCHANGE CLAUSE
Net foreign exchange income and effect of foreign exchange clause RSD 000 2017 2016
Revenue from exchange rate differences 24,054,919 18,527,226 Losses from exchange rate differences (17,830,590) (20,190,351) Net foreign exchange revenue (losses) 6,224,329 (1,663,125) Income from foreign exchange gains arising from foreign currency clause 1,857,540 3,457,005 Expenses of the negative exchange differences on foreign currency clause (7,505,625) (1,707,304) Net income (expense) from foreign exchange differences arising from foreign currency clause (5,648,085) 1,749,701 Total net income (expense) from foreign exchange differences and the effect of foreign currency clause 576,244 86,576
8. NET INCOME FROM INVESTMENTS IN ASSOCIATED ENTITIES AND JOINT VENTURES
Net gains on investments in associated entities and joint ventures RSD 000 2017 2016
Net income from investments in associates and joint ventures (note 20) 29,223 31,328 Income from investments in equity associated with the legal entity in the amount of RSD 29,223 thousand (2016.: RSD 31,328 thousand) entirely relate to the effects of consolidation under the equity method arising from equity investments (49%) of the Parent entity owns at 31 December 2017 the associated legal entity Societe Generale Osiguranje ad Life Insurance Company Belgrade. 9. OTHER OPERATING INCOME
Other operating income RSD 000 2017 2016
Rental income 17,140 6,980 Gains on sale of fixed assets and intangible assets 1 132,504 Surpluses 687 380 Income from reversal of provisions based on the variable part of the salary 51,863 41,824 Income from reversal of provision for litigation (note 28) 2,239 2,388 Income from reversal of provisions for liabilities 65,070 39,471 Revenues from dividends and shares 32,308 - Other income 200,210 135,619 Total other operating income 369,518 359,166
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
39
FINANCIAL STATEMENT NOTES
10. NET LOSSES FROM DETERIORATION IN VALUE OF FINANCIAL ASSETS AND CREDIT RISK IN OFF-BALANCE SHEET ITEMS
Net losses from deterioration of financial assets and off-balance sheet credit risk item
RSD 000 2017 2016 Losses based on deteriation in value of financial assets (15,900,950) (16,926,959) Cash and balances with central bank (note 15) (4,831) (862) Financial assets available for sale (note 17) (45) (17) Loans and advances to banks and other financial institutions (note 18) (167,534) (335,746) Loans and receivables to customers (note 19) (15,517,169) (16,516,090) Other assets (note 23) (211,371) (74,244) Provisions for credit risk off-balance sheet item (note 28) (1,800,511) (1,614,850) Write-off of uncollectible receivables (45,208) (629,039) Income from reversal of deteriation in value of financial assets 18,211,221 16,965,770 Cash and balances with central bank (note 15) 4,777 874 Financial assets available for sale (note 17) 71 4 Loans and receivables form banks and other financial institutions (note 18) 200,550 336,708 Loans and receivables form clients (note 19) 17,876,572 16,571,000 Other assets (note 23) 129,251 57,184 Income from cancellation of provisions for credit risk of off-balance sheet item (note 28) 1,834,447 1,680,409 Income from collected receivables that were previously written off 3,451 4 Total net gain (losses) form deteriation in value of financial assets and off-balance sheet credit risk items 2,302,450 (524,665) 11. SALARIES, WAGES AND OTHER PERSONNEL EXPENSES Wages, salaries and other personal expenses
RSD 000 2017 2016 Wages (1,881,060) (1,811,264) Salaries expenses (226,326) (207,855) Income tax and benefits (269,948) (263,440) Contributions on salaries and benefits (987,124) (965,015) Compensation costs for temporary and occasional services (25,860) (26,496) Other personnel expenses (50,201) (54,893) Provisions for pensions and free shares (note 28) (11,967) (29,877) Reversal of provisions for pensions (note 28) - 3,441 Expenses from current liabilities for unused vacation days (note 29) (3,254) (16,344) Total salaries expenses, benefits and other personal expenses (3,455,740) (3,371,743) 12. DEPRECIATION Depreciation and amortization expenses
RSD 000 2017 2016 Fixed assets (note 21) 322,556 309,829 Investment property (note 21) 1,271 106 Intangible assets (note 21) 178,051 125,564 Total depreciation costs 501,878 435,499
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
40
FINANCIAL STATEMENT NOTES
13. OTHER EXPENSES Other expenses
RSD 000 2017 2016 Insurance costs 727,104 659,565 Branch rental costs 333,688 384,587 Production expenses 325,371 315,289 Technical assistance costs 154,529 170,745 Advertising costs 216,657 211,288 Cost of materials 162,794 165,595 Postal services costs 90,349 123,088 Maintenance costs of fixed assets 118,438 136,164 Reimbursed costs of benefits 60,265 116,883 Other expenses 11,135 20,673 Other intangible expenses 187,956 154,130 Security expenses 68,959 72,671 Tax expense 83,996 78,799 Cost of cleaning the premises 23,321 60,490 Cost of telecommunication services 75,246 71,423 Cost of employee transport 47,119 47,468 Expenditure on advertising and promotional materials 46,943 85,928 Cost of intellectual services 43,927 44,554 Cost of utilities 36,918 33,064 Losses coming from sale of other placement 2,144,721 1,546,099 Legal services 34,385 31,285 Other rental expenses 17,083 16,388 Cost of donations 6,868 4,886 Other costs of product services 72,379 40,116 Travel expense 24,190 22,844 Cost of seminars and conferences 15,154 19,048 Losses for the disposal, write-off and sell of fixed assets and intangible assets 28,950 29,394 Cost of consultancy services 9,791 4,162 Cost of financing handicapped 8,991 8,633 Membership fees 8,853 6,144 Taxi fees 7,282 8,135 Contributions 16,323 15,336 Extraordinary expenses - 3,409 Expenses on provisions for litigation (note 28) 3,269 7,827 Cost of professional literature 2,180 3,006 Total operating and other business expenses 5,215,134 4,719,116
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
41
FINANCIAL STATEMENT NOTES
14. INCOME TAX
Components of income tax RSD 000 2017 2016
Current income tax (521,889) (54,237) Gain/(Loss) from increase of deferred tax assets and decrease of deferred tax liabilities (209,871) (277,438) Total income tax (731,760) (331,675)
Reconciled income taxes and operational income before tax RSD 000 2017 2016
Profit (Loss) before tax 7,057,222 4,142,483 Income tax is calculated at the rate of 15% 1,058,583 621,372 Tax effect of expenses not deductible for tax purpose 12,442 45,815 Tax effect of adjusting income (339,265) (346,786) Capital gain - 11,274 Income tax reported in income statement 731,760 331,675 Effective tax rate 10.37% 8.01%
Deferred taxes related to capital are: RSD 000 2017 2016
Profit from securities available for sale (note 22) (132,868) (173,042) Actuarial gains from long-term employee benefits (note 22) (592) (312) (133,460) (173,354)
The foregoing disclosures are based on current expectations of the Group in connection with the Tax balance sheet in 2017. These expectations can be corrected until the final surrender of the balance to 30.06.2018. in accordance with the Income Tax Law for Legal entities, upon the deadline for submission of the final tax balance.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
42
FINANCIAL STATEMENT NOTES
15. CASH AND BALANCES WITH THE CENTRAL BANK
Cash and balances with the central bank RSD 000 31.12.2017 31.12.2016
Cash Cash in hand in dinars 2,086,680 2,158,703 Cash in hand in foreign currency 1,310,240 1,553,280 Balances with Central Bank Gyro account 16,405,025 10,842,534 Obligatory reserve with the National Bank of Serbia in foreign currency 10,785,873 9,203,749 Accruals based on cash and assets with central banks in dinars 8,290 6,804 Other funds - - Other funds in foreign currency 26 76 Less: value adjustment (1) (1) As of December 31st 30,596,133 23,765,145 Changes on the account for corrections of value - Other funds
RSD 000 2017 2016 Balance on January 1st 1 12 New correction of value (note 10) 4,831 862 Reversal of correction of value (note 10) (4,777) (874) Foreign exchange differences (54) 1 As of December 31st 1 1
Bank calculates and allocates the amount of mandatory reserves in accordance with the Decision on Banks’ required reserves with the National Bank of Serbia ("Official Gazette of the Republic of Serbia", no. 3/2011, 31/2012, 57/2012, 78/2012, 87 / 2012, 107/2012 and 62 / 2013, 125/2014, 135/2014, 4/2015, 78/2015 and 102/2015).
Obligatory reserve is calculated at the rate of 5% of the average daily balance of non-indexed dinar liabilities with agreed maturity up to two years, or at the rate of 0% of the average daily balance of non-indexed dinar liabilities with agreed maturity of over two years, during one month. The Bank is required to maintain the accounting period average daily balance of dinar required reserves on its gyro account. Calculated obligatory reserve whose level has to be maintained on the gyro account in the period from 18th December 2017 to 17th January 2018 amounted RSD 12,180,846 thousand and was in compliance with the aforementioned Decision of the National Bank of Serbia. The average interest rate on the amount of allocated dinar reserves during 2017 was 1.75% per annum through the year 2017. Indexed dinar liabilities in 2017 are calculated within the foreign currency mandatory reserves at the rate of 100%. Regarding foreign exchange mandatory reserves, the calculation rate was through the whole year 20% for liabilities with initial maturity of up to two years, as well as 13% for liabilities with initial maturity of over two years. After initial foreign exchange mandatory reserves calculation, 38% of the foreign currency reserves are allocated in dinars with an initial maturity of up to two years and 30% of liabilities with initial maturity over 2 years. Accrued foreign currency reserve for the period December 18th 2017 to January 17th 2018 was in line with the aforementioned Decision of the National Bank of Serbia and amounted to EUR 119.457 thousand. On the average balance of reserves in foreign currency, the National Bank of Serbia does not pay any interest.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
43
FINANCIAL STATEMENT NOTES
16. FINANCIAL ASSETS AT FAIR VALUE IN THE INCOME STATEMENT INTENDED FOR TRADING
Financial assets at fair value through income statement held for trading RSD 000 31.12.2017. 31.12.2016.
In dinar Treasury bills of the Republic of Serbia 1,895,170 - Receivables held for trading derivatives 42,487 17,088 In foreign currency Receivables held for trading derivatives 26,442 - Balance at 31st December 1,964,099 17,088
Receivables for derivatives inteding for trading are in total coming from the fair value of the instruments whose nominal value are presetend in off balance sheet (note 31).
17. FINANCIAL ASSETS AVAILABLE FOR SALE
Financial assets available for sale RSD 000 31.12.2017. 31.12.2016.
In dinar Treasury bills of the Republic of Serbia - 4,508,613 Treasury bonds of the Republic of Serbia 30,171,566 29,239,372 Shares of the Belgrade Stock Exchange 906 906 Shares of the Money Market 89 89 Correction in the value of shares of Money Market (89) (89) 30,172,472 33,748,891 In foreign currency Treasury bills of the Republic of Serbia - - Treasury bonds of the Republic of Serbia 6,829,857 6,859,952 Shares of SWIFT 3,316 3,186 Correction in the value of shares SWIFT (9) (36) 6,833,164 6,863,102 As of December 31st 37,005,636 40,611,993
Changes in the account for impairment loss RSD 000 2017 2016
Balance on January 1st 125 112 New correction of value (note 10) 45 17 Reversal of impairment loss (note 10) (71) (4) Foreign exchange differences (1) - As of December 31st 98 125
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
44
FINANCIAL STATEMENT NOTES
18. LOANS AND RECEIVABLES TO BANKS AND OTHER FINANCIAL INSTITUTIONS Loans and receivables to banks and other financial institutions 31.12.2017. 31.12.2016.
RSD 000 Gross
amount Impairment
loss Net
amount Gross
amount Impairment
loss Net
amount
Foreign currency account
1,682,170
(32,148)
1,650,022
6,417,635
(73,596)
6,344,039 Loans for liquidity and working capital
357,047
(1,019)
356,028
1,444
(4)
1,440
Other loans in dinars
39,141
(150)
38,991
32,269
(127)
32,142
Factoring in foreign currency
176,904
(3,815)
173,089
43,015
(441)
42,574 Other placements in foreign currency
4,739
-
4,739
4,939
-
4,939
Total loans and receivables to banks and other financial institutions
2,260,001
(37,132)
2,222,869
6,499,302
(74,168)
6,425,134
Overview of loans and receivables to banks and other financial institutions by currency in which they were given as follows: Loans and receivables to banks and other financial institutions 31.12.2017. 31.12.2016.
RSD 000 Dinars Foreign currency Dinars Foreign currency Other banks and financial institutions 395,019 4,740 33,582 4,939 Foreign banks - 1,823,110 - 6,386,613 Total loans and receivables to banks and other financial institutions 395,019 1,827,850 33,582 6,391,552
Changes in account for impairment loss RSD 000 2017 2016
Balance on January 1st 74,168 71,961 New impairment loss (note 10) 167,534 335,746 Cancellation of impairment loss (note 10) (200,550) (336,708) Foreign exchange difference (4,020) 3,169 Balance as of December 31st 37,132 74,168
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
45
FINANCIAL STATEMENT NOTES
19. LOANS AND RECEIVABLES TO CUSTOMERS Loans and receivables to customer 31.12.2017. 31.12.2016.
RSD 000 Gross amount Impairment loss Net amount Gross amount Impairment loss Net amount Loans under transaction account 6,663,768 (620,964) 6,042,804 4,601,923 (857,853) 3,744,070 Consumer loans in dinars 2,571,062 (280,952) 2,290,110 2,301,192 (425,825) 1,875,367 Liquidity loans, loans for working capital 91,156,047 (13,005,886) 78,150,161 81,392,696 (17,747,253) 63,645,443 Investment loans in dinars 5,436,275 (976,398) 4,459,877 4,753,612 (1,246,665) 3,506,947 Housing loans in dinars 62,305,072 (870,076) 61,434,996 46,250,971 (236,525) 46,014,446 Cash loans in dinars 39,810,182 (2,783,656) 37,026,526 29,829,106 (2,728,540) 27,100,566 Other loans in dinars 1,556,716 (53,526) 1,503,190 1,077,826 (43,802) 1,034,024 Receivables arising from purchased placement - forfeiting in dinars 538,468 (1,778) 536,690 3,066,504 (12,532) 3,053,972 Receivables based on factoring in dinars 8,207,186 (65,697) 8,141,489 5,827,217 (77,340) 5,749,877 Activated guarantees in dinars 690,627 (660,473) 30,154 730,969 (670,463) 60,506 Other placements in dinars 12,757,125 (379,721) 12,377,404 10,448,975 (392,651) 10,056,324 Loans for payment of goods and services imports in foreign currency 5,308,522 (43,989) 5,264,533 2,528,388 (22,657) 2,505,731 Factoring in foreign currency 362 (2) 360 25,575 (12,869) 12,706 Activated guarantees in foreign currency 1,080,530 (1,066,275) 14,255 1,151,553 (1,144,423) 7,130 Total 238,081,942 (20,809,393) 217,272,549 193,986,507 (25,619,398) 168,367,109
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
46
FINANCIAL STATEMENT NOTES
19. LOANS AND RECEIVABLES TO CUSTOMERS (continued) Overview of loans and receivables to customers by type of customer and currency is given below: Loans and receivables to customer 31.12.2017. 31.12.2016.
RSD 000 Dinars Foreign
currency Dinars Foreign
currency Companies 100,994,147 1,659,602 83,251,657 2,128,338
Entrepreneurs 3,173,349 21,816 2,207,604 24,677
Public sector 1,301,890 - 1,139,754 -
Individuals 104,732,067 - 78,292,069 -
Foreign entities 141,022 3,596,436 115,496 368,299
Other customers 1,650,926 1,294 834,961 4,254 Total 211,993,401 5,279,148 165,841,541 2,525,568 Changes in provisions
RSD 000 2017 2016 Balance on January 1st 25,619,398 25,524,105 New provision allowances (note 10) 15,517,169 16,516,090 Provision allowances cancellation (note 10) (17,876,572) (16,571,000) Exchange rate differences (545,378) 212,269 Accounting write off (1,905,224) - Other - (62,066) Balance as of December 31st 20,809,393 25,619,398 Loans to companies were mostly approved for: financing of daily liquidity (overdrafts), purchase of working capital, imports and financing of investments. Interest on loans approved in 2017 is calculated by using the interest rate expressed as 1-month, 3-month and 6-month EURIBOR or LIBOR increased by 2.23% on average for FX indexed loans/foreign currency loans and 1-month and 3-month BELIBOR rate increased for 0.98% on average for loans in RSD. During 2017, long term loans were approved to individuals for the purchase of housing space with maturity from 5 to 25 years. The Bank’s interest rates for housing loans at variable interest rate in 2017 was between 6M EURIBOR increased for 2.95% (as special offer) and 6M EURIBOR increased for 4.65%. Fixed interest rate (first three years) for combined housing loans was in range from 2.65% (as special offer) to 6.25% Also, RSD long term loans for the purchase of housing space are approved with maturity of 5 to 25 years and interest rate based on 6M BELIBOR increased for 4.75% to 5.00%. During 2017 individuals were granted RSD cash loans with maturity from 6 up to 100 months, as well as refinancing loans with maturity from 13 to 100 months. Interest rates for cash loans with fixed interest rates were from 6.95% to 15.75%, while the Bank has as special offer “welcoming short term loan” with interest rate of 0%. The Bank`s interest rates for refinancing loans with fixed interest rate were from 11.95% to 13.45%. Interest rates for cash and refinancing dinar loans with variable interest rate were from 6M Belibor + 6.95% to 6M Belibor + 8.95%. Loans to small businesses, entrepreneurs and registered farmers were also granted during 2017. The interest rate for short-term loans, earmarked for working capital financing, ranged from 3.95% to 8.95% per annum for EUR-indexed loans and from 8.95% to 12.95% annually for RSD loans with maturity of up to 2 years, while long-term investment loans were approved with interest rates based on the 6-month Euribor plus 3.95% -7.95% per annum.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
47
FINANCIAL STATEMENT NOTES
19. LOANS AND RECEIVABLES TO CUSTOMERS (continued)
The total other amount of dinar loans on December 31st, 2017, RSD 12,708,380 thousand, gross (December 31st 2016: RSD 9,886,180 thousand) relates to loans granted by the subsidiary Sogelease Srbija doo Beograd. Subsidiary provides towards financial leasing various plants and equipment, for a period of 13 to 84 months, with a nominal fixed rate of 2.5% to 7.5% annually, as well as a nominal variable interest rates ranging from 2.3 % to about 6.99%. All advances under finance leases are indexed or linked to changes in the exchange rate of euro against the dinar. Subisidiary applies selling EUR rate of Societe Generale Serbija a.d, Belgrade for loans given to legal entities, and the average EUR rate of Central Bank fo loans given to individuals.
a) Total leasing investment
Future receivables arising from minimum lease payments, and amounts due from finance lease are presented in the following tables:
RSD 000 2017 2016
Long-term receivables from financial leasing Long-term receivables from financial leasing for : Principle 7,502,667 5,804,227 Estimated impairment of placements (74,694) (106,525) 7,427,973 5,697,702 Short-term receivables from financial leasing Leasing receivables up to 1 year 4,844,953 3,694,208 Past due receivables based on leasing 413,464 413,439 Other receivables from leasing 69,248 66,323 Less: Allowance for impairment - matured unpaid receivables (208,512) (195,671) - other receivables (64,135) (44,148) 5,055,018 3,934,151 Accrued income of finance lease receivables (121,952) (92,017) 12,361,039 9,539,836
RSD 000 2017 2016 Matured receivables 482,712 479,762 Up to 1 year 4,844,953 3,694,208 From 2 until 5 years 7,466,990 5,789,434 More than 5 years 35,677 14,793 Estimated impairment of matured placements (272,647) (239,819) Estimated impairment of placements until and more than 1 year (74,694) (106,525) Accrued income of finance lease receivables (121,952) (92,017) 12,361,039 9,539,836
The subsidiary is in accordance with the accounting policy as at 31 December 2017, assess the risk contained in loans from finance lease, and on that basis established allowance for impairment losses in the amount of RSD 347,341 thousand (31 December 2016: RSD 346,344 thousand).
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
48
FINANCIAL STATEMENT NOTES
20. INVESTMENTS IN ASSOCIATED COMPANIES AND JOINT VENTURES
As on Decembr 31st, 2017. and 2016., the Group owns 49% equity share of the associated legal entity Societe Generale Osiguranje a.d. Life Insurance Company Belgrade.
The Group owns 149,649 shares with a total value at 31 December 2017 RSD 202,176 thousand (31 December 2016: RSD 202,176 thousand).
The following table shows financial position of the associated entity Societe Generale Osiguranje, Life Insurance Company Belgrade:
Societe Generale Osiguranje a.d., Life Insurance Company Belgrade RSD 000 2017 2016
BALANCE SHEET Fixed assets 2,942,362 1,676,058 Working capital 509,559 480,438 Long term liabilities 2,445,525 1,416,682 Short term liabilities 445,434 238,208 Equity 495,310 501,606 Equity ownership in the associated entity 242,701 245,786 Societe Generale Osiguranje a.d., Life Insurance Company Belgrade
RSD 000 2017 2016 INCOME STATEMENTS Operating income 1,672,010 1,496,259 Operating expense (1,280,913) (1,206,395) Profit from investing activities, net (26,783) 56,047 The cost of insurance (294,897) (263,375) Other (expense) income (8,006) (10,843) Income tax (1,772) (7,758) Profit of the current year 59,639 63,935 Of which participate in the Bank's profit - 49% 29,223 31,328 The movement of the share in the capital of the associated legal entity during the year are shown in the following table: Changes to the participation in the equity of related entities during the year
RSD 000 2017 2016 Balance on January 1st 245,786 214,458 Paid dividends (32,308) - Valuation on consolidation (note 8) 29,223 31,328 As of December 31st 242,701 245,786
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD __________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
49
FINANCIAL STATEMENT NOTES
21. INTANGIBLE ASSETS, FIXED ASSETS, EQUIPMENT AND INVESTMENT PROPERTY
RSD 000
Buildings and structures Land
Equipment and other
fixed assets
Investments in other owner`s
fixed assets Fixed assets in preparations
Total property and equipment
Intangible assets in
preparation Intangible
assets
Total intangible
assets Investment
property Total
Land Land
Equipment and other
fixed assets
Investments in other owner`s
fixed assets Fixed assets in preparations
Total property and equipment
Intangible assets in
preparation Intangible
assets
Total intangible
assets Investment
property
Equipment and other
fixed assets Land
Equipment and other
fixed assets
Investments in other owner`s
fixed assets Fixed assets in preparations
Total property and equipment
Intangible assets in
preparation Intangible
assets
Total intangible
assets Inv
p
Investments in other owner’s
fixed assets Land
Equipment and other
fixed assets
Investments in other owner`s
fixed assets Fixed assets in preparations
Total property and equipment
Intangible assets in
preparation Intangible
assets
T inta
as
Fixed assets in preparation Land
Equipment and other
fixed assets
Investments in other owner`s
fixed assets Fixed assets in preparations
Total property and equipment
Intangible assets in
preparation Intan
ass
Total property and
equipment Land
Equipment and other
fixed assets
Investments in other owner`s
fixed assets Fixed assets in preparations
Total property and equipment
Intang assets
prepara
Intangible assets in
preparation Land
Equipment and other
fixed assets
Investments in other owner`s
fixed assets Fixed assets in preparations
Total prop and equip
Intangible assets Land
Equipment and other
fixed assets
Investments in other owner`s
fixed assets Fixed assets preparation
Total intangible
assets Land
Equipment and other
fixed assets
Investments in other owner`s
fixed assets
Investment property Land
Equipment and other
fixed asset
Total PURSHASE VALUE OF FIXED ASSETS
Balance as of 01.01.2016. 1,745,604 71,049 1,716,116 426,332 120,848 4,079,949 123,848 1,488,297 1,612,145 73,328 5,765,422 Increase during the year 1,184,612 381,581 1,469 16,694 179,777 1,764,133 294,487 46 294,533 - 2,058,666 Transfer from/to - - 280,397 - (247,955) 32,442 (275,455) 272,575 (2,880) - 29,562 Disposal and write-offs (172,163) - (167,420) (18,061) - (357,644) - (100,844) (100,844) (73,328) (531,816) Transfer from/to (45,352) - - - - (45,352) - - - 45,353 - Balance as of 31.12.2016. 2,712,701 452,630 1,830,562 424,965 52,670 5,473,528 142,880 1,660,074 1,802,954 45,353 7,321,834 Increase during the year 12,555 - 13,213 - 113,035 138,803 272,098 273,273 545,371 - 684,174 Transfer from/to (31) - 115,303 8,190 (115,303) 8,159 (270,473) - (270,473) - (262,314) Disposal and write-offs (9,625) - (280,148) (11,527) - (301,300) (149) (14,039) (14,188) - (315,488) Balance as of 31.12.2017. 2,715,600 452,630 1,678,930 421,628 50,402 5,319,190 144,356 1,919,308 2,063,664 45,353 7,428,206 CUMULATED PROVISIONS Balance as of 01.01.2016. 811,948 - 1,207,568 218,350 - 2,237,866 - 1,075,299 1,075,299 35,121 3,348,286 Amortization (note 12) 100,364 - 169,915 39,516 - 309,795 - 125,564 125,564 140 435,499 Disposal and write-offs (86,262) - (163,818) (12,905) - (262,985) - (82,213) (82,213) (35,121) (380,319) Transfer from/to (25,557) - - - - (25,557) - - - 25,557 - Balance as of 31.12.2016. 800,493 - 1,213,665 244,961 - 2,259,119 - 1,118,650 1,118,650 25,697 3,403,466 Amortization (note 12) 112,133 - 177,059 33,364 - 322,556 - 178,051 178,051 1,271 501,878 Disposal and write-offs (9,625) - (213,728) (7,438) - (230,791) - (14,039) (14,039) - (244,830) Balance as of 31.12.2017. 903,001 - 1,176,996 270,887 - 2,350,884 - 1,282,662 1,282,662 26,968 3,660,514 Unwritten-off value as of 31.12.2017. 1,812,599 452,630 501,934 150,741 50,402 2,968,306 144,356 636,646 781,002 18,385 3,767,693 Unwritten-off value as of 31.12.2016. 1,912,208 452,630 616,897 180,004 52,670 3,214,409 142,880 541,424 684,304 19,656 3,918,368
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
50
FINANCIAL STATEMENT NOTES
21. INTANGIBLE ASSETS, FIXED ASSETS, EQUIPMENT AND INVESTMENT PROPERTY (continued)
The Group has no buildings and structures given as pledge, as security for loans repayment.
Due to incomplete cadastre records as of December 31st, 2017 the Group has no real estate list extracts for buildings of net current value of RSD 18,829 thousand (On december 31st 2016 RSD 19,587 thousand). Management of the Group has taken all necessary steps in order to obtain the missing documents.
As of 31.12.2017, the Group had an investment property in the amount of RSD 18,384 thousand, consisting of leased premises (December 31st 2016 RSD 19,655 thousand).
The fair value of investment property at 31 December 2017 was estimated by a certified appraiser hired by the Group amounted to RSD 39,324 thousand and was higher than the book value of RSD 20,940 thousand
22. CURRENT AND DEFFERED TAX ASSSETS
Tax assets components RSD 000 2017 2016
Current tax assets (liabilities) (259,186) 201,774 Deferred tax assets (liabilities) (38,238) 131,760 Balance as of December 31st (297,424) 333,534
Deferred tax assets components
RSD 000 2017 2016
Deferred tax assets coming from the difference between net book value of the fixed assets and their net tax value 86,983 71,568 Deferred tax assets from calculated and not settled obligations towards the state authorities 613 99 Deferred tax assets from calculated and not paid severance for retirement 6,106 5,348 Deferred tax assets based on unused tax credit for investment in fixed assets - 40,373 deferred tax assets coming from tax losses in the previous years - 185,719 deferred tax liabilities based on revaluation of treasury bills and treasury bonds available for sale (132,868) (173,042) Actuarial gains from long term employee benefits and other 928 1,695 Balance as of December 31st (38,238) 131,760
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
51
FINANCIAL STATEMENT NOTES 22. CURRENT AND DEFFERED TAX ASSETS (continued) Changes in deferred tax are presented in the table below:
31.12.2017. 31.12.2016.
RSD 000 Deferred tax
assets Deferred tax
liabilities Income
statement Effect on
capital Deferred tax
assets Deferred tax
liabilities Income statement Effect on
capital
From the difference between net book value of the fixed assets and their net tax value 86,983
- 15,415 - 71,568 - (2,688) -
From calculated and not settled obligations towards the state authorities 613 - 514 - 99 - (6,168) - From calculated and not paid severance for retirement 6,106 - 758 - 5,348 - 520 - Tax losses - - (185,719) - 185,719 - (270,188) - Unused tax credit for investment in fixed assets - - (40,373) - 40,373 - (344) - Adjustment of available to sale securities to fair value - (132,868) - 40,174 - (173,042) - (15,574) Actuarial gains from long term employee benefits and other 1,520 (592) (466) (301) 2,007 (312) 1,430 1,367
95,222 (133,460) (209,871) 39,873 305,114 (173,354) (277,438) (14,207)
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
52
FINANCIAL STATEMENT NOTES 23. OTHER ASSETS
Other assets RSD 000 31.12.2017. 31.12.2016.
Receivables for calculated fee and commission in respect of other assets in dinars 188,851 188,589 Receivables for advance payment for working capital in dinars 10,747 51,939 Receivables for advance payment for non-current investments in dinars 53,986 22,424 Receivables from employees in dinars 260 255 Receivables coming from overpaid taxes and contributions in dinars 218 821 Other receivables from business operations in dinars 45,630 79,764 Other receivables from payment cards operations in dinars 37,536 15,364 Other receivables from operations - for sick leave in dinars 130,343 47,282 Other receivables from operations - for court and administrative fees in dinars 193,763 172,435 Receivables in calculation dinars 1,900 496 Receivables in calculation from payment cards business in dinars 132,315 107,482 Receivables in calculation dinars related to ATM transactions 190,056 141,361 Receivables for calculated fee and commission based on other assets in foreign currency
1,849 2,242
Receivables based on advance payment given for working capital in foreign currency 1,473 1,535 Receivables from employees in foreign currency 18,906 14,572 Other receivables from operation in foreign currency 37,166 36,584 Receivables calculation in foreign currency 341 4,574 Accrued other expense in dinars 541,710 364,041 Other prepayment and accrued income in dinars 23,812 2,357 Accrued interest expense in foreign currency 13 186 Accrued other expense in foreign currency 14,601 14,678 Other prepayments in foreign currency 12,972 8,807 Assets acquired through collection of receivables 368,168 505 Impairment (323,465) (242,200) As of December 31st 1,683,151 1,036,093
Changes on the account for corrections of value - Other funds RSD 000 2017 2016
Balance on January 1st 242,200 235,740 New correction of value (note 10) 211,371 74,244 Reversal of correction of value (note 10) (129,251) (57,184) Foreign exchange differences (855) 292 Other - (10,892) As of December 31st 323,465 242,200
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
53
FINANCIAL STATEMENT NOTES 24. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH THE INCOME STATEMENT INTEDNED FOR TRADING
Financial liabilities at fair value through income statement held for trading RSD 000 31.12.2017. 31.12.2016.
Liabilities on derivatives held for trading 42,272 13,118 As of December 31st 42,272 13,118
Liabilities for derivatives inteding for trading are in total coming from the fair value of the instruments whose nominal value are presetend in off balance sheet (Note 31).
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
54
FINANCIAL STATEMENT NOTES 25. DEPOSITS AND OTHER LIABILITIES TO BANKS, OTHER FINANCIAL ORGANIZATIONS AND CENTRAL BANK Deposits, other liabilities to banks, other financial organizations and central bank 2017 2016
RSD 000 Dinars Foreign currency Dinars Foreign currency Transaction deposits 5,141,364 358,182 4,927,677 431,371 Deposits in respect of granted loans - 6,932,289 - 4,333,963 Special purpose deposits 90,368 928,429 153,646 419,583 Term deposits 2,561,100 17,284,817 1,910,950 609,969 Other deposits 111,147 30,045 125,212 44,093 Deposits maturing in 1 day (overnight) 1,315 236,945 20,572 - Loans received - 38,755,166 - 32,098,369 Other financial liabilities 587 136 406 962 As of December 31st 7,905,881 64,526,009 7,138,463 37,938,310 Deposits, other liabilities to banks, other financial organizations and central bank 2017 2016
RSD 000 Dinars Foreign currency Dinars Foreign currency National bank of Serbia 587 - 406 - Other banks and financial institutions 4,865,789 4,686,541 7,105,055 1,335,001 Foreign banks 3,039,505 59,839,468 33,002 36,603,309 As of December 31st 7,905,881 64,526,009 7,138,463 37,938,310
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
55
FINANCIAL STATEMENT NOTES 25. DEPOSITS AND OTHER LIABILITIES TO BANKS, OTHER FINANCIAL ORGANIZATIONS AND CENTRAL BANK (continued)
Borrowings as of December 31st 2017 include loans received from the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), The Council of Europe Development Bank (CEB), loans received from the parent bank Societe Generale Paris and long-term line from KfW Bank.
Loan received from The Council of European Investment Bank (EIB) in amount of RSD 14,699,512 thousand as at 31 December 2017. (December 31st 2016: 13,439,042 thousand). Loan from the European Investment Bank (EIB) is related to loans for small and medium-sized enterprises financing. Loans in the amount of RSD 6,992,699 thousand (December 31st 2016 RSD 5,899,541 thousand), granted to subsidiary Sogelease Srbija a.d. Beograd.
On December 31st 2017 outstanding of received loans from European Bank for Reconstruction and Development (EBRD) in the amount of RSD 850,056 thousand (December 31st 2016 RSD 1,240,133 thousand) consist of loans aproved to approved to subsidiary Sogelease Srbija ad Beograd.
Loan received from The Council of Europe Development Bank (CEB) in amount of RSD 2,369,454 thousand as at 31 December 2017. (December 31st 2016: 2,469,483 thousand). This loans is used for partialy financing of subprojects for micro, small and midium enterprises in Serbia in order to improve competitivnes and promote creation of new working place and preserve of existing working places.
Long-term received loans from Societe Generale Paris in amount of RSD 12,119,743 thousand as at 31st December 2017. (December 31st 2016: RSD 6,804,817 thousands).
Balance of RSD 1,723,702 thousand as at December 31st 2017 relates to the loan from KfW (December 31st 2016: RSD 2,245,353 thousand). Loan will be used for agriculturals, micro, small and midium enterprises which deal with primary agricultural production in Serbia.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
56
FINANCIAL STATEMENT NOTES 26. DEPOSITS AND OTHER LIABILITIES TO OTHER CUSTOMERS
Deposits and other liabilities to other customers 2017 2016 RSD 000 Dinars Foreign currency Dinars Foreign currency
Transaction deposits 49,584,680 36,953,817 27,516,537 33,681,146 Savings deposits 2,007,864 45,461,795 2,732,377 48,702,450 Deposits in respect of granted loans 469,470 1,494,832 543,888 1,307,357 Special purpose deposits 402,449 2,343,366 331,245 1,246,368 Term deposits 17,141,664 4,378,252 15,663,511 2,466,708 Other deposits 30,391 1,183,685 66,234 1,133,314 Deposits and loans maturing in one day (overnight) 1,795,697 760,933 4,130,138 305,955 Loans received - 1,408,100 - 2,066,109 Other financial liabilities 8,308 - 6,679 - Total deposits and other liabilities to other customers 71,440,523 93,984,780 50,990,609 90,909,407
An overview of deposits and other liabilities to customers by type of customer and currency structure is given below:
Deposits and other liabilities to customers 2017 2016
RSD 000 Dinars Foreign currency Dinars Foreign currency
Companies 53,453,027 28,313,355 38,238,660 26,147,573
Entrepreneurs 1,382,450 345,506 1,045,890 193,305
Public sector 1,713,632 1,776,598 811,001 2,560,319
Individuals 7,162,313 57,359,722 7,375,717 56,425,803
Foreign entities 625,814 5,380,869 449,050 4,851,006
Other customers 7,103,287 808,730 3,070,291 731,401
As of December 31st 71,440,523 93,984,780 50,990,609 90,909,407
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
57
FINANCIAL STATEMENT NOTES
26. DEPOSITS AND OTHER LIABILITIES TO OTHER CUSTOMERS (continued)
Loans from customers in foreign currency totaling RSD 1,408,100 thousand as of December 31st, 2017 (RSD 2,066,109 thousand as of December 31st, 2016) are related to APEX loans signed with the National Bank of Serbia (NBS) and maturing in 2022.
The bank is financing projects approved by the NBS based on payment of the funds by the NBS. Apex loans are signed between the Bank and the NBS acting as an agent of the Republic of Serbia, with the aim of realization of signed financial agreement between the European Investment bank, Republic of Serbia and the National Bank of Serbia.
27. SUBORDINATED LIABILITIES
Subordinated liabilities RSD 000 31.12.2017. 31.12.2016.
Subordinated liabilities in foreign currency 8,885,452 9,260,422 Accrued liabilities on base interest on subordinated liabilities in foreign currency 4,131 3,961 Total subordinated liabilities 8,889,583 9,264,383 Subordinated obligations in foreign currency in the amount of RSD 8,889,583 thousand as of December 31st 2017 (December 31st 2016: RSD 9,264,383 thousands) refer to subordinated obligations towards Societe Generale Paris.
On December 19th, 2007, the Bank has received funds based on the Agreement on subordinated loan worth EUR 50.000 thousand signed with Societe Generale Paris. The maturity of the loan was in December 2012. During 2009 an Annex to the contract was signed, changing the maturity date to June 19th 2015. At the end of 2013 new annex was signed, postponing the maturity by January 19th, 2019. As of December 31st 2017, the loan outstanding amounts to RSD 5,926,594 thousand (December 31st 2016: RSD 6,175,836 thousands). Of this amount, RSD 5,923,635 thousand (December 31st 2016: RSD 6,173,614 thousands) is related to the subordinated loan, whereas RSD 2,959 thousand (December 31st 2016. RSD 2,222 thousands) concerns accrued interest related to this loan due for payment on June 25th, 2018. On December 21st, 2009 an agreement on EUR 25,000 thousand subordinated loan was signed with Societe Generale Paris, with due date on December 23rd, 2019. At the end of 2017 new annex was signed, postponing the maturity by December 23th, 2027. As of December 31st, 2016 the loan outstanding amounts to RSD 2,962,989 (December 31st 2016. RSD 3,088,547 thousands) Out of this amount, RSD 2,961,817 (December 31st 2016. RSD 3,086,808 thousands) thousand relates to the subordinated loan, while RSD 1,172 thousand (December 31st 2016: RSD 1,739 thousands) is related the accrued interest on this loan, due for payment on June 29rd, 2018. The extent to which Tier 2 instruments and/or subordinated liabilities are included in the calculation of Tier 2 capital of a bank during the final five years before the instruments mature is calculated as follows: the quotient of their nominal value and/or the principal amount, on the first day of the final five year period before their maturity and the number of calendar days in that period is multiplied by the number of the remaining calendar days of maturity of the instruments or subordinated liabilities on the day of the calculation.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
58
FINANCIAL STATEMENT NOTES
28. PROVISIONS
Provisions
RSD 000 31.12.2017. 31.12.2016. Provisions for losses on credit risk off-balance sheet assets (a) 815,380 872,825 Provisions for other long-term reimbursements of employees (b) 177,420 169,584 Provisions for free shares 133,938 133,938 Provisions for retirement 43,482 35,646 Provisions for court disputes and liabilities coverage (c) 9,935 10,840 Total provisions 1,002,735 1,053,249 Changes in provisions for off balance position
RSD 000 2017 2016 Balance at January 1st 872,825 931,789 New provisions (note 10) 1,800,511 1,614,850 Provisions cancellation ( note 10) (1,834,447) (1,680,409) Exchange rate differences (23,509) 8,727 Other (2,132) As of December 31st 815,380 872,825 Changes in provisions for free shares
RSD 000 2017 2016 Balance at January 1st 133,938 104,617 New provisions (note 9) - 29,321 As of December 31st 133,938 133,938 Provisions for retirement
RSD 000 2017 2016 Balance at January 1st 35,646 32,186 Interest expense 1,234 1,231 The expense of current work 8,043 4,162 Used provisions (370) (1,392) Actuarial (gain)/loss (1,071) (541) As of December 31st 43,482 35,646 Changes in provisions for retirement
RSD 000 2017 2016 Balance at January 1st 35,646 32,186 New provisions (note 9) 11,967 556 Provisions cancellation (note 9) - (3,441) Used provisions (2,922) (2,452) Actuarial gains (1,209) 8,797 As of December 31st 43,482 35,646 Changes in provisions for court disputes
RSD 000 2017 2016 Balance at January 1st 10,840 7,919 New provisions (note 13) 3,269 7,827 Provisions cancellation (note 9) (2,239) (2,388) Other (1,935) (2,518) As of December 31st 9,935 10,840
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
59
FINANCIAL STATEMENT NOTES
28. PROVISIONS (continued)
(a) Provisions for risk off-balance sheet assets (guarantees, issued acceptances, endorsements, irrevocable
commitments for undisbursed loans and other) are calculated based on internal methodology for credit risk assets and off-balance sheet assets calculation.
(b) Provisions for other long-term reimbursements of employees in dinars include provisions for free shares to employees and provisions for retirement severance payment
Provisions for retirement severance payment amounting to RSD 43,482 thousand on December 31st 2017
(December 31st 2016.: RSD 35,646 thousand) are formed based on the report of an independet actuary using projecting per right unit method as at the balance sheet data and are stated in the amount of the present value of the expected future payments.
The amount of severance payments upon retirement is defined by the Internal Work Rulebook, stipulating that the given employee is paid his two average net salaries or two gross salaries in the Republic of Serbia according to the latest published information of the relevant authority in charge of statistics or the amount approved by the bank's Executive director, depending which solution is more favourable for the employee. Actuarial asumptions used for calcualtion are the following:
• Demographic assumptions, based on tables of demographic mortality from 2010-2012, published by the Statistical Office of the Republic of Serbia
• Expected long-term rate of growth of salaries of 0.4%, in line with the actual nominal growth of salaries in 2018 compared to 2017.
• The key reference rate, which was at 3.5% at the day of calculation is used as discount rate.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
60
FINANCIAL STATEMENT NOTES 29. OTHER LIABILITIES
Other liabilities RSD 000 31.12.2017. 31.12.2016.
Other liabilities in calculation in dinars 48,943 750,651 Other liabilities from payment card operations 85,612 66,997 Short-term liabilities for cumulated non-used annual leaves 102,072 98,818 Other liabilities for employees 195,146 155,645 Liabilities for non-distributed inflows in foreign currency 50,777 33,913 Other liabilities in calculation foreign currency 267,614 246,094 Accrued liabilities for other calculated expenses in foreign currency 344,919 276,756 Other operating liabilities in foreign currency 2,712,124 3,897,115 Liabilities to suppliers in dinars 120,426 117,572 Other operating liabilities in dinars 492,157 319,215 Liabilities to suppliers in foreign currency 410,898 246,275 Accrued liabilities for other calculated expenses in dinars 306,939 290,422 Accrued other income in dinars 131,887 110,996 Accrued interest income in dinars 95,097 81,679 Liabilities for other tax and contributions in dinars 12,994 9,450 Liabilities for value added tax in dinars 78,347 61,814 Suspense accounts in dinars 21,362 13,013 Liabilities arising from temporary and occasional work in dinars 174 511 Liabilities based on received funds for operations for and on behalf of the client in dinars 50 50 Liabilities based on received funds for operations for and on behalf of the client in foreign currency - 1,236 Other accrued liabilities 29,884 - Received advances 205,206 - Other 361 492 Balance at 31st December 5,712,989 6,778,714
Short term liabilities for cumulated, unused annual leaves RSD 000 2017 2016
Balance as of January 1st 98,818 82,474 Increase(Decrease) in liability (note 11) 3,254 16,344 Balance as of December 31st 102,072 98,818 As of December 31st, 2017. the Group has calculated liabilities for cummulated, unused annaul leaves in the amount of RSD 102,072 thousand (RSD 98,818 thousand as of December 31st,2016), which can be transffered and used in the future period.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
30. EQUITY
a) Strucutre of the Group's equity EQUITY
RSD 000 31.12.2017. 31.12.2016. Share capital - common shares (i) 23,723,021 23,723,021 Share premium 1,253 1,253 Other reserves from profit (ii) 9,957,176 9,958,156 Revaluation reserves based on securities available for sale (iii) 754,815 982,296 Actuarial gains (loss) (iv) 1,214 276 Profit of the past year 189,620 2,158,186 Profit of the current year 6,325,535 3,810,808 Total equity 40,952,634 40,633,996
(i) Share capital
Share capital consists of 5,331,016 shares with nominal value of 4,450 RSD per share. All shares is owned by Societe Generale S.A. Paris. There were no share issues in 2017.
(ii) Other reserves from profit Other reserves from profit are formed by the Bank based on decisions of the Shareholders Assembly on results distribution.
(iii) Revaluation reserves Revaluation reserves on securities available for sale as at 31 December 2017 represent the sum of the following components:
000 RSD 2017 2016
Balance as of January 1st 982,296 893,736 The positive (negative) effects of the change in fair value (267,625) 104,189 Losses on the tax that applies to the securities issued by the Government (note 21) 40,144 (15,629) Balance as of December 31st 754,815 982,296
(iv) Actuarial gains Actuarial gains at 31 December 2017 and 2016 as a whole related to actuarial gains on provisions for employee retirement benefits (Note 28). Actuarial gains
000 RSD 2017 2016 Balance as of January 1st 276 7,651 Actuarial gains (note 28) 1,209 (8,797) Losses on the tax that applies to the rest of the result of the period (271) 1,422 Balance as of December 31st 1,214 276
(v) Profit of the previous years During 2017, on the basis of the Decision of the Bank's Assembly No. GA16 / 17 and GA24 / 17 on the use and distribution of realized profit to the financial statements for 2015 and 2016, as well as NBS Decision No. G.11025, the dividend is paid to the bank's shareholders in the total gross amount of 5 748 046 thousand dinars.
b) Group performance indicators – compliance with legal indicators The Group is obliged to adjust the volume and structure of its operations and risk placements with the performance indicators regulated by the Law on Banks and relevant decisions of National Bank of Serbia adopted based on this Law.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
62
FINANCIAL STATEMENT NOTES As of December 31st, 2017 the Bank’s performance indicators were compliant with values required by the regulation (Note 35). 31. OFF BALANCE POSITIONS Off balance
RSD 000 2017 2016 Jobs in the name and for the account of third parties (a) 5,388,867 5,015,112 Guarantees and other irrevocable commitments (b) 42,752,828 38,246,333 Derivatives (c) 28,861,271 1,845,627 Other balance sheet items (d) 426,959,441 371,531,069 Total off balance 503,962,407 416,638,141 a) Operations in the name and for the account of third parties
RSD 000 2017 2016 Subsidized part of housing loans disbursed in the name and for the account of Republic of Serbia 5,388,867 5,015,112 Total operations in the name and for the account of third parties 5,388,867 5,015,112 b) Guarantees and other irrevocable commitments
RSD 000 2017 2016 In RSD Payable guarantees 6,949,354 7,047,295 Performance guarantees 10,054,521 9,196,354 Sureties given 6,517 6,517 Irrevocable commitments 1,908,517 1,739,280 Total guarantees and other irrevocable commitments in dinars 18,918,909 17,989,446 In FC
Payable guarantees 6,652,264 7,024,616 Performance guarantees 15,298,247 8,458,410 Uncovered letters of credit 1,223,838 2,214,532 Irrevocable commitments 659,570 2,559,329 Total guarantees and other irrevocable commitments in foreign currency 23,833,919 20,256,887 Total guarantees and other irrevocable commitments 42,752,828 38,246,333
c) Derivatives RSD 000 2017 2016
Forward currency contracts 16,205,190 316,183 Swap currency contracts 7,671,337 - Swap interest rate contracts 4,984,744 1,529,444 Total derivatives 28,861,271 1,845,627
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
63
FINANCIAL STATEMENT NOTES 31. OFF BALANCE POSITIONS (continued) d) Other off-balance sheet positions
RSD 000 2017 2016 Guarantees received 16,543,258 14,523,728 SPOT transactions 5,359,101 4,397,897 Revocable commitments 65,213,903 56,977,572 Securities of custody clients 108,528,389 88,421,867 Suspended interest 2,217,846 2,300,357 Checks sent for collection 24,489 66,973 Nostro letters of credit at sight 74,068 51,595 Government securities records 99,798 - Records of contracted IRS transactions 1,247,725 - Accounting write-off 1,903,505 - Other 154 275 Collateral records 225,747,205 204,790,805 Balance at 31st December 426,959,441 371,531,069
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
64
FINANCIAL STATEMENT NOTES
32. RELATIONS WITH RELATED PARTIES
In its daily operations the Group conducts usual business transactions with different related entities. Related entities are the shareholders (owners) and other members of the Societe Generale Group, as well as key management of the Bank. The overview of transactions with related parties in the course of 2017. and 2016. is presented in the following tables: Assets-Balance Sheet Items 2017
RSD 000
Financial assets, initially
recognized at fair value through
income statement held
for trading
Loans and receivables to
banks and other financial
institutions
Loans and receivables
to other customers
Other assets
Stake in equity Total
ALD Automotive doo Beograd - 59,906 - 37 - 59,943
BRD - Groupe Societe Generale - 8,977 - - - 8,977
Ohridska Banka - - - 10 - 10 SG Express Bank - Bulgaria - - - 683 - 683 SKB Banka - Slovenia - - - 10 - 10 SG Factoring Spa Italy - 24,872 - - - 24,872 Compagnie Generale D’Affacturage CGA - France - 139,240 - - - 139,240
Societe Generale Bank & Trust - Luxembourg - 245 - - - 245
Societe Generale Banka Montenegro a.d. - - - 444 - 444
Societe Generale New York - 78,311 - - - 78,311 Societe Generale Osiguranje a.d.o. - 354,555 - 427,706 149,649 931,910
Societe Generale Paris 16,693 148,484 - 30,872 - 196,049 Credit Du Nord - France - - - 9 - 9 Bank management - - 63,357 14 - 63,371 As of December 31st 16,693 814,590 63,357 459,785 149,649 1,504,074
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
65
F INANCIAL STATEMENT NOTES 32. RELATIONS WITH RELATED PARTIES (continued) Liabilities 2017
RSD 000
Financial liabilities at fair value
through income statement held
for trading
Deposits and other liabilities to
banks, other financial
organizations and the central bank
Deposits and other liabilities to
customers
Provisions for losses on off-balance sheet
assets
Other provisions
Subordinated liabilities
Other liabilities Total
ALD Automotive doo Beograd - - 4,724 4 - - 6,366 11,094 BRD - Groupe Societe Generale - - - 15,694 - - - 15,694 Komercni Banka A.S - - - 781 - - 4,217 4,998 Ohridska Banka - - - 893 - - 6 899 SKB Banka - Slovenia - 3,898 - 326 - - - 4,224 SG Factoring Spa Italy - - - - - - 93 93 CGA-Compagnie Generale D' Affacturage Branch Germany - - - - - - 156 156
Compagnie Generale D’Affacturage CGA - France - - - - - - 6,148 6,148
Societe Generale Global Solution Centre India - - - - - - 2,700 2,700
Societe Generale Banka Montenegro a.d. - - - 2,037 - - - 2,037
Societe Generale Osiguranje a.d.o. - 647,001 - - - - 209 647,210
Societe Generale Paris 27,336 36,234,955 - 3,084 - 8,889,583 648,650 45,803,608 Societe Generale S.A. Frankfurt - - - 682 - - - 682 Societe Generale De Banque Au Liban - - - 17,962 - - - 17,962
Genebanque - 8 - - - - - 8 Societe Generale China Limited - - - 12,474 - - - 12,474 Bank management - - 162,546 38 3,471 - 53,924 219,979 As of December 31st 27,336 36,885,862 167,270 53,975 3,471 8,889,583 722,469 46,749,966
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
66
FINANCIAL STATEMENT NOTES 32. RELATIONS WITH RELATED PARTIES (continued) Income 2017
RSD 000
Interest income
Income from fees and
commissions
Other operating
income Total
Societe Generale Osiguranje a.d.o. 4,755 129,980 9,888 144,623 Societe Generale Paris 5,202 211,788 50,841 267,831 Societe Generale Splitska Banka - 69 - 69 Societe Generale New York 14 10 - 24 SKB Banka - Slovenia - 165 - 165 SG Express Bank - Bulgaria - 1 - 1 ALD Automotive doo Beograd 1,299 3,525 365 5,189 Societe Generale Banka Montenegro a.d. - 513 - 513 Ohridska Banka - 39 - 39 Komercni Banka A.S - 16 - 16 Credit Du Nord - France - 33 - 33 Societe Generale Bank & Trust - Luxembourg - 24 - 24 Bank management 1,019 79 - 1,098 Balance at 31st December 12,289 346,242 61,094 419,625 Expenses 2017
RSD 000
Interest expense
Fees and commission
expenses
Other expenses
Wages (gross)
Net loss on financial
assets held for trading
Total
Societe Generale Osiguranje a.d.o. 7,196 - 47,220 - - 54,416 Société Générale International Mobility Management SA (SGI2M) - - 8,761 - - 8,761
Societe Generale Paris 826,013 337,295 174,365 - 26,369 1,364,052 Societe Generale New York - 6,157 - - - 6,157 Societe Generale Bank & Trust - Luxembourg - 1,007 - - - 1,007
BRD - Groupe Societe Generale - 914 - - - 914 ALD Automotive doo Beograd - - 52,917 - - 52,917 Ohridska Banka - 33 - - - 33 Societe Generale Global Solution Centre India - - 2,118 - - 2,118
Komercni Banka A.S - - 4,324 - - 4,324 Compagnie Generale D’Affacturage CGA - France - 2,101 - - - 2,101
Societe Generale Securities Services Spa - Italy - 687 - - - 687
CGA-Compagnie Generale D' Affacturage Branch Germany - 528 - - - 528
Bank management 574 2 - 253,660 - 254,236 As of December 31st 833,783 348,724 289,705 253,660 26,369 1,752,241
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
67
FINANCIAL STATEMENT NOTES 32. RELATIONS WITH RELATED PARTIES (continued)
Assets: Off Balance Sheet Items 2017
RSD 000
Issued guarantees and other sureties
Taken callable
liabilities Derivatives
Other off balance assets
Total
ALD Automotive doo Beograd - - - 1,500 1,500 BRD - Groupe Societe Generale 724,607 - - - 724,607 Komercni Banka A.S 36,060 - - - 36,060 Ohridska Banka 41,228 - - - 41,228 SKB Banka - Slovenia 15,038 - - - 15,038 Societe Generale Banka Montenegro a.d. 94,067 - - - 94,067
Societe Generale Paris 355,334 - 23,892,954 1,910,366 26,158,654 Societe Generale S.A. Frankfurt 31,508 - - - 31,508 Sogelease Srbija doo Beograd - - - 420,853 420,853 Societe Generale De Banque Au Liban 829,309 - - - 829,309 Societe Generale China Limited 575,920 - - - 575,920 Bank management - 7,358 - - 7,358 As of December 31st 2,703,071 7,358 23,892,954 2,332,719 28,936,102 Liabilities : Off Balance Sheet Items 2017
RSD 000
Liabilities for derivatives
Received guarantees
Other off balance sheets
assets Total
SKB Banka – Slovenia - 15,038 - 15,038 BRD - Groupe Societe Generale - 724,679 - 724,679 Komercni Banka A.S - 53,830 - 53,830 Ohridska Banka - 70,847 - 70,847 Societe Generale Banka Montenegro a.d. - 105,915 - 105,915 Societe Generale Paris 23,892,954 1,126,512 545,755 25,565,221 Societe Generale S.A. Frankfurt - 31,508 - 31,508 Societe Generale De Banque Au Liban - 829,309 - 829,309 Societe Generale China Limited - 575,920 - 575,920 As of December 31st 23,892,954 3,533,558 545,755 27,972,267
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
68
FINANCIAL STATEMENT NOTES 32. RELATIONS WITH RELATED PARTIES (continued) ASSETS-BALANCE SHEET ITEMS 2016
RSD 000
Financial assets, initially
recognized at fair value through income
statement intended for
trading
Loans and receivables to
banks and other financial
institutions
Loans and receivables
to other customers
Other assets
Stake in equity Total
ALD Automotive doo Beograd - - - 32 - 32 BRD - Groupe Societe Generale - 3,874 - - - 3,874 Ohridska Banka - - - 33 - 33 SKB Banka - Slovenia - - - 6 - 6 Societe Generale Securities Services
- 17,759 - - - 17,759
Compagnie Generale D'Affacturage CGA - France
- 20,941 - 184 - 21,125
Societe Generale Banka Montenegro a.d.
- - - 986 - 986
Societe Generale New York - 2,108,510 - - - 2,108,510
Societe Generale Osiguranje a.d.o. - 58 - 253,010 149,649 402,717 Societe Generale Paris 1,349 395,880 - 6,666 - 403,895 Bank Management - - 63,149 - - 63,149 As of December 31st 1,349 2,547,022 63,149 260,917 149,649 3,022,086
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
69
FINANCIAL STATEMENT NOTES 32. RELATIONS WITH RELATED PARTIES (continued)
LIABILITIES BALANCE SHEET ITEMS 2016.
RSD 000
Financial liabilities at
fair value through income
statement intended
for trading
Deposits and other liabilities to banks, other
financial organizations
and the central bank
Deposits and other
liabilities to customers
Provisions for losses on
off -balance
sheet assets
Other provisions
Subordinated liabilities
Other liabilities Total
ALD Automotive doo Beograd - - 12,652 250 - - 103 13,005
BRD - Groupe Societe Generale - - - 293 - - 21 314
Komercni Banka A.S - - - 498 - - 1,546 2,044
Ohridska Banka - - - 51 - - 5 56
SKB Banka - Slovenia - 3,513 - 246 - - - 3,759
Societe Generale Securities Services Spa - Italy - - - - - - 46 46
CGA-Compagnie Generale D' Affacturage Branch Germany - - - - - - 18 18
Compagnie Generale D'Affacturage CGA - France - 617 - - - - 4,511 5,128
Rosbank - Russia - - - 1,203 - - - 1,203
Société Générale International Mobility Management SA (SGI2M)
- - - - - - 971 971
Societe Generale Global Solution Centre India - - - - - - 2,985 2,985
Societe Generale Banka Montenegro a.d. - 250 - 6,559 - - - 6,809
Societe Generale New York - 131 - 24 - - - 155
Societe Generale Osiguranje a.d.o. - 535,189 - - - - 1,771 536,960
Societe Generale Paris 12,568 11,328,988 - 3,556 - 9,264,383 451,737 21,061,232
Societe Generale Poland - - - 49 - - - 49 Societe Generale Splitska Banka - 8,946 - - - - - 8,946
Bank Management - - 139,241 5 2,260 - 35,807 177,313
As of December 31st 12,568 11,877,634 151,893 12,734 2,260 9,264,383 499,521 21,820,993
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
70
FINANCIAL STATEMENT NOTES 32. RELATIONS WITH RELATED PARTIES (continued)
Income 2016
RSD 000
Interest income
Income from fees and
commissions
Other operating
income Total
ALD Automotive doo Beograd 336 3,616 6,700 10,652 Ohridska Banka -
- 108 108
SKB Banka - Slovenia - 131 - 131 Societe Generale Banka Montenegro a.d.
1 6,472 6,473
Societe Generale Osiguranje a.d.o. 891 107,569 5,283 113,743 Societe Generale Paris 1,790 120,343 13,982 136,115 Societe Generale Splitska Banka -
355 - 355
Bank Management 7,508 142 - 7,650
As of December 31st 10,525 232,157 32,545 275,227
Expense 2016
RSD 000 Interest expense
Fees and commission
expenses Other
expenses Wages (gross)
Net loss on
financial assets
held for trading Total
ALD Automotive doo Beograd - - 51,795 - - 51,795 BRD - Groupe Societe Generale - 91 - - - 91 Komercni Banka A.S - - 1,707 - - 1,707 Societe Generale Securities Services Spa - Italy - 332 - - - 332 CGA-Compagnie Generale D' Affacturage Branch Germany - 235 - - - 235 Compagnie Generale D'Affacturage CGA - France - 1,521 - - - 1,521 Societe Generale New York 40 5,504 - - - 5,544 Societe Generale Bank & Trust - Luxembourg - 65 - - - 65 Societe Generale Global Solution Centre India - - 3,596 - - 3,596 Societe Generale Osiguranje a.d.o. 9,542 - 20,448 - - 29,990 Societe Generale Paris 826,516 248,467 241,105 - 12,451 1,328,539 Societe Generale Splitska Banka - 288 - - - 288 Bank Management 1,551 1 72 235,633 - 237,257 As of December 31st 837,649 256,504 318,723 235,633 12,451 1,660,960
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
71
FINANCIAL STATEMENT NOTES 32. RELATIONS WITH RELATED PARTIES (continued)
ASSETS OFF BALANCE SHEET ITEMS 2016
RSD 000
Issued guarantees and other sureties Derivatives
Taken callable
liabilities
Other off balance assets Total
ALD Automotive doo Beograd - - 61,500 - 61,500 BRD - Groupe Societe Generale 18,045 - - - 18,045 Komercni Banka A.S 30,686 - - - 30,686 Ohridska Banka 2,378 - - - 2,378 SKB Banka - Slovenia 15,148 - - - 15,148 Rosbank - Russia 74,083 - - - 74,083 Societe Generale Banka Montenegro a.d. 404,001 - - - 404,001 Societe Generale New York 5,927 - - - 5,927 Societe Generale Paris 137,734 764,722 735,716 1,989,196 3,627,368 Societe Generale Poland 3,025 - - - 3,025 Bank Management - - - 6,149 6,149
As of December 31st 691,027 764,722 797,216 1,995,345 4,248,310
LIABILITIES OFF BALANCE SHEET ITEMS 2016
RSD 000 Liabilities for derivatives
Received guarantees
Other off balance
liabilities Total BRD - Groupe Societe Generale -
19,215 -
19,215
Komercni Banka A.S - 30,686 - 30,686 Ohridska Banka - 33,246 - 33,246 SKB Banka - Slovenia - 15,148 - 15,148 Rosbank - Russia - -
74,083 74,083
Societe Generale Banka Montenegro a.d.
404,001
404,001 Societe Generale New York - 5,927 - 5,927 Societe Generale Paris 764,722 620,033 1,989,196 3,373,951 Societe Generale Poland - - 6,704 6,704 Societe Generale Splitska Banka - 12,347 - 12,347
As of December 31st 764,722 1,140,603 2,069,983 3,975,308
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
72
FINANCIAL STATEMENT NOTES 33. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the comparison between book values and fair values of classes of financial instruments:
FINANCIAL ASSETS Book value Fair value Unrecognized
gain/loss Book value Fair value Unrecognized
gain/loss RSD 000 2017 2017 2017 2016 2016 2016
Cash and assets with central bank
30,596,133
30,596,133 - 23,765,145 23,765,145 -
Financial assets at fair value through income statement intended for trading
1,964,099
1,964,099 - 17,088 17,088 -
Financial assets available for sale
37,005,636
37,005,636 - 40,611,993 40,611,993 -
Loans and receivables to banks and other financial institutions
2,222,869
2,222,869 - 6,425,134 6,425,135 1
Loans and receivables to customers
217,272,549
217,436,068
163,519 168,367,109 168,782,835 415,726
FINANCIAL LIABILITIES Book value Fair value Unrecognized
gain/loss Book value Fair value Unrecognized
gain/loss RSD 000 2017 2017 2017 2016 2016 2016
Financial liabilities initially recognized at fair value through income statement intended for trading
42,272
42,272
-
13,118
13,118
-
Deposits and other liabilities towards banks, other financial organizations and central banks
72,431,890
72,431,891
-
45,076,773
45,077,503
730
Deposits and other liabilities to other customers
165,425,303
165,398,390
(26,913)
141,900,016
141,780,262
(119,754)
Subordinated liabilities
8,889,583
8,889,583
-
9,264,383
9,264,338
(45)
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
73
FINANCIAL STATEMENT NOTES 33. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
FINANCIAL ASSETS Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
RSD 000 2017 2016 Cash and assets with central bank 30,596,133 - - 30,596,133 23,765,145 - - 23,765,145 Financial assets at fair value through income statement intended for trading 1,895,169 - 68,930 1,964,099 - - 17,088 17,088 Financial assets available for sale - 37,001,422 4,214 37,005,636 - 40,607,937 4,056 40,611,993 Loans and receivables to banks and other financial institutions - 2,222,869 - 2,222,869 - - 6,425,134 6,425,134 Loans and receivables to customers - - 217,436,068 217,436,068 - - 168,782,835 168,782,835
FINANCIAL LIABILITIES Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
RSD 000 2017 2016 Financial liabilities initially recognized at fair value through income statement intended for trading
-
-
42,272
42,272 - - 13,118 13,118
Deposits and other liabilities towards banks, other financial organizations and central banks -
-
72,431,891
72,431,891 - - 45,077,503 45,077,503
Deposits and other liabilities to other customers
- -
165,398,390 165,398,390 - - 141,780,262 141,780,262
Subordinated liabilities - -
8,889,583 8,889,583 - - 9,264,338 9,264,338
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
74
FINANCIAL STATEMENT NOTES 33. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Assets Recognized at Fair Value
Financial instruments that the Group values and records at fair value are securities available for sale.
Having in mind level of development of market in the Republic of Serbia on one hand, and the fact that the securities portfolio available for sale is comprised of Republic of Serbia state bills, the Group estimates the financial instruments’ fair value using the comparative „mark to mark“ approach, using the information on similar financial instruments or other market information based on which a value of the financial instrument can be derived, by comparing interest rates with valid interest rates for similar products on the market-level 1.
Assets and Obligations for which Fair Value is Approximately Equal to the Book Value
For liquid financial assets and financial obligations it is presumed that the book values are approximative to fair value.
Assets and Liabilities for which the Fair Value is determined by Valuation Techniques
Fair value of financial assets and obligations recorded per amortized purchase value is estimated by comparing market interests rate with initial recognition with current market rates currently valid for similar financial instruments. Estimated fair value of the deposit is based on discounted cash flows using overall interest rates on money market for contracts with similar credit risk and due date, meaning that the Level 2 approach is used. For all other financial assets and liabilites which are recorded per amortized value, fair value is deterimined by using mark-to-model apporach, which is not based on market information, but on information derived from theoretical model adequate for determination of fair value of the instrument.
The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments:
Level 1: Market quotations of identical financial instruments (mark-to-market);
Level2: Comparative mark-to-model approach, which uses information on similar financial instruments or other market information based on which can be derived value of the financial instrument; and
Level 3: Mark-to-model approach, which uses information not obtained from the market, but are derived from the theoretical model adequate to determine value of the financial instruments.
The following table shows the fair values of financial instruments available for sale e.g. debt securities issued by the state (T bills/bonds) for which there are no data on market prices and whose fair values were obtained by using the above mentioned techniques of valuation as at 31st December 2017 and 31 December 2016.
FINANCIAL ASSETS Level 1 Level 2 Level 3 RSD 000 2017 2017 2017
Financial assets available for sale 1,895,169 37,001,422 -
FINANCIAL ASSETS Level 1 Level 2 Level 3 RSD 000 2016 2016 2016
Financial instruments available for sale - 40,607,937 -
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
75
FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT
34.1. Introduction
Risk Management Policy
The Group established risk management system which is constantly being improved in order be able to identify, evaluate, measure, hedge, monitor and communicate risks to which it is exposed in its business operations. Through the risk management system the Group defines goals and principles of risk management as well as policies, methodologies and procedures regarding the risk management. Basic principles and rules regarding the risk management strategy, as well as the defining of global principles of the Group in handling risk in long term are defined by the Risk Management Strategy. It also defines concepts and general terms for risk exposure, identification of risk category and risk appetite. On the other hand, by Risk management strategy the Bank defines organization and responsibilities in every phase of the risk taking process, through identification, measurements and analysis of special risk types. Also, the strategy defines control and risk exposure limits.
Organizational Set Up of Risk Management
The structure of risk management is organized in line with the provisions of the Law on Banks and respective decisions of the National Bank of Serbia which define the area of risk management and capital adequacy, as well as the Bank’s Articles of Association. The Board of Directors defines Risk Management Strategy, Capital Management Strategy and Capital Management Plan. Executive Board is responsible for carrying out the risk management policy and strategy and Capital Management Strategy. Executive Board also adopts procedures for identifying, measuring and evaluating risks. It also analyses the efficiency of their implementation and reports to the Board of Directors. In line with the article 28 of the Law on Banks, the Group formed a special organizational part for managing risks – Risk Division.
The main roles in risk management in the Group fall upon the following bodies:
Board of Directors
The responsibility of the Board of Directors regarding the risk is to determine the strategy of risk management of the Group and to supervise risks taken by the Group in its activities. The Board of Directors is also in charge of giving prior consent for exposures to a single client or a group of related parties exceeding 10% of the Group’s capital, including increase of those exposures to over 20% of the capital. These decisions are based on recommendations of the Risk Division. The Board of Directors defines limits within which the Executive Board can decide on exposures and indebtness of the Group over those limits. Finally, the Board of Directors performs control over the work of Executive Board, appoints and dismisses the members of the Executive Board and other committees of the Bank.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
76
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.1. Introduction (continued) Executive Board Executive Board organizes and monitors daily operations. The main responsibility of the Executive Board, from the risk management prospective, is to determine the policy of risk management and follow the strategy of risk management. In case some activities or risks are not in accordance with the defined policies and principles the Executive Board is obligated to notify the Board of Directors of it. Executive Board analyses risk management system and at least quarterly informs Board of Directors on the level of risk exposure and risk management. When it comes to risk management, the Executive Board regularly follows the portfolio segmentation, and in case of approved limit excess, determines the position to be taken. The Executive Board is also responsible for approving the exposures to clients within the limits determined by the Board of Directors. These decisions are adopted considering the recommendation of Risk Division. Finally, the Executive Board decides and notifies the Board of Directors on each increase of the Bank’s exposures to parties related to the Bank and notifies on this the Board of Directors. Credit Committee The main duty of the Credit Committee is to make decisions on approval of loans and other placements to bank's clients within the frame of the Bank's internal documents and within its limits of authorization. In addition to deciding on the extension of loans to clients, Credit Committee and the Risk Management Division also give an opinion on the introduction of new products generating risk and other general areas that involve risk-taking.
Assets and Liabilities Committee The main role of the Assets and Liabilities Committee (hereinafter: ALCO) is to identify, measure and manage risks which originate from the structure of its balance sheet and off-balance items, and first of all liquidity risk, interest rate risk and currency risk in structural part of the Bank's balance sheet.
Risk Division The obligation of the Risk Division (Hereinafter: Risk) is identification, measurement, evaluation and management of all subtypes of credit risk taken by the Bank in regular business (including underwriting, bad debt collection and portfolio monitoring activities).
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
77
FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued) 34.1. Introduction (continued) Assets and Liabilities Management Department Liquidity is unconditional ability of the Group to secure sufficient liquid funds to timely satisfy all maturing liabilities stemming from the balance sheet liabilities (withdrawal of deposits and other sources of financing), assets (financing new loans) as well as based on off-balance items. Team for operational business within Assets and Liabilities Management Department is responsible for managing of current liquidity. It secures its function through the following activities:
planning of inflow and outflow of funds securing the missing liquidity or placing the surplus of liquidity on financial markets, as well as the
maintenance of appropriate currency and time deposit structure for the settlement of due obligations in time; securing adequate liquidity buffer by investing in portfolio of primarily rated securities issued by Republic of
Serbia or NBS analysis of structure and quality of deposits and evaluation of its stability, determination, measurement and monitoring of daily liquidity ratio
Internal Audit Through carrying out periodic planned audits and special engagements, the function of Internal Audit evaluates the adequacy and reliability of the system of Group’s internal controls and the Group’s compliance function. Internal Audit communicates the output of its work to the Bank’s management securing thus that the risks are appropriately identified and controlled. Internal audit regularly prepares reports on its activities and delivers them to Board of Directors and Audit Board. 34.2. Credit Risk Credit risk is the risk that the Group will suffer a loss because its clients or the contractual parties will not be able to fully or partially settle their due payment obligations to the Group in a timely manner, and arises largely from loans and advances to clients and banks and investment securities. For the purpose of reporting on risk management, the Group considers and consolidates all the elements of credit risk exposure (non-compliance of an individual debtor, activity risk, repayment risk, etc.).
i. Credit Risk Management The Group manages the credit risk by granting loans in accordance with its business policy having adjusted loan maturity dates and interest rates with the loan purpose, loan type or the client and client’s creditworthiness. Applying the internal procedures, in accordance with its business policy, the Bank seeks to ensure its financial investments with adequate collaterals.
The Executive Board has, by its decision, decentralized powers and limits for decisions on granting loans, having maintained the risk standards at the adequate level. For the purpose of homogenization of risk evaluation and facilitated and adequate monitoring of obligations, the Group uses the risk ratings for its clients – legal entities.
Loans are granted only when the Group has sufficient information on the creditworthiness of the client. Collaterals will be accepted in terms of reducing the credit risk exposure.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
78
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued) ii. Impairment and Provisioning Policy Objective evidence of impairment includes the events that condition measurable impairment of the estimated future cash flows. Objective evidence includes: Significant deterioration in financial position of a debtor or a group of debtors, Delay in settling commitments, Bankruptcy or another form of debtor’s reorganization that jeopardizes timely and complete settlement of
commitments and The new circumstances occur relating to financial difficulties of the client due to which the Bank significantly
amended conditions of placements in compare to those ones which were granted initially and which will be valid during existence of circumstances which causes the said financial difficulties.
Similar events that indicate the occurrence of measurable reduction in the expected future cash flows. The Group performs individual assessment of impairment for individually significant exposures or groups of exposures. The amount of loss shall be determined as a difference between the book value and present value of future cash flows from the client. The calculated amount of balance sheet assets impairment shall be recorded by the Group’s accounting as expenses, credited to account of provisions for such assets, while the calculated amount of the probable loss based on off-balance sheet items shall be recorded as expenses, credited to account of provisions for losses per off-balance sheet items. Collective evaluation of impairment shall be performed for exposures not belonging to the group of individually significant exposures. For the purpose of collective evaluation, the investments shall be grouped in groups homogenous in terms of credit risk, according to the type of product i.e. the level of sensitivity in accordance with the internal Bank methodology, consistent with the methodology of Societe Generale Group. Future cash flows for homogenous groups of investments shall be determined based on the available historical data on losses arising from investments with similar characteristics in terms of credit risk. The evaluation process shall include currently available data for the purpose of eliminating the effects that were ongoing in the previous period, and have ceased to be, as well for the purpose of including the effects that are significant nowadays, but had no significance in the previous period. While evaluating the future cash flows, the flows that shall obliviously occur by realization of collaterals are also taken into account, reduced by the costs of realization.
iii. The System of Ranking (Rating) the Clients Rating system of the Societe Generale Group is based on the qualitative analysis and may be used both for clients and transactions. The scale has 10 levels and 22 sub-levels with seven classes, 19 of which denote “in bonis” clients and 3 problem clients. This rating scale covers the business activities in all sectors except for financial sector, where the special model is used. The rating depends on the client’s quality and enables the rating of all lines of a certain loan subject to be in accordance with the rating of a client himself and the transactions structure. Revisions of clients’ ratings are performed at least once a year, on occasion of issuing financial statements, or during the course of the year in case an extraordinary event changes the client’s risk profile (it is essential as an element of risk control and therefore must be evaluated independently of “the event” related to the loan subject).
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
79
FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued) iii. The System of Ranking (Rating) the Clients The debtor rating scale has been graded per probability of default. Debtor rating makes it possible to determine the probability of default of another contractual party within the period of one year. The Rating Scale of Societe Generale Group
SG Group Debtor Rating Moody`s S & P Fitch IBCA
1 Aaa AAA AAA
2+ Aa1 AA+ AA+
2 Aa2 AA AA
2- Aa3 AA- AA-
3+ A1 A+ A+
3 A2 A A
3- A3 A- A-
4+ Baa1 BBB+ BBB+
4 Baa2 BBB BBB
4- Baa3 BBB- BBB-
5+ Ba1 BB+ BB+
5 Ba2 BB BB
5- Ba3 BB- BB-
6+ B1 B+ B+
6 B2 B B
6- B3 B B
7+ Caa1 CCC+ CCC+
7 Caa2 CCC CCC
7- Caa3 CCC- CCC-
8 Ca DDD
9 C D DD
10
D
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
80
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.2. Credit Risk (continued) The maximum exposure to credit risk is shown in the following table:
31.Dec.17 31.Dec.16
RSD 000
Maximum Balance Sheet
Exposure to Credit Risk
Allowance for Impairment
of which Portfolio
based Allowance
Net Exposure to Credit Risk
Maximum Balance Sheet
Exposure to Credit Risk
Allowance for Impairment
of which Portfolio
based Allowance
Net Exposure to Credit Risk
Loans and receivables from banks and other financial organizations 2,260,001 (37,132) (37,132) 2,222,869 6,499,302 (74,168) (74,168) 6,425,134 Loans and receivables from customers 238,081,942 (20,809,393) (1,449,007) 217,272,549 193,986,507 (25,619,398) (1,145,432) 168,367,109
Financial assets available for sale 37,005,734 (98) (98) 37,005,636 40,612,118 (125) - 40,611,993
Financial assets at fair value through income statement held for trading 1,964,099 - - 1,964,099 17,088 - - 17,088 Investments in associates and joint ventures 242,701 - - 242,701 245,786 - - 245,786
Total 279,554,477 (20,846,623) (1,486,237) 258,707,854 241,360,801 (25,693,691) (1,219,600) 215,667,110
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
81
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.2 Credit Risk (continued)
31.Dec.17 31.Dec.16
RSD 000
Maximum Off-Balance
Sheet Exposure to Credit Risk
Allowance for Impairment
of which Portfolio
based Allowance
Net Off- BalanceExposure to
Credit Risk
Maximum Off-Balance
Sheet Exposure to Credit Risk
Allowance for Impairment
of which Portfolio based
Allowance
Net Off- BalanceExposure to
Credit Risk
Payable Guarantees 13,601,618 (123,342) (122,549) 13,478,277 14,071,911 (131,939) (131,939) 13,939,972
Performance Guarantees 25,352,768 (289,215) (272,638) 25,063,553 17,654,764 (208,058) (171,892) 17,446,706 Non-Covered Letters of Credit and Avals 1,230,355 (8,467) (8,467) 1,221,887 2,221,049 (20,902) (20,902) 2,200,147
Irrevocable Commitments 2,568,087 (31,107) (31,107) 2,536,980 4,298,609 (41,532) (41,532) 4,257,077
Derivatives 28,861,271 - - 28,861,271 1,845,627 - - 1,845,627
Total 71,614,099 (452,131) (434,761) 71,161,968 40,091,960 (402,431) (366,265) 39,689,529 iv. Other Risks Related to Credit Risk
The Group issues guarantees and letters of credit to its clients, based on which the Group has a contingent liabilities to effect payments on behalf of third parties. In this way the Bank is exposed to risks related to credit risk, which can be overcome by the same control processes and procedures.
v. Maximum Exposure to Credit Risk related to Balance and Off-Balance Exposures
Maximum exposure to credit risk of the Group as of December 31, 2017 and December 31, 2016, prior to taking into account the collaterals and other means of protection against credit risk, may be analyzed through the following geographic areas based on the residency status for individuals and for the legal entities for balance sheet exposures:
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
82
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued) v. Maximum Exposure to Credit Risk related to Balance and Off-Balance Exposures (continued)
31. December 2017
RSD 000
Loans and receivables from banks and other
financial organizations
Loans and receivables from customers
Financial assets available for sale
Financial assets at fair value through income
statement held for trading
Investments in associates and joint
ventures
Serbia 401,700 209,161,581 37,005,734 1,964,099 242,701 European Union 927,135 23,589,706 - - - Of which France 290,587 2,458,069 - - - Rest of Europe 225,939 3,956,322 - - - Rest of World 705,227 1,374,333 - - - Total 2,260,001 238,081,942 37,005,734 1,964,099 242,701
31. December 2016
RSD 000
Loans and receivables from banks and other
financial organizations
Loans and receivables from customers
Financial assets available for sale
Financial assets at fair value through income
statement held for trading
Investments in associates and joint
ventures
Serbia 33,714 193,482,343 40,612,118 17,088 245,786 European Union 1,429,711 426,993 - - - Of which France 423,545 9,208 - - - Rest of Europe 39,109 48,128 - - - Rest of World 4,996,769 29,043 - - - Total 6,499,303 193,986,507 40,612,118 17,088 245,786
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
83
FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued) v. Maximum Exposure to Credit Risk related to Balance and Off-Balance Exposures (continued)
Maximum exposure to credit risk of the Group as of December 31, 2017 and December 31, 2016, prior to taking into account the collaterals and other means of protection against credit risk, may be analyzed through the following geographic areas based on the residency status for individuals and for the legal entities for off-balance sheet exposures:
31. December 2017.
RSD 000 Payable
Guarantees Performance Guarantees
Non-Covered Letters of Credit
and Avals Irrevocable
commitments Derivatives Serbia 10,165,534 13,160,693 1,058,763 1,908,027 1,188,726 European Union 3,213,222 8,075,751 115,517 660,060 26,569,384 Of which France 323,639 1,086,509 - 14,235 25,537,239 Rest of Europe 194,913 2,383,261 - - 1,043,156 Rest of the World 27,949 1,733,063 56,075 - 60,005 Total 13,601,618 25,352,768 1,230,355 2,568,087
28,861,271
31. December 2016.
RSD 000 Payable
Guarantees Performance Guarantees
Non-Covered Letters of Credit
and Avals Irrevocable
commitments Derivatives Serbia 13,478,458 15,428,360 2,221,049 4,298,609 1,845,627 European Union 109,195 1,880,287 - - - Of which France 77,817 61,769 - - - Rest of Europe 484,258 346,117 - - - Total 14,071,911 17,654,764 2,221,049 4,298,609 1,845,627
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
84
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued) vi. Coverage with Collaterals For most of its exposures approved to clients (except for banks) the Group requires the collaterals.
Amount and the type of the required collateral depend on assessed level of credit risk for each client as well as the characteristics and the maturity for related exposure.
Assessment of the fair value of the collateral is based on the on the value of the collateral is based on the market value of the collateral instrument which is assessed at the moment of exposure origination. In line with the Bank’s policy the fair value is being reassessed within the defined deadlines.
The Group uses following collaterals for the purpose of calculating provisions and net present values of cash flows from clients where the bank expects collection from collaterals and where provisions are individually assessed:
Prime collaterals include: - Cash deposits in dinars of foreign currency - Guarantees and other forms of collaterals from prime banks - Guarantees and other forms of collaterals from sovereigns
Adequate collaterals include:
- Mortgages on residential real-estate - Mortgages on commercial real-estate
Management of the Group monitors market value of collaterals and seeks additional means of securities in line with the contracts. Additionally, the management takes into consideration market value of collaterals in the course of reexamining adequacy of provisions for impairment.
The following table indicates coverage with collaterals as of December 31st, 2017 and December 31st, 2016 in such a manner that prime and adequate instruments are collaterals are additionally segmented to categories of cash deposits and guarantees of banks and sovereigns and residential and commercial mortgages.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
85
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued)
as of 31. December 2017 Balance Sheet Assets RSD 000 Secured by
Prime Collaterals
Of which Secured by
Cash Collateral
Of which Secured by
Guarantees of Banks or
Sovereigns
Secured by Adequate Collaterals
Of which Secured by Residential Real-Estate
Of which Secured by Commercial Real-Estate
Loans and receivables from customers – Individuals
155,423 155,423 - 30,690,254 30,072,820 617,434
Of which: - - - - - -
Consumer Loans 28,088 28,088 - 23,245 2,295 20,950
Working Capital Loans 115,219 115,219 - 193,207 63,952 129,255
Investment Loans 10,770 10,770 - 805,889 394,694 411,195
Housing Loans - - - 29,667,913 29,611,879 56,034
Other Balance Sheet Exposures 1,346 1,346 - - - - Loans and receivables from customers – Legal entities
14,058,399 9,024,724 5,033,675 35,946,765 4,242,705 31,704,060
Of which: - - - - - -
Working Capital Loans 13,434,172 8,869,606 4,564,566 33,292,441 3,562,008 29,730,433
Investment Loans 623,755 154,646 469,109 2,512,792 668,626 1,844,166
Other Balance Sheet Exposures 472 472 - 141,532 12,071 129,461
Total 14,213,822 9,180,147 5,033,675 66,637,019 34,315,525 32,321,494
as of 31. December 2016 Balance Sheet Assets
RSD 000
Secured by Prime
Collaterals
Of which Secured by
Cash Collateral
Of which Secured by
Guarantees of Banks or
Sovereigns
Secured by Adequate Collaterals
Of which Secured by Residential Real-Estate
Of which Secured by Commercial Real-Estate
Loans and receivables from customers – Individuals
77,860 77,860 - 23,031,885 22,639,495 392,390
Of which:
Consumer Loans 5,072 5,072 - 1,020 1,020 -
Working Capital Loans 70,260 70,260 - 231,493 91,616 139,877
Investment Loans 522 522 - 425,908 224,670 201,239
Housing Loans 2,004 2,004 - 22,373,464 22,322,189 51,274
Other Balance Sheet Exposures 2 2 - - - - Loans and receivables from customers – Legal entities
6,973,625 2,882,613 4,091,013 21,803,510 3,455,141 18,356,975
Of which:
Working Capital Loans 5,967,217 2,855,596 3,111,623 20,634,152 3,151,858 17,482,295
Investment Loans 1,006,408 27,017 979,390 1,107,431 272,319 843,716
Other Balance Sheet Exposures - - - 61,927 30,964 30,964
Total 7,051,485 2,960,473 4,091,013 44,835,395 26,094,636 18,749,365
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
86
FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued)
as of 31.. December 2017 Off-Balance Assets
RSD 000
Secured by Prime
Collaterals
Of which Secured by Cash
Collateral
Of which Secured by
Guarantees of Banks or
Sovereigns
Secured by Adequate Collaterals
Of which Secured by
Residential Real-Estate
Of which Secured by Commercial Real-Estate
Individuals 52,395 52,395 - 12,596 2,488 10,108 Of which: - - - - - - Payable guarantees 52,069 52,069 - 12,596 2,488 10,108 Performance Guarantees 326 326 - - - - Legal entities 6,680,195 2,859,157 3,821,038 3,088,575 283,774 2,804,801 Of which: - - - - - - Payable and performance guarantees., non-covered letters of credit and avals 6,643,217 2,859,075 3,784,141 3,075,925 271,124 2,804,801 Irrevocable commitments 36,978 82 36,897 12,650 12,650 - Total 6,732,590 2,911,552 3,821,038 3,101,171 286,262 2,814,909 as of 31. December 2016 Off-balance Assets
RSD 000
Secured by Prime
Collaterals
Of which Secured by Cash
Collateral
Of which Secured by
Guarantees of Banks or
Sovereigns
Secured by Adequate Collaterals
Of which Secured by
Residential Real-Estate
Of which Secured by Commercial Real-Estate
Individuels 27,617 26,999 617 3,087 3,087 - Of which: - - - - - - Payable guarantees 27,617 26,999 617 3,087 3,087 -
Legal entities 3,781,640 1,364,402 2,417,239 3,570,052 349,697
3,220,355 Of which: - - - - - - Payable and performance guarantees, non-covered letters of credit and avals 3,767,217 1,349,979 2,417,239 3,539,516 342,047 3,197,469 Irrevocable commitments 14,423 14,423 - 30,536 7,650 22,886
Total 3,809,257 1,391,401 2,417,856 3,573,139 352,784
3,220,355
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
87
FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued)
34.2. Credit Risk (continued)
vii. Concentration Risk
Analysis of Group’s exposure by industrial sectors, before taking into consideration means of collateral and other risk mitigatigants as of December 31st, 2017 and December 31st, 2016 is shown in the following table:
31.12.2017. 31.12.2016.
RSD 000 Gross Maximum
Exposure Net Maximum
Exposure* Gross Maximum
Exposure Net Maximum
Exposure* Individuals 111,119,993 61,581,347 82,557,306 59,447,562
Mining and quarrying and manufacturing industry 39,625,984 27,637,771 44,920,918 30,630,193
Trade 36,058,632 29,370,779 45,615,023 38,437,765 Agriculture, hunting, fishing and forestry 7,602,336 5,549,286 7,657,884 5,473,497
Construction 6,738,928 4,167,423 11,190,342 9,385,779 Transport, storage and communication, electricity, hotels and restaurants
15,199,661 14,531,396 16,455,039 13,249,200
Activities related to real estate, renting and business activities, other community, social and personal service activities
15,514,230 13,559,410 5,687,904 4,589,251
Other 47,694,641 46,682,871 67,368,344 53,921,363 Total 279,554,405 203,080,283 281,452,760 215,134,610
*Collaterals taken into consideration are cash collaterals, bank guarantees, and guarantees from sovereigns and mortgages which fully cover the amount of the receivable.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
88
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued) viii. Portfolio Quality The Group manages the quality of financial assets by using internal classification of exposures. The following indicates portfolio quality per types of exposures, based on Bank’s system of asset quality classification as of December 31st, 2017 and December 31st, 2016:
Balance sheet 31st December 2017
RSD 000
Undue and Unimpaired Due
Total Quality Level Allowance
for impairment
Net Exposure
Due and unimpaired Impaired
Allowance for
impairment Net
Exposure High Quality Standard Quality
Substandard Quality
Total Gross Exposure
Allowance for
impairment Total Net Exposure
Loans and receivables from banks and other financial organizations 2,232,427 - - (37,026) 2,195,401 27,574 - (106) 27,468 2,260,001 (37,132) 2,222,869
Loans and receivables from customers 149,220,376 48,695,976 7,104,146 (1,409,223) 203,611,275 8,855,156 24,206,288 (19,400,170) 13,661,275 238,081,942 (20,809,393) 217,272,549
Financial assets available for sale 37,005,734 - - (98) 37,005,636 - - - - 37,005,734 (98) 37,005,636 Financial assets at fair value through income statement held for trading 1,964,099 - - - 1,964,099 - - - - 1,964,099 - 1,964,099
Investments in associates and joint ventures 242,701 - - - 242,701 - - - - 242,701 - 242,701
Total 190,665,337 48,695,976 7,104,146 (1,446,347) 245,019,112 8,882,730 24,206,288 (19,400,276) 13,688,743 279,554,477 (20,846,623) 258,707,854
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
89
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued)
Off balance sheet 31st December 2017
RSD 000
Undue and Unimpaired Due
Total Quality Level
Allowance for
impairment Net
Exposure Due and
unimpaired Impaired
Allowance for
impairment Net
Exposure High
Quality Standard Quality
Substandard Quality
Total Gross Exposure
Allowance for
impairment Total Net Exposure
Payable Guarantees 4,576,595 8,641,964 334,095 (122,301) 13,430,353 48,172 793 (1,040) 47,925 13,601,618 (123,342) 13,478,276
Performance Guarantees 9,885,518 14,313,776 983,254 (272,428) 24,910,120 74,300 95,919 (16,787) 153,432 25,352,768 (289,215) 25,063,553
Non-Covered Letters of Credit and Avals
651,807 564,587 - (8,307) 1,208,087 13,961 - (161) 13,800 1,230,355 (8,467) 1,221,888
Irrevocable Commitments 796,619 954,444 816,928 (31,107) 2,536,884 96 - - 96 2,568,087 (31,107) 2,536,980
Derivatives - 28,861,271 - - 28,861,271 - - - - 28,861,271 - 28,861,271
Total 15,910,539 53,336,042 2,134,277 (434,143) 70,946,715 136,529 96,712 (17,988) 215,253 71,614,099 (452,131) 71,161,968
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
90
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued)
Balance sheet 31.12.2016.
RSD 000
Undue and Unimpaired Due Total
Quality Level
Allowance for
impairment Net Exposure
Due and unimpaire
d Impaired
Allowance for
impairment
Net Exposure High Quality Standard
Quality Substandard
Quality Total Gross Exposure
Allowance for impairment
Total Net Exposure
Loans and receivables from banks and other financial organizations
6,498,350 - - (74,164) 6,424,186 952 - (4) 948 6,499,302 (74,168) 6,425,134
Loans and receivables from customers
110,858,981 36,490,664 6,996,806 (1,104,493) 153,241,957 7,751,733 31,888,323 (24,514,905) 15,125,151 193,986,507 (25,619,398) 168,367,109
Financial assets available for sale
40,612,118 - - (125) 40,611,993 - - - - 40,612,118 (125) 40,611,993
Financial assets at fair value through income
17,088 - - - 17,088 - - - - 17,088 - 17,088
Investments in associates and joint
245,786 - - - 245,786 - - - - 245,786 - 245,786
Total 158,232,323 36,490,664 6,996,806 (1,178,782) 200,541,010 7,752,685 31,888,323 (24,514,909) 15,126,099 241,360,801 (25,693,691) 215,667,110
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
91
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued)
Off balance sheet 31.12.2016.
RSD 000
Undue and Unimpaired Due Total
Quality Level
Allowance for impairment Net Exposure Due and
unimpaired Impaired
Allowance for
impairment
Net Exposur
e High Quality Standard Quality Substandard Quality
Total Gross Exposure
Allowance for
impairment
Total Net Exposure
Payable Guarantees 5,625,775 7,731,073 695,508 (131,939) 13,920,417 19,554 - - 19,554 14,071,911 (131,939) 13,939,972
Performance Guarantees
8,195,714 7,878,830 1,429,510 (171,892) 17,332,162 26,284 124,426 (36,167) 114,544 17,654,764 (208,059) 17,446,706
Non-Covered Letters of Credit and Avals
639,856 1,581,193 - (20,902) 2,200,147 - - - - 2,221,049 (20,902) 2,200,147
Irrevocable Commitments
1,724,881 2,003,799 569,928 (41,532) 4,257,076 - - - - 4,298,609 (41,532) 4,257,077
Derivatives 1,845,627 - - - 1,845,627 - - - - 1,845,627 - 1,845,627
Total 18,031,853 19,194,895 2,694,946 (366,265) 39,555,429 45,838 124,426 (36,167) 134,098 40,091,960 (402,432) 39,689,528
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
92
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.2. Credit Risk (continued) viii. Portfolio Quality (continued) Classification of the undue and unimpaired financial assets (high, standard and sub-standard level of quality) is in accordance with the Internal rating model of the Bank. Undue and unimpaired financial assets include exposure towards the clients which are not in delay with settling their obligations and have not been individually impaired. Due and unimpaired financial assets include exposure towards the clients who are in delay at least one day with settling their obligations, but are not individually impaired. Impaired financial assets include exposures for which the Bank created individual allowances for impairment in line with its assessment of the recovery and collectability of those assets. This overview uses the following division of the exposures:
• High quality exposures are those exposures without current delay in payments with the following internal ratings assigned:
o 1, 2+, 2, 2-, 3+, 3, 3-, 4+, 4, 4-, 5+, 5 i 5- • Standard quality exposures are those exposures without current delay in payments with the following internal
ratings assigned: o 6+, 6 i 6-
• Substandard quality exposures are those exposures without current delay in payments with the following internal ratings assigned:
o 7+, 7, 7-, o 8, 9 and 10 for clients and their obligations which have not been individually impaired
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
93
FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued)
34.2. Credit Risk (continued) viii. Portfolio Quality (continued)
Delay structure of due but unimpaired portfolio as of December 31st, 2017 and December 31st, 2016 is shown below:
31.12.2017.
RSD 000 1 to 30 days 31 to 60 days 61 to 90 days Over 90 days Total
Loans and receivables form banks and other financial organizations 27,574 - - - 27,574
Loans and receivables from customers 6,272,927 1,868,966 549,942 163,321 8,855,156
Payable Guarantees 48,172 - - - 48,172
Performance Guarantees 74,300 - - - 74,300
Non-Covered Letters of Credit and Avals 13,961 - - - 13,961
Irrevocable Commitments 96 - - - 96
Total 6,437,030 1,868,966 549,942 163,321 9,019,259
31.12.2016.
RSD 000 1 to 30 days 31 to 60 days 61 to 90 days Over 90 days Total
Loans and receivables from banks and other financial organizations
1,480 952 - - 2,432
Loans and receivables from customers 5,658,420 1,056,404 395,312 641,598 7,751,734
Payable Guarantees 13,114 6,440 - - 19,554
Performance Guarantees 26,284 - - - 26,284
Non-Covered Letters of Credit - - - - -
Irrevocable Commitments - - - - -
Total 5,699,298 1,063,796 395,312 641,598 7,800,004
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
94
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.2. Credit Risk (continued)
viii. Portfolio Quality (continued) The following table shows due but unimpaired and impaired portfolios which are not covered neither with prime nor adequate collaterals.
31. December 2017 31. December 2016
RSD 000 Due and
Unimpaired Impaired Due and
Unimpaired Impaired Total Exposure 9,019,259 24,303,001 7,798,523 32,012,749
Loans and receivables form banks and other financial organizations 27,574 - 952 -
Loans and receivables from customers 8,855,156 24,206,289 7,751,733 31,888,323 Payable Guarantees 48,172 793 19,554 -
Performance Guarantees 74,300 95,919 26,284 124,426
Non-Covered Letters of Credit 13,961 - - -
Irrevocable Commitments 96 - - -
Of which : Exposure not Covered by collaterals 8,254,782 11,859,565 7,047,918 22,486,585
Loans and receivables form banks and other financial organizations 27,574 - - -
Loans and receivables from customers 8,102,276 11,849,577 7,038,540 22,472,597
Payable Guarantees 44,875 - 9,378 -
Performance Guarantees 66,000 9,988 - 13,988
Non-Covered Letters of Credit 13,961 - - -
Irrevocable Commitments 96 - - -
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
95
FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued)
34.2. Credit Risk (continued) ix. Restructured Exposures
In line with internal methodologies the Bank pays special attention to exposures which were subjects to restructuring due to increased level of credit risk. Under these exposures the bank includes loans and other placements which were subjects to changes to initially agreed contractual terms due to inability of the client to meet its obligations in line with the contractually agreed terms and deadlines, due to business related problems, worsening of the financial indicators, or significant worsening of the credit-worthiness of clients.
Bookkeeping values of restructured exposures are shown in the table below:
Restructured loans and receivables from customers 31. December 2017 31. December 2016
RSD 000 Total Restructured Exposures
Allowance for Impairment Net Exposure Total Restructured
Exposures Allowance for
Impairment Net Exposure
Loans and receivables from customers 8,502,659 (6,430,116) 2,072,543 14,132,012 (7,774,875) 6,357,137
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
96
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.2. Credit Risk (continued) x. Write-Offs The Group write-offs balance sheet exposures when determines inability to collect them. Write-off is performed only after examining all important information on client like changes in financial position which lead to debtor not making any repayments, at the same time without having any prospects for collection from collaterals as all such options were exhausted. The decision to write-off is made on level of each individual client. Data and information in accordance with the Guidelines NBS to publish data and information of the Bank relating to asset quality, the Bank will publish within the required publication defined by the valid decision of the National Bank of Serbia of the Decision on publishing data and information banks.
Starting from 2017 the Bank is also carrying out so called accounting write-off. This practice is based on the decision of the National Bank of Serbia - Decision on the Accounting Write-off of Bank Balance Sheet Assets (RS Official Gazette, No 77/2017) implementing mandatory accounting write-off for bad loans provisioned 100%. Unlike traditional write-off practice which implies debt exception of the client, accounting write-off is transforming balance sheet loan exposures to off-balance evidence of the Bank without stopping of the Banks processes for bad debt collection. 34.3 Liquidity risk and assets management
Liquidity risk is a risk of negative effects to financial results and capital of the Group proceeding from Group inability to fulfill its due obligations without incurring inacceptable losses. The liquidity problem is expressed as a lack of liquid assets for the settlement of all due obligations and coverage of unexpected outflow of deposits and non-deposit liabilities, due to inability to procure or difficulties in procuring new or renewing existing sources of financing at a reasonable market price (liquidity risk of source of financing).
Liquidity risk management plays a key role in cautious and bona fide banking activities. Liquidity management represents a continued process of reviewing needs for liquidity under different operating scenarios, as well as planning under extraordinary circumstances. It is the process of securing and maintaining a satisfactory level of liquid assets on the basis of analysis and consideration of the demand for liquidity, as well as changes in the balance sheet and off-balance sheet structure of the Bank. In order to implement the said activities, the greatest attention will be directed towards analyzing the compliance of inflows and outflows by currency, the stability and level of concentration of deposits and other Bank financing sources, as well as continued analysis of conditions on the financial market which affects the Bank ability to procure liquid assets or sell parts of liquid assets on the market under favorable conditions.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
97
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.3 Liquidity risk and assets management (continued) Liquidity Risk Management Liquidity risk management implies the process of identification, measurement, mitigation and monitoring or liquidity risks on a continuous basis. In order to reduce and/or limit this risk, the Bank shall attempt to:
Continuously monitor and analyze all factors that affect the Bank liquidity; Ensure diversification of sources of financing; Ensure optimum current daily liquidity by securing funds in sufficient amount and currency structure (for each
currency) to secure smooth settlement of obligations, including estimated of expected cash flows for a 30 day period;
Review and follow long-term liquidity position on the basis of liquidity gap projections, i.e. monitoring of matching of pecuniary inflows and outflows under balance sheet and off-balance items on the long term;
Secure liquidity reserve on the basis of analysis of maturity compliance of balance sheet positions, and thereby secure the marketability of receivables and assets in an over a short period of time, where needed;
Maintain top credit rating of liquid securities portfolio (securities issued by the NBS or the state of Serbia); Place short-term inter-banking deposits within defined limits; Maintain availability of general credit line which it may use for liquidity maintenance purposes at any time; Maintain required level of obligatory dinar and foreign currency reserves, in accordance with the regulations of
the National Bank of Serbia.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
98
FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued)
34.3 Liquidity risk and assets management (continued) The Group manages liquidity by ensuring stability, diversification and flexibility of sources of financing. As part of the diversification process, the Group during 2017 continues successful works on maintenance of deposit base stability from the both private individuals and corporate clients with further diversification of maturity structure and reduction of costs.
The adopted policies and procedures ensure adequate assets management, which coupled with monitoring cash flows and setting daily limits, as well as drafting long-term (structural) liquidity gaps on monthly basis, should ensure minimization of liquidity risk.
The Group maintains the portfolio of highly liquid and easily marketable securities, primarily of Serbian government papers and NBS T-bills. This portfolio serves as liquidity reserve which may easily, quickly and with minimal losses be converted into cash in order to settle due obligations, as well as extraordinary outflows and discontinuance of cash flows.
The liquidity level indicator in 2017 was always within the prescribed limits (never below 1) and is presented in the following table:
Liquidity level indicator 2017 2016
Average over period 1.59 1.72 Highest 1.94 2.36 Lowest 1.35 1.35 As of December 29 1.58 1.55 During the year 2017, the implementation of the Basel III liquidity standard was started, which implies the introduction of liquid coverage ratio (LCR). The first reporting period was June 30, 2017. The Bank is obliged to keep the LCR at a minimum level of 80% by December 31, 2017, after which it is obliged to maintain LCR at a minimum of 100%. During 2017, the Bank was within the prescribed limit for LCR. LCR on 31.12.2017 was 100.28%
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
99
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.3 Liquidity risk and assets management (continued) Analysis of financial assets and liabilities according by remaining maturity – liquidity gap In addition to regular liquidity indicators, the Group closely monitors it’s liquidly balance by measuring total cash flows proceeding from all of its assets and liabilities, including off-balance items. Cash flows statements are drafted for all major currencies operated by the Bank. Periodical cash flow statements are used to identify major discrepancies and in order to assess future liquidity needs, as well as excess of liquidity. The Decisions regarding liquidity management are based on the analysis of cash flow mismatch.
As for cash flows forecasts, the classification of balance sheet assets is based on the principle of remaining contractual maturity of provided items (remaining number of day till maturity). Also, the remaining maturity is being established and items without maturity term are being distributed, namely items without contractual maturity date such as obligatory reserves, overdraft receivables, transaction deposits, other at sight deposits and all other receivables and obligations without contractual maturity. With respect to this, the Bank has adopted a moderately conservative approach.
As for the remaining off-balance items (conditional receivables and obligations), they are posted separately from balance flows on the side of assets and liabilities.
Enclosed below are tables containing the analysis of assets and liabilities of the Group as per remaining maturity, taking into account the expected time of realization of assets and settlement of obligations as of 31.12.2017 and 31.12.2016.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD __________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
100
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.3 Liquidity risk and assets management (continued)
Liquidity risk 31.12.2017. Analysis of maturity structure of assets and liabilities
ASSETS Up to one
month
Between one and three months
Between three and six
months
Between six months and
one year Between one and five years
Over five years Total
RSD 000 Cash and assets with central bank 30,596,133 - - - - - 30,596,133 Financial assets at fair value through income statement held for trade 1,964,099 - - - - - 1,964,099 Financial assets available for sale - 4,084,341 367,308 641,449 27,052,812 4,859,726 37,005,636 Loans and receivables to banks and other financial institutions 1,531,194 517,845 52,189 81,853 39,788 - 2,222,869 Loans and receivables to customers 28,025,855 15,407,120 23,087,711 27,105,613 65,772,457 57,873,793 217,272,549 Other assets 1,032,754 2,741 4,112 8,223 37,499 61,947 1,147,276 TOTAL FINANCIAL ASSETS 63,150,035 20,012,047 23,511,320 27,837,138 92,902,556 62,795,466 290,208,562
LIABILITIES Up to one
month
Between one and three months
Between three and six
months
Between six months and
one year Between one and five years
Over five years Total
RSD 000 Financial liabilities at fair value through income statement held for trading 42,272 - - - - - 42,272 Deposits and other liabilities towards banks, other fin. org. and central banks 5,441,727 14,070,940 9,091,899 6,635,502 20,935,947 16,255,876 72,431,890 Deposits and other liabilities to other customers 27,585,087 55,207,055 14,892,415 22,209,575 34,122,082 11,409,089 165,425,303 Subordinated liabilities - - 4,130 - 5,923,635 2,961,818 8,889,583 Other liabilities 4,650,484 10,882 16,324 32,647 89,451 - 4,799,789 TOTAL FINANCIAL LIABILITIES 37,719,570 69,288,877 24,004,768 28,877,724 61,071,115 30,626,783 251,588,837 MATURITY MISMATCH –MARGINAL IQUIDITY GAP 25,430,465 (49,276,830) (493,448) (1,040,586) 31,831,441 32,168,683 - MATURITY MISMATCH – CUMULATIVE LIQUIDITY GAP 25,430,465 (23,846,365) (24,339,813) (25,380,399) 6,451,042 38,619,725 -
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD __________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
101
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.3 Liquidity risk and assets management (continued) Liquidity risk 31.12.2016. Analysis of maturity structure of assets and liabilities
ASSETS Up to one month Between one and three
months Between three and six
months Between six months and
one year Between one and
five years Over five
years Total
RSD 000
Cash and assets with central bank 23,765,145 - - - - - 23,765,145 Financial assets at fair value through income statement intended for trade
17,088 - - - - - 17,088
Financial assets available for sale 599,084 1,591,261 2,261,224 8,349,440 25,242,094 2,568,890 40,611,993 Loans and receivables to banks and other financial institutions
6,363,204 27,574 8,205 5,742 20,409 - 6,425,134
Loans and receivables to customers 3,807,580 12,626,498 14,744,283 26,784,754 68,538,494 41,865,500 168,367,109 Other assets 1,001,719 - - - - 34,374 1,036,093 TOTAL FINANCIAL ASSETS 35,553,820 14,245,333 17,013,712 35,139,936 93,800,997 44,468,764 240,222,562
LIABILITIES Up to one month Between one and three
months Between three and six
months Between six months and
one year Between one and
five years Over five
years Total
RSD 000
Financial liabilities at fair value through income statement held for trading
13,118 - - - - - 13,118
Deposits and other liabilities towards banks, other fin. org. and central banks
4,517,444 1,136,555 3,102,400 2,358,292 19,333,000 14,629,082 45,076,773
Deposits and other liabilities to other customers 29,009,672 13,197,679 12,305,419 15,157,801 34,776,241 37,453,204 141,900,016 Subordinated liabilities - - 3,960 - 9,260,423 - 9,264,383 Other liabilities 6,778,714 - - - - - 6,778,714 TOTAL FINANCIAL LIABILITIES 40,318,948 14,334,234 15,411,779 17,516,093 63,369,664 52,082,286 203,033,004 MATURITY MISMATCH –MARGINAL IQUIDITY GAP (4,765,128) (88,901) 1,601,933 17,623,843 30,431,333 (7,613,522) -
MATURITY MISMATCH – CUMULATIVE LIQUIDITY GAP (4,765,128) (4,854,029) (3,252,096) 14,371,747 44,803,080 37,189,558 -
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
102
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.3 Liquidity risk and asset management (continued)
Analysis of off-balance records of maturity structure
Liquidity risk –off-balance items
31.12.2017. Up to one
month
Between one and
three months
Between three and six months
Between six months and
one year
Between one and five
years Over five
years Total RSD 000
Guarantees and other assumed irrevocable obligations 3,505,348 8,087,510 2,091,574 3,654,299 24,536,442 877,655 42,752,828 Derivatives 22,091,511 170,143 330,214 1,845,039 3,429,733 994,631 28,861,271 TOTAL 25,596,859 8,257,653 2,421,788 5,499,338 27,966,175 1,872,286 71,614,099
31.12.2016. Up to one month
Between one and
three months
Between three and six months
Between six months and
one year
Between one and
five years
Over five years Total
RSD 000
Guarantees and other assumed irrevocable obligations
7,725,071 2,732,214 1,031,787 15,712,661 1,126,498 9,918,102 38,246,333
Derivatives 316,183 - - - 764,722 764,722 1,845,627
TOTAL 8,041,254 2,732,214 1,031,787 15,712,661 1,891,220 10,682,824 40,091,960
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
103
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.4. Market risk
Market risk is a risk that the Group’s financial results might be subject to negative effects due to change of balance sheet positions caused by change of value of market prices. With respect to the market risks, the Group is exposed to foreign currency risk and risk of change of interest rates. Market risk management Rules defined by Bank applicable to market risk management:
Risk management is operated on centralized basis Market risks are centralized, consolidated and are subject to regular standard reporting; Exposure to certain risks defined under the limits approved may be permitted, depending on the type of
market activity for which the limit has been set.
The market risk control system is exercised by distribution and independence of the risk assumption functions (front) from its monitoring (middle office) and management (Risk Dpt.) and support (back offices).
Market Risk Committee- MARCO
The Market Risk Committee – MARCO has been set up to determine, monitor and management market risk.
MARCO is primarily competent for:
Identifying, assessing and monitoring market risks arising in transactions with the Bank; Controlling compliance of market activities and transactions with SG Group standards and instructions; Ensuring independence of activities between risk control, back and middle offices, in relation to departments
and units negotiating transactions (front-office). Controlling and monitoring compliance with adopted limits in the area of market risk; Initiating, examining and confirming new limits, amending and/or suspending existing limits that are granted
locally; confirmation of notified limited by SG Group affecting market risks Communication with the EB and BoD on issues pertaining to market risk.
34.4.1. Interest rate risk
Interest risk is a risk of occurrence of negative effects on the financial result and capital of the Group due to unfavorable market trends of interest rates. The mains types of interest risks are: maturity time gap (between asset and liabilities items related to fixed, variable interest rate) and renewed determination of prices (for items related with variable interest rate), yield curb risk, base risk and built-in options risk i.e. optionality risk. The interest rate risk management process is conducted through the monitoring, identification, measurement and mitigation of effects of adverse interest trends on the financial result and capital of the bank. The measurement of effect which interest risk may have on the financial results of the bank is performed by calculation of changes of net interest margin under certain scenarios of future market interest trend (NII sensitivity analysis), whereas the measurement of interest risk effect on the bank capital is conducted by monitoring change of economic value of capital, in case of change of interest rate (EVE Sensitivity Analysis). In order to adequately manage interest risk, established limits are monitored on a regular basis. Competent bodies are regularly advised of compliance with limits (Assets and Liabilities Management Committee).
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
104
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.4. Market risk (continued)
34.4.1. Interest rate risk (continued)
Interest Risk Management
The basic interest rate risk management principle which the Group applies is the principle of matching its assets and liabilities by interest rate type (fixed or variable) and by maturity or date or renewed interest determination. This principle applies on individual or group basis, depending on the size of the transaction.
The Group devises a maturity gap to measure interest risk and computes interest rate changes onto the economic value of capital (net bank worth). While classifying interest gap positions, the Group is governed by the following principles:
For items with variable interest rate – date of renewed determination of interest rate; For items with fixed interest rate – maturity date; Capital is treated as non-interest bearing source of financing that never matures; Items bearing interest but lacking contractual maturity date and interest rate change are shown according to
excepted cash flow maturity. The projection of interest rate risk in accordance with maturity of balance sheet asset items with fixed interest rate, i.e. planned change of interest rate for balance sheet asset items with contractual variable interest rate, on December 31, 2017 and December 31, 2016 are enclosed in the following table:
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
105
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.4. Market risk (continued) 34.4.1. Interest rate risk (continued) Risk from change of interest rate 31.12.2017.
ASSETS Up to one month Between one and
three months Between three and
six months
Between six months and one
year Between one and
five years Over five years Total RSD 000
Cash and assets with central bank 20,594,747 3,492,649 656,814 1,853,615 1,971,555 2,026,753 30,596,133 Financial assets at fair value through income statement held for trade 1,964,099 - - - - - 1,964,099 Financial assets available for sale - 4,084,339 367,308 641,449 27,052,812 4,859,728 37,005,636 Loans and receivables to banks and other financial institutions 2,058,783 160,089 3,395 446 156 - 2,222,869 Loans and receivables to customers 137,228,356 30,596,835 11,527,440 13,114,547 20,193,315 4,612,056 217,272,549 Other assets 1,032,754 2,741 4,112 8,223 37,499 61,947 1,147,276 TOTAL FINANCIAL ASSETS 162,878,739 38,336,653 12,559,069 15,618,280 49,255,337 11,560,484 290,208,562 Off-balance items 168,732 787,417 1,081,323 735,090 1,714,867 497,316 4,984,745 TOTAL 163,047,471 39,124,070 13,640,392 16,353,370 50,970,204 12,057,800 295,193,307
LIABILITIES Up to one month Between one and
three months Between three and
six months
Between six months and one
year Between one and
five years Over five years Total RSD 000 Financial liabilities at fair value through income statement held for trading 42,272 - - - - - 42,272 Deposits and other liabilities towards banks, other fin. org. and central banks 10,209,990 19,773,881 25,312,928 5,224,647 7,478,344 4,432,100 72,431,890 Deposits and other liabilities to other customers 38,963,163 88,889,516 6,233,553 11,375,736 12,277,197 7,686,138 165,425,303 Subordinated liabilities - - 8,889,583 - - - 8,889,583 Other liabilities 4,650,485 10,882 16,324 32,647 89,451 - 4,799,789 TOTAL FINANCIAL LIABILITIES 53,865,910 108,674,279 40,452,388 16,633,030 19,844,992 12,118,238 251,588,837 Off-balance items 168,732 787,417 1,081,323 735,090 1,714,867 497,316 4,984,745 TOTAL 54,034,642 109,461,696 41,533,711 17,368,120 21,559,859 12,615,554 256,573,582 INTEREST GAP 109,012,829 (70,337,626) (27,893,319) (1,014,750) 29,410,345 (557,754) -
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
106
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.4. Market risk (continued) 34.4.1. Interest rate risk (continued) Risk from change of interest rate 31.12.2016.
ASSETS Up to one month Between one and three months
Between three and six months
Between six months and one
year
Between one and five years
Over five years Total
RSD 000
Cash and assets with central bank 14,730,451 226,711 25,000 2,678,926 4,002,715 2,101,342 23,765,145 Financial assets at fair value through income statement intended for trade 17,088 - - - - - 17,088 Financial assets available for sale 599,084 1,591,261 2,261,224 8,349,440 25,245,244 2,565,740 40,611,993 Loans and receivables to banks and other financial institutions 6,380,094 12,740 6,157 5,735 20,408 - 6,425,134 Loans and receivables to customers 113,434,093 6,175,237 8,454,302 12,055,139 24,302,374 3,945,964 168,367,109 Other assets 652,819 - - - - 34,375 687,194 Off-balance items 4,555,038 - - - - - 4,555,038 TOTAL FINANCIAL ASSETS 140,368,667 8,005,949 10,746,683 23,089,240 53,570,741 8,647,421
LIABILITIES Up to one month Between one and three months
Between three and six months
Between six months and one
year
Between one and five years
Over five years Total
RSD 000
Financial liabilities at fair value through income statement held for trading 13,118 - - - - - 13,118 Deposits and other liabilities towards banks, other fin. org. and central banks 11,586,652 8,953,963 9,024,718 1,657,329 7,919,237 5,934,874 45,076,773 Deposits and other liabilities to other customers 32,499,906 16,579,514 14,131,420 27,818,166 37,981,841 12,889,169 141,900,016 Subordinated liabilities - - 9,264,383 - - - 9,264,383 Other liabilities - - - - - 6,778,714 6,778,714 Off-balance items 4,555,038 - - - - - 4,555,038 TOTAL FINANCIAL LIABILITIES 48,654,714 25,533,477 32,420,521 29,475,495 45,901,078 25,602,757
INTEREST GAP 91,713,953 (17,527,528) (21,673,838) (6,386,255) 7,669,662 (16,155,951) -
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
107
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.4. Market risk (continued)
34.4.1. Risk of change of interest rate (continued) Measuring sensitivity of economic value of capital to change of interest rate is performed for each major currency. It is based on the assumption of parallel change of interest rate by 200 base points (2 percentage points). The effect of interest rate rise by 200 base points on the capital measures on December 31, 2017 is listed in the following table:
31.12.2017. RSD 000 RSD EUR Oth. currencies Total
Short-term 18,267 309,844 25,001 353,112 Mid-term (1,312,869) (512,320) 60,568 (1,764,621) Long-term (741,284) 707,549 117,398 83,663 Total (2,035,886) 505,073 202,967 (1,327,846)
Effect of interest rate rise by 200 bp on capital, measured on December 31, 2016 is listed in the following table:
31.12.2016.
RSD 000 RSD EUR Oth. currencies Total Short-term (136,328) 253,938 111,843 229,453 Mid-term (1,178,644) (15,856) 734,320 (460,180) Long-term (290,431) 1,826,353 887,470 2,423,392 Total (1,605,403) 2,064,435 1,733,633 2,192,665
Effect of the rise of interest rate by 200 bp on net interest income measured on December 31, 2017 is listed in the following table:
31.12.2017. RSD 000 RSD EUR Oth currencies Total
Up to one month 832,076 1,252,415 8,555 2,093,046 Between 1 and 3 month (735,752) (377,804) (68,117) (1,181,673) Between 3 and 6 months 14,580 (363,462) (8,152) (357,034) Between 6 months and 1 year 32,270 (34,971) (3,185) (5,886) Total 143,174 476,178 (70,899) 548,453
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.4. Market risk (continued)
34.4.1. Risk of change of interest rate (continued)
Effect of the rise of interest rate by 200 bp on net interest income measured on December 31, 2016 is listed in the following table:
31.12.2016
RSD 000 RSD EUR Oth currencies Total
Up to one month 589,311 1,071,765 99,832 1,760,908 Between 1 and 3 month (39,258) (189,431) (65,774) (294,463) Between 3 and 6 months 18,731 (247,768) (48,388) (277,425) Between 6 months and 1 year 44,405 (50,298) (31,147) (37,040) Total 613,189 584,268 (45,477) 1,151,980
34.4.2. Foreign currency risk Foreign currency risk is a current or potential risk of loss in the financial result and capital which results from the change of balance assets positions and off-balance items of the banks due to trends and changes of foreign currency value on the market.
Foreign currency risks are calculated into:
- Assets and obligations expressed in foreign currency - Foreign currency transactions - Financial derivates in foreign currency (foreign currency forward contracts, swaps) The following tables show the analysis of balance sheet of the Group onto foreign exchange rates by 5%, 10% and 20% :
RSD 000
Net open foreign currency position in RSD - long 3,213,921
Net open foreign currency position in EUR – long 27,128 118.4727 ex.rate 31/12/2017 Foreign currency volatility +5% 3,374,617 124.396335 ex.rate +5% Positive effect on income statement in RSD 160,696
Net open foreign currency position in RSD – long 3,213,921
Net open foreign currency position in EUR – long 27,128 118.4727 ex.rate 31/12/2017 Foreign currency volatility -5% 3,053,225 112.549065 ex.rate -5% Negative effect on income statement in RSD (160,696)
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
109
FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued)
34.4. Market risk (continued)
34.4.2. Foreign currency risk (continued)
RSD 000
Net open foreign currency position in RSD - long 3,213,921 Net open foreign currency position in EUR – long 27,128 118.4727 ex.rate 31/12/2017 Foreign currency volatility +10% 3,535,313 130.31997 ex.rate +10% Positive effect on income statement in RSD 321,392 Net open foreign currency position in RSD – long 3,213,921 Net open foreign currency position in EUR – long 27,128 118.4727 ex.rate 31/12/2017 Foreign currency volatility -10% 2,892,529 106.62543 ex.rate -10% Negative effect on income statement in RSD (321,392)
RSD 000
Net open foreign currency position in RSD - long 3,213,921 Net open foreign currency position in EUR – long 27,128 118.4727 ex.rate 31/12/2017 Foreign currency volatility +20% 3,856,705 142.16724 ex.rate +20% Positive effect on income statement in RSD 642,784 Net open foreign currency position in RSD – long 3,213,921 Net open foreign currency position in EUR – long 27,128 118.4727 ex.rate 31/12/2017 Foreign currency volatility -20% 2,571,137 94.77816 ex.rate -20% Negative effect on income statement in RSD (642,784)
Foreign Currency Risk Management In order to manage foreign currency risk, the Group identifies foreign currency risk and monitors foreign currency positions on a daily basis, defines methods, models and procedures for their monitoring, measurement; proposes and defines limits and provides external and internal reporting.
Pursuant to regulatory requirements of the NBS, the Bank continuously maintains its foreign currency position within permitted limits. The foreign currency risk indicator stood within legal maximums in 2017 in relation to capital, where the Group is obliged to ensure that its overall net open foreign currency position does not exceed 20% of its capital on a daily basis.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.4. Market risk (continued) 34.4.2. Foreign currency risk (continued) The following table lists Bank exposures to foreign currency risk as of December 31, 2017 and December 31, 2016:
FOREIGN CURRENCY RISK ASSETS 31.12.2017. RSD 000 EUR USD CHF Oth. currency Total in FC Total in RSD Total
Cash and assets held at central bank 11,439,172 159,389 390,392 107,185 12,096,138 18,499,995 30,596,133 Financial assets at fair value through income statement intended for trade 26,443 - - - 26,443 1,937,656 1,964,099 Fin. assets available for sale 6,833,163 - - - 6,833,163 30,172,473 37,005,636 Loans and receivables from banks and other financial organizations 1,013,127 684,061 177,016 344,191 2,218,395 4,474 2,222,869 Loans and receivables from partners 153,093,370 210,176 2,392,788 511 155,696,845 61,575,704 217,272,549 Other assets 46,314 300 32 71 46,717 1,636,434 1,683,151 TOTAL BALANCE SHEET ASSETS 172,451,589 1,053,926 2,960,228 451,958 176,917,701 113,826,736 290,744,437 Off-balance items (receivables from value spot, forward and swap transactions) 35,860,952 7,197,891 27,637 723,334 43,809,814 - 43,809,814 TOTAL 208,312,541 8,251,817 2,987,865 1,175,292 220,727,515 113,826,736 334,554,251
FOREIGN CURRENCY RISK LIABILITIES 31.12.2017.
RSD 000 EUR USD CHF Oth. currency Total in FC Total in RSD Total Financial obligations at fair value through income statement intended for trade 26,441 - - - 26,441 15,831 42,272 Deposits and other obligations towards banks, other Fin. organizations and central bank 63,301,380 18,438 1,205,699 447 64,525,964 7,905,926 72,431,890 Deposits and other obligations towards other partners 85,032,191 6,400,109 1,382,452 1,060,146 93,874,898 71,550,405 165,425,303 Subordinated liabilities 8,889,583 - - - 8,889,583 - 8,889,583 Provisioning 515,233 - - - 515,233 487,502 1,002,735 Other liabilities 3,490,615 308,531 249,042 45,628 4,093,816 1,619,173 5,712,989 TOTAL BALANCE LIABILITIES 161,255,443 6,727,078 2,837,193 1,106,221 171,925,935 81,578,837 253,504,772 Off-balance items (receivables from value spot, forward and swap transactions) 43,843,177 1,527,457 246,070 57,665 45,674,369 - 45,674,369 TOTAL 205,098,620 8,254,535 3,083,263 1,163,886 217,600,304 81,578,837 299,179,141
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD ___________________________________________________________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 34. RISK MANAGEMENT (continued) 34.4. Market risk (continued) 34.4.2. Foreign currency risk (continued)
FOREIGN CURRENCY RISK ASSETS 31.12.2016.
RSD 000 EUR USD CHF OTHER Total in FC Total in RSD TOTAL Cash and assets held at central bank 9,963,288 148,766 549,823 95,226 10,757,103 13,008,042 23,765,145 Financial assets at fair value through income statement intended for trade 12,451 - - - 12,451 4,637 17,088 Fin. assets available for sale 6,863,099 - - - 6,863,099 33,748,894 40,611,993 Loans and receivables from banks and other financial organizations 849,124 4,832,009 19,304 724,651 6,425,088 46 6,425,134 Loans and receivables from partners 118,572,052 353,377 2,761,532 332 121,687,293 46,679,816 168,367,109 Other assets 48,459 890 46 3,163 52,558 983,535 1,036,093 TOTAL BALANCE SHEET ASSETS 136,308,473 5,335,042 3,330,705 823,372 145,797,592 94,424,970 240,222,562 Off-balance items (receivables from value spot, forward and swap transactions)
2,889,266 1,946,864 - - 4,836,130 1,173,405 6,009,535 TOTAL 139,197,739 7,281,906 3,330,705 823,372 150,633,722 95,598,375 246,232,097 FOREIGN CURRENCY RISK LIABILITIES 31.12.2016.
RSD 000 EUR USD CHF OTHER Total in FC Total in RSD TOTAL
Financial obligations at fair value through income statement intended for trade 12,451 -
-
- 12,451 667 13,118 Deposits and other obligations towards banks, other fin. organizations and central bank 36,511,019 49,587 1,366,793 2,202 37,929,601 7,147,172 45,076,773 Deposits and other obligations towards other partners 81,559,099 6,858,771 1,735,534 759,711 90,913,115 50,986,901 141,900,016 Subordinated liabilities 9,264,383 - - - 9,264,383 - 9,264,383 Provisioning 399,295 25,645 - 624 425,564 627,685 1,053,249 Other liabilities 4,070,846 386,160 196,460 55,419 4,708,885 2,069,829 6,778,714 TOTAL BALANCE LIABILITIES 131,817,093 7,320,163 3,298,787 817,956 143,253,999 60,832,254 204,086,253 Off-balance items (receivables from value spot, forward and swap transactions)
4,721,972 - - - 4,721,972 1,236,850 5,958,822 TOTAL 136,539,065 7,320,163 3,298,787 817,956 147,975,971 62,069,104 210,045,075
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued)
34.5 Operational Risk
Operational risk is a risk of negative effect on financial result and capital of the Group due to failures (intentional or non-intentional) in the work of employees, inappropriate procedures and processes, inadequate management of IT and other systems, as well as unforeseeable external events, including events that are unlikely to occur but that might entail great losses. With the exception of strategic risk, operational risk includes legal risk, compliance risk and reputation risk, in accordance with SG Group standards. The purpose of managing operational risk is to ensure proactive management of this risk, adequate allocation of necessary capital, as well as providing relevant data on exposure to operational risks for the needs of Group management, external audit and competent entities of SG Group. Operational risk management is based on the system of measurement and control defined at SG Group level, which is applied within the Group.
In order to ensure efficient risk management, a proper management structure set up is required, led by a specialized Operational Risk Committee, and internal control system implemented, in order to ensure that each organizational unit applies appropriate procedures and verifies their efficiency; and also appropriate organizational structure, necessary tools and methodology that have been developed locally or by SG Group (loss collection, risk and control self-assessment, scenario analysis, key risk indicators etc.) Special organizational unit – the Operational Risk Management Unit is competent for recording, monitoring and managing operational risks, for coordination and communication with all organizational parts of the Group and for regular reporting to Group management and headquarter in Paris. The Operational Risk Committee (ORCO) is competent to coordinate operational risk management, apply corrective measures aimed at reducing operational risk and raise awareness on Operational Risk management through the Group’s organizational system. The monitoring and reporting of operational risks events is the obligation and responsibility of all management levels and all employees.
The National Bank of Serbia in the period from November 20, 2017 to December 1, 2017 and in the period from December 4, 2017 to February 22, 2018 performed control of the risk management arising from the activities that the Bank entrusted to third parties and control of risk management arising from the introduction of new products / services.
34.6. Reputation Risk
Reputation risk may arise due to negative effect of the Bank’s market positioning. Reputational Risk is defined as the risk that arises from negative perception from the clients, partners, shareholders, investors or regulators which can negatively affect the ability of the Bank to maintain existing or establish new business relations, as well as to secure continued access to funding sources. Reputational Risk can caused by or be a consequence of credit risk, liquidity risk, market risk, operational risk, compliance risk, legal risk etc. – all the risks that can lead to negative image in the public, loss of revenues, legal disputes, loss of clients and partners, leaving of key staff, as well as difficulties in hiring people with desired level of skills and competencies. Reputational Risk is multidimensional and reflects perception of other market participants. Exposure to reputational risk is widely distributed across the Bank’s organizational structure, so this type of risk has specific dimension for the Bank and being proactive is very important in managing this type of risk.
All the activities that the Bank carries out in order to mitigate all other types of risk to which it is exposed or can be exposed in its operations, represent first level of prevention from reputational risk. In case of situations when the Bank is already faced with reputational risk issues or its consequences, quick reaction is next level of prevention.
Reputational risk management represents the ability to identify and asses potential risks, establish system of informing on the risk, as well as the ability to plan and implement measures to prevent certain events and their mitigation. In order to prevent reputational risk, the Bank has defined internal standards, consisting of general principles and operational rules.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued)
34.7. Bank exposure risk
The Group’s exposure risk encompasses Group exposure risk towards one person or a group of related persons, as well as exposure risk towards a person related with the Group. The Group manages exposure risk in accordance with the risk management strategy and policy. The Group management defines the limits and concentration of placements by certain legal persons or group of related persons, or persons related with the Group.
The Risk Division monitors, measures and reports to competent Group bodies about risk exposure towards one person or a group of related persons.
Under the said measures the Group management and appropriate bank bodies and persons vested with powers in the Group strive to secure exposure compliance with prescribed limits, i.e. secure that Group exposure towards one person or a group of related persons does not exceed 25% of the Group capital, that the sum of large exposures does not exceed 400% of the Group capital. The Bank's capital in accordance with the validity of the Decision on risk management for the purposes of accounting for large exposures is the sum of Tier 1 capital and Additional capital in the amount of up to one third of its Tier 1 capital, calculated in accordance with the decision regulating the capital adequacy of the bank.
In 2017, the Group continuously ensured compliance of exposure risk and this risk remained within the legally prescribed limits during 2017 as well as on December 31, 2017.
34.8. Investment Risk The Group’s investments risks include investment risk into capital of other legal persons and into fixed assets and investment properties. The Group manages investments risks in accordance with the risk management strategy and policies. Pursuant to NBS regulations, the risk management sector follows Group investments, notifies the BoD and ensures that Group investment to one entities outside of the financial sector does not exceed 10% of the Group capital, and that Group investments into persons who are external to the financial sector and into Group fixed assets and investment properties do not exceed 60% of the Group capital. During 2017 as well as on December 31, 2017, the Group continuously monitored investment risk which remained within legally prescribes indicators. In 2016 construction works and moving into the new head office building were completed, based on the preliminary agreement on the purchase of a part of the building from July 2014 and on the purchase agreement signed in April 2015. By this the Bank concentrated all its headquarters’ activities on two locations which are close to each other.
34.9. Country Risk
Risk related to a country of origin of a person to whom the Group is exposed implies negative effects which may affect its financial result and capital due to Group inability to collect receivables from that person for reasons proceeding from political, economic or social circumstances in the person’s country of origin.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
34. RISK MANAGEMENT (continued)
The Group manages country risk in accordance with the risk strategy and managing policy. While assuming risks in relation to banks located outside of the Republic of Serbia and while determining related limits, the country risk is also taken into account. Whereas the general rating rule defined by top international rating agencies prescribes that the rating for general transactions of a certain entity may not exceed the rating of a country where the seat of entity is located, we may consider that this bank’s rating in relation to transaction duration may be considered a main country risk indicator. 35. CAPITAL MANAGEMENT The Group manages capital with the aim to:
• Ensure compliance with the requirements of the National Bank of Serbia • Ensure adequate level of capital for business continuity • Maintain capital at a level that ensures coverage of all risks that Bank is exposed to performing its business
activities Group is obliged to report capital adequacy level to National Bank of Serbia semi-annual. The Law on Banka and Decision on capital adequacy prescribe that banks are required to maintain a minimum capital amount equivalent to a dinar counter-value of 10 million EUR at the official median exchange rate. Entering into force changes in regulation regarding reconciliation with Basel 3 standards, starting from June 30, 2017, banks are obliged to maintain core equity capital adequacy ratio of at least 4,5%, Tier 1 capital adequacy ratio of at least 6% and capital adequacy ratio of at least 8%, and to adjust the volume and structure of their businesses with operating indicators prescribed under the Risk Management Decision (Official Gazette RS, numbers 45/2011, 94/2011, 119/2012, 123/2012, 23/2013, 43/2013, 92/2013, 33/2015, 61/2015 61/2016, 103/2016 and 119/2017) and the Capital Adequacy Decision (“Official Gazette RS” no. 103/2016). The referring Decision of the National Bank of Serbia on bank capital adequacy defines the terms of calculation of Group capital and capital adequacy ratio. The total Capital of Group consists of core and additional core capital, supplementary capital and defined corrections for regulatory adjustments and deductibles, while risk weighted balance and off-balance exposure to credit risk are calculated by applying prescribed risk weight for all exposure classes. According to Decision on capital adequacy, Group is obliged to calculate following ratios:
o Core equity Tier 1 capital adequacy ratio which is the Common Equity Tier 1 capital of the bank expressed as a percentage of the total risk exposure amount, at the level of minimum 4,5%;
o Tier 1 capital adequacy ratio which is the Tier 1 capital of the bank expressed as a percentage of the total risk exposure amount, at the level of minimum 6%;
o Capital adequacy ratio which Capital of the bank expressed as a percentage of the total risk exposure amount, at the level of minimum 8%;
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
35. CAPITAL MANAGEMENT (continued) Total risk weighted assets represents sum of total amount of risk weighted exposures for credit risk, counter party risk, debt securities risks for activities from trading book, for market risk, for credit valuation adjustments risk and for operational risk. Tier 1 capital consists of: share capital based on ordinary shares, issue premium, revalorization reserves, reserves from gains, regulatory value adjustments of core equity Tier 1 capital elements, intangible assets, deferred tax assets depends on future profitability of Bank apart from those that arise from temporary differences decreased for amount of deferred tax liabilities and needed reserve from gain for estimated losses on balance sheet assets and off balance sheet items. Additional capital consists of subordinated liabilities included in Capital calculation according terms and conditions prescribed by National bank of Serbia decision.
Group is also obliged to maintain capital adequacy ratios increased for amount that ensures combined protective capital buffer coverage which is additional Core equity Tier 1 capital requirement that Bank has to maintain above Core equity Tier 1 capital which is held for maintaining minimal capital requirement. The required reserves from gains for estimated losses, as of December 31, 2017, in the amount of RSD 138,561 thousand (2016: RSD 9,403,522 thousand) has been calculated as the difference between calculated special reserves for estimated losses and established amount of balance assets appreciation and provisioning for losses from off-balance assets, in accordance with the Decision on the Classification of Balance Sheet Assets and Off-Balance Items (“Official Gazette RS” no 94/2011, 57/2012, 123/2012, 43/2013, 113/2013, 135/2014, 25/2015, 38/2015 61/2016, 69/2016, 91/2016, 101/2017 and 114/2017) prescribed by the National Bank of Serbia. Starting from September 30, 2017 Bank calculates coefficient for adjusting the amount of required reserves according to article 34a of Decision on classification of bank balance sheet assets and off balance sheet items, and applies coefficient calculated according to this Article to decrease level of needed reserve.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
116
FINANCIAL STATEMENT NOTES 35. CAPITAL MANAGEMENT (continued) The following chart presents calculated amounts of capital assets, additional capital and total capital of the bank, as well as calculation of capital adequacy.
Capital management RSD 000 2017 2016
Tier 1 capital 33,477,487 23,518,839 of which: Common equity Tier ! Capital 33,477,487 23,518,839 Tier 2 capital 4,207,533 4,697,306 Total Tier and Tier capital 37,685,020 28,216,145 Deductibles from capital base - (149,649) Capital 37,685,020 28,066,496 Risk weighted exposure amounts for credit risk - balance sheet positions 160,994,273 125,761,079 Risk weighted exposure amounts for credit risk - off balance sheet items 24,197,867 27,355,044 Risk weighted exposure amounts for credit risk - financial derivatives 152,086 22,032 Risk exposure to foreign exchange risk 2,981,312 2,653,275 Risk exposure to debt securities 244,400 Risk exposure to operational risk 24,997,788 15,746,400 Risk exposure for credit valuation adjustments 83,725 Capital adequacy ratio as of 31. December 17.64% 16.36% T1 Capital adequacy ratio as of 31. December 15.67% CET1 Capital adequacy ratio as of 31. December 15.67% Combined capital buffers are additional Common Equity Tier 1 capital that Group is obliged to maintain above the prescribed regulatory minimum for the Common Equity Tier 1 capital ratio of 4.5%. Combined protective capital buffer which Bank is obliged to maintain consists of following:
- capital conservation buffer equal to 2.5% of Group risk-weighted assets; - countercyclical buffer with a rate of 0% for exposures to the Republic of Serbia and with rates for other
countries that can be downloaded from the ESRB site; - Systemic risk buffer in the amount of 3% of the total foreign exchange and foreign exchange indexed
placements of the bank approved to the corporate and households in the Republic of Serbia. The requirement for the application of capital buffer is the amount of the participation of foreign exchange and foreign
- exchange indexed placements approved to the placements in the Republic of Serbia in the total placements of the Bank approved to the placements in the Republic of Serbia which must be higher than 10%;
- Capital buffer for systemically important banks in the amount of 1% of the Bank's risky assets. According to the Decision on Establishing the List of systemically important banks in the Republic of Serbia and the capital buffer rates for those banks of 8 June 2017, the Bank is classified as a systemic important bank with established ration on the level of 1% of total risk weight. The National Bank of Serbia is obligated to review at least annually capital buffer for systemically important banks and the methodology for identification of systemically important banks.
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES 35. CAPITAL MANAGEMENT (continued)
An overview of the capital buffers that the Bank is obliged to maintain as of December 31, 2017 is in the table below:
II Capital buffers - apply to Bank CET 1 Capital Realized value in eur 000
% contribution related to total risk-weighted
assets Capital conservation buffer 5,341,286 2.50 Countercyclical capital buffer - - Systemic risk buffer 4,818,984 2.26 Systemically important bank buffer 2,136,515 1.00 Total: 12,296,785 5.76 Combined protective capital buffer as of December 31, 2017 is 5.76% of total risk weighted assets of Group. The Group is required to adjust the volume and structure of its operations with business indicators prescribed under the Risk Management Decision (Official Gazette of the Republic of Serbia, 45/2011, 94/2011, 119/2012, 123/2012, 23/2013, 43/2013, 92/2013, 33/2015, 61/2015, 61/2016, 103/2016 and 119/2017). The realized operating indicators of the Bank on December 31, 2017 and December 31, 2016 were the following:
Operating indicators Prescribed value Realized value Realized value
RSD 000 % 31.12.2017. 31.12.2016. Bank investment into share capital and entities outside the banking sector max 60% 7.93% 11.64% Sum of major bank exposures max 400% 133.70% 176.44% Of which: Total exposure to persons related with the bank 15.90% 19.93% Foreign risk indicator max 20% 7.91% 8.58% Bank exposure to group of related persons max 25% 20.56% 24.49% CET 1 Capital adequacy min 4.5% 15.67% 17.06% Tier 1 capital adequacy min 6% 15.67% n/a Capital adequacy min 8% 17.64% n/a Bank exposure to person related with the bank max 25% 11.09% 15.21% Leverage ratio 9.24% n/a
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
36. POTENTIAL AND TAKEN OBLIGATIONS AND LEASING CONTRACTS
a) Receivables from operational leasing
RECEIVABLES FROM IMMOVABLES LEASE - OPERATIONAL LEASING RSD 000 2017
Due between 01.01.2018. and 31.12.2018. 6,106 Due between 01.01.2019. and 01.08.2022. - Total: 6,106
RSD 000 2016 Due between 01.01.2017. and 31.12.2017. 6,364 Due between 01.01.2018. and 01.08.2021. - Total: 6,364
b) Obligations under operational leasing
In 2017, the bank signed an operational leasing contract under which vehicles have been leased and contract of ATM lease. The future obligations on that ground have been presented in the following table: OBLIGATIONS FROM OPERATIONAL LEASING
RSD 000 2017 Due between 01.01.2018. and 31.12.2018. 68,276 Due between 01.01.2019. and 01.10.2022. 198,887 Total: 267,163
RSD 000 2016 Due between 01.01.2017. and 31.12.2017. 192,029 Due between 01.01.2018. and 01.08.2019. 8,873 Total: 200,902
SOCIETE GENERALE BANKA SRBIJA A.D. BEOGRAD _________________________________________________________________________________________________
This version of the financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation.
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FINANCIAL STATEMENT NOTES
36. POTENTIAL AND TAKEN OBLIGATIONS AND LEASING CONTRACTS (continued)
c) Court litigations On December 31, 2017, the Group has had 159 opened court litigations with the status of indicted party (on December 31st 2016: 67 court cases). Based on the estimate of legal representatives of the Group in the said litigations, the Bank has allocated provisions as of December 31st 2017 in the amount of RSD 9,935 thousand for litigations expected to be incurred by the Group on the respective date (on December 31st 2016: RSD 10,840 thousand).
The total value of the litigations, which in case the Bank loses the litigation and is obliged to pay some amount of money (compensation of damages, debt, etc.), which do not include litigations in which there is no money claim of the prosecutor towards the Bank, amounts to 1,225,532 thousand dinars (associated interest and fees is not included).
d) Tax risk
The tax laws of the Republic of Serbia are often interpreted differently and subject to frequent changes. Interpretation of tax laws by tax authorities in relation to transactions and activities of the Bank may differ from the interpretation of the Bank's management. As a result, transactions may be challenged by the tax authorities and the Bank may be assigned an additional amount of taxes, penalties and interest. The period of obsolete tax liability is five years. This practically means that the tax authorities have the right to determine the payment of outstanding obligations within five years from the date when the obligation arose.
37. RECONCILIATION BETWEEN LIABILITIES AND RECEIVABLES
As of October 31, 2017, the Group proceeded with harmonization of liabilities and receivables with legal persons and banks, in accordance with the Law on Accounting. The disclosure of mismatched receivables has been provided in accordance with the requirement under article 18 of that Law.
2017
RSD 000 Assets Liabilities Off-balance receivables
TOTAL 186,882,584 105,685,273 120,334,534
Matched 112,032,285 86,275,584 88,771,693
Mismatched 63,356 6,425 658,340
Non-replied 74,786,943 19,403,264 30,904,502
Bearing in mind that to date the process of reconciliation with clients for obligations and claims has not yet been completed, and based on past experience, the Bank estimates that the amount of the answered IOS will be increased, which would be unreconciled receivables reduced to an immaterial amount.
ANNUAL REPORT – 2017 1
ANNUAL
REPORTBUILDING TEAM SPIRIT TOGETHER
17CONSOLIDATED
2 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
1 01 SOCIETE GENERALE GROUP _____________________________ 4
2 02 WORD OF MANAGEMENT ______________________________ 8
3 03 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE ___________ 12
4 04 MACROECONOMIC OVERVIEW FOR 2017 __________________ 14
5 05 RETAIL BANKING ____________________________________ 16
6 06 CORPORATE BANKING ________________________________ 20
7 07 FINANCIAL MARKET ACTIVITIES _________________________ 22
8 08 HUMAN RESOURCES _________________________________ 26
CONTENTS
9 09 CORPORATE SOCIAL RESPONSIBILITY _____________________ 30
10 10 RISK MANAGEMENT _________________________________ 32
11 11 LIQUIDITY MANAGEMENT AND INTEREST RATE RISK ___________ 38
12 12 CAPITAL MANAGEMENT AND CAPITAL ADEQUACY INDICATORS ___ 42
13 13 FINANCIAL INDICATORS _______________________________ 46
14 14 EXPECTED FUTURE DEVELOPMENT _______________________ 50
15 15 ASSOCIATED COMPANIES _____________________________ 52
16
4 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
SOCIETE
GENERALE
GROUP
Societe Generale is one of the leading financial services groups in Europe. Based on a diversified universal banking model, the Group combines financial solidity and a strategy of sustainable growth. Ambition of the Group is to be the leading relationship-focused bank, a reference in its markets, close to its clients and chosen for the quality and commitment of its teams.
With 31 million customers in 66 countries, Societe Generale operates through three main business activities:
01
ANNUAL REPORT – 2017 5
International retail banking
Our international retail banking and consumer credit
network serves over 18 million individual clients
across 38 countries. In each of these countries, we
implement our diversified and well-balanced banking
model, while adapting it to the specificities of local
markets.
Financial Services
Our Financial Services offering, which complements
the International Retail Banking network, is built on
our expertise in three businesses: Insurance, Vehicle
Leasing and Fleet Management, and Equipment and
Vendor Finance.
Global Banking and Investor Solutions (GBIS)
Global Banking and Investor Solutions (GBIS) plays
a key role as an intermediary between issuers and
investors, delivering worldwide expertise in three
main areas: investment banking, global financing and
global markets.
French networks
Retail banking in France consists of three
complementary brands: Societe Generale, a leading
national bank; Crédit du Nord, a group of regional
banks; and Boursorama, a major online bank. These
brands serve a diverse clientele, which comprises
over 12 million customers. The Group’s goal for
French retail banking is to be the leading bank in
terms of customer satisfaction and protection.
Across France, the eight regional banks of the
Crédit du Nord Group operate with a high level of
independence and have a perfect knowledge of
the local economic fabric. Customers enjoy all the
advantages of a regional bank on a human scale
coupled with those of a nationwide banking group.
The Boursorama Group offers a complete range of
online banking products and services. Established
in 1995 and present in three European countries,
Boursorama is a pioneer and French leader in its
three businesses: online banking, brokerage and
financial information.
01
6 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
Financing the economy by linking issuers and investors
A pillar of our universal banking model, the GBIS
corporate and investment bank is present in
36 countries in the main financial markets in the
Group’s regions of operation, with extensive European
coverage and representative offices in Central and
Eastern Europe, the Middle East, Africa, the Americas
and the Asia-Pacific region.
With recognized advisory and engineering expertise
and strong franchises, SG CIB offers tailor made
solutions to corporates, financial institutions and the
public sector.
Investment banking, financing and market services: three complementary activities
GBIS assists corporates, financial institutions, public
sector institutions and family offices, meeting their
needs in terms of investments, strategic advisory
services, capital raising and capital structure
optimization.
Relying on its internationally recognized expertise
in structured finance (acquisitions, exports, natural
resources, infrastructure and assets, media and
telecom, real estate and lodging, etc.),
GBIS can offer a truly global set of financing solutions
to its clients.
In addition, GBIS offers global access to market via
solutions in equities, fixed income and currencies,
commodities and alternative investments. GBIS
develops advisory, investment and risk management
solutions for the specific needs of each investor.
ANNUAL REPORT – 2017 7
01
8 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
WORD OF
MANAGEMENT
02
Goran PiticPresident of the Board of Directors
Societe Generale Serbia
During the last year we offered a unified package of services Sinhro to the market of flat-rate entrepreneurs and experts of various profiles, we launched a new m-banking application, and concepts such as mentoring and workshops, such as other Fintech Hackathon and Cashless Case Challenge are still an integral part of our endeavors to give added value to the community in which we operate.
ANNUAL REPORT – 2017 9
In December last year, we took over a part of the
loan portfolio of the former Jubanka. Complete
migration of packages for tens of thousands of clients
was completed in twenty days, and for this task we
used “knowledge” of artificial intelligence, that is, a
software tool that drastically shortened the time of
the data transfer operational process. If we take into
account that this job would take six staff officers with
full working time for a whole year - it is clearly shows
how drastically.
It is just one of the countless innovations, and thanks
to the more active cooperation with technological
start-ups and the IT community, we have recognized,
used and improved in the development of products
and services in the previous period. During the last
year we offered a unified package of services Sinhro
to the market of flat-rate entrepreneurs and experts
of various profiles, we launched a new m-banking
application, and concepts such as mentoring and
workshops, such as other Fintech Hackathon and
Cashless Case Challenge are still an integral part of
our endeavors to give added value to the community
in which we operate.
We have launched the Generator - a set of all our
initiatives and activities with the help of which,
together with our partners, we encourage innovative
entrepreneurial ventures. The first of the big
new projects of our innovation platform was the
competition for the top 40 entrepreneurial ideas.
Societe Generale Bank in the Serbian financial market
stands for an innovator who understands the flows of
the fourth industrial revolution and seeks for the ways
to improve traditional products, but also to develop
new ones that respond in real time to customer needs.
Also, we are the “challengers” of this market because
we accept technological changes as a chance to see
our position in the digital world, and even to anticipate
future trends in the digitalization of the market.
Behind us is an anniversary of 40 years of operations
of Societe Generale Bank in Serbia, and in 2018, we
are marking two years since launching of the strategic
cooperation with the Technological Entrepreneurship
and Innovation Center (ICT Hub).
The goal of cooperation with ICT Hub is primarily to
support the startup ecosystem and build the FinTech
community that brings together experts in the field of
banking, finance and information technology. More
importantly, we actively worked on educating the bank
employees about new tools and methodologies used
by technological startups.
As a result, all the aforementioned innovative
products and services came about, which would not
have been possible without the constant exchange of
mutual knowledge, experiences and improvement of
innovation culture within the organization itself.
We will continue to support the startup ecosystem in
Serbia, and to work on innovations, we will strengthen
the innovative spirit within the bank in order to make
our banking operations as simple as possible for
clients.
On the other hand, I believe that for truly sustainable
development, it is necessary to spread innovation
culture also outside of individual organizations,
because the business is the one that creates added
value in society, while the state provides space and
legal framework. Therefore, we need to raise the
level of digital competencies and further develop the
Internet infrastructure.
In this endeavor, which is not simple, but is feasible,
it is necessary to include all key factors from the
scientific, educational and business systems and
to involve them in building a model of leadership,
namely in training young professional staff to put
technology in the function of the business.
The digital agenda of Serbia should become a binding
document for every citizen of Serbia because it should
provide an answer to the digital challenges of the
modern world, thus creating a chance for a stronger
prosperity of the country and its citizens.
02
10 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
Maria RoussevaPresident of the Executive Board of
Societe Generale Serbia
WORD OF
MANAGEMENT
02
Overall the last year was successful for Societe Generale Bank both in financial and commercial terms, but most importantly in terms of improving the relationship with our clients, with a strategic priority to be close and accessible to them in order to better understand their needs.
ANNUAL REPORT – 2017 11
In the past year 2017 several important events
happened for Societe Generale Bank in Serbia that
marked 40th anniversary of the Bank’s operations on
the local market. By the acquisition of a part of the
credit portfolio of the former Jubanka, we contributed
to further consolidation of the financial sector in
Serbia, strengthened our presence and increased our
market share.
Over four decades we have achieved a lot - we went
from the Belgrade representative office for corporate
clients, to the third largest bank in Serbia by the
volume of loans and the fourth by total assets.
As a universal bank, which operates both retail and
corporate, after organic growth and two acquisitions –
a part of the credit portfolio of KBC Bank in 2013 and
loans from Jubanka late last year, our ambition is to
continue to be a successful financial institution able to
offer services to all market participants.
With a series of commercial activities we have
managed to keep the trend of growth in retail and
corporate operations and bussiness, with special
commitment in terms of improving the cooperation
with all clients in different fields of business and
relations with our bank.
Innovation and promotion of entrepreneurial spirit
have been in focus in the year of the anniversary.
We have chosen to make our contribution to the
community in which we operate and launched a long-
term platform Generator and supported 40 innovators
who have ideas to change the future.
We have continued to develop internal agility and
flexibility as well, with the aim of working on solutions
that simplify banking with the help of our partners
from the startup community. Our initiatives in this
field have been recognized by the French-Serbian
Chamber of Commerce, from which we have
received award for a number of innovations realized
through cooperation with the ICT Hub, the Centre for
technological entrepreneurship and innovation. We
also supported various external initiatives that focus
on the transition to the digital economy, providing our
expertise and knowledge.
Overall the last year was successful for Societe
Generale Bank both in financial and commercial
terms, but most importantly in terms of improving the
relationship with our clients, with a strategic priority
to be close and accessible to them in order to better
understand their needs.
In the forthcoming period, the client will remain at the
heart of our strategy. We will continue to look at our
business through the eyes of our clients, to introduce
innovations and to lead the changes, and confirm that
we are a bank that provides added value, top quality
and expertise.
02
12 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
SOCIETE
GENERALE BANK
SERBIA A.D. BELGRADE
03
ANNUAL REPORT – 2017 13
At the times when most modern practices become
obsolete as soon as they become mainstream, it
is important to differentiate short-term trends from
long-term directions of development that ensure the
growth on the market. We are a financial institution
that understands that it is necessary not only to
respond to the new demands of the customers, but
also to anticipate future trends and be as innovative
as possible.
Our imperative is to meet the customers’ needs
where it suits them - in one of our 96 branches
across Serbia, at our contemporary e-banking
platform, or via mobile applications.
For 40 years of doing business in Serbia, from
traditional banking, together with our associated
companies – Sogelease Srbija and Societe Generale
Insurance AD we passed the way to improvement of
the market position of one of the leading banks, which
is increasingly focusing towards developing a culture
of innovation.
With the full commitment of all employees of Societe
Generale Bank, we provide quality service and a
diverse offer of products to our clients, natural
persons and legal entities - large private and state
companies, national and multinational companies,
financial institutions, and sector of small and
medium-sized enterprises, microenterprises and
entrepreneurs.
We are the first foreign bank in the domestic
market that opened a representative office in
1977.
The first retail branches were opened in 2001.
In 2013 we took a part of the portfolio of
clients of KBC Bank, which is the first financial
transaction of this type in the Serbian market
We launched the first online office in Serbia in
2015.
We have organized the first Fintech Hackathon in
Serbia with partners in 2016.
We are constantly looking for innovative ways
to, with a different approach to our clients'
needs, develop products and services that will
facilitate daily banking activities - we made
an arrangement with the company Vip Mobile,
established a strategic partnership with the
Center for Technological Entrepreneurship (ICT
Hub), and our employees themselves get the
chance to present their ideas for technological
innovation.
03
14 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
Since 2015, the Serbian economy is forecasted to
have grown by an average of 1.8% annually, which
can be considered a strong achievement considering
that since that time the country went through an IMF
arrangement in order to lower its debt level, which at
one point reached more than 75% of GDP. A cut in
public sector wages and pensions, along with other
economic reforms, the IMF program was successfully
finalized; the level of debt fell to less than 60%/GDP
and the countries rating has been improving.
As a result, we expect that the economy will grow
at a more robust pace in coming years, relying on
both internal and external demand, low inflation and
interest rates and a stable foreign exchange rate.
In coming years, we expect that the country will
grow by an average of 3.5% to 4.0% per annum,
and possible faster if the government continues to
enact further economic reforms, as EU membership
becomes more of a certainty, even though it is now
expected by 2025 and as global economic growth
stabilizes.
In 2017, the economy underperformed due to issues
with a significant drop in mining in electric production
in Q1 as a result of a very harsh winter only to be
followed by a large drop in agricultural production
due to the prolong summer drought and finally due to
greater than expected increase in imports due to the
rebound in oil and natural gas prices.
MACROECONOMIC
OVERVIEW FOR 2017
04
ANNUAL REPORT – 2017 15
For 2018, we expect that energy prices will stabilize,
due to increased US production, stronger growth among
Serbia’s major EU and regional trading partners, along
with a continuation of low inflation and therefore interest
rates.
Low interest rates and growing employment levels
have been one of the main reasons for an increase in
consumer borrowing and spending, and we expect this
to continue. With the drop in the unemployment level
from nearly 25.5% in 2012 to 12.9% in 2017Q3, net
wages have risen every month compared to the previous
year since 2016Q4; when measured in Euro from EUR
371 in November 2016 to EUR 390 in November 2017,
an increase of 7.7%.
As unemployment is expected to continue to decrease,
the increase in wages is expected to continue in coming
years, thereby further driving domestic spending.
An unintended consequence of rising wages can be
in increase in imports, especially of consumer goods,
which is not desirable considering that Serbia has a
trade deficit of 6.5%/GDP, however, this figures has
been falling for more than a decade, as in 2008 it was
1/4 /GDP and with FDI now accounting for nearly 6.0%
of GDP, the possible negative aspects in relation to the
Current Account are expected to be neutralized, thereby
ensuring greater foreign exchange rate stability and a
continuation towards full dinarisation of the economy. All
of which will lead to greater and sustainable economic
growth.
04
16 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
RETAIL
BANKING
05
In 2017, the retail banking sector remained focused
on the needs of its clients and the development of
long-term relationships with them. Constant growth
in retail loans is one of the key indicators of support
that a Bank with affiliates provides to its clients,
natural persons. Thus, in the last year, 2017, the
loans growth was 34% compared to 2016, to RSD
108 billion (EUR 912 million), which reflected the
market share increase to 12%. When it comes to the
customer base, it was increased by 20.3%. In 2017,
the bank was among the leaders in the housing
loans market, and the growth of placements reached
40% compared to 2016. Societe Generale has
been involved in the loan program for professional
military personnel for nine years, and last year with
the Ministry of Defense and the National Mortgage
Insurance Corporation, and it was the first to sign the
contract for granting subsidized housing loans.
When talking about cash loans Societe Generale
Bank a.d. Belgrade achieved a significant growth of
placements of 39% compared to the previous year,
which once again strengthened its position of one of
the leaders in the local market. The total amount of
deposits in the Retail Sector reached RSD 66.9 billion
(EUR 564 million), an increase of 2.1% compared to
2016.
Many changes have been introduced to the retail
business since the beginning of 2017, but in a
system that nurtures the innovation-based culture of
the whole group, such as Societe Generale, it means
continuous work on an offer that has usable value
for the clients and maximally eases the daily banking
activities.
Sinhro - a new service package for independent experts and freelancers
Since establishment of strategic cooperation with
the Center for Technological Entrepreneurship and
Innovation (ICT Hub), the bank is almost daily in
contact with professionals from IT and close areas,
to whom, due to the specific conditions in which they
perform their business and types of contracts, certain
banking products were not available.
Through the mutual exchange of information and
listening to their needs, the Sinhro was created-
an offer intended for independent experts and
freelancers who receive income through a flat-rate
agency. The Sinhro Package facilitates daily banking
within integrated services for a natural person and a
flat-rate agency.
The Sinhro Package includes the benefits that enable
these entrepreneurs to have a complete overview of
both private and business accounts in their e-banking
application.
For this group of clients, the novelty is also the
possibility of video calls and consultations with the
ANNUAL REPORT – 2017 17
online banker directly from the e-banking application
also out of the working hours of physical branches.
The Sinhro offer includes short-term products, such
as cash loans, account overdraft and credit cards,
to long-term investments such as vehicle leases and
housing loans, which is definitely something for which
these clients have so far been interested mostly.
In addition to the Sinhro Package, we have further
enhanced the services of our m-banking application
through which, with few clicks, without commission,
customers can pay bills or check the status without
logging in. We have also introduced the option of
products purchasing, so our customers can use
m-banking to purchase travel health insurance
directly in the application with just a few clicks.
Enhanced account packages and new payment cards
enable customers to withdraw cash and pay for goods
and services at home, abroad and online quickly and
easily. Moreover, the Societe Generale Cards offer
discounts to customers, i.e. more favorable conditions
for the purchase in the sales facilities of our partners,
marked with the SoGe World mark.
Within the upgraded packages and services, we also
offered three new contactless Mastercard debit cards
- standard, gold and platinum. The new contactless
payment cards allow customers to withdraw cash and
pay for goods and services in the country, abroad,
but also on the Internet quickly, easily and with
numerous benefits, such as the mentioned discount
within the SoGe World program, personal and family
travel insurance for Platinum card users and other
discounts.
Increasing digitization and creation of fintech market
are trends that have placed technology development
as the first priority for all participants in financial
markets around the world. Societe Generale Bank,
dedicated to innovation at global and local level,
in this way wants to encourage dialogue with all
18 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
stakeholders in this area, which aims to improve
the experience of financial services users. On
this occasion, in 2017, a number of workshops
and competitions were organized in the field of
promoting the culture of innovation, among which the
second Fintech Hackathon and the Cashless Case
Challenge were most prominent, where participants
from different profiles - from students to online
entrepreneurs, developers, designers - together
developed prototypes of digital solutions in financial
technologies.
Societe Generale Bank On-line branch
In addition to the aforementioned, the Bank continued
to improve and develop its online branch, the first and
completely innovative e-banking platform through
which customers can complete the entire process of
purchasing certain products and services online.
During 2017, the online branch had a significant
increase in production compared to 2016, which is
103% in terms of approved cash loans, while the
number of approved overdrafts is twice as high as in
2016.
Also, since July 2017, the possibility of increasing
credit cards limits via e-banking “in two clicks” has
been introduced, without the client coming to the
bank.
In percentages, 74% of these requests were
processed by an online branch office, or 86.50%
of the total amount of credit limit increases came
through the online branch office.
The online support team provides support to
customers through video calling, chat, co-browsing
and voice calls. The new enhanced e-banking
platform has proven to be a very important support
in everyday business operations, as simpler banking
products and transactions are transferred to the
digital sphere of business.
ANNUAL REPORT – 2017 19
Business with small businesses and entrepreneurs
The Small Enterprises and Entrepreneurs Sector also
in 2017 continued its growing trend of the client
base. The loan portfolio grew by 24%, while deposits
increased by 14% compared to 2016.
A unique approach to these clients contributed to
this, in which the bank is led by the activity of a
particular company or entrepreneur, that is, through
a segmental offer, it adapts to specific needs in the
fields of production, transport, trade and professional
services. The network of 96 Societe Generale Bank
Srbija a.d. Belgrade branches has personal bankers,
specialized in doing business with small businesses
and entrepreneurs.
In October 2017, Societe Generale and SoGelease,
which is 100% owned by Societe Generale Bank,
signed two loan agreements with the European
Investment Bank (EIB) to support small and medium-
sized enterprises (SMEs), medium-sized capitalization
companies and priority projects in the amount of EUR
60 million. The total amount of the loan arrangement
is EUR 110 million.
The funds provided by these contracts are used to
finance loans for working capital and investments
with a repayment period of up to 12 years - for loans
granted by Societe Generale Bank, and up to seven
years for Sogelease investment loans.
Societe Generale Bank is also a signatory of EIB’s
Youth Employment and Training Initiative (EYET)
for the West Balkans, on the basis of which the
entrepreneurs who wish to apply for loan and at the
same time recruit a young expert receive additional
benefits in terms of favorable interest rates for loan
repayment.
The Bank also participated in the Small Business
Support Program of the Ministry of Economy by
granting loans to small enterprises and entrepreneurs
for the purchase of production equipment. The
program offered the possibility of grant of up to 25
percent from the total investment provided by the
Ministry of Economy, while small enterprises and
entrepreneurs provide five percent of participation.
The remaining 70% of the funds are financed with
Societe Generale Bank loans under special conditions.
Societe Generale Bank Serbia a.d. Belgrade further
confirms its commitment and belief that small
businesses have great potential and importance
for the national economy by supporting the action
“Blic Entrepreneur”. A company from the small
and medium-sized companies segment, which is
recognized by the expert jury as the best within
this program, receives significant cash for business
improvement.
20 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
CORPORATE
BANKING
06
For the Corporate banking division, the year 2017 was
successful both in terms of the loan portfolio growth and
the loan portfolio quality maintenance. The division’s
activities were double focused - to the maintenance and
growth of the portfolio through a proactive approach
and development strategy for large companies on
the one hand and diversification of the portfolio in the
medium-sized enterprise segment on the other, with
constant monitoring of the risks and quality of assets. In
addition, during the year, the sector continued to work on
increasing the efficiency and quality of service to clients,
through optimization of processes and changes in the
organization.
During 2017, the Bank tried to systematically monitor
the needs of its clients and adequately adjust its offer.
Through a series of commercial activities, we managed
to record a significant increase in the volume of
transactional banking and an increase in commission
income with the aim of continuing to work on the
development of this segment of business. Also, the
Bank has enriched its offer with hedging products (such
as interest swap, forward and quasi-forward) as well
as additional services in the field of Financial markets.
During 2017, the Bank successfully implemented the
platform for financing the supply chain with new partners,
thus achieving further growth in the factoring segment.
The leading position of factoring on the domestic market
was confirmed in 2017 with further growth of activities
and traffic. The achieved result provides the basis for
further growth and diversification of business modalities.
ANNUAL REPORT – 2017 21
Despite the limited loan demand, the corporate
sector recorded a growth rate of 24.5%. Having in
mind that in this way the Bank’s market share in
corporate loans grew by about 2%, the Bank confirms
its intention to maintain its very strong market
position in the corporate business. The medium-
sized enterprises business segment kept the trend
of growth also through 2017, through the acquisition
of new clients and a special focus on deepening the
cooperation with all clients in different spheres of
business and relations with the Bank. The achieved
results were significantly above the projected ones,
despite the pressure of competition in this segment of
business and significant pressure on interest rates.
In accordance with the archived growth of loan
portfolio and transaction banking, the deposit base
continued to strengthen, which resulted in an
increase in the deposit volume.
With its approach and strategic commitment to
improving the quality of the service, the Bank
managed to increase the customer base. As in
the previous year, the Corporate banking division
continued to strengthen its position in cooperation
with local and multinational large companies and
medium-sized enterprises, thanks to the quality
of customer relations and understanding of the
specific requirements of each segment. The Bank will
continue to base its strategy on building long-term
partnerships with clients, based on the trust and
quality of the services it provides.
06As in the previous year, the Corporate banking division continued to strengthen its position in cooperation with local and multinational large companies and medium-sized enterprises...
22 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
FINANCIAL
MARKET
ACTIVITIES
07
Financial Markets activities
The Bank has built a strong partnership with its
customers, beneficiaries of products and services
in the financial markets through understanding their
requirements and efficiently providing answers, as
well as offering innovative solutions and creating
added value.
Bank managed to keep its position in the foreign
exchange market in terms of total volume of
transactions with Corporate clients. According to
the official statistics of National Bank of Serbia, the
Bank reached a market share of 10.29 % and was
ranked 4th in trading with Corporate clients. Besides
providing support to the local Corporate clients to the
local Corporate clients, the Bank was an important
partner for International Corporate clients and
financial institutions. Societe Generale Banka Srbija
a.d. Beograd reached a market share of 18.19 %
and was ranked 2nd by transaction volume. Another
very important segment is trading with domestic
banks where the Bank increased a market share in
2017 and with 13.44 % positioned itself on the 1st
position. Despite the large and strong competition
Societe Generale Banka managed to take a leading
position in the one segment and retain high positions
in two segments in the foreign exchange market.
On the interbank deposits market Bank has been very
active with the actual market share of about 10.50 %
in 2016.
Bank has been actively involved in the interbank
money market and government securities debt
market. The Bank is participated in the primary
market of government securities in 2017 and
purchased bonds denominated in RSD, as well as
bonds denominated in EUR. Beside participation in
the primary market of Government debt securities,
Societe Generale Banka Srbija actively participates
also and is one of the leading players in the
secondary market.
In addition to the extremely good results achieved by
the Bank in relation to existing products and services
specific to the financial markets, the Bank was very
successful and contracted numerous interest rate
swap transactions in 2017. Interest rate swaps, as
an instrument of interest rate risk protection, brought
great interest and a good response from clients.
Investment services and activities
Investment Services Unit, as a separate organizational
unit of the Bank with the permission of the Securities
Exchange Commission has been providing clients
services related to financial instruments and capital
markets for 13 years now.
Thanks to continuously improving in services offered,
as well as monitoring of trends in developed markets
and the introduction of new products, the Unit can
offer a truly wide range of services (Brokerage
services in trading with financial instruments on
ANNUAL REPORT – 2017 23
realized in the trading of Republic of Serbia debt
securities, which continue to be the primary focus
of both domestic and foreign investors. By providing
brokerage services in trading with this financial
instrument, the Investment Services Unit has
positioned itself among the five most active market
participants.
In providing brokerage services in shares trading on
the stock exchange, Investment Services Unit has
completed over 1,000 transactions, with an annual
turnover of around RSD 77 million.
Trust, security and innovation are a hallmark in
the Investment Services Unit, which has been both
recognized and appreciated by clients and which is a
solid foundation for long-term partnerships.
Belgrade Stock Exchange as well as OTC market
trading; intermediary services in trading with financial
instruments on foreign markets; Corporate agent
services; Investment advisory services, as well as
other services for public and non-public companies,
such as the listing, delisting, organizing public offers,
shares squeeze outs, etc.).
In 2017, the largest market share and greatest
growth in turnover on the stock exchange was
07
24 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
Custody services
Societe Generale Banka Srbija a.d. Beograd is licensed by the
Republic of Serbia Securities Commission to provide Custody
Services. Even though these specialized services have developed
in a very difficult and competitive environment, the quality of
service provided to clients, along with the experience and expertise
of the unit’s employees continue to make a difference resulting in
long-term clients’ trust. In support of this was that in 2017 Societe
Generale Bank was awarded for the third year in a row by the
world-renowned financial magazine, Global Investor Magazine, as
the best bank in Serbia in the providing of Custody Services.
Societe Generale is the Custody Bank for nine Funds (seven
voluntary pension funds and two investment funds), for which
continues to successfully provide all custody services and daily
valuation and calculation of Funds assets. As of the end of
2017, the total Funds’ Asset under Custody at Societe Generale
Srbija was RSD 38.1 billion. In providing custody services to the
voluntary pension funds, the Bank is absolute market leader with a
100% market share.
Other Bank clients that use custody services are, mostly, from the
segment of domestic and foreign professional investors. Compared
to 2016, the value of the Asset under Custody belonging to all
custody clients increased by 24%, while the value of the Asset
under Custody belonging to voluntary pension and investment
funds increased by 15%, which is the expected growth for those
type of investors. Custody servicing abroad is performing through
Global Custodian of Societe Generale Group (Societe Generale
Securities Services).
The Bank has positively responded to the annual request by clients
from the segment of foreign custody banks who have custody
accounts with Societe Generale Srbija, regarding local and global
compliance issues, in particular UCITS and AIFM Directives.
Custody Department of Societe Generale Srbija has each time
successfully responded and proved that it fulfills all conditions and
that it is a serious and professional capital market participant.
By nurturing professional business relationships, trust, constructive
exchange of information, responsibility and commitment, Bank will
continue to meet expectations and satisfy the high standards of
Custody clients into the future.
GODIŠNJI IZVEŠTAJ – 2017 25
26 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
HUMAN
RESOURCES
08
In 2017, Societe Generale Bank Serbia employed
new 193 colleagues. The competencies that we
have strengthened with the arrival of newcomers are
business analysis, project management, customer
relationship management through customer life cycle
tracking, as well as sales competencies in the field
of small business and retail. At the end of 2017, the
Bank had 1,390 employees, Societe Generale SA
Insurance Company Life Insurance Belgrade had 25
and Sogelease 36 employees.
In order to respond to the ever-shifting changes in
everyday life and business, in 2017 we have prepared
an internal development program “In4change” for our
employees through which they had the opportunity
to exchange experiences and ideas, as well as to
learn techniques that would help them to cope with
their feelings in easiest and most efficient way when
confronted with changes in private and business
life. The program is very interactive and starts from
understanding world trends, explaining typical
human reactions to changes, and finally focusing
on individual ways of dealing with changes and
empowering personal responsibility for one’s own life
and career.
As in previous years, the focus was on strengthening
managerial culture through a new internal program
“Management Fundamentals”, attended by young
managers this year. The program is focused on
providing feedback, different managerial styles and
their impact, employee development, employee
management based on their strengths, and together
with 360 degree assessment it was the basis and
support for personal development of managers, as
well as for the development of their employees.
We continued with the “Innovation curriculum”
program to support the development of innovations.
This year, within this program, we organized creative
thinking workshops “Creative breakfast”, “How to
implement the project in the set time”, “How to
innovate the process”, we visited different Meet up
events and organized the second FinTech Hackaton.
By applying the methodology used by startup teams
in the development of their products, employees are
encouraged to approach the problem analysis and
ideas development in an innovative way.
We launched the “Bankers of the Future” program,
which is aimed at enabling our young talents to
deliver their potentials through thinking outside the
framework, using new technologies to improve and
simplify processes and be the bearers of changes in
the bank.
As we nourish the practice of internal expertise
and experience sharing, different trainings have
been organized to share specific knowledge among
colleagues (project management, macroeconomic
research, excel, SAS, small business, financial
ANNUAL REPORT – 2017 27ANNUAL REPORT – 2017 27
analysis, risk management, IFRS 9) as well to develop
different skills (presentation skills, communication
skills) by using different team coaching methods.
Colleagues from the Retail Sector also shared the
knowledge internally through various trainings, video
trainings and virtual applications to serve as a true
example of universal bankers and provide a better
user experience for our clients.
Colleagues from Commercial Sector went through
sales trainings through which, depending on the
type of client, they discovered how to choose
communication approach, recognize and respond
to needs, as well as through the internal program
“Corporate Risk Academy”, which enabled them
through remote modules to develop sales skills but
also raise awareness of risks.
By digitizing the training, i.e. by creating various
modules for distance learning and video materials
using digital tools (Mohive, Camtasia, Prezi), we
have enabled our colleagues to get information on
important regulatory issues and products and services
of the bank in a quick and efficient way: information
security, business compliance, money laundering
prevention, Master Card, SINHRO offer.
We organized the “All to Front” campaign during
which he colleagues from support services assisted
colleagues from branches when presenting new
m-banking applications to clients and welcoming
0808
28 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
banking sector through work at various positions and
projects, as well as contributing to the development of
our business with creative proposals and ideas. Upon
completion of this one-year program, 6 students got
their first job in our bank.
We continued with good cooperation with educational
institutions in Serbia through a professional practice
program in which 110 students participated during
the last year, but also through participation in
interview simulation programs, case studies, panel
discussions about success of modern management,
talents and support to employment of young people
supported by various student organizations and
the Ministry of Youth and Sports. We opened the
doors of our bank to the students and enabled them
to participate in various lectures and workshops
on Virtual reality. Our colleagues, as every year,
participated as lecturers in secondary schools and
through their experience presented the current topics
related to digitization, the impact of new technologies
on banking operations, fintech
new clients from Alpha Bank. Action All to Front is an
example of team spirit and a unique bank experience.
It was important for us to hear the opinion of our
employees, and this year again we conducted a
satisfaction survey. The results showed employees’
commitment to express their opinion and confirmed
that we are living our values. We are extremely proud
of recognizing access to innovation, because this
was the focus of our common effort. Team spirit
is recognized through good collaboration between
teams and sharing success among colleagues,
and responsibility through a strong culture of risk
monitoring, ethics in work and social responsibility.
Our employees are proud to work for SGS and
support the strategy and direction of our entity.
The Employer's image
During 2017, the program “Tour de Soge” was
implemented, within which 10 students of different
profiles had the opportunity to get acquainted with the
ANNUAL REPORT – 2017 29
08
Responsible employer
In order to respond to the accelerated pace of life and
the need of our employees to relax through various
activities, we continued with organizing business
yoga in our premises, as well as various initiatives
of free advice of nutritionists on healthy lifestyle
and nutrition. Also, having in mind the welfare of
our colleagues, our employees had a private health
insurance service also this year.
We also made video materials with life coach tips so
that employees can get useful tips on current topics
at the beginning of the working day each morning as:
healthy lifestyle, morning rituals, the importance of
daily rest, energy vampires and overcoming stress.
In order to recall the importance of a healthy lifestyle
and mutual care, employees also received fruit
packets.
In 2017, we monitored the banking market in the
field of benefits to ensure that we provide adequate
packages for our employees and be competitive on
the market.
SGS employees as volunteers
During 2017, we continued with the “Inclusive
Academy” program for people with disabilities, and
as in previous years, the employees shared their
skills, knowledge and experiences from practice with
participants on various topics: career management,
interview preparation, assertive communication,
project management, digitalization and social
networking, presentation skills. Participants in our
program become more competitive on the market and
are empowered for further job search.
More than 30 of our colleagues this year participated
in the ninth corporate volunteer campaign “Our
Belgrade” and invested a lot of energy and
enthusiasm in order to contribute to the quality of life
and work of their fellow citizens, showing that they
take care of the community they live and work at.
This year, our bank joined a humanitarian campaign
for young people without parental care during which
the employees donated New Year gifts and thus
demonstrated the strength of our team spirit and
solidarity towards the community in which they live.
30 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
CORPORATE
SOCIAL
RESPONSIBILITY
09
In 2017, Societe Generale Bank marked a significant
jubilee - 40 years of business in Serbia. Over the past
decades, besides business development, the bank
was dedicated to and contributed to the community in
which it runs business.
Responsibility, dedication, innovation and team spirit
are valuesthat the bank follows in every aspect of the
business. They are rooted in business policy towards
the employees, the customers, the environment, and
by giving added value to the local community. The
Corporate Social Responsibility strategy relies on four
pillars of support to the local community. These are
support to entrepreneurship, innovation, culture and
population vulnerable groups.
The development of a society is not possible without
close cooperation of all stakeholders, and the role of
the corporate sector is very important, but not only
for financial support, but because socially responsible
initiatives provide added value to the local community
they are targeting. Concepts such as mentoring,
training, competition, promotion at the general public
and networking and expansion of the network of
partners will get more and more important.
Another trend is certainly the networking of partners
from different sectors. Same as different industries
merge in business, so the concepts of social
responsibility will develop in this direction.
Since 2016, Societe Generale Serbia has been
included in the Responsible Business Index list
- the first national corporate social responsibility
assessment platform that enables an objective
comparison of the effects and impacts that the
company generates to the society through its
operations.
With the wish to add additional contribution to
empowering technological entrepreneurship in Serbia,
the Bank has initiated cooperation with the ICT
Hub Center for Technological Entrepreneurship and
Innovation, which created a long-term partnership
with benefits for all involved parties.
Together we organized various events, such as
two fintech hackatones and the Open Innovation
Challenge, which rewarded teams with the best ideas
applicable in the development of the banking future.
Also, the cooperation opened the bank’s door to
new partners from the start-up ecosystem that are
developing innovative products and services for users
in an increasingly advanced digital environment.
In the year when we celebrate 40 years of business in
Serbia, the need has emerged to strategically unify all
that the bank has done in the field of innovation in the
last couple of years. Thus, the Generator platform was
created, which was launched through a competition
for the selection of 40 entrepreneurial innovations
that are innovative, feasible and sustainable.
The competition was supported by the Bank’s
ANNUAL REPORT – 2017 31
partners, and 780 projects have applied, which is
an outstanding success and another proof that the
entrepreneurial spirit in Serbia exists.
Generator is actually a long-term platform that will
exist in the future as a place where the initiatives
and events that contribute to the development of
innovation and entrepreneurship will be promoted.
The “Connect” slogan is for all those who wish
to enter into entrepreneurial waters or expand
the existing business to follow Societe Generale’s
activities in Serbia, whether they want to connect with
a bank or some of the partners, to be participants
in one of the events such as hakatones and other
gatherings that are in the focus of innovation, or a
part of events and conferences that promote digital
business and entrepreneurship.
09
Besides the Generator, same as in the past years,
Société Generale Serbia supported also the
organization of great cultural events throughout
country, in partnership with the Belgrade Dance
Festival, the French Institute in Serbia, the Young
Talents’ Association “Artlink” and other local partners.
The Bank is a member and one of the founders of the
UN Global Compact for Serbia and of the Business
Leaders Forum, the two most important initiatives that
bring together socially responsible companies.
32 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
RISK
MANAGEMENT
10
Risk Management Policy
In its operations the Group pays special attention
to developing risk management system which
guarantees stable growth of portfolio, profitability
and long-term business success. In order to
establish an effective system of risk management
the Group continuously identifies, assesses,
measures, evaluates, prevents, controls and internally
communicates its risk exposure.
Risk management system is implemented through
appropriate policies, methodologies and procedures
of the Group. With this in mind, the Group is devoted
to constantly upgrade its risk management processes
in order to tackle the challenges on the market and
provide compliance with changes in local legislation
and demands of Societe Generale Group.
Key goals in risk management are related to
protection and optimization of the structure of capital,
as well as increase of its economic value.
In its operations the Group is primarily exposed to
the following risks: credit risk, exposure to a single
entity or group of related entities (concentration
risk), liquidity risk, interest rate risk, market risks and
operational risk.
Organization of Risk Management Process
Risk management is organized in accordance with
the provisions of the Law on Banks, the relevant
decisions of the National Bank of Serbia which define
the field of risk management and capital adequacy of
banks, as well as the best practice and international
standards.
An important role in this process plays the
management of the Bank. In this sense, the Board
of Directors is in charge of establishing the risk
management strategy, capital management strategy
of the Bank, as well as risk management policies for
individual risks. The Executive Board is responsible
for implementing strategies and policies for risk
management, as well as for the strategy for managing
capital. The Executive Board is in charge of adopting
procedures for the identification, measurement,
assessment and risk management. It also reports to
the Board of Directors on the adequacy of the risk
management process.
In order to create an adequate framework for risk
management, the Bank defines and updates the risk
management strategy. Main aspects of the strategy
are Risk Appetite Framework and Risk Appetite
Statement. These documents define the level of the
risk that the Group is willing to accept in order to
reach its long-term strategic business goals. The
strategy is further implemented through individual
ANNUAL REPORT – 2017 33
risk management policies in the segments of work
with individuals, entrepreneurs and small business
entities and legal entities. In this way, the Group
ensures that the implementation of business policy
takes place within acceptable limits from the point of
view of credit risk, which should be reflected in the
overall quality of the loan portfolio.
Key principle in risk management process is
independence of the risk management function in
relation to functions that assume risks. Therefore a
central role in the process of risk management is
played by a separate and independent organizational
unit of the Bank that specializes in risk management -
Risk Division.
Credit Risk
Credit risk is the risk that the Group will incur a loss
because its borrowers will not be able to fully or
partially fulfill its obligations according to contractually
defined deadlines. Credit risk mainly originates from
loans disbursed to clients of the Group and similar
exposures.
Credit Risk Management
The Group manages its credit risk exposure on the
level of individual counterparties as well as on the
level of its portfolio.
10
34 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
At the level of individual customers the Group
adheres to rules not to approve loans or other
placements unless having enough information to be
able to adequately assess the financial position and
creditworthiness of borrowers as well as all risks
associated with a specific transaction with the client.
The Group also does not engage itself in approving
loans and similar exposures whose characteristics
deviate from the Group’s credit risk management
policies.
At the level of the total portfolio the Group manages
the credit risk by matching loan maturities with the
purpose of the loan, type of loan or client as well as
by using appropriate instruments of collateral.
By analyzing the individual debtors of the Group and
their business activities as well as macroeconomic
trends Risk Division provides guidance to
management to direct the business activities towards
customers, markets and products whose risk profile is
acceptable to the Group.
Collateral Policy
The Group seeks to secure all its placements with
appropriate collateral. By using collaterals the Group
reduces exposure to credit risk. The Group pays
special attention to marketability and adequate
appraisal of the collateral value as well as constant
analysis of the collateral instruments.
Impairment and Provisioning Policy
Under impaired loans the Group includes all
exposures for which it was determined that in total
or partially cannot be collected due to significant
deterioration in the financial condition of the debtor.
With its procedures, the Group has provided adequate
identification and measurement of the amount of
impairment of receivables that are accounting-
wise covered through the allowance for impairment
of balance sheet assets and off-balance sheet
provisions.
Allowance for impairment of balance sheet assets
and off-balance sheet provisions are determined
based on available historical data on losses arising
from placements with similar characteristics in terms
of credit risk, as well as on the basis of individual
assessments of debt collection from defaulted clients.
Credit Risk Management Achievements
In macroeconomic environment characterized by
modest economic growth, the Group has continued
with significant improvements in its risk management
processes, in order to prevent potential negative
consequences for its business. Among major changes
are improvements in collection of non-performing
loans by more active implementation of the strategy
for sale of problematic exposures as well as more
active realization of collateral instruments, which
affected significant decrease in the level of non-
performing exposures. Non-performing exposures
were further reduced in 2017 using the so-called
accounting write-off of problematic receivables, i.e.
write-off without debt relief.
In accordance with the NBS regulation in 2017, the
Group carried out the full implementation of Basel
III standards. During 2017, the Group invested
significant resources towards the full implementation
of the new IFRS 9 standard that significantly
changes the credit loss calculation in relation to the
previous IAS 39. In this respect, the Group has also
improved the processes of impairment and credit risk
exposure forecasts. This influenced improvements
in the Group’s impairment calculations as well as
estimations related to credit risk exposure.
Conservative policy of credit risk management
provides a sound basis for further development of the
business model and obtaining positive results in the
future.
ANNUAL REPORT – 2017 35
On annual level the Group carries out internal
capital adequacy process (ICAAP) which in course of
2017 has confirmed good level of capital adequacy
and resilience to various risks even in stressed
circumstances.
In 2018 the Group will continue to improve its Risk
Appetite Framework and Risk Appetite Statement to
guarantee the stability of the Group and its successful
performance.
Detailed overview and analysis of the process of
credit risk management is given in the notes to
financial statements for 2017.
Operational Risk
Operational risk is a risk of negative effect on
financial result and capital of the Group due to
failures (intentional or non-intentional) in the work of
employees, inappropriate procedures and processes,
inadequate management of IT and other systems in
the Group, as well as unforeseeable external events,
in particular including events that are unlikely to occur
but that might entail great losses, risks of internal and
external frauds and risks related to models. With the
exception of strategic risk, operational risk includes
legal risk, compliance risk and reputation risk, in
accordance with SG Group standards.
Operational risk management encompasses:
Activities aiming to identify, monitor and measure
operational risk:
- Internal loss collection
- Key Risk Indicators
- Risk Control and Self Assessment
- Scenario Analysis
- Operational risk assessment at implementation/
modification of new products and outsourcing of
certain activities
- Business Impact Analyses in case of interruption
of activities
Preventive activities:
- Managerial Supervision as a base for internal
control system
- Business Continuity planning which provides
protection in case of interruption in business
activities and extreme risks.
Operational risk is inherent to all products, activities,
procedures and systems of the Bank. Dealing with
operational risk is an integral part of management
positions at all levels. It is based in large part on
internal control system, which notably includes the
Managerial Supervision carried out at all levels and
the periodic controls performed through audits.
This system implies that operational risk shall be
considered a risk category in its own right and
thus subject to special detection and assessment,
monitoring and control methods, all contributing
to the development of appropriate risk mitigation
measures, and possibility to determine the Bank’s
overall risk profile. To be effective, management of
operational risk needs the settlement of an adapted
governance, leaded particularly through Operational
Risk Committee and the implemented system of
internal controls, as well as appropriate organisation
structure, cornerstone being Permanent Control
and Operational Risk unit that proposes policies,
methodologies, plans and procedures for operational
risk management, and the deployment of appropriate
tools (loss collection, RCSA etc).
For the purpose of calculation of capital requirement
for operational risk the Bank uses Basic Indicator
Approach in line with NBS Decision on Capital
Adequacy by Banks. Internal capital requirement
for operational risk is quantified using the special
approach based on expected losses and scenario
analyses.
10
36 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE36 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
Business Continuity Plan
To ensure continuity of its operation, the Bank
adopted Business Continuity Plan, which ensures
smooth and continuous functioning of all important
systems and processes of the bank, as well as
limitation of losses in emergency situations.
Internal Audit
Through performance of planned audit missions and
special engagements / investigations, Internal Audit
assesses adequacy and reliability of Bank’s internal
control system and compliance of its business
operations. The Internal Audit communicates the
results of its work to the Bank’s management, thus
ensuring that risks are appropriately identified and
controlled. The Internal Audit regularly prepares
reports on its activities and submits them to the Board
of Directors and the Audit Committee.
Compliance
Compliance unit has been established in SGS in line
with Law in banks (article 83 and 84) and comprises
following risks:
1. Regulatory risk
2. Financial loss risk
3. Reputation risk
ANNUAL REPORT – 2017 37
The Bank’s compliance risk arises as the
repercussion of the Bank’s failure to comply with:
1. The laws and other regulations,
2. Internal acts regulating Bank’s operations
3. Professional standards, best practices and
Bank business ethics
The risk of financial loss occurred due to the risk
of regulatory sanction, can be significant and may
affect the reputation risk as well. Reputational risk
in addition to the above can occur due to disrespect
of banking codes of professional conduct which
primarily includes fairness, transparency in operation,
avoidance and prevention of conflicts of interest,
anti bribery and corruption and prevention of market
abuse.
Compliance unit monitors compliance of Bank
internal acts, in particular those acts relative to:
Compliance with regulations; observance of bank
secrecy; abuse of market and privileged information
proceeding from special authorizations; conflicts of
interest which may proceed from a Management
position or ownership status of the client and/or the
Bank as well as other conflicts in accordance with
the Law; Code of professional banking conduct and
whistle blowing rights; transparency of offer of new
services (products) to Bank’s clients; anti corruption
and bribery activities; internal rules relative to the
development/change of existing and approval of new
services (products) of the Bank and consultations and
advisory services provided by the Bank.
New activities and organization of work is developed
within the Unit in order to strengthen internal controls
and process of monitoring of standards and good
business practices which are under responsibility of
the Compliance unit.
Compliance unit raises awareness of employees
about the need to act in accordance with the
legislation, internal acts of the bank, standards and
best business practices through training of staff
during the year especially about potential regulatory
risks in daily activities, prevention of conflicts of
interest and bribery and corruption, keeping bank
secrecy, reputation risk.
10
38 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
LIQUIDITY
MANAGEMENT AND
INTEREST RATE RISK
11
Liquidity management is a continuous process of
estimating the need for liquidity in regular business
situations (“business as usual”), as well as planning
of management in unforeseen circumstances, by
providing an adequate level of liquid assets based
on a liquidity needs analysis, as well as by analyzing
changes in the balance sheet and off-balance sheet
structure of the bank.
Liquidity is the ability of the bank to provide sufficient
liquid assets to unconditionally satisfy all due liabilities
arising from balance sheet liabilities (withdrawal
of deposits and other sources of financing), assets
(financing of new loans), as well as from off-balance
sheet positions.
The Assets and Liability Management Department
within the Finance sector is responsible for managing
the liquidity of the bank. Daily and short-term liquidity
up to 30 days is managed by the Operations service
of the Assets and Liabilities Management Department.
Daily or operational liquidity is managed in order
to provide sufficient liquid assets in each currency
and perform unconditional and timely payment of
all due liabilities, both in regular business conditions
and in stressful circumstances. The ALM reporting
service within the Assets and Liability Management
Department is responsible for assessing the liquidity
position over a longer period that arises from the
overall balance sheet structure of the Bank. The
Assets and Liabilities Management Department
reports on a regular basis to the Assets and Liabilities
Management Committee (ALCO), which is primarily
responsible for monitoring the Bank’s exposure to the
risks arising from the balance sheet and off-balance
sheet positions assets and liabilities structure, as well
as to propose, consider and adopt measures in order
to mitigate structural risks.
The main objectives in the Bank’s liquidity
management process are:
Diversification of financing sources;
Securing current liquidity through the mobilization
of funds in the amount sufficient and of currency
structure appropriate for the smooth execution
of all due liabilities, taking into account the
estimated future cash flows for a period of up to
30 days, as well as the medium and long-term
assessment of the Bank's liquidity position;
Providing an adequate reserve ("buffer") of
liquidity consisting of high quality liquid assets
that can be converted into cash in the financial
market easily and with minimal costs, such as the
portfolio of securities of the highest credit rating,
i.e. treasury bills and bonds issued by the Ministry
of Finance of the Republic of Serbia. The Bank
invests in these securities in accordance with the
"Investment portfolio policy";
ANNUAL REPORT – 2017 39
Providing framework credit lines that can be used
at any moment for the purpose of maintaining
liquidity;
Maintenance of the required level of obligatory
dinar and foreign currency reserves, in
accordance with the regulations of the National
Bank of Serbia;
These goals are instrumentalized through the cash
inflows and outflows of cash planning; structure,
stability and concentration of deposits analysis;
as well as determining, measuring and monitoring
liquidity indicators.
The liquidity level is expressed by the liquidity ratio
which represents the ratio of the collection of liquid
assets of the first and second order (cash, funds
on accounts with other banks with adequate credit
rating, deposits with the National Bank of Serbia,
claims in the process of collection, irrevocable credit
lines granted to the Bank, on the stock exchange and
other Bank receivables that are due for up to one
month) and collect at sight obligation without agreed
maturity in the appropriate percentage and liabilities
with the agreed maturity within the following month.
The Bank is required to manage liquidity in a way to
ensure that the liquidity indicator is:
At least 1.0 when calculated as the average of
the liquidity indicators for all working days of the
month
It should not be less than 0.9 for more than 3
consecutive working days
At least 0.8 when calculated for one business day
The liquidity indicator in 2017 was always within the
prescribed limits and its trend was as shown in the
table below:
2017
Average during the period 1.59
Highest 1.94
Lowest 1.35
In addition to the above mentioned, the Bank
calculates and monitors the tight liquidity indicator
prescribed by the National Bank of Serbia, which was
also in compliance with the defined limits in 2017.
The Bank also calculates the Liquidity Coverage Ratio
(LCR), which aims to strengthen banks’ resilience to
short-term shocks, or liquidity disturbances on the
market. Liquidity Coverage Ratio (LCR) is a measure
of the bank’s ability to provide sufficient liquid assets
in order to fulfill all matured liabilities in the event of
significant financial market distress (stress scenario)
for a period of 30 calendar days, by ensuring an
adequate amount of unresolved high quality liquid
assets (HQLA), such as cash or assets that can
be quickly, easily and with minimal loss of value
converted into cash in financial markets.
11
40 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
ANNUAL REPORT – 2017 41
Long-term or structural liquidity is monitored through
an analysis of the balance sheet and off-balance
sheet positions structure, as well as the projection
of cash flows and liquidity gaps, especially for each
of the significant currencies. The liquidity gaps
are projected on the basis of agreed maturity and
depreciation plans, but taking into account both
behavioral assumptions and modeling of cash flows
for items with no agreed maturity (current accounts,
at sight deposits, and the like).
In order to comprehensively monitor the liquidity risk
exposure, the Bank has established an early warning
system for the purpose of timely identification of a
potential liquidity crisis. The Bank also assesses the
cash flows and the adequacy of liquidity reserves in
the event of occurrence of unforeseen, unfavorable
events, i.e. develops a scenario analysis and performs
stress testing in accordance with the Continuity
Management Plan as well as the Recovery Plan.
The bank carries out diversification of sources
and optimization of financing costs by collecting
commercial deposits, both of the population and the
economy, by contracting loan arrangements with the
International Financial Institutions and credit lines
with the parent bank, as well as by using all available
capacities of the interbank money market.
Interest rate risk
Interest rate risk is defined as the risk of possible
negative effects on the financial result and capital of
the Bank due to unfavorable trends in market interest
rates. For the purpose of adequate interest rate risk
management, the ALM reporting department within
the Assets and Liabilities Management Department:
Conducts the process of identification,
measurement, mitigation and monitoring of
interest rate risk on a regular basis;
At least quarterly, it makes an interest rate gap for
all significant currencies in order to examine the
exposure to interest rate risk;
Regularly reports to the Assets and Liabilities
Management Committee of the Bank on exposure
to the interest rate risk;
Interest rate risk is measured and analyzed from the
point of view of its impact to the net interest margin
(income perspective) and the economic value of
capital.
The income perspective refers to the measurement of
the impact of interest rate changes to the net interest
income of the bank. Measurement is performed on
the basis of the projection of cash flows of interest-
sensitive positions in the banking book of the balance
sheet and certain off-balance sheet items, i.e. the
creation of an interest rate on which different interest
rate scenarios are applied that cover different types
of interest rate risk, such as the risk of time mismatch
in maturity and pricing, basic risk, yield curve risk,
etc. Cash flows for interest rate risk assessments are
determined on the basis of the earlier of the following
two dates:
The date of the next change in interest rates and
Maturity date, as well as on the basis of applying
other assumptions for converting balance
sheet positions without a fixed maturity date
or a repayment plan into cash flows (demand
deposits, etc.).
The perspective of the economic value of capital
focuses on the effect of changing interest rates on the
economic value of assets and liabilities, or the change
in the economic value of capital. On the results of
the measurement of interest rate risk, the Assets and
Liabilities Management Committee is reported on a
regular basis.
11
42 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
CAPITAL MANAGEMENT
AND CAPITAL ADEQUACY
INDICATORS
12
The main strategic goal of the Bank in terms of
capital management is the effort to use available
capital resources economically and in accordance
with the defined business development prospects
of the Bank. The Bank’s capital management policy
priority is to cover the potential losses of the Bank, the
resulting negative effects arising from risk exposure,
in relation to yield performance. In the process of
capital management, the focus is on continuous
monitoring of capital adequacy. The Bank’s capital
level that is considered as adequate is the level of
capital that ensures the implementation of the Bank’s
strategy and business policy, and at the same time
provides cover for all risks that the bank is exposed to
in its operations.
Capital management is based on:
The process of the risk identification,
measurement and assessment
Ensuring an adequate level of capital in
accordance with the risks that the Bank is
exposed to in its operations
Adequate incorporation of capital management
into the bank’s management and decision-making
system
Regular analyzes, monitoring and verification of
the capital management process of the bank.
The central role in the capital management process
is the management of the Bank - the Assembly,
Board of Directors and the Executive Board. It is the
responsibility of the Bank’s Assembly to decide on
all capital increases, as well as the adoption of the
Bank’s business policy and strategy, which defines
the input data for the Bank’s capital planning for the
next business year.
It is within the competence of the Bank’s Board of
Directors to establish a strategy for risk management
and risk supervision that the bank takes over as part
of its business activities, which affect the level of the
Bank’s capital adequacy, as well as the strategy for
managing the Bank’s capital.
Within the function of the Bank’s strategic risk
management, the Executive Board of the Bank
proposes the business policy and strategy of
the Bank, capital management strategy and risk
management strategy and policies to the Board of
Directors, implement all these policies and strategies,
and adopt procedures to identify, measure, and
assess the risks to which the Bank is exposed in its
operations, which affect the adequacy of the Bank’s
capital and hence the future business decision.
Within the process of capital management, the
competence of the Executive Board of the Bank is to
incorporate the planning of capital into all business
decisions and procedures related to business
planning, timely inform the Board of Directors of the
ANNUAL REPORT – 2017 43
12
needs for capital and enable adequate reporting
of the bank’s external supervisory authorities on
the level of capital adequacy. Considering that the
Bank’s capital management is in high correlation
with the risk profile of the Bank, in addition to the
Bank’s organizational parts belonging to the standard
management hierarchy, the Bank has established a
number of committees in charge of monitoring the
exposure to existing risks, as well as planning and
anticipating the potential exposure to new types of
risks.
Capital of the Bank in 2017
On June 30, 2017 amendments to the NBS
regulations came into force in order to comply with
Basel III standards. The new regulations introduced
changes in the calculation of capital and the
calculation of risk-weighted assets.
The total capital of the Bank consists of Common
Equity Tier 1 capital, additional Tier 1 capital and Tier
2 capital.
The Tier 1 capital of Bank consists of: sharecapital
based on ordinary shares, share premium,
revalorization reserves, profit reserves, regulatory
adjustments of the Bank’s basic share capital
elements value, intangible investments, deferred tax
assets that are dependent on the future profitability
of the Bank, other than those arising from temporary
differences, decreased for deferred tax liabilities and
required reserves from profit for assessed losses on
balance sheet assets and off-balance sheet items of
the Bank as deductible item.
Tier 2 capital consists of subordinated liabilities that
are included in the supplementary capital of the
Bank in accordance with the valid Decision on capital
adequacy.
In accordance with the valid Decision on capital
adequacy, the Bank is obliged to calculate the
following indicators:
the Bank’s basic Common Equity Tier 1 capital
adequacy ratio which is equal to the ratio of the
CET1 capital and the risk-weighted assets of the
bank and can not be below 4.5%
the Bank’s Tier 1 capital adequacy ratio that
is equal to the ratio of the Tier 1 capital and
risk-weighted assets of the bank and can not be
below 6%
the Bank’s total capital adequacy ratio, which is
equal to the ratio of the total capital and risk-
weighted assets of the bank, and can not be
below 8%.
In addition, the Bank is required to maintain capital
adequacy ratios enhanced in a way that allows
covering the requirements for a combined buffer.
44 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
ANNUAL REPORT – 2017 45
The Bank’s risk assets represent the sum of the
total amount of risk-weighted exposure to loan
risk, counterparty risk, price risk for trading book
activities, foreign exchange risk, risk of adjusting loan
exposure for all business activities of the bank and for
operational risk.
Starting from June 2017, the level of capital and the indicator of adequacy had the following trend:
in 000 RSD JUN 2017 DEC 2017
Total capital 28,313,313 37,685,020
Tier 1 capital 24,934,714 33,477,488
CET 1 24,934,714 33,477,488
Share capital and share premium 23,724,274 23,724,274
Profit reserves 9,957,177 9,957,176
Revalorization reserves 792,251 754,613
Intangible investments -662,807 -781,002
Deferred tax assets -226,445 0
Required reserve as deductible item -8,603,171 -138,561
Other regulatory adjustments -46,565 -39,012
Additional Tier 1 capital 0 0
Tier 2 capital 3,378,599 4,207,533
Subordinated liabilities 3,378,599 4,207,533
Total risk weighted assets 176,147,723 213,651,451
Total risk weighted assets for credit risk 149,465,551 185,344,226
Total risk weighted assets for market risk 3,604,431 3,225,712
Total risk weighted assets for operational risk 23,035,454 24,997,788
Total risk weighted assets for CVA 42,288 83,725
Total capital adequacy ratio 8% 16.07% 17.64%
CET1 capital adequacy ratio 4.5% 14.16% 15.67%
Tier 1 capital adequacy ratio 6% 14.16% 15.67%
During 2017, the Bank maintained the level of capital adequacy in regulatory frameworks.
During 2017, there was no need for recapitalization in the form of a new issue of shares.
12
46 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
FINANCIAL
INDICATORS
13
1. Consolidated income statement
RSD 000 2017 2016 VAR 17/16
NET BANKING INCOME 13,927,525 13,193,506 5.6%
Interest income 13,679,256 13,305,797 2.8%
Interest expenses (2,563,169) (2,714,711) -5.6%
Net interest income 11,116,087 10,591,086 5.0%
Fees and commissions income 4,778,248 3,852,186 24.0%
Fees and commissions expense (2,279,968) (1,677,558) 35.9%
Net fees and commissions income 2,498,280 2,174,628 14.9%
Net gains (losses) from financial assets held for trading (661,755) (49,278)
Net exchange rate gain/losses and gains/losses from effects of foreign currency
clause576,244 86,576
Net income from invesments in affiliates and joint ventures 29,151 31,328 -6.9%
Other operating revenues 369,518 359,166 2.9%
OPERATING EXPENSES (9,172,752) (8,526,358) 7.6%
Salaries, wages and other personal expenses (3,455,740) (3,371,743) 2.5%
Amortization expenses (501,878) (435,499) 15.2%
Other expenses (5,215,134) (4,719,116) 10.5%
GROSS OPERATING INCOME 4,754,773 4,667,148 1.9%
Net charge for impairment of financial assets and off balance sheet credit risk
items (524,665)
Net gains for impairment of financial assets and off balance sheet credit risk
items2,302,450 -
PROFIT/ LOSS BEFORE TAXES 7,057,223 4,142,483 70.4%
Income tax (521,889) (54,237) 862.2%
Loss on deferred taxes (209,871) (277,438)
PROFIT/ (LOSS) AFTER TAXES 6,325,463 3,810,808 66.0%
* management view
ANNUAL REPORT – 2017 47
Consolidated net banking income reached RSD 13.9 billion (EUR 114.7 million), which is 5.6% more
than in the previous year. Despite the low interest
rates environment, net interest income has increased,
largely due to lower interest expenses, due to
changes in the deposit base in terms of structure and
interest rates amount. There was also a significant
increase in net income from fees and commissions,
as well as incomes from financial transactions.
At the end of 2017, consolidated operating expenses amounted to RSD 9.2 billion (EUR 75.5
million), which is above the level of 2016 by 7.6%,
primarily due to the increase of other expenditures
(including the increase in expenses based on write-
off or sale of receivables) and depreciation costs,
while the costs of salaries, wages and other personal
expenses are kept at a stable level.
In 2017, consolidated profit is RSD 6.3 billion (EUR 52.1 million), which is 66% more compared to
2016 level, due to the significant positive contribution
of net gains from impairment of financial assets and
off balance sheet credit risk items
13
48 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
2. Consolidated balance sheet
Assets in RSD 000 31.12.2017 31.12.2016 VAR 17/16
Cash and balances with the central bank 30,596,133 23,765,145 28.7%
Financial assets at fair value through profit and loss held for trading 1,964,099 17,088
Available-for-sale financial assets 37,005,636 40,611,993 -8.9%
Loans and receivables to banks and other financial institutions 2,222,869 6,425,134 -65.4%
Loans and receivables to customers 217,272,549 168,367,109 29.0%
Retail 108,068,253 80,639,846 34.0%
Corporate 109,204,296 87,727,263 24.5%
Investments in associates and joint ventures 242,629 245,786 -1.3%
Intangible investments 781,002 684,302 14.1%
Property, plants and equipment 2,968,306 3,214,410 -7.7%
Investments immovable 18,384.00 19,655 -6.5%
Current tax assets - 201,774 -100.0%
Deferred tax assets - 131,760 -100.0%
Other assets 1,683,151 1,036,093 62.5%
Total assets 294,754,758 244,720,249 20.4%
Liabilities 31.12.2017 31.12.2016 VAR 17/16
Financial liabilities at fair value through income statement held for trading 42,272 13,118 222.2%
Deposits and other liabilities to banks, other financial organizations and the
central bank 72,431,890 45,076,773 60.7%
Deposits and other liabilities to other customers 165,425,303 141,900,016 16.6%
Retail 66,875,805 65,489,765 2.1%
Corporate 98,549,498 76,410,251 29.0%
Issued own securities and other borrowed funds - - -
Subordinated liabilities 8,889,583 9,264,383 -4.0%
Provisions 1,002,735 1,053,249 -4.8%
Current tax liabilities 259,186 -
Deferred tax liabilities 38,238 -
Other liabilities 5,712,989 6,778,714 -15.7%
Total liabilities 253,802,196 204,086,253 24.4%
Capital 31.12.2017 31.12.2016 VAR 17/16
Share capital 23,724,274 23,724,274 0.0%
Profit 6,515,083 5,968,994
Reserves 10,713,205 10,940,728 -2.1%
Total capital 40,952,562 40,633,996 0.8%
Total liabilities 294,754,758 244,720,249 20.4%
ANNUAL REPORT – 2017 49
The consolidated balance sum increased for 20.4% to RSD 294.7 billion (EUR 2.5 billion) in 2017
from RSD 244.7 billion (RSD 1.98 billion) at the end
of 2016.
At the end of 2017, the amount of loans to customers reached RSD 217.3 billion (EUR 1.8
billion), which is an increase of 29% compared to the previous year. As in previous years, the retail business segment has recorded excellent commercial results with placement growth by 34% in 2017 to RSD 108 billion (EUR 912 million),
which is the result of organic growth during the year
in the segment of cash and mortgage loans, in the
small business segment, as well as the takeover of
the loan portfolio of one of the domestic banks at the
end of 2017, thus consolidating the position of the
second largest bank in retail banking in Serbia.
In the corporate sector, the level of placements at the end of 2017 amounted to RSD 109.2 billion (EUR 922 million), which is 24.5% more than in
2016, due to the continuation of dynamic growth in
the segment of medium-sized enterprises, as well
as the growth of placements in the segment of large
business entities.
Total deposits at the end of 2017 reached the level
of RSD 165.4 billion or EUR 1.4 billion (+ 16.6%
compared to 2016). At the end of 2017, retail
deposits remained at a stable level of RSD 66.9 billion
(EUR 564 million), with continuous trend of changing
their structure and the increase in A Vista deposits
and savings deposits, and on the other hand, the
decrease in the level of term deposits. The growth
of corporate deposits continued in 2017, reaching
RSD 98.5 billion (EUR 832 million), which is + 29%
compared to 2016.
13
50 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
EXPECTED
FUTURE
DEVELOPMENT
After Serbian economy grew by 1,9% in 2017, in the
next few years, GDP growth is expected to accelerate
supported by continued reforms and EU integration
process, along with more favourable developments
in labor market (decrease in unemployment rates
and salaries growth). As far as banking sector
is concerned, it remains fragmented, but the
consolidation process that started in the past years
and intesified in 2017, is expected to continue.
Having in mind such macroeconomic environment,
the Bank expects its client base to continue
expanding along with growth in lending, both in retail
and corporate segement, with its goals of future
development defined in the following mind:
Further growth of client base, with focus on better
understanding of their needs and fostering long-
term relations with them
Further growth of lending to Retail and small
business along with adjusting channels of
communication with clients to the growing
digitalization trend
Using proactive approach and focusing on better
underestanding of client needs, further lending
growth in Corporate
Focus on operational efficiency remains, along
with keeping operating expenses stable and
directing spending towards projects/activities
that generate future growth, as well as focus on
improving profitability
Adequate scarce resources management in
(funding, RWA and capital)
Prudent risk management
People development and talent management
14
ANNUAL REPORT – 2017 51
14
52 SOCIETE GENERALE BANK SERBIA A.D. BELGRADE
15ASSOCIATED
COMPANIES
Sogelease Serbia
Sogelease Serbia, a company 100% owned by
Societe Generale Bank Serbia, involved in financial
leasing, was established in 2006. Although a young
company, in a relatively short time, it managed
to position well on the market, with constant
improvement in its financial market domain, despite
the intensity of the effects of the global financial
crisis. At the end of 2017, Sogelease Serbia is
ranked first at the financial leasing market, and
ended the year as a leader in financing passenger
cars, construction mechanization and agricultural
machinery.
In the leasing company at the end of 2017, there
were 36 employees, who, as always, received the
unconditional support of all staff members of the
Societe Generale Bank branch network, in which
Sogelease products are available.
The successful cooperation with important partners in
financing commercial vehicles for the needs of legal
entities continued, as well as successful cooperation
with partners in the field of financial leasing for
natural persons. Sogelease maintained continuity
in cooperation with a long-standing partner for the
procurement of passenger and commercial vehicles.
Thanks to the applied technological innovations and
excellent cooperation with the partners, as well as
the support of Societe Generale Bank, the company
Sogelease achieved remarkable results in 2017.
3211 new contracts were concluded, which is a 38%
increase of the number signed in the previous year,
while the amount of new placements is 74.84 million
euros, which is an increase of 24% compared to
2016.
Sogelease achieved a significant financial result in
2016. Profit after tax is EUR 2.11 million. With this
result, Sogelease is on the leading position in the
leasing market.
ANNUAL REPORT – 2017 53
15
Societe Generale SA Insurance Company Life Insurance Belgrade
During 2017, Societe Generale SA Insurance
Company Life Insurance Belgrade has kept a positive
trend of its business results. It is expected that the
positive trend will continue in 2018.
At the end of 2017, net result of the Company was
59.5 million dinars.
In 2017 Societe Generale SA Insurance Company Life
Insurance Belgrade achieved the premium amount
based on life insurance policies in amount of 1.692
million dinars, which presents growth of 12.3%
compared to 2016.
Insurance company Sogecap (with a share of 51%)
and Societe Generale Bank Srbija a.d. Beograd (with
a share of 49%), founded in 2009 by the insurance
company Societe Generale SA Insurance Company
Life Insurance Belgrade.
Sogecap, with 40 years of experience in
bankassurance, currently present in 16 countries,
providing expertise in the insurance business, while
Societe Generale Banka Srbija a.d. Beograd, provides
access to its network for business banking.