contents - Intesa Sanpaolo Banka
Transcription
contents - Intesa Sanpaolo Banka
CONTENTS 2 INTRODUCTION BY THE GENERAL MANAGER 4 REPORT OF THE SUPERVISORY BOARD 6 OPERATING ENVIRONMENT 8 BODIES OF THE BANK 9 ORGANIZATION CHART 10 FINANCIAL INDICATORS 14 ASSETS 15 LENDING 17 SOURCES OF FUNDING 19 DOMESTIC AND INTERNATIONAL PAYMENTS 20 RETAIL OPERATIONS 21 CONTROL SYSTEMS 22 EMPLOYEES 23 BRANCH NETWORK 25 LIST OF CORRESPONDENT BANKS 27 REPORT OF INDEPENDENT AUDITORS INTRODUCTION BY THE GENERAL MANAGER Dear shareholders, business partners and clients, Behind us is another successful business year, continuing a number of consecutive years of growth and improvement at UPI Banka Sarajevo. UPI Banka, with its quality competitively priced services, with continuous adaptations to the needs of clients, and with the introduction of new products, has succeeded in becoming a competitive player in the fiercely competitive market in Bosnia and Herzegovina, where there are over 30 banks in business, and where good business does not necessarily guarantee a company’s survival. On this occasion I do not wish to enter in details of the macroeconomic picture of Bosnia and Herzegovina, because all of you living and doing business in Bosnia and Herzegovina are very familiar with all of our problems. Reforms are under way, but not at a desired pace; the privatization process is still not finished; foreign investors are reluctant to invest under these conditions; bureaucratic barriers are numerous; and financial indiscipline is a discouragement to entrepreneurs and is endangering projects that would, with a level playing field, have more chances to succeed. There are some positive movements, but the business environment in Bosnia and Herzegovina still does not provide equal conditions for all. Despite all of the factors limiting the ability to do business, the management of the UPI Banka and its employees have succeeded in creating and increasing profits, offering more attractive interest rates for borrowers and savers; territorially expanding and modernizing business units and joining the international debit and credit card network. The profit after tax of the Bank for 2004 is KM 3.95 million and is 8% higher in comparison to 2003. UPI Banka total assets are KM 381.92 million (46% more than in 2003), the loan portfolio is KM 187.64 million (23% more than in 2003), deposits are KM 307.93 million (53% more than in 2003), total equity is KM 33.47 million (13% more than in 2003), and the Bank has 191 employees. The business success reflects the fact that despite an increase in the labour force (up by 13%), the Bank’s asset to employee ratio is KM 2 million (KM 1.55 million in 2003), and profit to employee ratio is KM 20,691. The increase in deposits and improvements in their term structure are factors creating the basis for higher lending and ensuring increase in profits. For these reasons, the Bank offered more attractive interest rates, especially for individuals, resulting in an increase of saving accounts to KM 54.81 million at the end of 2004, which is 45% higher than it was in 2003. The Bank was able to offer its clients more attractive interest rates, with average interest rate of 9.33% for corporate clients (9.90% in 2003), and 11.40% for retail and individual customers. For UPI Banka, 2004 will be especially significant because of the number of newly opened and modernized business units. It began with Sarajevo, and the opening of offices in the municipalities of Novo Sarajevo and Ilidza. Then, there was a move into bigger and more modern premises in Tuzla and Gracanica. The end of year was marked with the opening of the first branch of UPI Banka in Republika Srpska in Bijeljina, and an office in the heart of Sarajevo. Investments in these premises totalled around two million KM. UPI Banka holds a leadership position in issuing the first domestic non-cash “Bamcard” card, and in 2004, the Bank joined an international card network and is the first bank in Bosnia and Herzegovina to start issuing VISA Electron chip cards. This project is even more important taking in account the fact that UPI Banka has achieved the status of principal with VISA International, with a processing centre located in “Bamcard” in Sarajevo. UPI Banka has continued cooperation with its proven business partners (EBRD, KfW, IBF, IGA, USAID, OPEC Fund, and Partners for Development) in providing financial support to companies and individuals, as well as with local government at the level of cantons and municipalities, regional development organizations and other institutions. At the end of the year, UPI Banka signed a contract with the newly established Administration for Indirect Taxation of Bosnia and Herzegovina for the services of collection of public payments. In the context of support to primary agricultural activities, UPI Banka has signed contracts with Posavina and Tuzla Cantons, and Sarajevo Development Agency (SERDA), securing attractive loans for farmers. The lack of long-term and quality funding sources has influenced business results, which would have been even better without such deficiencies. Despite this problem, the Bank has managed to draw funds from different sources and extend loans to companies (73%) and to retail clients (27%). In 2004, there were 2.18 million internal payment transactions in the amount of KM 6.49 billion. A significant increase in the usage of electronic banking services was noted with 32% of all of the transactions in the internal payment system done through electronic payment transactions. There were 15,122 international payment transactions in the amount of KM 409.70 million, representing an increase of 49% in comparison to 2003. In 2004, UPI Banka has worked hard on building its image as the biggest bank with the majority of domestic equity, which besides creating profits, is attempting to support projects important for the community as a whole. Some of the projects pointing to such activities include providing low interest housing loans for young intellectuals, financial support to National Theatre in Sarajevo and to the SOS Children’s Village, as well as other similar actions. All of these results would not be possible without the remarkable cooperation with the members of the Supervisory Board, shareholders, and business partners, whom on this occasion I sincerely thank, with a promise that in the forthcoming year, the management of the Bank and its employees will strive with maximum effort to make UPI Banka even stronger. Mirsad Letic General Manager REPORT OF THE SUPERVISORY BOARD TO SHAREHOLDERS OF UPI BANKA D.D. SARAJEVO Given the stated financial results in 2004, the conclusion is that UPI Bank operated successfully during this reporting period. The achieved results and operations of the Bank are illustrated with greater detail in the Annual Report, financial statements and the opinion of independent external auditors KPMG B-H. Based on the aforementioned, the Board concluded that the Management worked completely in accordance with law, regulations and in the best interest of the Bank, which is confirmed by good financial results achieved with strong efforts of staff and management of the Bank. Permanent contacts, direct cooperation and regular reporting to the Board and the Audit Board by the Management, positively impacted operations and achieved results, and enabled the Bank to maintain its position of the largest domestic owned bank in Bosnia and Herzegovina. As a result of activities taken by the Management, Internal Audit, the Audit Board and the Board on adjustment of acts of the Bank with the Law on Banks in FBiH and regulations of the Federal Banking Agency, new programs, policies, and procedures of the Bank have been adopted and existing ones have been revised. During the reporting period, new organizational solutions were implemented in the Bank, the IT and communication systems were improved, and new products were introduced. The Bank’s position in the market was also strengthened by expansion and modernization of the branch network, especially opening of the Bijeljina branch office, the Bank’s first organizational unit in Republika Srpska. Increase in the number of organizational units and improvements in their equipment in accordance with modern trends, created preconditions for better services of the Bank and its competitiveness in the banking market. Among new products, especially important is the issue of VISA Electron chip card, which provides maximum security in cash-free payments, and Bamcard credit cards without the requirement for guarantors. In 2004 the Bank continued to develop e-banking services for corporate clients and conducted preparations for implementation of e-banking for retail customers. The Bank also continued to build on the fruitful relationship with international creditors (USAID, KfW, EBRD, and the OPEC Fund for Development) and local institutions, including ministries in the Federation of BiH and Republika Srpska, cantonal ministries, municipalities, and other authorities. The Bank continued to service and finance agricultural manufacturers, and to that effect a Micro Finance Department was established, which will be in change of placement of funds provided by creditors such as the Federal Ministry of Agriculture, Water Management and Forestry, the Federal Ministry of Displaced Persons and Refugees, the Federal Employment Bureau, the Sarajevo Regional Development Agency (SERDA), PFD, Caritas Goražde, Stari Grad Municipality, etc. For the purpose of further development of the Bank’s corporate Banking, and upon request of the Bank and the Board, the European Bank for Reconstruction and Development (EBRD) made available a consultant to offer full advisory and technical assistance in training of loan officers and improvement of lending and loan monitoring procedures. In 2004, the Board held six meetings and reviewed issues related to operations and organization of the Bank. In addition, in 2004 the Federal Banking Agency conducted a comprehensive examination of the Bank, of which the Board was continuously informed. Orders received from the Federal Banking Agency were completely carried out, which was confirmed by the Federal Banking Agency during their control of execution of those orders. The Bank submitted regular sets of reports to the Federal Banking Agency and other relevant bodies and institutions. The Board and the Management paid special attention to further development and increase of capital, in order to maintain positive trends of Bank’s operations. The Audit Board held four meetings during the reporting period, in which, among other topics, it reviewed Internal Audit reports about individual organizational parts of the Bank, control of execution of Bank’s obligations relative to implementation of the Law on prevention of money laundering, and a number of other activities conducted in the Bank. By adopting the 2004 Internal Audit Report and the 2005 Internal Audit Plan, the Audit Board concluded that, in carrying out of its duties, the Internal Audit had support of the Management and the Board, as well as the Audit Board. The Audit Board also concluded that they have not identified any reasons that might indicate that the Bank is unable to manage its internal control systems and risks. By adopting the 2004 Annual Report, with the report of independent external auditors, the Annual Statement of the Bank, the 2004 Internal Audit Report, the Board concluded that the Management, the Internal Audit and employees in general, paid due attention to legality of their work and protection of shareholders’ interests. Therefore, the Board recommends that, in the Shareholders’ Meeting, the shareholders should: • Adopt the 2004 Annual Report of the Bank, and the 2004 Annual Statement with distribution of 2004 profit, • Approve the work and confirm the vote of confidence to the Board, the General Manager, and the Management, • Approve the basics of the Bank’s 2005 operating plan. Chairman of the Board Nazif Branković OPERATING ENVIRONMENT The reform process in Bosnia and Herzegovina continued in 2004 and included important steps, such as completion of privatization, balancing of government finance, creation of conditions for growth of foreign investments, improvement of business environment, export stimulation, and reduction of grey economy to a minimum. In terms of public income and expenditures, during the reporting year there were numerous discussions about the VAT rate, which is scheduled to be introduced in 2005. A number of arguments were reviewed relative to the validity of VAT calculation system based on one or more rates, and eventually a single 17% rate was recommended. In order to create conditions for improvement of business environment and thereby more foreign investment, the Parliamentary Assembly of BiH passed a new Framework Law on Company Registration. This law requires that entity governments pass appropriate laws within 90 days to ensure that the company registration process is simplified. Industrial production in FBiH in the third quarter of 2004 is 8.4% higher compared to the second quarter. In addition, the average industrial production growth rate in the third quarter was 2.7% and the average rate achieved during nine months of 2004 was 0.4%. Industrial production Annualized, the growth rate in September 2004, compared to September 2003, was a significant 17.6%, and the average industrial production growth rate during nine months of 2004, compared to the same period in 2003, increased by 13.6%. Stability of prices is one of key elements of macroeconomic stability in BiH. Obviously, inflation is not an issue in BiH, even though there is an apparent growth of overall cash. The retail price index indicates that there were no significant changes in BiH in terms of movements in the general price level. Consequently, in the third quarter, compared to the second quarter, of 2004 there was a mild decrease in the general price level of 0.7%. One can say that inflation in BiH is significantly lower than in the Euro-zone, in which the recorded annual inflation is 2.1%. In September 2004, in FBiH, prices remained at the same level as in the previous month, and average prices during nine months of 2004 reduced by 0.5% compared to the same period in 2003. When comparing the price level during this period, one can say that in FBiH there is slight deflation pressure reflected in the decrease of the overall price level of 0.8%. Such a movement was caused by a 0.3% and 10.5% reduction in prices of industrial and agricultural products, respectively, while the prices of services have increased by 0.6%. Prices Living expense index had a trend similar to the retail price index. The structure of the living expense index shows that in September 2004, compared to September 2003, expenses for goods in FBiH reduced by 1.9% and expenses for services in FBiH increased by 0.7%. The average net salary in 2004 is 1.3% higher compared to 2003. Net salary in FBiH exceeds the consumer basket by KM 106, 24.3%, and the average pension was KM 207. Salaries and employment There is an obvious reduction in the number of unemployed and growth of employed population, which indicates a slow recovery of BiH economy. Commercial banks in BiH are registered in accordance with entity banking laws and are supervised by entity banking agencies. There are currently 35 banks operating in BiH, of which 25 in FBiH and 10 in the RS. According to the Deposit Insurance Agency, 21 commercial banks are members of the deposit insurance program. Loans in September 2004 totaled KM 5.63 billion, which is a KM 314.4 million, 5.9%, increase compared to June 2004. Activities of commercial banks Looking at the maturity structure of total loans, in September, compared to June, there was an increase in both long and short term loans, of KM 248.7 million (6.3%) and KM 65.7 million (5.13%), respectively. Average risk weighted interest rates of commercial banks for short and long term loans to nonfinancial private companies and associations continued to reduce also in the third quarter of 2004, and in 2004 they reached the lowest level to date. Interest rates on short term loans at the end of third quarter 2004 were 9.99%, which is lower than at the same time last year. Most short term loans to private owned companies, 52.2% of total, were placed with rates ranging between 9% and 9.5%. At the same time, interest rates on long term loans were 8.08%, which is also lower than at the same time in 2003. Most long term loans to private owned companies, as many as 53.4% of total, were made with rates ranging between 6.5% and 7%. Interest rates Payment transactions Average risk weighted interest rate for demand and savings term deposits in September were 0.85% and 3.82% respectively. Interest rates on retail demand deposits have almost not changed during the last six months, and interest rates on terms and retail savings deposits in September are higher by 19 basis points compared to 2004. In the third quarter of 2004, banks in BiH carried out 5.6 million transactions, which is a 6.6% increase compared to the preceding quarter. It is interesting that the number of transactions in the last two quarters in 2004 is 19.6% higher compared to the same quarters of 2003. Total value of all transactions in the third quarter was KM 7.45 billion, 5.6% more than in the preceding quarter of 2004, and 16.2% more than in the same quarter of 2003. BODIES OF THE BANK Supervisory Board Audit Board Management Nazif Branković - Chairman, Director of Sarajevska Pivara d.d. Sarajevo, Husein mr. Ahmović - Member, Klas d.d. Sarajevo, Marija Brezovec - Member, Director of Economic and Finance Department in Coning Inžinjering d.d. Varaždin, Hajrudin Čengić - Member, Bosna Reosiguranje d.d. Sarajevo, Roberto Marzanati - Member, Representative of the European Bank for Reconstruction and Development (EBRD), London. Enver Kazazić - Cairman, Deputy Director of Klas d.d. Sarajevo, Sunita Ejubović - Member, Head of Finance of Grafopak d.d. Gračanica, Mijo Grgić - Member, Director of Finance of JP Elektroprivreda BiH Sarajevo, Šefik Handžić - Member, Director of Finance of Bosnalijek d.d. Sarajevo, Sabaheta Imamović - Member, Certified Auditor of Vincent Tuzla. Mirsad Letić - General Manager, Economist, Hajrija Tanović - Deputy General Manager, Economist, Branko Ekert - Executive Director of Human Resources and Support Services, Lawyer, Zlata Mušić - Executive Director of Corporate Banking, Economist, Alma Škapur - Executive Director of Treasury and Payments, Economist, Ljubica Tankosić - Executive Director of Finance and Risk Management, Associate Economist, Nedim Lulo - Executive Director of Retail Banking, Economist, Lejla Neretljaković - Bank Secretary, Lawyer. Mediha Ćatović - Chief Internal Auditor, Economist. Internal Audit ORGANIZATION CHART MEMBERS OF THE MANAGEMENT 10 FINANCIAL INDICATORS With its business policy and relations with clients, the Bank maintained a reputation of a safe and stable bank, which is confirmed by achieved financial results and other indicators: in KM 000 Structure 31 Dec 2004 31 Dec 2003 Index Net assets 381,861 262,169 146 Liquid assets 183,970 101,395 181 Gross loans 187,639 152,237 123 Fixed assets 13,240 11,262 118 Investments 2,245 1,852 121 11,822 9,334 127 307,932 201,449 153 Borrowings 34,007 25,211 135 Total capital 33,474 29,584 113 Shareholders capital 22,900 22,900 100 Gross profit 3,952 3,650 108 Net profit 3,889 3,596 108 Income 27,095 23,210 117 Interest income 17,621 15,867 111 Fee income 6,139 5,803 106 Other income 3,335 1,540 217 23,143 19,560 118 5,299 4,532 117 11,217 9,763 115 6,627 5,265 126 From the Balance Sheet Reserve for potential losses Deposits From the Income Statement Expense Interest expense Non-interest expense Provisions 11 Interest income grew by 11% compared to 2003, making 65% of total income of the Bank. The structure of interest income includes: • 46% interest income from short term corporate loans; • 13% interest income from long term corporate loans; • 28% interest income from retail clients (the dominant is interest income originating from card operations, making 13% of total interest income); • 13% other interest income. Taking into account the market developments, the Bank charged the following average interest rates: Interest income • 9.33% for corporate clients (9.90% in 2003, and 11.17% in 2002); • 11.43% for retail clients (10.62% in 2003, and 11.88% in 2002). Fee income increased by 6% compared to 2003, making 23% of total income. This growth rate is due to the policy of reduced tariff, in accordance with market developments. Fee income Other operating income Significant fee income is generated from domestic payment services, lending and guarantee operations, and card operations fees. The structure of other income includes write-off collections in the amount of KM 2.45 million, 141% more than in 2003, which is a result of comprehensive activities that the Bank has taken to collect its receivables. in KM 000 Structure 31 Dec 2004 % of total 31 Dec 2003 % of total 17,621 65% 15,867 68% Fee income 6,139 23% 5,803 25% Other income 3,335 12% 1,540 7% Total income 27,095 100% 23,210 100% Interest income INCOME STRUCTURE 12 30,000 25,000 20,000 15,000 10,000 5,000 INCOME IN KM THOUSAND 0 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 30,000 25,000 20,000 15,000 10,000 5,000 expense in km thousand 0 13 20% 15% 10% 5% Return on Equity (ROE) and Return on Assets (ROA) 0% 2000 2001 2002 2003 ROE 7.21% 8.70% 7.81% 15.94% ROA 0.94% 1.02% 0.80% 1.39% 2004 17.26% 1.03% 14 ASSETS The balance sheet shows that loans make 49% of total assets, liquid assets make 48%, and other assets make 3%. Important profitability indicators are assets per employee of KM 2 million (KM 1.55 million in 2003), loans per employee of KM 982 thousand (KM 901 thousand in 2003), and deposits per employee of KM 1.61 million (KM 1.19 million in 2003). 400,000 300,000 200,000 100,000 ASSETS IN KM THOUSAND 0 2000 2001 2002 2003 2004 Liquid assets totaled KM 183.97 million, of which KM 175.28 were interest bearing and KM 8.69 million were non interest bearing funds. Interest bearing funds, which make 95% of total liquid assets, include liquid assets in the reserve account with the Central Bank of BiH and funds in foreign accounts, and non-interest bearing funds make 4.7% of liquid assets and include cash in hand. The liquidity ratio measured as cash equivalents to total assets was 48% (39% in 2003). 15 LENDING The Bank’s loan portfolio was KM 187.64 million, 23% more than in 2003. The corporate lending portfolio totaled KM 137.78 million, 73% of the Bank’s total loan portfolio. The structure of corporate loans includes 75% short and 25% long term loans. In 2004 the Bank approved a total of 813 loans totaling KM 137.15 million. During the reporting period, the Bank managed 73 loans on behalf and for the account of other parties, which totaled KM 8.76 million. The Bank directed significant funding to agriculture and processing industries, which is supported by the fact that the Bank placed KM 82.71 million as loans and guarantees into these industries, of which KM 4.88 million were lent to individual agricultural manufacturers - farmers. During the reporting period, the Bank also signed a loan agreement with EBRD for € 5 million, of which € 3.8 million are for lending to small and medium size enterprises and € 1.2 million is for lending to retail clients. A loan agreement was also signed with Kreditanstalt für Wiederaufbau for a credit line of € 1 million. Corporate lending The Bank signed an agreement with the Sarajevo Regional Development Agency (SERDA) for a credit line of KM 6 million, to be used for support to project in the primary agricultural production and development of small and medium enterprises in this region. The retail loan portfolio totaled KM 49.86 million, making 27% of the total loan portfolio of the Bank. Short term loans totaling KM 25.13 million, made 50% of the retail loan portfolio, of which 43% are credit card loans (Bamcard cards). Long term loans totaling KM 24.73 million also made 50% of the retail loan portfolio, of which KM 4.49 million were agriculture loans to farmers and KM 20.24 million retail loans for housing, entrepreneurial and other purposes. Retail lending The loan portfolio grew by 36% compared to 2003, mostly due to increase of credit card loans. 16 200,000 150,000 100,000 50,000 LOANS IN KM THOUSAND 0 2000 2001 2002 2003 2004 17 SOURCES OF FUNDING Deposits In the liabilities structure, 81% are deposits, 9% are borrowings, 9% is capital, and 1% are other liabilities. The ratio of loans to deposits was 61%, compared to 76% in 2003. In the deposits structure, 60% are demand and 40% are term deposits. 350,000 300,000 250,000 200,000 150,000 100,000 50,000 DEPOSITS IN KM THOUSAND Borrowings 0 2000 2001 2002 2004 Bank’s borrowings in 2004 totaled KM 34.00 million, 35% more than in 2003, and included credit lines of EBRD totaling KM 6.84 million, of KfW totaling KM 9.55 million, of USAID totaling KM 3.49 million, of IBF totaling KM 5.66 million, of the OPEC Fond totaling KM 2.79 million, of PFD totaling KM 2.25 million, etc. Shareholders Shareholders with more than 2% of shareholding capital 2003 31 Dec 2004 (%) European Bank for Reconstruction & Development, London 19.9 Sarajevska pivara d.d. Sarajevo 15.7 Klas d.d. Sarajevo 11.6 Coning Inžinjering, Varaždin 4.1 Petar Vidović, Gradačac 3.9 Bosna Reosiguranje d.d. Sarajevo 3.6 Hypo Alpe Adria Bank d.d. Mostar 2.5 HIP 2000 d.o.o. Sarajevo 2.2 18 31 Dec 2004 31 Dec 2003 172,322 87,401 Retail demand deposits 12,401 8,581 Short term corporate deposits 19,130 49,345 Short term retail deposits 15,204 14,744 Other short term liabilities 4,241 3,558 223,298 163,629 Long term corporate deposits 61,667 27,019 Long term retail deposits 27,208 14,359 Long term loans 34,007 25,211 2,207 2,367 125,089 68,956 Shareholders capital 22,900 22,900 Reserve and retained earnings 10,574 6,684 Total capital 33,474 29,584 381,861 262,169 Short term sources Corporate demand deposits Total Short Term Sources Long term sources Subordinated debt Total Long Term Sources Capital Structure of funding sources in KM THOUSAND Total liabilities and capital 19 DOMESTIC AND FOREIGN PAYMENTS Through 3,562 transaction accounts, the Bank performed 2.18 million transactions totaling KM 6.49 billion. E-banking services for domestic payment transactions are used by 240 corporate clients. E-banking payment transactions make 32% of total domestic payment debit transactions. It is important to stress that the Bank was selected to be one of the banks for collection of public revenues for the BiH Indirect Taxation Administration. There were 15,122 foreign payment transactions performed totaling KM 409.70 million, (13,063 transactions totaling KM 274.13 million in 2003), which is a 49% increase compared to 2003. This includes incoming payments (export operations) of KM 200.74 million and outgoing payments (import operations) of KM 208.96 million. During the reporting period, the Bank issued 232 guarantees totaling KM 18.12 million (compared to 200 foreign guarantees totaling KM 22,56 million in 2003) and 22 letters of credit totaling KM 4.56 million (20 letters of credit totaling KM 2.19 million in 2003). 20 RETAIL OPERATIONS Retail savings totaled KM 54.81 million, 45% increase compared to KM 37.67 million in 2003. The detailed structure was as follows: • 23% were demand deposits 23% (23% as of 31 Dec 2003); • 28% were short term deposits (39% as of 31 Dec 2003); • 49% were long term deposits (38% as of 31 Dec 2003). Savings have a positive trend and the total number of retail accounts opened in the Bank was 22,509. In terms of card operations, the Bank issued 7,764 credit cards totaling KM 16.74 million, 7,329 debit cards, and 652 VISA Electron chip cards. The Bank’s card acceptance network includes 412 POS terminals installed throughout the merchant network, among which the most important in terms of number of transactions are Mercator, VF Komerc, and Robot Commerce, and 12 ATMs. 60,000 50,000 40,000 30,000 20,000 10,000 SAVINGS IN KM THOUSAND 0 2000 2001 2002 2003 2004 21 CONTROL SYSTEMS During the reporting period, there were several external control teams working in the Bank, including the external auditor KPMG BH d.o.o. Sarajevo, Federal Banking Agency, the Central Bank of BiH, the BiH Deposit Insurance Agency, EBRD, the FBiH Financial Police, the FBiH Tax Administration, etc. In addition to external control, the Bank conducts the mandatory internal control, which continuously monitored and evaluated efficiency of business operations of the Bank, accuracy and adequacy of information systems in accordance with laws and regulations, and reporting in accordance with the internal audit program. 22 EMPLOYEES In 2004 the Bank employed 191 employees, 13% more than in 2003. The qualification structure includes 83 university graduates, 13 associate degree graduates, 91 high school graduates, one skilled worker, and 3 employees with elementary school. 200 150 100 50 NUMBER OF EMPLOYEES 0 2000 2001 2002 2003 2004 23 BRANCH NETWORK 24 BRANCH NETWORK UPI Banka d.d. Sarajevo Obala Kulina bana 9a 71000 Sarajevo Tel.: +387 33 497 555 Fax: +387 33 497 589 E-mail: [email protected] www.upibanka.ba HEAD OFFICE BRANCHES AGENCIES UNITS SWIFT: UPBKBA22 Bijeljina Brčko Distrikt Gračanica Gradačac Mostar Tuzla Zenica +387 55 22 69 60 +387 49 21 76 99 +387 35 70 00 60 +387 35 81 93 25 +387 36 55 64 92 +387 35 25 74 08 +387 32 41 42 42 Gavrila Principa 19 Bulevar Mira 8 Fridriha Foglera 6 Hadžiefendijina bb Šantićeva 2 Korzo O-13 Adolfa Goldbergera 7 Bugojno Kakanj Odžak Visoko +387 30 25 42 82 +387 32 55 52 60 +387 31 76 21 18 +387 32 73 71 11 Ambasadora Wagnera 11 Zgošćanska bb Titova bb ZTC Sebilj Sarajevo Centar Sarajevo Novo Sarajevo Novo Ilidža Srebrenik +387 33 49 75 96 +387 33 28 62 33 +387 33 71 65 21 +387 33 62 46 46 +387 35 64 49 62 Obala Kulina bana 9a Ložionička 16 Azize Šaćirbegović bb Mala Aleja 29 211. oslobodilačke brigade bb 25 LIST OF CORESPONDENTS COUNTRY- BANK, PLACE SWIFT CODE CURRENCY/OUR ACCOUNT NUMBER BKAUATWW RZBAATWW EUR/126-155-664/01 978 EUR/55.062.830 GEBABEBB EUR/291-1117152-03-978-0 ZABAHR2X CBZGHR22 EUR/2690000235-978 EUR/56300-3003-8-709200 OKHBHUHB EUR/10201006-10005635 UNCRITMM ANTBIT2P BAMNIT22 EUR/995 312 EUR/00400-01-027402154 EUR/0081219 COBADEFF HYVEDEMM LHBIDEFF DRESDEFF BOFADEFX EUR/400 8768 558 00 EUR/69104720 EUR/0009867003 USD/0009867300 CHF/0009867 359 AUD/0009867334 JPY/0009867 367 GBP/0009867318 SEK/0009867326 CAD/0009867342 EUR/499/08081244/00/888 EUR/601917380012 NWBKGB2L GBP/440/00/04598091 SKBASI2X SBCESI2X ABANSI2X EUR/03770-1000003611 EUR/4500687-978 EUR/051001010004519 BOFAUS3N USD/6550-8-75865 AUSTRIA BANK AUSTRIA, Wien RAIFFEISEN ZENTRALBANK OESTERREICH AG, Wien BELGIUM FORTIS BANQUE S.A./N.V., Bruxelles (FORMERLY GENERALE DE BANQUE) CROATIA ZAGREBAČKA BANKA DD, Zagreb CENTAR BANKA, Zagreb HUNGARY KERESKEDELMI ES HITELBANK RT. Budapest ITALY UNICREDITO ITALIANO SPA Milano BANCA ANTONVENETA S.P.A. Padova BANCA AGRICOLA MANTOVANA S.P.A. Mantova GERMANY COMMERZBANK AG FRANKFURT/M HYPOVEREINSBANK AG MUNICH LHB INTERNATIONAL HANDELS BANKEN AG FRANKFURT/M DRESDNER BANK AG FRANKFURT A/M BANK OF AMERICA N.A. FRANKFURT A/M GREAT BRITAIN NATIONAL WESTMINSTER BANK Plc London SLOVENIA SKB BANKA DD, Ljubljana BANKA CELJE DD, Celje ABANKA VIPA D.D. Ljubljana USA BANK OF AMERICA N.A. New York 26 27 UPI Banka dd Annual report for the year ended 31 December 2004 28 UPI Banka dd Annual report for the year ended 31 December 2004 Statement of management’s responsibilities The management of the Bank is required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Bank and of the results of the Bank for that period. In preparing those financial statements, the management of the Bank is required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed; and prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Bank will continue in business. Management is responsible for maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Bank and to enable it to ensure that the financial statements comply with the laws of Bosnia and Herzegovina. It has a general responsibility for taking such steps as are reasonably open to it to safeguard the assets of the Bank and to prevent and detect fraud and other irregularities. 4 29 Report of the independent auditor to the shareholders of UPI Banka dd We have audited the accompanying balance sheet of UPI Banka dd ("the Bank") as of 31 December 2004 and the related statements of income, changes in equity and cash flows for the year then ended set out in pages 6 to 30. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the financial statements give a true and fair view of the financial position of the Bank as of 31 December 2004, and of the results of its operations, changes in equity and cash flows for the year then ended in accordance with International Financial Reporting Standards. KPMG B-H doo za reviziju Registered auditors Fra Andjela Zvizdovica 1 A/VI 71000 Sarajevo Bosnia and Herzegovina 25 February 2005 5 30 UPI Banka dd Annual report for the year ended 31 December 2004 Income statement for the year ended 31 December 2004 Note Interest income Interest expense 4 5 Net interest income Commission and fee income Commission and fee expense 6 Net commission and fee income 2004 KM’000 2003 KM’000 18,885 (5,299) 17,244 (4,530) 13,586 12,714 4,347 (624) 4,018 (541) 3,723 3,477 Foreign exchange gains, net 7 556 475 Other operating income 8 691 283 18,556 16,949 (10,431) (9,050) 8,125 7,899 (4,173) (4,249) 3,952 3,650 (63) (54) 3,889 3,596 Total income Operating expenses 9 Profit before provisions Impairment losses and provisions 10 Profit before tax Taxation Net profit for the year 11 The notes set out on pages 10 to 30 form part of these financial statements 6 31 UPI Banka dd Annual report for the year ended 31 December 2004 Balance sheet As at 31 December 2004 Assets Cash reserves Obligatory reserve with the central bank Debt securities Placements with, and loans and advances to, other banks Loans and advances to customers Accrued interest and other assets Equity securities Tangible fixed assets Intangible fixed assets Note 2004 KM’000 2003 KM’000 12 13 14 15 16 17 18 19 20 75,507 32,862 1,266 78,906 174,625 3,500 2,059 12,530 606 71,707 11,803 1,339 20,142 141,454 2,967 1,377 10,612 768 381,861 262,169 307,931 36,143 3,054 1,259 201,449 27,578 2,412 1,145 348,387 232,584 22,900 10,574 22,900 6,685 33,474 29,585 381,861 262,169 Total assets Liabilities and funds employed Current accounts and deposits from customers Borrowings Accrued interest and other liabilities Provisions for off-balance-sheet items 21 22 23 24 Total liabilities Share capital and reserves Share capital Retained earnings and reserves Total shareholders' funds Total liabilities and funds employed 25 These financial statements were approved on 25 February 2005 and were signed by: Mirsad Letic General Manager The notes set out on pages 10 to 30 form part of these financial statements 7 32 UPI Banka dd Annual report for the year ended 31 December 2004 Statement of changes in equity for the year ended 31 December 2004 Share capital KM’000 Retained earnings and reserves KM’000 KM’000 22,900 6,685 29,585 - 3,889 3,889 Balance at 31 December 2004 22,900 10,574 33,474 Balance at 1 January 2003 22,900 3,723 26,623 Dividends paid - (634) (634) Profit for the year - 3,596 3,596 22,900 6,685 29,585 Balance at 1 January 2004 Profit for the year Balance at 31 December 2003 The notes set out on pages 10 to 30 form part of these financial statements Total 8 33 UPI Banka dd Annual report for the year ended 31 December 2004 Statement of cash flows for the year ended 31 December 2004 2004 KM’000 2003 KM’000 3,952 (81) 887 177 51 3,650 (934) 736 448 31 4,986 3,931 (33,171) (6,451) (518) 106,482 645 114 (38,908) 3,614 541 (267) 23,685 584 392 72,087 (6,428) Sale/(purchase) of debt securities Increase in investment in equity securities Acquisition of tangible assets, net 73 (859) (2,694) (1,339) (329) (1,313) Cash outflow from investing activities (3,480) (2,981) Financing activities Payment of dividend Increase in borrowings 8,565 (634) 11,766 Cash inflow from financing activities 8,565 11,132 77,172 1,723 Cash flow from operating activities Profit before tax Tax paid Depreciation and amortisation Write off of and provisions for equity securities Write off of fixed assets Note Cash flow from operating activities before changes in operating assets and liabilities (Increase)/decrease in placements with and loans to customers (Increase)/decrease in placements with and loans to banks (Increase)/decrease in accrued interest and other assets Decrease in current accounts and deposits from banks Increase in current accounts and deposits from customers Increase in accrued interest and other liabilities Increase in provisions for liabilities and charges Net cash inflow/(outflow) from operating activities Investing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year 26 102,655 100,932 Cash and cash equivalents at the end of the year 26 179,827 102,655 The notes set out on pages 10 to 30 form part of these financial statements 9 34 UPI Banka dd Annual report for the year ended 31 December 2004 Notes to the financial statements 1 Accounting standards and conventions The principal accounting policies adopted for the preparation of the financial statements are set out below. Preparation and presentation of financial statements These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and currently applicable interpretations issued by the International Financial Reporting Interpretations Committee of the IASB. The financial statements are prepared on a fair value basis for financial assets and liabilities held for trading, and available-for-sale assets, except those for which a reliable measure of fair value is not available. Other financial assets and liabilities and non-financial assets and liabilities are stated at amortised cost or historical cost. The financial statements are presented in the currency of Bosnia and Herzegovina, the convertible mark (“KM”), rounded to the nearest thousand. The Central Bank of Bosnia and Herzegovina has implemented a currency board arrangement aligning KM to Euro at an exchange rate of Euro 1: KM 1.95583. Disclosures The financial statements have been stated in a format generally adopted and internationally recognised by banks and in accordance with IAS 30, “Disclosures in the Financial Statements of Banks and Similar Financial Institutions”. 2 Specific accounting policies Interest income Interest income and expense is recognised in the income statement as it accrues, taking into account the effective yield of the asset or an applicable floating rate. Interest income and expense includes the amortisation of any discount or premium or other differences between the initial carrying amount of an interest bearing instrument and its amount at maturity calculated on an effective interest rate basis. Interest income also includes loan origination fees. Commission and fee income Commission and fee income comprises mainly fees receivable from customers for payment transaction services, guarantees, letters of credit, foreign currency transactions and other services provided by the Bank. Fees are credited to income when the related service is performed. 10 35 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) Foreign currency Transactions in foreign currencies are translated into KM at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into KM at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Financial instruments Classification Originated loans and receivables are loans and receivables created by the Bank providing money to a debtor other than those created with the intention of short-term profit taking. Originated loans and receivables comprise loans and advances to customers and other banks, other than purchased loans. Available-for-sale assets are financial assets that are not held for trading purposes, originated by the Bank or held to maturity. Available-for-sale instruments include debt and equity securities. Recognition Originated loans and receivables are recognised on the day they are transferred to the Bank. The Bank recognises financial assets available for sale on the date it commits to purchase the assets. From this date any gains and losses arising from changes in fair value of the assets are recognised in the income statement. Measurement Financial instruments are measured initially at cost, including transaction costs. Subsequent to initial recognition all available-for-sale assets are measured at fair value, except that any instrument that does not have a quoted market price in an active market and whose fair value cannot otherwise be reliably measured is stated at cost, including transaction costs, less impairment losses. All non trading financial liabilities and originated loans are measured at amortised cost less impairment losses. Amortised cost is calculated using the effective interest rate method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument. Impairment of financial assets Financial assets are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount of originated loans is calculated as the present value of the expected future cash flows, discounted at the instrument’s original effective interest rate. Short-term balances are not discounted. 11 36 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) Loans and advances are presented net of impairment provisions for uncollectibility. Specific impairment provisions are made against the carrying amount of loans and advances that are identified as being impaired based on regular reviews of outstanding balances to reduce these loans and advances to their recoverable amounts. General impairment provisions are maintained to reduce the carrying amount of portfolios of similar loans and advances to their estimated recoverable amounts at the balance sheet date. The expected cash flows for portfolios of similar assets are estimated based on previous experience and considering the credit rating of the underlying customers and late payments of interest or penalties. Increases in the provision account are recognised in the income statement. When a loan is known to be uncollectible, all the necessary legal procedures have been completed, and the final loss has been determined, the loan is written off directly. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the write down, the write down or provision is reversed through the income statement. Derecognition A financial asset is derecognised when the Bank loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered. A financial liability is derecognised when it is extinguished. Available-for-sale assets that are sold are derecognised and corresponding receivables from the buyer for the payment are recognised as of the date the Bank commits to sell the assets. Originated loans and receivables are derecognised on the day they are transferred by the Bank. Specific instruments Equity securities Equity securities are classified as available-for-sale assets. Debt securities Debt securities are classified as held to maturity. Loans and advances to banks and customers Loans and advances originated by the Bank are classified as originated loans and receivables. Loans and advances are presented net of impairment provisions to reflect the estimated recoverable amounts. The amortisation of any discounts included within impairment provisions is included in interest income. 12 37 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) Property, plant and equipment All fixed assets are stated at historic cost, net of accumulated depreciation. Depreciation is provided on all assets except land and assets in the course of construction on a straight line basis so as to write off the cost of the assets over their estimated useful lives at the following annual rates: % per annum 20.00 10.00 –20.00 15.50 20.00 1.30 Computers and software Furniture and equipment Motor vehicles Leasehold improvements Buildings Taxation The Bank provides for taxation liabilities in accordance with law in the Federation of Bosnia and Herzegovina. Share capital and reserves Share capital is stated in KM at nominal value. transferred to reserves. Any profit for the year after appropriations is Comparatives Where necessary, comparative information has been reclassified to achieve consistency with current financial year amounts and other disclosures. Such reclassification includes the disclosure of income from loan origination fees within interest income (previously classified within commission and fee income). 3 Incorporation The Bank is a joint stock company incorporated in the Federation of Bosnia and Herzegovina. 4 Interest income (a) Analysis by source Total interest income is derived from the following sources: Companies Individuals Banks and other financial institutions 2004 KM’000 2003 KM’000 11,971 5,266 1,648 12,129 3,608 1,507 18,885 17,244 13 38 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) (b) Analysis by product Interest income is analysed by banking products as follows: Loans and advances to customers Obligatory reserve with the Central Bank of Bosnia and Herzegovina Other placements with, and loans and advances to banks 5 Interest expense (a) Analysis by recipient Total interest payable is analysed by recipient as follows: Companies Individuals Banks and other financial institutions (b) 2003 KM’000 17,237 804 844 15,737 565 942 18,885 17,244 2004 KM’000 2003 KM’000 2,686 1,635 978 2,613 1,213 704 5,299 4,530 Analysis by product Total interest payable is analysed by banking product as follows: Current accounts and deposits Borrowings 6 2004 KM’000 2004 KM’000 2003 KM’000 4,321 978 3,826 704 5,299 4,530 Commission and fee income Fee income from processing of international payment transactions Fee income from processing of domestic payment transactions Fee income from credit cards activities Fee income from guarantees and letters of credit Fee income from foreign exchange transactions Fee income from agency services Other fee income 2004 KM’000 2003 KM’000 845 1,293 863 853 59 318 116 830 1,077 433 863 303 334 178 4,347 4,018 14 39 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 7 Foreign exchange gains, net Foreign exchange trading gain Net foreign exchange loss from translation of monetary assets and liabilities 8 2003 KM’000 600 623 (44) (148) 556 475 2004 KM’000 2003 KM’000 21 40 505 125 70 90 123 691 283 Other operating income Dividend income Rental income Gain on revaluation of available-for-sale equity securities Other 9 2004 KM’000 Operating expenses Marketing and representation costs Salary costs Other personnel costs Rent Depreciation Amortisation Consultancy fees Savings deposit insurance and other insurance charges Other expenses 2004 KM’000 2003 KM’000 592 5,133 739 224 725 162 773 288 1,795 281 4,684 673 109 624 112 455 342 1,770 10,431 9,050 Salary costs include KM 1,108 thousand (2003: KM 887 thousand) of defined pension contributions paid into the State pension plan. The Bank had 191 employees at 31 December 2004 (2003: 169). 15 40 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 10 Impairment losses and provisions The charge to the income statement in respect of impairment losses and provisions is analysed as follows: 2004 KM’000 Impairment losses and provisions for loans and placements to banks for loans to customers for equity securities for other balance sheet exposures for off-balance-sheet exposures 11 2003 KM’000 4,725 (177) (489) 114 102 4,411 360 (1,016) 392 4,173 4,249 2004 KM’000 2003 KM’000 Taxation Accounting profit before tax Disallowable items Allowable items 3,952 841 (616) 3,650 523 (546) Tax base 4,177 3,627 Income tax at 30% (2003: 30%) 1,253 1,088 Reduction of tax liability for reinvestment of profit Reduction of tax liability for foreign shareholders Income tax charge for the year (940) (250) (816) (218) 63 54 Tax is payable at the rate of 30% (2003: 30%) on adjusted operating profits for tax purposes. 12 Cash reserves Cash in hand Current accounts with other banks Giro account 2004 KM’000 2003 KM’000 8,688 1,098 65,721 7,504 961 63,242 75,507 71,707 16 41 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 13 Obligatory reserve with the Central bank The obligatory reserve represents amounts required to be deposited with the Central Bank of Bosnia and Herzegovina. Pursuant to the Law on the Central Bank of Bosnia and Herzegovina, the obligatory reserve requirement represents 10% of average ten-day demand and time deposits and borrowed funds irrespective of the currency in which they are held. The obligatory reserve is maintained through the average balance on the reserve account with the Central Bank. 14 Debt securities Debt securities consist of corporate bills of exchange denominated in KM with maturities from 3 January 2005 to 1 July 2006, bearing interest at 8% per annum. 15 Placements with, and loans and advances to, other banks 2004 KM’000 Loans to banks Placements with banks Impairment allowance 2003 KM’000 2,026 76,982 (102) 2,026 18,218 (102) 78,906 20,142 17 42 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 16 Loans and advances to customers (a) Analysis by product 2004 KM’000 2003 KM’000 Companies - in KM - in foreign currency 126,053 14,838 106,909 11,475 Total companies 140,891 118,384 Individuals - in KM - in foreign currency 45,819 4,618 32,096 4,893 Total individuals 50,437 36,989 Total loans before provisions 191,328 155,373 Impairment allowance - specific - general (13,833) (2,870) (11,711) (2,208) Total loans after provisions 174,625 141,454 In KM loans are included loans in the amount of KM 37,243 thousand (2003: KM 62,706 thousand) determined with reference to their EUR counter-value. Repayments of principal and interest are determined in foreign currency and paid in the KM equivalent translated at the rate applicable on the date of payment. (b) Movement in impairment allowance for loans to customers 2004 Total KM’000 Specific KM’000 General KM’000 2003 Total KM’000 Specific KM’000 General KM’000 As at 1 January 13,919 11,711 2,208 9,548 7,579 1,969 Net charge to income statement Write off 4,725 (1,941) 4,063 (1,941) 4,411 (40) 4,172 (40) As at 31 December 16,703 13,833 662 - 2,870 13,919 11,711 239 - 2,208 18 43 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) (c) Concentration of credit risk by industry Commercial lending is concentrated on companies domiciled in Bosnia and Herzegovina. The Bank’s gross loan portfolio, at 31 December 2004 and 2003, is analysed by industry in the table below: Agriculture, fishing Mining Construction Wholesale and retail Tourism, catering Transportation, communications Financial sector Real estate Public sector Processing Other Total corporate lending Total lending to individuals Total lending 17 2004 KM’000 2003 KM’000 10,040 926 18,386 38,954 2,237 3,034 4,774 3,354 5,161 53,100 925 7,950 1,263 13,761 30,734 2,948 1,914 1,833 3,601 4,982 41,508 7,890 140,891 118,384 50,437 36,989 191,328 155,373 2004 KM’000 2003 KM’000 1,443 372 98 961 626 1,293 410 22 880 362 3,500 2,967 Accrued interest and other assets Accrued interest Accrued fees Prepayments Prepaid tax Other assets 19 44 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 18 Equity securities 2004 KM’000 2003 KM’000 1,869 1,364 488 488 (298) (475) Listed and unlisted securities (available for sale) Equity investment in associate companies Bamcard doo, Sarajevo Impairment allowance 2,059 1,377 Listed securities are quoted on the Sarajevo Stock Exchange. These securities are carried at fair value. (a) Movement in equity securities Cost As at 1 January Additions Sales Write offs Revaluation As at 31 December Impairment As at 1 January Impairment losses (Note 10) As at 31 December Net book value At 31 December 2004 KM'000 2003 KM'000 1,852 505 1,611 341 (12) (88) 2,357 1,852 - 475 (177) 115 360 298 475 2,059 1,377 20 45 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 19 Tangible assets Cost : At 1 January 2004 Additions Transfers Disposals and write offs Land and buildings KM’000 Assets Motor Leasehold under vehicles improvements construction KM’000 KM’000 KM’000 1,620 8 575 181 - - - - 7,926 2,574 2,203 181 234 2,722 15,840 461 1,439 535 62 110 - 2,607 96 277 292 28 32 - 725 - - - (13) - (22) 548 1,716 827 90 129 - 3,310 At 1 January 2004 7,474 705 1,085 119 118 1,111 10,612 At 31 December 2004 7,378 858 1,376 91 105 2,722 12,530 Depreciation: At 1 January 2004 Charge for the year Disposals and write offs At 31 December 2004 (9) (9) 228 25 23 (42) 1,111 2,639 (1,028) Total KM’000 2,144 430 At 31 December 2004 7,935 - Furniture and equipment IT equipment KM’000 KM’000 13,219 2,672 - - (51) Net book value: 21 46 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 20 Intangible assets Cost: At 1 January 2004 Additions Transfers Software KM’000 Assets under construction KM’000 Total KM’000 804 10 113 (10) 917 - At 31 December 2004 814 103 917 Amortisation: At 1 January 2004 Charge for the year 149 162 - 149 162 At 31 December 2004 311 - 311 At 1 January 2004 655 113 768 At 31 December 2004 503 103 606 2004 KM’000 2003 KM’000 135,856 35,091 72,633 14,768 58,927 21,869 74,390 1,977 251,743 163,768 10,029 3,747 5,217 3,362 10,980 31,432 4,692 24,410 56,188 37,681 307,931 201,449 Net book value: 21 Current accounts and deposits from customers Companies Demand deposits - in KM - in foreign currency Time deposits - in KM - in foreign currency Individuals Demand deposits - in KM - in foreign currency Time deposits - in KM - in foreign currency Total current accounts and deposits from customers 22 47 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 22 Borrowings 2004 KM’000 2003 KM’000 21,155 719 12,469 - 7,969 6,300 12,156 2,953 36,143 27,578 2004 KM’000 2003 KM’000 543 474 492 151 1,394 509 595 625 156 527 3,054 2,412 Total KM’000 Specific KM’000 General KM’000 1,145 491 654 114 (57) 171 1,259 434 825 Borrowings denominated in foreign currency - foreign banks - domestic banks Borrowings denominated in KM - foreign banks - domestic banks 23 Accrued interest and other liabilities Accrued interest Salaries payable Creditors Dividends payable Other liabilities 24 Provisions for off balance sheet items As at 1 January 2004 Net charge to income statement As at 31 December 2004 23 48 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 25 Share capital Authorised and issued Ordinary shares KM’000 Balance at 1 January 2004 22,900 Balance at 31 December 2004 22,900 Nominal value (KM) 100 Number of shares 229,000 Each registered ordinary share carries the right of one vote per share. Shareholders who have been identified as having more than 5% in the share capital of the Bank at 31 December 2004 are the following: European Bank for Reconstruction and Development (19.99%); Sarajevska pivara dd (15.73%) and Klas dd (11.55%). 26 Analysis of cash and cash equivalents as shown in the balance sheet For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than 30 days maturity: Notes Cash reserves Obligatory reserve Short term placements with banks maturing within 30 days 2004 KM’000 2003 KM’000 Change KM’000 12 13 75,507 32,862 71,707 11,803 3,800 21,059 30 (b) 71,458 19,145 52,313 179,827 102,655 77,172 24 49 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 27 Commitments and contingencies The aggregate amounts of outstanding guarantees, letters of credit and undrawn loan commitments at the year end were: 2004 KM’000 2003 KM’000 4,906 11,666 6,072 12,527 16,572 18,599 8,966 4,553 7,480 1,716 13,519 9,196 Foreign currency letters of credit 3,345 441 Undrawn lending commitments - in KM 18,438 12,992 51,874 41,228 Payment guarantees - in KM - in foreign currency Performance guarantees - in KM - in foreign currency Within payment guarantees is included KM 210 thousand (2003: KM 865 thousand) of payment guarantees covered with cash collateral. Within performance guarantees is included KM 1,190 thousand (2003: KM 1,071 thousand) of performance guarantees covered with cash collateral. Within letters of credit is included KM 1,773 thousand of letters of credit covered with cash collateral (2003: KM 39 thousand). 28 Related party transactions As at 31 December 2004 the Bank had exposure toward the following shareholders that own more than 5% of the Bank’s shares: Sarajevska pivara dd, Sarajevo KM 2,240 thousand (2003: KM 1,003 thousand) and Klas dd, Sarajevo KM 2,697 thousand (2003: KM 4,444 thousand). At the year end the outstanding debt toward Sarajevska pivara dd was KM 147 thousand (2003: KM 705 thousand), Klas dd, Sarajevo KM 2,478 thousand (2003: KM 2,506 thousand) and EBRD was KM 6,979 thousand (2003: KM 6,772 thousand). As at 31 December 2004 the Bank had unused loan facility with EBRD in the amount of KM 9,779 thousand (2003: KM 1,051). 25 50 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) As at 31 December 2004 the Bank had total exposure in the amount of KM 9,176 thousand (2003: KM 3,946 thousand) toward the shareholders that own from 1% to 5% of the Bank’s shares. At the year end the outstanding debt toward the shareholders that own from 1% to 5% of the Bank’s shares was KM 2,099 thousand (2003: KM 1,132 thousand). As at 31 December 2004 the Bank had total exposure in the amount of KM 286 thousand (2003: KM 156 thousand) toward the Management Board members. At the year end the outstanding debt toward the Management Board members was KM 631 thousand (2003: KM 562 thousand). As at 31 December 2004 the Bank had total exposure in the amount of KM 91 thousand (2003: KM 113 thousand) toward the Supervisory Board members. At the year end the outstanding debt toward the Supervisory Board members was KM 538 thousand (2003: KM 263 thousand). 29 Managed funds – agency business The Bank manages certain assets on behalf of and for third parties. These assets are kept separately from the Bank’s assets. For its services the Bank charges a fee from 1% to 2.5% per annum (2003: 0.75% to 2.5% per annum). 2004 KM’000 2003 KM’000 4,448 15,953 3,374 1,137 700 5,852 11,250 3,709 2,015 500 25,612 23,326 25,209 386 17 22,550 419 357 25,612 23,326 Liabilities Investment Bank of Bosnia and Herzegovina Companies Investment Guarantee Agency Managed on behalf and for the account of the City of Sarajevo Managed on behalf and for the account of individuals Assets Loans to companies Loans to individuals Cash on clearing account 26 51 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 30 Risk management This note provides details of the Bank’s exposure to risk and describes the methods used by management to control risk. The most important types of financial risk to which the Bank is exposed are credit risk, liquidity risk and market risk. Market risk includes currency risk and interest rate risk. a) Credit risk The Bank takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers. Such risks are monitored on a revolving basis and are subject to an annual or more frequent review. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees. b) Maturity analysis The remaining contractual maturity of the Bank’s assets and liabilities as at 31 December 2004 is presented in the table below. Assets Cash reserves Obligatory reserves Debt securities Placements with, and loans and advances to, other banks Loans and advances to customers Accrued interest and other assets Equity securities Tangible assets Intangible assets Total assets Liabilities and funds employed Current accounts and deposits from customers Borrowings Accrued interest and other liabilities Provisions for off-balance-sheet items Share capital and reserves Total liabilities and equity Maturity gap Up to 1 month KM’000 1 to 3 months KM’000 3 months to 1 year KM’000 1 to 5 years KM’000 Over 5 years KM’000 75,507 32,862 105 - - - - 75,507 32,862 1,266 - 634 527 71,458 35,462 3,500 2,059 - 1,543 25,634 5,244 78,519 661 29,148 5,862 - - - 12,530 606 78,906 174,625 3,500 2,059 12,530 606 220,953 27,811 84,290 29,809 18,998 381,861 194,756 747 3,054 - 17,371 1,043 21,636 20,250 - - - 69,067 5,004 - 5,101 9,099 1,259 33,474 307,931 36,143 3,054 1,259 33,474 198,557 18,414 74,071 41,886 48,933 381,861 22,396 9,397 10,219 (12,077) (29,935) - - - - - - - Total KM’000 - 27 52 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) c) Market risk Interest rate repricing, gap analysis and amounts subject to fixed interest rates The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Management Board sets limits on the level of mismatch of interest rate repricing that may be undertaken. The following table illustrates the sensitivity of the Bank’s earnings to movements in interest rates. Earnings will also be affected by the currency of the assets and liabilities. Assets Cash reserves Obligatory reserves Debt securities Placements with, and loans to other banks Loans to customers Accrued interest and other assets Equity securities Tangible assets Intangible assets Total assets Liabilities and funds employed Current accounts and deposits from customers Borrowings Accrued interest and other liabilities Provisions for off balance sheet items Share capital and reserves Total liabilities and equity Interest rate gap Non interest bearing KM’000 Total KM’000 Amounts subject to fixed rates KM’000 Up to 1 month KM’000 1 to 3 months KM’000 3 months to 1 year KM’000 66,819 32,862 105 - 527 - - 634 - - - 8,688 - 75,507 32,862 1,266 66,819 32,862 1,266 70,830 34,087 473 7,161 1,994 111,321 17,099 4,957 5,609 - 78,906 174,625 73,297 34,543 - - - - - - 3,500 2,059 12,530 606 3,500 2,059 12,530 606 - 204,703 8,268 113,842 17,099 4,957 32,992 381,861 208,787 192,563 10,062 15,558 14,872 67,762 7,366 17,216 2,794 3,058 - 11,774 1,049 307,931 36,143 73,299 15,363 - - - - - 3,054 3,054 - - - - - - 1,259 33,474 1,259 33,474 - 202,625 30,430 75,128 20,010 3,058 50,610 381,861 88,662 (22,162) 38,714 (2,911) - 120,125 2,078 1 to 5 year KM’000 Over 5 years KM’000 1,899 (17,618) 28 53 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) Foreign exchange position The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Management Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The Bank had the following foreign exchange positions as at 31 December 2004. EURO EURO linked Total EURO USD Other FX KM Total KM’000 KM’000 KM’000 KM’000 KM’000 KM’000 KM’000 3,283 - - 3.283 - 394 - 621 - 71,209 32,862 1,266 75,507 32,862 1,266 72,269 16,997 - 37,243 - 72,269 54,240 - 4,713 702 - - 1,924 156,926 3,500 2,059 12,530 606 78,906 174,625 3,500 2,059 12,530 606 92,549 37,243 129,792 5,809 621 282,882 381,861 86,827 21,155 - 86,827 21,155 4,969 719 346 - 215,789 14,269 307,931 36,143 456 - 456 226 - 2,372 3,054 - - - - - 1,259 33,474 1,259 33,474 Total liabilities and equity 108,438 - 108,438 5,914 346 267,163 381,861 Net foreign exchange position (15,889) 275 15,719 - Assets Cash reserves Obligatory reserve Debt securities Placements with, and loans and advances to, other banks Loans and advances to customers Accrued interest and other assets Equity securities Tangible assets Intangible assets Total assets Liabilities and funds employed Current accounts and deposits from customers Borrowings Accrued interest and other liabilities Provision for off balance sheet items Share capital and reserves 37,243 21,354 (105) 29 54 UPI Banka dd Annual report for the year ended 31 December 2004 Notes (continued) 31 Average balances and average effective interest rates The table below summarises the average effective interest rate at year-end for monetary financial instruments. These average effective interest rates reflect foreign currency structure and interest rates as at 31 December 2004 and may not be representative at other times. 32 2004 KM’000 Average effective interest rates % Cash reserves Obligatory reserves Debt securities Placements with, and loans and advances to other banks Loans and advances to customers 75,507 32,862 1,266 78,906 174,625 0.88 2.06 8.00 1.38 10.56 Current accounts and deposits from customers Borrowings 307,931 36,143 2.07 3.54 Fair values of financial assets and liabilities Fair value represents the amount at which an asset could be exchanged or a liability settled on an arm’s length basis. As verifiable market prices are not available for a significant portion of the Bank’s financial assets and liabilities, fair values have been based on management assumptions. The management of the Bank believes that the fair values of assets and liabilities are not significantly different from book values. 30 55 UPI Banka dd Annual report for the year ended 31 December 2004 Financial statements prepared in the form prescribed by the Federal Agency for the Banks of Bosnia and Herzegovina These financial statements comprise the Income Statement for the year ended 31 December 2004 and the Balance Sheet as at 31 December 2004 prepared in the form prescribed by the Decision on volume, form and contents of programs and reports on economic and financial audit from 29 January 2003, the Amended Decision from 19 December 2003. 31 56 UPI Banka dd Annual report for the year ended 31 December 2004 Income statement for the year ended 31 December 2004 Interest income and interest expense Interest income and similar income Interest bearing deposits with deposit institutions Placements with other banks Loans and leasing Debt securities held until maturity Equity securities Receivables for payments made for off balance sheet exposure Other interest income and similar income Total interest income and similar income 2004 KM’000 2003 KM’000 818 15,881 924 942 14,925 - 17,623 15,867 Interest expense and similar expenses Deposits Borrowings from other banks Borrowings – due Borrowings Subordinated debts and subordinated bonds Other interest expense and similar expenses 4,321 978 - 3,826 704 2 Total interest expense and similar expenses 5,299 4,532 Net interest income and similar income 12,324 11,335 Operating income Income from FX trade gains Fee income from lending activities Fee income from guarantees and letters of credit Other fee income Income from trading activities Other operating income 247 1,189 1,429 3,144 3,463 958 1,548 1,510 2,028 1,299 Total operating income 9,472 7,343 Non interest expenses Business expenses General provision for balance sheet and off balance sheet exposures Other expenses 6,627 1,787 5,265 1,809 Total business expenses 8,414 7,074 Operating expenses Personnel costs Depreciation and other business premises related expenses Other operating expenses 5,798 1,958 1,674 5,258 1,802 894 Total operating expenses 9,430 7,954 Total non interest expenses 17,844 15,028 Profit before tax Taxation 3,952 63 3,650 54 Net profit for the year 3,889 3,596 32 57 58 Design by: Foto Art d.o.o. Sarajevo
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