LAIKI ANNUAL REPORT

future
The journey has begun. The future has arrived. Through the power
and passion of its people, MARFIN POPULAR BANK is expanding
throughout the world. Overcoming every obstacle and surpassing all
expectations, raising the bar ever higher, we’re creating the tomorrow
everyone dreams of but for which few dare to reach.
Marching assertively along
a sound development
course, sight fixed firmly
on the future.
contents
6
7
9
11
15
23
27
31
37
45
51
162
Board of Directors and Executive Management
Financial Highlights
Chairman’s Statement
Executive Vice Chairman’s Statement
Comments on the Results for 2007
Corporate Responsibility
Economic Developments
Financial Results
Corporate Governance Report
Risk Management
Consolidated Financial Statements
Important Addresses
Board of Directors and Executive Management
Board of Directors
Soud Ba’alawy
-
Non Executive Chairman
Andreas Vgenopoulos
-
Executive Vice Chairman
Neoclis Lysandrou
-
Non Executive Vice Chairman
Efthimios Bouloutas
-
Chief Executive Officer
Panayiotis Kounnis
-
Deputy Chief Executive Officer
Christos Stylianides
-
Deputy Chief Executive Officer
Vassilis Theocharakis
Platon Lanitis
Constantinos Mylonas
Stelios Stylianou
Markos Foros
Eleftherios Hiliadakis
Sayanta Basu
Vincent Pica
Nicholas Wrigley
Group Executive Committe
Andreas Vgenopoulos
- Chairman
Efthimios Bouloutas
Panayiotis Kounnis
Christos Stylianides
Eleftherios Hiliadakis
Secretary
Stelios Hadjijoseph
Chief Financial Officer
Annita Philippidou
Independent Auditors
PricewaterhouseCoopers Limited
Grant Thornton
Registered Office
6
154, Limassol Avenue, 2025 Nicosia
Note: The Annual General Meeting will be held on May 15, 2008 at 5:00p.m., at Hilton Cyprus Hotel, Nicosia.
Financial Highlights
2007
C£ ‘000
2006
C£ ‘000
2005
C£ ‘000
2004
C£ ‘000
2003
C£ ‘000
404.257
329.708
151.617
86.072
106.183
42.761
83.469
21.100
65.951
9.511
Capital resources
Share capital
Reserves
Minority interest
398.345
1.585.497
54.155
395.159
1.287.814
94.734
153.648
193.191
35.735
152.450
152.731
34.904
152.450
127.962
29.393
Total equity
Loan capital
2.037.997
353.534
1.777.707
365.224
382.574
213.154
340.085
214.124
309.805
215.068
Total capital resources
2.391.531
2.142.931
595.728
554.209
524.873
12.112.197
10.309.665
17.704.607
9.373.738
6.952.217
13.175.153
5.726.421
3.995.698
7.118.731
4.636.846
3.490.148
5.878.129
4.148.060
3.123.582
5.075.474
42,2
20,0
25,8
18,0
14,0
6,0
6,9
3,0
3,1
-
Profit before provision for
impairment of advances
Profit attributable to the shareholders
Customer deposits
Advances
Total assets
Per ordinary share
Earnings – cent
Dividend - cent
Analysis of Shareholders
Issued Capital: 796.691.149
Category of Shareholders
■ Public or Private Companies,
Insurance Companies,
Partnerships, Business
Names, Municipalities
■ Private Individuals
■ Provident Funds, Trusts,
Pension Schemes, etc.
■ Clubs, Churches,
Institutions
■ Marfin Laiki Bank Staff
■ Investment Schemes
registered in the name
of companies,
Mutual Funds
Total
No. of Shareholders
No. of Shares
Percentage %
1.087
505.422.385
63.44%
48.303
167.107.363
20.98%
265
40.816.289
5.12%
41
5.796.396
0,73%
1.944
9.480.476
1.19%
188
68.068.240
8.54%
51.828
796.691.149
100.00%
7
Chairman’s Statement
In 2006, Marfin Popular Bank (MPB) embarked on a major phase of transformation that marked the beginning of
new growth. During 2007, we accelerated our momentum for growth by integrating the entities that were merged
and simultaneously undertaking a geographic expansion, the goal of which is the consolidation of our position as
one of the largest and most profitable banks in the region.
I would like to highlight that notwithstanding the challenges that accompany integration, MPB was able to retain
all key personnel and was able to deliver uninterrupted services not only to the existing client base, but also to the
new base of clients spread over a range of countries and territories.
The foundation of our growth does not lie merely in integration. It is a consequence of having in place a management
team with a clear vision and staff that are motivated to execute on that vision with diligence. Moreover, the excellent
quality of our people combined with our strengthened balance sheet will enable us to better serve our clients with
a broader range of innovative products and services.
Despite the challenges currently faced by the global financial sector, MPB is well equipped to face the future. We are
bringing about necessary changes in our approach to business and we are prepared to face the challenges. We
remain steadfast in our strategy of driving growth and diversification. Our proactive, innovative and quality oriented
approach to doing business will position us well to further increase our market share. To that end, we will step up
the pace of the delivery of products and services with the goal of achieving improved financial performance in the
year ahead.
I would like to take this opportunity to extend my sincere appreciation to our customers, our shareholders and to
our team of outstanding employees. Thank you in advance for your commitment to support us in the years ahead.
Soud Ba’alawy
Chairman
9
Executive Vice Chairman’s Statement
2007 has been a year of great success and achievement for Marfin Popular Bank. Following the transformational
year 2006 when Marfin Popular Bank was established, as the result of the triple merger of the Groups of Marfin,
Egnatia and Laiki , the main highlights of 2007 are the successful completion of the three way merger of the Hellenic
entities of the new Group, which led to the creation of Marfin Egnatia Bank, our subsidiary in Greece, our expansion
in new markets, Ukraine, Malta and Russia and the successful capital increase of €5.2 billion of our affiliated company
Marfin Investment Group.
As of the end of 2007, Marfin Popular Bank has evolved in a regional Banking group in Southeast Europe with
presence in 12 countries, more than 400 branches in Cyprus, Greece and international locations, while our workforce
comprises of 8,000 employees. During this year we have streamlined the group structure and introduced a vigorous
capital allocation process. This structure will ensure future operational efficiencies and increased strategic flexibility.
Our financial performance for 2007 has been outstanding with net revenues increasing by 53.9% to €1,242 million
while our profitability at net level reached a record €563.4 million, registering an increase of 129.6%. Our total assets
reached €30.3 billion registering an increase of 33.9% compared with last year.
The share capital increase of Marfin Investment Group, which has been named the capital raising of the year, has
created a new source of revenues for our Bank via an advisory mandate, as well as enormous potential for our Group
by exploiting the possible synergies with MIG affiliated companies.
Across the region of southeast Europe the pace of globalization is accelerating and the local markets continue to
expand in banking assets. We are convinced that Marfin Popular Bank is well positioned to take advantage of these
trends. While we have achieved a sufficient geographical coverage we will continue to selectively evaluate
opportunities in the region striking the right balance between organic growth and acquiring and integrating new
assets. In implementing and executing this strategy our highly motivated employees have been, and will continue
to be, a key success factor and a source of innovation.
Our commitment for value creation for our shareholders while serving the interests of our demanding clients and
our talented employees, remains as ever, the core principle in managing Marfin Popular Bank in the years to come.
Andreas Vgenopoulos
Executive Vice Chairman
11
expansion
International expansion
is not a long-term goal,
it’s our daily reality.
To us, development is not just a
throwaway line. It defines who
we are. Pioneers by nature, with
an ever-increasing international
presence, we prove on a daily
basis that boundaries exist only
to be crossed.
Comments on the Results for 2007
2007 was a very important year for Marfin Popular Bank both from the point of view of developments and results
achieved. The successful merger between Laiki, Marfin and Egnatia into a big financial institution based in Cyprus,
was completed on 30 June 2007. The integration of the three banks at the level of organisation and operation has
created huge development prospects in existing and new markets, as well as the potential of exploiting multiple
synergies to the benefit of the customers, the staff, the shareholders and also the economy of Cyprus in general.
Our vision is to establish Marfin Popular Bank as one of the largest financial groups in South Eastern Europe.
Throughout the year, this objective was promoted with coordination and dynamism, with initiatives that were
undertaken through individual markets. A decision of strategic importance was made to extend the presence of the
Group in Ukraine and Malta by takeovers. Speed in the design of movements and dynamism in their application
were the main characteristics of the activities pursued.
The results in 2007 were excellent due to the positive financial circumstances, but also due to the initiatives that
were taken at the level of strategies and business development.
CYPRIOT MARKET
In 2007 the growth of the Cypriot economy continued at a satisfactory rate which was higher than the average
growth rate in the EU. In the banking market, a very dynamic acceleration in the demand for loans both from
residents and non-residents became apparent. The rate of growth of loans granted by commercial banks rose to
36,9% in comparison with 17,2% in 2006 with the main beneficiaries of these loans being the housing, construction
and private consumption sectors. The Bank in Cyprus managed to exploit the opportunities which emerged and to
increase its share in the market as regards the aggregate of loans that were granted.
In the field of deposits, the trend of fast expansion was maintained both among residents and non-residents. The
growth rate of deposits by residents with commercial banks accelerated to 22,5% in comparison with 14,7% in 2006,
while the growth rate of deposits by non-residents dropped to 19,1% in comparison with 28,3% in 2006. Marfin Laiki
Bank improved its share in both market segments.
Banking Services
During the year under review, the strategy concerning the supply of high quality products and services continued
in the sector of Retail Banking parallel to the development of new competitive products of an innovative character
and the exploitation of opportunities that arose in the market.
In response to the intense demand that was mainly recorded in the construction sector, emphasis was laid on the
design and the promotion of flexible housing plans for the purpose of acquiring and refurbishing homes, as well as
for investment purposes. It is worth noting that the growth rate in housing loans granted by the Bank in 2007 was
above 67%. The objective regarding the provision of comprehensive solutions to customers was promoted through
15
product and service packages resulting in new customers being attracted and in the further development of the
Bank's relationships with existing customers. A special comprehensive plan was offered to large families in the context
of social responsibility that is pursued by Marfin Laiki Bank, covering the entire range of needs of these families.
In addition, special efforts were made to improve the quality of loans with very positive results.
In the field of deposits, we followed a flexible and balanced pricing policy by promptly introducing special offers of
different duration with very positive results. This strategy was very fruitful. Furthermore, practices and procedures
were developed with a view to providing tailor-made services to customers and a better utilisation of the system of
managing customer relations, while the results obtained from market research were better used.
In the sector of credit cards, the first smart cards or chip cards were launched with great success together with two
new loyalty schemes and two new innovative card products.
Smart cards which are already known as PIN & PAY cards provide the safest method of paying by card worldwide.
Copying these cards is particularly difficult while the use of pin numbers prevents unauthorised use.
With reference to new products, we introduced with great success the new series of Card & Fly cards in four different
versions and the new prepaid card Laiki Prepaid Visa. This new card is issued to individuals aged thirteen or over; the
card bears the cardholder’s name and is prepaid and rechargeable, thus making it very flexible to use.
With reference to loyalty plans which aim at creating long-term relationships with the customers and rewarding
those who make frequent use of the card, the bank gave its customers a choice between loyalty plans, thus breaking
new ground once again.
The network of bank branches in Cyprus played a very important role in developing business and promoting cross sales.
The main objective is to increase income by involving the entire staff in sales and utilising technical know-how and excellent
training to its maximum potential in order to offer excellent services through a very well-organised branch network.
Marfin Laiki Bank centralised the processing of loan documents, thus freeing time for sales officers who can now
use this time to enhance the relationship with existing customers, make prompt predictions about customer needs,
promote cross selling and attract new customers as well. This strategy, in conjunction with the design of customertailored products, resulted in a spectacular increase in sales achieved by the Branch Network throughout the
various sectors.
In the business sector, in 2007 Marfin Laiki Bank achieved a considerable increase in its advances, by providing
integrated solutions to the financial needs of its customers and by employing a high level of professionalism.
Furthermore, emphasis was laid on the improvement of the share of business volume from customers who are
prominent in their sector. Efforts were also made in areas with prospects of development, while at the same time
systematic efforts were exerted to improve the quality of the portfolio of advances.
Establishing the position of Cyprus as an international centre of services with the advantages that this position
entails has had a positive effect on the financial sector. 2007 was a very good year in the field of international business
banking since deposits in foreign currencies by non-residents was particularly satisfactory, thus contributing to the
Bank’s improved profitability to a great extent.
During the years, the International Business Banking Division was upgraded and strengthened with experienced staff.
In addition, a more efficient and effective organisational structure was adopted while important investments were
made in technology. As a result, there was a considerable improvement in the quality of customer service and the
provision of a wider range of international banking services. The increase in the number of customers and the volume
of transactions was particularly significant while our efforts were focused on strengthening existing relationships and
establishing new collaborations with solicitors, accountants and other professionals both in Cyprus and abroad.
16
The International Business Banking Division makes a considerable contribution to the promotion of the Group’s
strategy aiming at exporting banking operations in the wider region of South Eastern Europe and Russia and at
utilising the synergies that are created.
As regards to Private Banking, 2007 was a special year. The results achieved were particularly satisfactory, since the
funds under management and profit-making itself showed a considerable increase. The legal framework regulating
the sector of investments was changed in November with the introduction of a law regulating the provision of
investment services, investment activities, the operation of regulated markets and other related issues. This Service
has complied with the provisions of the law and continues to provide its excellent services to its customers on a
personal level, furnishing them more information and protection in accordance with the law. Investment advisors
with their high level of training and professionalism are always available to their customers.
The Private Banking Service achieved top distinctions in 2007, which we are very proud of. Euromoney magazine
voted private banking services offered by Marfin Laiki Bank as “Best Private Banking Services Overall” for the third
consecutive year in Cyprus and at the same time it awarded top distinctions to individual sectors, such as: Corporate
Advisory for Private Banking Clients, Family Office Services, Equity Portfolio Management, Hedge Fund Investments
and Fixed Income Portfolio Management. In addition, “Money Markets” international magazine awarded the Bank’s
Custody Service the “Best in Class” prize for the second consecutive year.
In the field of foreign exchange transactions, the Treasury grew bigger during the past year, especially with regard
to product pricing. As far as the Bank is concerned, the Treasury paid particular attention to the management of the
Bank’s liquid assets, secured liquidity ratios at high levels and balanced interest and exchange rate risks. In addition,
the Service continued to promote new products new in the Cypriot market, such as eFX Trading which proved a
great success. At the same time, it continued to create investment products intended for Private Banking customers,
Laiki EDAK and Fund Management customers, Laiki Cyprialife and Retail Banking.
The role of the Treasury in the creation of liquidity for the Group was particularly important in the past year. One of
the main objectives of the Service is the provision of liquid assets to the entire Group both in Cyprus and abroad in
order to facilitate its development objectives. The generation of liquidity from international markets was achieved
through the project of EMTN bonds by an issue amounting to 750 million Euros at a very attractive price.
As regards the existing loans, the emphasis was on increasing the collection of overdue loan payments. In particular,
in 2007 the Department of Debt Collection focused on settling big problematic accounts with positive consequences
on the Bank’s profitability and the improvement in the ratio of non-performing loans. The very good results achieved
are attributed mainly to improved productivity which was made possible through continuous staff training,
motivation and the use of a centralised system for the collection/repayment of debts, as well as the improvement
of the economy. The investments that were made in technology considerably improved the procedure of monitoring
and collecting debts and monitoring staff performance.
It is worth noting that our Bank was voted for another time as “Bank of the Year” in 2007 by “The Banker” Magazine
of the Financial Times.
Equally prestigious as well as indicative of our Bank’s high level and quality of services is a series of distinctions
bestowed on the Bank by specialized international journals such as Euromoney Magazine and Money Markets
Magazine. In 2007, our Bank was awarded:
Best Domestic Bank in Cyprus
Best Private Banking Services Overall
Best Private Bank for Entrepreneurs in Cyprus
Best Private Bank for Corporate Executives in Greece
Best in Class for Custodian Services
Innovation Award
Bronze Award for Cheapest Home Loans in Australia
Bronze Award for Best Term Deposit in Australia
The prospects for the year 2008 regarding banking activities in the Cypriot market are deemed to be positive. This
will depend on the extent to which today's instability in international capital markets will slow down the rate of
growth of the international economy and raise the cost of funds. Intensifying competition and the adoption of
stricter regulations by the Central Bank of Cyprus are some other factors that must be taken into consideration.
However, independently of all the above, the economy of Cyprus is expected to continue to grow at a higher rate
than the average Eurozone rate. Demand for loans in the banking market, especially for housing purposes, is
expected to grow, albeit at a slower pace than in 2007.
In the banking sector, retail banking is the main priority of Marfin Laiki Bank together with the financing of small and
medium-size enterprises and the sectors of the market with comparatively higher rates of growth, such as
international business units and the management of customers’ assets in private banking.
Laiki eBank
Throughout 2007, Laiki eBank pursued a consistently rising trend in the provision of high-level services in the field
of electronic banking to more than 135.000 private individuals and enterprises. A full redesign of screen graphics and
restructuring of the menu of options throughout the entire ATM network together with the introduction of a more
user-friendly navigation system were all prepared in this context. The innovative and prize-winning Laiki eBank
Alerts was further upgraded and is now operating on a new infrastructure, providing the customer with excellent
service through simplified procedures and a simpler form of navigation. In addition, eBanking for Business has been
upgraded in order to provide specialised technology to companies-customers in making money transfers and paying
wages, especially in the case of International enterprises. Furthermore, the electronic payments system has been
upgraded in order to make money transfers in euros through the SEPA (Single Euro Payments Area) platform, in
accordance with the regulation issued by the European Payments Council.
Laiki eBank has recorded a considerable increase in the number of electronic transactions and the number of
subscribers, in combination with the on-going application of the strategic decision regarding the transfer of routine
transactions from the branches to alternative customer service channels. In addition, Laiki eBank focused its efforts
on selling electronic and traditional products and accounts through electronic customer service channels.
17
Furthermore, the Service has contributed towards the materialisation of the Group’s strategic objectives in electronic
banking at an international level.
Insurance Services
In 2007, the rate of growth in life insurance markets was considerably higher than that of 2006 resulting in a significant
increase in the production of new insurance business. The growth of general insurance was quite satisfactory.
During the year under review, Laiki Cyprialife continued its policy for upgrading the quality of its services. Special
priority was given to keeping expenses under control and the more efficient management of its insurance reserves
and investments. The spectacular growth of the Cyprus Stock Exchange and the positive growth of the international
stock exchanges, coupled with significant liquidations carried out in the Company's investment portfolio in order to
ensure profits, boosted the profitability of Laiki Cyprialife. The Company's financial results in 2007 registered a considerable
increase in comparison with 2006 both at the level of insurance premiums and the level of overall profitability.
Acknowledging the needs of its customers, Laiki Cyprialife continued its policy regarding the improvement of its
insurance products and the introduction of new insurance plans in order to cover the increased demands of families
nowadays for health insurance, accident coverage and pension plans, besides life insurance. Collaboration with
bank branches was particularly successful and all the objectives that had been set with regard to bank-assurance
products were achieved.
Laiki Insurance remained for one more year as the leading force in the area of general insurance in Cyprus. 2007 was
an excellent year since the Company achieved a considerable increase in its subscribed insurance policies and a
spectacular increase in profits. This success is due to the comprehensive range of available insurance products, the
application of the proper principles in the acceptance and pricing of the risk undertaken, the effective management
of claims, the effort made to keep expenses under control and the fact that the company continued its policy with
a view to improving the system used in managing its debtors. The Company continued to play an active role in
matters of social responsibility, especially in the field of motoring behaviour and fire safety.
In 2008, the rate of growth in the market of life insurance in Cyprus is expected to be higher than that of the nominal
GDP. The prospects in the market of general insurance are similar.
Other Financial Services
Laiki Finance achieved impressive profits having considerably increased its turnover, especially in certain priority
fields, while it also improved the quality of its loans. Attractive packages to customers and the company's
collaboration with its associates contributed to this development.
During the year under review, the procedure for merging the activities of Laiki Finance with the activities of the Bank
proceeded at a fast pace. As a result, hire-purchases will be offered under the newly established “Finance
Department” of the Bank.
2007 was also a very good year for Laiki Factors, which maintained its profitable trend and retained its leading
position in factoring. The Company pursued successfully the implementation of its strategy based on upgrading
the quality of services, providing excellent customer service, penetrating sectors with comparatively greater margins
for development and improving further its portfolio.
At the end of 2007, the General Index of the Cyprus Stock Exchange recorded annual profits amounting to 23,6%
despite the fact that in November and December 2007 the general index declined by 18% as a result of the general
disturbance in international markets caused by sub-prime mortgaged loans in the USA.
Total profit after tax profit for Laiki Investments E.P.E.Y. Public Company Ltd amounted to €7,9 million in 2007
compared with €7,2 million in 2006. This improvement achieved mainly by an increase in operating and the effective
management of the Company's own portfolio.
18
The trend in the company's results in the year 2008 will depend on the extent to which financial institutions are
affected, either directly or indirectly, by the crisis caused by the sale of mortgaged housing loans to persons with low
credit standing worldwide. Due to the fact that it is difficult to predict the depth of this crisis, no useful predictions
can be made. The international capital markets seem to have entered into a period of high volatility which entails
risks as well as opportunities. The Cyprus Stock Exchange and the Athens Stock Exchange are now inextricably linked
to this volatility. However, we must not overlook the fact that in both these markets there are elements of intense
corporate activity, such as mergers and acquisitions which are expected to keep the investors’ interest at high levels.
Laiki Investments E.P.E.Y. Public Company Ltd has a strong balance sheet and experienced and fully qualified staff. The
Company's permanent aim is to continue to actively exploit the opportunities that appear in the fields in which it operates
and to continue to employ the same high standards of professionalism, confidentiality and integrity that characterise it.
GREEK MARKET
The Greek Banking System scored high growth rates in 2007 in an ever-increasing competitive environment. The
expansion of credit to households and businesses in Greece representing 92% of GNP is still lagging behind the
European average (approximately 140% compared to GNP). This fact has created an attractive environment with
considerable potential for further growth in financial operations.
Loans and bank deposits continued to rise for yet another year and grew by 51% and 35% respectively. The successful
strategy pursued by the Group in retail banking, especially in the field of housing loans, which surged by more than
75%, played an important role in the accomplishment of this result. In addition to the expansion in the retail banking
sector, the Bank’s presence grew considerably stronger, with a 47% increase in business loans. The considerably
increased operations in the retail banking sector and the business banking sector is mainly the result of the Group’s
centralized organization and the attractive product packages it offers at prices which reflect a reasonable assessment
of undertaken risks.
In the context of continuously expanding the Bank’s network of branches, 10 new banking centres and 16 new bank
branches began operating in 2007, thus increasing the total number of the Bank’s branches at the end of the year to 160.
The Group's insurance business in Greece expanded considerably in 2007 through the completion of the merger of
the three banks. Marfin Life Insurance achieved a considerable increase in its insurance premiums and profitability
as a result of the introduction of new products. As far as general insurance is concerned, Laiki Insurance has obtained
a license for establishment and operation in Greece, where it is expected to commence operations in the first quarter
of 2008. In addition, an agreement has been signed which provides for the establishment of a single software system
in Greece and in Cyprus. Finally, we should also mention the merger between Laiki Brokers Ltd and Egnatia Brokers
SA and its renaming to Marfin Brokers SA.
INTERNATIONAL PRESENCE
The Group’s international presence was further enhanced, during the period under review, with our activities further
expanding to Southeastern and Eastern Europe, penetrating markets with high growth potential and markets with
a scope to offer advanced international banking services. Apart from the geographical and cultural proximity
between Cyprus and Greece and this area, it is at a fast growth stage offering excellent opportunities for
successful business.
Within the framework of implementing its new strategy, in 2007 Marfin Popular Bank proceeded with the acquisition
of banks in Ukraine, Malta and Russia. The bank acquisition in Ukraine was finalized last September, in Malta in
February 2008 while the acquisition in Russia is expected to be completed during the first half of 2008.
With the acquisitions, the Group has expanded its presence in 11 countries with 451 branches having the largest
presence of any other Cyprus Bank worldwide (Cyprus, Greece, the United Kingdom, Australia, Romania, Serbia,
Estonia, Guernsey, Ukraine, Malta and Russia).
Laiki Bank, United Kingdom
The strategic goal of the Bank in the United Kingdom is to expand its clientele to customer groups other than the
members of the Greek and Cypriot communities. Significant progress towards this goal was achieved in 2007. At the
same time, the Bank has broadened the range of its products and services and improved both its profitability and
balance sheet size.
Laiki Bank (Australia) Ltd
The Bank maintains a network of 10 branches in key cities throughout the country, offering comprehensive banking
services to its customers. Despite the intense competition prevalent in the Australian market, the Bank managed to
improve its profitability.
Egnatia Bank (Romania) S.A.
2007 was a particularly successful year for the Bank in Romania. The bank more than doubled its branches to 19 and
recorded a significant growth in both profitability and balance sheet size. The bank’s target is to strengthen further
its network throughout the country, reaching 61 branches by 2010, offering its customers comprehensive range of
products and outstanding service.
Marfin Bank JSC Belgrade
Our subsidiary bank in Serbia is also in a phase of development, which was supported by a €30 million capital
increase in May 2007. At present time there are 20 branches in the network of Laiki Bank a.d. and, by the end of
2010, it is expected that the network will reach 74 branches in order to cover the entire country.
AS SBM BANK (Estonia)
MPB owns the majority of AS SBM Bank’s (Estonia) share capital (50,1%). The Bank operates 4 branches in Estonia focusing
on offering services and products to small-to-medium businesses, while its e-banking services are highly developed.
19
Laiki Bank (Guernsey) Ltd
Guernsey constitutes one of the most popular financial centers throughout the world in matters of budgeting and
tax planning. Through the presence of its affiliate, Laiki Bank (Guernsey) Ltd, the Group offers its customers an
alternative option for their deposits.
Marine Transport Bank (MTB) (The Ukraine)
MTB was founded in 1993 as a private bank, under the name Marine Trade Bank and has been renamed to Marine
Transport Bank since 1996. It has the license and offers a comprehensive banking service. Its activities are based in
Odessa with 88 branches and points of sale throughout the country.
Marfin Popular Bank has acquired 99,2% of the share capital of MTB and its three associated companies, Investment
Lease Company Renta, Premier Capital and Sintez Autoservice. Since October 2007, its financial results have been
consolidated with those of the Group.
Lombard Bank Malta PLC
Lombard Bank Malta is the third largest bank in Malta. It is listed on the local Stock Exchange, operating under the
supervision of the Malta Financial Services Authority. Based in Valetta, it was founded in 1969 and offers a complete
range of financial services with a network of six branches. Lombard Bank Malta owns 60% of the Malta Post, an entity
with 33 branches throughout the country. Marfin Popular Bank acquired 43% of Lombard Bank Malta’s PLC (LBM)
share capital.
OOO Rossisysky Promishlenny Bank (Rosprombank)
In December 2007, Marfin Popular Bank (MPB) signed an agreement for the acquisition of OOO Rossisysky
Promyishlenny Bank (Rosprombank), along with its subsidiary OOO RPB-Leasing through the acquisition of a
controlling stake (50,04%) of their parent company, OOO RPB-Holding.
Rosprombank is a very fast growing bank in Russia with considerable experience in financing small-to-medium size
businesses, and a network that covers the country's major cities such as Moscow and St. Petersburg. Rosprombank
operates 10 branches and 20 outlets.
Bulgaria
Marfin Popular Bank has submitted an application to the Central Bank of Cyprus for the operation of a branch in
Bulgaria within the framework of free establishment as defined by the relevant regulations governing the provision
of banking services in another EU member-state.
SUPPORT AND OTHER SERVICES
Infrastructure – Technology
During the year under review, the bank proceeded with the implementation of technological infrastructure works,
while the transition to the Euro was completed with great success. The Group also proceeded with the integration
of various systems in Greece within the framework of the triple merger (Egnatia, Marfin, Laiki Hellas), while it also
decided to proceed with the implementation of common systems in various countries where it operates. In this
context, human resources management systems (SAP), Treasury (Sunguard Quantum) and Employee Portal which
are installed in Cyprus were adapted so as to cover the needs of the Bank in Greece. In addition, common systems
were implemented in the regions of the Single Euro Payments Area (SEPA), Basel II Accord, SWIFT, Balanced Scorecard
and Anti-Money Laundering. The card system was also upgraded through the issue of smart cards (chip cards)
together with the ATMs which were upgraded by a completely new particularly user-friendly system which affords
the profitability of supporting these cards.
20
A very important development is deemed to be the choice of the banking system Temenos T24, which is used by
the Group in Greece, as the new strategic banking system of the Group at an international level. T24 is one of the top
banking systems worldwide and is expected to lend the Group greater flexibility in the development of new products
and its ability to offer higher level services to customers, while it is also expected to contribute towards utilising
synergies and economizing considerable assets.
Organisation
Throughout 2007, the Department of Organisation promoted important projects whose implementation will
contribute towards the Group’s more efficient and effective operation and the increase of its productivity. The
following are among the strategically important projects that have been implemented:
Merger of the three banks in Greece: Management executives undertook the management of the strategic
merger projects as well as HR consolidation which covered various areas, such as joint policies, procedures and
systems regarding human resources.
Transition to the Euro
Results monitoring system: A new system was installed to measure and monitor results at individual banking
projects. It is now being installed at the Group’s support services and subsidiaries.
Employees Portal: The Group’s new Intranet, which is the main means of communication, was installed in Cyprus,
Greece and Serbia and various automated office applications were developed to improve productivity.
New performance evaluation system: The new system for the evaluation of performance was installed which
will be used by all the Group’s services.
Bonus Scheme: The basic principles of a Bonus Scheme were defined in the context of the HR consolidation
project which will apply to the entire Group.
Human resources research: A research regarding the Group’s human resources was designed and carried out.
Other important projects that are being carried out and managed by the Organisation Management are:
Centralisation of operations
Improvement of the quality of customer data
Provision of support to the Group’s new departments abroad
Merger of the operations of Laiki Finance with the banking operations in Cyprus.
Procedures
Efforts to simplify and centralise procedures that do not necessitate the physical presence of customers continued
in 2007 together with efforts for greater utilisation of alternative customer service channels.
In addition, the Group proceeded with all the necessary technological and other changes so that it can operate in
accordance with the specifications laid down by SEPA which was put into effect on 29/01/2008. Furthermore, the
Bank has successfully upgraded its technology and implemented the necessary procedures in order to comply with
the new platform regarding the management and capital in Euros between banks of the European Economic Area
(Target 2). The operations concerning Cyprus were transferred to the new system as from November 2007.
Human Resources
For yet another year, the activities of the Human Resources Department were intense and multi-faceted. During the
year, 278 persons were hired with a view to strengthening the front line units, especially the International Business
Banking Division and the Branch Network. The contribution made by the Human Resources Department in the
staffing of the Group’s banks abroad was noteworthy, especially in Serbia, Romania and the United Kingdom. Staffing
was effected mainly with the secondment of experienced staff from Cyprus.
In addition, the application of existing support, evaluation and development systems of human resources went on
with success. In particular, the institution of HR Business Partners which has been in force over the past two years
has yielded positive results. The Department of Human Resources operates as the management’s consultant of every
corporate area and has made a significant contribution towards the accomplishment of the targeted results.
The Department of Training & Development has kept up with its strategy for the provision of specialised training and
organised a series of programmes that focus on three basic pillars:
Developing leadership skills and modern management practices
Developing operations and sales
Quality of loans.
In this context, the development programme, “Integrity Selling” was organised, for the first time aiming at aligning the
behaviour of the staff with excellent quality standards in customer service and sales. Adjusting the skills and abilities
of human resources to the broader strategy of the Group is a prerequisite in the accomplishment of its ambitious aims.
“Leadership Development Programme”, an innovative programme based on this policy, was put into effect aiming at
developing successful managerial and other staff.
The preparation for introducing the new evaluation system regarding the Group’s staff performance was successfully
completed in 2007. Its basic philosophy relies on the evaluation, the overall performance of an individual on the basis
of business results and his/her behaviour.
During the year under review, the Meritocracy Committee was established and put into operation; its aim is to
consolidate the principles of justice and meritocracy in decisions concerning rewards, promotion and
acknowledgement of the staff’s contribution and performance on an individual basis.
In addition, the Group played a leading role in the establishment and operation of the European Business Committee
in collaboration with employee representatives. The objective of the Committee is to establish communication channels
between the Management and the employees on matters of strategy, reorganisation, mergers and expansion.
2007 was a year of decisive upgrading of the relations between the Group’s Management and ETYK [Union of Bank
Employees of Cyprus]. The Management’s pioneering decision regarding the appointment of an employee
representative on the Group’s Board of Directors was undoubtedly a landmark in the upgrading of this relationship.
During the year under review, preparations regarding the Bonus Scheme were completed. The Scheme, which will be
put into effect in 2008 for the first time, aims at rewarding high performance individuals. This measure is a real
commitment on the part of the Group’s Management for:
fair distribution of surplus value between shareholders and the workforce, and
meritocracy in promotion, career and reward opportunities.
21
Finally, based on the analysis of the results obtained through the research conducted on human resources it is
evident that all human resources feel highly satisfied with their work at our Group and that they trust its Senior
Management and strategic programme.
Risk Management
Apart from business developement, an essential priority of the strategy being pursued is the gradual improvement
of the quality of the loan portfolio and this is reflected in the decrease of the non-performing loans ratio and the
percentage of the annual provision charge with respect to advances.
The basic principles regarding loans that were pursued in granting new loans are the customer’s repayment ability
and his credit worthiness. In addition, emphasis was laid on improving the evaluation process of applications for
new credit together with the prompt recognition and management of the credit risks undertaken.
In 2007 special efforts were made to further upgrading the policies and procedures for market and operational risk
management. Details are discussed in the Annual Report in the section regarding risk management. The recent
global crisis in the market of mortgaged housing loans to persons of low credit standing did not influence the Group
to a large extent. The Risk Management Division and the Group’s Senior Management are closely monitoring
developments, assessing the consequences that may follow and taking proper action.
On the basis of the Group’s strategic direction, the effort to further improve the quality of the loan portfolio will
remain a high priority throughout 2008 since this contributes positively to higher profits. At the same time, efforts
to improve the quality of the Group’s operations will continue unabated.
GROUP STRATEGY 2008 – 2010
Marfin Popular Bank’s long term stated aim is to become a leading regional financials services firm focusing on
Emerging Europe and delivering strong shareholder value as reflected on sustained RoEs above 25%.
Cyprus: Key strategic initiatives
Improving positioning in the domestic market currently No 2. This is being achieved through a series of
initiatives across a number of key product areas and segments.
Cleaning up balance sheet and improving asset quality. This is being implemented through improving
systems for collections, increased focus on risk-based pricing and enhanced segmentation.
Aggressive market share gains mainly from coops, through a series of product launches, aggressive
marketing and improved customer segmentation.
Attaining a leading position in international business banking (IBB) aiming to offer the most comprehensive
product range in the market, combining deposit taking, lending, investment banking and Wealth
Management to the bank’s IBB clients.
Greece: Strategic initiatives
Significantly improving utilisation of existing distribution infrastructure, through aggressive marketing and
product launching as well as improved customer segmentation.
Significantly expanding distribution capacity aiming to increase the number of branches from 160 at the
end of 2007 to 295 by end of 2010.
Fully utilising synergies from the three way merger.
Leveraging on Marfin Popular Bank’s strong investment banking capability with a view to improve the
structure finance element on lending.
Significantly improving market share taking advantage of innovative pricing, lack of back book, and risk.
adjusted pricing.
Capitalising on changing consumptions patterns, and important demographic trends.
22
International: Strategic initiatives
In Emerging Europe, Marfin Popular Bank’s core markets are Serbia, Romania and Ukraine. The group also
maintains an interest to expand in Bulgaria while in 2007 announced a bank acquisition in Russia.
In IBB and wealth management the Bank has an interest in a) countries offering similar advantages to Cyprus
i.e. Malta and b) expanding the product range to IBB customers offering corporate lending, investment
banking and Wealth Management.
In developed markets, the Group maintains operations in the United Kingdom and Australia to cater for
hellenic speaking populations living abroad.
In the field of risk management, priority will be given in order to further upgrade the procedures and risk
management systems by developing more effective methods that will be adopted in identifying, measuring,
managing and controlling the risks undertaken. This field has assumed particular importance as a result of the Basel II
Accord and the increasing complexity that characterises financial markets.
Corporate Responsibility
STRATEGY
Marfin Laiki Bank, recognizing the importance of Corporate Responsibility, has been pursuing further and enhancing
its social activities and breaking new ground, as it has also done in the past years, in promoting the significance of
Social Responsibility for the Bank as well for Cyprus.
Marfin Laiki Bank has been implementing practices of Corporate Responsibility by ensuring the development of the
broader community in which it operates, it creates surplus value for its shareholders with a positive impact on
the environment.
Marfin Laiki Bank recognizes that responsibility towards its Stakeholders and transparency in its activities constitute
the main pillars that ensure its sustainable growth.
SOCIAL ACTIVITIES
Radiomarathon
The Radiomarathon for children with special needs is the greatest social and charitable institution of the country and
has assumed international dimensions, given that it has been immensely successful both in Greece and in the
countries where Marfin Laiki Bank operates and, generally, in places where there is a Greek community such as the
United Kingdom, Australia, Canada, New York and South Africa.
The 17th Radiomarathon in Cyprus raised funds CYP 1.339.214 million, thus fulfilling its noble mission.
Cultural Centre
In 2007 Marfin Laiki Bank completed 24 years of presence and contribution towards the cultural events of the country
through the multi-faceted activities of the Cultural Centre. Organizing exhibitions and other events, as well as
educational projects, publishing and maintaining large collections are some of the main activities of the Centre.
With its main strategies focused on investing, establishing long-term relationships and producing value for the Bank,
the Cultural Centre dynamically continued its work throughout 2007.
Football Sponsorship
In 2007 Marfin Laiki Bank became the exclusive sponsor of the Football Championship in order to provide support
to all Premier League teams. In addition, within the framework of this sponsorship, the Group is committed to
supporting an integrated project of sports activities addressed to young people.
Road Safety Week
Laiki Insurance organized in collaboration with the Traffic Department of the Cyprus Police the Cyprus Road Safety
Campaign for the 9th consecutive year aiming at promoting road conscience and culture among children.
Fire Safety Week
In addition, the Fire Safety Campaign was organized for the 7th consecutive year in collaboration with the Cyprus
Fire Service with the aim to cultivate the right attitude and mentality regarding the risks arising from fires and to
enlighten the public on prevention measures.
IN GREECE
In collaboration with Marfin Investment Group (MIG) and Marfin Egnatia Bank, we are about to launch an ambitious,
three-year program: The 2007-2010 Corporate Social Responsibility Program whose budget will exceed thirty (30)
million euro.
The Corporate Social Responsibility program includes actions that aim at the protection of forests (upgrading and
protection of Mounts Parnis, Parnon, and Mainalon), at the restoration of the Peloponnese Olive Groves that were
ravaged by fire, as well as at providing considerable assistance to the sectors of health and sports and at supporting
a number of institutions for the physically challenged.
23
dreams
Receptive to the endless
possibilities, we’re
forging ahead guided
by your own dreams.
In order to grow, a large banking
institution must above all invest
in its people. People with vision,
creative people, and people willing
to take on any challenge.
Economic Developments
2007 was a decisive year for the accession of Cyprus to the Economic and Monetary Union. The most important
development during the year was the decision reached by the Economic and Financial Affairs Council (Ecofin) on 10 July
2007 regarding the admission of Cyprus to the Eurozone as of 1 January 2008, as well as the irrevocable fixing of the
exchange rate with which Cyprus entered the Eurozone (€1 = £0.585274). Additionally, the preparations on behalf of the
Central Bank of Cyprus, the Ministry of Finance and the banking system for the introduction of the Euro in its physical
form entered their final stage. The introduction of the Euro as of 1 January 2008 is a landmark in the development of the
economy of Cyprus and the process for its further integration in the European economy.
In 2007 the rate of growth of the Cyprus economy accelerated and it is estimated to have reached 4,4%, in comparison
with 4,0% in 2006, despite the increases in the price of oil and cereals. On the demand side, growth originated mainly
from private consumption, private investments for housing and public investments in infrastructural projects. Tourist
arrivals in 2007 increased by 0,6%, compared to a 2,8% drop in 2006, whereas income from tourism increased by 5,9%,
compared with 2,2% in 2006. From the supply side, the tertiary sector of services continued to be the main driver of
development, as a result of the growth of wholesale and retail trade, restaurants and hotels, transport, storage and
communication, financial intermediation and the good record in the real estate, renting and business activities. In
addition, growth was also boosted by the construction sector which recorded satisfactory growth levels, albeit at lower
rate than the previous year.
The acceleration of economic activity in 2007 is also reflected in the employment market, which remained at almost full
employment level. The unemployment rate, as computed by the labour force survey, is estimated to have fallen to 4,2%
of the economically active population, in comparison with 4,5% in 2006. Inflation dropped from 2,5% in 2006 to 2,4%,
despite the increase in the price of oil.
The fiscal balance as a percentage of GDP, for the first time since 1972, is estimated to have shown a 0,5% surplus,
compared to the 1,4% deficit in 2006, as a consequence mainly of the large increase in revenue brought about by intense
economic activity, including the vigorous construction activity and the investments in real property.
The growth rate of total liquidity accelerated to 20,5%, compared to 14,8% in 2006. The main source of liquidity growth
was credit to the private sector which advanced by 29,2%, compared with 16,1% in 2006. This is the highest growth rate
since 2000. The main source of credit expansion was credit to the construction sector, housing loans and consumer
loans. Loans to non-residents also showed a considerable increase.
The new general price index of the Cyprus Stock Exchange followed an upward trend and closed at 4.820,7 units at the
end of 2007, achieving an annual growth rate of 23,6% as against an increase of 128,8% in 2006.
The rate of growth of the Cyprus economy in 2008 is expected to fluctuate around 3,8%, compared to 4,4% in 2007,
reflecting the expected slowdown in the growth of the global economy. Inflation is expected to rise to approximately
3,0%, mainly as a result of the continued rise in the price of oil, while the rate of unemployment is expected to decrease
further to 4,0% of the economically active population.
27
challenges
When you know
where you’re going,
you don’t see obstacles,
only opportunities.
In a world moving at breakneck
speed, you must have a clear vision
and a strong will to succeed, to see
further and be in tune with the real
needs of your customers in order
to meet the challenges of today.
Financial Results
Synopsis of Group Results
2007 has been a year of great success and robust expansion for Marfin Popular Bank. At the end of the year, the
Group had established a presence in 13 countries and has reached total assets of € 30,3 bln, a branch network of 415
branches in Cyprus, Greece and international locations, and a labour force of more than 8.000 employees.
31.12.06
(proforma)*
€m
31.12.07
D
€m
%
487,5
201,4
118,4
669,4
310,0
144,5
37,3%
53,9%
22,0%
Recurring operating income
Income from the sale of Hellenic Bank,
Universal Life & Bank of Cyprus
807.3
1.123,9
39,2%
-
118,5
-
Total operating income
807,3
1.242,4
53,9%
Operating expenses
Provision for loan impairment
Profit from associates
-430,2
-109,9
2,6
-551,6
-97,9
2,9
28,2%
-10,9%
11,5%
Profit before tax
Tax
Minority interest
MIG contribution
269,8
-55,0
-23,1
53,7
595,8
-88,8
-29,8
86,2
120,8%
61,4%
60,5%
Net profit after tax
and minority interest
245,4
563,4
129,6%
Net interest income
Net fee and commission income
Financial & other income
* Proforma information was constructed in order to bring the comparatives of 31.12.2006 on a comparable basis with the reporting
period of 31.12.2007.
Group net profit after tax and minorities reached a record of € 563,4 m recording an increase of 129,6% compared
with the proforma results of 2006. All geographic areas of operation (Cyprus, Greece and international) have
registered an impressive growth in both volumes and revenues.
31
Total assets for the Group amounted to € 30,3 bln an increase of 34% compared to the proforma figures at the end
of 2006. Group total loans recorded a robust yearly increase of 47% to € 17,6 bln driven by solid demand in all
geographic areas. International loans reached € 2,34 bln or 12,8% of total. In a similar fashion, Group deposits
registered growth of 28% and reached € 20,7 bln driven by an increase in the size of our branch network, the gradual
maturing of new branches and expansion of the client base.
Total Group revenues increased by 53,9% reaching a record for the Group of € 1.242,4 m. Revenues from international
operations stood at € 86 m representing 7% of total revenues. Net interest income (NII) was supported by the robust
increase in loans and deposits and reached € 669,4 m growing at 37,3% on an annual basis compared to the
proforma results of 2006. Net interest margin (NIM) has expanded by 18 basis points to 2,85%.
32
Fee and commission income posted a remarkable increase of 53,9% to € 310 m boosted by commercial banking,
client brokerage, asset management and investment banking fees.
The disposal of stakes held in Bank of Cyprus, Hellenic Bank and Universal Life produced trading income of € 118,5 m.
Total operating expenses stood at € 551,6 m rising by 28,2%. Cost growth was affected by the opening of 16 new
branches, relocation of 10 branches, and opening of 10 new business centres in Greece, one new branch in Cyprus,
14 new branches in international locations, the consolidation of the Ukrainian MTB Bank in 4Q07, and various
one-off items including a small VRS (Voluntary Retirement Scheme) and a donation to the fire victims in Greece.
Taking into account the one-off items and the amortisation of intangible assets relating to acquisitions, the
underlying expense growth has been contained to 20% at Group level. The Group’s Cost-to-income ratio improved
remarkably to 44,4% compared to 53,3% at the end of last year.
The increase in the Group’s profitability resulted in a significant strengthening of both Return on Average Assets
(RoA) to 2,25% (compared to 1,31% at 31.12.2006), as well as Return on Tangible Equity (RoTE), which reached 35,5%.
Prospects for the future
The dynamic created from the integration of the three Groups is stronger than originally anticipated. The revenue
and cost synergies have already started to materialise and we can foresee an accelerated asset and revenue growth
coupled with a containment of costs and a continuous improvement in asset quality. These dynamics are present
in all the high growth geographical areas that the Group operates making the future profitability prospects of the
Group very positive.
33
world
Our world is changing
minute by minute. With the
dawning of each new day,
we’re creating new paths
for you and with you.
The future is not to be approached
timidly or with uncertainty. The
future is to be embraced boldly,
setting goals, opening up
perspectives, investing in whatever
is new, in searching for originality
and offering something which
has never been offered before. The
diversity of our customers’ needs
is our inspiration for innovation.
Corporate Governance Report
Part A
The Cyprus Stock Exchange (CSE) had adopted in September 2002 a Corporate Governance Code for companies,
which are listed on the Stock Exchange. The Code requires listed companies to include a Report on Corporate
Governance in their Annual Report. The Board of Directors of Μarfin Popular Bank Public Co Ltd (“the Group”) had
taken the necessary decisions for its full implementation.
The CSE has issued in January 2007 a Revised Corporate Governance Code replacing the Code issued in September
2002 and the Supplement issued in November 2003.
The Board of Directors of Marfin Popular Bank states that it had adopted and fully complies with the provisions of
the Revised CSE Code with the exception of Paragraph A2.3 for the number of independent non executive directors
for which the Code allows an exception by giving the necessary explanations.
Part B
The Board of Directors of Marfin Popular Bank states that its complies with the provisions of the Code with the
exception of Paragraph A2.3 as stated above.
The following information is submitted in relation to the adoption and implementation of the code.
Board of Directors
The Board of Directors meets regularly (in 2007 it met twenty two times) which ensures that the Directors are able
to review, inter alia, corporate strategy, the Budget and the results of the Bank and its subsidiaries, acquisitions,
major capital and other important transactions.
The Directors are informed in writing and in time for all Board meetings and have at their disposal all necessary
documents for each meeting. All Directors have access to the advice and services of the Secretary.
All fifteen directors offer themselves for re-election at regular intervals and at least every three years. The names of
the Directors who are up for election or re-election are accompanied by sufficient biographical information.
In addition, none of the Directors have a material interest, directly or indirectly in any contract of significance with
the Company or any of its subsidiaries.
The Board of Directors elected in February 2008 Andreas Vgenopoulos as Executive Vice Chairman and Efthimios
Bouloutas as Group Chief Executive Officer.
In July 2007 the Board of Directors elected Christos Stylianides as Deputy Chief Executive Officer for Group
37
International Operations and Panayiotis Kounnis Deputy Chief Officer for Cyprus. In February 2008 Constantinos
Vasilakopoulos was appointed Managing Director of the Group’s subsidiary Marfin Egnatia Bank, responsible for the
operations of the Group in Greece.
It is confirmed that there is a clear separation of the positions, duties and responsibilities of the Chairman of the
Board and the Chief Executive Officer.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The Board is made up of the following persons:
Soud Ba’alawy, Non Executive Chairman
Andreas Vgenopoulos Executive Vice Chairman
Neoclis A. Lysandrou Non Executive Vice Chairman
Efthimios Bouloutas , Chief Executive Officer
Panayiotis Kounnis, Deputy Chief Executive Officer
Christos Stylianides, Deputy Chief Executive Officer
Eleftherios Hiliadakis, Executive Director
Sayanta Basu, Non Executive Director
Markos Foros, Non Executive Director
Platon Lanitis, Non Executive Director
Constantinos Mylonas, Non Executive Director
Vincent Pica, Non Executive Director
Stelios Stylianou, Non Executive Director
Vasilis Theocharakis, Non Executive Director.
Nicholas Wrigley, Non Executive Director
Four non executive directors, namely, Markos Foros, Constantinos Mylonas, Vincent Pica and Nicholas Wrigley comply
with the criteria for independent directors as specified by the CSE Code. The Board also appointed Constantinos
Mylonas as Senior Independent Non Executive Director.
The Board of Directors taking into account the continuing reorganisation of the Group business believes that the
present balance of executive, non executive and independent directors, which includes ten non-executive directors,
serves the interests of the shareholders and the Group in general. The Board of Directors, in co-operation with the
CSE, will implement Paragraph A.2.3 by December 2009.
Lending to Directors of the Marfin Popular Bank and their related parties is shown in Note 51 of the Financial Statements.
The Board confirms that such lending had been approved by it in the ordinary course of business and at arm’s length.
It is also confirmed that with the exception of lending as explained above there no receivables from a company
connected to a Director or a person related to him.
Going Concern
The Board of Directors is satisfied that the Group has adequate resources to continue in business for the next
twelve months.
Board Committees
The Board had appointed an Audit Committee and also a Nomination and a Remuneration Committee in accordance
with the provisions of the CSE Code.
38
Audit Committee
The Board has appointed for the first time an Audit Committee with written terms of reference before the adoption
of a Corporate Governance Code. The Committee comprises exclusively of non-executive directors, namely:
• Constantinos Mylonas (Chairman)
•
•
Markos Foros
Nicholas Wrigley.
The Audit Committee shall be accountable to the Board and shall meet with such frequency as it may consider
appropriate (but in any event not less than four times a year) and shall report to the Board once a year or as the
Board may otherwise determine.
The terms of reference, which were revised in order to comply with the principles of the Code and the guidelines of
the Central Bank of Cyprus, are as following:
The Audit Committee shall have the following duties and responsibilities:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
To consider the appointment and the termination of the appointment of the external auditors, the audit fee,
the scope and the cost – effectiveness of the auditor ’ s work, and any related issues;
To evaluate the independence and objectivity of the external auditors by, among other things, monitoring the
nature and extent of any non – audit services provided (either directly or through a related entity)
To give to the Board such additional assurance as it may reasonably require regarding the reliability of financial
information submitted to it and of financial statements issued by the company.
To discuss with the company’s external auditors their general approach to and the scope of their audit including,
in particular, the nature of any significant unresolved accounting and auditing problems and reservations arising
from their interim and final audits, and any matters the auditor may wish to discuss (in the absence of
management where necessary) major judgemental areas, the nature of any significant adjustments, the going
concern assumption, compliance with accounting standards, the Stock Exchange and legal requirements,
reclassifications or additional disclosures proposed by the auditor which are significant or which may in the
future become material and the nature and impact of any material changes in accounting policies and practices.
To review the Financial Statements of the company with Senior Management and with the company’s external
auditors to ensure that the information that they contain has been fairly and accurately stated, and is in
accordance with approved accounting principles including the International Financial Reporting Standards (IFRS).
To review the external auditor’s management letter and the response of management.
To appoint, at least every three years, External Auditors to carry out an overall evaluation of the internal control
system in compliance with the Central Bank of Cyprus Directive issued in May 2006.
To ensure that the Group, its Subsidiary Companies and those of its associates for which it provides management
services comply with all supervisory and other regulations to which they are subject.
To review the Group Internal Audit Report on internal control systems prior to presentation to the Board.
To keep under general review the system of internal audit in operation within the Group, to assess its
effectiveness and to consider the major findings of internal investigations and management’s response.
To liaise with the Audit Committees of Subsidiary Companies of the Group which must submit to it, at least once
a year, a report on their internal control systems.
To review the internal audit programme, ensure co – ordination between the internal and external auditors, and
ensure that the internal audit function is adequately resourced and has appropriate standing within the Group.
To review whether transactions between the Group and Board Members, Senior Management, the Secretary,
the External Auditors and major shareholders, were on an arm’s length basis.
To prepare the Corporate Governance Report of the Company with the assistance of the officer responsible for
Compliance with the Code.
To undertake any other related tasks as the Board may from time to time entrust to it.
Nomination Committee
The Nomination Committee has the responsibility for selecting competent and suitable individuals for filling
Board positions.
The terms of reference of the Committee are the following:
The Nomination Committee shall be accountable to the Board and meet with such frequency as it may consider
appropriate (but in any event not less than once a year) and at such other times as the Chairman of the
Committee shall require.
• The main responsibility of the Committee is to identify and nominate to the Board candidates to fill board
vacancies as and when they arise.
• The Committee may also from to time review the size and composition of the Board and make recommendations
to the Board with regards to any adjustments that are deemed necessary.
•
The Committee makes its recommendations to the Board to take the relevant decisions, which are subject to the
approval of the Annual General Meeting.
The Nomination Committee comprises of non-executive Directors the majorityof which are independent, namely:
Platon Lanitis (Chairman)
Makcos Foros
Nicholas Wrigley.
•
•
•
Remuneration Committee
The Remuneration Committee determines the remuneration of each executive director in accordance with written terms
of reference and meets with such frequency as it may consider appropriate (but in any event not less than once a year).
39
The Remuneration Committee shall be accountable to the Board and prepare a report of its activities to the Board
once a year or as the Board may otherwise determine.
The Remuneration Committee shall have the following duties and responsibilities:
• determine and agree with the Board the framework or broad policy for the Remuneration of the
Executive Directors.
• within the terms of the agreed policy, determine the total individual remuneration package of each executive
director including where appropriate, bonuses, share options and pensions.
• in determining such packages and arrangements give due regard to the comments and recommendations of the
Corporate Governance Code.
• ensure that contractual terms on termination and any payments made are fair to the individual and
the company.
• ensure that provisions regarding the disclosure of remuneration as set out in the Code are fulfilled.
•
undertake on behalf of the Chairman such other related tasks as the Chairman may from time to time entrust to it.
The Renumeration Committee comprises of non-executive Directors, the majority of which are independent, namely:
• Platon Lanitis (Chairman)
•
•
Markos Foros
Nicholas Wrigley.
Remuneration Policy
The Remuneration Policy of the Group states that for the determination of the remuneration of executive directors
their qualifications, experience, responsibilities and performance, comparative remuneration in the banking industry
and the profitability of the Group are taken into account aiming for the recruitment and continuation of
employement of high calibre executive directors.
The Remuneration of the executive directors are determined on an individual basis by the Remuneration Committee
and the Board of Directors and is made up of salary and other benefits (bonus, share options and
non-cash benefits) which are also available to all employees of the Group.
The Executive Directors have no separate contract of employment for their services and also the Directors based in
Cyprus participate in a defined retirement benefit plan as all other employees of the Group. The plan is explained in
note 2 of the Financial Statements.
The fees of the non executive directors are related to their duties and responsibilities and the time spent for Board
and Committee meetings and are approved by the Annual General Meeting.
The Extraordinary General Meeting of the Shareholders approved on 17 April 2007 approved the introduction of a
Share Option Scheme for the Members of the Board of Directors of the Bank and the employees of the Group.
On 9 May 2007 the Board of Directors, following a recommendation of the Remuneration Committee granted share
options to Members of the Board and employees of the Group. The exercise price for each option is Euro 10 and the
maturity date 15 December 2011.
The Remuneration of Directors is shown in note 51 of the Financial Statements.
Internal Control System
40
The Board of Directors has the overall responsibility for maintaining a proper internal control environment, which
safeguards, among others, the assets of the Group and its clients, the accuracy and confidentiality of transactions,
the reliability of financial information and compliance with applicable regulations.
To this end, the management of each business entity within the Group are tasked with introducing and operating
internal control systems, which are commensurate with the scale and complexity of operations.
In addition, at Group level suitable risk management units exist for supporting the Asset and Liability Committee
(ALCO) in drafting and monitoring implementation of the overall risk policy and in managing individual risks.
For measurable risks, in particular, Group procedures require determination and periodic revision of acceptable
exposure limits.
An internal control system aims at mitigating, but not eliminating, the risks faced by the entity, and provides
reasonable but not absolute assurance that material loss will not be incurred.
The adequacy and proper operation of internal controls in individual areas of operation are reviewed periodically by
the independent Internal Audit Division of the Group and its findings are reported to the Audit Committee. The
latter informs the Board regarding important issues, and presents also an annual report on the adequacy and
efficiency of the internal control systems of the Group. The report for the year 2007 confirmed the adequacy and
effectiveness of the internal control systems of the Group.
Based on the above, the Board states that it is satisfied with the adequacy of the system of internal control and also
the procedures for ensuring that the information supplied by the Bank to investors is correct and complete.
In addition, the Board states that it had not come to its attention any violation of the Stock Exchange Laws
and Regulations.
The Board had also appointed the Secretary of the Bank Stelios Hadjijoseph as Officer responsible for compliance with
the Code of Corporate Governance.
Relations with Shareholders
Group, recognising the importance of communicating correct and timely information, publishes its results on a
quarterly basis. The results and other information relating to the activities of the Group are presented at meetings,
which are attended, by analysts, journalists, shareholders and investors.
The Bank encourages shareholders to attend the annual general meetings and in its relations with shareholders
complies with the requirements of the Companies Law and the Corporate Governance Code.
The Bank had also appointed Evelyn Vougesis as Investor Relations Officer.
Biographical Information
Biographical information of the members of the Board who were appointed by the Board and are eligible
for re-election.
Efthimios Bouloutas – Group Chief Executive Officer
He holds a Civil Engineering Degree from National Technical University of Athens, a MSc in Civil Engineering form
Stanford University and a Ph.D degree in Computational Fluid Mechanics from MIT. He also conducted post doctorate
studies at Princeton University. He worked as a consultant with Epsilon Ltd and Athens Tech Center. He set up Ionian
Mutual Funds where he worked for 8 years as Managing Director. He was also member of the Board at Ionian Mutual
Funds and at Alpha Mutual Funds. Since 2000 he worked at EFG Eurobank Ergasias holding various positions the
latest being General Manager, member of the Executive Committee and Chief Executive Officer at Eurobank Asset
Management. He also was member of the board at EFG Private Bank Luxumberurg. In 2006 he was appointed Chief
Executive Officer of Marfin Bank and member of the Board of Directors of Marfin Financial Group. In November 2006
he was appointed Managing Director for Laiki Bank (Hellas) S.A. He joined the Board in July 2007 as Deputy Chief
Executive – Greece and in Febuary 2008 he was appointed Group Chief Executive Officer.
Panayiotis Kounnis – Deputy Chief Executive Officer
He holds a university degree in Business Administration &Accounting and a post-graduate Masters Degree in
Management. In addition he is a Fellow of the Chartered Association of Certified Accountants. He joined the Group
in 1980. After working in several managerial positions in Cyprus, he was seconded in 2001 to the United Kingdom
and was appointed General Manager of the country operations. Upon his return to Cyprus in 2003, he was upgraded
to General Manager of Domestic Banking. He was then appointed Executive Director of Group Commercial Business
and a member of the Cyprus Executive Committee. He also held the position of Chairman of the Board of the
subsidiary company Laiki Finance Ltd. In July 2007 he joined the Board as Deputy Chief Executive Officer –Cyprus and
appointed Member of the Group Executive Committee.
41
borders
Your dreams pose
no barriers to us.
With our horizons open, and with
all the passion and enthusiasm
of pioneers, we’re creating what’s
necessary to make the world of
tomorrow a world for all of us,
wherever we are.
Risk Management
Marfin Popular Bank, being an organisation with operations in several countries, in a fast growing, competitive and
changing environment, recognises its exposure to risks, which may adversely affect its profitability and its strategic
goals. In this respect, risk management is one of the major Group operations and plays an important role in ensuring
sustainable and high returns for its shareholders.
The implementation of an effective risk management framework is a goal of high importance to the Group. In this
respect, the Group uses various methodologies and procedures to continuously monitor the risks stemming from
its operations and sets acceptable limits to exposures, in order to avoid the concentration of excessive risks.
Risk management is mainly carried out on a unified basis, using an integrated and global framework. This framework
is based on local and international guidelines, such as the Basel II Accord and corresponding Directives of the
European Union (Capital Requirements Directive), as well as on contemporary international banking practices.
In 2007, the Risk Management Committee (RMC) was established at the level of the Board of Directors. The
responsibilities of this committee include, amongst others, the formation of the risk taking strategy, the supervision
of the implementation of this strategy through the development of procedures and risk management systems, the
assessment of the risks undertaken, the adequacy of provisions and the effectiveness of the risk management policy.
RMC meets, at least, on a quarterly basis.
The Assets and Liabilities Committee (ALCO) also plays an important role in credit and market risk management.
The committee meets at least on a monthly basis and examines the latest market developments, the level of the risks
undertaken and sets the strategy for the implementation of medium-term objectives.
Within the framework of setting exposure limits and the maximum acceptable loss, the Cyprus and International
Executive Committees are the main approving authorities for relevant suggestions of the Risk Management Division
(RMD). The RMC is informed accordingly about the level, the duration and the form of the risks undertaken. The
Group’s policy is that all limits are revised on an annual basis, whereas certain specific limits may be revised on a more
frequent basis, if such a need arises.
During 2007, the Group proceeded with the implementation of various projects required for the adoption of the
Basel II Accord (Pillar I), the Capital Requirements Directive of the European Union and the Central Bank of Cyprus
Directives. From January 2008, the Group has adopted the Standardized Approach with respect to the calculation
of capital requirements and management of credit and market risk and the Basic Indicator Approach with respect
to operational risk.
At the same time, the Group continued with the development of other procedures for the recognition, assessment
and management of several other important risks regarding the adequacy of own capital (Internal Capital Adequacy
Assessment Process), which is a requirement of Pillar II of the Basel II Accord. It is expected that during 2008 the
requirements of Pillar III in respect of pubic disclosure for risk management issues will also be fulfilled.
45
CREDIT RISK
Credit risk stems from the possible non-prompt repayment of existing and contingent obligations by the Group’s
counterparties, resulting in the loss of equity and profit.
Credit Risk Management
The aim of credit risk management is the timely recognition and assessment of these contingencies, as well as the restraint and
minimisation of the percentage that is not repaid. These goals are achieved through the development of a disciplined risk
culture, transparency and rational risk taking.
Credit risk management methodologies are based on recognised international practices and are reviewed at regular time
intervals. The various methods used are adjusted so as to reflect the economic environment, the Group’s strategy and its shortand long-term objectives. In addition to the systematic and accurate depiction of every counterparty’s creditworthiness, which
is ensured by the use of internal rating systems, the assumed credit risk is also monitored through the allocation of credit limits.
During the approving process, the total credit risk of each counterparty or group of connected counterparties is determined
and the credit limits that have been approved by different subsidiaries of the Group are grouped together. In order to set
counterparty credit limits, the Group considers the counterparty’s creditworthiness, the value of collateral and guarantees
pledged, which can reduce the overall credit risk exposure, the type and the duration of the credit facility.
Any changes in the quality of the Group’s lending portfolio, but also any excessive concentrations, are closely monitored
through the internal rating systems and regular reports, with the aim of developing prompt strategic actions in order to
minimise any potential increase in the risks undertaken.
Furthermore, within the framework of the credit risk management policy, stress tests are carried out in order to assess the
effect that exceptional but plausible scenarios could have on the quality of the lending portfolio and the capital base.
Internal Rating Systems
The operation of the internal rating systems is based on three methods. The first method consists of the credit assessment of
natural persons and businesses according to their past credit behaviour and their overall cooperation with the Group.
The second method involves the credit assessment of natural persons based on credit scoring models, which utilise both
demographic data and other objective criteria, such as income and property owned.
The third method involves the Moody’s Risk Advisor system, which is used for the assessment of the financial strength of large
and small- and medium-size businesses and is based on both financial and qualitative data, as well as on the economic sector
in which the business operates.
MARKET RISK
Market risks arise from possible fluctuations of certain market variables (interest rates, exchange rates, etc) over which the
Group has no control, resulting in a possible loss of equity and profit.
Recognition and categorisation of market risks
The most significant market risks that the Group is exposed to are:
a) Interest rate risk
The risk arises from the fluctuation in the value of financial instruments and net interest income of the Group, as a result of
changes in market interest rates.
b) Foreign exchange risk
The risk arises from changes in the value of financial instruments and other assets and liabilities, due to fluctuations in
exchange rates.
46
c) Liquidity risk
The risk arises when the Group is not in a position to meet its current and future obligations, when the maturity of assets
and liabilities does not coincide.
d) Counterparty Banks risk
The Group runs the risk of loss of funds due to the likely non-timely repayment of existing and likely obligations by
counterparty banks.
e) Country risk
The Group runs the risk of loss of funds because of possible political, economic and other events in a specific country in
which the funds or assets of the bank have been placed or invested in different local banks and financial institutions.
f) Risk from changes in the prices of equity shares and other securities
The risk related with the loss of funds emanating from adverse movements in equity share prices and prices of
other securities held by the Group.
The above risks are managed by RMD through an integrated and global framework. RMD recommends the risk
policy and strategy and submits proposals for the acceptable level of risks and limits to the Cyprus and International
Executive Committee and/or to the RMC. The maximum possible losses that may arise are assessed. At regular time
intervals RMD submits reports to the ALCO and RMC regarding the level and the way of managing these risks. In the
majority of cases, most risks are monitored and reported on a unified basis.
Evaluation and assessment of market risks
The Group has proceeded, to a satisfactory extent, with the development of common policies, procedures and
methodologies regarding the evaluation and assessment of important market risks. For every kind of risk and type
of portfolio there is an appropriate methodology for calculating the risk, as well as, the appropriate limits. Losses arise
from the trading portfolio and the management of other Assets and Liabilities. It should be mentioned that Marfin
Egnatia Bank in Greece also employs the Value at Risk methodology (Value-at-Risk - VaR). Specifically, for assessing
the VaR, the Bank uses the variance-covariance methodology at a confidence level of 99% and a holding period of
one day.
The policy of RMD is to set limits after taking into account the following:
The size of operations
The financial robustness and capital levels of the Group or of the subsidiary
The strategic business plans
The international and domestic economic data
The appetite for risk taking from the management’s perspective.
Monitoring and control of risks
The monitoring, control and verification of the positions and limit excesses is carried out in all cases by an
independent support unit (e.g. Treasury Administration). Any limit excesses are referred to RMD. RMD is authorised
to approve small limit excesses, while larger excesses are reported to the Executive Committees. Where necessary,
RMC is informed.
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequacy or failure of internal processes, people and systems or
from external events, and includes legal risk.
The Group has adopted an operational risk management framework and procedures, which provide for the
identification, assessment, management, monitoring and reporting of Group operational risks.
Operational risks are identified and assessed mainly through risk assessment workshops. Action plans are then put
in place for managing the major operational risks identified. Procedures for monitoring risk levels include the
recording of operational loss events in a customised loss database. Internal operational risk reports are compiled on
a periodic basis. These reports cover all major issues and results of operational risk procedures.
47
environment
By respecting people and
being sensitive to the
environment, we can
improve our quality of life.
Those moments that make life
so wonderful and unique are
priceless. It is for these moments
of peace and contentment, which
give meaning to life and to people
the world over, that we strive.
MARFIN POPULAR BANK PUBLIC CO LTD
Consolidated Financial Statements
52
54
55
57
58
59
61
62
Report of the Board of Directors
Statement by the Members of the Board of Directors
and by the Group Chief Financial Officer
Independent Auditors´Report
Consolidated Income Statement
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
51
Report of the Board of Directors
The Board of Directors presents the audited consolidated financial statements of Marfin Popular Bank Public Co Ltd Group (the
“Group”) for the year ended 31 December, 2007.
Principal activities
The principal activities of the Group continue to be the provision of banking, financial and insurance services.
The Group operates through subsidiary companies, branches and representative offices in Cyprus and abroad.
During 2007, the Group did not participate in the increase of share capital of Marfin Investment Group Holdings S.A. which was
completed on 12 July, 2007. As a result the percentage shareholding of Marfin Investment Group Holdings S.A. was reduced
to 6,45% and the investment was classified as an available-for-sale financial asset.
The merger of subsidiary companies in Greece, Egnatia Bank S.A., Marfin Bank S.A. and Laiki Bank (Hellas) S.A. was completed
by 30 June, 2007. The new bank, which is a subsidiary of the Group, operates under the name Marfin Egnatia Bank S.A.
In September 2007, the acquisition of 99% of the share capital of Marine Transport Bank in Ukraine was completed.
In October 2007, the Group reached an agreement for the acquisition of 43% of Lombard Bank Malta Plc and in December 2007,
it reached an agreement for the purchase of 50,04% of the share capital of Rosprombank in Russia. In February, 2008 the
necessary approvals from the responsible regulatory authorities were obtained for the acquisition of Lombard Bank Malta Plc.
The agreement for the acquisition of Rosprombank is subject to the approval of the regulatory authorities.
Details on all Group acquisitions are presented in Note 52 of the consolidated financial statements.
Review of Operations
The Chairman’s and Vice Chairman’s Statements and the Comments on the Results on pages 9 to 22 present the developments
in the Group’s activities and operations during 2007.
Results for the year
The results for 2007 are shown in the consolidated income statement on page 57. The Group profit before provision for
impairment of advances reached C£ 404,3 m compared to C£ 151,6 m in 2006. After provision for impairment of advances of
C£ 57,3 m and share of profit of associates of C£ 1,7 m, profit before tax reached C£ 348,7 m against C£ 105,7 m in 2006. After
including the profit from discontinued operations (C£ 50,4 m), deducting tax (C£ 52 m) and minority interest (C£ 17,4 m), net
profit attributable to the equity holders of the Bank reached C£ 329,7 m against C£ 86,1 m in 2006.
Dividend
The Board of Directors recommends a dividend payment of 40% (2006: 36%) which corresponds to euro 0,35, C£ 0,20
(2006: euro 0,31, C£ 0,18) per share. The remaining net profit for the year is transferred to reserves.
Share capital
In April 2007 the issued and fully paid share capital of the Group increased by 6.364.000 ordinary shares from the issue and
allocation of ordinary shares to the shareholders of Marfin Financial Group Holdings S.A., who exercised their rights of exit
offered to them by the Group. Another 18.138.000 ordinary shares which were in process of being issued as at 31 December,
2006, were allocated to the shareholders of Laiki Bank (Hellas) S.A. who accepted the private offer for the acquisition of the
minority interest in Laiki Bank (Hellas) S.A., and entered into exchange and transfer contracts for their shares.
52
In December 2007 the issued and fully paid share capital of the Group increased by 8.000 ordinary shares from the exercise
of warrants.
The share capital and share premium are presented in Note 40 of the consolidated financial statements.
Risk management
As any other financial institution, the Group is exposed to risks. The nature of these risks and the Group’s risk management
policies are explained in Note 47 of the consolidated financial statements.
Post balance sheet events
Post balance sheet events are disclosed in Note 56 of the consolidated financial statements.
Prospects for the future
The dynamic created from the acquisitions of the Group during 2006 is stronger than originally anticipated. The revenue and
cost synergies have already started to materialise and we can foresee an accelerated asset and revenue growth coupled with
a containment of costs and a continuous improvement in asset quality. These dynamics are present in all the high growth
geographical areas that the Group operates making the future profitability prospects of the Group very positive.
Report of the Board of Directors (continued)
Board of Directors
The Members of the Board of Directors of the Bank are shown on page 6.
Soud Ba’alawy, Andreas Vgenopoulos, Neoclis Lysandrou, Christos Stylianides, Platon Lanitis, Constantinos Mylonas, Stelios
Stylianou, Markos Foros, Eleftherios Hiliadakis, Sayanta Basu, Vincent Pica, and Nicholas Wrigley were re-elected by the Annual
General Meeting on 17 April, 2007.
In accordance with Article 96 of the Articles of Association, Vassilis Theocharakis was recommended to the Bank and elected
by the Annual General Meeting on 17 April, 2007 as a new Member of the Board.
Efthimios Bouloutas and Panayiotis Kounnis were appointed Members of the Board on 3 July, 2007 in accordance with Article
98 of the Articles of Association.
Efthimios Bouloutas was appointed Deputy Chief Executive Officer – Greece and Panayiotis Kounnis Deputy Chief Executive
Officer – Cyprus. Christos Stylianides was appointed Deputy Chief Executive Officer – Group International Operations.
On 14 February, 2008 the Board of Directors appointed Andreas Vgenopoulos Executive Vice Chairman and Efthimios Bouloutas
Group Chief Executive Officer.
Efthimios Bouloutas and Panayiotis Kounnis who have been appointed by the Board in accordance with Article 98 of the
Articles of Association offer themselves for re-election by the Annual General Meeting.
The remuneration of the Members of the Board of Directors are shown in Note 51 of the consolidated financial statements.
Treasury shares
The treasury shares which were held as at 31 December, 2006 by Marfin Investment Group Holdings S.A. in Marfin Popular Bank
Public Co Ltd, were sold during 2007 and the profit from the sale was taken to the share premium account in the consolidated
financial statements of the Group.
Independent Auditors
The Independent Auditors of the Bank, PricewaterhouseCoopers Limited and Grant Thornton, have expressed their willingness
to continue in office. A resolution recommending their reappointment and giving authority to the Board of Directors to fix their
remuneration will be proposed at the Annual General Meeting.
By order of the Board
Neoclis Lysandrou
Vice Chairman
Nicosia, 28 February, 2008
53
Statement by the Members of the Board of Directors and
by the Group Chief Financial Officer
In accordance with Article 9(7) of Law 190(I)/2007 on Transparency Requirements in relation to an issuer whose securities are
listed for trading on a regulated market, we the Members of the Board of Directors and the Group Chief Financial Officer of
Marfin Popular Bank Public Co Ltd (the “Bank”) confirm that to the best of our knowledge:
(a) The consolidated financial statements of the Bank for the financial year ended 31 December, 2007 have been prepared in
accordance with International Financial Reporting Standards, as adopted by the European Union, and Article 9(4) of Law
190(I)/2007 and in general with the applicable Cyprus Legislation and give a true and fair view of the consolidated assets
and liabilities, the consolidated financial position and the consolidated profit of the Bank and the companies included in
the consolidated financial statements, as a whole.
(b) The Report of the Board of Directors includes a fair review of the developments and performance of the business as well
as the position of the Bank and the undertakings included in the consolidated financial statements, as a whole, together
with the description of the principal risks and uncertainties that they face.
Soud Ba’alawy
-
Non Executive Chairman
Andreas Vgenopoulos
-
Executive Vice Chairman
Neoclis Lysandrou
-
Non Executive Vice Chairman
Efthimios Bouloutas
-
Group Chief Executive Officer
Christos Stylianides
-
Deputy Chief Executive Officer
Panayiotis Kounnis
-
Deputy Chief Executive Officer
Eleftherios Chiliadakis
-
Executive Director
Platon E. Lanitis
-
Non Executive Director
Vassilis Theocharakis
-
Non Executive Director
Stelios Stylianou
-
Non Executive Director
Sayanta Basu
-
Non Executive Director
Constantinos Mylonas
-
Non Executive Director
Marcos Foros
-
Non Executive Director
Vincent Pica
-
Non Executive Director
Nicholas Wrigley
-
Non Executive Director
Annita Philippidou
-
Group Chief Financial Officer
28 February, 2008
54
Independent Auditors’ Report to the members of
MARFIN POPULAR BANK PUBLIC CO LTD
Report on the Financial Statements
We have audited the consolidated financial statements of Marfin Popular Bank Public Co Ltd (the “Bank”) and its subsidiaries
(the “Group”) on pages 57 to 160 which comprise the consolidated balance sheet as at 31 December, 2007 and the consolidated
income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended,
and a summary of significant accounting policies and other explanatory notes.
Board of Directors’ Responsibility for the Financial Statements
The Bank’s Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards as adopted by the European Union (EU) and the requirements
of the Cyprus Companies Law, Cap. 113. This responsibility includes: designing, implementing and maintaining internal control
relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due
to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable
in the circumstances.
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 International Standards on Auditing. Those Standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of
31 December, 2007, and of its financial performance and its cash flows for the year then ended in accordance with International
Financial Reporting Standards as adopted by the EU and the requirements of the Cyprus Companies Law, Cap. 113.
55
Independent Auditors’ Report to the members of
MARFIN POPULAR BANK PUBLIC CO LTD (continued)
Report on Other Legal Requirements
Pursuant to the requirements of the Companies Law, Cap. 113, we report the following:
We have obtained all the information and explanations we considered necessary for the purposes of our audit.
In our opinion, proper books of account have been kept by the Bank.
The Bank’s financial statements are in agreement with the books of account.
In our opinion and to the best of our information and according to the explanations given to us, the financial statements
give the information required by the Companies Law, Cap. 113, in the manner so required.
In our opinion, the information given in the report of the Board of Directors on pages 52 to 53 is consistent with the
consolidated financial statements.
Other Matter
This report, including the opinion, has been prepared for and only for the Bank’s members as a body in accordance with
Section 156 of the Companies Law, Cap. 113 and for no other purpose. We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to whose knowledge this report may come to.
PricewaterhouseCoopers Limited
Chartered Accountants
Nicosia, 28 February, 2008
56
Grant Thornton
Chartered Accountants
Consolidated Income Statement
for the year ended 31 December 2007
Interest income
Interest expense
Note
2007
C£ ‘000
2006
C£ ‘000
4
4
956.424
(564.704)
458.856
(248.731)
1.634.347
(964.973)
784.098
(425.034)
391.720
210.125
669.374
359.064
220.758
(39.371)
65.524
(3.542)
377.234
(67.277)
111.968
(6.053)
181.387
61.982
309.957
105.915
93.693
18.429
41.787
7.800
13.675
21.578
160.103
31.492
71.405
13.329
23.368
36.873
727.016
315.160
1.242.331
538.549
Net interest income
Fee and commission income
Fee and commission expense
5
5
Net fee and commission income
Profit on disposal and revaluation of securities
Foreign exchange income
Other income
Supplementary
information (Note 57)
2007
2006
Εuro ‘000
Εuro ‘000
6
7
Operating income
Staff costs
Depreciation and amortisation
Administrative expenses
11
12
13
(198.479)
(26.938)
(97.342)
(106.797)
(11.914)
(44.832)
(339.163)
(46.032)
(166.339)
(182.496)
(20.359)
(76.609)
Profit before provision
for impairment of advances
Provision for impairment of advances
14
404.257
(57.305)
151.617
(47.397)
690.797
(97.923)
259.085
(80.992)
Profit before share of profit
from associates
Share of profit from associates
28
346.952
1.724
104.220
1.475
592.874
2.946
178.093
2.520
Profit before tax
Tax
15
348.676
(51.973)
105.695
(17.766)
595.820
(88.812)
180.613
(30.359)
296.703
87.929
507.008
150.254
50.443
-
86.197
-
347.146
87.929
593.205
150.254
17.438
329.708
1.857
86.072
29.798
563.407
3.173
147.081
347.146
87.929
593.205
150.254
25,8
72,1
44,1
Profit after tax from
continuing operations
Profit after tax
from discontinued operations
due to reduction in participation
16
Profit for the year
Attributable to:
Minority interest
Equity holders of the Bank
41
Earnings per share – for profit attributable
to the equity holders of the Bank
Earnings per share – cent
17
42,2
Earnings per share – for profit after
tax from continuing operations
attributable to the equity holders of the Bank
Earnings per share – cent
17
36,9
The notes on pages 62 to 160 are an integral part of these consolidated financial statements.
63,0
57
Consolidated Balance Sheet
31 December 2007
2007
C£ ‘000
2006
C£ ‘000
18
19
788.434
2.913.625
611.916
2.403.761
1.347.284
4.978.832
1.045.648
4.107.571
20
21
37
24
25
26
419.103
10.309.665
16.319
1.602.162
219.939
229.088
13.920
21.224
8.661
960.765
33.869
167.833
440.277
6.952.217
12.380
1.114.731
256.425
145.332
16.998
8.846
8.856
901.571
38.202
136.460
716.167
17.617.259
27.886
2.737.791
375.835
391.467
23.787
36.267
14.800
1.641.765
57.875
286.794
752.350
11.880.018
21.155
1.904.863
438.182
248.345
29.046
15.116
15.133
1.540.614
65.280
233.184
Assets held for sale
17.704.607
-
13.047.972
127.181
30.253.809
-
22.296.505
217.328
Total assets
17.704.607
13.175.153
30.253.809
22.513.833
1.585.726
12.112.197
569.480
353.534
326.519
483.729
33.942
72.824
128.659
440.095
9.373.738
304.018
365.224
303.752
277.254
32.790
62.879
114.961
2.709.704
20.697.444
973.134
604.123
557.959
826.600
57.999
124.442
219.853
752.039
16.017.937
519.509
624.099
519.054
473.774
56.032
107.448
196.447
15.666.610
11.274.711
26.771.258
19.266.339
-
122.735
-
209.731
15.666.610
11.397.446
26.771.258
19.476.070
398.345
1.180.912
404.585
395.159
1.113.055
(105.957)
280.716
680.697
2.017.954
691.359
675.252
1.901.999
(181.060)
479.690
Minority interest
1.983.842
54.155
1.682.973
94.734
3.390.010
92.541
2.875.881
161.882
Total equity
2.037.997
1.777.707
3.482.551
3.037.763
17.704.607
13.175.153
30.253.809
22.513.833
Note
Assets
Cash and balances with
Central Banks
Due from other banks
Financial assets at fair value
through profit or loss
Advances to customers
Reinsurance assets
Available-for-sale financial assets
Held-to-maturity financial assets
Other assets
Tax refundable
Deferred tax assets
Investments in associates
Intangible assets
Investment property
Property and equipment
Liabilities
Due to other banks
Customer deposits
Senior debt
Loan capital
Insurance contract liabilities
Other liabilities
Current tax liabilities
Deferred tax liabilities
Retirement benefit obligations
39
28
29
30
31
33
34
35
36
37
38
39
11
Liabilities directly related
to assets held for sale
Total liabilities
Share capital and reserves attributable
to equity holders of the Bank
Share capital
Share premium
Treasury shares
Reserves
58
Supplementary
information (Note 57)
2007
2006
Euro ‘000
Euro ‘000
Total equity and liabilities
40
40
40
41
A. Vgenopoulos, Executive Vice Chairman
N. Lysandrou, Non Executive Vice Chairman
E. Bouloutas, Group Chief Executive Officer
A. Philippidou, Group Chief Financial Officer
The notes on pages 62 to 160 are an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
for the year ended 31 December 2007
Attributable to equity holders of the Bank
Minority
interest
Total
Share
capital
Share
premium
Treasury
shares
Fair value
and currency
translation
reserves
C£ ‘000
C£ ‘000
C£ ‘000
C£ ‘000
C£ ‘000
C£ ‘000
C£ ‘000
153.648
4.843
-
18.306
170.042
35.735
382.574
41
41
41
41
-
-
-
24.192
990
2.609
(47)
-
27
(35)
270
41
-
-
-
178
-
-
Profit recognised directly in equity
Profit for the year
-
-
-
27.613
-
131
86.072
262
1.857
28.006
87.929
Total recognised profit for 2006
-
-
-
27.613
86.203
2.119
115.935
-
-
-
-
(21.448)
-
(21.448)
40
25.528
35.740
-
-
-
-
61.268
40
40
40
40
207.358
9.069
-
1.036.789
45.345
(9.662)
-
(105.957)
-
-
-
-
-
-
-
-
(25.962)
(25.962)
-
-
-
-
-
(444)
241.511
1.108.212
(105.957)
-
(21.448)
56.880 1.279.198
395.159
1.113.055
(105.957)
45.919
234.797
94.734 1.777.707
Note
Balance 1 January 2006
Revaluation and transfer to results
on disposal of available-for-sale
financial assets
Revaluation of property net of tax
Defence tax on deemed distribution
Exchange differences arising in the year
Transfer from fair value reserves
to revenue reserves
Dividend
Shares issued through
exercise of rights
Shares issued according to
public and private offers
Shares in the process of being issued
Share issue costs
Treasury shares acquired
Acquisition of subsidiaries
Change in minority interest from changes
in shareholding in subsidiaries
Equity element of convertible
debentures repaid
Balance 31 December 2006 /
1 January 2007
41,53
40
(444)
(178)
Revenue
reserves
24.219
990
(82)
2.879
- 1.244.147
54.414
(9.662)
- (105.957)
82.842
82.842
59
The notes on pages 62 to 160 are an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
for the year ended 31 December 2007 (continued)
Attributable to equity holders of the Bank
Note
Balance 31 December 2006 /
1 January 2007
Revaluation and transfer to results
on disposal and impairment
of available-for-sale
financial assets net of tax
Revaluation of property net of tax
Defence tax on deemed distribution
Exchange differences arising in the year
Transfer from fair value reserves
to revenue reserves
Transfer of reserves due to transfer
of subsidiary to available-for-sale
financial assets due to
reduction in participation
Share
capital
Share
premium
Treasury
shares
Fair value
and currency
translation
reserves
C£ ‘000
C£ ‘000
C£ ‘000
C£ ‘000
C£ ‘000
395.159 1.113.055
(105.957)
45.919
234.797
Revenue
reserves
Minority
interest
Total
C£ ‘000
C£ ‘000
94.734 1.777.707
41
41
41
41
-
-
-
(98.859)
17.372
11.477
(92)
-
41
-
-
-
(350)
350
-
-
41
-
-
-
(1.940)
1.940
-
-
Profit recognised directly in equity
Profit for the year
-
-
-
(72.300)
-
2.198
329.708
(1.130)
17.438
(71.232)
347.146
Total recognised profit for 2007
-
-
-
(72.300)
331.906
16.308
275.914
-
(143.403)
19.147
159.927
(2.074)
Dividend
Shares issued
Treasury shares sold
Share issue costs
Cost of share-based payments
to employees
Dividend paid by subsidiaries
Reduction of capital by subsidiary
Effect of change in minority interest
from group restructuring
and other movements
Effect of transfer of subsidiary
to available-for-sale financial assets
due to reduction in participation
Balance 31 December 2007
41,53
40
40
40
3.186
-
15.961
53.970
(2.074)
105.957
-
-
(143.403)
-
(1.800)
(7)
(56)
733
(100.659)
17.365
(148)
12.210
41
-
-
-
-
1.946
-
49
(4.260)
(10.325)
1.995
(4.260)
(10.325)
41
-
-
-
-
5.720
(24.673)
(18.953)
-
-
-
-
-
(17.678)
(17.678)
3.186
67.857
105.957
-
(135.737) (56.887)
(15.624)
398.345 1.180.912
-
(26.381)
60
The notes on pages 62 to 160 are an integral part of these consolidated financial statements.
430.966
54.155 2.037.997
Consolidated Cash Flow Statement
for the year ended 31 December 2007
Note
2007
C£ ‘000
2006
C£ ‘000
Supplementary
information (Note 57)
2007
2006
Εuro ‘000
Euro ‘000
43
587.148
511.625
1.003.324
Tax paid
(90.748)
(15.509)
(155.071)
(26.502)
Net cash from operating activities
496.400
496.116
848.253
847.768
Cash generated from operations
Cash flows from investing activities
Purchase of property and equipment
Purchase of computer software
Purchase of investment property
Proceeds from disposal of property and equipment
Proceeds from disposal of computer software
Proceeds from disposal of investment property
Additions less proceeds from redemption and sale
of available-for-sale financial assets
Income received from available-for-sale financial assets
Dividend received from investments in associates
Acquisition of subsidiaries net of cash acquired
Changes in shareholding in subsidiaries
31
29
30
31
28
52(d)
Net cash (used in)/from investing activities
Cash flows from financing activities
Proceeds from sale of treasury shares
Dividend and capital return by subsidiaries
to minority holders
Dividend paid
Interest paid on senior debt and loan capital
Share issue costs
Proceeds from the exercise of warrants and rights
Proceeds from the issue of senior debt and loan capital
Repayment of senior debt and loan capital
40
40
Net cash from financing activities
Effects of exchange rate changes
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(19.108)
(5.799)
(3.812)
4.457
11.790
(6.732)
(2.596)
(3)
2.131
14
-
(32.652)
(9.909)
(6.514)
7.616
20.147
(11.504)
(4.436)
(5)
3.641
24
-
(450.120)
42.141
994
(32.748)
(10.831)
(251.117)
30.370
475
669.808
-
(769.170)
72.013
1.697
(55.960)
(18.509)
(429.111)
51.897
812
1.144.575
-
(463.036)
442.350
(791.241)
755.893
159.927
53
44
874.270
-
273.284
-
(14.585)
(143.403)
(41.355)
(2.074)
54
418.648
(184.529)
(21.448)
(9.042)
(9.662)
61.268
260.190
(154.630)
(24.923)
(245.047)
(70.668)
(3.544)
92
715.390
(315.325)
(36.650)
(15.451)
(16.511)
104.695
444.615
(264.233)
192.683
126.676
329.259
216.465
-
11.940
-
20.403
226.047
1.077.082
386.271
1.840.529
2.710.897
1.633.815
4.632.408
2.791.879
2.936.944
2.710.897
5.018.679
4.632.408
61
The notes on pages 62 to 160 are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
1. GENERAL INFORMATION
Country of incorporation
Marfin Popular Bank Public Co Ltd (the “Bank”) was established in Cyprus in 1901 under the name “Popular Savings Bank of
Limassol”. In 1924 it was registered as the first public company in Cyprus under the name “The Popular Bank of Limassol Ltd”.
In 1967 the Bank changed its name to “Cyprus Popular Bank Ltd’’ and on 26 May, 2004 it was renamed to “Cyprus Popular
Bank Public Company Ltd”. An Extraordinary General Meeting held on 31 October, 2006 unanimously approved the change
of its name to “Marfin Popular Bank Public Co Ltd”. The Bank’s shares are listed on the Cyprus Stock Exchange and the Athens
Exchange. The Bank’s registered office is at 154, Limassol Avenue, 2025 Nicosia, Cyprus.
Principal activities
The principal activities of the Group, which were unchanged from last year, are the provision of banking, financial and
insurance services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all years presented in these consolidated financial statements unless
otherwise stated.
Basis of preparation
The consolidated financial statements of the Bank have been prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union (EU), the requirements of the Cyprus Companies Law, Cap. 113 and the
Cyprus Stock Exchange Laws and Regulations. The consolidated financial statements have been prepared under the historical
cost convention as modified by the revaluation at fair value of land and buildings, investment property, available-for-sale
financial assets and financial assets and financial liabilities (including derivative financial instruments) at fair value through
profit or loss.
All IFRSs issued by the International Accounting Standards Board (IASB) and effective as at 1 January, 2007 have been adopted
by the EU through the endorsement procedure established by the European Commission, with the exception of certain
provisions of IAS 39 “Financial Instruments: Recognition and Measurement” relating to portfolio hedge accounting.
The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates and
requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving
a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 3.
Adoption of new and revised IFRSs
(i) Standards, amendments and interpretations effective in 2007
IFRS 7, “Financial Instruments: Disclosures”, and the complementary amendment to IAS 1, “Presentation of Financial
Statements – Capital Disclosures”, require new disclosures relating to financial instruments and do not have any impact
on the classification and valuation of the Group’s financial instruments.
IFRIC 8, “Scope of IFRS 2”, requires consideration of transactions involving the issuance of equity instruments, where the
identifiable consideration received is less than the fair value of the equity instruments issued in order to establish whether
or not they fall within the scope of IFRS 2.
62
IFRIC 9, “Re-assessment of Embedded Derivatives”, prohibits subsequent reassessment as to whether embedded
derivatives contained in the contract are required to be separated from the host contract and accounted for as derivatives
unless there is a change in the terms of the contract.
IFRIC 10, “Interim Financial Reporting and Impairment”, prohibits the impairment losses recognised in an interim period
on goodwill and investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent
balance sheet date.
(ii) Interpretation early adopted by the Group
IFRIC 11, “IFRS 2 – Group and Treasury Share Transactions”, was early adopted in 2007. IFRIC 11 provides guidance on
whether share-based transactions involving treasury shares or involving group entities (for example, options over a parent’s
shares) should be accounted for as equity-settled or cash-settled share-based payment transactions in the stand-alone
accounts of the parent and group companies.
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Adoption of new and revised IFRSs (continued)
(iii) Standards, amendments and interpretations effective in 2007 but not relevant to the Group’s operations
The following interpretation to a published standard is mandatory for accounting periods beginning on or after 1 January,
2007 but it is not relevant to the Group’s operations:
IFRIC 7, “Applying the Restatement Approach under IAS 29, Financial Reporting in Hyper-inflationary Economies”.
(iv) Standards, amendments and interpretations to existing standards that are not yet effective and have not been
early adopted by the Group
The following standards, amendments and interpretations to existing standards have been published and are mandatory
for the Group’s accounting periods beginning on or after 1 January, 2008 or later periods, but the Group has not early
adopted them:
(a) IAS 23 (Amendment), Borrowing Costs (effective from 1 January, 2009)
The amendment to the standard is subject to endorsement by the EU. It requires an entity to capitalise borrowing costs
directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset.
The option of immediately expensing those borrowing costs will be removed. The Group will apply IAS 23 (amended)
from 1 January, 2009, but is currently not applicable for the Group as there are no qualifying assets.
(b) IFRS 8, Operating Segments (effective from 1 January, 2009)
IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131 “Disclosures
about segments of an enterprise and related information”. The new standard requires a “management approach”,
under which segment information is presented on the same basis as that used for internal reporting purposes. The
Group is in the process of assessing the implications of IFRS 8 and will apply IFRS 8 from 1 January, 2009.
(c) IFRIC 12, Service Concession Arrangements (effective from 1 January, 2008)
This interpretation is subject to endorsement by the EU. IFRIC 12 applies to contractual arrangements whereby a
private sector operator participates in the development, financing, operation and maintenance of infrastructure for
public sector services. IFRIC 12 is not relevant to the Group’s operations because none of the Group’s companies
provide for public sector services.
(d) IFRIC 13, Customer Loyalty Programmes (effective for annual accounting periods beginning on or after
1 July, 2008)
This interpretation is subject to endorsement by the EU. IFRIC 13 clarifies that where goods or services are sold together with
a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement
and the consideration receivable from the customer is allocated between the components of the arrangement by using fair
values. The Group is in the process of assessing the implications of IFRIC 13 and will apply IFRIC 13 from 1 January, 2009.
(e) IFRIC 14, IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction (effective from 1 January, 2008)
This interpretation is subject to endorsement by the EU. IFRIC 14 provides guidance on assessing the limit in IAS 19
on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability
may be affected by a statutory or contractual minimum funding requirement. The Group is in the process of assessing
the implications of IFRIC 14 and will apply IFRIC 14 from 1 January, 2008.
(f) IAS 1 (Revised 2007) Presentation of Financial Statements (effective from 1 January, 2009)
This standard is subject to endorsement by the EU. The amendment to IAS 1 (Revised 2007) affects the presentation
of owner changes in equity and of comprehensive income. IAS 1 (Revised 2007) requires an entity to present in a
statement of changes in equity all owner changes in equity. All non-owner changes in equity (i.e. comprehensive
income) are required to be presented in one statement of comprehensive income or in two statements (a separate
income statement and a statement of comprehensive income). The Group is in the process of assessing the
implications of IAS 1 (Revised 2007) and will apply IAS 1 (Revised 2007) from 1 January, 2009.
(g) IFRS 3 (Revised 2008) Business Combinations (effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after 1 July, 2009)
This standard is subject to endorsement by the EU. The core principle of the amendment to IFRS 3 (Revised 2008) is that
an acquirer of a business recognises the assets acquired and liabilities assumed at their acquisition-date fair values and
discloses information that enables users to evaluate the nature and financial effects of the acquisition. In addition, any
non-controlling interest in an acquiree is measured at fair value or as the non-controlling interest’s proportionate share
of the acquiree´s net identifiable assets. The Group is in the process of assessing the implications of IFRS 3 (Revised
2008) and will apply IFRS 3 (Revised 2008) for business combinations with acquisition date as specified above.
63
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Adoption of new and revised IFRSs (continued)
(iv) Standards, amendments and interpretations to existing standards that are not yet effective and have not been
early adopted by the Group (continued)
(h) IAS 27 (Revised 2008) Consolidated and Separate Financial Statements (effective for annual accounting
periods beginning from 1 July, 2009)
This standard is subject to endorsement by the EU. The amendment to IAS 27 (Revised 2008) specifies the accounting
for changes in the level of ownership interest in a subsidiary, the accounting for the loss of control of a subsidiary and
the information that an entity must disclose to enable users of the financial statements to evaluate the nature of the
relationship between the entity and its subsidiaries. The Group is in the process of assessing the implications of IAS
27 (Revised 2008) and will apply IAS 27 (Revised 2008) from 1 January, 2010.
(i) IFRS 2, Share-based Payment (Amendment 2008: Vesting Conditions and Cancellations) (effective from
1 January, 2009)
This amendment is subject to endorsement by the EU. This amendment clarifies that only service conditions and
performance conditions are vesting conditions. All other features need to be included in the grant-date fair value
and do not impact the number of awards expected to vest or the valuation subsequent to grant date. The Group is
in the process of assessing the implications of IFRS 2 (Amendment 2008) and will apply the amendment from 1 January, 2009.
(j) IAS 32, Financial Instruments: Presentation and IAS 1, Presentation of Financial Statements (Amendment
2008: Puttable Financial Instruments and Obligations Arising on Liquidation) (effective 1 January, 2009)
These amendments are subject to endorsement by the EU. These amendments address the classifications of some
puttable financial instruments and instruments or components of instruments that impose on the entity an obligation
to deliver to another party a pro rata share of the net assets of the entity only on liquidation. The Group is in the
process of assessing the implications of IAS 32 and IAS 1 (Amendment 2008) and will apply the amendments from
1 January, 2009 but these amendments are currently not applicable.
Consolidation
(a) Subsidiaries
Subsidiaries are all entities over which the Group, directly or indirectly, has the power to govern the financial and operating
policies. Usually in these entities there is a shareholding of more than 50% of the voting rights. The existence and effect
of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group
controls another entity. The consolidated financial statements consolidate the financial statements of the Bank and
its subsidiaries.
Subsidiaries are consolidated from the acquisition date, that is, the date on which control is transferred to the Group and
are de-consolidated from the date on which control ceases. The purchase method of accounting is used to account for
the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess
of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets of the subsidiary acquired
is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the
difference is recognised directly in the consolidated income statement.
64
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated on
consolidation. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred.
Where necessary, the accounting policies of subsidiaries have been changed to ensure consistency with the accounting
policies adopted by the Group.
(b) Transactions and minority interest
The Group treats transactions with minority interest as transactions with parties external to the Group. Disposals to
minority interest result in gains and losses for the Group that are recorded in the consolidated income statement.
Purchases from minority interest result in goodwill, being the difference between any consideration paid and the relevant
share acquired of the carrying value of net assets of the subsidiary.
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Consolidation (continued)
(c) Common control transactions
For business combinations involving entities under common control, the Group applies the predecessor values method
of consolidation. Under this method, when an existing subsidiary of the Group is transferred within the Group, the
predecessor values used to account for the common control transaction are the values that were included in the Group’s
consolidated financial statements when the subsidiary was first acquired.
(d) Associates
Associates are all entities over which the Group has significant influence but not control. Usually, in these entities the
Group has a shareholding between 20% and 50% of the voting rights.
Investments in associates are initially recognised at cost and are then accounted for using the equity method of accounting.
The Group’s investments in associates include goodwill identified on acquisition, net of any accumulated impairment loss.
The Group’s share of post-acquisition profits or losses of associates is recognised in the income statement and its share of
post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted
against the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other
unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments
on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest
in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the
asset transferred.
The accounting policies of associates have been changed where necessary to ensure consistency with the accounting
policies adopted by the Group.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each entity of the Group are measured using the currency of the primary
economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are
presented in Cyprus pounds, which is the functional and presentation currency of the Bank. All amounts are rounded to
the nearest thousand, unless where otherwise stated.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the consolidated income statement, except in the cases of qualifying net investment hedges and qualifying cash flow
hedges, where foreign exchange gains and losses are recognised in reserves.
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed
between translation differences resulting from changes in the amortised cost of the security and other changes in the
carrying amount. Translation differences related to changes in the amortised cost are recognised in profit or loss, and
other changes in the carrying amount are recognised in equity.
Translation differences on non-monetary financial items are recognised as part of the fair value gain or loss. Translation
differences on non-monetary items, such as equities held at fair value through profit or loss, are recognised in profit or loss
as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified
as available-for-sale financial assets, are included in the fair value reserves in equity.
65
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency translation (continued)
(c) Group companies
The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary
economy) that have a functional currency different from the presentation currency are translated into the presentation
currency as follows:
Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that
balance sheet.
Income and expenses for each income statement are translated at average exchange rates.
All resulting exchange differences are recognised in the currency translation reserves in equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of
borrowings and other currency instruments designated as hedges of such investments, are taken to equity. When a foreign
operation is disposed of, or partially disposed of, exchange differences that were recorded in equity, are recognised in
profit or loss as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of overseas subsidiaries are treated as assets and liabilities
of the overseas subsidiary and translated at the closing rate.
Non-current assets held for sale and discontinued operations
Non-current assets held for sale (or disposal groups) are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction and not through continuing use. These assets may be a component of an entity, a disposal
group or an individual non-current asset.
A discontinued operation is a component of an entity that either has been disposed of, or that is classified as held for sale, and:
(a) represents a separate major line of business or geographical area of operations; (b) is part of a single coordinated plan to
dispose of a separate major line of business or geographical area of operations; or (c) is a subsidiary acquired exclusively with
a view to resale.
Non-current assets (or disposal groups) are classified as assets held for sale and stated at the lower of carrying amount and fair
value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through
continuing use.
Interest income and expense
Interest income and expense are recognised in the consolidated income statement for all interest bearing assets and liabilities
on an accrual basis. Interest income includes interest earned on advances, held-to-maturity financial assets, available-for-sale
financial assets, financial assets at fair value through profit or loss, as well as the amortisation of discount and premium on
government bonds and treasury bills and other financial instruments.
66
The Group adopts the policy of suspending income on non-performing loans. In these cases, the recognition of income is
suspended until it is received and therefore, it is not included in the consolidated income statement but it is transferred to an
income suspense account. In cases where this is imposed by the local authorities, the Group adopts the policy of non-accrual
of income for non-performing loans.
Fee and commission income
Fees and commissions are generally recognised on an accrual basis when the service has been provided. Sales of services are
recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction
assessed on the basis of the actual services provided as a proportion of the total services to be provided.
Dividend income
Dividend income is recognised in the consolidated income statement when the Group’s right to receive payment is established.
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial guarantee contracts
Financial guarantee contracts (except for those classified as insurance contracts) are contracts that require the issuer to make
specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due,
in accordance with the terms of a financial instrument. Such financial guarantees are given to banks, financial institutions and
other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantees are initially recognised at fair value on the date the guarantee was given and subsequently are measured
at the higher of:
(a)
the initial measurement amount less, when applicable, cumulative amortisation recognised, and
(b)
the best estimate of the expenditure required to settle any financial obligation arising at the balance sheet date.
The estimates are determined based on experience of similar transactions and history of past losses, supplemented
by the judgment of management.
Any increase in the liability relating to guarantees is recognised in the consolidated income statement.
Insurance contracts
Through its insurance subsidiaries, the Group issues insurance contracts to customers. Under these contracts the Group
accepts significant insurance risk, by agreeing to compensate the contract holder on the occurrence of a specified, uncertain
future event.
(a) Premiums
Gross insurance premiums for general insurance business are recognised in the consolidated income statement over the
period covered by the related insurance contract. The proportion of premiums which relates to periods of risk extending
beyond the end of the year is reported as unearned premium and is calculated on a daily basis.
Life insurance business premiums are recognised in the consolidated income statement when receivable.
Reinsurance premiums are recognised in the consolidated income statement in the same accounting period as the
insurance premiums to which they relate.
(b) Claims and reinsurance recoveries
Gross insurance claims for general insurance business include paid claims and provisions for outstanding claims. The
provisions for outstanding claims are based on the estimated ultimate cost of all claims that have occurred but not settled
at the balance sheet date, whether reported or not. They also include a reduction for the expected value of salvage and
other recoveries. Provisions for claims incurred but not reported (IBNR) are made on an estimated basis, using previous
years’ experience and taking into account anticipated future changes and developments. The level of IBNR is revised on
a yearly basis in accordance with prior years´data.
Gross insurance claims for life insurance reflect the total cost of claims arising during the year, including claim handling
costs and any policyholder bonuses allocated in anticipation of a bonus declaration.
(c) Liabilities for life insurance contracts
The technical reserves for non-unit-linked liabilities (long-term business provision) are calculated based on annual actuarial
estimates. The technical reserves for unit-linked liabilities are at least the element of any surrender or transfer value which
is calculated by reference to the relevant fund.
(d) Reinsurance contracts
Reinsurance contracts are contracts entered into by the Group’s insurance subsidiaries, under which the Group is
compensated for losses incurred under insurance contracts issued by the Group’s insurance subsidiaries. The reinsurance
contracts entered into by the Group’s insurance subsidiaries, in which the issuer of the insurance contract is another insurer
(inwards reinsurance) are included in insurance contracts.
Any amounts recovered from reinsurers, that derive from the reinsurance contracts of the Group, are recognised in assets.
The amounts recovered from or to reinsurers are calculated based on the amounts related with the reinsurance contracts
and are based on the terms of each reinsurance contract. The reinsurance liabilities are mainly premiums payable for
reinsurance contracts and are recognised as expenses on an accrual basis.
67
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Insurance contracts (continued)
(d) Reinsurance contracts (continued)
The Group evaluates its reinsurance assets for impairment. If there is objective evidence that the reinsurance assets have
incurred an impairment, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and
recognises the reduction in its value in the consolidated income statement.
(e) Residual value and recovery of claims paid
The insurance contracts allow the general insurance companies to sell (usually destroyed) property that is obtained through
the settlement of a claim. Also the insurance companies have the right of legal action against third parties that are
considered responsible for an accident which had as a result the payment of a claim by the Group, for the partial payment
or full payment of all the expenses of the claim. Estimates of salvage recoveries are included as an allowance in the
measurement of the insurance liability for claims. The allowance is the amount that can reasonably be recovered from the
sale of the destroyed property in the first case and the valuation of the amount that can be recovered in the case of a legal
action against the relevant third party in the second case.
(f) Value of life policies in force
A value is placed on life insurance contracts that are in force at the balance sheet date. The value of the life policies in force
is determined by discounting future earnings expected to emerge from business currently in force, using appropriate
assumptions in assessing factors, such as recent experience and general economic conditions. Movements in the value
of inforce policies are included in the consolidated income statement in “Other income”.
(g) Liability adequacy test
At each balance sheet date, liability adequacy tests are performed by the Group’s insurance subsidiary companies to ensure
the adequacy of liabilities that arise from their operations. In performing these tests, current best estimates of operational
and investment income and operational and administration expenses are based on past experience and financial results.
Current and deferred income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted by the balance sheet
date in the countries where the Bank and the Bank’s subsidiaries and associates operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations
are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the
tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is not accounted
for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time
of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and
laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Employee benefits
68
(a) Retirement benefits
Group companies operate various pension schemes. The Group has both defined benefit and defined contribution plans.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. For
a defined contribution plan the Group has no legal or constructive obligation to pay further contributions if the fund does
not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an
amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such
as years of service and compensation.
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits (continued)
(a) Retirement benefits (continued)
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined
benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised
actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent
actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by
discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated
in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related
pension liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the
greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over
the employees´ expected average remaining working lives.
Past service cost is recognised immediately in expenses, unless the changes to the pension plan are conditional on the
employees remaining in service for a specified period of time (the vesting period). In this case, the past service cost is
amortised on a straight line basis over the vesting period.
For defined contribution plans, the Group has no further payment obligations once the contributions have been paid.
The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised
as an asset to the extent that a cash refund or a reduction in the future payments is available.
The Group also pays contributions to the Government Social Insurance Fund in accordance with legal requirements.
(b) Share-based compensation
The Group’s share option scheme is an equity-settled, share-based compensation plan. he fair value of the employee
services received in exchange for the grant of the options is recognised as an expense with a corresponding credit in
equity. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options
granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in
assumptions about the number of options that are expected to vest. At each balance sheet date, the Group revises its
estimates of the number of options that are expected to vest. The Group recognises the impact of the revision to original
estimates, if any, in the consolidated income statement, with a corresponding adjustment to equity. The proceeds received
net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when
the options are exercised.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months´
maturity, including cash and non-restricted balances with Central Banks, treasury bills and other eligible bills, amounts due from
other banks and short-term government securities.
Advances to customers
Advances to customers are presented on the balance sheet at amortised cost net of any accumulated impairment provision.
The carrying amount of advances to customers is reduced through the use of an allowance account.
The Group assesses at each balance sheet date whether there is objective evidence that advances to customers are impaired.
Advances to customers are impaired and impairment losses are incurred only if there is objective evidence of impairment as
a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that the loss event
(or events) has an impact on the estimated future cash flows.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:
(a)
violation of the contractual terms resulting in the delay of capital or interest payment,
(b)
evidence of significant deterioration in the loan repayment ability,
(c)
undertaking of legal action,
(d)
bankruptcy,
(e)
other objective evidence that leads to the conclusion that the Group will not collect the full amount due.
69
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advances to customers (continued)
For a loan that has been characterised as impaired, the present value of its future cash flows is considered to be the realisable
value of its securities. In addition, for significant amounts, other factors are taken into consideration, such as the financial
status of the customer, the alternative sources of funds available and the extent to which credit worthy guarantors can support
the customer. The provision amount is calculated as the difference between the loan’s carrying amount and the recoverable
amount, including all securities and guarantees.
Impaired loans are monitored continuously and are reviewed for provisioning purposes on a quarterly basis. If the amount of
the impaired loss decreases in a subsequent period, due to an event occurring after the impairment was recognised, the
provision is written back by reducing the loan impairment provision account accordingly.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after
all the necessary procedures have been completed, there is no realistic potential of recovery, and the amount of the loss has
been determined, notwithstanding the Group’s right to collect in the future any amounts that have been written off.
Financial assets
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables,
held-to-maturity and available-for-sale. The classification depends on the purpose for which the financial assets were acquired.
Management determines the classification of financial assets at initial recognition.
(a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading and those designated at fair value through profit
or loss at inception. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the
near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is
evidence of a recent actual pattern of short-term profit taking. Derivative financial instruments are also categorised as
held for trading, unless they are designated as hedging instruments in which case hedge accounting is applied. Financial
assets designated at fair value through profit or loss at inception are those that are managed and their performance is
evaluated on a fair value basis, in accordance with a documented investment strategy. Information about these financial
assets is provided internally on a fair value basis to key management personnel.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market, other than: (a) those that the Group intends to sell immediately or in the short-term, which are classified
as held for trading, and those that the Group upon initial recognition designates as at fair value through profit or loss; (b)
those that the Group upon initial recognition designates as available-for-sale; or (c) those for which the holder may not
recover substantially all of its initial investment, other than because of credit deterioration. Investment in corporate bonds
and debentures acquired directly from the issuer are classified in this category.
(c) Held-to-maturity financial assets
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed
maturities that the Group’s management has the positive intention and ability to hold to maturity.
70
(d) Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not
classified in any of the other categories.
Regular-way purchases and sales of financial assets are recognised on the trade date, which is the date on which the Group
commits to purchase or sell the financial asset. Financial assets are initially recognised at fair value plus transaction costs for
all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are
initially recognised at fair value and transaction costs are expensed in the consolidated income statement. Financial assets
are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the
Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets
at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity financial
assets are carried at amortised cost using the effective interest rate method.
Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in
the consolidated income statement within “Profit on disposal and revaluation of securities” in the period in which they arise.
Dividend income from financial assets at fair value through profit or loss is recognised in the consolidated income statement
as part of other income when the Group’s right to receive payment is established.
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets (continued)
Changes in the fair value of monetary securities denominated in a foreign currency classified as available-for-sale are analysed
between translation differences resulting from changes in amortised cost of the security and other changes in the carrying
amount of the security. The translation differences on monetary securities are recognised in profit or loss, while translation
differences on non-monetary securities are recognised in equity. Changes in the fair value of monetary and non-monetary
securities classified as available-for-sale are recognised in equity.
When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in
equity are included in the consolidated income statement as “Profit on disposal and revaluation of securities”.
Interest on available-for-sale securities calculated using the effective interest rate method is recognised in the consolidated
income statement as interest income. Dividends on available-for-sale equity instruments are recognised in the consolidated
income statement as part of other income when the Group’s right to receive payments is established.
The fair value of investments quoted in an active market is based on quoted bid prices. If the market for a financial asset is not
active and for unlisted securities, the Group establishes fair value by using valuation techniques. These include the use of
recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis
and option pricing models making maximum use of market inputs and relying as little as possible on entity specific inputs.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial
assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair
value of the security below its cost is considered as an indicator of possible impairment. If any such evidence exists for availablefor-sale financial assets, the cumulative loss, which is measured as the difference between the acquisition cost and the current
fair value, less any impairment loss on that financial asset previously recognised in profit or loss, is removed from equity and
recognised in the consolidated income statement. Impairment losses recognised in the consolidated income statement on
equity instruments are not reversed through the consolidated income statement.
Repurchase agreements
The Group enters into agreements for purchases (sales) of investments and to resell (repurchase) substantially identical
investments at a certain date in the future at a fixed price.
Investments sold subject to repurchase agreements (repos) continue to be recognised in the consolidated balance sheet and
are measured according to their classification. The proceeds from the sale of the investments are reported as liabilities to
either banks or customers. Investments purchased, on condition that they will be resold in the future (reverse repos), are not
recognised in the consolidated balance sheet. The amounts paid for purchase thereof are recognised as receivables from
either banks or customers. The difference between the sale and repurchase consideration is recognised as interest income or
expense during the repurchase agreement period using the effective interest rate method.
The Group enters into share purchase agreements with a commitment to resell them (stock reverse repos) through the Athens
Derivatives Exchange. The acquired shares are then sold in the Athens Exchange. The shares are not recognised as assets but
the commitment to resell the shares is recognised as a liability in the balance sheet, and is measured at the fair value of the
securities that the Group is committed to repurchase and return to the Athens Derivatives Exchange Clearing House.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and
settle the liability simultaneously.
Derivative financial instruments and hedge accounting
Derivative financial instruments include forward exchange contracts, currency and interest rate swaps, currency and index
futures, equity and currency options and other derivative financial instruments. These are initially recognised in the
consolidated balance sheet at fair value on the date a derivate contract is entered into, and subsequently are remeasured at
their fair value. Fair values are obtained from quoted market prices, discounted cash flow models and other pricing models as
appropriate. All derivatives are shown as financial assets at fair value through profit or loss when fair value is positive and as
financial liabilities when fair value is negative.
Certain derivatives embedded in other financial instruments, are treated as separate derivatives when their economic
characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value
71
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative financial instruments and hedge accounting (continued)
through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the
consolidated income statement.
The Group uses derivative financial instruments for hedging risks that arise from changes in interest rates and exchange rates.
The Group applies fair value hedges or cash flow hedges to these derivatives that meet the criteria for hedge accounting. For
derivatives that do not meet the criteria for hedge accounting, any profit or loss arising from the changes in fair values is
recorded in the consolidated income statement.
A hedge relationship for the purposes of applying hedge accounting exists when:
At the inception of the hedge, the Group designates and documents the hedging relationship as well as its risk
management objective and strategy for undertaking the hedge.
The hedge is expected to be highly effective in offsetting changes in fair values or cash flows attributed to the hedged risk,
pursuant to the documented risk management strategy for the said hedge relationship.
For cash flow hedges, the forecast transaction that is the subject of the hedge is highly probable and must present an
exposure to variations in cash flows that could ultimately affect the results.
The effectiveness of the hedge can be reliably measured.
The hedge is assessed as highly effective throughout the period.
The Group documents, at the inception of the transaction, the relationship between hedged items and hedging instruments,
as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents
its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
(a) Fair value hedge
For fair value hedges that meet the criteria for hedge accounting, any profit or loss from the revaluation of the derivative
at fair value is recognised in the consolidated income statement. Any profit or loss of the hedged instrument that is due
to the hedged risk, adjusts the book value of the hedged instrument and is recognised in the consolidated income
statement, irrespective of the classification of the financial instrument.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item
for which the effective interest rate method is used is amortised to profit or loss over the period to maturity. The adjustment
to the carrying amount of a hedged equity security remains in revenue reserves until the disposal of the equity security.
(b) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recognised in equity. The gain or loss relating to the ineffective portion is recognised in the consolidated income statement.
Amounts accumulated in equity are recycled in the consolidated income statement in the periods when the hedged item
affects profit or loss.
72
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction
is ultimately recognised in the consolidated income statement. When a forecast transaction is no longer expected to occur,
the cumulative gain or loss that was reported in equity is transferred to the consolidated income statement.
(c) Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the
hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain or loss relating to the
ineffective portion is recognised immediately in the consolidated income statement. Gains and losses accumulated in
equity are included in the consolidated income statement when the foreign operation is disposed of.
(d) Derivatives that do not qualify for hedge accounting
For derivative instruments that do not qualify for hedge accounting, changes in the fair value are recognised immediately
in the consolidated income statement.
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment property
Investment property includes land and buildings, owned by the Group with the intention of earning rentals or for capital
appreciation or both, and are not used by the Group. Investment property is carried at fair value, representing open market
value, as is determined annually by external independent professional valuers who apply recognised valuation techniques.
Changes in fair values are included within “Other income” in the consolidated income statement.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable
assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in the
balance sheet in “Intangible assets”. Goodwill on acquisitions of associates is included in “Investments in associates” and is
tested for impairment as part of the overall balance. Separately recognised goodwill is tested for impairment annually and
whenever there are indications of impairment and is carried at cost less accumulated impairment losses. Impairment losses
on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating
to the entity.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cashgenerating units or groups of cash-generating units that are expected to benefit from the business combination in which the
goodwill arose. The Group allocates goodwill using the country of operation and economic segment as the allocation basis.
Other intangible assets
Other intangible assets represent the estimated value of intangible assets in relation to acquired subsidiaries (Notes 29 and
52). Other intangible assets are shown at cost less accumulated amortisation and any accumulated impairment losses. They
are amortised on a straight line basis during their useful economic life (2 to 23 years). Amortisation is included within
“Depreciation and amortisation” in the consolidated income statement. Other intangibles that have an indefinite useful life are
not subject to amortisation and are tested for impairment annually and whenever there is an indication that the intangible
assets may be impaired.
Computer software
Costs that are directly associated with identifiable and unique computer software products controlled by the Group and that
will probably generate economic benefits exceeding costs beyond one year are recognised as intangible assets. Subsequently
computer software programmes are carried at cost less any accumulated amortisation and any accumulated impairment
losses. Expenditure which enhances or extends the performance of computer software programmes beyond their original
specifications is recognised as a capital improvement.
Costs associated with maintenance of computer software programmes are recognised as an expense when incurred. Computer
software costs are amortised using the straight line method over their useful economic life, not exceeding a period of five
years. Amortisation commences when the computer software is available for use and is included within “Depreciation and
amortisation” in the consolidated income statement.
Leases
(a) A Group company as a lessee
Finance lease
A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may
or may not eventually be transferred.
Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the
present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance
balance outstanding. The corresponding rental obligations, net of finance charges, are included in liabilities. The interest
element of the finance cost is charged to the consolidated income statement over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability for each period. The property and equipment
acquired under finance leases is depreciated over the shorter of the useful economic life of the asset or the lease term.
73
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases (continued)
(a) A Group company as a lessee (continued)
Operating lease
An operating lease is a lease other than a finance lease. Payments made under operating leases (net of any incentives
received by the lessor) are charged to the consolidated income statement on a straight line basis over the period of
the lease.
(b) A Group company as a lessor
Operating lease
Assets leased out under operating leases are presented in the consolidated balance sheet and are depreciated over their
useful economic lives. Payments received under operating leases are recorded in the consolidated income statement on
a straight line basis.
Finance lease and hire purchase
When assets are leased out under finance lease/hire purchase, the present value of the lease payments is recognised as a
receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance
income. The present value of the receivable is recognised in the consolidated balance sheet under “Advances to customers”.
Lease income and hire purchase fees are recognised in the consolidated income statement in a systematic manner, based on
instalments receivable during the year so as to provide a constant periodic rate of interest using the net investment method.
Property and equipment
Land and buildings are shown at fair value, based on periodic valuations by external independent professional valuers, less
subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the
gross carrying amount of the asset and the net carrying amount is restated to the revalued amount of the asset. Revaluations
are carried out with sufficient regularity to ensure that the carrying amount does not differ materially from that which would
be determined using fair value at the balance sheet date. All other property and equipment are stated at historical cost less
depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of property and equipment.
Increases in the carrying amount arising on revaluation of land and buildings are credited to fair value reserves in equity.
Decreases that offset previous increases of the same asset are charged against those reserves. All other decreases are charged
to the consolidated income statement. Each year the difference between depreciation based on the revalued carrying amount
of the asset charged to the consolidated income statement and depreciation based on the asset’s original cost is transferred
from property fair value reserves to revenue reserves.
Land is not depreciated. Depreciation on other property and equipment is calculated using the straight line method to allocate
the cost or revalued amount of each asset less their residual values, over their estimated useful economic lives. The estimated
useful economic lives are as follows:
Buildings
Furniture and equipment
Years
33 – 50
3 – 10
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at each balance sheet date.
74
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its
estimated recoverable amount.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. All other repairs and maintenance are charged to the consolidated income statement during the financial
period in which they are incurred.
Gains and losses on disposal of property and equipment are determined by comparing proceeds with carrying amount and
are included in the consolidated income statement. When revalued assets are sold, the amounts included in the property fair
value reserves are transferred to revenue reserves.
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and equipment (continued)
Properties under construction are carried at cost less any impairment loss where the recoverable amount of the property
under construction is estimated to be lower than its carrying value. Depreciation for these assets commences when the assets
are ready for their intended use.
Impairment of non-financial assets
Assets that have an indefinite useful economic life are not subject to depreciation or amortisation and are tested for impairment
annually and whenever there is an indication that these assets may be impaired. Assets that are subject to depreciation or
amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash-generating units).
Borrowings
Borrowings, comprising of senior debt and loan capital, are recognised initially at fair value, being the issue proceeds (fair
value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost and
any difference between the proceeds net of transaction costs and the redemption value is recognised in the consolidated
income statement over the period of the borrowings. A financial liability is derecognised when it is extinguished, that is, when
the obligation is discharged, cancelled or expires.
Share capital
Ordinary shares are classified as equity.
(a) Share issue costs
Incremental costs directly attributable to the issue of new shares are deducted from equity.
(b) Dividends on ordinary shares
The dividend distribution to the Bank’s ordinary shareholders is recognised in the period in which the dividend is approved
by the Bank’s shareholders.
Dividend for the year that is declared after the balance sheet date is disclosed in Note 53.
(c) Treasury shares
Where any group company purchases the Bank’s equity share capital (treasury shares), the consideration paid, including
any directly attributable incremental costs is deducted from equity attributable to the Bank’s equity holders until the
shares are sold or reissued. Where such shares are subsequently sold or reissued, any consideration received, net of any
directly attributable incremental transaction costs is included in equity attributable to the Bank’s equity holders.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more
likely than not that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of
the obligation can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract,
the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than
the unavoidable costs of meeting the obligations under the contract.
Credit-related transactions
Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers.The Group expects most
acceptances to be settled simultaneously with the reimbursement from the customers. The Group is also involved in trading
transactions whereby it issues guarantees and documentary credits (known as credit-related instruments) on behalf of its
customers. Assets arising from payments to a third party where the Group is awaiting reimbursement from the customer are
shown on the consolidated balance sheet, less any necessary provisions.
75
Notes to the Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fiduciary activities
Where the Group acts in a fiduciary capacity such as nominee, trustee or agent, assets and related income arising thereon
together with related undertakings to return such assets to customers are excluded from these financial statements.
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and
returns that are different from those of other business segments. A geographical segment is engaged in providing products
or services within a particular economic environment that are subject to risks and returns that are different from those of
segments operating in other economic environments.
The primary segment of the Group is by business segment. There are three major classes of business:
(a) Banking services, which include the activities of the banks.
(b) Insurance services, which include the activities of the life insurance and general insurance subsidiaries of the Group.
(c) Financial and other services, which include the activities of all other subsidiaries of the Group.
The secondary geographical segments of the Group are analysed as follows:
(a) Operations in Cyprus, which incorporate the activities of all Group companies in Cyprus.
(b) Operations in Greece.
(c) Operations in other countries.
Comparatives
Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. The
consolidated balance sheet at 31 December, 2006 has been restated to reflect the classification of non-banking activities of
Marfin Investment Group Holdings S.A. as discontinued operations due to reduction in participation (Note 16) and to reflect
the adjustments to the initial accounting in relation to the initial results of the purchase price allocation regarding the
acquisition of Marfin Investment Group Holdings S.A. and Egnatia Bank S.A. as explained in Note 52. In addition, government
bonds and treasury bills which were previously disclosed on the consolidated balance sheet are being disclosed within the
category within which they are classified.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Accounting estimates and judgments are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
76
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:
(a) Impairment losses on advances to customers
The Group assesses at each balance sheet date whether there is objective evidence that advances to customers are
impaired. Advances to customers are impaired and impairment losses are incurred only if there is objective evidence of
impairment, as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that
the loss event (or events) has an impact on the estimated future cash flow.
The criteria that the Group uses to determine that there is objective evidence for an impairment loss include:
(a) violation of the contractual terms resulting in the delay of capital or interest payment,
(b) evidence for significant deterioration in the loan repayment ability,
(c) undertaking of legal action,
Notes to the Consolidated Financial Statements
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)
Critical accounting estimates and assumptions (continued)
(a) Impairment losses on advances to customers (continued)
(d) bankruptcy,
(e) other objective evidence that leads to the conclusion that the Group will not collect the full amount due.
For a loan that has been characterised as impaired, the present value of its future cash flows is considered to be the
realisable value of its securities. In addition, for significant amounts, other factors are taken into consideration, such as the
financial status of the customer, the alternative sources of funds available and the extent to which credit worthy guarantors
can support the customer. The provision amount is calculated as the difference between the loan’s carrying amount and
the recoverable amount, including all securities and guarantees.
(b) Fair value of financial instruments
The fair value of financial instruments that are not quoted in an active market is determined using valuation techniques.
The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market
conditions existing at each balance sheet date. The valuation techniques used are frequently assessed to ensure their
validity and appropriateness. Changes in methods and assumptions about these factors could affect the reported fair
value of financial instruments.
(c) Impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated
in Note 2. The recoverable amounts of cash generating units have been determined based on value in use calculations.
These calculations require the use of estimates and assumptions as disclosed in Note 29.
For the life insurance and general insurance businesses, if the revised estimated net margin at 31 December, 2010 was 10%
lower than management’s estimates at 31 December, 2007, the Group would not have to recognise any impairment
against goodwill. If the revised estimated after-tax rate applied to the discounted cash flows was 10% higher than
management’s estimates at 31 December, 2007, the Group would not have to recognise any impairment of goodwill.
For the banking operations in Greece and Romania, if the cash flow growth rate decreased by 50 basis points and the
discount rate increased by 50 basis points compared to management’s estimates at 31 December, 2007 the Group would
not have to recognise any impairment of goodwill.
For the banking operations in Serbia, if the revised estimated net profit margin at 31 December, 2009 was 20% lower than
management’s estimates at 31 December, 2007, the Group would not have to recognise any impairment against goodwill.
If the discount rate applied to the discounting of cash flows was 10% higher than the management’s estimates at
31 December, 2007, the Group would not have to recognise any impairment of goodwill.
(d) Value of life policies in force
The value of life policies in force is determined in consultation with qualified actuaries as stated in Note 2. The value of life
policies in force is calculated by discounting future profits that are expected to emerge from in force business at a discount
rate that includes a risk margin. The risk margin reflects the uncertainty in expected future profits. Projections of profit are
based on prudent assumptions relating to macroeconomic fundamentals, future mortality, persistency and level of
administrative and selling expenses, and average return on investments. The assumptions used in the actuarial valuation
are disclosed in Note 29. The assumptions and valuation method are reviewed on each reporting date. Any changes in the
estimates and assumptions made are likely to have an effect on the value of life policies in force.
(e) Life insurance business
The estimate for future benefits for long term life insurance contracts is determined by an actuarial valuation by using
appropriate assumptions such as mortality rates, returns on investments made to cover the future insurance claims, the
growth in administrative expenses and the maintainability of insurance policies. Mortality rates used are based on
international standardised tables that reflect past experience. The average return of investment estimate is established by
using current returns, as well as, predictions for the performance of the economy and capital markets.
The assumptions and valuation method are reviewed on each reporting date. Any adjustments are reflected in the
insurance contract liabilities in the balance sheet.
An estimate for gross claims relating to short term general and health insurance contracts, is made at the balance sheet
date, whether reported or not. The estimate takes into account past experience and related insurance market trends.
77
Notes to the Consolidated Financial Statements
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)
Critical accounting estimates and assumptions (continued)
(f) Insurance policy claims
Insurance liabilities for claims are calculated by using information relating to the claim. The Group assesses each claim
separately and the estimated liability is based on the facts of each claim, experience and other relevant factors, on a
case-by-case basis.
The Group is liable for all events covered by the policy even if the loss is discovered after the policy’s expiry date. A provision
is made for claims incurred but not yet reported (IBNR). The method employed to estimate the total cost of claims incurred
but not reported is disclosed in Note 47.
(g) Retirement benefits
The present value of liabilities arising from staff retirement benefits is determined with an actuarial valuation using specific
assumptions. These assumptions are disclosed in Note 11. According to the Group’s accounting policy for retirement
benefits, any changes in the assumptions are likely to have an effect on the level of the unrecognised actuarial gain or loss.
(h) Tax
The Group is subject to income tax in various jurisdictions in which it operates. In order to establish the current and
deferred tax, as presented in the consolidated balance sheet, significant assumptions are required. For specific transactions
and calculations the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax issues
based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from
the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the
period in which such determination is made.
Critical judgments in applying Group accounting policies
(a) Held-to-maturity financial assets
The Group follows the guidance provided in IAS 39 in relation to the classification of non-derivative financial assets with
fixed or determinable payments and fixed maturity as held-to-maturity financial assets. Critical judgment is required when
applying the classification, which takes into account the Group’s intention and ability to hold investments to maturity. If
the Group fails to hold the investments to maturity for any reason other than those explained in IAS 39, all financial assets
held in the asset class will have to be reclassified as available-for-sale financial assets. Under these circumstances,
investments will be presented at fair value and not amortised cost, in which case the book value of investments will
increase by C£ 1.053.000 (2006: C£ 3.049.000) with a corresponding credit in the fair value reserves within equity.
(b) Impairment of available-for-sale financial assets
The Group follows the guidance in IAS 39 to determine if an investment has been impaired. This decision requires critical
judgment as to whether there is objective evidence of impairment. In making this judgment, the Group evaluates among
other factors whether there is objective evidence of impairment as a result of a loss event or events and whether there has
been a significant or prolonged decline in the fair value of an equity investment compared to cost, as well as the financial
viability and the short-term future of the investment by considering factors such as the industry and sector performance,
changes in technology and operational and financing cash flows.
4. NET INTEREST INCOME
78
Interest income
Interest from advances to customers
Interest from other banks
Interest from bonds and other interest
Interest expense
Interest on customer deposits
Interest to other banks
Interest on loan capital and other interest
2007
C£ ‘000
2006
C£ ‘000
630.340
212.916
113.168
297.601
117.504
43.751
956.424
458.856
422.926
78.317
63.461
194.259
41.326
13.146
564.704
248.731
Notes to the Consolidated Financial Statements
5. NET FEE AND COMMISSION INCOME
Fee and commission income
Banking related fees and commissions
Portfolio and other management fees
Other fees and commissions
Fee and commission expense
Fees
Commissions
2007
C£ ‘000
2006
C£ ‘000
88.704
97.674
34.380
57.658
3.039
4.827
220.758
65.524
7.980
31.391
1.785
1.757
39.371
3.542
2007
C£ ‘000
2006
C£ ‘000
2.451
77.064
702
536
15.051
(873)
6.562
-
93.693
7.800
6. PROFIT ON DISPOSAL AND REVALUATION OF SECURITIES
Profit on disposal of financial assets at fair value
through profit or loss
Profit on disposal of available-for-sale financial assets
Profit on revaluation of financial assets
at fair value through profit or loss
Impairment of available-for-sale financial assets
Included within the profit on disposal and revaluation of securities is an amount of C£ 7 m which relates to the profit from the
sale of shares of Universal Life Insurance Public Co Ltd, an amount of C£ 22,4 m which relates to the profit from the sale of shares
and warrants of Hellenic Bank Public Company Ltd and an amount of C£ 40 m which relates to the profit from the sale of
shares of Bank of Cyprus Public Company Ltd held by the Group.
7. OTHER INCOME
Net premiums and other income from
insurance contracts (Note 8)
Net benefits, claims and other expenses from
insurance contracts (Note 9)
Net income from assets backing
policyholders´ liabilities (Note 10)
Income from insurance operations
Dividend from available-for-sale
financial assets
Dividend from financial assets
at fair value through profit or loss
Fair value gain on investment property
Profit on disposal of property and equipment (Note 31)
Other income
2007
C£ ‘000
2006
C£ ‘000
76.515
65.878
(73.672)
(95.438)
20.728
44.192
23.571
14.632
5.465
476
1.821
1.654
145
9.131
316
1.003
453
4.698
41.787
21.578
79
Notes to the Consolidated Financial Statements
8. NET PREMIUMS AND OTHER INCOME FROM INSURANCE CONTRACTS
2007
C£ ‘000
2006
C£ ‘000
4.870
2.804
36.983
33.152
Long-term insurance contracts with
fixed and guaranteed terms
Long-term insurance contracts without
fixed terms
Long-term insurance contracts with discretionary
participating feature (DPF)
Short-term insurance contracts:
Premiums receivable
Change in unearned premiums provision
1.845
2.024
46.850
(1.478)
40.590
(1.375)
Premiums from insurance contracts issued
89.070
77.195
Short-term reinsurance contracts:
Premiums payable
Change in unearned premiums provision
Long-term reinsurance contracts
(16.257)
603
(2.680)
(14.758)
536
(2.082)
Premiums ceded to reinsurers
on contracts issued
(18.334)
(16.304)
70.736
60.891
4.269
222
1.288
3.514
258
1.215
5.779
4.987
76.515
65.878
2007
C£ ‘000
2006
C£ ‘000
46.160
24.666
(8.168)
11.014
70.826
20.029
(5.299)
9.882
73.672
95.438
Long-term insurance contracts without fixed terms (unit-linked):
Death benefits
Change in unit price
22.895
18.363
17.029
44.922
Long-term insurance contracts with discretionary
participating feature (DPF):
Death benefits
(Decrease)/increase in liabilities
4.771
(1.080)
4.790
104
Net premiums
Other income from insurance contracts:
Policy administration and asset management
Surrender benefits
Change in the value of life policies in force (Note 29)
9. NET BENEFITS, CLAIMS AND OTHER EXPENSES FROM INSURANCE CONTRACTS
Insurance benefits
Insurance contracts claims
Insurance contracts claims recovered from reinsurers
Commission paid and other expenses from insurance contracts
Insurance benefits
80
Long-term insurance contracts with fixed and guaranteed terms:
Death, maturity and surrender benefits
Increase in liabilities
455
756
322
3.659
46.160
70.826
Notes to the Consolidated Financial Statements
9. NET BENEFITS, CLAIMS AND OTHER EXPENSES FROM INSURANCE CONTRACTS (continued)
Insurance claims
2007
Current year claims
Additional cost for prior year claims
Increase in the expected cost of claims
for unexpired risks
2006
Current year claims
Additional cost for prior year claims
Gross
C£ ‘000
Reinsurance
C£ ‘000
Net
C£ ‘000
23.086
1.619
(7.363)
(805)
15.723
814
-
(39)
24.666
(8.168)
16.498
18.320
1.709
(5.791)
492
12.529
2.201
20.029
(5.299)
14.730
2007
C£ ‘000
2006
C£ ‘000
4.688
12.722
2.453
(15)
880
6.198
36.105
821
105
963
20.728
44.192
2007
C£ ‘000
2006
C£ ‘000
153.369
86.327
18.777
507
1.995
23.831
16.700
391
3.379
198.479
106.797
(39)
10. NET INCOME FROM ASSETS BACKING POLICYHOLDERS´ LIABILITIES
Interest income
Profit from disposal and revaluation of securities
Dividend income
Fair value (loss)/gain on investment property
Other income
11. STAFF COSTS
Salaries and employer’s contributions
Retirement benefit costs:
Defined benefit plans
Defined contribution plans
Share-based payment compensation (Note 40)
Other staff costs
81
Notes to the Consolidated Financial Statements
11. STAFF COSTS (continued)
Defined Benefit Plans
The amounts recognised in the consolidated balance sheet with respect to the defined benefit plans are shown below:
Present value of funded obligations
Fair value of plan assets
2007
C£ ‘000
2006
C£ ‘000
11.363
(8.067)
19.153
(7.730)
Present value of unfunded obligations
Unrecognised actuarial gain
3.296
105.112
20.251
11.423
93.223
10.315
Retirement benefit obligations in the consolidated balance sheet
128.659
114.961
The amounts recognised in the consolidated income statement with respect to the defined benefit plans are as follows:
Current service cost
Interest cost on plan liabilities
Expected return on plan assets
Actuarial loss recognised in the year
2007
C£ ‘000
2006
C£ ‘000
11.255
9.287
(1.976)
211
9.226
8.036
(3.065)
2.503
18.777
16.700
The movement in the retirement benefit obligations recognised in the consolidated balance sheet is as follows:
2007
C£ ‘000
2006
C£ ‘000
Balance 1 January
Total expense charged in the
consolidated income statement
Payments to departing members
Contributions paid
Retirement benefit obligations from the acquisition of subsidiaries
Exchange differences
114.961
96.634
Balance 31 December
128.659
18.777
(4.468)
(597)
(14)
16.700
(3.040)
(587)
5.241
13
114.961
The principal assumptions used in the actuarial valuations were:
82
Discount rate
Average expected
return on plan assets
Average increase in basic
insurable earnings
Average increase in total salaries
Average increase in inflation
Rate of increase of pension payments
Cyprus
2007
United
Kingdom
Greece
Cyprus
2006
United
Kingdom
Greece
5,25%
5,7%
5,0%
5,0%
5,0%
4,1%
8,0%
6,0%
5,0%
8,0%
7,0%
4,1%
4,0%
7,0%
2,5%
-
4,3%
3,3%
2,7%
4,5%
2,5%
-
4,5%
7,0%
2,5%
-
4,0%
3,0%
2,6%
5,0%
2,0%
-
Notes to the Consolidated Financial Statements
11. STAFF COSTS (continued)
Defined Benefit Plans (continued)
2007
C£ ‘000
2006
C£ ‘000
2005
C£ ‘000
2004
C£ ‘000
At 31 December
Present value of obligations
Fair value of plan assets
Unrecognised actuarial gain/(loss)
116.475
(8.067)
20.251
112.376
(7.730)
10.315
127.345
(5.215)
(25.496)
110.525
(3.723)
(22.915)
Retirement benefit obligations in the
consolidated balance sheet
128.659
114.961
96.634
83.887
2007
C£ ‘000
2006
C£ ‘000
10.444
(1.006)
4.245
13.255
6.450
3.517
1.947
26.938
11.914
12. DEPRECIATION AND AMORTISATION
Depreciation of property and equipment (Note 31)
Fair value adjustment on property (a)
Amortisation of computer software (Note 29)
Amortisation of other intangible assets (Note 29)
(a) The fair value adjustment on property relates to an increase in the carrying amount of property that reverses a
revaluation decrease that was previously recognised in the consolidated income statement.
13. ADMINISTRATIVE EXPENSES
Occupancy costs
Computer maintenance costs
Marketing and sales expenses
Operating lease rentals
Printing and stationery expenses
Telephone expenses
Auditors’ remuneration
Other administrative expenses
2007
C£ ‘000
2006
C£ ‘000
7.840
6.537
13.102
16.177
3.730
3.590
705
45.661
4.001
4.521
7.055
6.749
2.456
1.810
314
17.926
97.342
44.832
2007
C£ ‘000
2006
C£ ‘000
98.516
(41.211)
77.029
(29.632)
57.305
47.397
14. PROVISION FOR IMPAIRMENT OF ADVANCES
Provision for impairment of advances
for the year (Note 23)
Release of provision and recoveries (Note 23)
83
Notes to the Consolidated Financial Statements
15. TAX
2007
C£ ‘000
2006
C£ ‘000
Current year tax
Cyprus corporation tax
Defence tax
Overseas tax
Deferred tax (Note 39)
18.128
21
28.976
3.776
11.307
28
5.452
(1.097)
Total current year tax
50.901
15.690
Prior years´ tax
1.072
2.076
Total tax charge
51.973
17.766
The profit of the Bank and its subsidiaries in Cyprus is subject to corporation tax at the rate of 10%. The profit from overseas
operations is subject to taxation at the tax rates applicable in the countries in which the profit is derived. In Greece and Ukraine,
the tax rate applicable is 25%, in the United Kingdom and Australia 30%, in Guernsey 20%, in Serbia 10% and in Romania 16%.
In Estonia the income tax rate is 22% and it is applied on the gross amount of actual and deemed profit distributions and not
on profit earned.
For tax purposes in Cyprus, under certain circumstances, interest may be subject to defence tax at the rate of 10%. In this case
50% of interest income is exempted from corporation tax, leading to an effective tax rate of 15%. In certain circumstances
dividends from overseas may be subject to defence tax at the rate of 15%.
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the applicable tax rates
as follows:
2007
C£ ‘000
2006
C£ ‘000
348.676
105.695
Tax calculated at the applicable tax rates
Tax effect of expenses not deductible for tax purposes
Tax effect of income not subject to tax
Tax effect of different tax rates in other countries
34.868
7.907
(9.532)
17.658
10.570
1.197
(924)
4.847
Total current year tax
50.901
15.690
Profit before tax
84
Notes to the Consolidated Financial Statements
16. DISCONTINUED OPERATIONS DUE TO REDUCTION IN PARTICIPATION
In accordance with IFRS 5 “Non-Current Assets Held for Sale and Discontinued Operations”, the Group’s investment in the
non-banking activities of the group of Marfin Investment Group Holdings S.A. is presented as a discontinued operation due
to reduction in participation and as held for sale at the date of acquisition. The criteria for classification as a disposal group
held for sale have been fulfilled within a short period following the acquisition according to the provisions of IFRS 5.
Consequently, the assets and liabilities which relate to the non-banking activities of the group of Marfin Investment Group
Holdings S.A. are presented as held for sale at 31 December, 2006 and the results for the six-monthly period ended 30 June,
2007, during which Marfin Investment Group Holdings S.A. was a subsidiary of Marfin Popular Bank Public Co Ltd are included
in the consolidated income statement for the year ended 31 December, 2007 as profit after tax from discontinued operations
due to reduction in participation.
It is noted that on 12 July, 2007 the share capital increase of euro 5,19 bln of Marfin Investment Group Holdings S.A. was
completed and the Bank did not participate in this share capital increase. As a result, the Bank’s percentage holding in the share
capital of Marfin Investment Group Holdings S.A. decreased from 97% to 6,45% in July 2007 and the investment is now classified
as an available-for-sale financial asset.
Although the percentage holding of Marfin Popular Bank Public Co Ltd Group in Marfin Investment Group Holdings S.A.
decreased to 6,45% in July 2007, the Group will continue to receive significant annual income from its cooperation with Marfin
Investment Group Holdings S.A. in the form of advisory investment services which will be provided by Investment Bank of
Greece S.A., one of the Group’s subsidiaries. The fee that the Group will receive will amount to 1% of Marfin Investment Group
Holdings S.A. Net Asset Value in accordance with the provisions of an investment advisory agreement, which will be renewed
annually (one year rolling term).
Profit after tax from discontinued operations due to reduction in participation as presented on the consolidated income
statement is analysed as follows:
C£ ‘000
Net interest income
Net fee and commission expense
Profit on disposal and revaluation of securities
Foreign exchange income
Other income
193
(58)
48.800
(124)
7.070
Operating income
55.881
Staff costs
Depreciation and amortisation
Administrative expenses
(455)
(7)
(1.035)
Profit before share of profit from associates
Share of profit from associates
54.384
177
Profit before tax
Tax
54.561
(4.118)
Profit after tax from discontinued operations
due to reduction in participation
50.443
85
Notes to the Consolidated Financial Statements
17. EARNINGS PER SHARE
Earnings per share was calculated by dividing profit attributable to the equity holders of the Bank with the weighted average
number of ordinary shares in issue during the year.
Profit attributable to the
equity holders of the Bank
Weighted average number of ordinary shares
in issue during the year
Earnings per share – cent
2007
C£ ‘000
2006
C£ ‘000
329.708
86.072
2007
‘000
2006
‘000
781.275
333.125
42,2
25,8
2007
C£ ‘000
Profit after tax from continuing operations
Minority interest
296.703
(8.683)
Profit after tax from continuing operations attributable
to the equity holders of the Bank
288.020
2007
‘000
Weighted average number of ordinary shares
in issue during the year
781.275
36,9
Earnings per share – cent
Diluted earnings per share in relation to the Share Options is not presented, as the exercise price of the Share Options was
higher than the average market price of Marfin Popular Bank Public Co Ltd shares at the Cyprus Stock Exchange and Athens
Exchange during the year ended 31 December, 2007.
18. CASH AND BALANCES WITH CENTRAL BANKS
Cash and balances with Central Banks include obligatory minimum reserves held for liquidity purposes. These reserves are
not available for financing the Group’s operational transactions.
86
Cash in hand
Balances with Central Banks other than obligatory
reserves for liquidity purposes
Obligatory reserves for liquidity purposes
2007
C£ ‘000
2006
C£ ‘000
87.572
64.230
214.660
486.202
348.658
199.028
788.434
611.916
Notes to the Consolidated Financial Statements
19. DUE FROM OTHER BANKS
Loans and advances to other banks
Items in course of collection from other banks
Placements with other banks
Current
Non-current
2007
C£ ‘000
2006
C£ ‘000
23.179
259.681
2.630.765
7.608
66.693
2.329.460
2.913.625
2.403.761
2.875.180
38.445
2.396.269
7.492
2.913.625
2.403.761
20. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Designated at
fair value through
profit or loss
at inception
Held
for trading
Debt securities
Government bonds and
treasury bills
Equity securities
Derivative financial instruments
with positive fair value (Note 42)
Current
Non-current
Debt securities
Listed on the Cyprus Stock Exchange
Listed on other Stock Exchanges
Not listed
Government bonds and
treasury bills
Listed on the Cyprus Stock Exchange
Listed on other Stock Exchanges
Not listed
Government bonds and
treasury bills eligible for
rediscounting with the
Central Bank of Cyprus
Other government bonds and
treasury bills
Equity securities
Listed on the Cyprus Stock Exchange
Listed on other Stock Exchanges
Not listed
Total
2007
C£ ‘000
2006
C£ ‘000
2007
C£ ‘000
2006
C£ ‘000
2007
C£ ‘000
2006
C£ ‘000
105.572
150.106
69.039
47.152
174.611
197.258
33.745
126.389
64.455
70.027
68.283
95.562
33.745
194.672
64.455
165.589
16.075
12.975
-
-
16.075
12.975
281.781
297.563
137.322
142.714
419.103
440.277
145.056
136.725
147.797
149.766
15.820
121.502
8.370
134.344
160.876
258.227
156.167
284.110
281.781
297.563
137.322
142.714
419.103
440.277
243
97.648
7.681
206
148.775
1.125
38.889
16.644
13.506
46.062
1.090
39.132
114.292
21.187
46.268
148.775
2.215
105.572
150.106
69.039
47.152
174.611
197.258
1.795
31.950
-
1.843
57.484
5.128
-
-
1.795
31.950
-
1.843
57.484
5.128
33.745
64.455
-
-
33.745
64.455
1.795
1.843
-
-
1.795
1.843
31.950
62.612
-
-
31.950
62.612
33.745
64.455
-
-
33.745
64.455
9.940
52.952
63.497
11.528
26.310
32.189
38.290
29.943
50
51.360
44.153
49
48.230
82.895
63.547
62.888
70.463
32.238
126.389
70.027
68.283
194.672
165.589
95.562
87
Notes to the Consolidated Financial Statements
20. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Financial assets at fair value through profit or loss are presented as part of “Cash generated from operations” in the consolidated
cash flow statement (Note 43).
Changes in fair values of financial assets at fair value through profit or loss are recorded in “Profit on disposal and revaluation
of securities” in the consolidated income statement (Note 6).
Financial assets designated at fair value through profit or loss at inception are those whose performance is evaluated on a fair
value basis, in accordance with a documented investment strategy. Information about these financial assets is provided
internally on a fair value basis to key management personnel. The investment strategy is to invest available cash resources in
securities as part of a long-term capital growth strategy.
The value of financial assets and liabilities related to customer insurance contracts is determined at their fair value. If financial
assets linked with insurance contract liabilities were not designated at inception as fair value through profit or loss they would
have been classified as available-for-sale and any change in fair value would have been recognised in fair value reserves in
equity. The designation of financial assets and liabilities linked with customer insurance contracts as fair value through profit
or loss allows the recognition of fair value changes in the consolidated income statement.
21. ADVANCES TO CUSTOMERS
2007
C£ ‘000
2006
C£ ‘000
Advances to individuals
3.697.059
2.481.175
Advances to corporate entities:
Large corporate customers
Small and medium size enterprises (SMEs)
3.447.515
3.558.627
2.372.488
2.462.540
Advances to customers - gross
Provision for impairment of advances (Note 23)
10.703.201
(393.536)
7.316.203
(363.986)
Advances to customers - net
10.309.665
6.952.217
3.644.917
6.664.748
2.769.421
4.182.796
10.309.665
6.952.217
Current
Non-current
The gross amount of advances to customers, includes gross receivables from instalment finance and leasing, amounting to
C£ 563.721.000 (2006: C£ 472.275.000) (Note 22).
The amount of income suspended is included in provision for impairment of advances.
88
Notes to the Consolidated Financial Statements
22. INSTALMENT FINANCE AND LEASING
Gross investment in hire purchase and
finance leases
Unearned finance income
Present value of minimum hire purchase and finance
lease payments (Note 21)
Provision for impairment of hire purchase
and finance leases
Gross investment in hire purchase and
finance leases
Less than one year
Over one but less than five years
Over five years
Present value of minimum hire purchase and finance
lease payments
Less than one year
Over one but less than five years
Over five years
2007
C£ ‘000
2006
C£ ‘000
616.440
(52.719)
555.768
(83.493)
563.721
472.275
(57.362)
(56.412)
506.359
415.863
208.986
289.498
117.956
196.582
263.761
95.425
616.440
555.768
193.179
259.244
111.298
176.015
219.718
76.542
563.721
472.275
The most important terms of the hire purchase contracts are as follows:
The hirer pays a nominal fee at the end of the hire purchase term in exchange for the right to purchase the goods.
The hirer pays monthly instalments including interest on the amount outstanding.
The hirer is responsible for any loss or damage incurred on the goods concerned.
The most important terms of the finance lease contracts are as follows:
The lessee undertakes the equipment under lease for the rental period concerned and pays during that period rentals and
any other amounts that are payable in accordance with the terms of the contract.
The rentals and any other amounts payable are subject to interest.
The lessee is obliged to maintain the equipment in good condition and to compensate the owner for any damage or
fault occurred.
Upon expiry of the agreement, the lessee can either return the equipment to the owner or pay a minimal annual nominal
fee in exchange for the right to continue to use the equipment.
89
Notes to the Consolidated Financial Statements
23. PROVISION FOR IMPAIRMENT OF ADVANCES
The following is an analysis of the total provision for impairment of advances:
2007
Balance 1 January
Provision for impairment of advances from the
acquisition of subsidiaries
Provision for impairment of advances for the year (Note 14)
Release of provision and recoveries (Note 14)
Advances written-off
Exchange differences
Suspension of income for the year
Balance 31 December
2006
Balance 1 January
Provision for impairment of advances from the
acquisition of subsidiaries
Provision for impairment of advances for the year (Note 14)
Release of provision and recoveries (Note 14)
Advances written-off
Exchange differences
Suspension of income for the year
Balance 31 December
Provisions
C£ ‘000
Suspension
of income
C£ ‘000
Total
C£ ‘000
294.174
69.812
363.986
4.157
98.516
(41.211)
(22.878)
1.074
-
(23.344)
(4.986)
18.222
4.157
98.516
(64.555)
(27.864)
1.074
18.222
333.832
59.704
393.536
248.866
70.749
319.615
59.510
77.029
(29.632)
(62.626)
1.027
-
(9.409)
(18.335)
26.807
59.510
77.029
(39.041)
(80.961)
1.027
26.807
294.174
69.812
363.986
Corporate entities
Small and
Large
medium
corporate
size
customers
enterprises
C£ ‘000
C£ ‘000
Total
C£ ‘000
The following is an analysis of the movement of the provision for impairment of advances by class:
Individuals
C£ ‘000
2007
Balance 1 January
Provision for impairment of advances
from the acquisition of subsidiaries
Provision for impairment of advances,
including suspension of income, for the year
Release of provision and recoveries
Advances written-off
Exchange differences
Balance 31 December
90
2006
Balance 1 January
Provision for impairment of advances
from the acquisition of subsidiaries
Provision for impairment of advances,
including suspension of income, for the year
Release of provision and recoveries
Advances written-off
Exchange differences
Balance 31 December
134.844
112.141
117.001
363.986
684
2.257
1.216
4.157
57.565
(17.014)
(15.390)
305
25.383
(32.222)
(3.121)
265
33.790
(15.319)
(9.353)
504
116.738
(64.555)
(27.864)
1.074
160.994
104.703
127.839
393.536
125.846
104.466
89.303
319.615
16.079
31.612
17.324
47.106
26.107
25.118
59.510
103.836
(18.749)
(20.274)
330
(8.355)
(48.990)
590
(11.937)
(11.697)
107
(39.041)
(80.961)
1.027
134.844
112.141
117.001
363.986
The total amount of non-performing loans, including accumulated income suspended, amounts to C£ 570.938.000
(2006: C£ 548.816.000). The total amount of non-performing loans excluding accumulated income suspended amounts
to C£ 511.234.000 (2006: C£ 479.004.000).
Notes to the Consolidated Financial Statements
24. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Debt securities
Government bonds and treasury bills eligible for rediscounting
with the Central Bank of Cyprus
Other government bonds and treasury bills
Equity securities
Listed on the Cyprus Stock Exchange
Listed on other Stock Exchanges
Not listed
Current
Non-current
Movement for the year
Balance 1 January
Available-for-sale financial assets from
the acquisition of subsidiaries
Transfer from investments in associates due
to loss of significant influence (Note 28)
Transfer of subsidiary due to reduction in participation (Note 16)
Additions
Redemptions and disposals
Revaluation for the year
Amortisation of premium/discount
Exchange differences
Balance 31 December
2007
C£ ‘000
2006
C£ ‘000
1.045.215
855.731
10.507
290.819
255.621
10.750
167.477
80.773
1.602.162
1.114.731
17.713
1.523.790
60.659
92.508
971.536
50.687
1.602.162
1.114.731
496.426
1.105.736
176.316
938.415
1.602.162
1.114.731
1.114.731
609.061
463
221.276
636
238.814
1.168.334
(847.046)
(50.920)
(2.313)
(20.537)
1.602.162
458.469
(185.289)
24.364
(24)
(13.126)
1.114.731
Included in the available-for-sale financial assets as at 31 December, 2007 is a 7,26% shareholding in Marfin Investment Group
Holdings S.A. part of which will be sold according to a sale agreement which has been entered into (Note 56).
91
Notes to the Consolidated Financial Statements
25. HELD-TO-MATURITY FINANCIAL ASSETS
Debt securities
Government bonds and treasury bills eligible for
rediscounting with the Central Bank of Cyprus
Other government bonds and treasury bills
Listed on the Cyprus Stock Exchange
Listed on other Stock Exchanges
Not listed
Current
Non-current
Movement for the year
Balance 1 January
Held-to-maturity financial assets from
the acquisition of subsidiaries (Note 52(a))
Additions
Redemptions
Amortisation of premium/discount
Exchange differences
Balance 31 December
2007
C£ ‘000
2006
C£ ‘000
22.653
27.499
160.235
37.051
185.918
43.008
219.939
256.425
161.234
58.705
-
185.918
42.829
27.678
219.939
256.425
51.839
168.100
54.375
202.050
219.939
256.425
256.425
220.921
26.944
(63.140)
(444)
154
63.472
99.487
(131.800)
4.272
73
219.939
256.425
2007
C£ ‘000
2006
C£ ‘000
83.407
61.519
11.708
10.559
1.351
132.622
118
73.136
229.088
145.332
192.785
36.303
103.269
42.063
229.088
145.332
2007
C£ ‘000
2006
C£ ‘000
8.747
(921)
7.550
(783)
4.077
3.957
26. OTHER ASSETS
Interest receivable
Receivables arising from insurance and reinsurance
contracts (Note 27)
Hedging derivative financial instruments with
positive fair value (Note 42)
Other assets
Current
Non-current
92
27. RECEIVABLES ARISING FROM INSURANCE AND REINSURANCE CONTRACTS
Amounts due from contract holders
Provision for impairment of receivables from contract holders
Amounts due from agents, brokers
and intermediaries
Provision for impairment of receivables from agents,
brokers and intermediaries
Amounts due from reinsurers
Provision for impairment of receivables from reinsurers
(256)
261
(200)
11.708
(256)
291
(200)
10.559
Notes to the Consolidated Financial Statements
28. INVESTMENTS IN ASSOCIATES
2007
C£ ‘000
2006
C£ ‘000
Balance 1 January
Share of profit after tax
Dividend from associates
Investments in associates from the acquisition
of subsidiaries (Note 52(a))
Exchange differences
Transfer to available-for-sale financial assets
due to loss of significant influence (Note 24)
8.856
1.724
(994)
5.880
1.475
(475)
(289)
1.976
-
(636)
-
Balance 31 December
8.661
8.856
The summary financial information of the associates is as follows:
2007
JCC Payment Systems Ltd
Aris Capital Management LLC
Assets
C£ ‘000
Liabilities
C£ ‘000
Revenues
C£ ‘000
Profit
C£ ‘000
Issued
share
capital
C£ ‘000
34.286
945
9.505
341
11.444
887
5.109
550
1.000
4
2006
JCC Payment Systems Ltd
Aris Capital Management LLC
Assets
C£ ‘000
Liabilities
C£ ‘000
Revenues
C£ ‘000
Profit
C£ ‘000
Issued
share
capital
C£ ‘000
29.661
788
6.676
643
10.685
(a)
4.925
(a)
1.000
4
(a) No information is presented regarding the revenues and profit of Aris Capital Management LLC for the year ended 31 December,
2006, which was an associated company through the acquisition of Marfin Financial Group Holdings S.A., as the acquisition of
Marfin Financial Group Holdings S.A. was completed at the end of 2006. Aris Capital Management LLC is now an associated
company through Marfin Egnatia Bank S.A.
93
Notes to the Consolidated Financial Statements
29. INTANGIBLE ASSETS
At 1 January 2006
Cost or valuation
Accumulated amortisation
and impairment
Net book value
Year ended 31 December 2006
Net book value at the
beginning of the year
Goodwill from business acquisitions
(Note 52(e))
Intangible assets from the acquisition
of subsidiaries
Additions(2)
Disposals
Amortisation charge (Note 12)
Change in the value of life policies
in force (Note 8)
Exchange differences
Net book value at the end of the year
At 31 December 2006
Cost or valuation
Accumulated amortisation
and impairment
Net book value
Year ended 31 December 2007
Net book value at the
beginning of the year
Goodwill from business acquisitions
(Note 52(e))
Additions(2)
Disposals
Amortisation charge (Note 12)
Change in the value of life policies
in force (Note 8)
Exchange differences
Net book value at the end of the year
94
At 31 December 2007
Cost or valuation
Accumulated amortisation
and impairment
Net book value
Goodwill
C£ ‘000
Computer
software
C£ ‘000
Value of
policies
in force
C£ ‘000
Other (1)
C£ ‘000
Total
C£ ‘000
25.109
21.439
24.358
-
70.906
(8.814)
(15.846)
-
-
(24.660)
16.295
5.593
24.358
-
46.246
16.295
5.593
24.358
-
46.246
560.236
-
-
-
560.236
42.831
35.011
-
4.598
2.596
(14)
(3.517)
-
213.248
(1.947)
260.677
37.607
(14)
(5.464)
789
11
1.215
-
268
1.215
1.068
655.162
9.267
25.573
211.569
901.571
663.976
39.295
25.573
213.658
942.502
(8.814)
(30.028)
-
655.162
9.267
25.573
211.569
901.571
655.162
9.267
25.573
211.569
901.571
44.443
18.375
(1.052)
-
5.799
(4.245)
-
(2.089)
75
(13.255)
(40.931)
44.443
24.249
(1.052)
(17.500)
5.228
52
1.288
-
2.486
1.288
7.766
722.156
10.873
26.861
200.875
960.765
730.970
45.642
26.861
216.316
1.019.789
(8.814)
722.156
(34.769)
10.873
26.861
(15.441)
(59.024)
200.875
960.765
(1) The category “Other” included in “Ιntangible assets” relates to the estimated value for the existing branch network and the
estimated value for the client base of the Group subsidiary in Serbia which was acquired in 2006 and were fully amortised
until 31 December, 2007. It also includes the estimated value amount of trade names, customer relationships and
intangible assets in relation to core deposits, computer software and asset management of Marfin Investment Group
Holdings S.A. and Egnatia Bank S.A. which were acquired in 2006 (Note 52).
(2) The additions to goodwill during the year ended 31 December, 2006 relate to the acquisition of the minority interest of
Laiki Bank (Hellas) S.A., while the additions to goodwill during the year ended 31 December, 2007 relate to the increase in
participation of existing subsidiaries of the Group.
Notes to the Consolidated Financial Statements
29. INTANGIBLE ASSETS (continued)
Intangible assets with indefinite useful lives amount to C£ 29.722.000 (2006: C£ 29.367.000). These intangibles have been
recognised in relation to the acquisition of Marfin Financial Group Holdings S.A. and Egnatia Bank S.A. (Note 52(a)) and
relate to trade names. The indefinite useful lives of intangible assets have been allocated to the Greek banking operations
cash generating unit and they have been assessed as having an indefinite useful life on the basis that there is no foreseeable
limit to the period over which the trade names will generate net cash inflows for the Group.
Impairment test for goodwill
Goodwill is allocated to the Group’s cash-generating units (CGUs) according to the country of operation and the business
segment for impairment test purposes. The analysis of goodwill is presented below:
Life
insurance
business
C£ ‘000
General
insurance
business
C£ ‘000
Banking
business
C£ ‘000
Financial
services
C£ ‘000
Total
C£ ‘000
Cyprus
Greece
Serbia
Ukraine
Romania
9.610
-
5.114
-
636.903
9.104
41.986
16.210
3.229
-
17.953
636.903
9.104
41.986
16.210
Total
9.610
5.114
704.203
3.229
722.156
The recoverable amount for the above CGUs has been determined based on value-in-use calculations. These calculations use
cash flow projections based on financial budgets approved by management covering a three-year period. Cash flows beyond
the three-year period are extrapolated using the estimated growth rates stated below. The growth rates do not exceed the
long-term average growth rate for the business in which each CGU operates.
Key assumptions used for value-in-use calculations relating to the insurance business of the Group in Cyprus are:
Life
insurance
business
General
insurance
business
15,4%
3%
12%
7,5%
3%
12%
Net profit margin
Profit growth rate
Discount rate
Key assumptions used for the calculation of value in use of the banking operations of the Group in Greece and Romania are:
Deposit growth rate 2006-2011
Advances growth rate 2006-2011
Return on equity
Cash flow growth rate
Discount rate
Greece
Romania
21,7%
24,5%
20%
3%
11,9%
36,9%
68,7%
15%
5%
12,8%
Key assumptions used for the impairment test for goodwill for the Group’s subsidiary in Serbia are:
Profit growth rate after 2009
Discount rate
10%
15%
The first impairment test for goodwill in relation to the acquisition of Marine Transport Bank and Premier Capital that was
completed on 18 September, 2007 will take place during 2008, following the completion of the initial accounting for the
acquisition determined provisionally according to IFRS 3 (Note 52(c)).
95
Notes to the Consolidated Financial Statements
29. INTANGIBLE ASSETS (continued)
Impairment test for goodwill (continued)
Management determines the budgeted net profit margin based on past performance and its expectations for the market
development. The weighted average profit growth rate used is consistent with the macroeconomic forecasts for the country
of operation. The discount rate used does not include the tax effects and reflects specific risks relating to the CGU.
The impairment tests for goodwill show no impairment of goodwill during 2007.
Value of life policies in force
The value of life policies in force is determined in consultation with qualified actuaries and is calculated by discounting
future profits that are expected to emerge from in-force business at a discount rate that includes a risk margin. The risk
margin is designed to reflect uncertainties in expected profit. Projections of profits that will emerge from policies are based
on prudent assumptions relating to long-term economic conditions, future mortality, persistency and level of administrative
and selling expenses, and average return on investments. The key assumptions used in the actuarial valuation are: risk
discount rate (net of tax) of 9,25% (2006: 9,25%), average return on investments (gross of tax) of 5,5% (2006: 5,5%) and
inflation rate of 3,5% (2006: 3,5%).
30. INVESTMENT PROPERTY
Balance 1 January
Transfer from the category “Property and equipment” (Note 31)
Investment property from the acquisition of subsidiaries (Note 52(a))
Additions
Disposals
Transfer from the category “Non-current assets held for sale”
Fair value gains (Notes 7, 10)
Exchange differences
Balance 31 December
2007
C£ ‘000
2006
C£ ‘000
38.202
1.161
3.812
(11.286)
161
1.639
180
15.110
14.968
3
7.013
1.108
-
33.869
38.202
The investment properties are revalued annually on 31 December through reference to market prices by independent,
professionally qualified valuers with adequate and relevant experience on the nature and the location of the property. Changes
in the fair value are included in the consolidated income statement.
Within “Other income” in the consolidated income statement, an amount of C£ 524.000 (2006: C£ 968.000) is also included,
that concerns income from operating lease rentals from investment properties held by the Group and within “Administrative
expenses” an amount of C£ 155.000 (2006: C£ 60.000) which represent direct operating expenses arising from investment
properties that did not generate rental income.
At 31 December, 2007 there were contractual obligations to purchase, construct or develop investment property amounting
to C£ 3.698.000 (2006: C£ 4.526.000).
96
Notes to the Consolidated Financial Statements
31. PROPERTY AND EQUIPMENT
Property
C£ ‘000
Equipment
C£ ‘000
Total
C£ ‘000
At 1 January 2006
Cost or valuation
Accumulated depreciation
82.781
(8.615)
62.633
(46.967)
145.414
(55.582)
Net book value
74.166
15.666
89.832
Year ended 31 December 2006
Net book value at the beginning of the year
Property and equipment from the acquisition of subsidiaries
Additions
Disposals
Revaluation of property (Note 41)
Depreciation charge (Note 12)
Exchange differences
74.166
36.817
2.531
(1.514)
1.134
(1.638)
523
15.666
9.438
4.201
(164)
(4.812)
112
89.832
46.255
6.732
(1.678)
1.134
(6.450)
635
Net book value at the end of the year
112.019
24.441
136.460
At 31 December 2006
Cost or valuation
Accumulated depreciation
135.255
(23.236)
95.175
(70.734)
230.430
(93.970)
Net book value
112.019
24.441
136.460
Year ended 31 December 2007
Net book value at the beginning of the year
Property and equipment from the acquisition of subsidiaries
Transfer to the category “Investment property” (Note 30)
Additions
Disposals
Revaluation of property
Depreciation charge (Note 12)
Exchange differences
112.019
6.440
(1.161)
8.766
(1.052)
20.402
(3.264)
(465)
24.441
1.766
10.342
(3.260)
(7.180)
39
136.460
8.206
(1.161)
19.108
(4.312)
20.402
(10.444)
(426)
Net book value at the end of the year
141.685
26.148
167.833
At 31 December 2007
Cost or valuation
Accumulated depreciation
164.548
(22.863)
102.452
(76.304)
267.000
(99.167)
Net book value
141.685
26.148
167.833
Included within the property of the Group is an amount of C£ 5.748.000 (2006: C£ 2.304.000) which represents buildings
under construction.
In the consolidated cash flow statement, proceeds from sale of property and equipment comprise:
2007
C£ ‘000
2006
C£ ‘000
Net book value
Profit on disposal of property and equipment (Note 7)
4.312
145
1.678
453
Proceeds from disposal of property and equipment
4.457
2.131
At 31 December, 2007 a valuation of the Group’s property was performed by independent professional valuers. The fair value
of the Group´s property is based on market values. Increases in the carrying amount arising on the revaluation of the Group’s
property were credited to property fair value reserves. Decreases that offset previous increases of the same asset are charged
against those reserves. All other decreases are charged to the consolidated income statement.
Included within the property of the Group is an amount of C£ 1.376.000 (2006: C£ 1.382.000) which represents leasehold buildings.
97
Notes to the Consolidated Financial Statements
31. PROPERTY AND EQUIPMENT (continued)
The net book value of revalued property that would have been included in the financial statements had the assets been
carried at cost less depreciation is C£ 86.827.000 (2006: C£ 71.262.000).
32. NET ASSETS ATTRIBUTABLE TO LIFE POLICYHOLDERS
Deposits with banks
Financial assets at fair value through profit or loss
Advances to policyholders
Balances recoverable from reinsurers and other assets
Investment property
Liabilities
2007
C£ ‘000
2006
C£ ‘000
115.766
137.419
17.545
7.823
5.323
(905)
89.945
137.297
18.224
6.211
15.930
(3.233)
282.971
264.374
The aforementioned assets and liabilities attributable to life policyholders of the insurance subsidiaries of the Group are
included in the respective assets and liabilities of the consolidated balance sheet.
33. DUE TO OTHER BANKS
Current
Non-current
Analysis by geographical area
Cyprus
Greece
Other countries
2007
C£ ‘000
2006
C£ ‘000
1.536.240
49.486
395.682
44.413
1.585.726
440.095
251.635
1.130.716
203.375
130.179
259.550
50.366
1.585.726
440.095
2007
C£ ‘000
2006
C£ ‘000
11.746.147
366.050
8.945.472
428.266
12.112.197
9.373.738
5.949.052
5.363.433
799.712
4.842.203
3.974.759
556.776
12.112.197
9.373.738
34. CUSTOMER DEPOSITS
Current
Non-current
98
Analysis by geographical area
Cyprus
Greece
Other countries
Notes to the Consolidated Financial Statements
35. SENIOR DEBT
Debentures Marfin Popular Bank Public Co Ltd
Debentures AS SBM Pank
Debentures Marfin Leasing S.A.
Debentures Egnatia Finance Plc
Debentures Marfin Egnatia Bank S.A.
Current
Non-current
2007
C£ ‘000
2006
C£ ‘000
423.214
117.005
29.261
173.460
1.977
13.031
115.550
-
569.480
304.018
117.005
452.475
177.738
126.280
569.480
304.018
Debentures Marfin Popular Bank Public Co Ltd
During 2004 the Bank set up a Euro Medium Term Note (EMTN) Programme for a total amount of euro 750 m. In May 2006
an increase of the size of the Programme to euro 1 bln was approved and in May 2007 a further increase to euro 3 bln was
approved. Pursuant to the Programme the Bank has the ability to issue senior and/or subordinated debt in accordance
to its needs.
In July 2004, the Bank issued euro 300 m of senior debt due in 2007. The senior debt 2004/2007 was repaid in full, in accordance
with its terms of issue, in July 2007. The euro 300 m senior debt bore interest at the three-month rate of euro (Euribor) plus
0,5% and paid interest every three months.
In May 2007, the Bank issued euro 750 m of senior debt due in 2010. The bonds are repayable within three years from their
issue (2007/2010) and pay interest every three months. The interest rate is set at the three-month rate of euro (Euribor)
plus 0,29%.
The bonds are listed on the Luxembourg Stock Exchange and their market value at 31 December, 2007 was euro 718,9 m,
C£ 420,7 m.
Debentures AS SBM Pank
AS SBM Pank is a subsidiary company of the Bank operating in the banking sector in Estonia.
In April 2005, AS SBM Pank issued euro 2.283.000 debentures due in April 2007. In August 2006, AS SBM Pank repurchased
debentures of book value equal to euro 320.000 and the remaining were repaid in full in April 2007. The debentures paid fixed
interest rate at 4,75% annually on their nominal value. Interest was paid every six months on 20 April and 20 October of each
year until their maturity. The debentures were listed on the Tallinn Stock Exchange (Estonia).
In October 2005, AS SBM Pank issued euro 716.000 debentures due in October 2007. In October 2007, the debentures were
repaid in full. The debentures paid fixed interest rate at 4,25% annually on their nominal value. Interest was paid annually on
11 October of each year until their maturity.
In October 2005, AS SBM Pank issued euro 720.000 debentures due in October 2007. In October 2007, the debentures were
repaid in full. The debentures paid fixed interest rate at 4,25% annually on their nominal value. Interest was paid annually on
19 October of each year until their maturity.
Debentures Marfin Leasing S.A.
Marfin Leasing S.A. is a subsidiary of Marfin Egnatia Bank S.A. in Greece. In July 2007, Laiki Leasing S.A. was merged by
absorption with Egnatia Leasing S.A. Egnatia Leasing S.A. was then renamed to Marfin Leasing S.A.
In November 2004, Egnatia Leasing S.A. issued euro 40 m debentures. In November 2006, Egnatia Leasing S.A. repurchased
debentures of euro 4 m, in May 2007 euro 22,5 m and the remaining euro 13,5 m were repurchased in November 2007. The
debentures paid six-monthly interest rate for euro (Euribor) plus 1,55%. Capital would be repaid in parts until November 2009
and interest was paid every six months on 11 May and 11 November of each year.
The issuing company had the right to recall the debentures on every interest payment date by paying the debenture holders
the total of capital and accrued interest.
99
Notes to the Consolidated Financial Statements
35. SENIOR DEBT (continued)
Debentures Egnatia Finance Plc
In August 2005, Egnatia Finance Plc, subsidiary of Marfin Egnatia Bank S.A., issued euro 200 m three year debentures due in
August 2008. The debentures pay three-monthly interest rate for euro (Euribor) plus 0,55%. Interest is paid on 11 February,
11 May, 11 August and 11 November of each year.
The debentures are listed on the Luxemburg Stock Exchange and their market value at 31 December, 2007 was euro 200, 22 m,
C£ 117,17 m (2006: euro 200,9 m, C£ 116,2 m).
Debentures Marfin Egnatia Bank S.A.
In December 2007, Marfin Egnatia Bank S.A. issued euro 50 m three year debentures due in December 2010. Interest is paid
monthly, quarterly or half yearly, based on the decision of Marfin Egnatia Bank S.A., with interest rate for euro (Euribor) of the
respective period (month, quarter, half year) plus 0,25%. The debentures or part of them can be repurchased earlier after a
decision of Marfin Egnatia Bank S.A.
36. LOAN CAPITAL
2007
C£ ‘000
2006
C£ ‘000
Convertible debentures 2003/2013
Non-convertible debentures 2003/2007
Non-convertible debentures 2005/2015
Eurobonds due 2016
Capital securities
Preference shares
214
46.816
256.504
50.000
-
202
8.968
46.256
257.298
50.000
2.500
Total loan capital
353.534
365.224
Current
Non-current
353.534
8.968
356.256
353.534
365.224
Convertible debentures 2003/2013
In January 2003, Marfin Egnatia Bank S.A. issued euro 30 m convertible debentures due in 2013. Interest rate is equal to the
three-monthly rate for euro (Euribor) plus 1,75% until their call in date and 3,25% until maturity. The interest is paid every
three months on 31 March, 30 June, 30 September and 31 December.
The issuing bank has the right to call in the debentures after the end of the fifth year.
The debentures are not secured and they rank for payment after the claims of depositors and other creditors.
The convertible debentures form a series of nominal debentures convertible into new ordinary shares of the bank. This was
decided by the Board of Directors on 26 July, 2007, after it was authorised by the debenture holders and the ordinary
shareholders, to adjust the rate of conversion to 10 debentures convertible into 10 ordinary shares of the issuing bank of a
nominal value of euro 1,27.
100
At 31 December, 2007 there were in issue 300.680 convertible debentures, of a nominal value of euro 3,20. All other convertible
debentures were converted into ordinary and preference shares of the issuing bank.
Non-convertible debentures 2003/2007
In April 2003, the Bank issued C£ 15 m non-convertible debentures due in 2007. Interest rate was fixed at 6,50% on nominal
value until 31 December, 2004. Thereafter, the debentures paid floating interest equal to the weighted average base rate for
the relevant six-monthly period plus 1%. The interest was paid every six months on 30 June and 31 December of each year.
The Bank had the right to purchase the debentures in the market, by special agreement or by offer to all debenture holders
at any price. In July 2006, the Bank made an offer to repurchase the debentures according to their terms of issue, at the price
of C£ 1.012 for each debenture of nominal value of C£ 1.000 plus accrued interest. In October 2006, the purchase of 6.016
debentures was completed with the payment of the relevant amounts to the beneficiaries.
The non-convertible debentures 2003/2007 were repaid in full in accordance with their terms of issue on 31 December, 2007
and an amount equal to the nominal value of the debentures plus accrued interest was paid to the holders.
Notes to the Consolidated Financial Statements
36. LOAN CAPITAL (continued)
Non-convertible debentures 2003/2007 (continued)
The debentures were not secured and they ranked for payment after the claims of depositors and other creditors.
Non-convertible debentures 2005/2015
In May 2005, Egnatia Finance Plc issued euro 80 m non-convertible debentures due on 4 May, 2015. Interest is set at 1,10%
above the three-month rate for euro (Euribor) until their call in date and 2,40% until maturity. The debentures pay interest every
three months on 4 February, 4 May, 4 August and 4 November.
The issuing company has the right to call in the debentures after the end of the fifth year.
The debentures are not secured, but are guaranteed by Marfin Egnatia Bank S.A., and they rank for payment after the claims
of depositors and other creditors, are listed on the Luxembourg Stock Exchange and their market value at 31 December, 2007
was euro 80,12 m, C£ 46,89 m (2006: euro 81,2 m, C£ 47 m).
Eurobonds due 2016
During 2004 the Bank set up a Euro Medium Term Note (EMTN) Programme for a total amount of euro 750 m. In May 2006, an
increase of the size of the Programme to euro 1 bln was approved and in May 2007 a further increase to euro 3 bln was approved.
Pursuant to the Programme the Bank has the ability to issue senior and/or subordinated debt in accordance to its needs.
In May 2006, the Bank issued euro 450 m of subordinated debt (Tier 2 capital). The issue was in the form of subordinated
bonds, maturing in 10 years. The Bank has the right to call in the bonds after five years from the issue date. Interest rate is set
at the three-monthly rate for euro (Euribor) plus 0,75%, increased by 1% if the bonds are not called in.
The bonds constitute direct, unsecured, subordinated obligations of the Bank and rank for payment after the claims of the
depositors and other creditors. The bonds are listed on the Luxembourg Stock Exchange and their market value at
31 December, 2007 was euro 430,48 m, C£ 251,92 m (2006: euro 443,6 m, C£ 256,5 m).
Capital securities
In June 2003, the Bank issued C£ 25 m capital securities, which were offered to a limited number of investors. In September
2003, the Bank issued an additional C£ 25 m capital securities, which were offered to the Bank’s shareholders and to the public.
The capital securities pay floating interest rate, which is revised at the beginning of each interest period. The floating interest
rate is equal to the base rate at the beginning of the interest period plus 1,20%. The interest is paid quarterly on 31 March,
30 June, 30 September and 31 December of each year.
The capital securities are perpetual, but can be repurchased in full at the option of the Bank at nominal value plus accrued
interest on 30 June, 2008, or at any interest payment date thereafter, after the approval of the Central Bank of Cyprus.
In case the capital securities are not repurchased by the Bank 10 years after their issue, then the holder has the right to exchange
the securities with ordinary shares of the Bank at any interest payment date thereafter, at a discount of 10% on the average
price of the ordinary share as this will be traded on the Cyprus Stock Exchange for a period of one month before the respective
exchange date.
The capital securities constitute direct, unsecured and subordinated obligations of the Bank. They rank for payment after the
claims of depositors and other creditors.
Preference shares
The preference shares of Marfin Egnatia Bank S.A. were cancelled and converted into ordinary shares with voting right
according to the share for share exchange terms of the merger procedure of the three banks in Greece and according to a
decision by the Extraordinary General Meeting of the ordinary shareholders dated 21 June, 2007. Specifically, every shareholder
of the absorbing company Marfin Egnatia Bank S.A. exchanged every old ordinary or preference share of nominal value euro
1,17 with a newly issued ordinary share of nominal value of euro 1,27.
101
Notes to the Consolidated Financial Statements
37. INSURANCE CONTRACT LIABILITIES AND REINSURANCE ASSETS
2007
C£ ‘000
2006
C£ ‘000
19.161
3.917
17.423
17.482
3.071
15.924
20.425
41.045
224.548
19.736
42.156
205.383
326.519
303.752
Recoverable from reinsurers
Short-term insurance contracts:
Claims reported
Claims incurred but not reported
Unearned premiums
8.299
1.397
5.148
5.723
1.228
4.557
Long-term insurance contracts:
With fixed and guaranteed terms
With discretionary participating features
Without fixed terms (unit-linked)
251
157
1.067
130
95
647
16.319
12.380
10.862
2.520
12.275
11.759
1.843
11.367
20.174
40.888
223.481
19.606
42.061
204.736
310.200
291.372
Gross liabilities
Short-term insurance contracts:
Claims reported
Claims incurred but not reported
Unearned premiums
Long-term insurance contracts:
With fixed and guaranteed terms
With discretionary participating features
Without fixed terms (unit-linked)
Net liabilities
Short-term insurance contracts:
Claims reported
Claims incurred but not reported
Unearned premiums
Long-term insurance contracts:
With fixed and guaranteed terms
With discretionary participating features
Without fixed terms (unit-linked)
102
Notes to the Consolidated Financial Statements
37. INSURANCE CONTRACT LIABILITIES AND REINSURANCE ASSETS (continued)
Movement in insurance contract liabilities and reinsurance assets
Claims – Short-term insurance contracts
Gross
C£ ‘000
2007
Reinsurance
C£ ‘000
Net
C£ ‘000
Gross
C£ ‘000
2006
Reinsurance
C£ ‘000
Net
C£ ‘000
Notified claims
Incurred but not reported
17.482
3.071
(5.723)
(1.228)
11.759
1.843
20.982
2.392
(9.830)
(1.016)
11.152
1.376
Balance 1 January
20.553
(6.951)
13.602
23.374
(10.846)
12.528
(21.836)
5.307
(16.529)
(22.476)
9.128
(13.348)
22.776
1.619
(34)
(7.247)
(805)
-
15.529
814
(34)
17.947
1.709
(1)
(5.725)
492
-
12.222
2.201
(1)
Balance 31 December
23.078
(9.696)
13.382
20.553
(6.951)
13.602
Notified claims
Incurred but not reported
19.161
3.917
(8.299)
(1.397)
10.862
2.520
17.482
3.071
(5.723)
(1.228)
11.759
1.843
Balance 31 December
23.078
(9.696)
13.382
20.553
(6.951)
13.602
2007
Reinsurance
C£ ‘000
Net
C£ ‘000
Gross
C£ ‘000
2006
Reinsurance
C£ ‘000
Net
C£ ‘000
Cash paid for claims settled in the year
Increase in liabilities arising from:
Current year claims
Prior years claims
Exchange differences
Provisions for unearned premiums
Gross
C£ ‘000
Balance 1 January
Increase in the year
Release in the year
15.924
2.104
(605)
(4.557)
(591)
-
11.367
1.513
(605)
14.556
1.918
(550)
(4.018)
(539)
-
10.538
1.379
(550)
Balance 31 December
17.423
(5.148)
12.275
15.924
(4.557)
11.367
103
Notes to the Consolidated Financial Statements
37. INSURANCE CONTRACT LIABILITIES AND REINSURANCE ASSETS (continued)
Movement in insurance contract liabilities and reinsurance assets (continued)
Long-term insurance contracts with fixed and guaranteed terms
Gross
C£ ‘000
2007
Reinsurance
C£ ‘000
Net
C£ ‘000
Gross
C£ ‘000
Balance 1 January
Liabilities released for payments on
death, surrender and other
terminations in the year
Other movements
19.736
(130)
19.606
16.245
(233)
16.012
(484)
1.173
111
(232)
(677)
4.168
198
(95)
(479)
4.073
Balance 31 December
20.425
(251)
19.736
(130)
19.606
2006
Reinsurance
C£ ‘000
Net
C£ ‘000
(373)
941
20.174
2006
Reinsurance
C£ ‘000
Net
C£ ‘000
Long-term insurance contracts with discretionary participating features
Gross
C£ ‘000
2007
Reinsurance
C£ ‘000
Net
C£ ‘000
Gross
C£ ‘000
Balance 1 January
Liabilities released for payments on
death, surrender and other
terminations in the year
Other movements
42.156
(95)
42.061
41.752
(171)
41.581
(4.951)
3.840
88
(150)
(4.863)
3.690
(4.562)
4.966
148
(72)
(4.414)
4.894
Balance 31 December
41.045
(157)
40.888
42.156
(95)
42.061
Long-term insurance contracts without fixed terms (unit-linked)
2007
104
2006
Gross
C£ ‘000
Reinsurance
C£ ‘000
Net
C£ ‘000
Gross
C£ ‘000
Reinsurance
C£ ‘000
Net
C£ ‘000
Balance 1 January
Liabilities released for payments on
death, surrender and other
terminations in the year
Changes in unit prices
205.383
(647)
204.736
160.440
(549)
159.891
(23.112)
42.277
599
(1.019)
(22.513)
41.258
(17.496)
62.439
390
(488)
(17.106)
61.951
Balance 31 December
224.548
(1.067)
223.481
205.383
(647)
204.736
Notes to the Consolidated Financial Statements
37. INSURANCE CONTRACT LIABILITIES AND REINSURANCE ASSETS (continued)
Estimation of long-term insurance policy obligations – Sensitivity Analysis
For long-term life insurance contracts, an actuarial valuation is carried out to estimate the future liabilities from the payment
of benefits as per insurance contract terms. The principal assumptions used for the valuation are as follows:
(a) Mortality
The estimate for mortality is based on standardised international tables that reflect the historical experience for mortality levels.
(b) Persistency
The estimate for persistency is reassessed annually based on the past experience of the Group for each type of contract.
(c) Investment return
The estimate for investment return is based on the current results and forecasts for the future development of the economy
and the capital markets.
(d) Administrative expenses
The estimate for the level of administrative expenses is based on current costs combined with forecasts about the future
inflation trends.
The following table illustrates the sensitivity analysis of the value of insurance liabilities at the balance sheet date to a
percentage change of the above parameters separately.
(a) Contracts without fixed terms and with discretionary participating features
Decrease of investment return
Increase of investment return
(b) Contracts with fixed and guaranteed terms
Improvement of mortality
Worsening of mortality
Decrease of investment return
Increase of investment return
Decrease in renewal expenses
Increase in renewal expenses
Decrease in expenses’ inflation
Increase in expenses’ inflation
Change
Effect on
insurance
liabilities
C£ ‘000
-1%
+1%
5.125
(2.043)
-7,5%
+7,5%
-1%
+1%
-10%
+10%
-1%
+1%
(7)
9
72
(7)
(4)
5
(2)
3
105
Notes to the Consolidated Financial Statements
38. OTHER LIABILITIES
Interest payable
Derivative financial instruments with negative fair value (Note 42)
Other liabilities
Current
Non-current
2007
C£ ‘000
2006
C£ ‘000
75.074
30.035
378.620
51.071
8.887
217.296
483.729
277.254
339.085
144.644
251.811
25.443
483.729
277.254
39. DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are calculated on all temporary differences under the liability method using the applicable
tax rates (Note 15). Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The movement in deferred
tax is as follows:
Balance 1 January
Deferred tax assets from the acquisition of subsidiaries
Debit/(credit) in income statement (Note 15)
Debit in property fair value reserves (Note 41)
Credit in available-for-sale financial assets fair value reserves
Exchange differences
Balance 31 December
2007
C£ ‘000
2006
C£ ‘000
54.033
2.231
3.776
2.031
(10.983)
512
5.514
49.521
(1.097)
144
(49)
51.600
54.033
2007
C£ ‘000
2006
C£ ‘000
1.275
6.725
52.977
1.204
10.643
1.195
4.103
54.901
1.724
956
72.824
62.879
11.357
59
2.030
1.585
6.193
52
627
2.837
1.273
4.057
21.224
8.846
Deferred tax assets and liabilities are attributable to the following items:
Deferred tax liabilities
Differences between depreciation and wear and tear allowances
Revaluation of property
Intangible assets
Financial assets
Other temporary differences
106
Deferred tax assets
Available-for-sale financial assets
Finance lease contracts
Tax losses
Provision for impairment of advances
Retirement benefit obligations
Other temporary differences
Notes to the Consolidated Financial Statements
39. DEFERRED TAX ASSETS AND LIABILITIES (continued)
The debit/(credit) relating to deferred tax in the consolidaded income statement is analysed by temporary differences as follows:
2007
C£ ‘000
Differences between depreciation and wear and tear allowances
Intangible assets
Finance lease contracts
Tax losses
Other temporary differences
2006
C£ ‘000
181
3.001
53
(398)
939
116
(116)
1.194
(458)
(1.833)
3.776
(1.097)
40. SHARE CAPITAL, SHARE PREMIUM AND TREASURY SHARES
Number
of shares
‘000
Share
capital
C£ ‘000
Share
premium
C£ ‘000
Treasury
shares
C£ ‘000
Total
C£ ‘000
306.408
153.648
4.843
-
158.491
-
(444)
-
-
(444)
51.057
25.528
35.740
-
61.268
414.716
207.358
1.036.789
-
1.244.147
18.138
-
9.069
-
45.345
(9.662)
-
(105.957)
54.414
(9.662)
(105.957)
31 December 2006 / 1 January 2007
Shares issued (c)
Shares issued through exercise of warrants (e)
Treasury shares sold (d)
Share issue costs
790.319
6.364
8
-
395.159
3.182
4
-
1.113.055
15.911
50
53.970
(2.074)
(105.957)
105.957
-
1.402.257
19.093
54
159.927
(2.074)
31 December 2007
796.691
398.345
1.180.912
1 January 2006
Equity element of convertible
debentures repaid
Shares issued through exercise
of rights (a)
Shares issued according to
public and private offers (b)
Shares in the process of
being issued (c)
Share issue costs
Treasury shares acquired (d)
-
1.579.257
On 15 June, 2006, following the approval of the Extraordinary General Meeting, the authorised nominal share capital increased
from C£ 200 m to C£ 250 m and following the approval of the Extraordinary General Meeting on 31 October, 2006, the
authorised nominal share capital increased to C£ 475 m, reaching a total of 950 m shares on 31 December, 2006 and
31 December, 2007 of a nominal value of C£ 0,50 each (C£ 475 m).
All issued ordinary shares are fully paid.
(a) In June 2006 the issued share capital increased by 51.057.000 ordinary shares of a nominal value of C£ 0,50 from rights for
the benefit of existing shareholders at the price of C£ 1,20 per share.
(b) In December 2006 the share capital increased by 414.716.000 ordinary shares of a nominal value of C£ 0,50 each. The
increase resulted from the issue and allocation of ordinary shares to the shareholders of Marfin Financial Group Holdings S.A.,
the shareholders and holders of convertible bonds of Egnatia Bank S.A. and the shareholders of Laiki Bank (Hellas) S.A. who
entered into exchange and transfer contracts for their shares at the price of C£ 3 per share.
107
Notes to the Consolidated Financial Statements
40. SHARE CAPITAL, SHARE PREMIUM AND TREASURY SHARES (continued)
(c) The shares issued during the year 2007 relate to shares issued to the shareholders of Marfin Investment Group Holdings S.A.,
who exercised their right to exit. These shares and 18.138.000 shares, which were in the process of being issued as at
31 December, 2006 to be allocated to the shareholders of Laiki Bank (Hellas) S.A. who accepted the private offer for the
acquisition of minority holdings, were issued on 17 April, 2007 and were listed on the Cyprus Stock Exchange and Athens
Exchange on 23 April, 2007.
(d) The treasury shares, which were held as at 31 December, 2006 by Marfin Investment Group Holdings S.A. in Marfin Popular
Bank Public Co Ltd were sold during 2007 and the gain from the disposal was taken to the share premium account in the
consolidated financial statements of the Group.
(e) In December 2007 the share capital increased by 8.000 ordinary shares of a nominal value of C£ 0,50 each which resulted
from the exercise of warrants.
The insurance subsidiary companies of the Group held as at 31 December, 2007 a total of 2.589.000 (2006: 7.239.000) shares
of the Bank, a percentage of 0,3% (2006: 0,9%) as part of their financial assets which are invested for the benefit of insurance
policyholders. These investments are fair valued through profit or loss.
All issued ordinary shares carry the same rights.
The share premium is not available for distribution to equity holders.
Share Options
In April, 2007 the Extraordinary General Meeting of the shareholders approved the introduction of a Share Options Scheme
(the “Scheme”) for the members of the Board of Directors of the Bank and the Group’s employees. The shares to be issued with
the application of this Scheme will have the same nominal value as the existing issued shares, that is, C£ 0,50 each. The exercise
price of each share option (the “Option”) will be euro 10.
Following the aforementioned approval and the ensuant decision of the Bank’s Board of Directors on 9 May, 2007, 70.305.000
Options were granted with an exercise price of euro 10 and maturity date 15 December, 2011. The Options can be exercised
by the holders during the years 2007 to 2011, according to the allocation determined by the Board of Directors, following a
recommendation by the Remuneration Committee, based on the holders´performance being up to the Bank’s expectations.
The fair value of the Options granted was measured using the Black and Scholes model. The significant inputs into the model
were: share price of euro 8,48 at the grant date, risk-free euro interest rate curve for the duration of the Scheme 4,15% (average),
share price volatility determined on the basis of historic volatility 12% and dividend yield 3,82%. The weighted average fair
value of Options granted during the year was euro 0,19 per Option. The total expense recognised in the consolidated income
statement during the year ended 31 December, 2007 for Options granted amounts to C£ 1.995.000 (Note 11).
108
Notes to the Consolidated Financial Statements
41. RESERVES
2007
C£ ‘000
2006
C£ ‘000
Revenue reserves
Balance 1 January
Profit for the year attributable to equity holders of the Bank
Transfer from property fair value reserves
Cost of share-based payments to employees
Effect of change in minority interest from group restructuring
Transfer from fair value and currency translation reserves due
to transfer of subsidiary to available-for-sale financial assets
due to reduction in participation
Dividend (Note 53)
Defence tax on deemed distribution
234.797
329.708
350
1.946
5.720
170.042
86.072
178
-
1.940
(143.403)
(92)
(21.448)
(47)
Balance 31 December
430.966
234.797
Property fair value reserves
Balance 1 January
Revaluation for the year
Transfer to revenue reserves
Deferred tax on revaluation (Note 39)
15.545
19.403
(350)
(2.031)
14.733
1.134
(178)
(144)
Balance 31 December
32.567
15.545
30.770
(48.851)
(61.323)
853
10.462
6.578
24.192
-
Available-for-sale financial assets fair value reserves
Balance 1 January
Revaluation for the year
Transfer to results on disposal of available-for-sale financial assets
Transfer to results due to impairment
Deferred tax on revaluation
Transfer to revenue reserves due to transfer of subsidiary to
available-for-sale financial assets due to reduction in participation
Balance 31 December
Currency translation reserves
Balance 1 January
Exchange differences arising in the year
Transfer to revenue reserves due to transfer of subsidiary to
available-for-sale financial assets due to reduction in participation
Balance 31 December
Total reserves at 31 December
45
-
(68.044)
30.770
(396)
11.477
(3.005)
2.609
(1.985)
-
9.096
(396)
404.585
280.716
109
Notes to the Consolidated Financial Statements
41. RESERVES (continued)
According to the Companies Law and the Articles of Association of the Bank there is no restriction in the distribution of reserves.
According to the regulations of the Central Bank of Cyprus the reserves arising from exchange differences are not available
for distribution.
From the tax year commencing 1 January, 2003 onwards, companies which do not distribute 70% of their profits after tax, as
defined by the Special Contribution Defence Law, within two years after the end of the relevant tax year, will be deemed to
have distributed as dividends 70% of these profits. Special contribution for defence at 15% will be payable on such deemed
dividends to the extent that the shareholders (companies and individuals) at the end of the period of the two years after the
end of the relevant tax year, are Cyprus tax residents. The amount of deemed distribution is reduced by any actual dividends
paid out of the profits of the relevant year during the following two years. This special contribution for defence is payable for
the account of the shareholders.
42. FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Group primarily uses derivative financial instruments to hedge risks stemming from interest rate and foreign exchange
fluctuations. In addition, the Group uses derivative financial instruments for own trading with the purpose of increasing its
earnings. The derivative financial instruments, used by the Group, and the method of determining their fair value are as follows.
Forward foreign exchange contracts specify the rate at which two currencies will be exchanged at a future date. The exchange
rate agreed is determined when the deal is made. Forward foreign exchange contracts are revalued daily (using the current
exchange rates) by calculating the new forward rate until settlement, based on the current market rates.
Currency swaps are commitments to exchange specific amounts of two different currencies including interest, at a future
date. The currency swaps are revalued to fair value (using the current exchange rates) by calculating the new swap points at
the time of the revaluation.
Interest rate swaps are commitments to exchange one set of cash flows based on a fixed interest rate with one set of cash flows
based on a floating interest rate. The cash flows are calculated on a fixed notional amount and for a fixed period of time. The
fair value of interest rate swaps is calculated by comparing the present value of the discounted cash flows at the date of the
revaluation with the current outstanding notional amount of the swap.
Furthermore, the Group deals in equity futures and foreign exchange and equity options as well as forward rate agreements,
foreign exchange and index forwards.
The notional amounts of those contracts provide a basis for comparison with other financial instruments recognised on the
balance sheet, but they do not indicate the amounts of future cash flows or the fair value of the instruments and, therefore,
do not present the Group’s exposure to credit and other market risks. The derivative instruments become favourable (assets)
or unfavourable (liabilities) as a result of fluctuations in market interest rates or foreign exchange rates relative to their terms.
110
Notes to the Consolidated Financial Statements
42. FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The notional and fair value of derivatives were:
2007
Contract/
notional amount
2006
Fair value
Contract/
notional amount
Fair value
C£ ‘000
Assets
C£ ‘000
Liabilities
C£ ‘000
C£ ‘000
Assets
C£ ‘000
Liabilities
C£ ‘000
184.653
1.257.081
-
449
10.029
-
6.747
13.840
-
316.562
1.081.692
62.197
202
7.922
283
176
7.506
52
10.478
20.587
8.407
7.734
3.735
1.495
3.208
-
4.121
-
866
-
5.230
3.208
4.121
866
84.668
142.949
-
286
-
246
159
-
3.180
10.609
7.574
101
199
-
56.139
81
879
38.215
147
239
367
1.284
447
239
16.075
25.079
12.975
8.839
8
-
262
-
90
20
-
8
262
90
20
1.343
-
1.404
3.290
28
-
28
-
Trading derivatives:
Foreign currency derivatives
Currency forwards
Currency swaps
Other (OTC, etc.)
Interest rate derivatives
Interest rate swaps
Interest rate options
Index/equity derivatives
Futures
Options
Bond futures
Other (OTC, Credit default
swaps, etc.)
829.789
60.861
Total trading derivatives
(Note 20)
989.257
-
Hedging derivatives:
Derivatives designated
as fair value hedges
Options
Futures
Derivatives designated
as cash flow hedges
Options
Interest rate swaps
37.897
80.201
41.474
557.493
20
58.489
471
-
1.343
4.694
28
28
Total hedging derivatives
(Note 26)
1.351
4.956
118
48
Total derivatives (Note 38)
17.426
30.035
13.093
8.887
111
Notes to the Consolidated Financial Statements
43. CASH GENERATED FROM OPERATIONS
Profit before tax
Adjustments for:
Share of results of associates after tax (Note 28)
Depreciation of property and equipment (Note 31)
Amortisation of intangible assets (Note 29)
Fair value gain on investment property (Note 30)
Fair value adjustment on property
Cost of share-based payment to employees (Note 11)
Impairment of available-for-sale financial assets (Note 6)
Increase in the value of life policies in force (Note 29)
Exchange differences
Income from available-for-sale financial assets
Interest paid on loan capital
Profit on disposal of property and equipment (Note 31)
Profit on disposal of available-for-sale financial assets (Note 6)
Profit on disposal of investment property
Excess of the acquirer’s interest in the fair value of
acquiree´s identifiable net assets over cost (Note 52(c))
Change in:
Due to other banks
Customer deposits
Insurance contract liabilities
Other liabilities
Retirement benefit obligations
Restricted balances with Central Banks
Due from other banks
Financial assets at fair value through profit or loss
Advances to customers
Reinsurance assets
Other assets
Cash generated from operations
112
2007
C£ ‘000
2006
C£ ‘000
348.676
105.695
(1.724)
10.444
17.500
(1.639)
(1.006)
1.995
873
(1.288)
(11.940)
(42.142)
41.355
(145)
(77.064)
(504)
(1.475)
6.450
5.464
(1.108)
(1.215)
(4.418)
(30.370)
9.042
(453)
(536)
-
(56)
-
283.335
87.076
1.140.808
2.657.497
22.767
205.474
13.698
188.461
1.128.539
47.386
42.169
13.086
(303.818)
(129.137)
29.959
(3.290.063)
(3.939)
(39.433)
587.148
(58.287)
(131.777)
(72.101)
(754.653)
3.437
18.289
511.625
Notes to the Consolidated Financial Statements
43. CASH GENERATED FROM OPERATIONS (continued)
Non-cash transactions
In 2006, the acquisition of Marfin Financial Group Holdings S.A. and Egnatia Bank S.A. was effected through the exchange of
shares, therefore, there was no effect on the consolidated cash flow statement other than the movement described in Note 52.
The acquisition of the minority holding in Laiki Bank (Hellas) S.A. was also effected through the exchange of shares and
therefore it did not affect the consolidated cash flow statement.
44. CASH AND CASH EQUIVALENTS
2007
C£ ‘000
2006
C£ ‘000
Cash and non-restricted balances with Central Banks
Due from other banks – due within three months
Government bonds and treasury bills – due within three months
285.588
2.631.523
19.833
412.888
2.251.612
34.457
Exchange differences
2.936.944
-
2.698.957
11.940
2.936.944
2.710.897
113
Notes to the Consolidated Financial Statements
45. SEGMENTAL ANALYSIS
By business class (primary segment)
Banking
services
C£ ‘000
Insurance
services
C£ ‘000
Financial and
other services
C£ ‘000
Eliminations
C£ ‘000
Total
C£ ‘000
2007
External revenues
Revenues from other group companies
1.107.192
62.183
108.203
4.245
189.368
5.978
(72.406)
1.404.763
-
Total revenues
1.169.375
112.448
195.346
(72.406)
1.404.763
Profit before tax
214.736
26.422
107.518
Tax
(51.973)
Profit after tax from
continuing operations
296.703
Profit after tax from
discontinued operations due
to reduction in participation
50.443
Profit for the year
Assets
Investments in associates
347.146
16.558.125
8.655
305.507
-
832.314
6
Total assets
Liabilities
Other items
Share of results of associates after tax (Note 28)
Capital expenditure
Depreciation of property and equipment (Note 31)
Amortisation of computer software and other
intangibles (Note 29)
Provision for impairment of advances (Note 14)
Impairment of available-for-sale
financial assets (Note 6)
114
348.676
17.695.946
8.661
17.704.607
15.243.742
352.983
69.885
15.666.610
1.611
24.282
9.387
2.924
267
113
1.513
790
1.724
28.719
10.444
477
3.388
17.500
57.305
-
873
16.909
53.933
873
114
(16)
-
Notes to the Consolidated Financial Statements
45. SEGMENTAL ANALYSIS (continued)
By business class (primary segment) (continued)
Banking
services
C£ ‘000
Insurance Financial and
services other services
C£ ‘000
C£ ‘000
Eliminations
C£ ‘000
Total
C£ ‘000
2006
External revenues
Revenues from other group companies
494.112
49.519
114.049
3.415
54.710
1.278
(54.212)
662.871
-
Total revenues
543.631
117.464
55.988
(54.212)
662.871
Profit before tax
77.054
9.671
18.970
Tax
(17.766)
Profit for the year
Assets
Investments in associates
87.929
11.972.316
8.850
328.595
-
865.386
6
Total assets
Liabilities
Other items
Share of results of associates after tax (Note 28)
Capital expenditure
Depreciation of property and equipment (Note 31)
Amortisation of computer software and other
intangibles (Note 29)
Provision for impairment of advances (Note 14)
105.695
13.166.297
8.856
13.175.153
10.873.066
319.288
205.092
11.397.446
1.475
8.148
5.947
11
275
1.169
228
1.475
9.328
6.450
5.099
35.883
31
88
334
11.426
5.464
47.397
115
Notes to the Consolidated Financial Statements
45. SEGMENTAL ANALYSIS (continued)
By geographical segment
Cyprus
C£ ‘000
Greece
C£ ‘000
Other
countries
C£ ‘000
Total
C£ ‘000
2007
Total revenues
Capital expenditure
Assets
Liabilities
698.059
9.761
7.450.166
6.826.950
585.988
15.289
8.363.404
6.937.772
120.716
3.669
1.891.037
1.901.888
1.404.763
28.719
17.704.607
15.666.610
2006
Total revenues
Capital expenditure
Assets
Liabilities
487.966
7.043
5.844.804
5.567.467
114.273
1.600
6.094.490
4.545.839
60.632
685
1.235.859
1.284.140
662.871
9.328
13.175.153
11.397.446
2007
C£ ‘000
2006
C£ ‘000
1.404.763
(564.704)
(39.371)
(73.672)
662.871
(248.731)
(3.542)
(95.438)
727.016
315.160
Reconciliation with the amounts included in the consolidated income statement:
Total revenues
Interest expense per consolidated income statement
Fee and commission expense per consolidated income statement
Net benefits, claims and other expenses from insurance contracts (Note 9)
Operating income per consolidated income statement
116
Notes to the Consolidated Financial Statements
46. CONTINGENCIES AND COMMITMENTS
Credit-related financial instruments
Credit-related financial instruments include commitments relating to documentary credits and guarantees, which are designed
to meet the financial requirements of the Group’s customers. The credit risk on these transactions represents the contract
amount. However, the majority of these facilities are offset by corresponding obligations of third parties.
Acceptances
Guarantees
2007
C£ ‘000
2006
C£ ‘000
97.323
620.838
73.707
569.619
718.161
643.326
Unutilised credit facilities
The amount of approved unutilised credit facilities was C£ 865.320.000 (2006: C£ 972.781.000).
Trustee services
The Bank acts as a trustee of approved investments of insurance companies according to the provisions of the Insurance
Companies Laws of 1984 and 1990.
Capital commitments
Capital expenditure contracted at 31 December, 2007 amounted to C£ 9,3 m (2006: C£ 6,8 m).
Legal proceedings
As at 31 December, 2007 there were pending litigations against the Group in connection with its activities. Based on legal
advice the Board of Directors believes that there is adequate defence against all claims and it is not probable that the Group
will suffer any significant damage. Therefore, no provision has been made in the consolidated financial statements regarding
these cases.
Operating lease commitments
The Group leases various branches, offices and warehouses under non-cancelable operating lease agreements. The leases
have varying terms, escalation clauses and renewal rights.
The future aggregate minimum lease payments under non-cancelable operating leases are as follows:
Less than one year
Over one but less than five years
Over five years
2007
C£ ‘000
2006
C£ ‘000
13.901
39.903
19.873
1.435
10.639
22.634
73.677
34.708
117
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT
As is the case for all other financial institutions, the Group is exposed to risks. These risks are being continuously monitored
using various methods, so as to avoid excessive concentration of risk. The nature of the risks undertaken and the ways in which
they are managed by the Group are outlined below.
CREDIT RISK
Credit risk stems from the possibility of non-prompt repayment of existing and contingent obligations of the Group’s
counterparties, resulting in the loss of funds and earnings. Credit risk management focuses on ensuring a disciplined risk
culture, risk transparency and rational risk taking, based on international common practices.
Credit risk management
Credit risk management methodologies are reviewed and modified to reflect the changing financial environment. The various
credit risk assessment methods used are being revised at least annually or whenever deemed necessary and adjusted to be
in line with the Group’s overall strategy and its short and long-term objectives.
Industry sector and sub-sector analyses, supported by economic forecasts provide the main guidelines for setting the credit
policy, which is reviewed at least semi-annually.
Aiming to minimise the credit risk undertaken, counterparty credit limits have been defined, which consider a counterparty’s
creditworthiness, the value of collateral and guarantees pledged, which can reduce the overall credit risk exposure, as well as
the type and the duration of the credit facility. In order to examine a counterparty’s creditworthiness, country risk, quantitative
and qualitative characteristics, as well as the industry sector in which the counterparty operates are considered.
Moreover, the Group has set limits of authority and has segregated duties so as to maintain impartiality and independence
during the approval process and control new and existing credit facilities.
During the approval process, the total credit risk of each counterparty or group of connected counterparties is determined and
the credit limits that have been approved by various subsidiaries of the Group are considered together.
The monitoring of the counterparties´credit quality and the respective credit exposures, together with the corresponding
credit limits, is carried out on an ongoing basis. In addition, any concentration arising in the lending portfolio is analysed and
monitored continuously, aiming to restrict any potential large exposures and excessive concentration, so as to comply with
the limits set in the credit policy. Credit risk concentration may arise in exposures to industry sectors, exposures to
counterparties or groups of connected counterparties, country exposures, currency exposures and types of collateral.
Balancing the risk-return relationship is vital to the continuing profitability of the Group. This relationship is analysed both at
customer level, as well as at product level, by internal profitability measurement and pricing setting mechanisms that have
been developed to incorporate both the risk undertaken by the Group, as well as the expected return.
Furthermore, in line with credit risk management policy, stress tests are carried out in order to assess the effect that exceptional
but plausible scenarios could have on the quality of the lending portfolio and the capital base.
118
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Internal rating systems
The methods for assessing credit quality vary according to the counterparty type, which falls in one of the following categories:
central governments (for buy and hold strategies with respect to bonds), financial institutions, large and small and mediumsize businesses and private individuals.
In respect of the credit assessment of governments and financial institutions, this is analysed in the subsections “Counterparty
banks´risk” and “Country risk”.
Private individuals are being assessed by two different internal rating systems, depending on the Group subsidiary in which
they belong, as well as the availability of data. The first system is applicable to existing customers and is based on their past
credit behaviour and overall cooperation with the Group. The second system (credit scoring) utilises both demographic factors
and other objectively defined criteria, such as income and property owned.
For the assessment of large and small and medium size businesses, the Group uses both the behavioural system, as outlined
above, and the Moody’s Risk Advisor system, which assesses the financial strength of a business based on both financial and
qualitative data, as well as on the industry sector in which the business operates.
Counterparties are assessed by the internal rating systems on a monthly basis, in order to ensure that ratings are up to date
with respect to the risk taken and act as a warning sign for monitoring purposes.
An independent rating system, which assesses the quality and sufficiency of collateral pledged, is also used. This system defines
the recoverable amount of collateral for every credit facility granted to a counterparty, on a scale from 1 to 10. Grade 1 refers
to coverage of more than 95%, whereas grade 10 refers to coverage of less than 5%.
A counterparty’s credit rating is used during the approval process of new credit facilities and for defining the respective credit
limits. In addition, it is used for the internal calculation of probabilities of default, as well as for the monitoring of changes in
the quality of the Group’s lending portfolio, with the aim of developing prompt strategic actions in order to minimise any
potential increase in the risks undertaken.
119
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Credit rating of advances
The following table analyses the percentages of loans and advances and the related impairment provision for each internal
credit rating category of the Group.
2007
Credit rating category:
Low risk
Medium risk
High risk
2006
Advances
%
Impairment
provision
%
Advances
%
Impairment
provision
%
52
40
8
0,07
0,27
45,63
45
45
10
0,01
0,31
49,78
100
3,68
100
4,98
The impairment provision percentages disclosed above relate to the cumulative impairment provision for each credit rating
category as a percentage of the gross advances per credit rating category.
Maximum exposure to credit risk before collateral held or other credit enhancements
The following table presents a worse case scenario of credit risk exposure to the Group as at the balance sheet date, without
taking into account any collateral held or other credit enhancements attached. For on-balance sheet assets, the exposures
set out are based on the net carrying amounts as reported in the balance sheet.
Maximum exposure
Credit risk exposures relating to on-balance sheet
assets are as follows:
Due from other banks (Note 19)
Financial assets at fair value through profit or loss:
Debt securities (Note 20)
Derivative financial instruments with positive fair value (Note 20)
Advances to customers:
Advances to individuals
Advances to corporate entities:
Large corporate customers
Small and medium size enterprises (SMEs)
Available-for-sale financial assets – debt securities
Held-to-maturity financial assets (Note 25)
120
2007
C£ ‘000
2006
C£ ‘000
2.913.625
2.403.761
208.356
16.075
261.713
12.975
3.536.065
2.346.331
3.342.812
3.430.788
1.346.541
219.939
2.260.347
2.345.539
1.033.958
256.425
15.014.201
10.921.049
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Maximum exposure to credit risk before collateral held or other credit enhancements (continued)
As shown above, 88% of the total maximum exposure is derived from due from other banks and advances to customers
(2006: 86%), 9% represents available-for-sale financial assets – debt securities (2006: 9%).
Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Group resulting
from both the loan and advances portfolio and debt securities based on the following:
•
•
•
•
•
92% of the loans and advances portfolio is categorised in the top two grades of the internal rating system (2006: 90%).
82% of the loans and advances portfolio are considered to be neither past due nor impaired (2006: 81%).
C£ 571 m or 5% of advances have been assessed to be impaired (2006: C£ 545 m or 7%).
An improvement in the credit quality of loans and advances has resulted in a lower percentage of impairment charge over
total gross advances in the consolidated income statement, showing a decrease of 17%.
93% of investment in debt securities and other bills have at least A- credit rating (2006: 88%).
Advances
The following table analyses the credit quality of the Group’s loans and advances.
2007
2006
Loans and
advances to
customers
C£ ‘000
Due from
other
banks
C£ ‘000
Loans and
advances to
customers
C£ ‘000
Due from
other
banks
C£ ‘000
8.765.314
1.366.462
571.425
2.913.625
-
5.957.984
813.684
544.535
2.403.761
-
Gross advances
Provision for impairment of advances
10.703.201
(393.536)
2.913.625
-
7.316.203
(363.986)
2.403.761
-
Net advances
10.309.665
2.913.625
6.952.217
2.403.761
Neither past due nor impaired
Past due but not impaired
Impaired
121
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Advances (continued)
(a) Loans and advances neither past due nor impaired
The following table analyses the Group’s loans and advances classified as neither past due nor impaired, for each credit
rating category.
Loans and advances to customers
Corporate entities
Small and
Large
medium
corporate
size
Individuals
customers
enterprises
C£ ‘000
C£ ‘000
C£ ‘000
2007
Credit rating category:
Low risk
Medium risk
High risk
2006
Credit rating category:
Low risk
Medium risk
High risk
122
Total
C£ ‘000
Due from
other
banks
C£ ‘000
2.154.905
780.619
18.485
1.461.170
1.490.471
16.822
1.570.509
1.255.688
16.645
5.186.584
3.526.778
51.952
2.913.625
-
2.954.009
2.968.463
2.842.842
8.765.314
2.913.625
1.004.198
818.811
49.541
837.355
1.043.405
168.032
1.017.205
955.119
64.318
2.858.758
2.817.335
281.891
2.403.761
-
1.872.550
2.048.792
2.036.642
5.957.984
2.403.761
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Advances (continued)
(b) Loans and advances past due but not impaired
Loans and advances less than 90 days past due are not considered impaired unless other information is available to indicate
the contrary.
The following table presents loans and advances which were past due but not impaired as at the balance sheet date by
category, as well as the fair value of collateral held as security.
Corporate entities
Individuals
C£ ‘000
Large
corporate
customers
C£ ‘000
Small and
medium
size
enterprises
C£ ‘000
Total
C£ ‘000
2007
Past due up to 30 days
Past due 31 to 60 days
Past due 61 to 90 days
Past due over 90 days
340.957
91.645
48.407
23.698
247.808
27.657
52.521
28.651
358.368
58.485
52.415
35.850
947.133
177.787
153.343
88.199
Loans and advances past due but not impaired
504.707
356.637
505.118
1.366.462
Fair value of collateral
305.425
262.386
382.738
950.549
2006
Past due up to 30 days
Past due 31 to 60 days
Past due 61 to 90 days
Past due over 90 days
289.197
54.204
23.309
16.312
143.899
18.531
13.447
19.436
145.762
59.105
9.351
21.131
578.858
131.840
46.107
56.879
Loans and advances past due but not impaired
383.022
195.313
235.349
813.684
Fair value of collateral
116.739
122.600
136.724
376.063
The fair value of collateral is based on valuation techniques commonly used for the corresponding assets, which include
reference to market prices.
123
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Advances (continued)
(c) Loans and advances individually impaired
The following table presents loans and advances which have been individually impaired, as well as the fair value of collateral
held as security, for each category. Loans and advances included in this table are more than 90 days past due and are
classified as non performing.
Corporate entities
Individuals
C£ ‘000
2007
Individually impaired loans and advances
Large
corporate
customers
C£ ‘000
Small and
medium
size
enterprises
C£ ‘000
Total
C£ ‘000
238.343
122.415
210.667
571.425
Fair value of collateral
64.400
52.930
96.610
213.940
2006
Individually impaired loans and advances
225.603
128.383
190.549
544.535
73.179
52.885
98.786
224.850
Fair value of collateral
(d) Loans and advances renegotiated
The carrying amount of loans and advances which would have been categorised as past due or impaired and have been
renegotiated is C£ 53.472.000 (2006: C£ 25.763.000).
124
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Debt securities, treasury bills and other eligible bills
The table below presents an analysis of debt securities, treasury bills and other eligible bills by credit rating based on rating
agency ratings.
2007
ΑΑΑ
ΑΑ- to ΑΑ+
A- to A+
Lower than ΑUnrated
2006
ΑΑΑ
ΑΑ- to ΑΑ+
Α- to Α+
Lower than ΑUnrated
Investment
securities
C£ ‘000
Designated
at fair value
through
profit or loss
at inception
C£ ‘000
Total
C£ ‘000
2.165
54.344
40.791
8.215
57
34.454
812.498
153.281
62.017
5.618
7.621
1.528
53.517
4.812
1.561
53.465
870.166
727.717
116.252
7.236
532.357
105.572
1.067.868
69.039
1.774.836
9.800
424.129
37.679
-
1.648
54.429
52.887
38.356
2.786
24.795
602.229
153.815
87.746
14.645
36.610
8.702
1.840
36.243
656.658
667.441
172.483
19.271
471.608
150.106
883.230
47.152
1.552.096
Treasury
bills
and other
bills
C£ ‘000
Trading
securities
C£ ‘000
9.225
1.796
480.128
41.208
-
Repossessed collateral
The table below presents the nature and carrying amount of assets that have been obtained by the Group during the year,
either by taking possession of collateral held as security or by activating other credit enhancements which satisfy the criteria
of recognition of other standards.
Land
Buildings
Other
2007
C£ ‘000
2006
C£ ‘000
6.230
5.181
2.688
7.690
7.032
333
14.099
15.055
125
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Concentration of risks of financial assets with credit exposure
(a) Geographical sectors
The table below analyses the Group’s main credit exposures at carrying amount, as categorised by geographical region.
For this table, the Group has allocated exposures to regions, based on the country of domicile of the counterparties.
Greece
C£ ‘000
Other
countries
C£ ‘000
Total
C£ ‘000
126.538
614.890
2.172.197
2.913.625
60.544
635
50.354
33
97.458
15.407
208.356
16.075
Due from other banks (Note 19)
Financial assets at fair value through profit or loss:
Debt securities (Note 20)
Derivative financial instruments with positive fair value (Note 20)
Advances to customers:
Advances to individuals
Advances to corporate entities:
Large corporate customers
Small and medium size enterprises
Available-for-sale financial assets – debt securities
Held-to-maturity financial assets (Note 25)
1.178.667
1.948.980
408.418
3.536.065
955.316
1.577.607
22.414
161.141
1.296.927
1.402.834
207.454
48.722
1.090.569
450.347
1.116.673
10.076
3.342.812
3.430.788
1.346.541
219.939
31 December 2007
4.082.862
5.570.194
5.361.145
15.014.201
3.109.033
3.888.523
3.923.493
10.921.049
31 December 2006
126
Cyprus
C£ ‘000
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Concentration of risks of financial assets with credit exposure (continued)
(b) Industry sectors
The table below analyses the Group´s main credit exposures at carrying amount, as categorised by the industry sectors of
the counterparties.
Due from other banks
(Note 19)
Financial assets at fair value
through profit or loss:
Debt securities (Note 20)
Derivative financial
instruments
with positive fair value
(Note 20)
Advances to customers:
Advances to individuals
Advances to
corporate entities:
Large corporate
customers
Small and medium size
enterprises
Available-for-sale financial
assets - debt securities
Held-to-maturity financial
assets (Note 25)
Property
and
Trade construction
C£ ‘000
C£ ‘000
Personal,
professional
and
home loans
C£ ‘000
Financial
institutions
C£ ‘000
Manufacturing
C£ ‘000
Tourism
C£ ‘000
Other
sectors
C£ ‘000
-
-
-
-
-
2.913.625
-
1.009
294
501
-
206.552
-
208.356
-
-
-
-
-
16.075
-
16.075
602
1.074
6.401
305.302
3.219.081
-
158.518
162.116
300.568
241.159
444.282
- 2.036.169 3.342.812
348.494
292.038
837.825
820.003
398.436
-
733.992 3.430.788
41
1.102
-
41
123
1.345.234
- 1.346.541
-
-
-
-
-
219.939
Total
C£ ‘000
- 2.913.625
3.605 3.536.065
-
219.939
31 December 2007
507.655
457.339 1.145.088
1.367.006
4.061.922
4.701.425 2.773.766 15.014.201
31 December 2006
475.440
415.799
1.009.089
2.524.189
3.966.833
1.139.202
1.390.497 10.921.049
127
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
COUNTERPARTY BANKS´ RISK
The Group runs the risk of loss of funds due to the possible delay in the repayment of existing and future obligations by
counterparty banks.
Within its daily operations the Group transacts with banks and other financial institutions. By conducting these transactions
the Group is running the risk of losing funds due to the possible delays in the repayment to the Group of the existing and
future obligations of the counterparty banks.
The counterparty limits reflect the level of risk which is acceptable to the Group and are then apportioned to the different
departments of Treasury or other departments, according to the needs and the volume of operations. In general terms, the
maximum size of limits is determined by the bank scoring model, as well as, the directives of regulatory authorities.
Assessments of counterparty risks are undertaken using a specialised scoring model for banks and other financial institutions.
The model used evaluates each counterparty according to a set of quantitative and qualitative criteria. Regarding the
quantitative criteria (capital adequacy, profitability, liquidity, etc.) the banks and financial institutions are assessed using certain
ratios, which are drawn from the Bankscope software package. Qualitative criteria (previous experience with the counterparty,
management assessment, etc.) are provided according to the judgment of risk management officers.
The exposure to any one borrower is further restricted by sub limits covering the money market, the capital market, foreign exchange
operations, as well as, daily settlement limits. The positions are checked against the limits on a daily basis and in real time.
COUNTRY RISK
The Group runs the risk of loss of funds due to the possible political, economic and other events in a particular country where
funds have been placed or invested in several counterparties.
All countries are assessed according to their size, economic statistical data and prospects and their credit ratings from
international rating agencies (Moody’s, Standard & Poor’s). Existing country credit risk exposures are monitored and reviewed
daily against approved limits. Review of country limits occurs at least annually with the smaller and lower rated countries
being subject to greater and more frequent analysis and assessment, when deemed necessary.
INTEREST RATE RISK
Interest rate risk is the risk of fluctuations in the value of financial instruments and in the Group’s net interest income as a
result of adverse changes in the market interest rates. Interest rate risk arises from holding assets and liabilities with different
maturity or repricing dates.
The main methodology for measuring, monitoring and managing interest rate risk in the trading and banking book is the
Present Value of a Basis Point methodology (PVBP). PVBP shows the effect on net interest income and consequently on
profitability, from a one basis point change in the current interest rate yield curve of a specific currency.
128
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
INTEREST RATE RISK (continued)
Exposure calculations and associated limit structures are used for monitoring:
(a) Exposure in each currency per predefined time period.
(b) Total exposure in each main currency.
(c) Exposure in all currencies per predefined time period.
(d) Total exposure in all periods and all currencies.
Other subsidiaries of the Group use the Static Repricing Gap methodology in order to assess the interest rate risk exposure of
the banking book. According to the specific methodology, all interest rate sensitive assets and liabilities are bucketed in time
bands per currency, according to their remaining time to maturity for fixed interest rate assets/liabilities or their next repricing
for floating interest rate assets/liabilities and their difference is the gap which is calculated for every time band.
Interest rate risk exposures are mainly created from the retail activity and are usually hedged through the commencement of
transactions in derivative products (mainly interest rate swaps) or interbank market. In addition, there is limited activity in the
trading book, with positions in fixed bonds and interest rate futures.
Approved limits are monitored on a frequent basis and reviewed at least annually and changed when necessary according to
the strategy of the Group and the prevailing market conditions, after the approval by the eligible authorities. Moreover, at
regular time intervals interest rate risk exposure is evaluated by using stress test scenarios at bank level and at consolidated level.
All subsidiaries of the Group will gradually adopt the PVBP methodology.
A parallel 200 basis points increase in market interest rates across all currencies, applied to the Group´s balance sheet banking
book as at 31 December, 2007, would result in an increase in yearly net interest income by C£ 2,1 m and a decrease in the fair
value of financial instruments by C£ 8,6 m. A parallel 200 basis points decrease in interest rates, on the other hand, would result
in a decrease in yearly net interest income by C£ 4,3 m and an increase in the fair value of financial instruments by C£ 5,3 m.
The following tables summarise the Group’s exposure to interest rate risk. Included in the tables are the Group’s assets and
liabilities at carrying amounts categorised by contractual repricing date for floating rate items and maturity date for fixed rate
items. These tables include in the interest net open position, the positions stemming from the life insurance policy contract
liabilities and the assets which relate to the above insurance policy contracts. These positions are not positions of the Group
but positions of the owners of the insurance contracts.
129
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
INTEREST RATE RISK (continued)
2007
Assets
Cash and balances with
Central Banks
Due from other banks
Financial assets at fair
value through profit or loss
Advances to customers
Reinsurance assets
Available-for-sale
financial assets
Held-to-maturity
financial assets
Other assets
Investments in associates
Intangible assets
Investment property
Property and equipment
Total assets
Liabilities
Due to other banks
Customer deposits
Senior debt
Loan capital
Insurance contract liabilities
Other liabilities
Retirement benefit
obligations
Total liabilities
130
Up to
1 month
C£ ‘000
Over 1
month
but less
than
3 months
C£ ‘000
Over 3
months
but less
than
1 year
C£ ‘000
Over 1
year
but less
than
5 years
C£ ‘000
Over
5 years
C£ ‘000
Noninterest
bearing
C£ ‘000
Total
C£ ‘000
700.772
2.303.911
353.498
90
255.440
776
-
87.572
-
788.434
2.913.625
49.869
7.278.833
-
75.395
1.214.305
-
34.324
684.961
2.713
29.528
930.060
-
29.464
201.506
-
200.523
419.103
- 10.309.665
13.606
16.319
218.455
643.523
275.034
69.300
140.005
255.845
1.602.162
9.656
205
-
34.672
106
-
35.482
229
-
91.834
74
-
48.295
18
-
263.600
8.661
960.765
33.869
167.833
219.939
264.232
8.661
960.765
33.869
167.833
10.561.701
2.321.499
1.288.273
1.121.572
419.288
1.992.274 17.704.607
1.158.640
8.721.912
29.260
214
31.221
394.301
1.584.064
540.220
353.320
1.350
32.785
1.580.493
924
128.542
37
8.684
- 1.585.726
97.186 12.112.197
569.480
353.534
326.519
326.519
548.279
590.495
-
-
-
-
59
9.941.247
2.873.255
1.614.202
128.579
8.743
Net on-balance sheet position
620.454
(551.756)
(325.929)
992.993
410.545
Net notional position of
derivative financial instruments
146.678
339.964
195.962
(608.128)
(74.477)
Net interest sensitivity gap
767.132
(211.792)
(129.967)
384.865
336.068
128.600
128.659
1.100.584 15.666.610
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
INTEREST RATE RISK (continued)
Up to
1 month
C£ ‘000
Over 1
month
but less
than
3 months
C£ ‘000
Over 3
months
but less
than
1 year
C£ ‘000
Over 1
year
but less
than
5 years
C£ ‘000
Over
5 years
C£ ‘000
Noninterest
bearing
C£ ‘000
Total
C£ ‘000
547.576
2.035.147
220.439
90
144.243
20
29
-
64.230
3.903
611.916
2.403.761
12.842
5.141.436
-
144.518
940.551
-
28.252
287.817
1.872
50.188
457.816
-
43.651
119.569
-
160.826
5.028
10.508
440.277
6.952.217
12.380
271.270
517.958
56.524
93.613
93.464
81.902
1.114.731
13.875
8.385
-
37.523
109
-
40.737
56
-
136.082
5.348
-
27.938
5.201
-
270
152.077
8.856
901.571
38.202
136.460
256.425
171.176
8.856
901.571
38.202
136.460
Assets held for sale
8.030.531
-
1.861.098
-
559.591
-
743.096
-
289.823
-
1.563.833
127.181
13.047.972
127.181
Total assets
8.030.531
1.861.098
559.591
743.096
289.823
1.691.014
13.175.153
257.771
7.041.970
173.459
260.391
153.507
1.284.110
115.550
93.365
6.916
968.010
15.009
8.968
20.246
39.693
-
54
1.495
-
1.601
38.460
2.500
440.095
9.373.738
304.018
365.224
31.535
239
50
1.499
99
303.752
339.501
303.752
372.923
-
-
-
-
49
114.912
114.961
7.765.126
1.646.771
998.953
61.438
1.697
800.726
11.274.711
-
-
-
-
-
122.735
122.735
7.765.126
1.646.771
998.953
61.438
1.697
923.461
11.397.446
265.405
214.327
(439.362)
681.658
288.126
2006
Assets
Cash and balances with
Central Banks
Due from other banks
Financial assets at fair
value through profit or loss
Advances to customers
Reinsurance assets
Available-for-sale
financial assets
Held-to-maturity
financial assets
Other assets
Investments in associates
Intangible assets
Investment property
Property and equipment
Liabilities
Due to other banks
Customer deposits
Senior debt
Loan capital
Insurance contract
liabilities
Other liabilities
Retirement benefit
obligations
Liabilities directly related
to assets held for sale
Total liabilities
Net interest sensitivity gap
A significant part of the interest rate exposure is hedged through interest rate swaps instruments.
131
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CURRENCY RISK
Currency risk relates to the risk of fluctuations in the value of financial instruments and assets and liabilities due to changes in
exchange rates. Currency risk arises from an open position, either overbought or oversold, in a foreign currency, creating exposure
to a change in the relevant exchange rate. This may arise from the holding of assets in one currency funded by liabilities in another
currency or from a spot or forward foreign exchange trade or forward exchange derivatives including options.
The Group enters into foreign exchange transactions in order to accommodate customer needs and for hedging its own
exposure. The Treasuries also enter into spot foreign exchange transactions within predefined and approved limits, as well as,
into derivative products in foreign exchange futures, forwards and options.
The following exposure calculations and associated limit structures are used for monitoring:
(a) Open position by currency – net long/short position of each currency.
(b) Total net short position.
(c) Maximum loss limits – maximum level of losses resulting from foreign exchange fluctuations on a daily/monthly/yearly basis.
The maximum potential loss is calculated from the open positions in different currencies by working on stress testing scenarios.
These scenarios assume extreme fluctuations in all currencies in a way that could adversely affect the Group’s profitability.
The approved limits are monitored and controlled regularly and reviewed at least annually, but these are changed, if necessary,
according to the strategy of the Group and the prevailing market conditions.
Following the adoption of the euro in Cyprus as the national currency on 1 January, 2008 at the rate of 0,585274 the net open
position of the Cyprus pound does not exist as from this date. As a result the open positions in Cyprus pound and euro
are offset.
Under the scenario that all currencies move adversely against the Cyprus pound and the euro by 20% the effect would be a
decrease of C£ 6,4 m in the fair value of financial instruments. Under a scenario that all currencies move in favour of the Cyprus
pound and the euro by 20% the effect would be a gain of C£ 6,4 m in the fair value of financial instruments.
The following tables summarise the Group’s exposure to currency risk. Included in the tables are the Group’s assets and
liabilities at carrying amounts, categorised by currency. The tables also present the notional amount of foreign exchange
derivatives, which are used to reduce the Group’s exposure to currency movements, categorised by currency. These tables
include in the currency net open position, the positions stemming from the life insurance policy contract liabilities and the
assets which relate to the above insurance policy contracts. These positions are not positions of the Group but positions of the
owners of the insurance contracts.
132
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CURRENCY RISK (continued)
Euro
C£ ‘000
United
States
Dollar
C£ ‘000
Sterling
Pound
C£ ‘000
Australian
Dollar
C£ ‘000
Other
currencies
C£ ‘000
Total
C£ ‘000
380.834
155.080
332.797
684.893
4.291
1.732.466
1.969
201.819
7.673
29.178
60.870
110.189
788.434
2.913.625
100.341
2.673.903
15.952
230.113
5.662.291
367
81.947
654.614
-
1.453
548.552
-
1.437
242.335
-
247.692
903.160
235.567
165.189
36.451
14.103
1.602.162
160.235
58.463
7.498
722.811
15.226
92.300
53.737
162.391
237.195
18.643
50.275
5.967
18.184
1.163
-
6.010
293
10.251
2.860
217
1.572
16.324
249
13.435
219.939
264.232
8.661
960.765
33.869
167.833
Total assets
4.630.335
8.335.862
2.734.199
935.536
321.723
746.952 17.704.607
Liabilities
Due to other banks
Customer deposits
Senior debt
Loan capital
Insurance contract liabilities
Other liabilities
Retirement benefit obligations
104.402
2.494.468
50.000
324.177
108.978
121.400
1.112.918
5.251.560
569.480
303.534
2.342
408.929
6.622
249.381
2.897.179
15.997
-
84.458
710.098
35.094
637
5.900
370.163
6.548
-
28.667 1.585.726
388.729 12.112.197
569.480
353.534
326.519
14.949
590.495
128.659
Minority interest
Equity
3.203.425
9.645
1.892.873
7.655.385
44.510
-
3.162.557
-
830.287
12.047
382.611
30.798
432.345 15.666.610
54.155
48.124 1.983.842
Total liabilities and equity
5.105.943
7.699.895
3.162.557
842.334
413.409
480.469 17.704.607
2007
Assets
Cash and balances with
Central Banks
Due from other banks
Financial assets at fair value
through profit or loss
Advances to customers
Reinsurance assets
Available-for-sale
financial assets
Held-to-maturity
financial assets
Other assets
Investments in associates
Intangible assets
Investment property
Property and equipment
Cyprus
Pound
C£ ‘000
Net on-balance sheet position
Net notional position of
derivative financial
instruments
(475.608)
Net currency position
2006
Total assets
Total liabilities and equity
Net on-balance sheet
position
Net notional position of
derivative financial instruments
Net currency position
3.812
419.103
527.970 10.309.665
16.319
635.967
(428.358)
93.202
(91.686)
266.483
(187.290)
447.431
(91.379)
85.005
(262.065)
(467.310)
448.677
19.073
1.823
(6.681)
4.418
3.877.039
4.595.801
5.775.831
4.837.355
2.086.371
2.330.704
714.763
702.160
270.299
343.148
450.850
365.985
(718.762)
938.476
(244.333)
12.603
(72.849)
84.865
169.917
(441.526)
269.393
1.844
74.795
(74.423)
(548.845)
496.950
25.060
14.447
1.946
10.442
8.298
13.175.153
13.175.153
Following the adoption of euro in Cyprus as the national currency on 1 January, 2008 at the rate of 0,585274 the net open
position of the Cyprus pound does not exist as from this date. As a result the open positions in Cyprus pound and euro
are offset.
133
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
RISK FROM CHANGES IN THE PRICES OF EQUITY SECURITIES
The risk in relation to the changes of the prices of equity securities that are owned by the Group is stemming from adverse
changes of the current prices of equity securities. The Group is mostly investing in equity shares listed on the Athens Exchange
and Cyprus Stock Exchange and depending on the purpose of acquisition the investments are classified in the appropriate
portfolio (fair value through profit or loss or available-for-sale). Equity investment positions are entered into in order to take
advantage of short-term price fluctuations of equities/indices or for covering open positions using derivatives on equities
or indices.
The Group is not exposed to commodities price risk.
LIQUIDITY RISK
Liquidity risk is the risk that the Group, either does not have sufficient financial resources available to enable it to meet
obligations as they fall due, or can secure them at excessive cost.
The Group manages the risk through a developed liquidity management structure comprising of a diverse range of controls,
procedures and limits. In this way, the Group complies with liquidity ratios set by both foreign and local banking regulators,
as well as, with internal limits.
The liquidity risk is monitored and managed through the use and control of the following:
(a) Balance in the Minimum Reserve Account as set by the local regulators, where the Group is present.
(b) Mismatch ratios between maturing assets and liabilities for time periods up to one month.
(c) Ratio of liquid assets over total customer deposits.
A substantial portion of the assets is funded by customer deposits and debt. Savings and sight deposits cover immediate cash
needs while long-term investment needs are usually covered by the issue of debt and time deposits.
Although certain deposits may be withdrawn on demand with no advance notice, the large spread by number and type of
depositors helps to ensure against unexpected fluctuations and constitutes a stable deposit base.
The Group performs stress test scenarios on liquidity risk.
134
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
LIQUIDITY RISK (continued)
Non-derivative cash flows
The following liquidity tables analyse the financial liabilities of the Group (due to other banks, customer deposits, senior debt
and loan capital) into relevant maturity groupings based on the remaining period from the balance sheet date to the
contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows and hence differ
from the carrying amounts disclosed on the consolidated balance sheet.
2007
Financial liabilities
Due to other banks
Customer deposits
Senior debt
Loan capital
2006
Financial liabilities
Due to other banks
Customer deposits
Senior debt
Loan capital
On
demand
C£ ‘000
Within
3 months
C£ ‘000
Over 3
months
but less
than
1 year
C£ ‘000
Over 1
year
but less
than
5 years
C£ ‘000
978.890
6.572.932
-
487.204
3.608.323
8.262
5.495
76.367
1.652.695
136.762
15.082
51.713
383.871
503.678
81.976
- 1.594.174
- 12.217.821
648.702
433.130
535.683
7.551.822
4.109.284
1.880.906
1.021.238
433.130 14.996.380
166.575
4.475.842
-
261.524
3.580.047
4.047
4.436
11.713
1.056.861
185.853
24.315
46.002
461.546
129.916
86.121
22.175
16.280
452.746
485.814
9.596.471
336.096
567.618
4.642.417
3.850.054
1.278.742
723.585
491.201
10.985.999
Over
5 years
C£ ‘000
Total
C£ ‘000
Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash and balances with
Central Banks, treasury and other eligible bills, due from other banks and advances to customers. The Group would also be able
to meet unexpected net cash outflows by selling securities and accessing additional funding sources.
135
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
LIQUIDITY RISK (continued)
Derivative cash flows
The following liquidity tables analyse the cash flows arising from the Group’s derivative financial liabilities into relevant maturity
groupings based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed
in the tables are contractual undiscounted cash flows and hence differ from the carrying amounts included in the consolidated
balance sheet.
(a) Derivatives settled on a net basis
2007
Derivatives held for trading:
Foreign exchange derivatives
Interest rate derivatives
2006
Derivatives held for trading:
Foreign exchange derivatives
Interest rate derivatives
136
Within
1 month
C£ ‘000
Over 1
month
but less
than
3 months
C£ ‘000
Over 3
months
but less
than
1 year
C£ ‘000
Over 1
year
but less
than
5 years
C£ ‘000
(210)
715
263
(7)
3.296
4
(5.774)
(1.598)
712
(4.023)
(210)
978
3.289
(5.770)
(1.598)
(3.311)
-
7.131
(1.030)
1.959
(2.171)
3
(5.822)
1.148
9.093
(7.875)
-
6.101
(212)
(5.819)
1.148
1.218
Over
5 years
C£ ‘000
Total
C£ ‘000
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
LIQUIDITY RISK (continued)
Derivative cash flows (continued)
(b) Derivative settled on a gross basis
Within
1 month
C£ ‘000
2007
Derivatives held for trading:
Foreign exchange derivatives
Outflow
Inflow
Interest rate derivatives
Outflow
Inflow
Derivatives held for hedging:
Foreign exchange derivatives
Outflow
Inflow
Interest rate derivatives
Outflow
Inflow
Over 1
month
but less
than
3 months
C£ ‘000
Over 3
months
but less
than
1 year
C£ ‘000
Over 1
year
but less
than
5 years
C£ ‘000
(298.628)
298.030
(830.116)
814.311
(33.512)
33.608
(10.696)
10.765
(103)
103
(3.529)
3.376
(4.000)
4.190
(14.596)
12.864
(156)
157
-
-
-
Over
5 years
C£ ‘000
Total
C£ ‘000
- (1.172.952)
- 1.156.714
(2.895)
2.885
(25.123)
23.418
-
(156)
157
(946)
1.087
(73.061)
71.014
(253)
40
(6.452)
6.619
(19.324)
19.327
(46.086)
43.941
(299.140)
(840.097)
(56.836)
(71.378)
298.330
824.306
57.125
67.570
3.972
1.251.303
-
(344.248)
342.980
(6.834)
6.742
-
-
(351.082)
349.722
-
(588)
551
(1.689)
1.623
(7.627)
7.468
(1.553)
1.553
(11.457)
11.195
-
(200.966)
198.708
(7.875)
7.970
(6.069)
6.072
-
(214.910)
212.750
-
(126)
87
(471)
419
(1.405)
1.289
-
(2.002)
1.795
Total outflow
-
(545.928)
(16.869)
(15.101)
(1.553)
(579.451)
Total inflow
-
542.326
16.754
14.829
1.553
575.462
Total outflow
Total inflow
2006
Derivatives held for trading:
Foreign exchange derivatives
Outflow
Inflow
Interest rate derivatives
Outflow
Inflow
Derivatives held for hedging:
Foreign exchange derivatives
Outflow
Inflow
Interest rate derivatives
Outflow
Inflow
(3.841) (1.271.292)
137
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
FAIR VALUE OF ASSETS AND LIABILITIES
Fair value represents the amount at which an asset could be exchanged, or a liability settled, in an arm’s length transaction.
Differences can therefore arise between carrying values and fair values. The definition of fair value assumes that the Group is
a going concern without any intention or requirement to curtail materially the scale of its operations or to undertake a
transaction on adverse terms. Generally accepted methods of determining fair value include reference to quoted market prices
or to prices prevailing for similar financial instruments.
With reference to the above, the carrying value of the Group’s assets and liabilities is not materially different from their fair value
with the exception of held-to-maturity financial assets.
(a) Due from other banks
Due from other banks include inter-bank placements and items in the course of collection. The fair value of floating as
well as fixed rate placements closely approximates their carrying value since their average maturity is approximately one
month.
(b) Advances to customers
Advances to customers are presented net of provisions for impairment. The vast majority of advances earns interest at
floating rates and hence their fair value approximates carrying value.
(c) Held-to-maturity financial assets
The fair value of held-to-maturity financial assets amounts to C£ 220.992.000 (2006: C£ 259.474.000). Fair value for
held-to-maturity financial assets is based on market prices or broker/dealer price quotations. Where this information is
not available, fair value has been estimated using quoted market prices for securities with similar credit, maturity and
yield characteristics.
(d) Deposits
The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount
repayable on demand. The estimated fair value of fixed as well as floating interest-bearing deposits closely approximates
their carrying value since their average maturity is less than one year.
(e) Loan capital
Loan capital is floating rated and its fair value closely approximates its carrying value.
138
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CAPITAL MANAGEMENT
The Group’s objectives when managing capital, which is a broader concept than the “equity” on the face of the consolidated
balance sheet, are:
•
•
•
To comply with the requirements set by the regulators of the markets where the Group operates.
To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for its shareholders
and benefits for other stakeholders.
To maintain a strong capital base to support the development of its business.
Capital adequacy and the use of regulatory capital are monitored regularly by the Group’s management employing techniques
based on the guidelines developed by the Basel Committee and the European Union Directives, as implemented by the Central
Bank of Cyprus. The required information is filed with the Central Bank of Cyprus on a semi-annual basis.
The Central Bank of Cyprus at 31 December, 2007 required all banks/banking groups to maintain a ratio of total regulatory
capital to risk-weighted assets at or above 10%. In addition, individual banking subsidiaries are directly regulated and
supervised by their local banking supervisor.
The Group’s regulatory capital as managed by Group Treasuries is divided into two tiers:
•
•
Tier 1 capital: share capital (net of any book values of treasury shares), minority interests, retained earnings and reserves
net of foreseeable dividends. The book value of goodwill and other intangibles is deducted in arriving at Tier 1 capital.
Tier 2 capital: qualifying subordinated loan capital, general provisions and unrealised gains arising on the fair valuation
of property and available-for-sale financial assets.
Investments in associates and insurance undertakings are deducted from Tier 1 and Tier 2 capital to arrive at the regulatory capital.
The risk-weighted assets are measured by means of a hierarchy of four risk weights classified according to the nature and
reflecting an estimate of credit, market and other risks associated with each asset. A similar treatment is adopted for off-balance
sheet exposure.
139
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
CAPITAL MANAGEMENT (continued)
The table below summarises the composition of regulatory capital and the ratios of the Group for the years ended 31 December,
2007 and 2006 as they were submitted to the Central Bank of Cyprus. During these two years, the individual entities within the
Group and the Group complied with all of the externally imposed capital requirements.
2007
C£ ‘000
Tier 1 capital
Share capital (net of treasury shares)
Share premium
Retained earnings (net of foreseeable dividends)
Minority interest
Capital securities
Less: Goodwill and other intangibles and prudential filters
398.345
1.180.912
363.739
54.155
47.013
(995.664)
289.202
1.113.055
113.449
81.562
46.600
(753.957)
Total qualifying Tier 1 capital
1.048.500
889.911
Tier 2 capital
Non-convertible preference shares
Qualifying subordinated loan capital
Revaluation reserves and prudential filters
303.534
28.449
2.500
305.549
42.592
Total qualifying Tier 2 capital
331.983
350.641
Less: Investments in associates and insurance undertakings
(109.452)
(123.273)
Total regulatory capital
Total risk-weighted assets
Capital adequacy ratio
140
2006
C£ ‘000
1.271.031
1.117.279
11.376.997
7.763.847
11,2%
14,4%
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
INSURANCE RISK
The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount
of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable.
For a portfolio of insurance contracts, the principal risk that the Group faces under its insurance contracts is that the actual claim
and benefit payments exceed the carrying amount of the insurance liabilities. The Group has developed its insurance
underwriting strategy to diversify the type and geographical location of insurance risks accepted.
(a) Long-term life insurance contracts
For contracts where death is the insured risk, the main source of uncertainty is that epidemics such as AIDS and wideranging lifestyle changes (eating, smoking and exercise habits), could result in future mortality being significantly higher
than in the past.
This risk is taken into account when the periodical adjustment of the mortality risk charges takes place, in accordance with
the provisions of the insurance contracts.
The Group manages this risk through reinsurance arrangements and its underwriting strategy. The underwriting strategy
is intended to ensure that the risks underwritten are well diversified in terms of type of risk and the level of insured benefits
and to reflect the medical history of the applicant.
The table below presents the concentration of insured benefits before reinsurance arrangements across five bands of
insured benefits per individual life assured, at the balance sheet date:
2007
C£ ‘m
Benefits assured (C£’000)
0 – 200
200 – 400
400 – 800
800 – 1.000
Over 1.000
2006
C£ ‘m
2.744
501
245
46
56
76,4%
13,9%
6,8%
1,3%
1,6%
2.510
379
149
31
31
81,0%
12,2%
4,8%
1,0%
1,0%
3.592
100%
3.100
100%
The risk is concentrated in the lower value band of up to C£ 200.000. This has not significantly changed from last year.
141
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
INSURANCE RISK (continued)
(b) Short-term life insurance contracts
These contracts are mainly team contracts renewable annually, issued to employers to insure their commitments to their
employees for death and disability.
The insurance risk is affected by the factors affecting long-term life insurance contracts, as mentioned above. Additionally
it depends on the industry in which each insured party operates.
The following tables analyse the aggregated insured benefits for short-term life insurance contracts before and after
reinsurance arrangements at the balance sheet date by industry sector (disability benefits under the terms of the insurance
contract are equal or smaller than death benefits).
2007
Total benefits
Industry
Government & Semi-Governmental Organisations
Financial
Retail
Tourism
Shipping
Manufacturing
Construction
Other
Before
reinsurance
C£ ‘000
After
reinsurance
C£ ‘000
295.248
647.917
38.503
36.122
12.353
12.961
17.916
17.803
27,4%
60,1%
3,6%
3,3%
1,1%
1,1%
1,7%
1,7%
32.195
124.718
10.020
8.138
3.293
5.010
5.920
6.136
16,5%
63,8%
5,1%
4,2%
1,7%
2,6%
3,0%
3,1%
1.078.823
100%
195.430
100%
2006
Total benefits
142
Industry
Before
reinsurance
C£ ‘000
After
reinsurance
C£ ‘000
Government & Semi-Governmental Organisations
Financial
Retail
Tourism
Shipping
Manufacturing
Construction
Other
69.791
800.888
31.655
34.825
10.404
10.819
17.575
15.898
7,1%
80,7%
3,2%
3,5%
1,1%
1,1%
1,7%
1,6%
845
116.125
8.947
8.451
2.893
3.867
5.973
5.783
0,6%
75,9%
5,9%
5,5%
1,9%
2,5%
3,9%
3,8%
991.855
100%
152.884
100%
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
INSURANCE RISK (continued)
(c) General business – frequency and severity of claims
The principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed
the book amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are
greater than estimated.
The Group manages these risks through its underwriting strategy, adequate reinsurance arrangements and proactive
claims handling.
The underwriting strategy aims to ensure that only acceptable risks are undertaken by the Group. There are in place
underwriting instructions and limits that facilitate the Group’s objective. Furthermore, the Group has an internal Risk &
Survey Department, which is responsible for the proactive compliance of its clients with specific safety standards. The
department is also responsible to inform large clients for the risks that their properties may face, through proactive seminars.
The Group has in place a conservative reinsurance program, which includes proportional, excess of loss and catastrophe
coverage. All reinsurance companies are at least A rated by Standard & Poor’s or similar rating agencies. The objective of
the reinsurance program is to reduce the Group’s exposure within acceptable limits. The annual treaty reinsurance program
is reviewed and approved by the Reinsurance Committee of the Board of Directors of the general insurance companies of
the Group.
The claims handling strategy of the Group aims to ensure that the company deals efficiently and effectively with every claim
from the time it occurs in order to proceed with a speedy settlement and to avoid adverse developments and increased cost.
(d) General business – sources of uncertainty in the estimation of future claim payments
The provisions for outstanding claims are based on the estimated cost of all claims incurred but not settled at the balance
sheet date, regardless of whether they have been reported, less the expected subrogation value and other recoveries.
For the calculation of the cost of the reported claims that have not been paid yet, the Group evaluates each claim separately
case-by-case and their estimated cost is based on the facts of each claim, on the information available and on the
information available from the settlement of claims with similar characteristics in previous periods.
The estimation of provision for claims incurred but not reported (IBNR) is generally subject to a greater degree of
uncertainty than the estimation of the cost of settling claims already notified to the company because for the latter, the
events of the claim are to a great extent known.
The provisions for claims incurred but not reported are made based on previous years’ experience and taking into account
anticipated future changes and developments.
The following table presents the development of the incurred claims per accident year and reported year and it is indicative
of the estimation of the expected cost of claims.
143
Notes to the Consolidated Financial Statements
47. FINANCIAL AND INSURANCE RISK MANAGEMENT (continued)
INSURANCE RISK (continued)
(d) General business – sources of uncertainty in the estimation of future claim payments (continued)
Claims’ Development Table
Motor and Fire – Gross claims
Year of accident
2004
2005
2006
2007
Motor and Fire – Net claims
Year of accident
2004
2005
2006
2007
2007
C£ ‘000
2006
C£ ‘000
2005
C£ ‘000
2004
C£ ‘000
10.283
11.943
11.623
8.220
10.035
11.660
9.947
-
9.219
10.874
-
7.784
-
9.058
7.781
8.732
7.481
8.914
7.670
7.517
-
8.280
6.796
-
6.991
-
48. FINANCIAL INSTRUMENTS BY CATEGORY
The accounting policies for financial instruments have been applied to the line items below:
2007
Assets as per consolidated
balance sheet
Cash and balances
with Central Banks
Due from other banks
Financial assets at fair value
through profit or loss
Advances to customers
Available-for-sale
financial assets
Held-to-maturity financial assets
Other assets
Loans
and
receivables
C£ ‘000
Assets at
fair value
through
profit
or loss
C£ ‘000
Derivatives
used for
hedging
C£ ‘000
Availablefor-sale
C£ ‘000
Held-tomaturity
C£ ‘000
Total
C£ ‘000
788.434
2.913.625
-
-
-
-
788.434
2.913.625
10.309.665
419.103
-
-
-
419.103
- 10.309.665
-
-
1.351
1.602.162
-
219.939
-
14.011.724
419.103
1.351
1.602.162
219.939 16.254.279
Derivative
liabilities at
fair value
through
profit or loss
C£ ‘000
Derivatives
used for
hedging
C£ ‘000
25.079
4.956
1.585.726 1.585.726
12.112.197 12.112.197
569.480
569.480
353.534
353.534
30.035
25.079
4.956
14.620.937 14.650.972
144
2007
Liabilities as per consolidated balance sheet
Due to other banks
Customer deposits
Senior debt
Loan capital
Other liabilities
Other
financial
liabilities
C£ ‘000
1.602.162
219.939
1.351
Total
C£ ‘000
Notes to the Consolidated Financial Statements
48. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
2006
Assets as per consolidated
balance sheet
Cash and balances
with Central Banks
Due from other banks
Financial assets at fair value
through profit or loss
Advances to customers
Available-for-sale
financial assets
Held-to-maturity
financial assets
Other assets
Loans
and
receivables
C£ ‘000
Assets at
fair value
through
profit
or loss
C£ ‘000
Derivatives
used for
hedging
C£ ‘000
Availablefor-sale
C£ ‘000
Held-tomaturity
C£ ‘000
Total
C£ ‘000
611.916
2.403.761
-
-
-
-
611.916
2.403.761
6.952.217
440.277
-
-
-
-
440.277
6.952.217
-
-
-
1.114.731
-
1.114.731
-
-
118
-
256.425
-
256.425
118
9.967.894
440.277
118
1.114.731
256.425
11.779.445
Derivative
liabilities at
fair value
through
profit or loss
C£ ‘000
Derivatives
used for
hedging
C£ ‘000
Other
financial
liabilities
C£ ‘000
Total
C£ ‘000
8.839
48
440.095
9.373.738
304.018
365.224
-
440.095
9.373.738
304.018
365.224
8.887
8.839
48
2006
Liabilities as per consolidated balance sheet
Due to other banks
Customer deposits
Senior debt
Loan capital
Other liabilities
10.483.075 10.491.962
145
Notes to the Consolidated Financial Statements
49. DIRECTORS’ INTEREST IN THE SHARE CAPITAL OF THE BANK
The beneficial interest in the Bank’s share capital owned by members of the Board of Directors, their spouses and minor children
and by companies in which they hold directly or indirectly at least 20% of the voting rights in a general meeting was as follows:
Platon E. Lanitis
Vassilis Theocharakis
Eleftherios Chiliadakis
Constantinos Mylonas
Efthymios Bouloutas
Christos Stylianides
Neoclis Lysandrou
Beneficial interest
at 31 December, 2007
Beneficial interest
at 28 February, 2008
3,90%
2,49%
0,05%
0,03%
0,01%
0,01%
0,01%
3,90%
2,49%
0,05%
0,03%
0,01%
0,01%
0,01%
Shareholding at
31 December, 2007
Shareholding at
28 February, 2008
18,49%
18,49%
The percentages are based on the total issued share capital.
50. SHAREHOLDERS WITH MORE THAN 5% OF SHARE CAPITAL
Dubai Financial Limited Liability Company
The percentages are based on the total issued share capital.
146
Notes to the Consolidated Financial Statements
51. RELATED PARTY TRANSACTIONS
2007
Number of
Directors
2006
Number of
Directors
2007
C£ ‘000
2006
C£’000
2
13
1
10
110.367
2.727
45.499
2.296
15
11
113.094
47.795
263
2.042
113.357
49.837
Guarantees to Directors and their
connected persons:
More than 1% of the net assets of the Group
Less than 1% of the net assets of the Group
13.920
-
14.284
1.800
Total guarantees
13.920
16.084
Letters of credit to Directors and their
connected persons:
More than 1% of the net assets of the Group
Less than 1% of the net assets of the Group
9.528
-
6.222
-
Total letters of credit
9.528
6.222
Total advances and commitments
136.805
72.143
Tangible securities
146.519
103.544
2.491
2.335
86.089
3.945
796
162
Advances to Directors and their
connected persons:
More than 1% of the net assets of the Group
Less than 1% of the net assets of the Group
Advances to other key management
personnel and their connected persons
Total advances
Commitments for guarantees and letters of credit:
Interest income
Deposits
Interest expense
147
Notes to the Consolidated Financial Statements
51. RELATED PARTY TRANSACTIONS (continued)
There were no commitments relating to other key management personnel of the Group.
The amount of tangible securities is presented aggregately in the preceding table. Therefore, it is possible that some individual
facilities are not fully covered with tangible securities. The total amount of facilities that are unsecured at 31 December, 2007
amounts to C£ 31.800.000 (2006: C£ 4.138.000).
Connected persons include the spouse, minor children and companies in which key management personnel hold directly or
indirectly at least 20% of the voting rights in a general meeting.
The deposits by associates of the Group at 31 December, 2007 were C£ 13.022.000 (2006: C£ 18.125.000), and the interest on
these deposits was C£ 291.000 (2006: C£ 524.000).During 2007, the Group also received dividend of C£ 994.000
(2006: C£ 475.000) from associated companies. The deposits of the provident funds of the employees of the Group in Cyprus
at 31 December, 2007, which are also regarded as related parties, were C£ 15.175.000 (2006: C£ 13.139.000) and the interest
on these deposits was C£ 390.000 (2006: C£ 325.000). Additionally, the Group had total income during 2007 from Dubai
Financial Limited Liability Company of C£ 651.000 relating to interest and commissions.
Other transactions with connected persons
During 2007, the Group received commissions on stock exchange transactions from key management personnel amounting
to C£ 89.000 and purchased goods and received services amounting to C£ 178.000 (2006: C£ 109.000) from companies
connected to Lanitis Group.
The above transactions are carried out as part of the normal activities of the Group, on commercial terms.
Group key management personnel compensation
148
2007
C£ ‘000
2006
C£ ‘000
Fees paid to Directors as members of the Board
85
20
Remuneration of Directors under executive role:
Salaries and other short-term benefits
Employer’s social insurance contributions
Retirement benefits scheme expense
793
19
49
183
15
51
861
249
Consultancy services fees of Directors
under non executive role
194
128
Compensation of other key management personnel:
Salaries and other short-term benefits
Employer’s social insurance contributions
Retirement benefits scheme expense
453
45
65
337
36
104
563
477
568
-
2.271
874
Share-based payment compensation
Total compensation of key management personnel
Notes to the Consolidated Financial Statements
51. RELATED PARTY TRANSACTIONS (continued)
Group key management personnel compensation (continued)
In addition to the above, the members of the Board of Directors who retired received:
2007
C£ ‘000
2006
C£ ‘000
69
47
-
71
Remuneration under executive role:
Salaries and other short-term benefits
Employer’s social insurance contributions
Retirement benefits scheme expense
79
6
11
152
23
8
Total remuneration under executive role
96
183
Pension (including employer’s contributions)
-
164
Payments upon termination of service contract
-
700
165
1.165
Fees as members of the Board
Consultancy services fees
Total compensation
Key management personnel for 2007 include fifteen Directors, five of which had executive duties and the members of the
executive management. For 2006, key management personnel included eleven Directors, five of which had executive duties,
and the members of the executive management .
During 2007, three Executive Directors’ total remuneration, including contributions to retirement fund, was in the range of
C£ 150.000 to C£ 200.000, one Executive Director’s total remuneration, including contributions to retirement fund, was in the
range of C£ 300.000 to C£ 350.000 and one Executive Director’s total remuneration, including contributions to retirement
fund, was in the range of C£ 550.000 to C£ 600.000. During 2006, two Executive Directors´total remuneration, including
contributions to retirement fund, was in the range of C£ 100.000 to C£ 150.000. The remuneration of the three other Executive
Directors was not included in the results of 2006 as it was paid by the new subsidiaries acquired at the end of 2006.
52. BUSINESS ACQUISITIONS
(a) Acquisition of Marfin Financial Group Holdings S.A. and Egnatia Bank S.A.
In 2006 the Group submitted voluntary public offers to the shareholders of Marfin Financial Group Holdings S.A., later
renamed to Marfin Investment Group Holdings S.A. (“Marfin”) and to the shareholders and holders of convertible bonds
of Egnatia Bank S.A. (“Egnatia”). The provisions of the public offers were successfully fulfilled, and 22 December, 2006 was
determined to be the acquisition date by the Board of Directors of the Bank. This was the date that the results of the public
offers were announced. The Group acquired 95,30% of the share capital of Marfin, 86,44% of the total voting rights of
Egnatia and 86,25% of the total share capital of Egnatia.
149
Notes to the Consolidated Financial Statements
52. BUSINESS ACQUISITIONS (continued)
(a) Acquisition of Marfin Financial Group Holdings S.A. and Egnatia Bank S.A. (continued)
There has been no material effect on the income and the net profit of the Group from the acquisition of Marfin and Egnatia
for the year ended 31 December, 2006 as the acquisition date was determined to be the 22 December, 2006.
Details regarding the net assets acquired are as follows:
C£ ‘000
Consideration for acquisition:
Fair value of shares issued
Costs directly related to the acquisition
1.238.046
4.159
Total consideration for acquisition
Fair value of net assets acquired
1.242.205
(689.727)
Goodwill
552.478
The acquisition of Marfin and Egnatia groups was effected by means of issuing and exchanging shares of the Bank with
the shares of Marfin and Egnatia. The number of the Bank’s shares which were issued for the purposes of the acquisition
of Marfin was 303.594.271 and for Egnatia 109.087.650. This number of shares resulted from the acceptance percentages
of the public offers using the relevant exchange ratios, which were 5,757 Bank’s shares for each of Marfin’s share and
1,2090 Bank’s shares for each of Egnatia’s share. In total, 412.681.921 shares were issued at a price of C£ 3 per share, in
accordance with the decision of the Extraordinary General Meeting of the Bank’s shareholders held on 31 October, 2006.
The share issue price clearly reflects the fair relation of the value of the Bank’s transaction with the shareholders of the
two groups being acquired. The resulting exchange ratios using the price of C£ 3 per share was confirmed by two
independent international financial advisory firms (fairness opinion).
The Board of Directors of the Bank, using a relevant provision in IFRS 3, calculated the acquisition cost which was accounted
for during 2006 on the basis of the price of C£ 3 per share, which clearly and reliably reflects the integration of the three
groups during the period when, firstly, the management of the acquiring Group announced its public offers and, secondly,
the managements of the groups being acquired made positive assessments of the transaction. In order to substantiate the
price, the independent financial advisory firms used three different valuation methods, one based on discounted future
cash flows, one using multiples of comparable companies and one using comparable transactions, in accordance with the
provisions of IAS 39. If the quoted price of the shares of the Bank at the date of completion of the transaction had been
used, then the total cost of the acquisition would have been C£ 1.722 m and the goodwill resulting from the acquisition
would have been greater by C£ 480 m.
The goodwill is attributable to the prospects that the new financial Group has, as it will be offering the total range of
banking and investment products and services, with material presence both in Greece and in Cyprus as well as
internationally and with significant prospects for further growth. Additionally, with the restructuring of the new Group it
is anticipated that operating synergies will be maximised and operating costs will be restricted through the reduction of
administration costs, the restructuring of the branch network, the application of effective evaluation measures and the
rationalisation of costs and the income synergies that will arise from the development of cross-selling.
150
Notes to the Consolidated Financial Statements
52. BUSINESS ACQUISITIONS (continued)
(a) Acquisition of Marfin Financial Group Holdings S.A. and Egnatia Bank S.A. (continued)
The total assets and liabilities of Marfin and Egnatia groups acquired at the acquisition date were as follows:
Fair
value
C£ ‘000
Book
value
C£ ‘000
679.589
176.205
138.824
2.163.756
220.743
63.472
1.976
105.957
256.877
14.968
43.470
69.932
127.181
(326.662)
(2.484.959)
(130.559)
(48.958)
(122.263)
(55.221)
(122.735)
679.589
176.205
138.824
2.163.756
220.743
63.472
1.976
105.957
47.395
14.968
43.470
69.932
137.317
(326.662)
(2.484.959)
(130.559)
(48.958)
(122.263)
(2.850)
(76.104)
Net assets
Minority interest
771.593
(81.866)
671.249
(68.693)
Net assets acquired
689.727
602.556
Cash and cash equivalents
Due from other banks
Financial assets at fair value through profit or loss
Advances to customers
Available-for-sale financial assets
Held-to-maturity financial assets
Investments in associates
Other investments
Intangible assets
Investment property
Property and equipment
Other assets
Assets held for sale
Due to other banks
Customer deposits
Senior debt
Loan capital
Other liabilities
Deferred tax
Liabilities directly related to assets held for sale
Acquisition expenses
Cash and cash equivalents of the acquired subsidiaries
(4.024)
679.589
Cash inflow at acquisition
675.565
During 2007, the Bank has completed the fair valuation and purchase price allocation for the acquisition of Marfin and
Egnatia. Based on adjustments to the preliminary accounting adopted in the consolidated financial statements for the
year ended 31 December, 2006, the Group recognised C£ 210 m intangible assets, which relate to the estimated fair value
for trade names, customers´relationships, core deposits, software and asset management. The results were charged with
amortisation of the intangible assets recognised amounting to C£ 11,1 m. A deferred tax liability of C£ 52,4 m in relation
to the aforementioned intangible assets has also been recognised.
151
Notes to the Consolidated Financial Statements
52. BUSINESS ACQUISITIONS (continued)
(a) Acquisition of Marfin Financial Group Holdings S.A. and Egnatia Bank S.A. (continued)
The Group’s investment in the non-banking activities of the group of Marfin Investment Group Holdings S.A. is presented
on 31 December, 2006 as discontinued operations due to reduction in participation and as held for sale at the date of
acquisition as explained in Note 16. This classification has been included in the adjustments to the initial accounting.
A reduction to the deferred tax asset of C£ 10,1 m and an increase to the deferred tax liability of C£ 46,6 m with
corresponding adjustments to goodwill have also been recognised in relation to the non-banking activities of the group
of Marfin Investment Group Holdings S.A. The aforementioned adjustments to the deferred tax asset and liability, which
are adjustments to the initial accounting, are included in the above table in the assets held for sale and liabilities directly
related to assets held for sale respectively.
(b) Acquisition of Centrobanka a.d. (Laiki Bank a.d.)
On 20 January, 2006 the Group acquired 90,43% of the ordinary share capital of the serbian bank Centrobanka a.d.
(later renamed to Laiki Bank a.d.) for a total amount of C£ 19.268.000.
C£ ‘000
Cash consideration for acquisition
Acquisition expenses
19.209
59
Total consideration for acquisition
Fair value of net assets acquired
19.268
(11.835)
Goodwill
7.433
Goodwill is attributable to securing a banking license in Serbia achieved through the acquisition, which will allow the
Group to take advantage both of the significant growth margins of the serbian banking sector as well as the prospects of
the serbian economy.
In September 2006, the Bank acquired new shares issued by Laiki Bank a.d. for C£ 5.780.000 increasing its shareholding to
92,82% and proceeded with a bid to acquire any remaining shares in the company. This resulted in the Bank paying an
additional amount of C£ 735.000 for an extra shareholding of 2,41% bringing its shareholding to 95,23%. Goodwill arising
on the additional share acquired amounted to C£ 460.000. Respectively, minority interest decreased by C£ 276.000
compared to the amount presented below.
152
Notes to the Consolidated Financial Statements
52. BUSINESS ACQUISITIONS (continued)
(b) Acquisition of Centrobanka a.d. (Laiki Bank a.d.) (continued)
Fair
value
C£ ‘000
Book
value
C£ ‘000
14.246
24
32.196
3.439
3.800
2.786
(4.925)
(33.819)
(4.659)
14.246
24
31.708
3.261
32
3.625
(4.925)
(33.819)
(3.831)
Net assets
Minority interest
13.088
(1.253)
10.321
Net assets acquired
11.835
Cash and cash equivalents
Available-for-sale financial assets
Advances to customers
Other assets
Intangible assets
Property and equipment
Due to other banks
Customer deposits
Other liabilities
Cash paid in January 2006
Cash paid in September 2006
Cash and cash equivalents of the acquired subsidiary
Cash outflow from the acquisition
(19.268)
(735)
14.246
(5.757)
As far as the acquisition of Laiki Bank a.d. is concerned, the Group recognised intangible assets which relate to the estimated
value for the existing branch network and the estimated value for the client base. The Group’s results for 2006 were charged
with amortisation of intangible assets amounting to C£ 1.947.000 and for 2007 with amortisation amounting to C£ 2.086.000.
For the period from 20 January, 2006 to 31 December, 2006 the acquired business suffered a loss of C£ 6.284.000.
In June 2007, the Bank acquired the new shares issued by Laiki Bank a.d. for C£ 17,6 m increasing its total shareholding to
97,23%. Goodwill arising on the additional shares acquired amounted to C£ 330.000.
(c) Purchase of Marine Transport Bank and three affiliated companies
The Bank announced on 19 March, 2007 that it signed an agreement for the purchase of 99,21% of the share capital of
Marine Transport Bank (MTB) in Ukraine for C£ 58,9 m. The acquisition was completed on 18 September, 2007 following the
obtaining of the necessary approvals by the competent authorities of Cyprus and Ukraine.
MTB is a bank organised as an open joint-stock company under the laws of Ukraine. It is a universal bank having licenses for
a full range of banking operations.
For 2007, the effect on the income and the net profit of the Group from the acquisition of MTB from the date of the
acquisition of 18 September, 2007 to 31 December, 2007 was C£ 4,4 m and C£ 0,4 m respectively.
153
Notes to the Consolidated Financial Statements
52. BUSINESS ACQUISITIONS (continued)
(c) Purchase of Marine Transport Bank and three affiliated companies (continued)
Details regarding the net assets acquired are as follows:
C£ ‘000
Cash paid
Acquisition expenses
58.950
746
Total consideration for acquisition
Fair value of net assets acquired
59.696
(15.589)
Goodwill
44.107
The assets and liabilities acquired at the acquisition date were as follows:
154
Fair
value
C£ ‘000
Book
value
C£ ‘000
Cash and cash equivalents
Advances to customers
Property and equipment
Other assets
Due to other banks
Customer deposits
Other liabilities
28.009
65.958
8.065
1.050
(2.454)
(80.963)
(3.951)
28.009
65.958
8.065
1.050
(2.454)
(80.963)
(3.951)
Net assets
Minority interest
15.714
(125)
15.714
(125)
Net assets acquired
15.589
15.589
Cash paid
Acquisition expenses
Acquisition of subsidiary’s loan capital
Cash and cash equivalents of the acquired subsidiary
(58.950)
(746)
(761)
28.009
Cash outflow from the acquisition
(32.448)
Notes to the Consolidated Financial Statements
52. BUSINESS ACQUISITIONS (continued)
(c) Purchase of Marine Transport Bank and three affiliated companies (continued)
In addition on 18 September, 2007 the acquisition of three affiliated companies of MTB operating in the area of leasing was
completed; 100% of the share capital of Investment Lease Company Renta, 91% of the share capital of Premier Capital
and 81,24% of the share capital of Sintez Autoservice were acquired for C£ 300.000. The acquisitions gave rise to C£ 6.000
goodwill. An amount of C£ 56.000 relating to the excess of the acquirer’s interest in the fair value of the acquiree´s
identifiable net assets was recognised in the results for the year.
The aforementioned information is based on initial accounting determined provisionally according to IFRS 3. The Group
is in the process of completing the fair valuation of the net assets acquired, including intangible assets, and the purchase
price allocation. The accounting will be completed within twelve months from the date of acquisition and as a result any
adjustment to the preliminary values and to the purchase price allocation will be recognised within a period of twelve
months from the acquisition date according to the provisions of IFRS 3.
(d) Cash flow from business acquisitions
Cash inflow from the acquisition of Marfin
and Egnatia (Note 52(a))
Cash outflow from the acquisition of Laiki Bank a.d. (Note 52(b))
Cash outflow from the acquisition of Marine Transport Bank (Note 52(c))
Cash outflow from the acquisition of Investment Lease Company
Renta, Premier Capital and Sintez Autoservice (Note 52(c))
Acquisition of subsidiaries net of cash acquired
per consolidated cash flow statement
2007
C£ ‘000
2006
C£ ‘000
(32.448)
675.565
(5.757)
-
(300)
-
(32.748)
669.808
2007
C£ ‘000
2006
C£ ‘000
(e) Goodwill from business acquisitions
Goodwill from the acquisition of Marfin and Egnatia (Note 52(a))
Goodwill from the acquisition and the increase in
percentage holding in Laiki Bank a.d. (Note 52(b))
Goodwill from the acquisition of Marine Transport Bank (Note 52(c))
Goodwill from the acquisition of Premier Capital (Note 52(c))
-
552.343
330
44.107
6
7.893
-
Total (Note 29)
44.443
560.236
155
Notes to the Consolidated Financial Statements
52. BUSINESS ACQUISITIONS (continued)
(f) Acquisitions not completed as of the balance sheet date
(i)
Acquisition of Lombard Bank Malta Plc
On 16 October, 2007 the Bank announced that it has reached an agreement for the acquisition of 43% of the
share capital of Lombard Bank Malta Plc (LBM) by the major shareholders BSI SA Lugano and other international
investors against the sum of euro 48,3 m. LBM is Malta’s third largest bank listed on the local stock exchange
and operate under the supervision of the Central Bank of Malta. It was established in 1969 in Valetta and it offers
complete banking services via a network of six branches. LBM will also offer services via Malta Post, in which it
is a major shareholder. In February, 2008 the necessary approvals from the responsible regulatory authorities
(Central Bank of Cyprus and Malta Financial Services Authority) for the acquisition were obtained.
(ii) Acquisition of OOO Rossiysky Promyishlenny Bank (Rosprombank)
On 20 December, 2007 the Bank announced the acquisition of a controlling interest in OOO Rossiysky
Promyishlenn Bank. The Bank and the shareholders of OAO RPB-Holding, the parent company of OOO Rossiysky
Promyishlenny Bank, entered into a definitive agreement for the acquisition of a 50,04% equity interest
in RPB-Holding by the Bank for an amount of euro 83 m. Rosprombank is a fast-growing russian bank, with
particular focus on the attractive SME segment of the market and a distribution network comprising of thirty
branches, covering major russian cities, including Moscow and St. Petersburg, and their surrounding areas.
The completion of the acquisition is expected in the first half of 2008, following receipt of all regulatory approvals
from the relevant authorities in Cyprus and the Russian Federation.
(iii) Merger of Laiki Investments E.P.E.Y. Public Company Ltd with CLR Capital Public Ltd
On 5 October, 2007 Laiki Investments E.P.E.Y. Public Company Ltd, subsidiary of the Group, announced that its
Board of Directors decided to start the merger procedures with the absorbance of CLR Capital Public Ltd. Laiki
Investments E.P.E.Y. Public Company Ltd will participate in the new group by 70% and CLR Capital Public Ltd by
30%. It is also expected that Laiki Brokerage E.P.E.Y. Ltd, CLR Securities & Financial Services Ltd and Egnatia
Financial Services (Cyprus) Ltd will merge.
53. DIVIDEND
On 3 May, 2007 a dividend payment of C£ 143.403.000 was made, C£ 0,18 per share (2006: C£ 21.448.000, C£ 0,06 per share).
The dividend has been accounted for in shareholders’ equity as an appropriation of retained earnings (Note 41).
The Board of Directors decided on 14 February, 2008 to propose to the Annual General Meeting a dividend of C£ 0,20, euro
0,35 per share.
156
Notes to the Consolidated Financial Statements
54. INVESTMENTS IN SUBSIDIARY COMPANIES
The main subsidiary companies of the Group, as at 31 December, 2007 were as follows:
Company name
Marfin Egnatia Bank S.A. (a)
Investment Bank of Greece S.A. (b)
Laiki Investments E.P.E.Y. Public Company Ltd (c)
Effective
shareholding
(1)
95%
88%
70%
Country of
incorporation
Issued
capital
C£ ‘000
Greece
Greece
Cyprus
214.509
62.863
40.000
Laiki Bank (Australia) Ltd
Marfin Leasing S.A. (b)
Laiki Bank a.d.
Egnatia Bank (Romania) S.A.
Paneuropean Insurance Co Ltd
Laiki Insurance Ltd
AS SBM Pank (d)
Marfin Factors & Forfaiters S.A.
100%
95%
97%
94%
100%
100%
50%
95%
Australia
Greece
Serbia
Romania
Cyprus
Cyprus
Estonia
Greece
Laiki Cyprialife Ltd
Philiki Insurance Co Ltd
Marfin Global Asset Management
Mutual Funds Management S.A. (b)
100%
100%
Cyprus
Cyprus
6.200
5.765
94%
Greece
5.017
Cyprialife Ltd
Open Joint-Stock Company
Marine Transport Bank
The Cyprus Popular Bank (Finance) Ltd
Laiki Bank (Guernsey) Ltd
Laiki Factors Ltd
100%
Cyprus
5.000
99%
100%
100%
100%
Ukraine
Cyprus
Guernsey
Cyprus
3.883
3.000
1.591
500
IBG Investments S.A.
88%
MFG Capital Partners Ltd (e)
67%
British Virgin
Islands
United
Kingdom
27.835
20.696
14.998
9.073
8.250
8.000
7.499
6.361
Activity sector
Banking
Investment banking
Investment and
brokerage services
and investments
Banking
Leasing
Banking
Banking
Investment company
General insurance
Banking
Factoring, invoice
discounting
Life insurance
Investment company
Mutual funds and
private portfolio
management
Investment company
263
Banking
Instalment finance and leasing
Banking
Factoring, invoice
discounting
Investment services
142
Investment management
(1) The effective shareholding includes the direct holding of Marfin Popular Bank Public Co Ltd and the indirect holding through its
subsidiary companies.
Marfin Popular Bank Public Co Ltd is registered in Cyprus and operates in Cyprus and through a branch in the United Kingdom.
The full consolidation method is applied to all the subsidiary companies of the Group.
157
Notes to the Consolidated Financial Statements
54. INVESTMENTS IN SUBSIDIARY COMPANIES (continued)
(a) Merger of Egnatia Bank S.A., Marfin Bank S.A. and Laiki Bank (Hellas) S.A.
On 4 May, 2007 the Bank announced the completion of the sale and transfer of 100% of the share capital of Marfin Bank S.A.
an existing subsidiary of the Group, from Marfin Investment Group Holdings S.A. to the Bank against the sum of C£ 359,9 m.
The merger of subsidiary companies Egnatia Bank S.A., Marfin Bank S.A. and Laiki Bank (Hellas) S.A. was completed by
30 June, 2007. The new bank, which is a subsidiary of Marfin Popular Bank Public Co Ltd, operates under the new name
Marfin Egnatia Bank S.A. The merger was completed according to the relevant greek legislation by consolidating the assets
and liabilities of the merged companies. Following the completion of the merger, the share capital of Marfin Egnatia Bank
S.A. amounted to euro 366.553.834, divided into 288.625.066 ordinary shares of a nominal value of euro 1,27 per share.
(b) Increases in shareholding and merger of subsidiary companies of Marfin Egnatia Bank S.A.
(i) On 19 January, 2007 Egnatia Bank S.A. acquired 1.824.150 shares in its subsidiary company Egnatia Finance S.A., which
corresponds to 30% of its share capital. These were acquired for C£ 5,5 m and increase the Egnatia Bank S.A. holding
in the company from 70% to 100%. Goodwill from this increase was C£ 1,9 m.
As from 30 June, 2006 Egnatia Finance S.A. merged by absorption with Investment Bank of Greece S.A.
(ii) On 22 June, 2007 Egnatia Bank S.A. acquired 307 shares in its subsidiary company Egnatia Leasing S.A. which
corresponds to 0,1% of its share capital. These were acquired for C£ 6.000 and increase Egnatia Bank S.A. holding in the
company from 99,9% to 100%.
As from 31 December, 2006 Laiki Leasing S.A. merged by absorption with Egnatia Leasing S.A. The new entity was
named Marfin Leasing S.A.
(iii)On 19 January, 2007 Egnatia Bank S.A. acquired 28.700 shares in its subsidiary company Egnatia Mutual Funds
Management S.A. which corresponds to 18% of its share capital. These were acquired for C£ 233.000. On 22 June, 2007
Egnatia Bank S.A. acquired 46.396 extra shares in its subsidiary company Egnatia Mutual Funds Management S.A. which
corresponds to 29% of its share capital. These were acquired for C£ 854.000. Therefore, Egnatia Bank S.A. holding in
the company increased from 51% to 98%. Goodwill from these increases was C£ 166.000.
On 13 June, 2007 Marfin Bank S.A. acquired 9.996 shares in its subsidiary company Marfin Global Asset Management
S.A., which corresponds to 6% of its share capital. These were acquired for C£ 239.000 and bring Marfin Bank S.A.
holding in the company from 94% to 100%.
As from 31 December, 2006 Egnatia Mutual Funds Management S.A., Laiki Mutual Funds Management S.A. and Marfin
Global Asset Management S.A. merged by absorption with Marfin Mutual Funds Management S.A. The new entity was
named Marfin Global Asset Management Mutual Funds Management S.A.
(iv) On 12 March, 2007 Egnatia Bank S.A. acquired 4.000 shares in its subsidiary company Egnatia Insurance Services S.A.
which corresponds to 40% of its share capital. These were acquired for C£ 146.000 and bring Egnatia Bank S.A. holding
in the company from 60% to 100%. Goodwill from this increase was C£ 67.000.
As from 31 March, 2007 Laiki Insurance Agencies S.A. merged by absorption with Egnatia Insurance Brokers S.A. The
new entity was named Marfin Insurance Brokers S.A.
158
Notes to the Consolidated Financial Statements
54. INVESTMENTS IN SUBSIDIARY COMPANIES (continued)
(c) Increase in shareholding in Laiki Investments E.P.E.Y. Public Company Ltd
In April 2007, 9,5 m shares of Laiki Investments E.P.E.Y. Public Company Ltd were acquired by the Bank for C£ 2,5 m. This acquisition
brings the Bank’s holding in the company to 62%. Goodwill arising on the additional shares acquired was C£ 1,2 m.
In December 2007, 15,5 m shares of Laiki Investments E.P.E.Y. Public Company Ltd were acquired by the Bank for C£ 3,9 m.
This acquisition brings the Bank’s total holding in the company to 70% and gave rise to goodwill of C£ 1,4 m.
(d) Transfer of AS SBM Pank
On 14 June, 2007 the Bank announced the pre-agreement for the acquisition of 50,12% of the share capital of the estonian AS
SBM Pank (existing subsidiary of the Group) from Marfin Investment Group Holdings S.A. against the sum of C£ 3,7 m. The
acquisition was completed on 28 September, 2007 when the cypriot and estonian competent authorities approval was obtained.
(e) Reduction in shareholding in MFG Capital Partners Ltd
In July 2007, 500.100 existing shares of MFG Capital Partners Ltd with nominal value of GBP 1 were split into 500.100
common shares (with voting rights) with nominal value of GBP 0,25 and 500.100 deferred shares (without voting rights)
with nominal value of GBP 0,75. Additionally, 214.328 new common shares of a nominal value of GBP 0,25 per share were
issued at GBP 0,43 per share. The new common shares were acquired by the “Employee Benefit Trust”. Following the
aforementioned, Marfin Egnatia Bank S.A. percentage holding decreased from 100% to 70% on the voting rights that arise
from the common shares.
(f) Increase in shareholding in Marfin Securities (Cyprus) Ltd
On 13 June, 2007 Investment Bank of Greece S.A. acquired 50.000 shares in its subsidiary company Marfin Securities
(Cyprus) Ltd, which corresponds to 3% of its share capital. These were acquired for C£ 51.000 and bring Investment Bank
of Greece S.A. holding in the company from 97% to 100%.
(g) Increase in shareholding in Egnatia Financial Services (Cyprus) Ltd
In June 2007, the Bank acquired 49% of the share capital of Egnatia Financial Services (Cyprus) Ltd (existing subsidiary of
the Group) from a number of shareholders and the remaining 51% from its subsidiary companies Egnatia Bank S.A. and
Egnatia Finance S.A. As a result, the total share capital of Egnatia Financial Services (Cyprus) Ltd is held directly by the
Bank. The total price for the acquisition of the aforementioned holdings was C£ 2,9 m and goodwill arising was C£ 623.000.
159
Notes to the Consolidated Financial Statements
55. TRANSACTIONS WITH THE GROUP OF MARFIN INVESTMENT GROUP HOLDINGS S.A.
During the year, the Group had material transactions with Marfin Investment Group Holdings S.A. group, which occurred
subsequently to the Group’s loss of control in Marfin Investment Group Holdings S.A. due to reduction in its participation. The
commission income earned by the Group amounted to C£ 50.277.000 and comprises mainly of underwriting fees, investment
banking fees and brokerage fees. Additionally, as at 31 December, 2007 the Group’s total exposure regarding facilities granted
to Marfin Investment Group Holdings S.A. group amounted to C£ 276.946.000 and deposits placed by Marfin Investment
Group Holdings S.A. group amounted to C£ 270.630.000.
56. POST BALANCE SHEET EVENTS
With the introduction of the euro as the official currency of the Republic of Cyprus as from 1 January, 2008, the functional
currency of the Bank and of the Group companies with functional currency the Cyprus pounds has changed from Cyprus
pounds to euro. As a result, the financial position of the Bank and the Group companies with functional currency the Cyprus
pounds at 1 January, 2008 has been converted into euro based on the definite fixing of the exchange rate euro 1 = C£ 0,585274.
On 17 January, 2008 the Bank announced that it has agreed to sell 100% of the share capital of Egnatia Financial Services (Cyprus)
Ltd to its subsidiary Laiki Investments E.P.E.Y. Public Company Ltd. The sale will be in cash at the same price that the Bank had
acquired Egnatia Financial Services (Cyprus) Ltd by its former shareholders, that is, the equivalent in euro of C£ 2.882.000.
On 7 February, 2008 the Bank announced the signing of an agreement with Dubai Financial Group, according to which Dubai
Financial Group will acquire from the Bank 53.532.184 shares of Marfin Investment Group Holdings S.A. (6,45%) at the price of
euro 7 per share no later than 31 March, 2008.
On 27 February, 2008 the Bank announced that the necessary approvals from the responsible regulatory authorities (Central
Bank of Cyprus and Malta Financial Services Authority) for the acquisition of 43% of the share capital of Lombard Bank Malta
Plc have been obtained.
57. SUPPLEMENTARY INFORMATION
The consolidated income statement for the year ended 31 December, 2007 and 31 December, 2006 the consolidated balance
sheet as at 31 December, 2007 and 31 December, 2006, as well as the consolidated cash flow statement for the year ended
31 December, 2007 and 31 December, 2006, in euro, constitute supplementary information. According to paragraph 57 of IAS
21 “The Effects of Changes in Foreign Exchange Rates”, the supplementary information is displayed in euro by applying an
exchange rate to both current year and comparative amounts that equals to the exchange rate issued by the Central Bank of
Cyprus as at the balance sheet date of the current year (that is C£ 1 = euro 1,70881 on 31 December, 2007) according to Circular
No. 25 of the Institute of Certified Public Accountants of Cyprus.
58. APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements were approved by the Board of Directors on 28 February, 2008.
Independent Auditors’ Report on pages 57 to 160.
160
161
Important Addresses
HEAD OFFICE
Laiki Building, 154 Limassol Avenue
P.O.Box 22032, 1598 Nicosia
Tel: +357 22552000, Fax: +357 22811491
Ε-mail: [email protected]
LAIKI eBANK
Website: www.laikiebank.com, Tel: 8000 2000
Calls from overseas: +357 22 887766
INVESTOR RELATIONS
Τel: +30 210 817 3243, Fax: +30 210 689 6306
E-mail: [email protected]
MARFIN EGNATIA BANK S.A.
4 Danaidon Str., 546 26 Thessaloniki, Greece
Tel: +302310598600
INVESTMENT BANK OF GREECE S.A.
24 Kifissias Avenue
151 25 Maroussi, Greece
Τel: +302108170000
162
UNITED KINGDOM
Laiki Bank UK
Headquarters & London Main Branch, Laiki Bank House
14 Gavendish Place, London W1G 9DJ
Telex: 263128, Tel: +44 20 7307 8400
Fax: +44 20 7307 8404, Email: [email protected]
AUSTRALIA
Laiki Bank (Australia) Ltd
Level 4, 219-223 Castlereagh Street, Sydney NSW 2000
Tel: +61 (0) 28262 9000
Fax: +61 (0) 289283 7723
Email: [email protected]
CHANNEL ISLANDS
Laiki Bank (Guernsey) Ltd
21 Glategny Esplanade, St. Peter Port
Guernsey, Channel Islands, GY1 3AP
Tel: +44 (0) 1481 722 988
Fax: +44 (0) 1481 722 998
Email: [email protected]
SERBIA
Marfin Bank JSC Belgrade
22 Dalmatinska Str., 11000 Belgrade, Serbia
Tel: +381 11 3306401
Fax: +381 11 3241425
Email: [email protected]
ROMANIA
Egnatia Bank Romania S.A.
90-92 Emanoil Porumbaru Str., 3rd-6th Floor
Sector 1, 011428, Bucharest
Tel: +4021 206 4200
Fax: +4021 206 4283
Email: [email protected]
UKRAINE
Marine Transport Bank
2 Gogol Street, Odessa 65082
Tel: +380482 301 330
Fax: +380482 301 332
Email: [email protected]
ESTONIA
AS SBM Pank, 12 Parnu Str. 10148 Tallinn
Tel: +372 6802 500
Fax: +372 6802 501
Email: [email protected]
RUSSIA – MOSCOW (Representative Office)
Office 1005A, 10th Floor World Trade Center
Entrance no. 3, Krasnopresneskaya Nab. 12
Moscow 123610
Tel: +7495 9670185, Fax: +7495 9670186
E-mail: [email protected]
163
General Supervision
Corporate Affairs
Design and Editing
TELIA & PAVLA/BBDO
Printing
J.G. Cassoulides & Sons Ltd
Additional copies of the Annual Report may be optained from Telebank, tel: 8000 2000.
Calls from overseas: +357 22 887766
Annual Report and other information on Group are available on our website: www.laiki.com
ISSN 1450-4618