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Annual Report 2013
2013
Basic Consolidated Financial Indicators
in accor dance with International Financial Reporting Standards (IFRS)
Statement of Financial Position Indicators
(CZK mil.) 2013 2012 2011 2010 2009
Total assets 968,723 920,403 892,598 881,629 855,130
Loans and advances to fnancial institutions 75,348 65,320 77,433 175,101 126,506
Loans and advances to clients 507,483 489,103 483,552 460,077 469,192
Securities 267,788 296,719 254,790 180,352 177,376
Amounts owed to fnancial institutions 73,036 44,344 52,862 52,459 47,434
Amounts owed to clients 713,977 688,624 658,016 661,513 643,420
Shareholders capital attributable to equity holders
of the parent
100,660 93,190 79,810 70,780 63,279
Income Statement Indicators
(CZK mil.) 2013 2012 2011 2010 2009
Net interest income 27,909 29,657 31,244 30,250 30,892
Net fee and commission income 11,294 11,768 12,381 12,167 11,402
Opera ting income 41,885 43,575 44,073 45,421 45,658
Opera ting expenses (17,593) (18,259) (18,424) (18,677) (19,268)
Opera ting proft 24,292 25,316 25,649 26,744 26,390
Net proft attributable to equity holders of the parent 15,588 16,612 13,638 12,052 12,640
Basic Ratios
2013 2012 2011 2010 2009
ROE 16.2 % 19.3 % 18.2 % 18.2 % 20.3 %
ROA 1.6 % 1.8 % 1.5 % 1.3 % 1.4 %
Opera ting costs/opera ting income 42.0 % 41.9 % 41.8 % 41.1 % 42.0 %
Non- interest income/opera ting income 33.4 % 31.9 % 29.1 % 33.4 % 32.3 %
Net interest margin on interest-bearing assets 3.6 % 3.7 % 3.9 % 3.8 % 4.3 %
Client receivables/client pay ables 69.8 % 69.4 % 73.5 % 69.5 % 72.9 %
Standalone capital adequacy 17.7 % 16.0 % 13.1 % 13.9 % 12.3 %
Key Opera ting Indicators
Number: 2013 2012 2011 2010 2009
Staff (average headcount) 10,651 10,760 10,556 10,744 10,843
esk spoitelna branches 653 658 654 667 660
Clients 5,258,892 5,297,398 5,202,572 5,265,097 5,272,785
Giro accounts 3,078,221 3,033,563 2,784,286 2,800,822 2,837,756
Of which: Private Accounts 2,379,625 2,294,577 2,264,722 2,101,646 1,715,257
Active cards 3,233,725 3,178,184 3,174,161 3,229,866 3,258,011
Of which: Credit cards 319,271 347,834 392,205 441,989 476,463
Active S24 and B24 users 1,591,355 1,475,517 1,409,933 1,318,537 1,252,155
ATMs and payment machines 1,530 1,466 1,413 1,312 1,218
Rating
Rating agency Long-term rating Short-term rating Outlook
Fitch A F1 Sable
Moodys A2 Prime 1 Stable
Standard & Poors A A1 Negative
Key Figures
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Content
Content | Profle of esk spoitelna | The Year 2013 in Review
Key Figures 2
Profle of esk spoitelna 4
The Year 2013 in Review 5
Foreword by the Chairman of the Board of Directors 8
esk spoitelna Board of Directors 10
esk spoitelna Supervisory Board and Audit Committee 12
Macroeconomic Development in the Czech Republic during 2013 16
Report of the Board of Directors on Business Activities of the Company
and the State of its Assets in 2013 17
Strategic Plans for the Future 41
Risk Manage ment 43
Other Information for Shareholders 52
esk spoitelna Corporate Social Responsibility 56
esk spoitelna, a. s. Declaration of Compliance of its Gover nance
with the Code Based on OECD Principles 60
Organizational Structure 66
Report of the Supervisory Board and Audit Committee 67
Report of the Audit Committee 68
Financial Section 1 69
Independent Auditors Report 70
Consolidated Financial Statements 71
Financial Section 2 152
Separate Financial Statements 154
Report on Relations between Related Parties 225
esk spoitelna Financial Group 234
esk spoitelna Selected Consolidated Financial Performance fgures in 1st Quarter 2014 242
Conclusions of the Ordinary Gene ral Meeting 243
Index 244
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Profle of esk spoitelna
The Modern Bank with the Longest Tradition
We are a modern bank with a focus on retail clients,
small- and medium-sized enterprises, municipalities and cities
and we play an important role in financing large corporations and
providing financial market services. With more than 5.3 million
clients, we are the Czech Republics largest bank. We won the
Fincentrum award for Bank of the Year 2013 and were named
Most Trustworthy Bank of the Year for the tenth year running.
This reco gnition is all the more important as it is the customers
who vote. Pavel Kysilka once again defended his title of the last
two years to be named Banker of the Year for 2013. We have
issued more than 3.2 million payment cards, have a network of
653 branches and operate more than 1,536 ATMs and payment
terminals nationwide. We carry on a long tradition of savings
banks and credit unions that started in the Czech lands in 1825.
Quality Comes First
We are a pillar of the Czech banking system and, since 2000, we
have been able to rely on the strong backing of Central Europes
Erste Bank financial group. Our aim is to offer clients precisely
those services they need. We are among those banks that set the
trends in modern banking services. Our clients enjoy the use of
the most extensive network of bank branches and ATMs in the
Czech Republic.
Responsibility not Only for Ourselves
We understand that as a strong company, we have a share in
social responsibility. We are one of the Czech Republics larg-
est corporate donors. The esk spoitelna Foundation supports
dozens of projects, and via the Depositum Bonum Foundation we
support quality instruction in our schools. We are also constantly
expanding our network of wheelchair accessible branches and
the number of ATMs for the blind.
Content | Profle of esk spoitelna | The Year 2013 in Review
5
The Year 2013 in Review
January
In compliance with Czech pension reform, Penzijn fond esk
spoitelny was transformed into a pension company and a new suc-
cessor entity, esk spoitelna - penzijn spolenost, a. s., and 8 indi-
vidual funds were esta blished. The original supplementary pension
insurance contracts were integrated into the SPS Transformed
Fund, which was closed to new clients. esk spoitelna penzijn
spolenost subsequently began offering supplementary pension
and retirement savings.
Clients can chose the denomination of bank notes withdrawn from
esk spoitelna ATMs. Now, in addition to CZK 200, 1,000 and
2,000 bills, clients can opt for CZK 500 bills at all ATMs.
esk spoitelna and Plzesk mstsk dopravn podniky, a. s.
(PMDP) [Plze Mass Transit] introduced a new and unique
feature for the Plze Transit Card it can now be topped up at
esk spoitelna ATMs.
The esk spoitelna sub sidiary Partner S, a. s. changed its name
to S do domu, a. s. and altered its business strategy and corporate
image.
The esk spoitelna Foundation celebrated its eleventh anniver-
sary in January 2013. Since it was esta blished, the Foundation
has donated some CZK 165 million to charitable projects. As of
2014, the Foundation will have a new strategy characterized by the
motto: We Stand with Those Society Ignores. The Foundation will
focus on supporting full active lives for seniors, promoting greater
social engagement for the mentally and physically handicapped
and assisting the socially disenfranchised.
February
esk spoitelna began issuing the contactless MasterCard Rewards
and MasterCard World credit cards in addition to the contactless
Visa debit card.
In a Czech Student Union survey, university students named esk
spoitelna the most attractive employer in banking and insurance
for the second year in a row.
esk spoitelna and Erste Group Bank provided advisory ser-
vices to a consortium of Allianz Capital Partners and Borealis
Infrastructure in the acquisition of the company Net4Gas, the
exclusive supplier of gas in the CR sold by RWE Group. In the
role of mandated lead arranger, the Bank also took part in the
CZK 1.4 billion financing of this acquisition.
esk spoitelna and not-for-profit organization Terra-klub o.p.s.
together published the School Atlas to foster financial literacy
among primary and grammar school students. The Atlas is avail-
able to students at 159 schools and is the only textbook of its kind
approved by the Czech Ministry of Education, Youth and Sports.
March
esk spoitelna was named best bank in the Czech Republic in an
evaluation by US magazine Global Finance. The magazine named
the best banks worldwide for 2013 in developing markets including
central and eastern Europe. Global Finance has ranked banks on
a regional and global basis for 20 years.
esk spoitelna introduced a limited loan consolidation offer in
which clients could combine existing loans into a single loan with
lower instalment payments. Any client who did not obtain a lower
instalment rate received a one-time CZK 1,000 payment from the
Bank.
The S Real Estate Fund run by investment company REICO,
a member of the esk spoitelna Financial Group, purchased the
multi-use Trianon building in Prague 4. At a purchase price of
CZK 1.35 billion, it was one of the Czech real estate markets big-
gest transactions in 2013.
April
The esk spoitelna direct banking services SERVIS 24 and
BUSINESS 24 reported more than 1.5 million active users.
During Aprils Mortgage Days, esk spoitelna guaran teed clients
an interest rate of 2.79%, the lowest fixed interest rate in the Banks
history. The Bank also introduced the new Complete Mortgage
with which clients can both finance and furnish their purchased
properties.
Profle of esk spoitelna | The Year 2013 in Review | Foreword by the Chairman of the Board of Directors
6
esk spoitelna began offering loans to housing cooperatives
and apartment owner associations to finance apartment block
energy savings projects (incl. EU grant distribution) as part of
the Apartment Block Savings programme. esk spoitelna is
the only bank in the Czech Republic to offer such a programme.
esk spoitelna served as the exclusive advisor for the sale of
a 44% stake in SA to Korean Air.
Stavebn spoitelna esk spoitelny saw the market launch of
its Buinka Mortgage Loan with which clients can get with low
interest rates starting at just 3.05%. The maximum interest rate
for the life of the loan is 5% p.a.
In the OVB Friendliest Bank competition, esk spoitelna
received the OVB Friendliest Bank Handicap Friendly award
for Q1 2013 for its approach to persons with physical disabili-
ties. The title was awarded based on voting by individuals with
physical disabilities.
The esk spoitelna Ordinary Gene ral Meeting approved, inter
alia, a profit distribution proposal. A total of CZK 7,600 million
was allocated for a CZK 50 per share dividend payment.
May
The Prague Wheelchair Association performed an accessibility
survey of esk spoitelna branches and ATMs in all regional capi-
tals. esk spoitelna has a total of 77 barrier-free branches and
83 barrier-free ATMs.
esk spoitelna made it possible for clients to pay invoices through
QR codes in all its payment machines. The payment machines
operated by the Bank fully comply with Czech Banking Association
functio nality standards.
esk spoitelna beat out other international banks in a tender to
provide banking services for Galileo Satellite Navigation.
June
esk spoitelna was the lead arranger of a primary issue of
a CZK 8.0 billion bond programme for Dopravn podnik hl. m.
Prahy [Prague Mass Transit] to finance the purchase of koda 15T
ForCity tram cars.
For people hit by the June floods, esk spoitelna prepared a spe-
cial offering of a no-fee loan with a fixed rate of 6.9% p.a. Aside
from its low interest rate, the loan offered quick approval: the
money was available within 5 minutes of contract signing.
esk spoitelna issued its millionth Visa contactless payment card
in early June.
One year after launching the sale of investment gold in 77 branches,
esk spoitelna had sold more than 170 kg of gold for nearly
CZK 200 million. The Bank also increased the number of branches
at which people could pick up gold ingots to 10.
In the eleventh annual Zlat koruna competition for the best finan-
cial pro ducts on the Czech market, the 5 PLUS investment loan
received a Zlat koruna in the Commercial Loans category.
esk spoitelnas SERVIS 24 Mobile Bank was named the third
best mobile application in the Mobile Application 2013 competi-
tion.
esk spoitelna joined with the City of Prague Museum to intro-
duce a fun interactive exhibition called Money or Life? for kids 8
years old and up. It introduces them to the world of money its
history, pro duction and use.
July
During the summer months, the Bank held a Summer Mortgage
event for clients offering guaran teed rates of 2.99% and 2.79%.
Elixir for Schools is a pilot project of the new Depositum Bonum
Foundation. The project brings young experts, recent technology
and natural science graduates to schools as assistants or club leaders
and supports high-quality, motivated teachers in their work and
exemplary approach to teaching.
August
As of the 1
st
of August, there were two personnel changes in the
esk spoitelna Board of Directors. Karel Mourek returned to
esk spoitelna as the Board of Directors member responsible
for risk. He replaced Heinz Knotzer. Wolfgang Schopf succeeded
Duan Baran as Board of Directors vice-chairman and CFO of
esk spoitelna.
esk spoitelna introduced contactless stickers that work like debit
cards. The sticker can be applied to anything, ideally a mobile
phone. Using a phone with a sticker, the client may make contact-
less payments at vendors, make payments online or get cash using
the Cashback service.
esk spoitelna joined the Friendly Places project in which the
Czech Red Cross trains employees of vari ous institutions and enter-
prises in the right approach to people with physical disabilities and
seniors as well as providing first aid training.
In the OVB Friendliest Bank competition, esk spoitelna received
the OVB Friendliest Bank Handicap Friendly award for Q2 2013
for its approach to persons with physical disabilities. The title was
awarded based on voting by individuals with physical disabilities.
7
September
esk spoitelna was named Best Bank in the Czech Republic 2013
by Euromoney, making esk spoitelna the nations best bank for
two years running. The award is given out annually by Euromoney
magazine, a professional monthly specializing in banking and capi-
tal markets. esk spoitelna has received this honour three times
in the last five years.
esk spoitelna obtained an additional EUR 150 million from
the European Investment Bank to support domestic small and
medium-sized enterprises. Some EUR 100 million is earmarked
for innovative enterprises, which will receive low- interest loans,
and EUR 50 million to support energy-saving projects.
esk spoitelna won a tender organised by the Moravia-Silesia
region for the co-financing and preliminary financing of projects
subsidized by the region in an amount of CZK 1.2 billion for up
to 5 years.
At the end of September, esk spoitelna launched a fall marketing
event offering a number of benefits to clients. Those clients who
took out any kind of loan with esk spoitelna by the 2013 year
end would receive a 1% interest rate reduction for every year of
timely repayment.
esk spoitelna became the new gene ral partner of the Czech
Olympic Committee. The agreement is valid through 2016, which
means the Bank is supporting the Czech Olympic athletes at the
2014 Sochi Winter Games as well as the Rio Summer Games in
2016.
Two esk spoitelna subsidiaries changed their business names:
Factoring esk spoitelny to Erste Factoring and S MORAVA
Leasing to Erste Leasing. This branding change repre sented
a milestone in the completion of the business model for services
provided to corporate clients under the Erste Corporate Banking
brand.
There were two changes in the esk spoitelna Supervisory
Board with the election of Supervisory Board member Jack Stack
to replace Manfred Wimmer as chairman and the return of Erste
Group Bank CEO Andreas Treichl to the Supervisory Board as
vice-chairman after a five-year absence.
October
esk spoitelna was awarded the VIA BONA prize, one of the
most important and prestigious awards in corporate philanthropy
and social responsibility in the Czech Republic. esk spoitelna
was recognized for its longstanding commitment to preventing
and combating drug addiction. The Bank was nominated by the
SANANIM civic association with which the esk spoitelna
Foundation has worked for 13 years.
The company Vrnostn program iBOD, a. s. [Loyalty Programme
iPOINT, a. s.], of which esk spoitelna is the majority share-
holder, launched a new multi-partner bonus programme in early
October based on the principle of rewarding customers for using
esk spoitelna services and for making purchases at an extensive
network of partner vendors.
November
esk spoitelna prepared the new iAccount for clients, a private
internet account. The iAccount is an alternative no-fee account
for active clients.
esk spoitelna was the arranger and coordinator of a CZK 4.1 bil-
lion acquisition loan provided by a consortium of banks to the
company Prask plynrensk Holding (PPH) controlled by the
City of Prague.
Working at esk spoitelna means having the opportunity to com-
municate easily on a company-wide basis and share information
and know-how with others both within the extensive network of
Bank branches and the Prague headquarters. Given its size, esk
spoitelna has to use the most up-to-date internal communication
tools. For its Veln [Beehive] intranet platform project, the Bank
won second prize in the European FEIEA Grand Prix 2013 com-
petition in the Intranet Site category.
December
esk spoitelna was named Bank of the Year 2013 in the
Fincentrum competition and for the tenth year running was also
named Most Trustworthy Bank. Pavel Kysilka once again defended
the title Banker of the Year awarded to him in 2011 and 2012. The
esk spoitelna mortgage pro duct placed second in the Mortgage
of the Year category, as did the private banking service in the Private
Bank of the Year category. The Bank placed second in the Bank
without Barriers category in a vote by those individuals who need
barrier-free banks.
esk spoitelna expanded the BUSINESS 24 Databanking service,
which now allows entrepreneurs and enterprises to dispatch pay-
ment orders directly from their accounting system.
esk spoitelna is number one on the Czech mortgage market,
providing individuals with more than 25 thousand mortgage loans
at an aggregate amount of CZK 39.7 billion in 2013, according to
Ministry of Regional Development statistics. The data also indi-
cated that people most often turned to esk spoitelna to provide
their mortgages in 2013.
8
Foreword by the Chairman of the Board
of Directors
Pavel Kysilka
Chairman of the Board
of Directors
The Year 2013 in Review | Foreword by the Chairman of the Board of Directors | Board of Directors
9
Dear Ladies and Gentlemen, Shareholders and
Colleagues,
Although the Czech economy was less robust than the econo-
mies of other European countries in 2013, we believe we are
seeing the end of recession and that confidence is on the rise
among companies and households. Weak economic conditions
notwithstanding, esk spoitelna reported very good business
results for the year, confirming that like most of the domestic
banking sector S remains strong and healthy.
A sure sign of future recovery is the increased interest of retail
and corporate clients in loan pro ducts. Client loans increased by
five percent in total volu me year-to-year, with mortgage loans
to individuals increasing by one tenth. The volu me of loans to
large corporate clients also grew. At the same time, there was
an increase in S customer deposits, further attesting to cli-
ent confidence. esk spoitelna obtained an additional EUR
150 million from the European Investment Bank in 2013 to sup-
port small- and medium-sized enterprises in the Czech Republic.
With the Banks accelerating digitization, an increasing num-
ber of esk spoitelna clients are using the direct banking
tool for their banking needs. The number of active users of the
Banks SERVIS 24 and BUSINESS 24 services rose to more
than 1.5 million in 2013. interest is also growing in contact-
less payment cards in June 2013, we issued the millionth
card. esk spoitelna clients performed more than 27 million
contactless transactions at a total value of 13 billion crowns.
In 2013, we also began offering contactless stickers, which
complement classic debit cards and simplify payments at ven-
dors. As the year came to a close, we also introduced iet for
clients who use the internet to communicate with the Bank,
and we launched the new iBOD loyalty program. The option of
choosing banknote denominations for ATM withdrawals became
a very popular service.
We continue to work with organizations that promote the
inte rests of the handicapped. At pre sent, roughly half of all
esk spoitelna outlets are wheelchair accessible. We are very
proud to have received the OVB Friendliest Bank Handicap
Friendly award for the third quarter running in 2013.
The outstanding quality of our services is reflected in the numerous
other awards esk spoitelna received in 2013. We successfully
defended our Best Bank in the Czech Republic title awarded by
Euromoney magazine, and we are the Czech Republics number
one bank as ranked by the American magazine Global Finance.
Here at home, our peers named esk spoitelna Bank of the Year
2013 and Most Trustworthy Bank for the tenth year in a row. We are
also pleased to be among the most sought after employers in bank-
ing and insurance, especially for graduates of Czech universities.
Social engagement is an important part of what we do. The Bank
transferred extraordinary income from anonymous passbooks to the
Depositum Bonum Foundation, whose inaugural project, Elixir for
Schools, raises the quality of instruction in Czech schools. esk
spoitelna received the VIA BONA prize, one of the most pres-
tigious in the field of corporate philanthropy and social responsi-
bility, confirming that social engagement is not just about giving
money, but about volunteerism and the direct engagement of our
employees.
Nor does esk spoitelna neglect the world of sport. In addition
to its many years of partnering with Cycle for Life, the Bank also
became a gene ral partner of the Czech Olympic Committee and is
offering its support to Czech olympians at both the Winter Games
in Sochi and the 2016 Summer Games in Rio de Janeiro.
esk spoitelna has achieved its success thanks to the excellent
work of its employees, to whom a great debt of gratitude is owed.
It is also the result of a long-term model of responsible lending
and investing and effective cost manage ment. This longstanding
system assures stability and will provide for our continued future
growth. It is the aim of esk spoitelna to become the leading
bank in six main market segments by the end of 2014, as well as
a bank of key importance to small enterprises and multinational
corporations. I firmly believe that next year we will be able to say
we have achieved this goal.
Pavel Kysilka
esk spoitelna Board of Directors Chairman
The Year 2013 in Review | Foreword by the Chairman of the Board of Directors | Board of Directors
10
esk spoitelna Board of Directors
as of 2013
Pavel Kysilka
Date of birth: 5 September 1958
Chairman of the Board of Directors and CEO
Reference address: Olbrachtova 62, Prague 4, Czech Republic
Mr. Kysilka is a graduate of the Faculty of Economics of the
University of Economics in Prague. He additionally completed
postgraduate research in 1986. From 1986 to 1990, he worked
at the Institute of Economics of the Czechoslovak Academy of
Sciences. From 1990 to 1991, Mr. Kysilka served as chief economic
advisor to the minister for economic policy. In the 1990s, he held
vari ous positions culminating in the post of executive governor
of the Czech National Bank, where he also oversaw the splitting
of the Czechoslovak currency in 1993. From 1994 to 1997, he
served as an expert advisor to the International Monetary Fund
and participated in the launch of national currencies in several
eastern European countries. In the 1990s, he served as president
of the Czech Economic Society. Before joining esk spoitelna,
Mr. Kysilka worked for Erste Bank Sparkassen (CR) in Prague as
the executive director responsible for IT, administration, human
resources and services. In 2000, he joined esk spoitelna as its
chief economist and a member of the Senior Manage ment Team.
On 5 October 2004, the esk spoitelna Supervisory Board
appointed Mr. Kysilka as a member of the Board of Directors and on
1 January 2011 he became the chairman of the Board of Directors
and CEO. His memberships include the managing boards of the
University of Economics in Prague and the Smetanova Litomyl
music festival.
Membership in bodies of other companies: none.
Wolfgang Schopf
Date of birth: 12 August 1961
Vice-chairman of the Board of Directors and First Deputy CEO
After completing high school and graduating from a business acade -
my, Mr. Schopf embarked on his career in 1980 at Girocentrale und
Bank der sterrechischen Sparkassen AG, where he was responsible
for accounting and reporting. He joined Erste Bank in 1997 as
head of accounting. In 2004, Mr. Schopf became director of the
Controlling Division at Erste Group Bank, and later he managed
the performance manage ment program. He held these positions
until leaving Erste Group Bank in July 2013.
Mr. Schopf has been a member of the S Board of Directors since
1 August 2013. He is responsible for financial manage ment.
Duan Baran
Date of birth: 6 April 1965
Vice-chairman of the Board of Directors and First Deputy CEO
Mr. Baran is a graduate of the Faculty of Mathematics and Physics
of Charles University in Prague. He also received an International
Executive MBA from the Katz Graduate School of Business,
University of Pittsburgh in conjunction with the CMC Graduate
School of Business elkovice, and completed a banking course
at the University of Colorados Graduate School of Banking. From
1991 to 1993, he worked for Agrobanka in treasury manage ment. He
joined esk spoitelna in November 1993, where he held vari ous
managerial posts in the Treasury and Risk Manage ment divisions.
In May 1998, he became a member of the esk spoitelna Board
of Directors and the Banks deputy CEO. In March 1999, he became
Board of Directors chairman and CEO. On 4 July 2000, he was
appointed vice-chairman of the esk spoitelna Board of Directors
and deputy CEO. He served at the same time as CFO of esk
spoitelna.
Mr. Baran resigned from the S Board of Directors effective
31 July 2013.
Daniel Heler
Date of birth: 12 December 1960
Member of the Board of Directors and Deputy CEO
Reference address: Evropsk 2690/17, Prague 6, Czech Republic
Mr. Heler is a graduate of the Prague University of Economics,
Faculty of International Trade. He held internships with
J.P. Morgan, Goldman Sachs, S. Montague, UBS, N.M. Rothschild,
Shearson and Bayerische Hypobank. He also completed a number
Foreword by the Chairman of the Board of Directors | esk spoitelna Board of Directors | esk spoitelnas Supervisory Board and Audit Committee
11
Foreword by the Chairman of the Board of Directors | esk spoitelna Board of Directors | esk spoitelnas Supervisory Board and Audit Committee
of courses on global banking, banking profitability, retail bank-
ing strategy, and treasury and risk manage ment. He has worked
in the banking sector since 1983. He first held vari ous positions
in the Department of foreign Exchange and Money Markets
and then, in 1990, he became director of the Financial Markets
Division of eskoslovensk obchodn banka Praha. In 1992, he
was appointed treasurer and member of the Board of Directors
of Crdit Lyonnais Bank Praha. In 1998, he was appointed as
a member of the Board of Directors of Erste Bank Sparkassen (CR)
responsible for financial markets. In 1999, he became vice-chair-
man of the Board of Directors of Erste Bank Sparkassen (CR).
Since 1 July 2000, Mr. Heler has been a member of the Board of
Directors of esk spoitelna responsible for asset manage ment
and retail investment pro ducts, corporate finance and investment
banking, treasury sales and trading, capital markets, balance sheet
manage ment, financial institutions and correspondent banks. Since
1 January 2011, Mr. Heler has also been responsible for corpo-
rate clients, real estate business, municipal financing and trade
financing.
Membership in bodies of other companies: Burza cennch
papr Praha, a. s., Fond Pojitn vklad, Erste Corporate
Finance, a. s., Investin spolenost esk spoitelny, a. s., REICO
investin spolenost esk spoitelny, a. s., GRANTIKA esk
spoitelny, a.s., brokerjet esk spoitelny, a. s. and Nadace esk
spoitelny, a. s.
Heinz Knotzer
Mr. Knotzer is a graduate of the University of Vienna, where he
received his JD degree. He began his banking career after work-
ing for one year as a legal assistant in the Austrian court system.
He worked first at Investitionkredit and then in the investment
baking division of Girozentrale und Bank der sterreichischen
Sparkassen AG (which became a part of Erste Bank after a 1997
merger). In 1995, he joined Creditanstalt, and in 1996 was seconded
to Creditanstalt, a. s., where he headed up the Corporate Clientele
Division. In 1998, he became director of the Corporate Clientele
Division II. In June 1999, he joined Erste Bank Sparkassen
(CR), a. s. and was appointed as a member of the Board of
Directors and as the banks executive director. After the privatiza-
tion and acquisition of esk spoitelna by the Austrian Erste Bank,
Mr. Knotzer became a member of the Senior Manage ment Team.
In August 2004, Mr. Knotzer was appointed as a member of the
Board of Directors and deputy CEO of esk spoitelna. Since
July 2007, he was responsible for risk manage ment. Mr. Knotzer
resigned as a member of the S Board of Directors effective
31 July 2013.
Membership in bodies of other companies: s Autoleasing, a. s.,
REICO investin spolenost esk spoitelny, a. s. and Stavebn
spoitelna esk spoitelny, a. s.
Karel Mourek
Mr. Mourek is a graduate of the Czech Technical University in
Prague and later obtained his MBA from Thunderbird University
in the US. He began his career in 1992 at Creditanstalt, and
later joined the Corporate Client Division of Bank Austria
Creditanstalt Czech Republic. From 2001 to 2011, he worked
at esk spoitelna, where he managed the Commercial Center.
From 2011 to July 2013, Mr. Mourek worked at Erste Group
Immorent as the Board of Directors member responsible for risk
manage ment.
Mr. Mourek has been a member of the S Board of Directors since
1 August 2013. He is responsible for risk manage ment.
Membership in bodies of other companies: s Autoleasing, a. s.
Ji korvaga
Mr. korvaga graduated from the Institute of Chemical Technology
in Prague and did postgraduate studies at the Czechoslovak
Academy of Sciences. He joined esk spoitelna in 1998 when
he assumed the post of head of the S Card Center. In 1999,
he was appointed head of retail banking. In 2000, he became
responsible for retail banking business manage ment and joined
the Senior Manage ment Team.
In November 2006, Mr. korvaga became a member of the Board
of Directors and deputy CEO of esk spoitelna. He is respon-
sible for retail banking.
Membership in bodies of other companies: Stavebn spoitelna
esk spoitelny, a. s., Investin spolenost esk spoitelny, a. s.,
esk spoitelna penzijn spolenost, a. s. and Prask
jaro, o.p.s.
12
John James Stack
Chairman of the Supervisory Board
Mr. Stack, a US citizen, studied mathematics and economics at
Iona College (BA, 1968) and specialized in finance and manage-
ment at the Harvard Graduate School of Business Administration
(MBA, 1970). From 1970 to 1976, he worked in the New York city
administration. From 1977 to 1999, he worked for Chemical Bank,
which later merged with Chase Manhattan Bank, where he held
a number of key posts, including executive vice-president. From
2000 to 2007, Mr. Stack was chairman of the Board of Directors and
CEO of esk spoitelna. From 2005 to 2007, he was a member of
the Czech Banking Association. At pre sent, Mr. Stack is a member
of the Supervisory Board of Erste Group Bank and serves on the
boards of a number of US companies.
Mr. Stack has been Supervisory Board chairman since September
2013.
Membership in bodies of other companies: Erste Group Bank AG,
Ally Bank and Mutual of America Capital Manage ment Corp.
Andreas Treichl
Date of birth: 16 June 1952
Vice-chairman of the Supervisory Board
Reference address: Am Graben 21, Vienna, Austria
From 1971 to 1975, Mr. Treichl studied economic sciences at
Vienna University. After completing a training program in New
York, he began his career at Chase Manhattan Bank in 1977. He
was later seconded to Brussels (19791981) and Athens (1981
1983). In 1983, he first worked for Die Erste. In 1986, he became
CEO at Chase Manhattan Bank in Vienna, which purchased Credit
Lyonnais in 1993. In 1994, he was appointed to the administra-
tive board of Die Erste. In July 1997, he was appointed CEO. In
August 1997, the shareholders approved a merger with GiroCredit,
in which Die Erste had acquired a majority interest in March 1997.
Under his manage ment, Erste, which until that time had been
strictly a local savings bank, became a leading financial services
provider in central and eastern Europe with a focus on retail and
SME clients. In addition to serving as Board of Directors chairman
and CEO of Erste Group Bank, Mr. Treichls other responsibilities
include strategy, group communications, human resources, audit
and investor relations.
Mr. Treichl has been a Supervisory Board vice-chairman since
September 2013.
Membership in bodies of other companies: Erste Group Bank AG,
Erste Bank der sterrechischen Sparkassen AG, Banca Comerciala
Romana SA, Donau Versicherungs-AG VIG, Sparkassen
Versicherung AG VIG, MAK Oesterreischisches Museum fuer
Angewandte Kunst, sterreichischer Sparkassenverband, Felima
Privatstiftung, Ferdima Privatstiftung and Haftungsverbund GmbH.
Bernhard Spalt
Vice-chairman of the Supervisory Board
Mr. Spalt is a graduate of the Vienna University Law School. In 1991,
he joined DIE ERSTE sterreichische Spar-Casse Bank AG while
still a student, and worked in its legal department. From September
1994 to June 1997, he held vari ous positions in the banks Loan
Workout Department. He then transferred to the Office of the Board
of Directors and Supervisory Board, and was appointed head of
office in June 1998. In September 1999, Mr. Spalt was seconded
to the Erste Group Bank sub sidiary in the Czech Republic Erste
Bank Sparkassen (CR), a. s., where he headed up the Loan Workout
Department. Following the sale of Erste Bank Sparkassen (CR), a. s.
to esk spoitelna, a. s., he assumed responsibility for the esk
spoitelna, a. s. Loan Workout and Debt Recovery Department. After
three years in the Czech Republic, he returned to Erste Group Bank
Vienna in June 2002, where he led the Strategic Risk Manage ment
Group until October 2006. In November 2006, he became a member
of the Board of Directors of Erste Group Bank responsible for group
risk manage ment. In February 2012, he assumed the role of chief risk
officer and member of the Board of Directors of Erste Bank Hungary.
esk spoitelna Supervisory Board
and Audit Committee
as of 2013
esk spoitelna Board of Directors | esk spoitelnas Supervisory Board and Audit Committee | Macroeconomic Development in the Czech Republic during 2012
13
Mr. Spalt has been a member of the S Supervisory Board since 2003.
He resigned as a member effective on 21 April 2013.
Membership in bodies of other companies: Erste Investment
Ltd, Erste Bank Hungary Zrt, Banca Commerciala Romana SA,
s Haftungsverbund GmbH. and Erste sterreichische Spar-Casse
Privatstiftung
Peter Bosek
Member of the Supervisory Board
Mr. Bosek graduated from Vienna University Law School and began
his career in Vienna. He joined Erste Bank der sterrechischen
Sparkassen AG in 1996, starting in its Legal Department before moving
on to the Real Estate and Retail departments. Since 2007, Mr. Bosek
has been the Board of Directors member responsible for retail banking,
corporate clients, the public sector, real estate, marketing and pro duct
manage ment.
Mr. Bosek has been a member of the Supervisory Board since April
2013.
Membership in bodies of other companies: Erste Bank der sterre-
chischen Sparkassen AG, AVS Beteiligungsgesmbh, Bausparkasse
der sterrechischen Sparkassen AG, Donau Versicherungs AG
VIG, EBV Leasing Geselschaft mbH & Co KG, Paylife Bank
GmbH, Erste Asset Manage ment, Erste Group Immorent AG,
Oesterreichische Kontrollbank AG, Sparkasse Versicherung AG
VIG, S Wohnaubank AG, Salzburger Sparkasse Bank AG, Tiroler
Sparkasse Bank AG Innsbruck, Oesterreichische Sparkassenverband,
Finanzpartner GmbH, ERP Fond, Wien 3420 Aspern Development AG
and AWS Gruenderfonds Beteiligungs GmbH & Co KG.
Elika Bramborov
Date of birth: 4 December 1953
Mrs. Bramborov is a graduate of the Charles University Law School.
She began her career at KD, and has been an attorney with esk
spoitelna since 1992. She is currently the head of the Corporate
Banking Legal Support Department. Mrs. Bramborov also repre-
sents S on the Legal Committee of the Czech Banking Association
and is a member of the Internal Committee of the esk spoitelna, a. s.
Ladies Investment Club.
Mrs. Bramborov was elected to the S Supervisory Board by the
Banks employees in October 2008.
Stefan Drfer
Date of birth: 24 February 1971
Reference address: Boersegasse 14, Vienna, Austria
Mr. Drfler graduated from the Vienna University of Technology
in 1995, where he majored in technical mathematics. After com-
pleting his studies, he joined GiroCredit Bank AG Sparkassen
in Vienna. He has been with Erste Bank since 1997, the year
that Erste sterrechischen Sparkassen and GiroCredit merged.
In 1999 and 2000, he headed up the interest Rate and Currency
Derivatives Department, and from 2000 to 2004 he was director
of bond trading and sales. From 2004 to 2009, he was a manager
in the Erste Bank Capital Markets Division, and has been the head
of this department since 2009.
Mr. Drfler was elected to the S Supervisory Board by the Gene ral
Meeting in April 2012.
Membership in bodies of other companies: Erste Securities Polska
S.A., Erste Asset Manage ment, RINGTURM Kapitalanlagegesells
chaft m.b.H., VBV-Pensionskasse AG, Zertifikate Forum Austria
and Die Erste sterreichische Spar-Casse Privatstiftung
Maximilian Hardegg
Mr. Hardegg is a graduate of the Faculty of Agricultural Sciences
in Weinhenstephan, Germany. From 1991 to 1993, he worked at
AWT Trade and Finance Corp., a part of Creditanstalt Group, while
serving as an advisor to the Czech Ministry of Agriculture during
agricultural privatization. Since 1993, he has worked in agriculture
manage ment and participated in Phare, Sapard and Leader + titles
projects designed to support agricultural system coope ration
throughout the EU. He belongs to lobbying groups in Austria and
the EU whose aim is to support sustainable development in land
use and agriculture.
Mr. Hardegg has been a member of the S Supervisory Board
since May 2002.
Membership in bodies of other companies: Die Erste sterreichis-
che Spar-Casse Privatstiftung and Nadace Depositum Bonum
Zdenk Jirsek
Date of birth: 31 July 1950
Reference address: Masarykova 645, Kutn Hora, Czech Republic
Mr. Jirsek is a graduate of the Czech Technical University in
Prague and completed postgraduate studies at the University of
Economics in Prague. He began his career in 1974 at KD Kutn
Hora, where he worked in several interesting positions in distribu-
tion and sales before becoming foundry manager. In 1994, he joined
esk spoitelna, where he held manage ment positions until 2000.
After S joined Erste Group Bank, he moved into a non-managerial
position as a sales trainer. In late 2007, he was elected chairman of
the Banks Trade Union Committee.
Board of Directors | esk spoitelnas Supervisory Board and Audit Committee | Macroeconomic Development in the Czech Republic during 2012
14
Mr. Jirsek was elected to the S Supervisory Board by the Banks
employees in October 2008.
Membership in bodies of other companies: KH Tebis, s.r.o.
Herbert Juranek
Date of birth: 13 November 1966
Mr. Juranek is a graduate of the Commercial College in Austria
Bruck/Leitha. He began his career working in securities at
Girozentrale der sterreichischen Sparkassen. At GiroCredit Bank,
A.G., his focus was on derivatives clearing and technical support.
From 1996 to 1998, he worked for Reuters Ges.m.b.H. oversee-
ing all sales and risk manage ment activities of Reuters in Austria.
Since 1999, he has held vari ous positions at Erste Group Bank, first
in securities operations and then as CEO of the companies ecetra
Central European e-Finance AG and ecetra Internet Services AG,
where he was responsible for broker services and internet banking
for Erste Group Bank. In March 2003, he became executive director
responsible for Erste Group Banks group organization and IT and,
in July 2007, he was promoted to COO and became a member of the
Erste Bank Group Board of Directors responsible for group-wide
organization, IT, asset manage ment, operations and processing.
Since 2008, his group-wide responsibilities have included the Card
Center and centralized procurement.
Mr. Juranek was elected as a member of the S Supervisory Board
in April 2005.
Membership in bodies of other companies: Banca Comerciala
Romana S.A., ecetra Central European e-Finance AG, s IT
Solutions AT Spardat GmbH, EGIT SK, spol. s r.o., Slovensk
sporitela, a. s., Informations-Technologie Austria SK, spol. S.r.o.,
Erste Group Bank AG, Erste & Steiermrkische bank d.d., Rijeka,
s IT Solutions CZ, s.r.o., Public Company Erste Bank, s IT Solutions
HR and MBU d.o.o.
Heinz Kessler
Immediately after completing his political science studies at Vienna
University, Mr. Kessler joined Nettingsdorfer Papierfabrik AG in
1964. In 1974, he was appointed a member of the paper companys
Board of Directors and in 1982 he was made that bodys chair.
Mr. Kessler was elected as a member of the S Supervisory Board
in April 2007. Mr. Kessler resigned as a Supervisory Board member
effective 21 April 2013.
Membership in bodies of other companies: DIE ERSTE
esterreichische Spar-Casse Privatstiftung, Nettingsdorfer
Papierfabrik AG & Co KG, Rath AG, Reform-Werke
Bauer & Co Gesellschaft m.b.H., Reform-Werke Bauer & Co
Holding Aktiengesellschaft and Erste Bank der sterrechischen
Sparkassen AG.
Ale Veverka
Date of birth: 26 January 1973
Reference address: Nrodnch hrdin 3127/7, Beclav, Czech
Republic
Mr. Veverka graduated high school in Beclav before doing
a Business Academy qualification course in economics. After
completing his studies and his basic military service, he joined
the Beclav branch of esk spoitelna in 1983 as an advisor to
MSE clients. He has continued to devote his time to MSE clientele.
He is chair of the local Beclav trade union and since September
2010 has been a member of the esk spoitelna, a. s. Group-wide
Trade Union Committee.
Mr. Veverka was elected to the S Supervisory Board by the Banks
employees in November 2011.
The members of administra tive, manage ment and supervisory bod-
ies repre sent that they are unaware of any potential conflicts of
interest between their statutory duties and their personal inte rests
or other obligations.
Audit Committee
Maximilian Hardegg
Chairman
Home address: 2062 Seefeld-Kadolz, Austria
Mr. Hardegg is a graduate of the Faculty of Agricultural Sciences
in Weinhenstephan, Germany. From 1991 to 1993, he worked at
AWT Trade and Finance Corp., a part of Creditanstalt Group, while
serving as an advisor to the Czech Ministry of Agriculture during
agricultural privatization. Since 1993, he has worked in agriculture
manage ment and participated in Phare, Sapard and Leader + titles
projects designed to support agricultural system coope ration
throughout the EU. He belongs to lobbying groups in Austria and
the EU whose aim is to support sustainable development in land
use and agriculture. In May 2002, he became a member of the
S Supervisory Board.
Mr. Hardegg has been a member of the Audit Committee since
7 October 2009.
Stefan Drfer
Vice-chairman
Reference address: Boersegasse 14, Vienna, Austria
15
Mr. Drfler graduated from the Vienna University of Technology
in 1995, where he majored in technical mathematics. After com-
pleting his studies, he joined GiroCredit Bank AG Sparkassen
in Vienna. He has been with Erste Bank since 1997, the year
that Erste sterrechischen Sparkassen and GiroCredit merged.
In 1999 and 2000, he headed up the interest Rate and Currency
Derivatives Department, and from 2000 to 2004 he was director
of bond trading and sales. From 2004 to 2009, he was a manager
in the Erste Bank Capital Markets Division, and has been head of
this department since 2009. Mr. Drfler has been a member of the
esk spoitelna Supervisory Board since April 2012.
Mr. Drfler was elected to the Audit Committee by the Gene ral
Meeting in April 2012.
Heinz Kessler
Vice-chairman
Home address: 1030 Vienna, Landstrasser Hauptstrasse 65, Austria
After completing his political science studies at Vienna University,
Mr. Kessler joined Nettingsdorfer Papierfabrik AG in 1964. In
1974, he was appointed a member of the paper companys Board
of Directors and in 1982 he was made chairman of this body.
Mr. Kessler was a member of the S Supervisory Board from
2007 to April 2013.
Mr. Kessler became a member of the Audit Committee on 7 October
2009. He resigned as a member of the Audit Committee effective
22 April 2013.
Mario Catasta
Member
Home address: Sankt Veit-Gasse 11, Austria
Mr. Catasta completed his studies at the University of Economics
in Vienna in 1980. After his dissertation was accepted in 1982,
he joined an audit firm affiliated with the Austrian National Bank
as an independent auditor. He has been with Erste Group Bank
since 1987, first as an internal auditor and, since 1983, as head
of compliance. In 1994, he became head of the Internal Audit
Department. Following the merger between Erste sterreichischen
Sparkassen and GiroCredit, he became head of the Corporate Client
Department. He has been Erste Group Banks director of internal
audit since 2003.
Mr. Catasta has been a member of the Audit Committee since
7 October 2009.
Zlata Grningerov
Date of birth: 4 July 1957
Member
Home address: Poernick 3226/2f, Prague 10, Czech Republic
Mrs. Grningerov completed her studies at the University of
Economics in Prague, where she became an academic assistant
at the Faculty of Finance and Credit after graduating in 1982.
From 1991 to 1993, she was deputy CEO of the company SUEZ
INVESTIN, a. s., where she specialized in advisory and con-
sulting in enterprise search and acquisition. From 1995 to 2004,
Mrs. Grningerov held several senior positions (director of
equity investment financing, senior director of credit transac-
tions and business specialists) and was a member of the Board of
Directors and Banking Counsel of the Czech Consolidation Agency.
From 2005 to 2007, she was CEO and Board of Directors chair
of Technometra Radotn, a. s. From 2007 to 2009, she provided
economic and organizational advisory services. She then joined the
Czech Ministry of Finance as a section director. Since early 2011,
she has worked in the International Division of EZ, a. s. Her
professional residencies and courses include a managerial develop-
ment program and residencies in corporate finance and financial
manage ment at universities in Paris and Lyon.
Mrs. Grningerov has been a member of the Audit Committee
since 7 October 2009.
16
In Q2 2013, the Czech economy emerged from the longest recession
in the countrys recent history. The pronounced Q4 economic
re covery, manifest prima rily in gross domestic pro duct (GDP),
only slightly mitigated the overall 0.9% decline in the Czech
economy in 2013.
In early 2013, the Czech economy slumped due to lingering fiscal
restriction and ongoing eurozone recession. The situation in the
eurozone gradually began to improve in H2, which was positively
reflected in Czech industry, especially growth in foreign orders. In
Q4 2013, the Czech economy grew year-to-year by a solid 1.3%
given continuing European Monetary Union acceleration.
Only government consumption contributed to positive GDP growth
(0.4 of a percentage point) for 2013; as in 2012, the contribution
of investment and household consumption remained negative.
Surprisingly, foreign trade a traditional driver of economic
growth was also in the red in 2013 under the adverse influence
of a significant decline in exports in Q1. Moreover, foreign order
growth in H2 meant a number of Czech manufacturers were forced
to increase material inventories, which significantly impacted import
growth.
The contribution of household consumption ( 0.1 of a percentage
point) to GDP growth was also adversely affected by an unusually
weak H1. Notwithstanding this, the overall decline for 2013 could
have been higher were it not for the artificially weakened crown,
which forced households to accelerate certain purchases (electronics,
automobiles) due to concerns about rapid price growth. Nor did
growing unemployment up to 7.7% in 2013 do anything to help
household consumption during the year. Fixed investment fell by
more than 5% year-to-year due in large part to the construction
slump. The Czech Republic had a considerable amount of unused
pro duction capacity in 2013 owing to the recent recession.
Inflation averaged 1.4% for 2013, but experienced a sustained
decline over the course of the year. Marginal growth was reported
in Q4 given the increase in import prices after the November
launch of the Czech National Banks (CNB) foreign exchange
interventions. On 7 November 2013, the CNB Board, having
exhausted the possibility for further interest rate cuts, approved the
launch of foreign exchange interventions with the aim of keeping
the Czech crown-to-euro exchange rate at approximately CZK/
EUR 27 until at least early 2015. This repre sented a response to
the risks of a deflation scenario that could occur in 2014 given
the persisting tendency toward falling prices coming both from
abroad via commodities prices and from the domestic economy
via regulated prices, a negative demand-pull inflation and falling
indirect tax revenue. Another reason for the foreign exchange
intervention approval was to shore up Czech exports and, as a result,
boost economic growth in 2014 by an estimated 0.5 of a percentage
point.
Macroeconomic Development in the Czech
Republic during 2013
esk spoitelnas Supervisory Board and Audit Committee | Macroeconomic Development in the Czech Republic in 2013 | Report of the Board od Directors on Business Activities of the Company
17
Report of the Board of Directors on
Business Activities of the Company
and the State of its Assets in 2013
Macroeconomic Development in the Czech Republic in 2013 | Report of the Board od Directors on Business Activities of the Company and the State of its Assets in 2013 | Strategic Plans for the Future
Consolidated Results of Operations
Despite difficult macroeconomic conditions, esk spoitelna
enjoyed one of the most successful years in its long history.
This success can be seen in the Banks opera ting results, the increase
in loans and deposits and the improving quality of the loan portfolio.
The visible improvement in the conditions of Czech households and
businesses is gratifying. Our success may also be measured in the
host of domestic and international awards and prizes we received in
2013 in reco gnition of our achievements not only in banking, but in
the field of social responsibility, too.
Euromoney, a banking and capital markets monthly magazine, named
esk spoitelna Best Bank in the Czech Republic 2013 in a repeat
of our first place 2012 ranking.
In the Fincentrum competition, esk spoitelna won the title
Bank of the Year 2013 and, for the tenth year running, was
also named Most Trustworthy Bank of the Year. Pavel Kysilka
once again defended the Banker of the Year title, which he previously
received in 2011 and 2012. esk spoitelnas mortgage pro duct and
Private Banking service came second in their respective categories.
In the Bank without Barriers category, S came second in a vote by
those very individuals in need of barrier-free banks.
esk spoitelna also won the VIA BONA prize, one of the most
important and prestigious awards in the area of corporate philanthropy
and social responsibility in the Czech Republic. The award was given
in reco gnition of our long-term commitment to preventing and com-
bating drug addiction.
Pension reform in the Czech Republic meant that esk spoitelna
expanded its consolidated income statement pre sentation to include
a separate item reflecting proceeds from the esk spoitelna penzi-
jn spolenost (SPS) Transformation Fund in consolidated profit.
The consolidated 2012 income statement data were thus reclassified
to create a comparable base.
Income Statement
For the year ended 31 December 2013, esk spoitelna
reported consolidated net profit after minority inte rests of
CZK 15.6 billion under International Financial Reporting Standards.
Compared to net profit of CZK 16.6 billion in 2012, the net result
decreased by 6%. Although net profit dropped as compared to
the Banks historic success of 2012, esk spoitelna still
reported its second best result ever in 2013. Due in particu-
lar to strong equity growth, the return on equity (ROE) indicator
dropped to 16.2%, while the return on assets (ROA) indicator fell
to 1.6%. In 2012, these values were 19.3% and 1.8%, respectively.
Profit before tax and minority inte rests (gross profit) decreased 5%
year-to-year to CZK 19.5 billion.
Net and opera ting proft (CZK billion)
30
13.6
25.6
16.6
15.6
25.3
24.3
12.6
26.4
24
18
12
6
0
2009 2010 2011 2012 2013
Net proft Opera ting proft
12.1
26.7
Cost/Income ( %)
125
41.8 41.9 42.0 42.2
100
75
50
25
0
2009 2010 2011 2012 2013
41.1
18
The Banks consolidated results were mainly impacted by lower net
interest income, higher profits from non- interest opera ting income,
lower income from financial assets and the favourable impact of an
ongoing reduction in opera ting expenses. Opera ting profit decreased
4% to CZK 24.3 billion as a result of extremely low interest rates
and the slow growth in demand for consumer credit.
Total opera ting income comprising net interest income, net fee and
commission income and net profit from trading operations dropped
4% to CZK 41.9 billion. The share of non- interest income in total
opera ting income increased to 33%. Opera ting expenses contin-
ued to decrease by 4% in 2013 to CZK 17.6 billion. The cost/
income ratio thus remained stable at 42.0%.
Net interest income traditionally accounts for the lions share of
opera ting income. interest rates long remaining extremely low,
since November 2012 the Czech National Bank base rate
has remained at a historic low of 0.05% (technically zero).
Although the total volu me of provided loans increased, the demand
for consumer financing is still rising only slowly. Given these cir-
cumstances, net interest income dropped 6% to CZK 27.9 bil-
lion.
Client transactions generate more than three quarters of net interest
income. The client loan portfolio increased year-to-year
by 4%, with mortgage loans the fastest growing component. Newly
provided consumer loans reported growth in H2, though overall
demand is recovering at a very slow pace. Nonetheless, the Bank
successfully reduced interest expense on financing at the same time.
Naturally, interest income reflects the highly competitive banking
environment, which is why net interest income from client transac-
tions fell 5% to CZK 21.5 billion.
Net interest income from bonds was the second most important
item. It fell 9% to CZK 5.5 billion due prima rily to reduced bond
income and a lower volu me of held-to-maturity debt securities.
On the other hand, lower expenses resulting from the significant
reduction in the Banks own issued securities, including subordinated
debt were favourably reflected in net interest income. Net profit from
real estate investments amounted to CZK 0.5 billion and net interest
income from interbank transactions to CZK 0.3 billion.
Falling interest rates are evident in the development of the net yield
on interest-earning assets, which fell from 3.74% to 3.61% in 2013.
Net fee and commission income, another substantive component
of opera ting income, totalled CZK 11.3 billion in 2013, a 4% drop
year-to-year. The drop in fee and commission income has
been impacted by the gene ral economic situation and the fact that
clients are making greater use of cheaper internet banking
options and lower fee programmes and pro ducts. Fee and
commission income from loans and securities transactions reported
the most favourable development due to the growing number of these
transactions. The greatest drop was seen in payment transaction fee
and commission income.
Lower net fee and commission income is most attributable to a 6%
drop in payment transaction fee and commission income caused by
advantageous Private Account programmes, greater use of lower fee
internet banking and the Banks client-centric approach. Despite
growth in the volu me and number of card transactions, income from
card transactions also fell due to growing transaction processing
costs for card associations. Net payment transaction fee and commis-
sion income is the primary source of total net fee income, accounting
for 57% of the total.
Loan transaction growth was successfully reflected in the stabiliza-
tion of net loan activity fee and commission income at 3.0 billion.
Increased client demand for investment pro ducts, especially
mutual funds and asset manage ment, resulted in net security
transaction fee and commission income growing by a rela-
tively robust 8% to CZK 0.8 billion. Net insurance pro duct commis-
sion income fell only slightly; net construction savings commission
income somewhat more. This can be attributed to discounted fee
offers.
esk spoitelna once again reported an outstanding net
trading result. Net income from trading result grew a further 25%
to CZK 2.7 billion following on a successful 2012. Income from
foreign currency and derivatives transactions (especially
equity and interest derivatives) is behind this good result. In
contrast, profit from securities transactions (prima rily with bonds)
decreased.
Rigorous and consistent opera ting expense manage ment
with an emphasis on efficiency and effectiveness has
been a priority at esk spoitelna in recent years. Gene ral
administra tive expenses (opera ting expenses) comprising staff costs,
other administra tive costs and fixed asset depreciation/amortization
once again decreased year-to-year, falling 4% to CZK 17.6 billion.
Expressed in absolute terms, this repre sents savings of CZK 670 mil-
lion.
esk spoitelna reduced expenditure on office space, advertising
and marketing, information technology, legal and advisory services
Composition of opera ting income (CZK billion)
35
28
21
14
7
0
2009 2010 2011 2012 2013
31.2
12.4
29.7
27.9
11.8
11.3
30.9
11.4
Net interest income
Other non- interest opera ting income
Net fee and commission income

0.5
3.4
2.2 2.7
30.4
12.2
2.9
19
and business transactions. In all, administra tive costs fell 10% to
CZK 6.5 billion. At 33% of other administra tive expenses,
data processing (IT) costs continued to be the single largest
item. This is followed by rental costs at 23%, business transac-
tion costs at 15% and advertising and marketing at 14%. Business
transaction costs chiefly comprise material consumption, monetary
circulation and chip cards.
Staff costs appeared to report contradictory developments.
Although the Financial Group reduced headcount by 5% to
10,454 in 2013, staff costs for the same period increased 3% to
CZK 9.0 billion. This was prima rily due to severance payments.
Staff costs make up more than one half of gene ral administra tive
expenses.
Depreciation/amortisation of tangible/intangible fixed assets reports
a long-term decrease, falling 6% to CZK 2.1 billion year-to-year
due to lower tangible asset depreciation for pro perty and hardware.
The net charge for provisions and reserves for credit risk
improved year-to-year by 10% to CZK 3.3 billion owing to ongo-
ing improvement in the overall quality of the credit portfolio
risk profile. Despite lower reserve creation, the provisioning for
watched and non-performing loans coverage indicator improved
year-to-year from 72.3% to 78.6%.
Other opera ting result decreased 38% year-to-year to CZK 1.6 billion.
A number of factors were at play here. Net profit from financial
assets comprising gains and losses from the sale and revaluation
of financial assets at fair value, available-for-sale assets and assets
held-to-maturity decreased due in large part to negative
developments in financial (chiefly bond) markets, reporting an
aggregate loss of CZK 0.3 billion. Other major items are Deposit
Insurance Fund contribution costs of CZK 0.9 billion and losses
from the revaluation and sale of real estate investments of 0.8 billion.
The 2013 tax liability of the esk spoitelna consolidated group
was CZK 3.9 billion and comprised tax due of CZK 4.1 billion
less quantified changes in deferred tax in an aggregate positive
amount of 0.2 billion.
Statement of Financial Position
The consolidated balance sheet total of CZK 968.7 billion
at 31 December 2013 repre sents a year-to-year increase of
CZK 48.3 billion, or 5%.
In a year-to-year comparison, assets grew and changed in
structure. The volu me of loans and advances, available-for-sale
securities and deposits with the CNB increased, while the volu me
of held-to-maturity and held-for-trading securities fell. Balance
sheet liabili ties saw an increase in clients and financial institutions
deposit volu mes and equity amounts. The liabili ties associated with
issuance of the Banks owns securities, including subordinated debt,
reported the greatest decrease.
Assets
Loans and advances to clients are the active transactions that gener-
ate the largest portion of opera ting income. Loans and advances
to clients increased 4% to CZK 507.5 billion in 2013 owing
to an increase in mortgage loans and loans and advances
to entrepreneurs, particularly in the small and medium-sized
Balance sheet total (CZK billion)
1 000
800
600
400
200
0
2009 2010 2011 2012 2013
892.6
920.4 968.7
855.1
881.6
Structure of opera ting expenses (CZK billion)
Depreciation/amortization of tangible/
intangible assets
2.1
12 %
Staff costs
9.0
51 %
Administra tive
expenses
6.5
37 %
Structure of opera ting income (CZK billion)
Net trading result
2.7
6 %
Net fee and commission income
11.3
27 %
Net interest income
27.9
67 %
20
enterprise (SME) and corporate clientele market segments. The
volu me of loans and advances to clients exceeded half a billion Czech
crowns for the first time in the long history of esk spoitelna.
Given the growth in client loans and advances as well as client
deposits, the loan to deposit ratio remained stable at a very con-
servative 71.1%. Net loans and advances to clients account for 50%
of all active transactions.
Loans and advances to private individuals totalled CZK 264.8 bil-
lion, repre senting year-to-year growth of 4% or CZK 9.9 billion.
Mortgage loan provision has continued its successful growth
record. Low interest rates, a favourable real estate market and,
above all, esk spoitelnas active loan policy yielded
growth of more than 11% in the household mortgage loan
portfolio to CZK 155.1 billion. In absolute terms, the portfolio
grew by CZK 15.9 billion.
Despite an uptick in interest in consumer financing (peaking in
autumn 2013), its total volu me in the Banks balance sheet, inclu
ding overdraft and credit card loans, reported a year -to - year 4%
drop to CZK 69.7 billion. Low mortgage rates have been reflected
in a lower degree of interest in construction savings loans, the total
volu me of which contracted year-to-year by 5% to CZK 37.6 billion.
The volu me of loans and advances to entrepreneurs and small enter-
prises once again increased due in large part to mortgage loans,
growing 1% to CZK 56.5 billion.
Proof of the gradual improvement in the Czech economy
can be found in the 4% growth in the consolidated portfolio
of loans to corporate clients to CZK 186.1 billion. Corporate
clients, SMEs and, of course, corporate mortgages all contributed to
this successful result. Only loans to large municipal clients reported
a lower value.
Loans to large corporate clients and to SMEs increased 3%
year-to-year, to CZK 56.9 billion and CZK 85.1 billion, respectively,
attributable mainly to growth in investment, project and export
financing.
Mortgage loans to corporate clients totalled CZK 29.8 billion,
a 16% increase year-to-year. The consolidated portfolio of
mortgage loans to individuals, companies and the public
sector increased in the aggregate by a considerable 11%
to CZK 209.7 billion; mortgage loans make up some 41% of the
entire loan portfolio.
The quality of the loan portfolio again reported year-to-year
improvement in 2013. Provisioning for watched and non-per-
forming loans increased to 78.6% coverage, while total coverage
(including colla teral) is 114.5%. Annualized risk costs dropped
from 76 to 66 basis points.
Loans and advances to financial institutions increased 15%
year-to-year to CZK 75.3 billion, attributable mainly to an increase
in reverse repo transactions with the CNB and other financial insti-
tutions. Reverse repo transactions totalled CZK 19.4 billion at the
2013 year end. Term deposits with financial institutions make up
some CZK 47.8 billion of total interbank receivables. Year-to-year
growth in deposits with the CNB and interbank receivables result
from the November interventions of the CNB and subsequent
increase in short-term CZK liquidity.
The aggregate balance of the portfolio of securities at fair value,
available-for-sale securities and securities held-to-maturity
decreased 10% year-to-year to CZK 267.8 billion, due prima-
rily to a drop in the volu me of held-to-maturity securities
associated with the maturity of government bond issues.
Bonds comprise fully 99% of the securities portfolio. esk
spoitelna prefers to purchase bonds issued by Czech
government institutions, which account for a total of 80% of
all bonds. The proportion of bonds issued by financial institutions
in the Czech Republic is 8%. The proportion of bonds issued by
Total amounts due from clients (CZK billion)
500
600
400
300
200
100
0
2009 2010 2011 2012 2013
483,6
251,6
489,1
507,5
254,9
264,8
469,2
252,8
Total amounts due from clients
of which: amounts due from private individuals households
460,1
250,5
Loan to deposit ratio ( %)
100
80
60
40
20
0
2009 2010 2011 2012 2013
73.5
71.0 71.1
72.9
69.5
21
foreign financial institutions, particularly in Central Europe, is
7%. Securities and investment certificates make up only 1%, or
CZK 1.8 billion, of the portfolio.
In order to maintain stable net interest income, bonds in the
held-to-maturity portfolio account for more than 58% of the secu-
rities portfolio.
The volu me of real estate investments including assets under
construction is being intently gradually decreased, it fell 21%
year-to-year to CZK 8.8 billion. The objective of real estate invest-
ment is to realise rental income. esk spoitelna also invests in real
estate investment funds open to institutional investors and focused
on the Czech and Slovak markets.
The aggregate balance of tangible and intangible assets decreased
2% year-to-year to CZK 17.5 billion, of which land and buildings
comprise 70%. Intangible assets increased 4% to CZK 3.3 billion
due, in particular, to licenses and software acquisitions. Tangible
assets fell 3% in value to CZK 14.2 billion. The aggregate propor-
tion of tangible and intangible assets to total assets is 2%.
Liabili ties
Client (primary) deposits have traditionally been the key
source of funding for esk spoitelnas lending: these
currently comprise 75% of all liabili ties, meaning that esk
spoitelna is considerably free of interbank funding. Client
deposits totalled CZK 714.0 billion and including liabili ties
to clients at fair value amounted to CZK 726.6 billion. Client
deposits grew 4% year-to-year, or CZK 25.4 billion. The high
volu me of client deposits contributes to the Banks strong liquid-
ity position.
Long-term customer deposit growth testifies to the trust
shown in esk spoitelna. Private indi vidual deposits grew
1% to CZK 528.8 billion. Private Account and transformed pen-
sion insurance deposits saw the greatest growth. Deposits in new
savings pro ducts like Internet Savings, Purpose-tied Savings and
S Savings also reported an increase. In contrast, construction
savings deposits decreased.
Corporate client deposits increased 6% in 2013 to CZK 114.7 bil-
lion on current accounts. Public sector deposits reported even
greater growth of 22% to CZK 70.4 billion due to the high volu me
of loans accepted in repo transactions as well as growth in domestic
and foreign-currency term deposits.
Foreign currency deposits grew to 5% of total client deposit volu me;
the euro is the currency of choice, followed by the US dollar.
The balance of pay ables to financial institutions comprising
loans, term deposits and current account balances increased
65% year-to-year to CZK 73.0 billion for the year ended
31 December 2013. A significant increase in interbank liabili-
ties was attributable prima rily to an increase in loans received
in repo transactions and, more importantly, the acceptance
of a global loan as part of coope ration with the European
Investment Bank aimed at supporting SMEs and financing public
and non-profit sector needs.
The total volu me of issued bonds in the consolidated balance sheet
decreased 22% year-to-year to CZK 26.6 billion excluding issued
structured bonds at fair value and subordinated bonds. A number
of mortgage bond and bond issues gradually fell due, hence the
decrease. The total value of mortgage bonds as a stable and
long-term source of funding for mortgage transactions in
the consolidated balance sheet is CZK 23.3 billion. Issued bonds
totalled CZK 2 billion.
In years past, esk spoitelna has issued subordinated bonds to
shore up its capital base. Given its sufficient capital adequacy
associated with the addition of retained earnings to equity, subor-
dinated debt was reduced by CZK 2.1 billion through gradual
repayment.
Equity attributable to shareholders, comprising share capital,
share premium, legal reserve fund, valua tion gains or losses on
the portfolio of available-for-sale securities, hedging deriva-
tives and translation reserve, retained earnings and current year
profit, exceeded CZK 100 billion for the first time to total
Client deposits (CZK billion)
800
640
480
320
160
0
2009 2010 2011 2012 2013
658.0
688.6
714.0
643.4
661.5
Structure of assets (CZK billion)
Securities portfolio
267.8
28 %
Net loans and advances to clients
489.2
50 %
Loans and advances to fnancial instituti-
ons and the CNB
132.3
14 %
6 %
2 %
Other assets
61.9
Tangible and intangible assets
17.5
22
CZK 100.7 billion. In a year-to-year comparison, equity increased 8%
due, in particular, to an increase in retained earnings. Consequently,
esk spoitelna has sufficient equity for future growth and
to meet new regula tory requirements.
Consolidated and standalone capital adequacy calculated in com-
pliance with the Basel II Directive again increased due to higher
retained earnings Consolidated by 250 basis points to 18.6% and
standalone by 170 basis points to 17.7%.
Business Activity
Retail Banking
esk spoitelna, the largest and most important retail bank on the
Czech market, holds a leading position in all key banking areas. esk
spoitelna is number one on the Czech market measured by
number of clients, provided mortgage and consumer loan
volu me, client deposit size and number of cards issued.
Based on an extensive retail banking transformation project in pre-
vious years, esk spoitelna has four different client service
models in retail banking. A simpler, more understandable, fast and
convenient banking model has been created for the mass clientele,
and this is complemented by a model for a wealthier clientele that
includes advisory and a more extensive offering of sophisticated pro-
ducts and services. The third service model, offered under the Erste
Premier and Erste Private Banking brands, is for high net worth and
more demanding clients and offers a high level of service comfort and
sophisticated pro ducts with an emphasis on top level investment and
asset manage ment advisory. A separate segment offers specialized pro-
ducts, services and advisory to entrepreneurs and micro-enterprises.
In 2013, esk spoitelna concentrated on further improving its
services and developing its customer-centred approach to meet the
requirements of clients in all segments. The primary objectives are
to provide clients with continuously improving and greater value,
motivate employees to increase customer satisfaction and improve
the perceived value of the Banks services.
Pro ducts and Services by Segment
More than 4.5 million retail clients use the services of esk
spoitelna. Although the number of clients is high, esk spoitelna
is always interested in new client acquisition. A targeted campaign
has strongly impacted the number of new clients. In H1, the Bank
held a successful event during which new clients opened one
account free of charge for themselves and one for a friend. At the
end of the year, customers who opened a new account received
a coffeemaker; also this activity met with great success.
Over mid-year, the Bank launched the Private Account II, a pro duct
offering a new way to make contactless payments with a contact-
less sticker. The new Private Account introduced a market-
ing concept targeted at families with kids. Clients can visit
the new website www.rodinanasbavi.cz for ideas on spending free
time with their kids, and they can take out discounted travel and
other insurance with a Private Account, which additionally offers
scheduled payment insurance, liability insurance, legal expenses
insurance, an assistance service, casualty insurance and insurance
covering payment cards and personal items.
esk spoitelna drafted new contract documentation for the pur-
pose of transforming retail banking contracts from a standard to
a dialogue style that is clearer and more understandable for cli-
ents. Internet banking has been made much more transparent and
intuitive. At the end of the year, the Bank launched new savings
pro ducts including the new Childrens Deposit Passbook offering
a premium interest rate as well as financial bonuses for children
when they turn 12 and 18. Innovations in lending have created
greater flexibility through reduced or increased payments,
payment suspension up to twice a year and more.
esk spoitelna provides more than 300,000 clients with the Private
Banking service, which has been created for wealthier active clients
who know banking services and expect quality and professionalism
in financial services. In its second year, the Private Banking client
base has grown and, to the Banks delight, customer satisfaction
has risen. Every Private Banking client is entitled to a Private
Banker offering ongoing attention, special pro ducts and the
preparation of a Private Financial Plan. The plan is a compre-
hensive, customized financial strategy updated annually. If a client
is interested in investing, a certified investment specialist will see to
that clients needs. Of course, Private Banking customers have easy
access to their funds through internet and mobile banking.
The Private Account S is the Banks flagship pro duct and
offers everything a client could need. In 2013, the Bank added
more exclusive pro ducts for Private Banking clients: the Savings
Account, Savings S Account and Premium Deposits with an
investment focus (Pharmacist, Fast Food and Sport Style). Loan
Plus and Mortgage pro duct conditions were also improved. Another
innovation Private Banking for Youth offers banking services
adapted to the needs of a younger clientele. A key pillar of Private
Banking is educating clients; in 2013, more than 50 seminars were
held on topics such as how to better manage ones finances.
Structure of liabili ties (CZK billion)
Issued bonds and subordinated debt,
including bonds at fair value
30,5
3%
Amounts owed to fnancial institutions
73,0
8 %
Amounts owed to clients, including liabili-
ties at fair value
726,6
75 %
4 %
10 %
Other liabili ties
37,9
Equity attributable to Bank shareholders
100,7
23
Private Banking clients expect high quality services, so esk
spoitelna introduced a unique Quality Guarantee: if a client
is unhappy with the quality of a service, the fee for that service will
be refunded. At 140 selected esk spoitelna branches, Private
Banking clients are looked after by 580 Private Bankers and 50
investment specialists.
esk spoitelna offers premium banking to higher income or high
net worth clients under the Erste Premier brand. Erste Premier is
a comprehensive banking service offering the highest degree
of service quality, professionalism and discretion through the S
branch network.
The Premier Banker forms the cornerstone of the service, func-
tioning as a private secretary available to the client at any
time. Like a true private secretary, he or she should foresee the cli-
ents requirements and be able to take on certain activities, includ-
ing Busy Banking, where the Premier Banker carries out selected
transactions on the clients behalf. At the 2013 year end, a total
of 10 branches offered Erste Premier Banking in Prague, Brno,
Ostrava, Plze, Hradec Krlov, Olomouc and esk Budjovice.
More than 15 thousand clients are served through Erste Premier.
Key pro ducts are the Private Account Premier, of which there are
more than 15 thousand, and the Savings Account Premier, total-
ling close to 7 thousand. The balance of deposits on these two
pro ducts at the 2013 year end was CZK 12.7 billion. Again, the
number of accounts and volu me of funds almost doubled
year-to-year.
Erste Premier continued to evolve in 2013. The Loan Premier and
Mortgage Premier were added to the portfolio of exclusive Premier
pro ducts. Both pro ducts met with great interest among clients and
the number of clients using Premier loan pro ducts increased sig-
nificantly in 2013. Clients can also use the Visa Infinite I as a debit
card tied to their Premier Account.
In 2013, the offer to prepare Private Financial Plans was further sup-
ported as a pillar of this service. All Premier Bankers have under-
gone training in this area and offer clients sophisticated solutions
to meet their needs. Model portfolios repre sent one of the few
paths toward delivering more interesting returns at a time of
low interest rates. In practice, this means investment specialists
and Premier Bankers ascertain the views, needs and requirements
of clients and offer them comprehensive model solutions consisting
of the right combination of indi vidual investment pro ducts (mutual
funds, bonds, structured pro ducts) whose risk profile and potential
return are in sync with the clients needs. Model portfolios respect
the clients requirements, be they expected return, volatility of the
investment, or the expected investment horizon.
Among the non-banking benefits offered by Erste Premier are
membership in the Premier Benefit Club. Erste Premier clients
have expressed their longstanding satisfaction with the offered
services.
Erste Private Banking (EPB) is the highlight of the service
offering for private clients. Under this brand, esk spoitelna
provides Private Banking services for its wealthiest clientele with
a focus on financial investment. Erste Private Banking pro-
vides a comprehensive service for key clients, first-class
advisory services and an individualized approach and main-
tains a personal relationship with every client through Private
Bankers based on professionalism, trust and discretion.
In 2013, the organizational structure of Erste Private Banking
was changed in order to better meet client needs and maintain
broad regional coverage with EPB service centres. In 2013, the
Private Banking service placed a greater focus on offer-
ing indi vidual client portfolio manage ment by professional
portfolio managers with knowledge of the Czech and interna-
tional financial markets. The Bank also increased the minimum
asset value for clients wishing to use Private Banking services in
response to the latest market developments.
esk spoitelna Erste Private Banking won second place in the
Private Bank of the Year 2013 section of the Fincentrum Bank
of the Year competition.
Financing Housing Needs
The successful years of mortgage loan provision, with every
year surpassing the one before, continue. Low interest rates,
a favourable real estate market and, above all, esk spoitelnas
active lending policy supported by qualified advisors and regular
special offers are behind the Banks very successful 2013 in the
mortgage loan market.
A great success is the fact that in 2013 people turned to esk
spoitelna for their mortgage needs more often than to any other
financial institution. More than 25 thousand households financed
new housing or renovated their homes with the help of esk
spoitelna. In absolute terms, this repre sents some CZK 39.7 bil-
lion, a 13% increase year-to-year. The number of new mortgages
increased even by 17%. esk spoitelna garnered a 28%
share of new mortgages, making it number one on the
Czech mortgage market.
The average new mortgage amount was CZK 1.6 million, clients
most often chose a 5 year fixing period and the most frequent
purpose was financing of real estate. Average maturity was around
23.5 years. As usual, Prague and Central Bohemia saw the greatest
interest in mortgages. The important average loan to value
ratio reported a comfortable 65.9% for newly provided
mortgage loans and 66.7% for the entire portfolio of mortgage
loans to individuals.
The Bank launched a number of important innovations in 2013.
Early in the year, it prepared a loyalty bonus to clients in an amount
of 4% of their mortgage through the Mortgage with Bonus pro-
duct. Clients can use the bonus in any way they like. Within
Mortgage Days, the Bank provided throughout the year a unique
24
opportunity on the Czech market to obtain a transparent mortgage
with a guaran teed rate. Another mortgage innovation was the ser-
vice called Complete, where clients can use a part of their loan to
furnish their home. In the Fincentrum Bank of the Year 2013
competition, the esk spoitelna Mortgage pro duct was
awarded second place in its category. Another innovation
being prepared for 2014 is a unique event through which esk
spoitelna will sell mortgages at auction on its Facebook page.
The total portfolio of mortgages to private individuals house-
holds was CZK 155.1 billion, a significant year-to-year increase
of 11% or almost CZK 16 billion. The number of mortgage loans is
approaching 130 thousand and the average maturity of non-business
mortgage loans is 22.7 years; residual maturity is 18.8 years.
Stavebn spoitelna esk spoitelny is another important
provider of home financing loans. Given the upswing in mort-
gage loans in recent years, there has been less of a demand for
construction savings loans as a partial replacement for mortgage
loans. Nonetheless, pro duct innovations meant that in 2013 the
volu me of new loan contracts executed exceeded CZK 6 bil-
lion, i.e. 10% growth year-to-year. A key pro duct innovation that
Stavebn spoitelna S introduced in April is the Buinka Mortgage
Loan using real estate as colla teral. The loan is best suited to the
purchase of a home or larger renovation projects. The option of
annuity repayment even in the bridging loan phase is unique on
the construction savings market, as is the guaran teed interest rate
not exceeding 5% for the entire loan repayment period.
The total bridging loan and construction savings loan portfolio
fell 5% to CZK 37.6 billion. Bridging loans make up 71% of the
portfolio. At the 2013 year end, the number of loans exceeded
163 thousand.
Financing the Needs of Private Individuals
Although demand for consumer financing has not yet reached
pre-crisis levels, an emerging recovery can be detected in newly
provided consumer loans. esk spoitelna has focused on
innovation and active offers, the results of which can be
seen in the 26% year-to-year increase in newly provided
loans to CZK 21.3 billion.
In spring, the Bank launched a unique Loan Consolidation
offer, i.e. combining multiple loans into a single loan with lower
monthly instalments and a guaran teed reduction in monthly
instalments or payment of CZK 1,000. This campaign was
highly successful; the volu me of consolidation loans provided
increased 76% year-to-year, nearly doubling to a total value
of CZK 15.2 billion comprising 70 thousand consolidation
loans.
In autumn, esk spoitelna launched an entirely new concept in
consumer loans in response to customer prefe rence and needs.
Thanks to the information it obtained, the Bank prepared
a unique bundle of services that are highly adaptable to
vari ous life situations. The client may at any time and at no
cost take advantage of a payment holiday, an instalment reduc-
tion or increase of up to 50%, a change in monthly instalment
due date or an extended contract rescission period of up to 60
days without penalty (while the statutory obligation is only 14
days). Moreover, every client who took out a loan from esk
spoitelna by the end of 2013 will receive an interest rate reduc-
tion of 1 percentage point for every year of timely repayment.
By mid-year, the Bank was first to market with the option of
negotiating a consumer loan online via ATM. A client with
a pre-approved credit limit at esk spoitelna can execute
a loan agreement directly at an ATM and have the money
available immediately on a current account, and also withdraw
it on the spot with a payment card. This innovation has
expanded the broad range of pro ducts and services that esk
spoitelna offers via ATMs. Clients can use an ATM to open an
overdraft, take out a consumer loan and raise the credit limit on
an overdraft account or credit card.
In the area of credit cards, esk spoitelna held a campaign to
promote the issuance of the Rewards and World credit cards. The
offered functio nality of the contactless cards the Bank
introduced in mid-February was another milestone in credit
card development. New holders of personal and business credit
and charge cards can gradually take advantage of a modern, fast
and secure payment method. Credit cards are sold in collabora-
tion with an outside partner through a courier process. This form
of sale accounts for 25% of newly issued credit cards. There
are a total of 319 thousand active credit cards; credit card loans
amount to CZK 4.7 billion.
The total volu me of consumer loans inclusive of credit cards and
overdraft facili ties on Giro accounts increased 4% year-to-year
to CZK 69.7 billion. This points to a rapid increase in the volu me
of new consumer loans, although this is not yet enough to cover
the repayment of earlier loans.
Portfolio of mortgage loans (CZK billion)
150
200
120
90
60
30
0
2009 2010 2011 2012 2013
127,6
41,7
117,8
45,5
Portfolio of mortgages to private individuals households
Portfolio of Stavebn spoitelna S loans
117,5
45,1
139,2
155,1
39,5 37,6
25
Private Account
The esk spoitelna Private Account is the cornerstone of the pro-
duct and service portfolio for the Banks private clientele. The fully
variable and flexible Private Account S satisfies demand
for an individualised account that can successfully adapt to a cli-
ents changing needs.
In July, the Bank prepared the new Private Account S II for cli-
ents a single account for a lifetime. This account is designed
for all clients: children, teenagers, students, families and seniors.
Naturally, the basic package includes services such as a payment
card and online or mobile account access. Complementary services
are prepared based on the indi vidual needs of clients. Advisors
at branches have been tasked with introducing the new Private
Account S II in a new and more transparent sales environment
and with simplified contract documentation. To better manage
savings, clients can direct some of their cash into the linked
Money Aside Account. All of this, plus several special account
offers, helped increase new accounts by 53% year-to-year.
In November, esk spoitelna introduced the new iAccount, an
internet private account. The iAccount offers an alternative
that enables active clients to use the account free of charge.
With iAccount, clients get a basic free-of-charge service package
that includes SERVIS 24 internet, mobile and telephone banking,
a contactless VISA payment card, all incoming and outgoing pay-
ments, a monthly statement and the Partner Discount Programme.
esk spoitelna Private Banking clients use the Private Account
S, a modern account where, for a single fee, the client
receives all the services involved in actively managing their
day-to-day finances as well as all the benefits offered by
Private Banking. The Private Account S also comes with sim-
plified contract documentation, and all supporting materials are
given to the client on a CD. A number of premium supplementary
services including foreign withdrawals and payments and a savings
account can be purchased with a Private Account S.
The Private Account Premier is used by clients who are served
within the Erste Premier network. The Private Account Premier
offers exclusive services. Discretion, top-flight advisory, the pre-
mium services of a Premier Banker and a comfortable environment
are assured.
At the 2013 year end, nearly 2.4 million clients were using a esk
spoitelna Private Account, a substantial year-to-year increase
of more than 85 thousand. The volu me of cash deposits increased
by 10% year-to-year to a total of CZK 164.3 billion.
At the 2013 year end, the Bank recorded more than 3.1 million Giro
accounts (including Private and Payment Accounts) with a balance
of CZK 222.3 billion. Giro accounts are the pro duct with the highest
volu me of client deposits throughout the Financial Group.
Investment Pro ducts
esk spoitelnas long-term strategy is to target the needs of cli-
ents and pre sent investment solutions that go as far as possible
toward meeting their demands and expectations. Pro duct innovation
emphasises simplicity and quality.
Despite financial market changes, client preferences remained
much the same. Investors expressed the most interest in
conservative investment pro ducts, prioritising investment
protection over maximization of return. Fixed yield bond sales
of CZK 23.0 billion (with government savings bonds accounting
for CZK 19.7 billion) document this trend.
The esk spoitelna Premium Deposits performed well again in
2013. Their premium yield is derived from changes in equity, com-
modity or currency markets with a 100% nomi nal value guarantee.
In 2013, new Premium Deposit sales totalled CZK 4.5 billion,
or 5% growth year-to-year. In response to client interest, the offer
of equity and currency premium deposits in CZK was expanded in
2013 to include issues in euro and US dollars. The total Premium
Deposits balance at the 2013 year end was CZK 12.6 billion, a 21%
decrease year-to-year.
Also stock markets performed well and created interesting invest-
ment opportunities for the more dynamic investors, drawing their
attention to direct equity investment. Clients not wishing to submit
buy or sell orders electronically can do so on the Prague Stock
Private Account amount in thousands
2 500
2 000
1 500
1 000
500
0
2009 2010 2011 2012 2013
2,265
2,295
2,380
1,715
2,102
Total volu me of consumer loan portfolio
in CZK billion
100
80
60
40
20
0
2009 2010 2011 2012 2013
77.5
72.5
69.7
83.9
82.6
26
Exchange or a foreign stock exchange (including limit orders) at
esk spoitelna branch offices or by phone. The total turnover of
shares transacted in this manner exceeded CZK 0.8 billion in 2013.
The sale of physical gold at esk spoitelna branches was highly
successful. Clients purchased gold bars at a value in excess of
CZK 136 million during 2013.
Open-end mutual funds did well for esk spoitelna in
2013, as the majority of funds managed to exceed their
comparative index. Thanks to favourable sentiment on capital
markets, 2013 was one of the most successful years on record
for mature equities markets. Overall fund sales increased and
the structure of these sales changed. Favourable stock exchange
performance buoyed investor mood and fostered a willingness to
invest in riskier assets. Investors showed the greatest interest
in the mixed Conservative Mix fund, whose assets grew
by almost CZK 3.9 billion year-to-year. The fund yielded
a 2.86% annual return for investors. Other mixed funds in the
Investin spolenost esk spoitelny portfolio of pro ducts also
performed well.
Simi larly as in previous years, regular investment constituted
a very important element of the inflow of cash into mutual funds.
The share of regular deposits in total retail fund sales was
23% and the number of regular investors is still rising. Moreover,
average regular investment size has continued to grow to
CZK 2,864 in 2013.
The main driver behind the increase in equities valua tion was the
extremely liberal currency policy of the largest central banks cou-
pled with brighter corporate profit outlooks. Equities and mixed
funds offered especially good returns for investors. In 2013, the
Top Stocks equity fund, concentrated on mature interna-
tional markets, grew 33.93% and the Global Stocks fund
grew 28.03%.
Bond markets were characterised by stability and very low
returns in 2013. The assets of bond funds increased, and
the best results were reported by funds investing in high
yield bonds, which became an alternative for investors seeking
higher returns at a time of very low interest rates. The value of
S corporate bond fund mutual funds increased by 1.21% and
the ISS High yield bond fund increased by 3.85%.
Assets in Investin spolenost esk spoitelny funds grew by
9% in 2013 to CZK 55.0 billion.
Together with its sub sidiary REICO investin spolenost S,
esk spoitelna offers retail clients the possibility of investing
in commercial real estate through the S real estate investment
fund, an open-ended mutual fund. The S real estate invest-
ment fund is the largest real estate fund for retail clients
in the Czech Republic with capital of nearly 3.1 billion at the
2013 year end.
In March 2013, the S real estate fund acquired the Trianon
building in Prague 4, a prestigious piece of commercial real estate
chiefly comprising office space. The total number of buildings in
the fund increased to eight commercial properties, seven in the
Czech Republic and one in Slovakia. The total leasable area of all
the buildings owned by the fund is 74 thousand m
2
. The largest
tenants include Marks & Spencer, Erste Group, Cinema City, Ahold
and CK Fischer.
The S real estate fund enjoyed a return of 3.2% in 2013;
the 3-year average is 3.1% p.a. Notwithstanding unfavourable eco-
nomic development, the funds performance attested to its ongo-
ing stability. This is also clear from its performance curve, which
has shown positive growth for almost 5 years running. More than
14 thousand clients currently invest in the fund.
Savings Pro ducts
Supplementary pension insurance in the third pillar is the most
popular and steadily growing form of long-term savings. In con-
nection with government pension reform, former supplementary
pension insurance has been carried on in the Transformed Fund,
although this was closed to new clients who instead have access
to Supplementary Pension Savings. Client deposits in the
Transformed Fund again reported high inter-year growth,
of 18% to CZK 50.2 billion.
esk spoitelna penzijn spolenost executed more than
24 thousand new supplementary pension insurance con-
tracts in 2013 and more than 14 thousand second pillar pension
insurance contracts. At the 2013 year end, a total of 1,023 thousand
unique clients had deposited a total of CZK 50.7 billion on accounts
administered by S penzijn spolenost.
Construction savings deposits with Stavebn spoitelna S
continue to constitute the most significant savings pro duct
by volu me. Despite the ongoing uncertainty caused by unapproved
legisla tion, nearly 95 thousand new contracts were signed and
target amounts were increased. At the 2013 year end, Stavebn
spoitelna S administered more than 927 thousand construction
Volu me of assets managed by Investin spolenost
S in CZK billion
100
80
60
40
20
0
2009 2010 2011 2012 2013
51,3
50,3
55,0
51,7
59,1
27
savings accounts for its clients with a target amount in excess of
CZK 218 billion and a sum saved of CZK 94.8 billion, a 3% drop
year-to-year.
In November, esk spoitelna offered clients a new savings
account, Savings S, making it easier to get a better return on
deposited funds. This new savings account is designed for
both regular and irregular savings. Opening the account is easy
and clients can even name their account for the reason they are
saving. Deposited funds are always accessible and withdrawals bear
no fees. The esk spoitelna Clever Savings account is the ideal
pro duct to meet client demand for an attractive return on regular
deposits. The success of Clever Savings shows that regular sav-
ings of even small amounts is just as important to clients as larger
one-time deposits. For regular savings, clients also use Special
Purpose Savings, which combines not only attractive returns, but
also the opportunity to receive discounts on selected goods and
services. Total deposits in savings pro ducts came to nearly
forty billion (CZK 39.5 billion).
For clients who prefer to contract pro ducts online, esk spoitelna
offers Internet Savings S. Clients can apply for the pro duct online
on the Banks website without having to visit a branch. The Internet
Savings pro duct, with its attractive return and immediate availabil-
ity of deposited funds, holds a unique place in the Banks portfolio.
Indeed, the number of savers using this account doubled in
2013, as did deposit volu mes, which grew to CZK 3.4 billion.
The Savings Account Premier has become a favoured pro-
duct among wealthier clients. Deposits exceeded CZK 7.0 bil-
lion in 2013, nearly double the 2012 figure.
While the number of passbook accounts and volu me of depos-
its are consistently dropping, the decline in deposits significantly
slowed year-to-year to less than 2%. At the 2013 year end, esk
spoitelna recorded more than 1.4 million registered passbook
accounts with an aggregate balance of CZK 59.8 billion.
Regular and term deposits in foreign currencies have
remained stable over the years and total CZK 8.6 billion; the
euro and US dollar are the preferred currencies.
Small Enterprises and Entrepreneurs
Actively building the Bank-client relationship in the small
enterprise and entrepreneur segment has long been a pri-
ority in an effort to support the perception of esk spoitelna
as a bank for this market segment. The Bank wants to work
side-by-side with these clients and offer valuable advice on how
to save, better support enterprise growth and take more effective
advantage of the banking services on offer.
While esk spoitelna focused on more esta blished companies
in prior years, in 2013 the Bank turned its attention to smaller
entities and start-up entrepreneurs and enterprises and has
generated a specific portfolio of services for these clients. Working
together with an external partner, the Bank helps enterprises with
the administra tive details of small trade or business establishment.
Roughly half of the start-up entrepreneurs that were offered
the services of esk spoitelna became clients of the Bank.
esk spoitelna also prepared other premium pro ducts most often
used by these clients at this stage of their business. A special website
provides them with information to help them start a business, e.g.
the right way to draft a business plan. In 2013, esk spoitelna also
became the primary financial partner of the Start-ups of the Year
Project whose primary objective is to support start-up entrepreneurs
to not only realise profit on their projects, but also, among other
things, to give something back to the community, offer a service
that is lacking or contribute to employment.
During the year, esk spoitelna also worked on improvement
of sales and service channels to make the client experience with
the Bank even simpler and more comfortable. An Advisors for
Entrepreneurs network has been created at branches to
offer specialised business advisory to even the smallest
enterprises. These advisors are able on a regional basis to cover
the needs of more than 70% of clients in the entrepreneurial sector.
New functio nalities have been made available in internet and tele-
phone banking, chief amongst them the sale of small business
loans with no need for a branch visit and client loan state-
ments in SERVIS24, while call centre operators trained in business
financing issues are standing by to serve entrepreneurs. An autumn
acquisition campaign named No Business Is Too Small For Us
was designed to raise market awareness of esk spoitelna and
its portfolio of services for this segment.
In 2013, esk spoitelna significantly increased new loan
volu me by 22% to CZK 11.5 billion. The Bank also simplified
its pro duct offering while adding new and important pro ducts. One
innovation is a loan for farmers to purchase subsidy land and a pre-
mium loan for selected professional groups. The Bank also made
loan processing more effective, reducing the administra tive work
for clients and shortening the time to arrange loans for entrepre-
neurs. The entire loan process, from application through contract
signature to loan drawdown, can be conducted via internet banking.
Savings of individuals in CZK billion
Construction savings deposits
94,8
18 %
Savings deposits including passbook accounts
99,3
18 %
Deposits of Transformed pension insurance
50,2
5 %
9 %
Term deposits
33,7
Current accounts
26,2
2 %
Private and Giro accounts
222,3
41 %
Premium deposits
12,4
3 %
Other deposits
2,4
1 %
28
Dozens of satisfied clients took advantage of this option in the
weeks immediately following its introduction.
The pro duct portfolio for small enterprises and entrepreneurs is
highly successful and well-matched to market demands. Indeed,
the Investment Loan 5+ pro duct was ranked first in the
Business Loans category of the Zlat koruna survey.
The cornerstone pro duct for the small entrepreneur and small
enterprise client segment is the successful Commercial Account
S. The number of these accounts is fast approaching the
one hundred thousand mark, meaning growth of 3%. The
total balance increased 9% to CZK 22.9 billion. This growth was
due, in part, to the added offering of three business accounts that
fully correspond to client needs and expectations. The Commercial
Account is not used by entrepreneurs alone; one third of account
holders are legal entities or non-profit organisations.
The total loan portfolio for entrepreneurs and commercial clients
with turnover of up to CZK 30 million was CZK 56.5 billion at
31 December 2013, a 1% increase year-to-year.
Card Programme
The total number of issued active payment cards exceeded 3.2 mil-
lion, a year-to-year increase of 2%. esk spoitelna has thus
maintained its dominant position on the payment card mar-
ket. This total includes more than 1.7 million contactless cards.
The millionth contactless payment card was issued in early June.
In August, the Bank launched a new pro duct: a contactless sticker
that works as a debit card. This has become a client favourite, and
not only with the younger target market. The sticker can be applied
anywhere, though a mobile phone is the perfect medium since
most people carry one. Contactless stickers are even more
convenient than contactless cards and equally secure. Some
44 thousand contactless cards were issued in a 4-month period.
In the spring 2013, esk spoitelna also began issuing contactless
MasterCard Rewards and World credit cards. This rounds out the
offering that began with Visa contactless debit cards. And in
September, the Bank introduced the Visa Infinite debit card for
Erste Premier clients. In 2013, the Bank also worked on a new
insurance pro duct for 2014 to be called Overdraft Insurance.
More and more cards issued by esk spoitelna are used for
payments. In 2013, esk spoitelna used payment cards
to spend CZK 105.0 billion, which is a 7% year-to-year
increase; the number of transactions grew by an even more robust
15% to nearly CZK 140 million. The fast-growing number of
transactions results from the mass distribution of contact-
less cards and increasing use of payment cards for even
smaller purchases. A per-card average of 43 vendor transactions
was performed. Average annual per-card spending at vendors was
CZK 32,469.
Internet shopping is continuously increasing in popularity. In 2013,
esk spoitelna cards were used to carry out CZK 5.9 billion in
purchases, a per-card average of CZK 1,833.
esk spoitelna strongly promotes the use of payment cards for
vendor transactions. The Partner Discount Programme is a tool the
Macroeconomic Development in the Czech Republic during 2012 | Report of the Board od Directors on Business Activities of the Company and the State of its Assets in 2013| Strategic Plans for the Future
S card vendor payment transactions (issuing)
150
90.5
109.3
121.8
140.0
98.1
105.0
75.2
84.2
120
90
60
30
0
2009 2010 2011 2012 2013
Volu me of S card payment transactions in CZK billion
Number of S card payment transactions in millions
82.4
95.9
Number of active cards in thousands
3 500
2 800
2 100
1 400
700
0
2009 2010 2011 2012 2013
3 174 3 178
3 234
392
348
319
3 258
476
Number of active cards of which: Number of credit cards in thousands
3 230
442
Portfolio of loans and advances to entrepreneurs
and small enterprises CZK billion
100
80
60
40
20
0
2009 2010 2011 2012 2013
59.8 59.6
55.7 56.5
59.2
29
Bank uses to motivate clients. The no-cost Partner Programme
is designed for all esk spoitelna debit and credit card holders.
Clients use a card registered in the programme to make purchases
at selected partner vendors and receive a reward as a discount on
their account. The nearly 300 thousand clients registered in
the Partner Programme saved nearly CZK 4 million in 2013.
An up-to-date list of partner vendors, including the latest rewards
and special events on offer, is available online at www.csas.cz/
programpartner.
In 2013, more than 163 million transactions totalling in
excess of CZK 135.3 billion were carried out at esk
spoitelna payment terminals. This repre sents 14% growth
year - to - year and an 8% increase in transaction volu me. The
average transaction amount was CZK 824, down by CZK 44
year - to - year due prima rily to increasing payment card use
(including contactless transactions). In 2013, esk spoitelna
enabled partner vendors to accept payment cards using contact-
less technology, which is already in use at Penny Market and
BILLA, Datart, IKEA, Sportisimo, C&A Moda, PetCenter,
Alpine Pro, esk lkrna and others. The esk spoitelna net-
work of vendors accepting payment cards grew to more
than 18,600.
esk spoitelna has long been the market leader in ATM net-
work size in the Czech Republic. In 2013, the Bank once again
increased the number of ATMs and payment machines, adding 64
machines for a total of 1,530, including 114 payment machines.
esk spoitelna operates more than 250 ATMs that can
accommodate the visually impaired, and these ATMs are
continually increasing in number. esk spoitelna also expanded
its network of deposit ATMs that, in addition to standard services,
enable clients to make cash deposits to accounts with esk
spoitelna and other banks in the Czech Republic. There are
currently 54 of these machines in operation, 13 of which were
put into operation in 2013.
Since early, 2013 clients making withdrawals at esk spoitelna
ATMs have been able to choose banknote denominations. esk
spoitelna ATMs will now offer CZK 500 bills in addition to
CZK 100, 200, 1,000 and 2,000 bills. Selecting banknote denom-
ination is, of course, a free service. Since May, esk spoitelna
payment machines have been equipped to accept invoice payments
using QR codes.
In 2013, nearly 93 million cash withdrawals were made at esk
spoitelna ATMs. Cash withdrawals totalled CZK 307.5 billion and
averaged CZK 3,312.
iBOD Programme
For all fans of collecting points, esk spoitelna prepared the
iBOD Loyalty and Bonus Programme. This new, multi-partner
bonus programme was launched on 1 October 2013. Clients col-
lect ipoints by making payments with a esk spoitelna
card and by using other financial services (e.g. payment trans-
actions on current account, savings, loans, etc.), Clients also col-
lect ipoints for purchases at dozens of participating vendors
throughout the Czech Republic. Saved ipoints can be exchanged
for attractive catalogue rewards or can be donated to a charity. The
iBOD Programme is free of charge and clients can register and
activate ipoint collection from esk spoitelna at www.ibod.cz.
At the 2013 year end, 320 thousand individuals were registered in
the iBOD Programme, of which more than 250 thousand are esk
spoitelna clients.
Erste Corporate Banking
The Erste Corporate Banking brand is a service that ties together
corporate and investment banking, financial markets and asset
manage ment for esk spoitelna clients.
The level of corporate banking at esk spoitelna enables the Bank
to best meet the needs and expectations of its commercial clients in
all phases of their life cycle through customised solutions. esk
spoitelna corporate banking is highly successful; its advi-
sory and other services report the highest degree of client
S ATM network withdrawals
350
311,0
91,8
310,8 307,5
93,2 92,9
305,2
88,8
280
210
140
70
0
2009 2010 2011 2012 2013
Volu me of S ATM network withdrawals, CZK billion
Number of S ATM network withdrawals in millions
303,6
89,6
S card network transactions (acquiring)
150
180
103.1
109.9
124.9
135.3
143.8
163.2
75.2
70.2
120
90
60
30
0
2009 2010 2011 2012 2013
S network payment transaction volu me, CZK billion
Number of S card transactions in millions
87.4
88.6
30
satisfaction by all national and international comparisons.
The commercial banking is in many respects the fastest growing
area at esk spoitelna.
Proof of clients faith in the high professional standard of esk
spoitelna specialists is the Banks one-third market share of
EUR/CZK currency pair market trading, its position as the
largest Czech government bond and interest derivatives
trader among all primary dealers and, above all, its number one
position among arrangers of bond financing in Central and
Eastern Europe. esk spoitelna corporate banking is a market
leader in public, non-profit and municipal sector financing, real
estate financing, energy and renewable energy project financing and
the use of concessional funding in collaboration with the European
Investment Bank, Kreditanstalt fr Wiederaufbau, the European
Investment Fund and national agencies such as eskomoravsk
zrun a rozvojov banka and EGAP.
The Bank confirmed its position as a leading arranger of
syndicated and club loans, participating in the majority of such
transactions on the market, including the largest financing projects
for acquisitions in the gas manufacturing and telecommunications
industries. esk spoitelna was first to market with electricity price
hedging pro ducts as well as other energy, metals and commodities
hedging pro ducts. The Bank can also be proud of the reliability of
its payment system.
esk spoitelna holds a leading position among banks and finan-
cial institutions as an active supporter of esta blished and emerg-
ing Czech exporters. In 2013, the Bank financed a number of
export projects and plans of Czech enterprises in foreign
markets on virtually every continent at a volu me in excess
of CZK 6 billion. esk spoitelna offered, inter alia, advisory and
financial support for Czech exporters in their successful moderni-
sation of a refinery in Serbia, motorway construction in Azerbaijan
and the acquisition of a rubber factory in Slovenia. The Bank
actively supports SMEs acting as indispensable sub-ven-
dors for Czech exporters. Naturally, the Bank offers a number of
other banking pro ducts necessary to successfully implement export
plans. The greatest activity and demand originates with exporters
of capital constructions and technology to markets in the former
Eastern Bloc countries, the Middle East region, Central and South
America and Africa.
The Banks sound business model has been acknowledged by the
host of awards received over the years. Still, the most prestigious
award for esk spoitelna and Erste Corporate Banking is client
feedback. The ever-improving evaluations of client satisfaction
and experience and the high degree of loyalty clients have shown
confirm the Bank is dynamically moving forward on the right track.
Clients are well aware that esk spoitelna is there for them in
good times and bad as a long-term partner offering the right solu-
tions and always endeavouring proactively to help handle the risks
and stumbling blocks their businesses face.
Real Estate Financing
esk spoitelna was once again among the most active banks
in real estate financing, real estate investment and mortgage transac-
tions in 2013 and ranked first in total volu me of mortgage loans
provided on the Czech market. After many years of decline, the
real estate market showed signs of recovery in 2013, especially in
the office space, logistics and residential development segments,
this last segment prima rily in Prague and Brno.
The aggregated non - consolidated balance of esk
spoitelna mortgages significantly exceed the two billion
crown mark, totalling CZK 213.8 billion at the 2013 year end for
year-to-year growth of 10%. Of this amount, loans to entrepre-
neurs, enterprises and municipalities accounted for CZK 58.7 bil-
lion. The quality of the portfolio remains very high.
Real estate financing within Erste Corporate Banking fully utilises
the know-how of the group-wide Erste Group Immorent team,
especially in relation to clients active in central and eastern Europe.
Residential construction projects and capital loans for office and
retail properties with a solid track record continue to be the financ-
ing priority.
esk spoitelna maintained its stakes in real estate investment
funds for the institutional investors CEE Pro perty Development
Portfolio 2 B.V. and Czech & Slovak Pro perty Fund B.V. In 2013,
the Bank increased its stake in the CEE Pro perty Development
Portfolio 2 N.V. fund to 100%. Both these closed-end funds are
concentrated in the Czech and Slovak markets. Office and resi-
dential complexes in Prague and residential projects in Karlovy
Vary and Bratislava were successfully sold in 2013. The funds
investment cycle has been adjusted to reflect the current real estate
Total non-consolidated mortgage loan portfolio in
CZK billion
200
240
160
120
80
40
0
2009 2010 2011 2012 2013
Total non-consolidated mortgage loan portfolio
of which: mortgage loans to individuals households
of which: mortgage loans to entrepreneurs and small enterprises
of which: mortgage loans to medium-sized and large enterprises
127,6
24,2
34,2
139,2
155,1
23,7
24,8
30,9 33,9
117,8
22,4
35,7
117,5
23,1
35,8
186,0
193,8
213,8
175,9
176,4
31
market situation. The Bank also invests in the closed-end real
estate investment fund Emerging Europe Properties LP (formerly
Discovery Group Fund 3C LP), currently in the second half of its
investment cycle. In December 2013, the stake in the Office Center
Stodlky construction project was sold.
Small and Medium-sized Enterprises
A nationwide sales network comprising sixteen sales points
associated in a network of thirteen Regional Corporate Centres
is available to SMEs with annual turnover of CZK 30 million
CZK 1 billion. These regional centres, which are located in every
county seat, provide enterprises with the comprehensive top-quality
services of the entire esk spoitelna Financial Group under the
Erste Corporate Banking brand.
esk spoitelna serves commercial clients from the entire spectrum
of industry at its Regional Corporate Centres. In addition, regional
specialists in public and non-profit sector and real estate financ-
ing are available to this client segment. The business model is
based on the specialisation of managers and financial ana-
lysts in indi vidual industries for a better understanding of
the circumstances of specific client businesses, a smoother
process for meeting their needs and, no less importantly, greater
efficiency. This effort has been very well received by clients, sig-
nificantly strengthening esk spoitelnas position in corporate
banking, and has helped the Bank fulfil its strategic ambition to
become the number one bank for corporate clients in the Czech
Republic.
In 2013, esk spoitelna continued the TOP INNOVATION pro-
gramme to fund projects and activities in enterprise innovation
and development. Some 186 projects totalling CZK 7.8 billion
were assessed. The programme offers benefits to Czech enter-
prises investing in growth, competitiveness and innovation and
contributes overall to Czech economic and export development.
esk spoitelna is the first Czech bank to provide funding as part
of the European Investment Bank and European Commission Risk
Sharing Instrument programme, which makes loans available to
innovative companies, prima rily those in the manufacturing or
energy sectors. The programmes objective is to support selected
banks in extending loans of EUR 25 thousand 7.5 million to SMEs
engaged in research, development or innovation in need of fund-
ing for investment or opera ting capital. The TOP INNOVATION
programme is thus that much more attractive to esk spoitelna
clients. The chief advantages of this newly enhanced pro-
gramme are its greater loan availability thanks to European
Investment Fund backing and its highly preferential interest
rates. In its first year of operation, the programme extended 36
loans totalling nearly CZK 0.7 billion.
In the interest of supporting enterprise start-up, innovation and
growth, esk spoitelna joined forces with the Ministry of
Trade and Industry to offer the regionally-focused INOSTART
programme to finance start-up opera ting and investment
needs in 2013. The programme provides loans to enterprises
less than 3 years old in the Olomouc and Moravia-Silesia regions.
eskomoravsk zrun a rozvojov banka provides colla teral
covering 60% of loan principal. The maximum loan amount is
CZK 15 million.
esk spoitelna continued to offer another of its TOP programmes,
TOP EXPORT, a unique programme offered jointly with the Czech
Export Bank, to SMEs designed to make financing available for
large export firm sub-vendors, make cash more readily available
and simplify the approval process. In 2013, esk spoitelna and the
Czech Export Bank focussed on optimising programme conditions
and applicant accessibility.
esk spoitelna funds energy projects through the TOP
ENERGY programme and also offers comprehensive advi-
sory support for project preparation, subsidy application draft-
ing and more. The Bank applies knowledge manage ment principles
when creating project know-how and this information is concen-
trated in a single location accessible to all employees who need
it. In 2013, the Bank continued to support investment in power
generation from renewable sources, financing more than 30 projects
to construct biogas stations, wind power plants and small hydroe-
lectric power plants in an amount exceeding CZK 2.5 billion. esk
spoitelna is first among Czech banks in this field.
esk spoitelna is continuing its successful coope ration
with the European Investment Bank (EIB), which is focused
on supporting SMEs and financing the needs of the public and
non-profit sectors. Specific activities are the global loan and
the involvement of esk spoitelna in the associated European
Commission Municipal Infrastructure Facility grant programme. In
July 2013, the Bank together with the EIB launched the new Green
Energy programme to finance energy-saving capital expenditure.
Projects achieving energy savings of at least 20% are supported
by a grant from European Union funds in an amount of 10% of the
loan provided via esk spoitelna. By the 2013 year end, esk
spoitelna had allocated a total of EUR 1,150 million of the
global loan and confirmed its position as the leading partner of
the EIB in the Czech Republic. From programme launch through
the 2013 year end, the EIB confirmed financing for a total of 809
projects for SMEs and municipalities.
esk spoitelna, a leading innovator in Cash Manage ment,
is continuing to develop unique solutions. A prime exam-
ple is @FAKTURA 24. With the online banking application
SERVIS 24 Internetbanking, esk spoitelna was the first bank
on the Czech market to offer an e-invoice option for invoice issuers.
The billing process is linked to the payment process based
on an automatically generated one-time payment order.
Since the SERVIS 24 Internetbanking service was launched, cli-
ents have received 400 thousand documents. Customers can receive
e-invoices, e-documents and premium or subscription payment
orders from EZ, E.ON, RWE, Kooperativa, Pojiovna esk
spoitelny, SmVak Ostrava, MAFRA (Mlad fronta DNES and
32
Lidov noviny subscriptions), EVAK, Right Power Energy, and
Czech Radio (payment of the radio broadcast fee).
In 2013, esk spoitelna, as a member of the Working Group
for Payment Innovation esta blished by the Czech Banking
Associations Payment System Committee, took part in the draft-
ing of a proposed banking standard for sending e-invoices and
e-documents to end consumers in an electronic banking application
(Electronic Billing Standard Standard No. 29). esk spoitelna
continues to be the only bank offering solutions based on the
consolidation principle and the only bank offering the option of
B2B e-invoice exchange. Electronic billing provides enterprises
with the advantage of secure electronic invoice transmission and
significant time and cost savings.
The non-consolidated portfolio of loans to SMEs (excluding
mortgages) totalled CZK 79.4 billion at the 2013 year end, a 5%
year-to-year increase.
Corporate Clientele
esk spoitelna serves a corporate clientele of domestic and large
multinational corporations. esk spoitelna provides corpo-
rate clients with a broad range of top-quality corporate
banking pro ducts, including specialised investment banking
pro ducts and services. For clients with operations both in and
outside the Czech Republic, esk spoitelna together with the
Erste Group is ready to serve and accompany corporate clients
to the countries in which they operate. Like the SME model, the
domestic corporate segment business model was changed under
the new Erste Corporate Banking brand with the aim of better
understanding the dynamics of indi vidual industries.
After the downturn caused by the financial crisis, the signs of
recovery that were already clear in 2012 continued through 2013.
The majority of enterprises saw turnover return to, and in some
cases surpass, pre-crisis levels. esk spoitelna is well prepared
to respond to this development and assist enterprises with financing
or advisory services for their growth and development plans.
The year 2013 saw a surge in acquisition activity and esk
spoitelna was highly active in supporting its clients with
financing while providing domestic and foreign acquisi-
tion advisory services. esk spoitelna and Erste Group Bank
provided advisory to the Allianz Capital Partners and Borealis
Infrastructure consortium for its acquisition of Net4Gas, the
exclusive gas transmission system operator (TSO) in the Czech
Republic sold by RWE Group. esk spoitelna and Erste Group
Bank in the role of mandated arranger also took part in this acqui-
sition by providing financing of EUR 1.39 billion. esk spoitelna
advised the company esk Aeroholding, a. s. on its sale of a 44%
equity interest in esk aerolinie a.s. to the strategic partner Korean
Air. In the role of mandated lead arranger, esk spoitelna pro-
vided the group of companies headed by GS Holding, a. s. with
an acquisition loan (including EGAP insurance) of EUR 60 million
for the purchase of a majority interest in the Slovenian companies
Savatech d.o.o. and Savapro d.o.o., a leading European manufac-
turer of technical rubber pro ducts.
esk spoitelna responded to the uptick in demand for
investment and operatio nal financing for large enterprises.
For example, together with two other banks, S served as arranger
and creditor for a CZK 2.0 billion club loan with Plzesk teplren-
sk, a. s. to co-finance construction of the ZEVO Chotkov incine-
rator. In the role of arranger, agent and creditor, esk spoitelna,
together with three other banks, also provided a club loan totalling
CZK 6.5 billion to the company OTE, a. s. to finance its opera-
ting needs.
In 2013, a number of large enterprises took advantage of the
favourable capital markets situation and issued corporate bonds.
esk spoitelna assisted with the issues of the majority of Czech
corporate bonds.
Aside from the slight increase in operatio nal financing, there was
a resurgence in investment, corporate acquisitions and export
financing in the large multinational corporate segment, and this
was reflected in loan activity. esk spoitelna grew its
non-consolidated loan portfolio in the domestic and multi-
national corporate client segment by 4% year-to-year to
CZK 70.9 billion.
Services for the Public and Non-proft Sector
In 2013, esk spoitelna continued to develop its coope ration
with public administration and self-administration agencies based
on long-term partnerships. esk spoitelna partners with large
cities, regions and public administration agencies, as well as small
municipalities and their semi-budgetary organisations. The port-
folio of pro ducts and services always accommodates the needs of
clients. esk spoitelna won public contracts to provide
loan financing for projects in transportation infrastructure,
Loan portfolio in CZK billion, non-consolidated data,
excluding of mortgage loans
75
90
60
45
30
15
0
2009 2010 2011 2012 2013
Portfolio of loans to SMEs
Portfolio of loans to large enterprises
Portfolio of loans to large municipal clients
13,8
12,5
68,7
62,4
13,1 12,2
68,2
70,9
75,5
79,4
12,8
57,7
56,1 58,2
51,3
33
water supply and sewerage system construction, municipal
mass transit, municipal waste manage ment and more. esk
spoitelna was the lead arranger in a primary issue of a bond pro-
gramme for Dopravn podnik hl. m. Prahy at a total of CZK 8.0 bil-
lion to finance koda 15T ForCity trams. It was also appointed
arranger and coordinator of a CZK 4.1 billion acquisition loan pro-
vided by a consortium of banks to the company Prask plynren-
sk Holding (PPH) controlled by the City of Prague. The funds
should be used to purchase a stake in Prask plynrensk, a. s.
from E.ON energy group. Another example of a strong partnership
and the offering of quality pro ducts and services is the provision
of a line of credit to the Moravia-Silesia Region in an amount of
CZK 1.2 billion for regional project prefinancing.
esk spoitelna is a leading bank in the financing of hous-
ing co-operatives and apartment owner associations. The
pro duct offering focuses on comprehensively meeting the needs of
clients, in particular to finance renovations, privatization purchases
and new home construction. Although government subsidies for
apartment blocks was greatly limited in 2013, client interest in
financing continued. esk spoitelna extended new loans totalling
more than CZK 5.2 billion, a significant year-to-year increase.
In spring 2013, the Financing Energy Savings in Apartment
Blocks programme was launched in collaboration with the
German development bank KfW Bankengruppen. Projects
achieving 30% energy savings are supported through esk
spoitelna by a European Union grant in the amount of 10% of
the loan provided. This programme is unique in the Czech Republic
and only offered by esk spoitelna. In 2013, the Bank received
more than 90 financing applications in an aggregate amount
exceeding CZK 0.4 billion, of which loans provided totalled some
CZK 250 million.
The Bank continued to develop its long-term partnerships with
non-profit organisations in 2013 both by helping finance the needs
of clients and, through the esk spoitelna Foundation, by sup-
porting social enterprise. The year 2013 saw the successful con-
tinuation of the pilot programme Financing Social Enterprise and
the educational seminars of the esk spoitelna Academy, which
esk spoitelna organised in 2012 with the VIA Foundation. This
educational programme is designed for social enterprises and all
non-profit organisations interested in social entrepreneurship
(more on page 56).
esk spoitelna not only offers banking and advisory services to
non-profit organisations, its employees also volunteer their time
to voluntary and charitable activities. Its many years of collabora-
tion in this sector continue to make esk spoitelna an important
partner for non-profit organisations on the Czech financial market.
esk spoitelna offers public sector clients standard bank-
ing services as well as an ever more popular and always evolving
offering of comprehensive advisory services in coope-
ration with its sub sidiary GRANTIKA esk spoitelny, a.s..
This prima rily comprises advisory services in subsidies, financial
matters and managerial issues. The importance of these services
is illustrated by GRANTIKAs 84% success rate in obtaining sub-
sidies from European Union funds.
Sale of Financial Market Pro ducts to Corporate
Clients
In 2013, measured optimism regarding the future development
of the domestic and European economies was reflected in the
market for financial pro ducts targeted at a corporate clientele. The
improving economic situation in the main export territory
for Czech enterprises piqued interest (prima rily in H2) in
hedging currency risks for periods of more than 12 months,
which for several years was the longest hedge horizon for many
enterprises.
In addition to slowly growing demand for currency hedging,
interest in commodity hedging pro ducts (prima rily for elec-
tricity, fuel and industrial metal prices) has also grown among
Czech enterprises. A favourable economic outlook combined
with the lowest interest rates on record served to further bolster
client demand for interest rate hedging instruments.
One of the greatest commercial successes of the sub sidiary Erste
Energy Services, esta blished in late 2012, is its 40% market share
in the purchase of electricity from renewable sources. The com-
pany also executed contracts to supply electricity to end users.
However, a highly volatile environment continues to place strin-
gent demands on hedging policy at many corporations, and esk
spoitelna, due to its high-quality analytical knowledge base, is
able to provide not only reliable execution, but also documentation
and related advice necessary to optimise hedging strategy and
timing. esk spoitelnas long-term strategy, focussed on offer-
ing a wide range of well-priced customized pro ducts, has proven
itself by generating a slight increase in transaction volu me and
assuring customer satisfaction with the services provided despite
a tough economy.
esk spoitelna further strengthened its position as one of the
Czech Republics largest providers of financial advisory services.
In addition to the traditional market segments of large
Czech and international corporations, the Bank increas-
ingly focused on providing financial advisory services for
the SME segment. To this end, the provision of advisory services
by the esk spoitelna Financial Group was successfully inte-
grated into a centralised advisory centre (Advisory Group). The
Advisory Group is able to provide all advisory services from
the use of EU subsidies, through enterprise valua tion and financial
restructuring to mergers and acquisitions and IPOs to every client
segment from a single location, a one--stop shop. Obtaining
advisory mandates from prominent Czech and international clients
and participating in prestigious projects, such as the sale of the
companies SA or the gas pipeline Net4Gas, attest to the quality
of the Banks services.
34
Initial Public Offerings
esk spoitelna confirmed its leading position in the market for
initial (IPO) and secon dary (SPO) public offerings by being
involved in all new issues on the Prague Stock exchange, i.e.
the capital increases of Central European Media Enterprises Ltd.
and Erste Group Bank AG and the initial public offering of Stock
Spirits Group Plc.
Debt Securities and Equity Instruments Trading
In 2013, trading volu me on the Prague Stock Exchange contracted
for a seventh consecutive year, to CZK 186 billion, and the launch of
the new Xetra trading system failed to stop this decline. The antic-
ipated recovery of the Czech economy has not materialised and,
as a result, investors have turned their interest to other countries.
esk spoitelna held its dominant position as a key player not to be
overlooked on the regional capital market. Customers highly value
the reliability, efficiency and breadth of services offered to them.
They especially appreciate the support of analytical know-how,
transaction structuring and timing and distribution ability to insti-
tutional and retail customers combined with services pertaining to
the period immediately following a pro ducts market introduction
and during secon dary market trading. This experience with trading
via esk spoitelna forges a solid basis for trust and long-term
relationships.
The increased risk faced by investors in emerging markets greatly
impacted equity trading in 2013. The Czech equity market declined
by nearly 5% in H1 as measured by the PX index. Favourable H2
development reflected the ongoing process of European banking
sector recovery as well as the hope placed in resurgent economies.
The same was true of trading volu me. In 2013, the Bank carried
out equity transactions amounting to CZK 42.5 billion, con-
firming its preeminent position among bank traders.
The Czech bond market was once again highly volatile and pro-
vided good investment opportunities. esk spoitelna accu-
rately predicted buying opportunities in H1 to the great
benefit of the Banks clients. In 2013, esk spoitelna was
once again very active in corporate bond issues and carried out
CZK issues for its clients in the financial and corporate sectors.
Corporate bond issues yielded a higher return for investors than
CZK issues of Czech government bonds. Together with Realitn
spolenost esk spoitelny, esk spoitelna issued the first
structured CZK-denomi nated real estate-backed issue at a value
of almost one billion crowns at the year end. esk spoitelna
continues to be one of the Czech Republics largest bond traders.
Financial Institutions
In 2013, esk spoitelna continued its successful sales of pro ducts
and services to current customers and, thanks to its acquisition
of several high-profile clients, confirmed its position as a lead-
ing provider of value-added services to financial institutions. The
Bank further deepened its coope ration with insurance companies
and pension funds and develo ped its collaboration with investment
companies and their funds. Services provided to these clients
emphasised new payment methods in the area of cash manage-
ment, enabling additional specialised services, like depositary,
custody and settlement agent services. The Bank reported another
year-to-year increase in the number of clients non-bank finan-
cial institutions. Increased primary deposits at esk spoitelna
in this client segment expressed the sentiment that prevailed on
financial markets.
In the area of correspondence banking, esk spoitelna
continued to be an important provider of transaction bank-
ing services. In collaboration with Erste Group, esk spoitelna
is becoming increasingly involved in central European payment
solutions for prominent banking institutions. When it comes to
clearing services and maintaining CZK accounts, too, esk
spoitelna was successful in several tenders organized by banking
clients. This meant that the number of accounts kept for banks, and
the volu me of transactions performed via these accounts, continued
to grow in 2013.
Asset Manage ment for Institutional Clients
esk spoitelna manages nearly CZK 100 billion in assets
for institutional investors, including financial institutions (pen-
sion funds, life and non-life insurers, and health insurers), founda-
tions, municipalities, large enterprises, housing cooperatives and
unions. Measured by assets managed for non-group clients,
esk spoitelna is the market leader with a market share
exceeding 60% according to the Capital Market Association.
Assets in custody increased in volu me by nearly 9% in 2013. Asset
manage ment for institutional investors also grew significantly in
2013 to include brokering transactions with government savings
bonds at a total transaction volu me of more than CZK 4 billion.
In 2013, a year once again characterised by unprecedentedly low
interest rates, asset manage ment yielded clients average returns
exceeding defined benchmarks with weighted performance of
+0.56% p.a. Absolute weighted portfolio performance was a solid
+1.61% p.a.
Depositary
esk spoitelna continues to enjoy a strong position in the pro-
vision of depositary services to investment companies and their
mutual funds, investment funds and pension funds. In the course of
2013, 29 new funds were added, and at the year end the Bank was
providing these services to a total of 102 funds. Special funds for
qualified investors account for a significant portion of this growth.
Managed assets reached a volu me of CZK 177.6 billion, a 10%
increase year-to-year.
Custody
esk spoitelna provides security custodial services not only as
a depositary bank or as part of client portfolio manage ment, but
also as a separate service. Clients are prima rily financial institu-
tions, corporations, municipalities and other entities investing in
securities. Booming capital markets fostered growth in the volu me
of assets in custody in H2 2012, and this trend continued in 2013
35
and was further complemented by numerous successful new cli-
ent acquisitions. Overall, inter-year growth was reported in asset
volu me, number of clients and returns provided by this service.
Settlement Agent and Securities Administration
esk spoitelna is the nations most important provider of settle-
ment agent services. In 2013, the Bank brokered 911 thousand set-
tlements, including purchases of participation certificates, at a total
volu me of CZK 75 billion. esk spoitelna brokered, among
others, payment of the distribution of a share premium for
the company Telefnica Czech Republic, a. s. esk spoitelna
has also maintained a significant position for several years now as
a provider of settlement and calculation agent services for bond
offerings. It not only maintained, but slightly improved, this posi-
tion in 2013, acquiring issues of several prominent companies for
its portfolio as a settlement and calculation agent.
EU Offce of esk spoitelna
In 2013, the analysts and consultants of the EU Office devoted
much of their attention to expanding the Guide To Doing Business
Abroad advisory programme. Erste Corporate Banking clients
requested nearly 80 country reports from bankers at Regional
Corporate Centres. At the 2013 year end, the EU Office covered
17 European countries. Key clients can have one-on-one consul-
tations concerning their business plans abroad. The EU Office
also created the Erste Innovation Barometer, a new tool that
maps the innovative ability of all 28 European Union Member
States. The EU Office also focused on issues connected with the
new funding period; a large part of this activity was oriented toward
the creation of new EU programmes.
Distribution Channels
Branch Network
With its 653 branches, esk spoitelna is one of the Czech
Republics largest banking networks, offering good regional
coverage and easy accessibility for all its clients. The branch
network continues to be the basic executive component of
the Banks multi-channel sales model.
The branch network provides a broad and comprehensive port-
folio of esk spoitelna Financial Group services and pro ducts
to private clients, SMEs and indi vidual entrepreneurs. Premium
services are offered to wealthier clients under the Erste Premier
brand. The Banks specialised advisory services respond to the
needs of municipalities and offer solutions for the corporate and
private financial needs of independent professional clients.
As part of its effort to optimise regional coverage by the
branch network, esk spoitelna closely monitors branch
operation and analyzes usage patterns. Based on these analy ses,
the Bank makes changes to the network to ensure that branches
are available to clients where and when they really need them and
that the Bank achieves maximum opera ting efficiency. In 2013,
two new branches were opened, one in the Erste Premier format
in esk Budjovice and a second in Brno specializing in serving
wealthier clients with more in-depth advisory. Two other Erste
Premier centres commenced operation in Zln and Pardubice.
A total of fifteen branches were moved to more attractive premises
or locations better suited to todays lifestyle of the Banks clients.
esk spoitelna now operates 35 branches in commercial centres
and shopping malls. Weekend hours have been introduced at
28 branches, mainly supermarket locations. A mobile branch
began regular visits to a fourth location in southern Bohemia.
Thirteen branches were shut down for operatio nal and economic
reasons and clients and all their accounts were transferred either
to the next nearest branch or a branch of their choice. Twenty
four branches throughout the Czech Republic were modernised or
extensively renovated. Mobile box branches were used as a more
effective temporary alternative for mid-sized bricks-and-mor-
tar branches undergoing renovation. In 2013, these were used in
a number of locations including Ostrava, Brno, Votice and Semily.
Most branch modernisation and renovation entails creat-
ing barrier-free access. To date, some 375 branches have been
adapted. A map of barrier-free branches and ATMs in cities with
populations in excess of 25 thousand was created in collaboration
with the Prague Wheelchair Association, and serves as a basis
for planning future branch renovations. Discretion is assured at
branches not only through interior design and layout elements (e.g.
screens, carpeting, separated waiting and consulting areas), but also
through background music piped into waiting areas. Branch clients
and advisors have all praised the systems installation, the music
choice and the volu me control options.
In 2013, the Bank continued to work with the Czech Red Cross on
the unique Friendly Places concept in which branch employees
are trained in a professional approach to handicapped clients and
seniors and receive first aid training. Branch certification is a part
of this programme. Branches that are fully barrier-free and
have provided training to all staff who serve handicapped
clients can receive a Friendly Places certificate. The first 10
branches received their certificates in 2013.
Direct Banking
Direct banking is the most common way in which clients contact
esk spoitelna. More than 92% of financial transactions are
conducted through direct banking channels. In 2013, more
than 101 million financial transactions totalling CZK 2.6 billion
were carried out in this manner. The number and volu me of trans-
actions increased year-to-year by 7% and 2%, respectively.
SERVIS 24 Internetbanking develo ped significantly in 2013.
Clients now have their pro ducts displayed automatically. The dis-
tribution process was upgraded with the immediate transmission of
login information at a branch and ease of use was improved with
the option of unlocking access directly in internetbanking. Pro duct
sales and client service were supported by a virtual banker. The
loans and savings website page redesign was completed and the
36
Bank also enabled payment card activation, card limit changes and
a host of other improvements.
BUSINESS 24 Internetbanking now lets clients exchange credit
documentation, set up payment system e-mail notifications, display
aggregated credit and debit transactions, extend accessibility to data
statements to 12 months and to indi vidual exchange rates from 8:00
to 17:30 and offers a host of other improvements. In December,
esk spoitelna expanded the BUSINESS 24 Databanking
service, which lets entrepreneurs and enterprises send pay-
ment orders directly from their accounting systems. The
payment deadline was extended from 20 to 23 hours for SERVIS 24
and BUSINESS 24 clients.
The total number of SERVIS 24 and BUSINESS 24 Internetbanking
users increased to 1.59 million in 2013, a nearly 8% increase
year-to-year. Direct banking services are also offered to enter-
prises, cities and municipalities as well as other legal entities. At
the 2013 year end, the Bank recorded more than 3,200 MultiCash
service users and nearly 9,400 BUSINESS 24 service
users.
esk spoitelna provided clients with the Mobile Bank service for
a second year and saw interest in this service double. At the 2013
year end, Mobile Bank had nearly 100 thousand users, mak-
ing it the most dynamic payment method the Bank offers.
According to the independent Smartbanking 2013 survey, Mobile
Bank has become the most user-friendly banking application in
the Czech Republic.
One direct banking channel that has shown dynamic long-term
growth is payment orders via ATMs and payment machines. Last
year, these transactions increased in number and volu me by 14%,
and 26%, respectively. More than 100 thousand clients use this
service every month. PLATBA 24, which enables internet purchases
to be paid for via SERVIS 24 Internetbanking, is quickly gaining in
popularity, too. Over the last 12 months, the number of payments
increased 50% to 1.4 million.
A key benefit of direct banking is pro duct and service sales.
More than 320 thousand pro ducts were sold, chiefly overdraft
loans, credit cards and consumer loans. Since October, clients have
also been able to increase their overdraft and credit card limits.
Loans to individuals can be arranged and the funds immediately
made available at ATMs.
The overall growth in the use of direct banking will continue in the
years to come. In 2013, esk spoitelna recorded 164 million client
visits and contacts, accounting for 90% of all visits to the Bank.
SERVIS 24 Internetbanking reported the most visits (110 million)
followed by the esk spoitelna website (with 32 million).
Non-Commercial Activities
People
esk spoitelnas employees are its most important resource in
determining a healthy direction and ensuring success in a highly
competitive environment. esk spoitelna believes its com-
petitive advantage is its staff of qualified, high-quality,
satisfied and professional employees always motivated to
perform to the best of their abilities, and thus offers employees
fair employment conditions, a friendly workplace and educational
opportunities.
The esk spoitelna employee training and development strat-
egy focuses on greater utilisation of potential through innovative
development methods. Staff development is based on an Internal
Training Catalogue comprising a targeted selection of educational
and training activities reflecting the needs of the Banks employees
and managers. The comprehensive offering comprises in-person
courses, e-learning, self-study materials and progress measurement
tools. Training is open to every Bank employee and specifi-
cally supports the principle of a self-learning organisation.
In 2013, all courses had a test run and the rele vant adjustments are
being made in response to feedback provided by course participants.
Courses are typically available through offers administered in the
AMOS application.
Numbers of non-cash direct banking transactions
(CZK million)
SERVIS 24
65.5
65 %
11 %
3 %
21%
BUSINESS 24
11.3
ATMs and payment machines
2.9
MultiCash
21.6
Number of active SERVIS 24 and BUSINESS 24 clients
in thousands
1 500
1 800
1 200
900
600
300
0
2009 2010 2011 2012 2013
1,410
1,476
1,591
1,252
Note: clients using more than one option are only included once
1,319
37
The qualifications of employees who are in direct contact with
clients have a direct impact on client satisfaction. esk spoitelna
wants its clients to be sure its employees will meet their expecta-
tions. That is why esk spoitelna initiated staff certification
for all advisory positions in all areas of retail banking in
Autumn 2013. The certification concept is shared by all Erste
Group entities. Certification guaran tees that a given employee
has the requisite knowledge, skills and client - centred
approach and is given to those who successfully undergo tests of
professional knowledge, a sales simulator, a class in sales interview
skills and a manager interview about the approach to clients and
the team. Recertification will take place once every three years.
The introduction of advisor certification ensures the ongoing
development of knowledge, skills and a client-centred approach
among all sales staff. Advisor certification provides clients
with assurance that services and sales will maintain a high
professional standard.
Business simulation using new forms of process optimisation and
simulation is a recent training trend whose objective is to foster
strategic managerial thinking when its comes to teamwork, business
results and client satisfaction.
The manage ment development module Time for Evolution pro-
motes a client-oriented approach. Selected managers gain experi-
ence at confe rences abroad and participate in four gatherings with
interesting individuals from the world of Czech business. Managers
also complete an Evolutionary Expedition in which they become
inspired by seeing how other companies operate. The Talent
Programme designed for employees who, though they do
not hold manage ment positions, are highly experienced in
their respective areas, was introduced in H2 2013. Starting
in January 2014, they will participate in a tailor-made personal
development programme.
Another innovation of 2013 was the Coaching Caf gatherings
of Bank employees, in-house coaches and interesting individuals
who have experienced coaching and can teach its benefits to others.
The Advisor Diploma became an integral part of the employee
onboarding process and a logical culmination of probation period
training. This process provides new employees with specific feed-
back on the degree of their onboarding success and serves as an
evaluation tool to be used by managers when evaluating new hires.
esk spoitelna is once again the most attractive employer
for university students in banking and insurance, according to
a survey performed by the Czech Students Union in which students
at domestic universities were asked to name the company they
would most like to work for in the future. esk spoitelna has
placed first two years running. The Bank was also delighted by the
unflagging interest of students in internships and collaboration on
their student work. The esk spoitelna Graduate Programme
met with great interest after launching in two rounds in 2013.
The first group included in the programme successfully completed
a full year and all the participants were offered employment with
esk spoitelna.
In 2013, average staff headcount decreased by 109 to 10,651, of
which 74% are women. Average length of employment rose to
10.5 years and average employee age increased to 39.4.
esk spoitelna has introduced the long-term Diversitas
programme designed to support equal opportunity and
work/life balance for employees. Several projects were carried
out in 2013. Project Gender Equal Opportunities promotes gen-
der equality and gives women in manage ment an opportunity to
develop their potential through training, inspirational workshops,
networking events and a mentoring programme.
Under the aegis of Project Stork, six gatherings were organised
where parents on maternity or parental leave could meet with mem-
bers of the Board of Directors to discuss legal issues associated
with this leave.
The new Wise Owl Project addresses age manage ment and offered
employees an opportunity to take part in interesting courses, work-
shops and confe rences to explain the concept of age manage ment
and highlight the path esk spoitelna will take in this area in the
years to come.
Project Transition Without Barriers involves an audit of esk
spoitelna buildings from the perspective of their suitability for
vari ous forms of physical disabilities and offers training to handi-
capped candidates for employment with esk spoitelna. The pro-
ject gave blind interns a chance to work at esk spoitelna,
and some candidates were offered permanent positions.
Service Quality
A key service quality goal of esk spoitelna in 2012 was to
improve service quality in all client segments with an emphasis on
providing qualified and professional advisory service. The high
Number of employes
12 500
10 000
7 500
5 000
2 500
0
2009 2010 2011 2012 2013
10,556
9,485
10,760
10,651
9,640
9,550
10,843
10,219
S Financial Group headcount*
esk spoitelna headcount*
* average adjusted headcount including employees of other Erste Group companies (expats)
10,744
10,163
38
degree of client satisfaction with the Private Banking ser-
vice in H2 showed that the right targeting of manage ments
attention and activity leads to a better client perception of
esk spoitelna services. The Bank fared well in another prior-
ity area the complaint resolution process. Client satisfaction with
the manner, speed and outcome of complaint resolution exceeded
90% in Q4 2013.
The level of client service at esk spoitelna is ascertained
by measuring the client experience expressed as a Customer
Experience Index (CEI). The purpose of this quantitative research
is to obtain information on retail clients experiences at a branch
immediately after their visit. Moreover, long-term customer expe-
rience is measured (LT CEI) every half year and the outcomes
help determine the objectives of indi vidual Bank departments.
Measurement is focused on the retail banking segments. Client
loyalty is measured via the Net Promoter Score (NPS) method,
which uses the response to a single question based on the principle
that clients are only willing to recommend those companies with
which they are satisfied. An analysis of the reasons for rec-
ommendation / non-recommendation enables the Bank to
alter pro ducts and services to better suit clients. As the NPS
method is used in other sectors, too, the results can be compared
to those of local and international companies.
Submissions in the form of a complaint, claim, suggestion, query or
praise communicated through a branch, client centre or the ombuds-
man team allow clients to express an opinion or requirement for
change. It is in the Banks interest to record every one of these
submissions, even those that are resolved immediately, in order to
have a clear idea of specific client wishes. A key change in 2013
was the establishment of a Complaint Resolution Centre,
which is responsible for overall complaint resolution and
helps bolster client satisfaction with claim resolution. The Bank
also addresses the root causes of those complaints that repre sent the
most common problems areas in pro ducts and services negatively
perceived by clients, and endeavours to find a solution for every
identified problem.
A team of ombudsmen is available to esk spoitelna cli-
ents through vari ous communication channels. Clients can
call 956 717 718 or e-mail ombudsman@csas.cz, come in for
a personal consultation, send letters or contact the Office of the
Ombudsman through Facebook S. Team members resolve client
issues in Czech, English and German. Ombudsmen handle the
most complicated cases that might impact the activity of
multiple bank departments and which are often associated with
reputational risk. They can also convene expert groups of employ-
ees from vari ous Bank departments to individually assess client
compensation claims. In 2013, the average submission resolution
period was reduced from 11.2 to 9.4 days and client satisfaction
with complaint resolution was 73%. In 2013, Bank staff resolved 82
cases in collaboration with the Czech National Bank and 79 cases
with the Financial Arbitrator of the Czech Republic.
In 2013, the main areas of client complaints or requests for an
ombudsman opinion were fees for banking pro ducts and services,
unapproved loans and loan restructuring and debt collection.
Project Manage ment
esk spoitelna successfully realises its strategic goals through
projects. The benefits are reflected in greater client satisfaction,
higher revenue, greater operatio nal efficiency and risk abatement.
Projects are prepared based on research of the needs of current and
potential clients and on anticipated technological developments.
The majority of projects are thus geared to the development
of new technologies and pro ducts for clients. esk spoitelna
endeavours to offer its clients innovative services that are both
new and reliable, e.g. in the areas of internet and mobile banking,
contactless technology or consolidation activities for the purpose of
creating a more effective portfolio of applications. Annually, many
dozens of projects are carried out at esk spoitelna.
esk spoitelna also works with Erste Group Bank on group pro-
jects whose gene ral aim is to fully utilise the potential of central
European markets in all segments, take advantage of economies
of scale and cost synergies, concentrate ancillary services within
the Group, and achieve performance measurement transparency
and comparability. Projects cover information technologies, risk
manage ment, opera ting services and more.
esk spoitelna keeps pace with the latest trends in the field of
project manage ment and project portfolio manage ment, actively
contributing and passing on its experience at professional confe-
rences and seminars. Great attention is paid to the further edu-
cation and personal development of project managers. The high
professional level in this area is demonstrated by the fact that some
project managers hold Project Manage ment Professional (PMP)
certifications.
The Private Account S II is just one of the important pro-
jects benefiting retail banking clients. This new project incor-
porates the Money Aside savings account. Clients with a Private
Account S II can now purchase the new Family Offer service,
which allows the convenient use of one account by vari ous fam-
ily members. Clients from the MSE segment can open a newly
redesigned Commercial Account S, Commercial Savings
Account S or Commercial Account S MAXI Account at any
Bank branch.
Using an interesting new tool to calculate fees and discounts on
Private Accounts S (Private Account S and Private Account S
II), the Bank can more quickly, efficiently and cost-effectively
create new pro duct and price offerings for clients. Thanks to the
introduction of the new Customer Pricing Tool (CPT) mod-
ule, clients can apply vari ous types of discounts on the
Private Account S II and Private Account S. They can also
choose a loyalty gift.
39
In 2013, the revision of contractual and client documents for retail
clients was completed. Now, all contractual documents for clients
are simple and understandable. Moreover, account and transaction
statements for all pro ducts are now significantly clearer and graph-
ically modified. Clients who have managed assets with the Bank
now receive clearer and better quality portfolio updates.
Contactless technology was introduced for every type of
payment card issued by the Bank, and cards were transitioned
to the use of a new type of chip. Payment options were expanded
to include the latest in contactless stickers. These innovations
extended to payment terminals, all of which now support contact-
less payments aided by the latest version of contactless commu-
nication protocols.
esk spoitelna played a key role in establishing the new coalition
bonus programme iBOD, which since its inception has offered
rewards at more than a thousand locations in the extensive iBOD
vendor network with more than 30 partners. With iBOD, esk
spoitelna offers its clients a truly comprehensive rewards
programme.
The redesign of internet banking for retail clients introduced,
among other innovations, new types of informational SMS,
password unlocking via www.servis24.cz or automatic pro-
duct display, meaning clients no longer have to enter pro ducts
manually.
Through projects for its corporate and financial markets clients,
esk spoitelna finished the work associated with the market intro-
duction of the Erste Corporate Banking brand. The applications that
print client documents were modified, the new payment card logo
was finalised and the new brand was introduced at subsidiaries
with corporate clientele.
Bankers serving corporate clients are using the next gener-
ation of a new user interface (RSM desktop) allowing them to
improve and streamline the customer relationship. Internet
banking for corporate clients has also undergone a number of addi-
tions in the area of indi vidual exchange rates, informational SMS
and e-mails and new FX transaction graphs.
The European Market Infrastructure Regulation (EMIR) Project
assures banking compliance with new European legisla tion on OTC
derivatives trading.
A number of projects focussed on streamlining processes. For
example, all standard branches migrated to a virtual environment,
meaning that computer stations replaced terminals. This change
facilitates access to applications from mobile devices, reduces
downtime, provides for a better level of service and cuts costs
while enhancing data and application security. In 2013, all esk
spoitelna employees were switched to the Google Apps
platform for their e-mail, calendar and contacts.
Incorporation of the key impacts of the transformation
of Penzijn fond S into the Banks information systems
was another important event in 2013, and supports the sale
of S-Penzijn spolenost pro ducts. The applications and proce-
dures used to manage funds were also modified. Loan pro duct
manage ment applications that streamlined the work of advisors and
the processing centre were consolidated into a new stan dardised
application.
The Bank applied the group Performance Development System
(PDS) to manage the performance of headquarters, the branch
network and subsidiaries. This new performance manage ment tool
provides for the setting and evaluation of indi vidual employee goals
and competencies while at the same time drafting a personalised
development plan for them. The new stable and user-friendly
education portal can be used not only by employees, but also out-
sourced staff and clients.
Economic and Strategic Analysis
The Economic and Strategic Analysis Teams responsibilities are
divided into three areas. The first is strategic planning and bank-
ing sector analysis. These analy ses and associated documentation
become an integral part of the drafting and review of the esk
spoitelna Financial Group plan. The area of equities analy ses cov-
ers eleven companies, prima rily in the real estate, media and utilities
sectors. The third area comprises macroeconomic analy ses resulting
in prognoses of foreign exchange and interest rate developments.
The equities and macro groups also offer investment strategy advice
to clients in addition to analy ses and prognoses.
Analy ses are published online at www.investicnicentrum.cz. The
set of regular analytical reports issued with daily to quarterly fre-
quency in Czech and English now comprises 20 different pro ducts.
Analysts and strategists are available to a selected group of esk
spoitelna Financial Group clients via face-to-face or telephone
consultation.
Security Policy
esk spoitelna attaches a great deal of importance to its secu-
rity policy. The Bank operates an independent security department
charged with overseeing the investigation of operatio nal risks and
maintaining IT and physical security focussing on potential viola-
tions of bank secrecy and their prevention and Business Continuity
Manage ment (BCM). The Banks work here is chiefly con-
cerned with preventing all adverse events or inappropriate
conduct jeopardising the security of clients and employees
or the assets of esk spoitelna Financial Group companies.
The esk spoitelna security policy oversees the mitigation of
operatio nal and security risks. Any criminal activity of Bank clients
or employees constitutes a priority reference point when evaluating
and administering warnings in software applications, assessing
methodological procedures and grading new Bank development
projects.
40
The number of violent crimes has remained low in recent years,
and there has been a long-term trend of robberies resulting in lit-
tle or no loss of pro perty. In fully half the robbery attempts
made at esk spoitelna branches, the thieves came away
empty-handed. In comparison with other banks, esk spoitelna
has enjoyed far greater success in its work with law enforcement
in clarifying cases of robbery and criminal acts in gene ral. The
Bank can attribute its success here to its substantial invest-
ment in security technologies and close coope ration with
the Czech police.
In 2013, there was a significant rise in cyber attacks with bank-
ing-specific Trojan horses and phishing. The Bank thus focused
its security monitoring on the development and implementation of
online transaction monitoring and its strategic development activ-
ities on setting up acceptance criteria to ensure the required level
of Google Apps security at an acceptable level of operatio nal risk.
In the area of user administration, the Bank implemented a further
expansion of user access right manage ment system tools (Identity
and Access Manage ment, I&M). As a result, information about
users and their authorisations in centrally administered applications
is gathered in one place.
The Bank also handles client complaints concerning violations of
bank secrecy and uses transaction monitoring in the prevention of
unauthorised employee access to information. The personal secu-
rity courses Manage ment Psychology and Personal Security and
Practical Security are also prevention oriented. Naturally, the
Bank also monitors workplace health and safety and fire safety in
compliance with its statutory obligations.
Activity in the area of business continuity manage ment was prima-
rily aimed at testing the Banks ability to prevent and resolve serious
failures in important activities and processes. The objectives are
to increase the Banks resistance to potential impacts of
extraordinary events, effect a systemic deepening of knowledge
and coope ration within the Bank and involve external partners. For
this reason, great importance was placed on external relationships,
in particular managing continuity of activity with key vendors and
developing coope ration with crisis manage ment agencies. esk
spoitelna is also engaged in the ongoing development and improve-
ment of its ability to assure the provision of key services and func-
tioning of important units and systems in the interest of protecting
elements of critical government infrastructure.
Internal Audit
Internal Audit is an independent and objective assurance and con-
sulting activity designed to add value and improve Bank processes.
Internal Audit helps the Bank achieve its goals by affording a sys-
tematic approach to evaluating and improving the effectiveness of
the risk manage ment system, manage ment and control processes
and Bank manage ment and administration. Internal Audit is respon-
sible for assurance and advisory services and identification of areas
for process improvements and methods for the achievement of
company goals. Internal Audit monitors processes and activities in
every department of the Bank and participates in the evaluation of
the level of functio nality and effectiveness of the manage ment and
control systems. Internal Audit verifies that mea sures arising out
of audits and reviews performed are carried out and irregularities
corrected. In 2013, Internal Audit provided the Banks manage ment,
Board of Directors, Supervisory Board and Audit Committee with
reports, information and assurances concerning the risks that the
Bank faces.
41
Strategic Plans for the Future
Strategic Objectives
In realising its strategic objectives for 2013, esk spoitelna
assured its stable development and received a host of prestigious
awards from clients, the gene ral public and specialised institutions.
Moving forward, esk spoitelna wants to comply with its updated
client-based strategy, which fosters deep client loyalty and thus
the Banks exceptional financial results. As a major bank, esk
spoitelna should assume first place in retail banking and be second
among corporate clients, while in terms of client loyalty the Bank
should attain a leading position in all segments.
To assure these objectives are met, esk spoitelna will maintain
the following key priorities:
Customer-oriented approach;
Strategic cost manage ment;
Employee commitment;
Streamlining of processes and pro ducts; and
Compliance with regula tory requirements coupled with
expense and investment optimisation.
Macroeconomic Forecast
Key macroeconomic indicators will be impacted in 2014 by the
effects of the Czech National Bank exchange rate interventions
and implementation of the new Czech Governments programme
priorities, which indicate both a departure from fiscal austerity and
greater infrastructure investment.
esk spoitelna has based its 2014 budget on the following mac-
roeconomic projections:
Gradual return to Czech economic growth measured by 1%
GDP growth year-to-year;
Infation stagnating at prior year levels amid higher
demand-pull infation growth;
Stagnating or slightly increasing unemployment remaining
below 8%;
Stagnating or slightly falling interest rates compared to the
prior year average; and
Czech crown weakening against main currencies following
the CNB interventions of late 2013.
Outline of Business Policy and Projected Economic and
Financial Position in 2014 and Outlook for Later Years
In 2014, the Banks business departments will have the following
priorities:
Retail Banking
The objective in retail banking is to maintain and further strengthen
the Banks leading position in key client segments by applying
differentiated service models that were implemented in previous
years and have been proven among both larger consumer segments
and small enterprises.
In 2014, retail banking will emphasise:
Multi-distribution, by learning to serve clients where and as
they want;
Signifcant development of online operations together with
face-to-face sales channels;
Individualised client approach via ongoing real time analy-
ses of client data independent of the sales channel;
Retail clients, by streamlining pro ducts and processes and
improving client perception; and
Acquisition of economically active clients who use the
services of esk spoitelna.
Corporate Banking
In 2014, corporate banking will continue to work to fulfil the
strategic ambition of becoming a banking leader in the small
and medium-sized enterprise (SME) segment while sustain-
ing the Banks long-time position as a leader in the public and
non-profit sector. Another ambition is to become a key bank in
the large multinational client segment. The corporate banking
strategy is to continue developing this service by offering com-
prehensive client service and targeted solutions based on detailed
knowledge of the needs of indi vidual client sub-segments and
industries. esk spoitelna will further expand its portfolio of
ready-made solutions for financing energy, innovations, export
and other enterprise development activities, i.e. the Banks TOP
Programmes, and will bring new individualised pro ducts and ser-
vices to market to address the specifics of indi vidual industries,
transaction banking, M&A advisory, obtaining European Union
funds, arranging IPOs and more.
Regional sales teams will continue developing a sector-oriented
approach in the sales and analysis areas of corporate banking, which
Report of the Board od Directors on Business Activities of the Company and the State of its Assets in 2013| Strategic Plans for the Future | Risk Manage ment
42
Report of the Board od Directors on Business Activities of the Company and the State of its Assets in 2013| Strategic Plans for the Future | Risk Manage ment
will contribute to a greater understanding of client businesses and
further strengthen the universal partner-based client approach.
In real estate project financing, the Bank wants to sustain its
focus on residential construction (including co-ops) and on pro-
viding loans to first class retail and office projects. The objective
in the public and non-profit sector is to solidify coope ration with
strategic clients. esk spoitelna will concentrate on playing an
active role in project financing, providing advisory and offering
an individualised portfolio of pro ducts and services with higher
added value.
Financial Markets
The goal of esk spoitelna in financial markets sales and trading
will be to further strengthen its leading position in all key financial
market areas and pro ducts. In 2014, the Bank will focus its atten-
tion on developing pro ducts and services for commercial clients
and financial institutions while bolstering its position as a lead-
ing regional financing partner through the placement of bonds
and equities. In the area of capital markets, esk spoitelna will
continue to work closely with many prominent financial institu-
tions and investors throughout the central European region. The
Bank will also expand its offering of investment certificates for
all investor types.
In asset manage ment for institutional clients, esk spoitelna
will again build upon the enduring pillars of this service: utmost
service transparency, an emphasis on optimal strategic allocation
that respects the clients risk profile, continued outperformance
of managed portfolios and first class reporting.
esk spoitelna will continue its longstanding philosophy of offer-
ing a wide range of financial market pro ducts with an emphasis
on comprehensive client solutions and the automation of selected
pro ducts. Aside from classic pro ducts such as current and interest
risk hedging, the Bank is turning its attention to developing a port-
folio of hedge instruments for commodity price risk. Together with
its sub sidiary Erste Energy Services, the Bank will endeavour to
provide fair electricity market pricing and offer the option of using
derivative instruments to eliminate electricity market risks. The
primary aim of Erste Energy Services will be to focus on supplying
electricity to end consumers and offering clients electricity from
alterative energy sources.
When selling investment pro ducts to retail clients, esk spoitelna
will continue to attach great importance to finding optimal invest-
ment solutions that go as far as possible toward meeting the clients
requirements and expectations for potential return and acceptable
market risk. Key activities will include regular investment in
open-end mutual funds in which the Bank sees an optimal oppor-
tunity for clients to realise effective returns on even small amounts.
In 2014, the Bank will endeavour to increase the value of managed
investment pro ducts and grow its market share in mutual funds and
structured pro ducts.
Projected Economic and Financial Position
In light of very tempered projections of economic recovery, the
objectives set by esk spoitelna for 2014 are highly ambitious:
the Bank is projecting profit at roughly the same level as reported
in 2013.
Persistent minimal interest rates will continue to limit options for
effectively investing primary financial resources, which in turn will
be expressed in a slight drop in net interest income. The Bank also
projects a drop in net income from commercial activities whose
development in 2013 was influenced by extraordinarily favourable
circumstances and stagnation or a drop in net fee and commis-
sion income.
To continue to maintain a cost/income ratio of just over 40%, the
Bank will have to carry on its efforts to bring down opera ting costs.
In 2014, this should result in a drop in return on equity (ROE),
whose target value should be close to 15%.
esk spoitelna expects a moderate increase in the volu me of
client loans in 2014. The volu me of client deposits shall remain
stable. These assumptions are reflected in an increase of the ratio
of client loans to client deposits.
43
Risk Manage ment
Risk manage ment processes are a key element of the Banks
internal manage ment and control system. As a result of its busi-
ness and other activities, esk spoitelna is inevitably exposed
to a variety of credit, market, operatio nal and liquidity risks. The
Banks attention to risk manage ment is commensurate with its
size and the complexity and volu me of its pro ducts, business
activities and other operations. esk spoitelna has a Board of
Directors-approved risk manage ment strategy in place comprising
risk manage ment principles covering risk identification, moni-
toring and measurement processes, and the setting of limits and
restrictions. By adopting these principles, the Bank has kept its risk
exposure at an acceptable level, enabling it to maintain effective
manage ment processes.
The following departments play a role in managing risk at esk
spoitelna:
Central Risk Manage ment Department: prima rily
responsible for market and operatio nal risks and for
consolidated risk manage ment for the entire esk
spoitelna Financial Group;
Credit Risk Manage ment Department, Credit Risk
Controlling Department and Portfolio Manage ment
Department: assuming responsibility for credit risk manage-
ment on a Groupwide basis; and
Balance Sheet Manage ment Department: manages net
banking book (investment portfolio) interest risk and
liquidity risk based on decisions of the Assets and Liabili-
ties Manage ment Committee.
The activities of these risk manage ment departments are comple-
mented by the work of the:
Security Department: responsible for risk manage ment in
respect of physical and IT security;
Legal Services Department: responsible for providing legal
support;
Compliance, Financial Crime and Fraud Prevention
Department: responsible for managing compliance risk and
anti-money laundering mea sures; and
Card Centre Department: responsible for payment card
transaction risk manage ment.
The Board of Directors shares risk manage ment approval authority
with the following committees:
Assets and Liabili ties Manage ment Committee (ALMC);
esk spoitelna Board of Directors Credit Committee;
Financial Markets and Risk Manage ment Committee
(FMRMC);
Compliance, Operatio nal Risk and Security Committee
(CORS) a body of the Banks Board of Directors that
makes decisions concerning the manage ment of operatio nal
risk, compliance risk and security; and
Operatio nal Liquidity Manage ment Committee (OLC).
Credit Risk
esk spoitelna is exposed to credit risk; that is, the risk that
a counterparty will be unable to pay amounts in full when due.
In managing credit risk, esk spoitelna applies a stan dardised
methodo logy adopted on a Groupwide basis that sets out the appli-
cable procedures, roles and authorities.
The lending policy includes:
Prudent lending process guidelines, including rules to
prevent money laundering and fraud;
Gene ral client segment acceptability guidelines based
on principal activities, geographical location, maximum
maturity period, the pro duct and the purpose of the loan;
A basic framework for the rating system and the
determination and review of debtor ratings;
Basic principles of the system of limits and the structure of
approval levels;
Loan colla teral manage ment rules;
The structure of basic pro duct categories; and
The methodo logy for provisioning and risk-weighted asset
calculations.
Collection of key risk manage ment information
In managing credit risk, the Bank draws not only on its own port-
folio information, but also on the portfolio information of other
members of the esk spoitelna Financial Group. The Bank addi-
tionally uses information obtained from external sources such as
the Credit Bureau and Central Credit Register, or ratings provided
by reputable ratings agencies. The extensive database available for
credit risk manage ment purposes serves to model credit risk and
supports the collection and measurement of receivables as well as
the calculation of losses.
Strategic Plans for the Future | Risk Manage ment | Other Information for Shareholders
44
Internal Rating Tools
Rating is consi dered to be one of the key risk manage ment tools.
The Bank uses a clients rating to measure the counterparty risk
profile. The client rating reflects the probability of debtor default
in the subsequent 12 month period. The debtor evaluation and
internal rating determination are part of every loan approval or
of significant changes in lending terms and conditions. Debtor
evaluation reflects the clients financial position and non-finan-
cial character istics. For corporate debtors, this prima rily involves
an analysis of strengths and weaknesses such as manage ment
quality and competitiveness. For retail debtors, the analysis
chiefly entails demographic and behavioural indicators. As
a part of risk manage ment, the Bank categorises its clients as
non-performing and performing. The Bank uses an eight
grade rating scale for performing clients private individuals
(i.e. non-entrepreneurs) and a thirteen grade rating scale for other
clients. For all non-performing clients, the Bank uses a single
rating grade R which is further broken down based on the
reason for the default.
All information essential for the above mentioned assessments is
gathered and stored centrally. The Bank performs regular inter-
nal rating reviews (no less than once a year). The internal rating
methodo logy is validated based on historical data using statisti-
cal models. In accor dance with regula tory requirements, the Bank
ensures independent entity oversight of the internal rating methodo-
logy validation process.
Exposure limits
Exposure limits are defined as the maximum exposure acceptable
for the Bank in respect of an indi vidual client or group of economi-
cally related persons. The system is set up to protect the Banks
income and capital from concentration risk.
Structure of Approval Authorities
The structure of approval authorities is based on the princi-
ple of the materiality of the impact of a potential loss from the
provided loan on the Banks financial performance and the risk
profile of the respective loan transaction. The Supervisory Board
Credit Committee and Board of Directors Credit Committee have
the highest approval authorities. Lesser approval authorities are
scaled according to Credit Risk Manage ment Department staff
seniority.
Determination of Risk Parameters
esk spoitelna uses its own internal models to determine risk
parameters such as probability of default (PD), loss given default
(LGD) and credit conversion factors (CCF, i.e. coefficients
used to transfer off-balance sheet items to the balance sheet). All
models comply with the Basel II requirements. Monitoring and
predicting historical risk parameters forms the basis for quantita-
tive portfolio manage ment. esk spoitelna currently uses risk
parameters to monitor credit risk, manage the non-performing loan
portfolio and assess risks. The active use of risk parameters in
managing the credit risk of the Bank makes it possible to obtain
detailed information about the possible sensitivity of basic portfolio
segments to both internal and external changes.
Impairment allowances for credit risk
esk spoitelna uses a provisioning methodo logy that complies
with International Financial Reporting Standards (IFRS). Portfolio
provisions are determined for portfolios of receivables in which no
indi vidual impairment has been identified. The level of portfolio
provisions is esta blished using models based on the Banks historic
experience. The PD and LGD risk parameters are a significant com-
ponent of these models. Receivables where impairment has been
identified are provided for individually. The discounted cash flow
method is used to measure impairment of non-retail receivables
and retail receivables with a value exceeding CZK 5 million. The
degree of impairment of other retail receivables is determined sta-
tistically on the basis of experience with the recovery of a simi lar
type of receivable. Impairment allowances against all receivables
are re-assessed on a monthly basis.
Concentration Risk and Risk-weighted Assets
esk spoitelna manages loan portfolio concentration risk through
a system of large exposure limits. Large exposure limits are esta-
blished as the maximum exposure that the Bank may accept in
respect of an indi vidual client or economically-related group of
clients with a given rating and underlying colla teral. The system
is set up to avoid excessive risk concentration in a portfolio to
a small number of clients and is based on the maximum level of
economic capital that may be allocated to one group of clients.
esk spoitelna complied with the conditions for the use of the
Internal Ratings-Based (IRB) approach when calculating the
credit risk capital requirement, and since July 2007 risk-weighted
assets and the capital requirement have been based on internal
45
ratings and the Banks own estimates of the PD, LGD and CCF
parameters. Risk-weighted assets are calculated monthly. The
standard calculation is regularly supplemented by stress testing,
which includes modelling of the (chiefly macroeconomic) impacts
of sudden changes in the market.
Risk Appetite Statement
The maximum tolerated exposure to capital level and to the Banks
opera ting profit towards vari ous types of risks is defined in the Risk
appetite statement approved by the Banks Board of Directors.
Improving the Early Recovery Process
In 2013, the Bank continued to develop and upgrade the process
of early recovery and detection of problematic clients. In corporate
banking, this area is handled by a department responsible for moni-
toring performance of the non-financial terms of loan contracts with
corporate clients with the aim of improving the monitoring of the
Banks loan portfolio and reducing its credit risk exposure. In retail
banking, the Bank continued the effective use of the call centre for
early recovery of delinquent receivables. Call centre services are also
utilised by other entities within the esk spoitelna Financial Group.
Market Risks
Market risks assumed by esk spoitelna relate principally to
financial market transactions that are traded in both the trading
and banking books, and interest rate risk associated with banking
book assets and liabili ties. Trading book transactions on the cap-
ital, money and derivatives markets can be broken down into the
following areas:
Client quotations and transactions and the execution of
client orders;
Interbank and derivative market quotations (market
making);
Active trading on the interbank market; and
Distribution of fnancial market pro ducts to retail clients.
Erste Group Bank uses a holding business model for financial
markets trading called Group Capital Markets. Risks from exe-
cuted client transactions are transferred through back-to-back trans-
actions to portfolios of Erste Group Bank. Quotations on the bond,
derivative and foreign currency markets and interbank transactions
are transferred to the holding company as well. Annually, Erste
Group Bank redistributes the proportionate share in the Group result
arising from trading in accor dance with the approved model. esk
spoitelna retained transactions and quotations on the money and
equity markets.
Derivative transactions are also used to hedge banking book interest
rate risk and to close the gap between foreign currency assets and
liabili ties.
The Central Risk Manage ment Department monitors and mea sures
trading and banking book market risk. This department is entirely
independent of the Financial Markets Department (for trading book)
and of the Asset and Liability Manage ment Department (for bank-
ing book) to avoid conflicts of interest and to ensure that reports
submitted on the Banks risks are sound and unbiased.
The Central Risk Manage ment Department ensures that an inde-
pendent evaluation of all financial market transactions for both the
Group and client portfolios administered by the Group is conducted.
The department is also responsible for managing operatio nal risks
associated with financial markets trading and managing market
risks. It carefully focuses on control activities and reconciliations
to ensure that complete and accurate records of instruments in the
Banks portfolios exist.
limits for market risks are determined separately for the trading
book and the banking book. All trading book limits (specifically,
VaR limits for intra-day holding and sensitivity limits) are proposed
in collaboration with the Central Risk Manage ment Department
and competent business departments and approved by the Financial
Markets and Risk Manage ment Committee. All banking book
risk limits (specifically, VaR limits for intra-month holdings) are
proposed in collaboration with the Central Risk Manage ment
Department and the Group Balance Sheet Manage ment Department
and approved by the Assets and Liabili ties Manage ment Committee.
The set of market limits must comply with the maximum risk expo-
sure ( measured using the VaR method) as approved by the Banks
Board of Directors and must also be confirmed by the parent com-
pany, Erste Group Bank.
While the VaR for the trading book may be determined using
standard verifiable methods, the banking book of the Bank and
certain subsidiaries includes assets and liabili ties that cannot be
repre sented using standard techniques. Hence, the VaR for these
banking portfolios is calculated based on special procedures that
endeavour to reflect as faithfully as possible the actual behaviour
of the assets and liabili ties in these portfolios.
The Bank uses what is known as the PVBP gap, a matrix of interest
rate sensitivity factors of indi vidual currencies for indi vidual port-
folios of interest rate pro ducts, in order to measure the interest
rate risk exposure of financial markets transactions. These factors
measure portfolio market sensitivity with a parallel shift of the yield
curve of the respective currency within the predefined period to
maturity. The system of PVBP limits is set for each interest rate
pro duct trading portfolio by currency. The limits are compared
to the value that repre sents the greater of the sum of the positive
PVBP values or the sum of the negative PVBP values in absolute
terms for each period to maturity. This results in managing not only
the risk of a parallel shift in the yield curve, but also any possible
yield curve rotation. A limit for the simple sum of PVBP values is
set for major currencies such as the CZK, EUR and USD. esk
spoitelna additionally monitors other special limits for interest
rate option contracts, e.g. the gamma and vega limits for interest
rates and their volatility.
46
In addition to interest rate risk, the Bank also monitors credit spread
risk. This type of risk pertains to bonds, where changes in bond
prices can occur at constant interest rates as a result of a reduction
of increase in credit spread. CR01 limits are introduced for credit
spreads; these are simi lar to PVBP limits and are calculated as
a simple total of the impact of a change in credit spread by 1bps
across all reference time periods.
The sensitivity of foreign currency derivatives to foreign exchange
rate movements is measured in the form of delta equivalents and is
reflected in the Banks foreign currency position. esk spoitelna
monitors special limits for foreign currency option contracts, e.g.
limits for delta equivalent sensitivity to the exchange rate change
in the form of the gamma equivalent and limits for option contract
value sensitivity to exchange rate volatility in the form of the vega
equivalent. The Bank also monitors the sensitivity of the value to
the period to maturity (theta) and interest rate sensitivity (rho),
which is measured together with other interest rate instruments in
the form of PVBP.
Trading book equity risk is monitored using the delta sensitivities of
portfolio market values to equity price movements both by equity
issue and in the aggregate for each market and for the portfolio
as a whole.
Trading book commodity risk is monitored using the delta sensi-
tivities of portfolio market values to commodity price movements
for indi vidual commodities.
The Central Risk Manage ment Department uses other sophisticated
procedures to assess the value and risks of structured pro ducts
including credit investment instruments whose explicit valua tion
is not feasible. The Monte Carlo method is most frequently used
to simulate the probability distribution for the price and future
development of complex transactions, including price sensitivities
to changes in market factors.
The VaR method is used to measure aggregated trading and bank-
ing book market risk of the Bank. VaR values are calculated with
a confidence level of 99% for the holding period of one trading
day. The calculation is performed using the KVaR+ system and
simulations based on historical data over the most recent 520 trad-
ing days. Under conditions of normal loss distribution, VaR is also
determined for a holding period of one month or one year and for
higher probability levels (99.9%, 99.98%).
VaR limits are determined for indi vidual trading desks or portfolios.
The VaR method is augmented with back testing (both hypothetical
and real), which is designed to verify model correctness. To date,
back testing results have shown that the VaR calculation model
has been set correctly.
Based on CNB approval, the market VaR method is also used to
calculate the capital requirement in respect of foreign currency
risk, gene ral interest rate risk, gene ral and specific equity risk
and risk associated with trading book option transactions. This
method is also used to calculate Economic Capital for trading
book and banking book market risks. VaR calculations are also
used when assessing risks associated with the asset portfolios of
funds of Investin spolenost S and Penzijn fond S and when
assessing market risks in the banking book of Stavebn spoitelna
S using special models to repre sent the Banks statement of
financial position.
As a complement to the VaR method, esk spoitelna performs
stress testing, which is described in more detail in a separate chapter.
Banking book investments in bonds are monitored by the Central
Risk Manage ment Department using a system of indicators eval-
uating the quality of the security issuer, country of origin and per-
formance of the respective economic sector. If these indicators
significantly worsen, each investment is individually re-evaluated
from the perspective of its future development, potential sale or
continued holding.
Information on the Banks exposure to market risks and on com-
pliance with the esta blished limits is reported on a daily basis to
the Banks responsible managers and on a monthly basis to the
members of the Board of Directors via the Assets and Liabili ties
Manage ment Committee and Financial Markets and Risk Manage-
ment Committee.
interest Rate Risk
esk spoitelna uses the following methods to manage banking
book interest rate risk:
Net interest income simulation;
Simulation of net interest income sensitivity to market
interest rate changes ( parallel/non- parallel discrete shift in
market yield curves);
Simulation of changes in the theoretical market value of
the banking book when a market yield curve shifts by
100/200 basis points (including key rate duration); and
Duration and gap analy ses.
The Banks current interest rate risk exposure is assessed monthly
by the Assets and Liabili ties Manage ment Committee within the
context of overall development of financial markets, the Czech
banking sector and the structural changes in the Banks statement
of financial position.
The key parameter monitored in respect of esk spoitelnas
interest rate sensitivity is the relative change in the Banks expected
net interest income should market interest rates show an imme-
diate parallel increase/decrease of +100/100 basis points over
a 36 month horizon given the assumption of a stable statement
of financial position structure (i.e. pro duct structure of assets and
liabili ties).
47
Liquidity Risk
Liquidity risk is defined as the risk that the Bank will not be
able to meet its financial commitments as they fall due or
finance its assets. Liquidity is monitored and managed based
on expected cash flows and the subsequent adjustment of the
liability structure.
The Survival Period Analysis (SPA) is a key tool in liquidity
manage ment. This indicator mea sures how long an entity may sur-
vive under vari ous predefined crisis scenarios from a liquidity risk
perspective. These scenarios include the ordinary course of busi-
ness (OCB), moderate identity crisis (MIC), serious identity
crisis (SIC), moderate market crisis (MMC), serious market
crisis (SMC) and combined serious identity and market crisis
(CIM). The actual survival period is assessed monthly. Regula-
tory bodies recommend that the survival period be one month,
esk spoitelnas survival period exceeded half a year in 2013.
In 2013, esk spoitelna began applying two new ratio indicators
for measuring liquidity risk that are to be introduced by Regulation
of the European Parliament and of the Council No. 575/2013 (CRD
IV) starting in 2014: the Liquidity Coverage Ratio (LCR) and
the Net Stable Funding Ratio (NSFR).
The LCR mea sures a banks resistance to a sudden stress event on
its liquidity position, specifically whether the bank is able to survive
for at least 30 days in the event of a liquidity crisis. The indicator
is defined as the ratio of highly liquid assets to total projected net
cash outflows over a 30 day period under stress conditions. The
minimum ratio should always be higher than 100%. The plan is for
60% of this limit to be reached as of 2015, followed by an annual
10% increase to 100%.
The NSFR supports liquidity resistance in a long-term horizon
in order to ensure that non-current receivables are financed with
non-current funds. The standard requires a minimum amount of
funding that is expected to be stable over a one year time horizon.
The NSFR is defined as the amount of longer-term, stable sources
of funding employed by an institution (capital and a portion of
long-term funds stable over a one year horizon under stress condi-
tions) and the volu me of required stable funding (assets convertible
into cash in a period exceeding one year). NSFR should always be
higher than 100%. Owing to its comfortable liquidity position (high
volu me of liquid assets combined with retail market financing),
esk spoitelna will meet both Basel III indicators with a signif-
icant reserve for the foreseeable future.
In 2013, esk spoitelna introduced the requirement for a cushion
of highly liquid assets (an intraday liquidity buffer). The limit for
the minimum volu me of highly liquid assets is regularly assessed
based on transactions on esk spoitelna accounts at the CNB. The
task of the cushion is to guarantee sufficient liquidity to ensure
one day coverage of outstanding interbank transactions in a crisis
situation.
Operatio nal Risks
In accor dance with CNB Regulation No. 123/2007, which stipu-
lates the prudential rules for banks, credit unions and investment
firms, the Bank defines operatio nal risk as the risk of loss arising
from the inadequacy or failure of internal processes, human error,
system failure or the risk of loss resulting from external events,
including legal risk. The Banks manage ment is regularly informed
of operatio nal risk developments and levels.
esk spoitelna uses a Book of Risks develo ped by the Risk
Manage ment and Internal Audit departments as a tool to stand-
ardise the identification of risks for the needs of the entire S
Financial Group and to standardise risk categorisation with the
aim of achieving consistency in risk monitoring and assessment.
The CNB approved the use of advanced measurement approaches
(AMA) for the manage ment of operatio nal risk and calculation
of the capital requirement for operatio nal risk effective from
1 July 2009. This concept was approved at the level of Erste Group
Bank and applies for all group entities using advanced measurement
approaches for operatio nal risk. The Bank is currently working
on the further harmonisation of local and group principles in the
areas of data collection and operatio nal risk manage ment with an
emphasis on further strengthening the internal control system.
In 2011, the Bank successfully modified and approved a model for
calculating regula tory minimum capital requirements that newly
reflects the impact of insurance. The CNB also approved the use
of the AMA by Stavebn spoitelna S.
The Bank has been using the EMUS software application since
2002 to collect data on operatio nal risk. Data are collected for the
purpose of quantifying operatio nal risks and calculating the capital
requirement, but also for qualitative manage ment, i.e. to prevent
the further incidence of operatio nal risks and simplify processes for
recording events in which the Bank has suffered damage, including
insurance claims. The collection and evaluation of data on inappro-
priate conduct of the Banks clients and the risk of human failure
(inappropriate employee conduct) in the credit and non-credit areas
is key from the perspective of loss prevention.
esk spoitelna does not only rely on data obtained from actual
operatio nal risk incidents to assess and manage operatio nal risks.
Expert opinions of manage ment regarding risks in the areas for
which they are responsible constitute another valuable resource.
These risk assessments and expert risk scenario evaluations are
gathered on a regular basis and the data are aggregated into a risk
map and rendered in a stan dardised form for Erste Group Bank.
Risk scenario estimates are applied to calculations of the capital
requirement for operatio nal risk pursuant to Basel II principles.
An important tool for mitigating losses arising from operatio nal
risks is the insurance programme that esk spoitelna has used
since 2002. The programme involves not only insurance of pro-
perty damage, but also of risks arising from banking activities and
48
liability risks. esk spoitelna has been a part of the Erste Group
Bank joint insurance programme since 1 March 2004, which has
greatly expanded the Banks insurance coverage, in particular for
damage that may have a material impact on esk spoitelnas
profit or loss. To manage business continuity, esk spoitelna has
introduced a methodo logy and procedures based on internationally
recognised standards and Best Practice. The Bank systematically
analy ses key processes and threats with respect to the risk of pro-
cess failure, including an evaluation of the efficiency of adopted
mea sures and testing of existing emergency plans. esk spoitelna
also participates in the activities of the Financial Markets Critical
Infrastructure Committee (KIFT) that involves key banks and is
overseen by the CNB.
Careful attention is given to fraud prevention as a specific category
of operatio nal risk. The Bank focuses on the prevention of external
client or third party fraud as well as the risk of internal fraud. All
cases (zero tolerance for fraud) are subject to detailed investigation
followed by indi vidual mea sures and system changes in the Banks
IT and business processes.
The Bank has a system in place to manage risks associated
with outsourcing. A group policy that complies with regula tory
requirements (in particular, CNB Regulation No. 123/2007 and
other official notifications) has been implemented. Risk analy-
sis is regularly performed and updated for material activities;
a gene ral outsourcing activity assessment is reported to the CORS
(Compliance, Operatio nal Risk and Security) Committee on an
annual basis.
Stress Testing
esk spoitelna greatly expanded its stress testing of risk factors
in 2009 based on its experience with the crisis of 2008 2009 and
regula tory requirements.
Market risk associated with the trading book and the part of the
banking book revalued at market prices is subject to monthly stress
testing. The following scenarios are used:
Scenario based on 10 15 year historic data (80-year for
equities) using maximum positive and negative changes
(one day and ten day) for interest rates, credit spreads,
equity prices, exchange rates and volatilities separately;
and
VaR value at a 99.8% confdence level (the worst historical
scenario from among the most recent 520 observed
scenarios).
Stress scenario results are compared to the capital requirement for
market risks.
The Banks Board of Directors is sent a quarterly summary of all
risk exposures a Comprehensive Stress Testing Report. The report
quantifies the impacts of 2 types of negative scenarios for indi vidual
risks (only the rele vant scenario for each risk):
Great Depression scenario: projecting a 3-year economic
depression in western Europe and the USA simi lar to the
economic crisis of the 1930s; and
Debt crisis scenario: projecting an escalation of problems in
the monetary policies of EMU countries.
The report includes a summary of stress tests for market risk (sep-
arately for marked-to-market positions and for impacts of tests of
the Banks net interest income), the risk of widened credit spreads,
credit risk, opera ting risk, business risk, concentration risk and
liquidity risk. Of equal importance are the impacts of identified
reverse scenario risks, i.e. scenarios selected for their threat to the
Banks viability, specifically involving, for example, extraordinar-
ily strong revenue curve shifts, an economic collapse leading to
a marked increase in the likelihood of insolvency, extreme operatio-
nal risk events or a run on the bank associated with the worsening
possibility of obtaining market liquidity.
Capital manage ment
As regards the internal capital adequacy assessment process
(ICAAP) under Pillar 2 of Basel II (Regulation 123/2007 Coll.),
since 2009 esk spoitelna has used the Erste Group Bank
methodo logy that was approved by the Erste Group Bank Board
of Directors in December 2008 as a standardized capital manage-
ment approach for the Group. The Group method is updated on an
ongoing basis to reflect current trends, recognised standards and
regula tory requirements. The approach taken by esk spoitelna is
based on a group with minor differences required by local regula-
tory requirements or other local specifics.
All significant risks are quantified and covered by internal capital
within ICAAP. Economic capital is calculated for a one year period
with a confidence level of 99.9%. Market, operatio nal and liquidity
risks are quantified using the complex advanced approach based on
VaR methodo logy. Credit risk is calculated using the risk-weighted
assets method with the IRB approach. esk spoitelna has also
develo ped models for other risks (business, strategic, reputation
and concentration risk).
Total Group risk constitutes the sum of indi vidual risks, i.e. the
diversification effect is not applied out of prefe rence for a more
conservative approach. Total risk is then compared with capital
sources derived from regula tory capital (in particular, the result
for the current year is added to capital sources).
esk spoitelna performs stress testing, which provides additional
information for an internal assessment of the Banks capital adequacy.
The resulting economic capital is allocated to the Banks business
lines in order to calculate their risk-adjusted performance.
49
The esk spoitelna ICAAP results are submitted quarterly to the
Board of Directors, which then decides on any steps to be taken in
respect of ICAAP and, generally, of risk and capital manage ment.
The Bank is implementing new procedures comprising an
Emergency Response Plan and Recovery Plan in consideration of
new regula tory requirements to be prepared for unexpected adverse
market developments and, where the situation so requires, to adopt
sufficient timely mea sures.
Erste Group Bank, esk spoitelna included, attaches sufficient
importance to ICAAP with the aim of gradually improving the
system for managing the Groups risk profile and capital adequacy
while taking future development into account. The Bank is sys-
tematically continuing to refine its inclusion of new regula tory
requirements when modelling the development of capital needs
and sources. As a result, the Bank is well prepared for the forth-
coming regula tory changes set out in the Regulation and Directive
on Access to the Activity of Credit Institutions and Recovery and
Resolution Directive.
The Bank manages its capital with the aim of maintaining a cap-
ital level allowing it to support business activities, comply with
all applicable regula tory requirements and ensure a stable return
for shareholders.
Capital Adequacy
The standalone capital adequacy of esk spoitelna exceeded
8.00%, as required by the CNB, in 2013. Based on the decision of
the CNB, esk spoitelna was assessed as a systemically impor-
tant bank and will thus have to hold extra capital as an additional
percentage of its risk-weighted assets above the currently required
8.00%. This additional percentage is not yet finally set and it will be
published by the CNB upon the implementation of EU Directives
CRD IV/CRR into the Czech law.
Several events occurred in 2013 that significantly impacted both
capital and capital adequacy. In April 2013, retained earnings
brought forward were included in capital adequacy, leading to
increased capital and capital adequacy. In June 2013, dividends
totalling CZK 7.6 billion were paid, which led to a reduction in cap-
ital. Capital increased in total by CZK 8.6 billion. At the 2013 year
end, indi vidual capital adequacy pursuant to the CNB methodo logy
was 17.73%.
2013 2012 2011 2010 2009
Capital adequacy* 17.73% 16.03% 13.09% 13.92% 12.30%
*Data per CNB methodo logy
Information on Capital and Ratio Indicators
pursuant to Regulation 123/2007 Coll.
The share capital of esk spoitelna consists of 11,211,213 reg-
istered prefe rence shares each with a nomi nal value of CZK 100
and 140,788,787 ordinary bearer shares each with a nomi nal value
of CZK 100. The shares are in book entry form and are not traded
on public markets. To enhance its capital base, the Bank issued
subordinated bonds that are added to the additional Tier 2 capital
in an aggregate amount of CZK 2,025,874 thousand. The Bank
determines capital on an standalone and consolidated basis.
50
Consolidated and Unconsolidated Information on Capital and Ratio Indicators:
Data on capital
CZK thousand Consolidated data Standalone data
31. 12. 2013 31. 12. 2012 31. 12. 2013 31. 12. 2012
Capital 82,964,363 72,933,965 75,653,123 67,157,085
Aggregate amount of original capital (Tier 1) 83,664,135 74,042,536 76,163,580 68,207,010
Paid up share capital recorded in the Commercial Register 15,200,000 15,200,000 15,200,000 15,200,000
Share premium 1,688 1,688 1,688 1,688
Obligatory reserve funds 3,403,572 3,601,210 3,040,462 3,040,462
Other funds from the allocation of proft 0 0 0 0
Retained earnings brought forward 68,259,983 58,622,310 60,964,718 52,936,658
Minority interest 343,419 349,895 0 0
Other than consolidation goodwill (33,973) (33,973) 0 0
Financial foreign exchange differences arising from consolidation (199,827) (522,143) 0 0
Intangible assets other than goodwill (3,310,726) (3,174,219) (3,043,289) (2,935,955)
Negative valua tion diffe rence from changes in FV of
available-for-sale capital instruments
0 0 0 (33,611)
Participation securities issued by a person with a qualifed
investment in the Bank
0 (2,233) 0 (2,233)
Additional capital (Tier 2) 2,040,123 2,233,249 2,040,123 2,188,837
Subordinated debt A 2,025,874 2,188,837 2,025,874 2,188,837
Positive revaluation diffe rence from changes in FV of
available-for-sale equities and participation certifcates
14,249 44,412 14,249 0
Capital to cover market risk (Tier 3) 0 0 0 0
Deductible items from original and additional capital
(Tier 1 + Tier 2)
(2,739,895) (3,341,819) (2,550,580) (3,238,761)
Capital investments over 10% in banks and other fnancial
institutions
(2,105) (8,418) 0 0
Lack in coverage of anticipated loan losses in IRB (2,737,790) (3,333,401) (2,550,580) (3,238,761)
Data on capital requirements
CZK thousand
Consolidated data Standalone data
31. 12. 2013 31. 12. 2012 31. 12. 2013 31. 12. 2012
Total capital requirements 35,714,054 36,271,690 34,138,576 33,521,598
Total capital requirement for credit risk 30,599,647 30,395,208 29,872,817 28,697,520
Total capital requirement for credit risk with STA 3,360,178 4,476,479 3,058,078 3,300,568
Total capital requirement for credit risk with STA in IRB to
exposures
3,360,178 4,476,479 3,058,078 3,300,568
Total capital requirement for credit risk with IRB 27,239,469 25,918,729 26,814,739 25,396,952
Total capital requirement for credit risk with IRB to selected
exposures
27,080,514 25,838,861 26,166,926 24,882,263
Capital requirement for credit risk with IRB to equity exposures 158,956 79,868 647,814 514,689
Total capital requirement for credit risk with IRB to securitised
exposures
0 0 0 0
Capital requirement for settlement risk 0 0 0 0
Capital requirement for position, currency and
commodity risk
353,305 736,872 265,579 651,559
Total capital requirement for operatio nal risk 4,761,102 4,906,139 4,000,180 4,040,487
Capital requirement for risk of trading book exposure 486,946 233,472 0 132,031
51
Ratio indicators
Consolidated data Unconsolidated data
31. 12. 2013 31. 12. 2012 31. 12. 2013 31. 12. 2012
Capital adequacy (%) 18.58 16.09 17.73 16.03
Return on average assets (ROAA) (%) 1.6 1.7 2.1 2.0
Return on average equity Tier 1 (ROAE) (%) 18.5 22.4 29.5 30.4
Assets per employee in CZK thousand 87,624 83,738 89,229 80,153
Administra tive expenses per employee in CZK thousand 1,531 1,495 1,506 1,480
After tax proft per employee in CZK thousand 1,415 1,438 1,688 1,534
52
Other Information for Shareholders
pursuant to 118 of Act No. 256/2004 Coll. on doing business on the capital
market, par. 4, letters b) through k) and par. 5 letters a) through k)
Risk Manage ment | Other Information for Shareholders | esk spoitelna Corporate Social Responsibility
esk spoitelna, a. s., with its registered office at Prague 4,
Olbrachtova 1929/62, 140 00, Company ID 45244782, is the legal
successor of the Czech State Savings Bank and was registered as a joint
stock company in the Czech Republic on 30 December 1991 in the
Commercial Register maintained by the Municipal Court in Prague,
Section B, Entry No. 1171.
118, par. 4 letter d) and par. 5 a) through e)
The structure of the consolidated and indi vidual equity of esk
spoitelna is pre sented in the consolidated or standalone annual
financial statements on page 69 or page 152 of the Annual Report,
respectively.
esk spoitelna, a. s. Shares
Class: Ordinary and prefe rence shares
Type: 140,788,787 ordinary bearer shares, i.e. 92.62% of basic
capital 11,211,213 prefe rence bearer shares, i.e. 7.38% of basic
capital
Form: Book entry
Number of shares: 152,000,000
Total issue volu me: CZK 15,200,000,000
Nomi nal value per share: CZK 100
Share marketability: Shares are not traded on any public
market
The transferability of prefe rence shares is restricted to towns and
municipalities of the Czech Republic; transfers of prefe rence bearer
shares to other entities are subject to esk spoitelna Board of
Directors approval. A preferential right to receive dividends is
attached to prefe rence shares. Holders of prefe rence shares are
entitled to prefe rence dividends every year that the Gene ral Meeting
adopts a decision to distribute profit, even if other shareholders
will not be paid dividends in the given year based on the Gene
ral Meetings decision. A right to vote at Gene ral Meetings is not
attached to the Companys prefe rence shares. Holders of prefe
rence shares have all other rights attached to ordinary shares.
Additional information on shareholders rights is pre sented in the
esk spoitelna, a. s. Declaration on the Compliance of its
Gover nance with the Code based on OECD Principles (see
page 60 of the Annual Report).
118, par. 5 letters g) and h)
The election and dismissal of Board of Directors members lies
within the remit of the Supervisory Board. Board of Directors
members are elected and dismissed by acclamation (a show of
*EGB Ceps Holding Gmb is a wholly-owned sub sidiary of EGB Ceps Beteiligungen Gmb, itself a wholly-owned sub sidiary of Erste Group Bank AG.
esk spoitelna Shareholder Structure as at
31 December 2013 Share in voting rights
EGB Ceps Holding Gmb, Graben
21. Vienna, Austria*
99.52
Towns and municipalities of the
Czech Republic
0.000 Other legal persons and individuals 0.48
esk spoitelna Shareholder Structure as at
31 December 2013 Share in basic capital
EGB Ceps Holding Gmb, Graben
21. Vienna, Austria*
98.97
Towns and municipalities of the
Czech Republic
0.59 Other legal persons and individuals 0.44
53
hands) at Supervisory Board meetings; in this case, any agreement
to take a vote in writing or via remote means of communication
outside of the Supervisory Board meeting is unacceptable. The
Supervisory Board has a quorum if an absolute majority of its
members is pre sent. The Supervisory Board decides by resolution;
adopting a resolution requires a majority vote of the Supervisory
Boards members. In the event of a tie, the chair shall cast the
deciding vote. The Gene ral Meeting decides on any changes to the
Companys Statu tes in compliance with the rele vant provisions of
the Commercial Code.
The Board of Directors is a statutory body that manages the activi
ties of esk spoitelna and acts on its behalf. The standard powers
and responsibilities are set out in Article 12, sections 6 and 7 of the
esk spoitelna Statu tes. Members of the Board of Directors have
no special powers in the meaning of par. 5 letter h).
118, par. 5 letter i)
esk spoitelna has executed ISDA Master Agreements, which
include the condition that if the owner ship of either party changes,
the other party shall have the right to terminate the agreement. The
foregoing applies to agreements entered into with these counterpar
ties: BNP Paribas, Paris; CALYON, Paris; ING Bank, Amsterdam;
JP Morgan Chase Bank, New York; Morgan Stanley & Co.
(International); Royal Bank of Canada, Toronto; and UBS, London.
Information arising from 118 of Act No. 256/2004 Coll. on
doing business on the capital market, par. 4 letters b), c), e) and
j), is included in the esk spoitelna, a. s. Declaration on
the Compliance of its Gover nance with the Code based on
OECD Principles (see page 60 of the Annual Report).
esk spoitelna did not conclude any contracts or programs as
described in 118 of Act No. 256/2004 Coll. on doing business
on the capital market, par. 4 letters f), j) and k)
Controlling Entity
Erste Group Bank AG is the controlling entity of esk
spoitelna, a. s. via EGB Ceps Holding Gmb and EGB Ceps
Beteiligungen Gmb. Mea sures designed to prevent the controlling
entity from misusing its control arise from the Commercial Code
and prima rily include
a ban on the misuse of a voting majority in a company;
a ban on the abuse of a controlling entitys infuence by
forcing the adoption of a measure or execution of a contract
that could cause damage to the pro perty of a controlled
entity, unless such damage is compensated by the end of
the accounting period in which the damage was incurred,
at the latest, or a contract is signed stipulating a reasonable
period and method for the compensation to be paid by
the controlling entity;
the obligation of the Company to prepare a Related Parties
Report (see page 225 of the Annual Report);
the obligation of the controlling entity to pay damages to
the controlled entity; and
guaran tees provided by members of the statutory body of
the controlling entity and controlled entity.
esk spoitelna is a universal bank and is not dependent on other
esk spoitelna Financial Group or Erste Group Bank entities.
Information on the Acquisition of
Treasury Shares and Erste Group Bank
Shares
In 2013, esk spoitelna neither traded nor held any treasury
shares. It acted as a market maker in respect of the shares of its con
trolling entity, Erste Group Bank, on the Prague Stock Exchange.
For this purpose, esk spoitelna purchased 4,094 thousand shares
under standard market conditions at an aggregate purchase price
of CZK 2,509 million and sold 4,094 thousand shares at an aggre
gate selling price of CZK 2,509 million. The minimum price for
the purchase and sale of one share in 2013 was CZK 487.875, the
maximum price for the purchase and sale of one share in 2013 was
CZK 711.000. Neither at the beginning nor the end of 2013 did
esk spoitelna hold any shares. The average nomi nal value of
one share of Erste Group Bank was EUR 2 at the 2013 year end.
Information on the Guarantee Fund
Contribution
As a securities trader, esk spoitelna contributes to the Guarantee
Fund, which safeguards the guarantee system from which compen
sation is paid to clients of securities traders unable to meet their
client obligations. The calculation base for the esk spoitelna
Guarantee Fund contribution for 2013 was CZK 672 million. The
contribution itself amounted to CZK 13 million.
Information on Research and
Development Activities
esk spoitelna is a leading financial services provider in the
Czech Republic. Its extensive portfolio of services and efforts to
maintain their high quality are commensurate with the emphasis
esk spoitelna places on security when it comes to service relia
bility and the protection of clients personal information, the secure
use of internet banking, payment card security and the reliability
and proper functioning of information systems. esk spoitelna
conducts inhouse research and development, in particular of pro
prietary software, i.e. architecture design, development of ancillary
tools (frameworks) and their implementation and integration. The
Bank also develops mathematical, statistical and other empirical
models designed to model risks, i.e. creating risk manage ment
systems, the prevention and automated detection of fraud, and
research and development of empirical models designed to model
retail market conditions. esk spoitelna incurred research and
development costs of CZK 200 million in 2013.
54
Fees Invoiced by the Audit Company
Ernst & Young Audit for 2013
118, par. 4 letter k)
CZK million Audit
services
Other
services
Total
esk spoitelna 26 0 26
Other consolidated
companies
17 0 17
Total 43 0 43
Principles of Executive Manager
and Supervisory Board Member
Remuneration
118, par. 4 letters f) g), h), i)
Executive Managers
At esk spoitelna, executive manage ment includes the chairman
of the Board of Directors, who is at the same time the Companys
CEO, and the members of the Board of Directors, who also serve
as deputies to the CEO.
The Board of Directors is by law the statutory body managing the
operations of the Company and acting on its behalf. Some mem-
bers of the esk spoitelna Board of Directors were employees
of the company CI Unternehmensbeteiligungs-gesellschaft.
m.b.H., a sub sidiary of Erste Group Bank A.G. Members of the
esk spoitelna Board of Directors exercise their powers with due
diligence and professional care and act in good faith and in the best
inte rests of the Company and its shareholders. They are skilled in
managing large corporations and have international experience and
the ability to work in a team. Their position calls for the ongoing
development of their industry knowledge and corporate gover-
nance skills, a proactive approach to the discharging of their duties,
the ability to participate in developing corporate strategy and, no
less importantly, loyalty to the Company. Members of the Board
of Directors adhere to high ethical standards and are responsible
for ensuring that the Company complies with enacted laws. They
are personally liable for damages arising from a breach of legal
obligations and, in their capacity as Board of Directors members,
are responsible to the Companys shareholders.
Board of Directors members are remunerated based on a Contract
for Performance of the Duties of a Board of Directors
Member concluded in accor dance with the valid provisions of
Act No. 513/1991 Coll., the Commercial Code. The Companys
Gene ral Meeting approves such contracts. The Supervisory Board
approves the amount of Board of Directors members remuneration.
The fixed component of the remuneration of the CEO and deputy
CEOs is paid as a fixed salary for work performed. In compliance
with the Companys Statu tes, the amount of the salary is approved
by the Supervisory Board and is based, inter alia, on qualified
benchmarking analy ses of financial sector remuneration. The
compensation policy for Board of Directors members is set and
approved by the esk spoitelna Supervisory Board. The variable
component of the remuneration of the CEO and deputy CEOs is
derived from their performance evaluation based on the fulfilment
of defined performance criteria. These criteria include the net profit
of esk spoitelna, the EVA (economic value added opera ting
profit adjusted for taxes on a cash basis minus cost of capital)
of esk spoitelna and the non-performing loan (NPL) index.
Performance criteria are set for each calendar year and are approved
and subsequently assessed by the Supervisory Board. Board of
Directors members may receive an annual bonus of up to 100% of
their annual base salary.
Based on their manage ment and professional expertise, experience
and contribution to the Company, Board of Directors members are
entitled to:
monetary income arising from the positions of CEO and
deputy CEO in an aggregate amount of CZK 51.8 million;
bonuses arising from the positions of CEO and deputy
CEO (i.e. the variable salary component contingent on the
fulflment of performance criteria) in an aggregate amount
of CZK 6.6 million;
deferred bonuses in compliance with the European Unions
CRD III Guidelines on Remuneration Policies and Practices
in an aggregate amount of CZK 7.7 million;
income in-kind arising from the positions of CEO and
deputy CEO in an aggregate amount of CZK 2.6 million;
and
monetary income arising from the position of statutory body
member in an aggregate amount of CZK 7.5 million.
No in-kind income was provided to statutory body members. This
income is paid based on the fulfilment of financial, qualitative,
development and efficiency criteria. All the foregoing income is
paid out by esk spoitelna; Board of Directors members receive
no income from companies controlled by esk spoitelna.
In 2013, the members of the Board of Directors did not subscribe for
any new shares of Erste Group Bank under the ESOP programme.
Neither Board of Directors members nor persons close to them own
shares or call options to purchase shares of esk spoitelna. esk
spoitelna shares have not been publicly tradable since August 2002.
Detailed professional biographies of the executive directors of
esk spoitelna attesting to their qualifications, professional
abilities and practical experience and describing their work are
published on page 10 of the Annual Report.
The Supervisory Board has esta blished a Compensation Committee
comprising Supervisory Board members serving no executive func-
tion in the Company. The powers of the Compensation Committee
cover the formulation of proposals for Supervisory Board deci-
sions pertaining to compensation within the Company, including
55
compensation having an impact on risks and risk manage ment.
When preparing these decisions, the Compensation Committee
considers the long-term inte rests of shareholders, investors and
other capital partners. The duties of the Compensation Committee
include submitting proposals to the Supervisory Board for Board
of Directors member remuneration, overseeing the remuneration of
departmental directors carrying out internal controls and supervis-
ing the basic principles of compensation and their application. The
Compensation Committee members are: M. Hardegg, S. Drfler,
J. Stack.
Supervisory Board
The Supervisory Board is the Companys controlling body, which
oversees the exercising of the Board of Directors powers in per-
forming the Companys business activities. The Supervisory Board
checks, in particular, whether the Board of Directors is performing
its duties in compliance with the legisla tion and the Company statu-
tes and whether the Board of Directors members are acting with
due professional care in the inte rests of the Company. Supervisory
Board members perform their duties with due professional care and
are required to possess professional skills, maintain allegiance to
the Company and maintain the confidentiality of all confidential
information and matters. Supervisory Board members are liable
for damages arising from a breach of legal obligations and, in their
capacity as members of the Companys Supervisory Board, are
responsible to the Companys shareholders.
Supervisory Board members are remunerated in accor dance with
the provisions of Act No. 513/1991 Coll., the Commercial Code.
The Gene ral Meeting approves the amount of Supervisory Board
members remuneration.
Neither Supervisory Board members nor persons close to them own
shares or call options to purchase shares of esk spoitelna. esk
spoitelna shares have not been publicly tradable since August 2002.
Members of the Supervisory Board were entitled to remuneration,
including income in-kind, of CZK 4.4 million for their work on the
esk spoitelna Supervisory Board in 2013; no in-kind compensa-
tion was provided to Supervisory Board members. esk spoitelna
employees who are Supervisory Board members obtained monetary
income in an aggregate amount of CZK 2.0 million, bonuses in an
aggregate amount of CZK 0.2 million and in-kind income in an
aggregate amount of CZK 0.05 million. All the foregoing income is
paid out by esk spoitelna; Supervisory Board members receive
no income from companies controlled by esk spoitelna.
Affdavit
The undersigned repre sent that, to the best of their knowledge, the
annual report and consolidated annual report provide a true and
fair view of the financial position, business activities and profit
of esk spoitelna and its consolidation group for the account-
ing period ending 31 December 2013 and of the outlook for the
future development of its financial position, business activities
and profit.
Prague, 24 April 2014
Wolfgang Schopf Ji korvaga
Board of Directors Board of Directors
Vice-chairman Member
56
esk spoitelna Corporate Social
Responsibility
Corporate Social Responsibility (CSR), an integral part of our
business, is reflected in everything we do. As a company whose
origins date back to 1825, we acknowledge and proudly proclaim
our corporate social responsibility.
Projects supported in 2013 by esk spoitelna and its foundations
Nadace S and Nadace Depositum Bonum are based on the Banks
CSR strategy Investing for the Future, which comprises three
pillars:
1. Education for competitiveness
2. Social entrepreneurship
3. Volunteerism
Our corporate and CSR strategies enable us to meet our social obli-
gations in a systematic manner while being mindful of the inte rests
of all key groups: clients, employees, shareholders and society.
In 2013, esk spoitelna and its foundation Nadace S donated
CZK 45 million to charities and community projects.
Nadace esk spoitelny (esk spoitelna
Foundation)
The Banks philanthropy mirrors its gene ral approach to CSR. In
2002, we launched the foundation Nadace esk spoitelny,
a primary tool in our corporate philanthropy efforts. The
Foundation works in social development, an area often over-
looked by other donors, and offers effective long-term help
to address important social issues, such as the problems
faced by seniors and the fight against drug addiction. From the
start, it has also been committed to community and environmen-
tal development. Together with non-profit sector partners, we
implement long-term projects in all the foregoing areas. These
partners include Charita R, ivot 90, the Livia and Vclav Klaus
Endowment Fund, SANANIM, Palata Home for the Visually
Impaired, Drop In, Podan ruce [Helping Hands] and Dialog
Jessenius. Nadace esk spoitelny support is also directed
toward regions where the path to financing is particularly dif-
ficult. Nadace esk spoitelny also supports financially hard hit
regions, helping smaller organisations via projects run by regional
esk spoitelna branches. In 2013, Nadace esk spoitelny
donated record amount exceeding CZK 16 million to its
partners in support of 27 projects.
Nadace Depositum Bonum (Depositum Bonum
Foundation)
In 2012, we esta blished the new Nadace Depositum Bonum (Latin:
good deposit) to support Czech society in the areas of science,
research and education. Nadace Depositum Bonum supports the
international competitiveness of the Czech Republic through invest-
ment in education. Nadace Depositum Bonum assets consist of funds
in dormant anonymous passbook accounts that have been barred by
statute and whose further existence has been prohibited by the EU
and Czech Parliament. esk spoitelna has decided to use unclaimed
funds totalling CZK 1.45 billion to give back to Czech society
by establishing this foundation. Nadace Depositum Bonum supports
scientific and technical fields of endeavor that yield long-term practi-
cal benefits for all of society and bolster global competitiveness. As
its first programme, the foundation launched the Elixir for Schools
project focused on interactive physics instruction, allowing gifted and
motivated teachers and students in this field to deepen and expand
their abilities, knowledge and experience. In 2013, 15 regional centers
were esta blished throughout the Czech Republic. These centers foster
the sharing of good practices and the professional development of
physics teachers. In September 2013, the Foundation joined forces
with Lidov noviny newspaper to organise the Czech School of
the 21st Century conference for the gene ral public on the topic
of current trends in international and Czech education.
esk spoitelna for Society
We are open with our clients and honour the rules of fairness. In
addition to standard feedback tools, clients can use the services
of an independent esk spoitelna ombudsman. Clients can
acquire valuable information about credit obligations through the
Debt Advisory Centre, which we were instrumental in estab-
lishing. The Ostrava and st nad Labem branches of this bureau
exist as a complement to the headquarters in Prague, and there
are another 7 travelling mobile branches in esk Lpa, Hradec
Krlov, Litvnov-Janov, Plzen, umperk and, since 2013, in
Prostjov and Pbram.
Bank without barriers
Our objective is to be a bank for everyone, which is why we do
our best to accommodate people with disabilities by working
with professionals and experts in this area. We are mapping the
Other Information for Shareholders | esk spoitelna Corporate Social Responsibility | esk spoitelna, a. s., Declaration on the Compliance of its Gover nance with the Code Based on OECD Principles
57
wheelchair accessibility of our branches and ATMs in collabora-
tion with the Prague Wheelchair Association (POV) and are also
working to eliminate barriers that remain. The resulting maps are
available to the public online at www.presbariery. cz. Together
with the Czech Red Cross, we have launched the Friendly Places
project ( www.pratelskamista. cz) to educate our employees in how
best to serve customers who have vari ous disabilities. Together
with the organisation Barrier Account, we organise banking courses
for the handicapped and with the Union of Organisations for the
Visually Impaired and the Blind (SONS), we offer courses for the
visually impaired in the use of ATMs with audio output as well as
offering S apprenticeships for the visually impaired.
We also take a socially responsible approach to business solutions
a special team of staff is dedicated to serving investor clients, help-
ing them prepare and implement their business plans. Moreover,
we offer support to start-up entrepreneurs through advisory and
tailored pro ducts. We offer a special advisory and financial
service to non-profit organisations and social enterprises
through specialised advisors.
Education
For elementary and high school students, we are continuing to
develop the comprehensive instructional programme in financial lit-
eracy, Todays Financial World. This includes the workbook School
Atlas Todays Financial World, a methodo logy guide for instruc-
tors, accredited workshops for teachers and extensive online sup-
port for pupils, parents and teachers at www.dnesnifinancnisvet.cz.
We organised 89 teacher workshops on specific ways to introduce
financial themes into lessons and utilise the Todays Financial
World programme. At the 2013 year end, the print and digital ver-
sions of the School Atlas Todays Financial World were in use
in 159 schools.
Another component of this comprehensive instructional programme
is the fun interactive board game Financial World, which ele-
mentary school kids can play with our trained staff.
In 2013, some 375 schools took part in the Todays Financial World
programme through seminars, workshops, the School Atlas and the
Financial Freedom game.
We also launched the interactive exhibition Money or Live for
kids from 8 to 12, which shows them what is involved with hav-
ing and managing money. The exhibition runs from June 2013 to
March 2014 in the City of Prague Museum. By the end of 2013,
the exhibition saw almost 25 thousand visitors.
In education, we continue to work with universities (the
Economics University, Hradec Krlov University and Charles
University) by providing not only financial support, but also pro-
fessional coope ration in the form of apprenticeships, manager
shadowing and overseeing student thesis work. We also support
professional confe rences and activities of many new and esta blished
student associations, helping to foster and maintain a vibrant student
life at these universities.
We now offer students at partner schools a study stipend for a pro-
gramme on doing business on the internet. The top specialists at
iCollege are also leading innovators in the areas of business, tech-
nology, enterprise manage ment and creative thinking. They pass
their know-how on to students and help them apply it to their
business plans.
Supporting Social Entrepreneurship
We actively support social entrepreneurship through our esk
spoitelna business and corporate responsibility strategies. We
conduct a series of educational activities and implement the pro-
gramme Financing Social Enterprises and we place great value
on inspirational and innovative initiatives.
From October to the end of 2013, we organised a series of edu-
cational seminars for social enterprises and non-profits called the
esk spoitelna Academy designed to offer advice on con-
ducting business in an efficient and socially responsible manner.
Our own experts help prepare the seminar content. In all, repre-
sentatives of nearly 50 organisations from all over the Czech
Republic attended nine seminars. Following up on this pilot acad-
emy project, we are introducing the esk spoitelna Social
Enterprise Academy in 2014 .
Social Impact Award we are the gene ral partner of
a competition to support young people with innovative
ideas, giving university students an opportunity to turn their
ideas into reality and start their own socially responsible
business.
Other ongoing projects:
DreamCatcher ( www.dreamcatcher. cz) is designed for
youths aged 11 to 21. It offers them a unique opportunity
to fulfll some of their dreams by showing them that the
way to do so is through effort and action, while teaching
them how to pre sent themselves and their projects and
underlining the importance of teamwork, accountability
and, no less importantly, public service.
Bezpen internet [Secure Internet]
( www.bezpecnyinternet.cz) is a joint undertaking of
esk spoitelna, Microsoft and Seznam. cz with the
support of the Czech Police. This web portal provides
useful information about safe internet practices, e.g.
risks associated with internet use and ways to avoid and
effectively protect against internet scams, viruses and
phishing.
esk spoitelna also offers e-learning in the form
of comics that teach safe internet use published on the
company website www. csas. cz/bezpecnost.
Sponkov ( www.sporinkov. cz) is an online game
we launched in June 2012 for the youngest school kids,
offering them a virtual fantasy world of fnance.
58
We help foster culture through a host of sponsorships and organi-
ser roles. In 2013, for example, we continued to display works
of art from the esk spoitelna fund. This exhibition cycle
carries on the longstanding tradition of art patronage begun
by our legal predecessors in the 19th century. For a nomi nal
entrance fee, visitors had an opportunity to see artworks prima-
rily by painters working in their given town or region, e. g. in
Prague, Znojmo or elezn Brod. The exhibition cycle ended
with a display of hundreds of the highest quality paintings from
the esk spoitelna collection, which was made accessible to the
public free of charge for three months. Works from 42 branches
throughout the country were on display at this exhibition enti-
tled Master Works from the esk spoitelna Collections,
which was accompanied by an exhibition catalogue.
esk spoitelna for Employees
We offer our employees a wide range of social benefits including
lifelong learning and support for parental leave and a child-
care contribution for kids up to 5. Every new father receives five
days off when his newborn comes home from the hospital. In
2013, we introduced the optional employee benefit programme
Cafeteria, which is based on the principle of freedom to choose
from the widest possible range of benefits taking into account the
indi vidual needs of every employee.
Our comprehensive Diversitas programme addresses issues such
as the under-repre sentation of women in manage ment, compensa-
tion gaps, personal development and career growth, conditions for
returning from maternity or parental leave, achieving an effective
work/life balance, intergenerational dialogue, age manage ment
and the fight against discrimination.
Bearing in mind the importance of employee feedback, we intro-
duced the open communication system to ensure employees are
in touch with senior manage ment and kept well informed.
As business ethics play a fundamental role at esk spoitelna, the
Bank created the position of Ethics Manager to oversee this area
throughout the S Financial Group. The ethics manager assumes
an advisory role in matters pertaining to the employee Code of
Ethics and oversees adherence to the Code. It deals with the ways
in which we set and apply our work procedures and methods and
how we interact with our customers, shareholders, colleagues and
vendors.
We endeavour to assist S Financial Group employees address all
manner of professional and personal issues in the workplace. To
this end, they can turn to an Internal Ombudsman who strives
to remain unbiased and carefully reviews the facts behind com-
plaints. All information in a complaint is treated as sensitive and
strictly confidential. The employee who has made the complaint
will choose whether to agree to the disclosure of personal informa-
tion from the complaint or to maintain anonymity.
Projects Directly Involving Employees in
Implementing the CSR Strategy are of Key
Importance.
Through the Charity Day project, our employees can take two
working days to volunteer. In 2013, 1,887 employees took advan-
tage of this opportunity and volunteered with 135 non-profit organ-
isations throughout the Czech Republic.
For employees in manage ment positions, we have the Managers
for a Good Cause programme enabling them to share their pro-
fessional knowledge with a non-profit organisation for a 1-week
period.
Another project, the esk spoitelna Grant Programme, offers
S employees the opportunity to secure financial assistance for
non-profit organisations they work with in their spare time. Last
year, we donated a total of CZK 1 million to 22 projects located
in 12 regions through the S Grant Programme for Clients
winning projects were chosen by the public in an online vote.
Under the S Grant Programme for Employees, we donated
a total of CZK 1 million to 12 projects. In addition to engaging
in charitable activities, employees may also become involved by
sorting waste and by placing small disused electronics in special
collection boxes located at vari ous Bank locations for environ-
mentally-friendly processing.
Whats in Store at esk spoitelna
Throughout 2014, we will carry on with current projects while
at the same time introducing new initiatives. Our plan is to exert
a greater focus on developing region-based projects.
In 2014, Nadace esk spoitelny will continue to support those
whom society has rejected. Now, in addition to helping seniors
and people suffering with drug addiction, we will also turn our
attention to persons with mental and combined disabilities. The
aim of Nadace esk spoitelny is to support projects that foster
self-sufficiency and independence in adults with mental and com-
bined disabilities as well as autism and their inclusion or continued
incorporation in a natural environment.
Our employees will also serve as instructors for the Seniors
Communicate programme to teach computer skills and the use
of new communications technology to seniors in order to help
them obtain information more easily and be in better touch with
their loved ones.
In 2014, Nadace Depositum Bonum will broaden its field of
activity to include mathematics. Coope ration with a team led by
Professor Hejn is planned. Physics teachers can look forward
to the establishment of more regional centers for the promotion
of good practices and professional development. Finally, another
conference for the gene ral public on the state of education in
the Czech Republic is being planned to be held in the Autumn.
59
As part of our support for social entrepreneurship, we are participat-
ing in the 3
rd
annual Social Impact Award. Furthermore, we intend
to offer a prize for those individuals and organisations contributing
to social entrepreneurship in an inspirational and significant way.
We offer special financial services to organisations in our S pro-
duct portfolio, while also offering opportunities for growth through
our S Social Entrepreneurship Academy.
In 2014, changes are also in store for Todays Financial World.
The first of these is the publication of a new edition of the workbook
School Atlas Todays Financial World, this time for secon dary
schools. Financial Freedom will be gradually expanded to cover all
of the regions in the country, and this will be due in large part to the
involvement of our employees. We will also develop a new fun and
educational internet game (application) that can be played by school
kids of all ages, their parents and the gene ral public.
esk spoitelna realised interactive exhibition Money or Life,
which was designed for kids aged 8 to 12 and showed them
everything to do with money and how to manage it. The exhibi-
tion was held in the City of Prague Museum during June 2013 till
March 2014 and almost 25 thousand people visited it till the end
of 2013.
In our Bank without barriers initiative, we will continue to
improve our approach to people with disabilities. We will offer
the new service Transkript an application with which the deaf
will be able to transcribe a conversation with an advisor onto tablet
screens. We will launch this service in March 2014 at 26 selected
branches. In 2014, we will continue to work with the Prague
Wheelchair Association to map the wheelchair accessibility of our
branches and ATMs throughout the Czech Republic. Based on the
resulting mapping, we will endeavor to make problem locations
accessible. We will also continue with our joint Friendly Places
project with the Czech Red Cross through which we educate
branch employees on how to communicate with and approach
people with vari ous disabilities. Our aim is to certify more than
40 branches throughout the country in 2014. We will organise
two more banking courses for the handicapped together with the
organisation Barrier Account and will invite more blind individ-
uals to apprentice with us through the Union of Organisations for
the Visually Impaired and the Blind.
The best students at our partner schools will have a chance to
win a business plan development scholarship as well as our
support for business plan implementation. We are also organising
a special Day with esk spoitelna at these schools where stu-
dents will not only get the latest practical information, but will also
be able to develop their project manage ment abilities and soft skills.
Our clients who volunteer at non-profit organisations will be able to
obtain funds for these organisations under the Grant Programme
for Clients, while our employees can support organisations under
the Grant Programme for Employees.
To learn all about our CSR activities, go online to http:// www.csas. cz/
banka/nav/o-nas/spolecenska-odpovednost-d00014340.
60
esk spoitelna, a. s. Declaration
of Compliance of its Gover nance with the Code Based on OECD Principles
In compliance with the statements made by esk spoitelna, a. s.
(the Company) in its previous annual reports, the members of
the Companys Board of Directors make every effort to improve
the Companys standards of corporate gover nance and ensure, to
the extent set out hereunder, compliance with the Corporate Gover-
nance Code based on the OECD principles of 2004 (the Code).
The Company systematically supports, develops and enhances its
gover nance practices. No major changes adversely affecting the
Companys corporate gover nance standards were made in 2013.
esk spoitelna complies with all key provisions, principles and
recommendations of the Code, which may be viewed on either
the esk spoitelna website: http://www.csas.cz/kodex, or the
Czech Finance Ministry website (www.mfcr.cz/cps/rde/xbcr/mfcr/
KODEX_KCP_2004_pdf). The principles of esk spoitelnas
gover nance standards are set out below.
A. Organisation of the Company
The Board of Directors is a five member body. The Board of
Directors is the Companys statutory body. It manages the Company
and acts on its behalf while assuming responsibility for its long-term
strategic direction and operatio nal manage ment. The scope of its
powers is defined in the Companys statu tes and internal rules as
well as by Czech legal regulations. The Board of Directors exercises
its powers with due care and diligence; in discharging its activities,
it is accountable to the extent set out in the Czech legal regulations.
All Board of Directors members are internationally experienced
professionals and team players skilled in managing large corpora-
tions. The Board of Directors members adhere to the legal rules
and ethical standards.
Pursuant to the Companys Statu tes, the Board of Directors must
obtain the Supervisory Boards opinion or approval before perform-
ing a number of acts and, in certain cases determined by Supervisory
Board decision, the Board of Directors must solicit the prior opinion
of a committee esta blished by the Supervisory Board. The Board
of Directors regularly pre sents reports on Company activities to
the Supervisory Board and its committees. In compliance with the
Banking Act, the Board of Directors is responsible for establish-
ing, maintaining and evaluating an efficient and effective internal
manage ment and control system for the Company.
Board of Directors Decision-making Procedures
The work of the Board of Directors is directed by an activity plan,
which the Board of Directors drafts in advance for every calendar
quarter. The Board of Directors meets as needed, but no less than
twice a month. Regular weekly sessions have, however, become
common practice. In 2013, the Board of Directors held 41 meetings.
Board of Directors meetings are conducted in English or Czech, as
required by the attending members. Board of Directors meetings
are chaired by the chairman and, in the chairmans absence, by
the vice-chairman. Should both the chairman and vice-chairman
be absent, an authorised Board of Directors member shall chair
the meeting. All Board of Directors members and the Company
secretary take part in meetings.
The Board of Directors only achieves a quorum if more than half
of all its members are pre sent at a meeting. The Board of Directors
adopts decisions in the form of a resolution requiring a majority
of votes of attending members. In the event of a tie, the chairman
shall cast the deciding vote. If all the Board of Directors members
are in agreement, the Board of Directors may pass a resolution by
a written vote or a vote taken via remote means of communica-
tion (e.g. all Board of Directors members per rollam or indi vidual
members in writing, via video- or teleconferencing); in such cases,
voting members are deemed pre sent. Material submitted in per
rollam form is approved, if a majority of the votes of all members
of the Board of Directors is in agreement. Voting on matters under
discussion is conducted openly at Board of Directors meetings, i.e.
by acclamation (a show of hands).
All Board of Directors members have the requisite character traits
and professional experience to execute the role of a Board of
Directors member. Members of the Board of Directors are elected
and recalled by the Supervisory Board. In compliance with the
Banking Act, nominees for Board of Directors membership are
discussed in advance with the Czech National Bank, which assesses
the professional qualifications, credibility and experience of the
nominees. The term of office of a member of the Board of Directors
is four years, and members may be re-elected.
Detailed professional biographies of the Board of Directors mem-
bers attesting to their qualifications, professional abilities and prac-
tical experience are published on page 10 of the Annual Report.
esk spoitelna Corporate Social Responsibility | esk spoitelna, a. s., Declaration on the Compliance of its Gover nance with the Code Based on OECD Principles | Organizational Structure of S
esk spoitelna, a. s. Declaration
of Compliance of its Gover nance
with the Code Based on OECD Principles
61
The Supervisory Board of the Company has nine members. John
James Stack and Maximillian Hardegg serve as independent mem-
bers of the Supervisory Board pursuant to the requirements of the
Code. In compliance with statutory requirements, the Supervisory
Board includes repre sentatives of the Companys employees, who
are Elika Bramborov, Zdenk Jirsek and Ale Veverka. All
Supervisory Board members are professionals, which guaran tees
the high quality of the Supervisory Boards function, and possess
the requisite personal and professional qualifications to serve as
Supervisory Board members. Pursuant to the Companys statute,
two thirds of the members of the Supervisory Board are elected by
the Gene ral Meeting, and one third by the Companys employees.
The term of office of a Supervisory Board member is four years.
A full list of Supervisory Board members, including their profes-
sional biographies, is published on page 12 of the Annual Report.
The Supervisory Board oversees the execution of the Board of
Directors powers and the performance of the Companys busi-
ness activities. In addition to its statutory duties and authorisa-
tions, the Supervisory Board, in accor dance with the Companys
statute, has the right to opine in advance on certain acts impacting
the Companys assets (including, inter alia, capital expenditures
for building, plans to acquire tangible and intangible assets for
the Company in excess of a designated limit, the transfer of title
to Company assets and the Companys equity investments). The
Supervisory Board also furnishes an advance opinion on the stra-
tegic plan for Company activities and development, planning tools
and regular financial information. Additionally, the Supervisory
Board furnishes its advance opinion on the appointment and recall
of the director of internal audit and on the selection of an external
auditor. The Supervisory Board may establish committees to sup-
port its work. In 2013, the Supervisory Board met a total of five
times.
Supervisory Board Decision Making Procedures
The work of the Supervisory Board is directed by an activity
plan, which the Supervisory Board drafts annually in advance.
Supervisory Board meetings are held on an ad hoc basis, usually
in compliance with the activity plan, but no fewer than four times
a year. Supervisory Board meetings are conducted in Czech or
English, as required by the attending members. Supervisory Board
meetings are chaired by the chairman, vice-chairman or an author-
ised member of the Supervisory Board and, in their absence, the
most senior member of the Supervisory Board in attendance.
The Supervisory Board only achieves a quorum if more than half
of all its members are pre sent at a meeting. The Supervisory Board
adopts decisions in the form of a resolution requiring a majority
of votes of the members. In the event of a tie, the chairman shall
cast the deciding vote. If all the Supervisory Board members are in
agreement, the Supervisory Board may pass a resolution by a writ-
ten vote or a vote taken via remote means of communication (e.g.
all Board of Directors members per rollam or indi vidual members
in writing, via video- or teleconferencing); in such cases, voting
members are deemed pre sent. Voting on matters under discussion
is conducted openly at Supervisory Board meetings, i.e. by accla-
mation (a show of hands). The election and recall of a member
of the Board of Directors is also conducted in an open vote at
a Supervisory Board meeting; in this case, no written voting sub-
missions or voting via remote means of communication are per-
mitted.
The Audit Committee is a company body that shall perform the
tasks assigned to an audit committee by law or the Companys statu-
tes. The Audit Committee is chiefly responsible for monitoring pro-
cedures used to prepare the standalone and consolidated financial
statements, evaluating the effectiveness of the Companys internal
controls, internal audit function and any risk manage ment systems
in place, monitoring the process of performing the statutory audit of
the standalone and consolidated financial statements, assessing the
independence of the statutory auditor and audit company and, most
importantly, providing ancillary services to the audited entity and
recommending an auditor. A full list of Audit Committee members,
including their professional biographies, is published on page 14
of the Annual Report.
Audit Committee Decision Making Procedures
The work of the Audit Committee is governed by its Rules of
Procedure and activity plan. The Audit Committee met four times
in 2013. Meetings of the Audit Committee are chaired by its chair-
man, vice-chairman or an authorised member. At Audit Committee
meetings, votes on matters under discussion are taken openly, i.e. by
acclamation (a show of hands). The Audit Committee only achieves
a quorum if more than half of its members are pre sent. It adopts
decisions in the form of a resolution requiring a majority of votes of
the Audit Committee members. In the event of a tie, the chairman
shall cast the deciding vote. Where all Audit Committee members
are in agreement, the Audit Committee may vote based on a writ-
ten vote or a vote undertaken via remote means of communication,
in which case those voting are deemed pre sent at such meeting.
The Company sees to it that the members of the Board of Directors
and Supervisory Board are kept up to date at all times; the
Company has in place a well administered and highly develo ped
system supporting the execution of corporate gover nance. Newly
elected members of the bodies are given immediate access to all
information regarding the Companys principles and rules of cor-
porate gover nance.
The Companys highest bodies, i.e. the Board of Directors,
Supervisory Board and Audit Committee, have adopted binding
Rules of Procedure for the bodies. These deal in great detail with
administra tive and procedural matters related to the activity of
a given body. The Rules of Procedure of all three bodies regulate
the technical process of convening and voting at meetings, the
preparation of meeting minutes, the activities of the body outside
of meetings and procedures to address the potential bias of a body
member. Both Supervisory Board members and Board of Directors
members take part in Supervisory Board meetings. All Board of
Directors members take part in Board of Directors meetings, as do
62
the authors of materials to be pre sented to the Board of Directors.
Repre sentatives of the external auditor, members of the Board of
Directors and Supervisory Board and, on occasion, other guests, are
invited to attend meetings of the Audit Committee. Members of the
Board of Directors, Supervisory Board and Audit Committee may
solicit a legal opinion on indi vidual materials under discussion from
the Companys Legal Services Department or may seek the services
of independent advisors. The Office of the Company Secretary
organises long-term training in corporate gover nance and legisla-
tion for the members of administra tive bodies so as to develop and
enhance their knowledge and skills on an ongoing basis.
The position of Company Secretary has long existed within
the Company. The Secretary of the Companys bodies man-
ages administra tive and organisational matters for the Board of
Directors and Supervisory Board, including the organisation of
Gene ral Meetings. The Secretary familiarises new members of
administra tive bodies with the activities of those bodies and with
the Companys corporate gover nance process.
The Company Secretary ensures mutual co-operation among the
Companys bodies. The Secretary is appointed by the Companys
Board of Directors and reports directly to the chairman of the Board
of Directors. The Secretary is responsible for due and timely distri-
bution of invitations and materials for meetings of the Companys
Board of Directors and Supervisory Board. The Company has
instituted binding regulations for the submission of materials to
be discussed at meetings of the Supervisory Board and Board of
Directors, which stipulate the basic rules for the preparation and
submission of materials, comment procedures prior to the sub-
mission of materials and conditions for the archiving of materi-
als. The Secretary takes the minutes of all meetings of the Board
of Directors and Supervisory Board. The Company maintains an
electronic database of all minutes from meetings of its bodies;
these are available to authorised persons on the Companys internal
archiving system. The Company Secretary is, inter alia, a member
of the Czech Institute of Corporate Secretaries (ITOS) and of its
steering committee. ITOSs mission is to promote and support the
professional development of secretaries of administra tive bodies.
B. Company Relationships with
Shareholders
The Company diligently ensures compliance with all the legal
rights of shareholders and with the principle of equitable treat-
ment of all shareholders. The Companys shares are held in book
entry form. A list of all shareholders is maintained by the Central
Securities Depository. In addition to ordinary shares, the Company
has also issued bearer prefe rence shares. The transferability of these
shares is restricted to Czech towns and municipalities; transfers to
other entities are subject to approval by the Companys Board of
Directors. A prefe rence right to receive dividends is attached to
the prefe rence shares. Decisions regarding transfers of prefe rence
shares are made by the Board of Directors and are always based
on detailed information about the assignee.
The Company complies with all duties to inform its sharehold-
ers and other entities to the extent imposed by law and keeps
shareholders updated throughout the year via the media and the
Companys website. The Company posts information on its current
financial results, shareholder structure, planned events and more
on a web page designed specifically for shareholders and investors
(www. csas. cz / vztahy k investorm). Press releases covering impor-
tant information about the Company are issued on a regular basis.
All material information the Company publishes on its website is
available in Czech and English.
In compliance with the applicable law, the Company convenes
Gene ral Meetings by means of a letter sent to all shareholders. The
announcement always includes basic information for shareholders
about the conditions of participation in the Gene ral Meeting, the
exercising of shareholders rights and basic fiscal indicators. Gene-
ral Meeting announcements are published on the Companys web-
site as a matter of course. Shareholders may familiarise themselves
in advance (within the statutory period) with the basic materials
(financial statements, related parties report or proposed changes to
the statu tes) that are to be subject to Gene ral Meeting discussion.
The Company always organises its Gene ral Meetings at venues that
are accessible to all shareholders. For several years now, Gene ral
Meetings have been held at the Companys registered office.
The powers of the Gene ral Meeting extend to decisions on matters
that the law or Company statu tes assign to the powers of a Gene ral
Meeting. The Gene ral Meeting is held no less than once a year and
no more than four months after the end of the accounting period.
Gene ral Meeting voting is performed by ballot; details are stipu-
lated by the Rules of Procedure of the Gene ral Meeting approved
by the Gene ral Meeting. Gene ral Meeting votes are first taken on
proposals pre sented by the indi vidual who convened the Gene ral
Meeting; if the Gene ral Meeting has been convened by request,
then the proposals pre sented by the indi vidual who requested that
the Gene ral Meeting be convened are voted on first. If this proposal
is passed, no votes shall be taken on further counter-proposals in
the given matter. If the proposal is not passed, the proposals pre-
sented by attending shareholders are voted on in consecutive order
according to the number of shareholder votes. The Gene ral Meeting
adopts decisions in the form of a resolution requiring a majority of
votes of attending shareholders, where the law does not stipulate
a different majority.
Shareholders receive all supporting documents for a Gene ral
Meeting at the time of their registration for the respective Gene ral
Meeting. These materials always include the Rules of Procedure
of the Gene ral Meeting, which the Gene ral Meeting approves. If
Supervisory Board members are to be elected, shareholders are
provided with detailed biographical data of all nominees attest-
ing to their professional and personal qualifications to hold such
office. The bodies of the Gene ral Meeting are set up by the Board
of Directors in a manner that ensures all the bodies are able to
perform their functions with due and professional care. In most
cases, a notary is pre sent at the Companys Gene ral Meeting. In
63
compliance with the Rules of Procedure, shareholders may exercise
their shareholder rights in person or by proxy, i.e. vote on proposed
items on the agenda, solicit and receive explanations on such items
and put forward proposals and counter-proposals.
The members of the Board of Directors, Supervisory Board and
Audit Committee take part in Gene ral Meetings (there must be at
least as many members as are required for a quorum) as do members
of the Supervisory Board committees who answer shareholders
questions. The Company provides sufficient time for shareholders
to raise their questions on agenda items prior to a vote being taken.
All shareholder questions and answers are recorded in the Gene-
ral Meeting minutes. Each item on the Gene ral Meeting agenda is
subject to a separate vote taken after debate on the given item is
closed. All shareholders registered in the attendance list and pre sent
at the Gene ral Meeting when the vote is being taken are entitled to
vote, with the exception of those shareholders who hold prefe rence
shares. The right to vote at Gene ral Meetings is not attached to the
Companys prefe rence shares. In addition, shares whose holders
voting rights for Gene ral Meetings were suspended by a decision
of the Czech National Bank are not consi dered voting shares; the
shareholder is informed of such a suspension at the time of his/her
registration in the attendance list and the Company indicates this
fact (including the reasons for the suspension) in the attendance list.
C. Information Disclosure and
Transparency
The Company rigorously endeavours to prevent the misuse of
insider information that might allow persons who have special
relationships with the Company to enjoy unauthorised gains in
dealing with the Companys securities. Board of Directors mem-
bers and parties close to them are obliged to promptly notify the
Czech National Bank of transactions with securities issued by the
Company or with investment instruments derived from such securi-
ties, which they perform on their own account. Erste Group Banks
rules for securities trading are applied to ensure identical terms and
conditions for all members of the Board of Directors of Erste Group
Bank companies members of the Companys Board of Directors
are obliged to inform the Companys Compliance Department of
dealings with Erste Group Banks shares or derivatives and to com-
ply with an imposed trading moratorium during a stipulated period.
The Company has esta blished a Compliance Department whose
principal activities include ensuring compliance of the Companys
internal regulations with valid legal and regula tory requirements
and their observance and ensuring compliance of the employees
conduct with the legal regulations, internal regulations, Code of
Ethics and other adopted standards and rules governing employee
conduct. Compliance is involved in all aspects of Company activ-
ities and administration and forms a part of its corporate culture.
The Compliance Department evaluates insider information included
in the Watch List and Restricted List of investment instruments as
well as any dealings with investment instruments recorded in these
lists. The Compliance Department informs the Companys Board
of Directors and Supervisory Board of its activities on a regular
basis. A regularly updated list of persons with access to insider
information is available from the Company Secretary.
The Company diligently fulfils and complies with all Czech legal
regulations, principles of the Corporate Gover nance Code based
on OECD principles and EU Commission recommendations
regarding corporate gover nance and, on an ongoing basis, pro-
vides shareholders and investors with all material informa-
tion on its business activities and financial and opera ting results,
owner ship structure and other significant events. All information
is prepared and disclosed in compliance with the valid standards
of accounting and the disclosure of financial and non-financial
information. Moreover, the Company discloses a great deal more
information than the statutory requirements so that shareholders
and investors may make informed decisions concerning owner ship
of the Companys securities and voting at Gene ral Meetings. The
Company uses vari ous distribution channels to publish such infor-
mation, e.g. the media or the Company website, where information
is published in both Czech and English to enable equal participation
of foreign investors and shareholders in decisions regarding the
Companys business and development.
The Company regularly publishes annual and semi-annual reports.
The annual report principally includes the audited financial state-
ments and provides a picture of the Companys financial position,
business activities and opera ting results. The report also provides
information on the Board of Directors and Supervisory Board
member remuneration policy in compliance with the legal regu-
lations. The Company has no option scheme for remuneration either
for the members of the Board of Directors or the Supervisory Board.
D. Committees of the Companys
Administra tive Bodies
The Company has esta blished committees under the Board of
Directors and Supervisory Board to support the Companys activ-
ities and to ensure the internal manage ment and accountability
of these bodies. The indi vidual committees Rules of Procedure
define the scope of their powers and include a precise description
of applicable rules, tasks and decision making procedures.
Committees of the Supervisory Board
Credit Committee
The Credit Committee is principally an advisory and confirmation
body for credit exposures beyond the limits of the approval author-
ities of the Board of Directors Credit Committee. The members
of the Credit Committee are: P. Bosek, S. Drfler, H. Juranek and
A. Treichl.
Compensation Committee
The Compensation Committee provides support to the Supervisory
Board when formulating the basic principles of compensation. Its
duties include submitting to the Supervisory Board proposals for
64
Board of Directors member remuneration, overseeing the remuner-
ation of departmental directors carrying out internal controls and
supervising the basic principles of compensation and their appli-
cation. The Compensation Committee members are: M. Hardegg,
S. Drfler and J. Stack.
Committees of the Board of Directors
Board of Directors Committees are advisory bodies of the Board
of Directors esta blished by resolution of the Board of Directors.
The purpose of the committees is to create and pre sent technical
recommendations to the Board of Directors; committees consist
of Board of Directors members and selected Company employees.
All the committees are accountable to the Board of Directors and
submit a report on their activities at least once a year.
Credit Committee
The Credit Committee is the highest body that assesses and
approves credit transactions and pro ducts as well as assessing and
approving the business policy process, the credit risk measurement
and manage ment system and the level of the Companys credit port-
folio structure for the purpose of achieving the designated level of
financial objectives, i.e. profitability, while adhering to the defined
level of credit risk.
Assets and Liabili ties Manage ment Committee
(ALMC)
The Assets and Liabili ties Manage ment Committee is the highest
body that assesses and approves the process of planning, manag-
ing and controlling financial transactions and the structure of the
Companys assets and liabili ties with the aim of achieving an opti-
mal combination of profitability and financial risk. The Committee
determines Company strategy in this area and assigns tasks to the
Companys organisational units to fulfil the strategy.
Financial Markets and Risk Manage ment Committee
(FMRMC)
The Financial Markets and Risk Manage ment Committee is the
body that deals with decisions on operatio nal issues of risk manage-
ment processes related to financial markets.
Investment Committee
The Investment Committee is the body that assesses the expediency
and effectiveness of capital expenditure and purchased services.
Customer Satisfaction Committee
The Customer Satisfaction Committee is a body designed to
improve service quality and the satisfaction and loyalty of internal
and external clients.
esk spoitelna Financial Group Marketing and
Sponsorship Committee
The esk spoitelna Financial Group Marketing and Sponsorship
Committee is an advisory body of the Board of Directors, which
discusses proposed marketing and sponsorship strategies and
strategic communication concepts and campaigns and deals
with the brand and support of sales channels including branch
merchandising.
Retail Pro ducts Committee
The Retail Pro ducts Committee is the body that assesses and
approves innovations and the launch or discontinuation of retail
banking pro ducts and services.
Compliance, Operatio nal Risk and Security
Committee (CORS)
The Compliance, Operatio nal Risk and Security Committee is
a body of the Board of Directors whose role is to decide on issues
regarding the manage ment of operatio nal risk, compliance risk and
security in relation to compliance in the Company.
Capital Investments Committee
The Capital Investments Committee is a body of the Board of
Directors that assesses and makes decisions on capital investments
of the Company in real estate funds / venture capital companies.
Pricing Committee
The Pricing Committee is a body whose role is to manage and
implement Companys retail banking pricing policy and strategy
and to assess and approve pro duct and service prices in this area.
Financial Market Pro ducts and Wholesale Banking
Committee
The Financial Market Pro ducts and Wholesale Banking Committee
is the body that assesses and approves innovations and the launch
or discontinuation of pro ducts and services in the area of managing
assets and liabili ties, financial markets and wholesale banking.
Business Intelligence Committee (BI)
The Business Intelligence Committee is the body that oversees
fulfilment of the Business Intelligence strategy.
Statistical models Committee
The Statistical models Committee is the highest body that approves
any changes to the internal approaches to calculating capital
requirements for credit, market and operatio nal risk and methods
of determining economic capital for all risk types. The Committee
approves changes in the IRB approach (changes in the rating sys-
tem, including the ratings policy, changes in methods for estimat-
ing risk parameters and changes to all rele vant risk parameters)
or changes in ICAAP (the Internal Capital Adequacy Assessment
Process).
E. Company Policy with respect to
Stakeholders
Information on this topic is available in the section Corporate
Responsibility of esk spoitelna (see page 56).
65
F. Principles of Internal Control and
Rules for Accepting Risk in the Financial
Reporting Process
The Company processes its financial accounts via SAP, which
complies with exacting requirements for the security and quality
of account preparation. System inputs are entered both manually
and automatically from other transaction systems.
The Company complies with all statutory and legislative require-
ments. Procedures pertaining to accounting documents and their
circulation have been put in place as required by the Accounting
Act and in a manner that serves the needs of the controlling and
manage ment accounting functions. The Company esta blished sep-
arate internal regulations for accounting documents and their circu-
lation and these are subject to regular review, particularly internal
regulation on accounting document circulation, which requires the
four-eyes control principle and eliminates the possibility of unau-
thorised accounting transactions by defining persons authorised to
approve and perform accounting entries, i.e. who may be involved
in the accounting process. Any correction of accounting entries is
subject to the same controls. Manual and automatic controls of the
completeness and correctness of SAP system inputs are performed
in respect of automatic accounting between SAP and the transaction
accounting systems. Accounting documents are archived both in
the system and manually and the archiving process has been set
up to comply with statutory requirements (the Accounting Act and
Archiving and Records Service Act).
The Company fulfils asset valua tion requirements pursuant to
Part IV of the Accounting Act (in accor dance with the gene ral prin-
ciple of prudence) and International Financial Reporting Standards.
The Company has instituted several separate internal regulations for
this area that comply with these statutory requirements and prin-
cipally address the setting of asset input prices, i.e. their valua tion
under Accounting Act requirements, changes in their valua tion (in
particular, provisioning), asset amortisation, depreciation, disposal,
stock taking and related tax requirements.
The area of manage ment accounting is not separately addressed
by statutory or legislative regulations, with the exception of the
definition of basic features required, inter alia, for clarity. The
Company esta blished manage ment accounting based on historical
developments while respecting current requirements for bookkeep-
ing and for cost controlling within the Company. Manage ment
accounting is prima rily kept in the form of sub-ledger accounts
whose contents are subject to regular review. Bookkeeping oper-
ations on sub-ledger accounts are controlled for accuracy on an
ongoing basis.
The Company prima rily recognises impairment allowances and
provisions pursuant to the basic principles stipulated by the stat-
utory accounting and tax regulations. The accounting procedures
are additionally regulated by internal rules that, in addition to the
foregoing, reflect the needs of key departments in relation to the
accounting system in this area (audit, reporting, controlling, etc.).
The methodo logy and accounting for the creation and release of
impairment allowances in the Company is concentrated in a sin-
gle location and carried out by a small group of staff, which is
advantageous, inter alia, from the perspective of logic, operatio-
nal and reconciliation controls. The controls are performed on an
ongoing basis both before and after accounting operations. Given
the impact on financial results, the gene ral creation of impairment
allowances is not monitored by indi vidual accounting item, but in
a broader context.
Aggregated consolidated and standalone financial statements are
submitted to the Companys statutory body on a monthly basis. The
Companys Supervisory Board has the aggregated consolidated
and standalone financial statements on hand at every one of its
meetings. The consolidated and standalone financial statements of
the Company are subject to internal audit testing at irregular inter-
vals. The Audit Committee monitors the process of compiling the
consolidated and standalone financial statements while also eval-
uating the effectiveness of internal controls. The Audit Committee
additionally monitors the process of the statutory audit of the con-
solidated and standalone financial statements, which are subject to
a standard external audit once a year; the preliminary work is done
first and this is followed by the audit work on the consolidated and
standalone financial statements and the annual report.
66
1st Deputy CEO Deputy CEO
Company Offce
Corporate Banking Pro-
duct Manage ment
Deputy CEO
Ji korvaga
Group Large Corporates
Municipalities
Deputy CEO
Investment Banking
Corporate Cash Manage-
ment and Sales Support
Funding Group
Financial Markets Retail
Distribution
Financial Markets
Wholesale and Trading
Daniel Heler
Corporate Clients (Regional
Corporate Centres)
Real Estate Business
Marketing
Human Resources
Internal Audit
Corporate Communication
Chief Executive Offcer
(CEO)
Pavel Kysilka
Economic and Strategic
Research
Client Experience and
Service Quality Manage ment
Client Experience and
Service Quality Manage ment
Operations Manage ment
Transactions Processing
Client Accounts Admin.
and Approvals
Wholesales Back Offce
Client Accounts Admin.
and Collection
IT and Projects
Karel Mourek Wolfgang Schopf
Organizational Structure
effective to December 31, 2013
Accounting, Controlling
and BI
Capital Participations and
Real Estate
Group Balance Sheet
Manage ment
Pro perty Manage ment
Capital Participations
and Real Estate
Process Manage ment
Financial Planning
and Analysis
Distribution
(Regions, Branch Network)
Retail Pro ducts
and Processes Manage ment
Card Centre
Remote Delivery
External Sales Force
and Coope ration
Retail Segments Manage-
ment
Support
Compliance, Prevention
of Financial Crime and
Anti-Fraud Manage ment
Restructuring and Workout
Legal Services
Credit Risk Controlling
and Portfolio Manage ment
Credit Risk Manage ment
Corporate Banking
Central Risk Manage ment
Security
Credit Risk Manage ment
Retail Banking
esk spoitelna, a. s., Declaration on the Compliance of its Gover nance with the Code Based on OECD Principles | Organizational Structure of S | Report of the Supervisory Board and Audit Committee
67
Report of the Supervisory Board
and Audit Committee
In the year 2013 the Supervisory Board supervised the discharge
of the Board of Directors powers and the operation of the esk
spoitelna, a. s. business in accor dance with the Articles of Association
and legal provisions.
The Supervisory Board, among others, approved the financial state-
ments and distribution of profit for the year 2013, and it regularly
discussed the financial reports of the esk spoitelna Financial
Group, macroeconomic development in the Czech Republic, the
development of the loan portfolio, equity investment strategy and
changes in owner ship interest in subsidiaries, real estate and invest-
ment strategy. Furthermore, the Supervisory Board discussed the
centralization of the esk spoitelna Financial Group activities,
optimization of the branch network and principles of remuneration
as well as approving the 2014 budget.
The Supervisory Board continuously monitored the performance of
the Board of Directors and the business activities of the Bank oversaw
the key decisions of the Board of Directors and the implementation
of the Banks strategy.
The Board of Directors provided the Supervisory Board with the
documentation and information necessary for the discharge of its
functions in accor dance with the Articles of Association and legal
provisions. The Supervisory Board states that the Board of Directors
in the year 2013 duly fulfilled its tasks arising mainly from the law,
the Articles of Association and decisions of the Supervisory Board
and Gene ral Meeting.
In 2013 the Board of Directors held four regular meetings and one
extraordinary meeting; besides these meetings, the Supervisory
Board also made use of per rollam voting.
During the year, the Supervisory Board members discussed the results
of activities of the indi vidual committees Credit Committee and
Remuneration Committee. In December the Supervisory Board esta-
blished the Nomination Committee in accor dance with new CNB regula-
tions. The Supervisory Board was also informed about the activities of
the Audit Committee, which is an independent body of the company.
During 2013 changes in the Supervisory Boards membership
took place. The Gene ral Meeting in April re-elected Mr. Manfred
Wimmer. Messrs. Peter Bosek and John Stack became new members
of Supervisory Board. They replaced Messrs. Heinz Kessler and
Bernhard Spalt who resigned their memberships in the Supervisory
Board in April. In September 2013 Mr. Wimmer resigned his mem-
bership in the Supervisory Board. Consequently Mr. Andreas Treichl
was coopted to the Board. Mr. Stack was elected as Chairman and
Mr. Treichl as Vice-Chairman of the Supervisory Board in September
2013.
In accor dance with legal provisions, the Supervisory Board
reviewed the separate and consolidated financial statements as of
31 December 2013 and came to the conclusion that the books and
accounting records were kept in a transparent manner in accor dance
with accounting regulations and that the accounts and separate and
consolidated financial statements correctly reflect the financial
situation of esk spoitelna, a. s. and the consolidated unit as of
31 December 2013. The audit of the yearend financial statements
was performed by Ernst & Young Audit, s. r. o., who confirmed
that according to their opinion the financial statements pre sent
fairly, in all material respects, the financial position of the Group
as at 31 December 2013, and its financial performance and its cash
flows for the year then ended in accor dance with International
Financial Reporting Standards as adopted by the European Union.
In agreement, the Supervisory Board took account of the auditors
statement.
The Supervisory Board also reviewed the Report on Relations
between the Related Parties and in accor dance with the provision
66a para 10 of the Commercial Code states that it took account of
this Report without comments.
Based on these facts the Supervisory Board hereby recommends
to the Gene ral Meeting to approve the separate and consolidated
financial statements of esk spoitelna, a. s. as of 31 December 2013
and the proposed distribution of profit of the Company submitted by
the Board of Directors.

Jack Stack
Chairman of the Supervisory Board
Organizational Structure of S | Report of the Supervisory Board and Audit Committee | Audit Committee
68
Report of the Supervisory Board and Audit Committee | Audit Committee | Consolidated Financial Statements
Report of the Audit Committee
In 2013, the esk spoitelna, a. s. Audit Committee operated as
an independent company body.
In compliance with Act No. 93/2009 Coll. on auditors and the esk
spoitelna statu tes, the Audit Committee oversaw the procedures
used to compile the standalone and consolidated financial state-
ments, evaluated the effectiveness of the Banks internal controls,
Internal Audit and the risk manage ment system, monitored the
process of the statutory audit of the standalone and consolidated
financial statements, assessed the auditors independence and rec-
ommended that the company Ernst & Young Audit, s. r. o. perform
the audit of the annual financial statements for 2013.
In compliance with the Czech National Bank requirements, the
Audit Committee performed an evaluation of the functio nality and
effectiveness of the manage ment and control system in the Bank.
At its regularly held meetings in 2013, the Committee discussed
planned Internal Audit activities and strategies, reports on Internal
Audit plans and activities and information on the fulfilment of mea-
sures resulting from audits and controls adopted by the Banks top
manage ment. The Audit Committee mainly focused its attention on
risk manage ment, including fraud manage ment, Card of Risks, the
protocol on Czech National Bank oversight and the implementation
of adopted mea sures.
Maximilian Hardegg
Chairman, Audit Committee
69
Auditors Report to the Shareholders of esk spoitelna, a. s. 70
Consolidated Statement of Financial Position 71
Consolidated Income Statement 73
Consolidated Statement of Comprehensive Income 74
Consolidated Statement of Changes in Shareholders Equity 75
Consolidated Statement of Cash Flows 76
Notes to the Consolidated Financial Statements 78
Prepared in Accor dance with International Financial Reporting
Standards as Adopted by the European Union
Report of the Supervisory Board and Audit Committee | Consolidated Financial Statements | Independent Auditors Report
Consolidated Financial Statements
For the Year Ended 31 December 2013
Financial Section 1
70
We have audited the accompanying consolidated financial statements of esk spoitelna, a. s. and its subsidiaries (the Group), which
comprise the consolidated statement of financial position as at 31 December 2013, and the consolidated income statement, consolidated
statement of comprehensive income, consolidated statement of changes in shareholders equity and consolidated statement of cash flows
for the year then ended, and a summary of significant accounting policies and other explanatory information. For details of the Group, see
Note 1 and Note 4 to the consolidated financial statements.
Manage ments Responsibility for the Consolidated Financial Statements
Manage ment is responsible for the preparation and fair pre sentation of these consolidated financial statements in accor dance with International
Financial Reporting Standards as adopted by the European Union, and for such internal control as manage ment determines is necessary to
enable the preparation of onsolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in
accor dance with the Act on Auditors and International Standards on Auditing as amended by implementation guidance of the Chamber of
Auditors of the Czech Republic. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance as to whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial state-
ments. The procedures selected depend on the auditors judgment, including an assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
rele vant to the entitys preparation and fair pre sentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
manage ment, as well as evaluating the overall pre sentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements pre sent fairly, in all material respects, the financial position of the Group as at
31 December 2013, and its financial performance and its cash flows for the year then ended in accor dance with International Financial
Reporting Standards as adopted by the European Union.
Ernst & Young Audit, s.r.o.
License No. 401
Repre sented by Partner

Roman Hauptfleisch
Auditor, License No. 2009
4 March 2014
Prague, Czech Republic
Independent Auditors Report
to the Shareholders of esk spoitelna, a. s.
Auditors Report to the Shareholders of esk
spoitelna, a. s.
A member frm of Ernst & Young Global Limited,
Ernst & Young Audit, s. r. o. with its registred offce at Na Florenci 2116/15, 110 00 Prague 1 Nov Msto,
has been incorporated in the Commercial Register administered by the Municipal Court in Prague,
Section C, entry No. 88504, under Identifcation No. 26704153.
71
Consolidated Statement of Financial Position
As at 31 December 2013
Independent Auditors Report | Consolidated Statement of Financial Position | Consolidated Income Statement
Assets
CZK mil. Note 2013 2012
Assets
1. Cash and balances with the central bank 5 77,581 22,501
2. Loans and advances to fnancial institutions, net 6 75,348 65,320
3. Loans and advances to customers 7 507,483 489,103
4. Impairment allowance for loans and advances to customers 8 (18,289) (18,244)
Net loans and advances to customers 489,194 470,859
5. Financial assets at fair value through proft or loss 30,773 48,086
a) Trading assets 9 26,550 40,881
b) Financial assets designated at fair value through proft or loss 10 4,223 7,205
6. Positive fair value of derivative fnancial instruments 11 22,113 26,781
7. Financial assets availableforsale 12 82,295 66,666
8. Financial assets heldtomaturity, net 13 154,720 181,967
9. Investments in associates and joint ventures 109
10. Investment pro perty 14 8,330 9,561
11. Pro perty under construction 15 467 1,598
12. Pro perty and equipment 16 14,166 14,594
13. Intangible assets 17 3,333 3,208
14. Income tax receivable 102 127
15. Deferred tax assets 27 126 119
16. Other assets 18 10,175 8,907
Total assets 968,723 920,403
Consolidated Financial Statements
72
Independent Auditors Report | Consolidated Statement of Financial Position | Consolidated Income Statement
Liabili ties and Equity
Liabili ties and equity
1. Amounts owed to fnancial institutions 19 73,036 44,344
2. Amounts owed to customers 20 713,977 688,624
3. Financial liabili ties at fair value 14,434 17,906
a) Trading liabili ties 21 3
b) Financial liabili ties designated at fair value through proft or loss 22 14,434 17,903
4. Negative fair value of derivative fnancial instruments 23 24,446 26,358
5. Bonds in issue 24 26,550 34,156
6. Provisions 25 2,594 2,251
7. Income tax liability 414 127
8. Deferred tax liability 27 100 365
9. Other liabili ties 26 10,100 10,698
10. Subordinated debt 28 2,096 2,262
Total liabili ties 867,747 827,091
Shareholders equity 100,976 93,312
11. a) Equity attributable to equity holders of parent 100,660 93,190
Share capital 30 15,200 15,200
Share premium 11 11
Statutory reserve fund 3,812 3,803
Translation reserve 31 (204) (487)
Revaluation of hedging derivatives 31 (95) 91
Revaluation of fnancial assets availableforsale 31 1,008 1,443
Retained earnings 80,928 73,129
12. b) Non-controlling interest 29 316 122
Total liabili ties and shareholders equity 968,723 920,403
The accompanying notes are an integral part of these consolidated financial statements.
These consolidated financial statements were prepared by the Group and authorized for issue by the Board of Directors on 4 March 2014
and are subject to approval at the Gene ral Meeting of shareholders.
Pavel Kysilka Wolfgang Schopf
Chairman of the Board Vice-chairman of the Board
73
Consolidated Income Statement
Consolidated Statement of Financial Position | Consolidated Income Statement, Consolidated Statement of Comprehensive Income | Consolidated Statement of Changes in Shareholders Capital
(Reclassified)
1. interest and simi lar income 32 33,347 36,781
2. interest and simi lar expense 33 (5,438) (7,124)
Net interest and simi lar income 27,909 29,657
3. Impairment allowance for credit risk 34 (3,332) (3,707)
Net interest income after impairment allowance for
credit risk
24,577 25,950
4. Fee and commission income 35 15,165 15,412
5. Fee and commission expense 36 (3,871) (3,644)
Net fee and commission income 11,294 11,768
6. Net trading result 37 2,682 2,150
7. Personnel expenses (9,013) (8,783)
8. Other administra tive expenses (6,519) (7,275)
9. Depreciation and amortization (2,061) (2,201)
Total gene ral administra tive expenses 38 (17,593) (18,259)
10. Other opera ting result 39 (1,584) (1,145)
11. Net proft of the SPS Transformed Fund 4.1 105 114
Proft before tax 19,481 20,578
12. Income tax 41 (3,904) (4,175)
Proft for the year 15,577 16,403
Attributable to:
Equity holders of the parent 15,588 16,612
Non-controlling interest (11) (209)
15,577 16,403
74
Consolidated Statement of Financial Position | Consolidated Income Statement, Consolidated Statement of Comprehensive Income | Consolidated Statement of Changes in Shareholders Capital
Consolidated Statement
of Comprehensive Income
1 Proft for the year 15,577 16,403
Other comprehensive income
Items that may be subsequently reclassifed to proft or loss:
Hedges of net investments in foreign operations 31 (241) 67
Deferred tax 31, 41 46 (13)
Net (loss)/gain on hedges of net investments in foreign operations (195) 54
Translation reserve 271 (129)
(Loss)/Gain on revaluation of fnancial assets availableforsale 31, 40 (472) 2,010
Deferred tax 31, 41 37 (283)
Net (loss)/gain on revaluation of fnancial assets availableforsale (435) 1,727
Cash fow hedges 31, 40 11
Deferred tax 31, 41 (2)
Net gain on cash fow hedges 9
2 Other comprehensive (loss)/income after tax (350) 1,652
Total comprehensive income for the year after tax 15,227 18,055
Attributable to:
Equity holders of the parent 15,238 18,264
Non-controlling interest (11) (209)
3. Total comprehensive income for the year after tax 15,227 18,055
75
Consolidated Statement of Changes
in Shareholders Equity
Consolidated Statement of Changes
in Shareholders Equity
Consolidated Statement of Comprehensive Income | Consolidated Statement of Changes in Shareholders Capital | Consolidated Statement of Cash Flows
CZK mil. Equity attributable to owners of the parent Non-controlling inte-
rests
Total equity
Retained earnings Revaluation of
fnancial assets
availableforsale
Revaluation of
hedging derivatives
Translation reserve Statutory reserve
fund
Share premium Share capital Total
At 1 January 2012 61,218 (284) 37 (320) 3,948 11 15,200 79,810 26 79,836
Proft for the year 16,612 16,612 (209) 16,403
Other comprehensive gains after tax 1,727 54 (129) 1,652 1,652
Dividends (4,560) (4,560) (40) (4,600)
Capital increase 338 338
Sale of subsidiaries 190 (190)
Transfer to reserve funds (50) 50
Use of funds (5) (5) (5)
Purchase of minority (281) (38) (319) 7 (312)
At 31 December 2012 73,129 1,443 91 (487) 3,803 11 15,200 93,190 122 93,312
CZK mil. Equity attributable to owners of the parent Non-controlling inte-
rests
Total equity
Retained earnings Revaluation of
fnancial assets
availableforsale
Revaluation of
hedging derivatives
Translation reserve Statutory reserve
fund
Share premium Share capital Total
At 1 January 2013 73,129 1,443 91 (487) 3,803 11 15,200 93,190 122 93,312
Proft for the year 15,588 15,588 (11) 15,577
Other comprehensive gains after tax (435) (186) 271 (350) (350)
Dividends (7,600) (7,600) (80) (7,680)
Capital increase
Sale of subsidiaries (179) (1) (180) 285 105
Transfer to reserve funds (10) 10
Use of funds 12 12 12
At 31 December 2013 80,928 1,008 (95) (204) 3,812 11 15,200 100,660 316 100,976
76
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Shareholders Capital | Consolidated Statement of Cash Flows | Notes to the Consolidated Financial Statements
Adjustments for Non-cash transactions
Creation of impairment allowance for loans and advances 34 3,660 4,587
Depreciation and amortization 38 2,061 2,201
Depreciation of investment pro perty 14 223 249
Impairment of investment pro perty 14 277 799
Impairment of pro perty under construction 15 (106) 79
Unrealised (proft)/loss on fnancial assets at fair value through proft or loss and liabili ties
at fair value
(264) 684
Gain on disposal/revaluation of owner ship inte rests 231 133
Impairment/(reversal) of impairment of fnancial assets availableforsale 39 259 (1)
Net charge/(release) for provisions for legal disputes and other provisions 39,25 570 (295)
Change in fair values of derivatives 2,516 (1,840)
Accrued interest, amortization of discount and premium (1,361) (39)
Other Non-cash transactions (677) 394
Opera ting proft before changes in opera ting assets and liabili ties 26,870 27,529
Cash fow from opera ting activities
(Increase)/decrease in opera ting assets
Deposits with the CNB (7,708) 10,686
Loans and advances to fnancial institutions (9,783) 12,945
Loans and advances to customers (21,930) (10,152)
Financial assets at fair value through proft or loss 22,490 (13,152)
Financial assets availableforsale (4,735) (28,804)
Other assets (1,624) (173)
Increase/(decrease) in opera ting liabili ties
Amounts owed to fnancial institutions 31,625 (7,465)
Amounts owed to customers 26,518 30,728
Financial liabili ties at fair value (3,462) 1,510
Other liabili ties (1,538) (2,662)
Net cash fow from opera ting activities before income tax and movement in
non-controlling inte rests
56,723 20,990
Increase in Non-controlling inte rests 274 346
Income tax paid (3,746) (3,445)
Net cash fow from opera ting activities 53,251 17,891
Cash fows from investing activities
Purchase of fnancial assets heldtomaturity (39,146) (61,445)
Proceeds from the disposal of fnancial assets heldtomaturity 60,957 58,691
Purchase of investment pro perty (231)
Proceeds from sale of investment pro perty 128
Proceeds from the sale of assets under construction 1,237 824
Proceeds from the sale of equity investments 90 19
Proceeds from the sale of inte rests in sub sidiary and associate undertakings 182 290
Purchase of tangible and intangible assets (1,868) (2,143)
Proceeds from the sale of tangible and intangible assets 58 79
Net cash fow from investing activities 21,279 (3,557)
77
Consolidated Statement of Changes in Shareholders Capital | Consolidated Statement of Cash Flows | Notes to the Consolidated Financial Statements
Cash fows from fnancing activities
Dividends paid (7,600) (4,560)
Dividends paid to minority shareholders (80) (40)
Proceeds from bonds issued 2,866 2,142
Repurchase of bonds in issue (10,140) (12,850)
Redemption of subordinated debt (169) (266)
Use of funds (5)
Net cash fow from fnancing activities (15,123) (15,579)
Net increase/(decrease) in cash and cash equivalents 59,407 (1,245)
Cash and cash equivalents at beginning of year 36,584 37,829
Cash and cash equivalents at end of year 42 95,991 36,584
Cash Flow from interest and Dividends
CZK mil. 2013 2012
Dividends received 52 47
interest received 32,978 37,718
interest paid (5,665) (7,124)
78
Notes to the Consolidated
Financial Statements
Consolidated Statement of Cash Flows | Notes to the Consolidated Financial Statement | Separate fnancial statements
1. Introduction
esk spoitelna, a. s. (the Bank), having its registered office
address at Olbrachtova 1929/62, Prague 4, 140 00, Corporate ID
45244782, is the legal successor of the Czech State Savings Bank
and was founded as a joint stock company in the Czech Republic
on 30 December 1991. The Bank is a universal savings bank offer-
ing retail, corporate and investment banking services within the
Czech Republic.
The Banks majority shareholder is EGB Ceps Holding G m b H,
which is a 100% sub sidiary of EGB Ceps Beteiligungen G m b H,
a wholly-owned sub sidiary of Erste Group Bank AG (Erste Group
Bank) which is the ultimate parent. The Bank together with subsid-
iaries and associated companies (refer to Note 4) forms the Group.
The Group is subject to the regula tory requirements of the Czech
National Bank (CNB). These regulations include those pertaining
to minimum capital adequacy requirements, categorization of expo-
sures and off-balance sheet commitments, credit risk connected
with clients of the Group, liquidity, interest rate risk, foreign cur-
rency positions and opera ting risk.
In addition to the banking entities, other Group companies are
subject to regula tory requirements, specifically in relation to retire-
ment, collective investment and brokerage services.
The Group offers a complete range of banking and other financial
services, such as savings and current accounts, asset manage ment,
consumer credit and mortgage lending, investment banking, securi-
ties and derivatives trading, portfolio manage ment, project finance,
foreign trade financing, corporate finance, capital and money mar-
ket services and foreign exchange trading.
2. Basis of Preparation
The consolidated financial statements of the Group for the 2013
financial year and the comparative information were prepared
in compliance with applicable International Financial Reporting
Standards as adopted by the European Union (IFRS) on the basis
of IAS Regulation (EC) No. 1606/2002.
The consolidated financial statements have been prepared on a cost
basis, except for financial assets available-for-sale, derivative finan-
cial instruments, financial assets and liabili ties held for trading, and
financial assets and liabili ties designated at fair value through profit
or loss, all of which have been measured at fair value. The carrying
values of recognised assets and liabili ties that are designated as
hedged items in fair value hedges that would otherwise be carried
at amortised cost are adjusted to record changes in the fair values
attributable to the risks that are being hedged in effective hedge
relationships.
The consolidated financial statements have been prepared on
a going concern basis.
Except as otherwise indicated, all amounts are stated in millions
of Czech crowns (CZK). The tables in this report may contain
rounding differences.
3. Signifcant Accounting Policies
3.1 Basis of Consolidation
Subsidiaries
All subsidiaries directly or indirectly controlled by the Group are
consolidated in the group financial statements on the basis of the
subsidiaries annual accounts as of 31 December 2013 and for the
year then ended.
Subsidiaries are consolidated from the date upon which control
is transferred to the Group. Control is achieved when the Group
has the power to govern the financial and opera ting policies of an
entity so as to obtain benefits from its activities. The results of
subsidiaries acquired or disposed of during the year are included
in the consolidated statement of comprehensive income from the
date of acquisition or up to the date of disposal.
The financial statements of the Banks subsidiaries are prepared for
the same reporting year as that of the Group and using consistent
accounting policies. All intra-group balances, transactions, income
and expenses as well as unrealised gains and losses and dividends
are eliminated. Total comprehensive income within a sub sidiary is
attributed to the non-controlling interest even if it results in a deficit
balance.
Non-Controlling interest
Non-controlling inte rests repre sent those portions of total compre-
hensive income and net assets which are not attributable directly
or indirectly to the owners of the Group. Non-controlling inte rests
are pre sented separately in the consolidated statement of compre-
hensive income and within equity in the consolidated statement of
financial position.
Acquisitions of non-controlling inte rests are accounted for as equity
transactions, whereby the diffe rence between the consideration
79
transferred and the share in the carrying amount of the net assets
acquired is recognised as equity. Disposals of non-controlling
inte rests that do not lead to loss of control are accounted for in
the same way.
Investments in Associates
Investments in companies over which the Group exercises significant
influence (associates) are accounted for under the equity method. As
a gene ral rule, significant influence is presumed to mean an owner-
ship interest of between 20% and 50%. Under the equity method, an
interest in an associate is recognised in the statement of financial posi-
tion at cost plus post-acquisition changes in the Groups share of the
net assets of the entity. The Groups share of the associates profit or
loss is recognised in the income statement in the line Other opera ting
result. Entities accounted for under the equity method are recognised
on the basis of annual financial statements as of 31 December 2013
and for the year then ended.
Joint Ventures
A joint venture is a contractual arrangement whereby two or more
parties undertake an economic activity that is subject to joint con-
trol. Joint control is the contractually agreed sharing of control over
an economic activity, and exists only when the strategic financial
and opera ting decisions relating to the activity require the unani-
mous consent of the parties sharing control (the venturers). Joint
ventures are consolidated using the equity method of accounting.
The equity method is a method of accounting whereby an interest
in a jointly controlled entity is initially recorded at cost and adjusted
thereafter for the post-acquisition change in the venturers share
of net assets of the jointly controlled entity. The profit or loss of
the venturer includes the venturers share of the profit or loss of
the jointly controlled entity. The rules for consolidation described
in the previous section Investments in associates are the same as
for investments in joint ventures.
3.2 Signifcant Accounting Judgements,
Estimates and Assumptions
The consolidated financial statements contain amounts that have
been determined on the basis of judgements and by use of estimates
and assumptions. The estimates and assumptions used are based
on historical experience and other factors, such as planning as well
as expectations and forecasts of future events that are currently
deemed to be reasonable. As a consequence of the uncertainty asso-
ciated with these assumptions and estimates, actual results could in
future periods lead to adjustments in the carrying amounts of the
related assets or liabili ties. The most significant use of judgement,
assumptions and estimates are as follows:
Fair Value of Financial Instruments
Where the fair values of financial assets and financial liabili ties
recorded in the statement of financial position cannot be derived
from active markets, they are determined using a variety of valua-
tion techniques that include the use of mathematical models. The
inputs to these models are derived from observable market data
where possible, but where observable market data is not available
judgement is required to establish fair values. Disclosures for valua-
tion models, the fair value hierarchy and fair values of financial
instruments can be found in Note 45.
Impairment of Financial Assets
The Group reviews its financial assets not measured at fair value
through profit or loss at each reporting date to assess whether an
impairment loss should be recorded in the income statement. In
particular, it is required to determine whether there is objective
evidence of impairment as a result of a loss event occurring after
initial reco gnition and to estimate the amount and timing of future
cash flows when determining an impairment loss.
The Group regularly assesses the realisable value of colla teral for
impairment. With respect to a large amount of colla teral of the same
type, the Group uses portfolio models to determine if the realisable
value of the colla teral decreased. The Group takes into account the
realisable value of colla teral in calculating the impairment allow-
ance for loans and advances.
Disclosures concerning impairment are provided in Note 44. The
development of loan loss impairment allowances is described in Note 8.
Impairment of Non-Financial Assets
The Group reviews its non-financial assets at each reporting date
to assess whether there is an indication of impairment loss which
should be recorded in the income statement. This is especially
rele vant for cash-generating units containing goodwill which have
to be tested for impairment annually. Judgement and estimates are
required to determine the value in use and fair value less costs to
sell by estimating the timing and amount of future expected cash
flows and the discount rates. Assumptions and estimates used to
measure recoverable amounts of non-financial assets for impair-
ment testing calculations are described in the parts Business com-
binations and goodwill and Impairment of non-financial assets
(pro perty and equipment, investment pro perty, intangible assets)
in the Accounting Policies discussion under the Notes.
Deferred Tax Assets
Deferred tax assets are recognised in respect of tax losses and
deductible temporary differences to the extent that it is pro bable
that taxable profit will be available against which the losses can be
utilised. Judgement is required to determine the amount of deferred
tax assets that can be recognised, based upon the likely timing and
level of future taxable profits, together with future tax planning
strategies. Disclosures concerning deferred taxes are in Note 27.
Leases
From the Groups perspective as a lessor, judgement is required
to distinguish whether a given lease is finance or opera ting lease
based on the transfer of substantially all the risk and rewards from
the lessor to the lessee.
Legal Provisions
The Group is involved in a number of ongoing legal disputes, the
resolution of which may have an adverse financial impact on the
80
Group. Based upon historical experience and expert opinion, the
Group assesses the developments in these cases, and the likelihood
and amount of potential financial losses which are then appropri-
ately provided for, if necessary. Nevertheless, the actual results may
differ from the estimated losses at the reporting date. The provision
for legal disputes is disclosed in Note 25.
3.3 Changes in Accounting Policy and
Disclosures
The accounting policies adopted are consistent with those used in
the previous financial year except for standards and interpretations
which became effective for financial years beginning on or after
1 January 2013. As regards new standards and interpretations and
their amendments only those which are rele vant for the business
of the Group are listed below.
Effective Standards and Interpretations
The following standards and their amendments have been manda-
tory since 2013:
Amendments to IAS 1 Pre sentation of Items of Other
Comprehensive Income
IAS 19 (revised 2011) Employee Benefits
Amendments to IFRS 7 Offsetting Financial Assets and
Liabili ties
IFRS 13 Fair Value Measurement
Annual improvements to IFRSs (issued in 2012)
Application of these standards had no material effect on the reco-
gnition and measurement methods of the Group. However, there
were following pre sentation and disclosure impacts:
Amendments to IAS 1 led to a new way of grouping of
other comprehensive income items and their tax effects in
the statement of comprehensive income;
Amendments to IFRS 7 result in new disclosures in the area
of derivatives, repo and securities lending transactions that
are subject to netting agreements but are not off-set in the
statement of fnancial position; and
Application of IFRS 13 resulted in enhanced disclosures
about fair value measurements.
Standards and Interpretations not Yet Effective
The standards and interpretations shown below were issued by
IASB but are not yet effective. Thereof, the following standards
and amendments have been endorsed by the EU:
Amendments to IAS 36 Recoverable Amounts Disclosures
for Non-financial Assets
Amendments to IAS 39 Novation of Derivatives and
Continuation of Hedge Accounting
IAS 27 (revised 2011) Separate Financial Statements
IAS 28 (revised 2011) Investments in Associates and Joint
Ventures
Amendments to IAS 32 Offsetting Financial Assets and
Liabili ties
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Inte rests in Other Entities
Amendments to IFRS 10, IFRS 11 and IFRS 12 Transition
guidance
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment
entities
Although they have been endorsed by the EU, the Bank decided
not to apply them before they become effective.
Amendments to IAS 19 Defined Benefit Plans: Employee
Contributions
Amendments to IAS 19 were issued in November 2013
and are effective for annual periods beginning on or after
1 July 2014.
Amendments to IAS 19 were issued in November 2013 and are
effective for annual periods beginning on or after 1 July 2014.
The amendments clarify that contributions from employees or third
parties that are linked to service must be attributed to periods of
service using the same attribution method as used for the gross
benefit. However, the contribution may be recognised as a reduction
in the service cost if the amount of the contributions is independent
of the number of years of service.
Application of these amendments is not expected to have a signifi-
cant impact on the Groups financial statements.
IAS 27 revised was issued in May 2011 and is effective for annual
periods beginning on or after 1 January 2013. As adopted by the
European Union, however, IAS 27 revised becomes effective, at
the latest, as from the commencement date of its first financial year
starting on or after 1 January 2014.
After revision, only the part rele vant for indi vidual financial state-
ments was kept in IAS 27. This is due to the fact that IFRS 10
becomes the new standard rele vant for consolidated financial state-
ments. This resulted in a change of the name of IAS 27.
The revised IAS 27 is not expected to have a significant impact on
the Groups financial statements.
Ventures
Joint ventures are added into the scope of the revised IAS 28, which
also results in a change in the name of the standard. This is due to
81
the fact that under IFRS 11 the equity method is the only way of
including joint ventures into the consolidated financial statements.
IAS 28 revised is not expected to have a significant impact on the
Groups financial statements.
Liabili ties
Amendments to IAS 32 were issued in December 2011 and are
effective for annual periods beginning on or after 1 January 2014.
The amendments clarify the meaning of the terms currently and
settlement on net basis.
The amendments are not expected to have a significant impact on
the Groups financial statements.
Amendments to IAS 36 were issued in May 2013 and are effective
for annual periods beginning on or after 1 January 2014.
The amendments require an entity to disclose the recoverable
amount of an indi vidual asset (including goodwill) or a cash-gen-
erating unit for which the entity has recognised or reversed an
impairment loss during the reporting period. Additional disclosures
are required if the recoverable amount is determined based on fair
value less costs of disposal.
Application of these amendments will result in new disclosures
concerning recoverable amount.
Amendments to IAS 39 were issued in June 2013 and are effective
Under the amendments there would be no need to discontinue hedge
accounting if a hedging derivative was novated, provided certain
criteria are met.
cant impact on the Groups financial statements.
IFRS 9: Financial Instruments
IFRS 9 rele vant for classification and measurement of financial
assets was issued in November 2009 then supplemented by regu-
lation for financial liabili ties in October 2010. In November 2013
part for hedge accounting was issued. Currently IFRS 9 is available
for application, but there is no effective date.
IFRS 9 introduces two classification criteria for financial assets:
1) an entitys business model for managing the financial assets,
and 2) the contractual cash flow character istics of the financial
assets. As a result, a financial asset is measured at amortised cost
only if both the following conditions are met: a) the asset is held
within a business model whose objective is to hold assets in order
to collect contractual cash flows, and b) the contractual terms of
the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal out-
standing. All financial assets which do not fulfil these conditions
are measured at fair value with changes recognised in profit or
loss. For investments in equity instruments which are not held for
trading an entity may make an irrevo cable election at initial reco-
gnition to measure them at fair value with changes recognised in
other comprehensive income.
Based on changes in the business model an entity shall reclassify
all affected assets from fair value to amortised cost category or
vice versa.
The objective of the new hedge accounting model is to reflect in
accounting actual risk manage ment practices of entities hedging
risks. Significant improvements which the Group expects to make
use of have been brought in following areas: retrospective effec-
tiveness test is no longer required and the 80125% corridor was
abandoned, when options are used as hedging instruments volatil-
ity of the time value is recognised through other comprehensive
income rather than profit or loss, possibility to hedge synthetic
positions containing derivatives.
This standard will have an effect on measurement and pre sentation
of financial instruments. As IFRS 9 has not yet been published in
its final version, its impact cannot be quantified.
IFRS 10 was issued in May 2011 and is effective for annual periods
beginning on or after 1 January 2013. As adopted by the European
Union, however, IFRS 10 becomes effective, at the latest, as from
the commencement date of its first financial year starting on or after
1 January 2014. It replaces IAS 27, Consolidated and Separate
Financial Statements and interpretation SIC-12, Consolidation
Special Purpose Entities.
IFRS 10 defines the principle of control for all entities, includ-
ing those that were previously consi dered special purpose entities
under SIC-12. An investor controls an investee when it is exposed
or has rights to variable returns from the investee and has the abil-
ity to affect those returns through its power over the investee. The
assessment of control is based on all facts and circumstances, and
the conclusion is reassessed if there are changes in those facts and
circumstances.
Furthermore, IFRS 10 addresses other issues such as control with
less than majority voting rights, control solely through rights other
than voting rights, and delegated decision rights. Parts dealing with
consolidation procedures, non-controlling inte rests and loss of con-
trol were taken over into IFRS 10 from IAS 27.
Application of this standard is not expected to have a significant
impact on the Groups financial statements.
82
Union, however IFRS 11 becomes effective, at the latest, as from
the commencement date of its first financial year starting on or
after 1 January 2014. It supersedes IAS 31, Inte rests in Joint
Ventures and SIC-13, Jointly-controlled Entities Nonmonetary
Contributions by Venturers.
The core principle of IFRS 11 is that a party to a joint arrangement
determines the type of joint arrangement in which it is involved by
assessing its rights and obligations and accounts for those rights
and obligations in accor dance with that type of joint arrangement.
IFRS 11 classifies joint arrangements as either joint ventures or
joint operations. IFRS 11 requires use of the equity method of
accounting for joint ventures by eliminating the option to use the
proportionate consolidation method. A joint operator recognises
its assets, liabili ties, revenues and expenses separately in relation
to its interest in the arrangement.
As the Group did not apply the proportionate consolidation method
allowed in IAS 31, application of this standard is not expected
to have a significant impact on the Groups financial statements.
after 1 January 2014.
The objective of IFRS 12 is to require disclosure of information
enabling users of financial statements to evaluate the nature of,
and risks associated with, an investors inte rests in other entities
as well as the effects of those inte rests on the investors financial
position, financial performance and cash flows. Disclosures are
provided separately for subsidiaries, joint operations, joint ven-
tures, associates, and unconsolidated structured entities. IFRS 12
is a comprehensive disclosures standard. Therefore, there are no
specific disclosure requirements in IFRS 10, IFRS 11 and IAS 28.
Application of this standard is not expected to have a significant
impact on the Groups financial statements. However, it will
result in new disclosures especially in the area of non-controlling
inte rests.
guidance
Amendments to IFRS 10, IFRS 11 and IFRS 12 were issued in
June 2012 and their effectiveness is aligned with the effective
date of the standards.
The amendments change the transition guidance to provide further
relief from retrospective application.
Application of these amendments is not expected to have a signif-
icant impact on the Groups financial statements.
entities
Amendments to IFRS 10, IFRS 12 and IAS 27 were issued in
October 2012 and are effective for annual periods beginning on
or after 1 January 2014.
The amendments provide an exemption from consolidation of
subsidiaries under IFRS 10 for entities which meet the defini-
tion of an investment entity, such as certain investment funds.
Instead, such entities will measure their investments in subsid-
iaries at fair value through profit or loss.
Application of these amendments is not expected to have a sig-
nificant impact on the Groups financial statements.
Annual Improvements to IFRSs 20102012 and 20112013
Cycle
In December 2013, the IASB issued two sets of amendments
to vari ous standards. The amendments are effective for annual
periods beginning on or after 1 July 2014.
IFRIC 21 Levies
IFRIC 21 was issued in May 2013 and is effective for annual
periods beginning on or after 1 January 2014.
The interpretation addresses when a liability for a levy imposed
by a government is recognised. The liability is recognised pro-
gressively if the obligating event occurs over a period of time.
If an obligation is triggered on reaching a minimum thresh-
old, the liability is recognised when that minimum threshold
is reached.
3.4 Summary of Signifcant Accounting
Policies
Foreign Currency Transtlation
The consolidated financial statements are pre sented in CZK,
which is the functio nal currency of the Group. The functio nal
currency is the currency of the primary business environment in
which an entity operates. Each entity in the Group determines
its own functio nal currency and items included in the financial
statements of each entity are measured using that functio nal
currency.
For foreign currency translation, exchange rates quoted by
Czech National Bank are used. For group entities with the euro
83
as functio nal currency, these are the European Central Bank
reference rates.
(i) Transactions and Balances in foreign
Currency
Transactions in foreign currencies are initially recorded at the spot
exchange rate effective as at the date of the transaction. Monetary
assets and liabili ties denomi nated in foreign currencies are trans-
lated at the spot exchange rate as at the reporting date. All resulting
exchange rate differences that arise are recognised in the income
statement in the line Net trading result or in the line Other opera-
ting result. Non-monetary items that are measured in terms of his-
torical cost in a foreign currency are translated using the exchange
rates as at the date of reco gnition.
(ii) Translation of the Statements of Group
Companies
Assets and liabili ties of foreign operations ( foreign subsidiaries
and branches) are translated into the Groups pre sentation cur-
rency, CZK, at the rate of exchange at the reporting date (closing
rate). Their statements of comprehensive income are translated at
quarterly average exchange rates. Goodwill and intangible assets
recognised on acquisition of foreign subsidiaries (i.e. customer
relationships and brands) and fair value adjustments to the carrying
amounts of assets and liabili ties on the acquisition are treated as
assets and liabili ties of the foreign subsidiaries and are translated
at the closing rate. Exchange differences arising on translation
are recognised in other comprehensive income. On disposal of
a foreign sub sidiary, the cumulative amount of translation differ-
ences recognised in other comprehensive income is recognised in
the income statement in the line Other opera ting result.
Cash and Balances with Central Banks
The Group considers cash and deposits with the CNB, treasury
bills and treasury bonds with a residual maturity of three months
or less and nostro and loro accounts with financial institutions to
be cash equivalents.
Balances with central banks include only claims (deposits) against
central banks which are repayable on demand. Repayable on
demand means that it may be withdrawn at any time or with a term
of notice of only one business day or 24 hours. Mandatory minimum
reserves are also shown under this position.
Financial Instruments Reco gnition and
Measurement
A financial instrument is any contract giving rise to a financial
asset at one company and a financial liability or equity instru-
ment at another company. In accor dance with IAS 39, all finan-
cial assets and liabili ties which also include derivative financial
instruments have to be recognised in the statement of financial
position and measured in accor dance with their assigned categories.
Accordingly to IAS 39 the Group uses the following categories of
financial instruments:
Financial assets or fnancial liabili ties at fair value through
proft or loss;
Financial assets available-for-sale;
Financial assets held-to-maturity; and
Loans and receivables.
IAS 39 categories of financial instruments are rele vant for
measure ment and they reflect the character istics of financial
instrument as well as the Banks intention to sell or to hold
them, given the Banks ability to hold them to maturity. These
categories are not necessarily the line items pre sented in the
statement of financial position due to the fact that, in accor dance
with IFRS 7, for disclosure purposes financial instruments are
grouped into classes that are appropriate to the nature of the
information disclosed and that take into account the character-
istics of the financial instruments.
Specific relationships between the statement of financial position
line items and categories of financial instruments are described
in Note 43.
(i) Initial Reco gnition
Financial instruments are initially recognised when the Group
becomes a party to the contractual provisions of the instrument.
Regular way (spot) purchases and sales of financial assets are
recognised at trade date or at settlement date. Financial assets and
liabili ties arising from securities measured at fair value are recog-
nized using trade date accounting. Financial assets purchased and
issued measured at amortized cost are recognized using settlement
date accounting. The classification of financial instruments at initial
reco gnition depends on their character istics as well as the purpose
and manage ments intention for which the financial instruments
were acquired.
(ii) Initial Measurement of Financial Instruments
Financial instruments are measured initially at their fair value
including transaction costs. In the case of financial instruments at
fair value through profit or loss, however, transaction costs are not
included but are recognised directly in profit or loss. Subsequent
measurement is described in the points below.
(iii) Derivative Financial Instruments
Derivatives used by the Group include mainly interest rate swaps,
futures, forward rate agreements, interest rate options, currency
swaps and currency options. Derivatives are measured at fair value.
Derivatives are carried as assets when their fair value is positive
and as liabili ties when their fair value is negative. All derivatives,
regardless of their internal classification, are disclosed under the
line item Positive/Negative fair value of derivative transactions,
which can be found, depending on their fair value as at the reporting
date, on the asset or liability side of the statement of financial posi-
tion. Hence, the line item Positive/Negative fair value of derivative
transactions contains both derivatives held in the trading book and
banking book and includes also derivatives designated for hedge
accounting.
84
Changes in fair value (clean price) are recognised in the income
statement in the line Net trading result, except for those resulting
from the effective part of cash flow hedges which are reported in
other comprehensive income. Furthermore, changes in fair value
(clean price) of derivatives related to financial liabili ties designated
at fair value through profit or loss are pre sented in the income
statement in the line Other opera ting result.
The interest income/expense related to derivative financial instru-
ments is recognised in the income statement in the line Net interest
income for those held in the banking book or designated as hedging
instruments in fair value hedges or in the line Net trading result
for those held in the trading book.
(iv) Financial Assets and Financial Liabili ties
Held for Trading
Financial assets and financial liabili ties held for trading include debt
securities as well as equity instruments acquired or issued princi-
pally for the purpose of selling or repurchasing in the near term.
Financial instruments held for trading are measured at fair value
and are pre sented as Trading assets or Trading liabili ties in the
statement of financial position. Changes in fair value (clean price)
resulting from financial instruments held for trading are reported in
the income statement in the line Net trading result. Nonetheless,
interest income and expenses are reported in the income statement
in the line Net interest income.
If securities purchased under agreement to resell are subsequently
sold to third parties, the obligation to return the securities is
recorded as a short sale within Trading liabili ties.
(v) Financial Assets or Financial Liabili ties
Designated at Fair Value Through Proft or Loss
Financial assets or financial liabili ties classified in this category
are those that have been designated by manage ment on initial reco-
gnition (fair value option).
The Group uses the fair value option in case of financial assets
managed on a fair value basis. In accor dance with a documented
investment strategy, the performance of the portfolio is evaluated
and regularly reported to the manage ment board. The portfolio
consists largely of investments in bonds issued by EU governments
and EU municipalities.
Financial assets designated at fair value through profit or loss are
recorded in the statement of financial position at fair value in the
line Financial assets designated at fair value through profit or loss
with changes in fair value recognised in the income statement in the
line Other opera ting result. interest earned on debt instruments
as well as dividend income on equity instruments is shown in the
position interest and simi lar income.
The Group uses the fair value option in case of some hybrid finan-
cial liabili ties, if:
Such classifcation eliminates or signifcantly reduces
an accounting mismatch between the fnancial liability
otherwise measured at amortised cost and the related
derivative measured at fair value; or
The entire hybrid contract is designated at fair value through
proft or loss due to existence of an embedded derivative.
The amount of fair value change attributable to changes in own
credit risk for financial liabili ties designated at fair value through
profit or loss is calculated by the method described in IFRS 7.
This amount is the diffe rence between the pre sent value of the
liability and the observed market price of the liability at the end
of the period. The rate used for discounting the liability is the sum
of the observed (benchmark) interest rate at the end of the period
and the instrument-specific component of the internal rate of return
determined at the start of the period.
Financial liabili ties designated at fair value through profit or loss
are reported under the respective financial liabili ties positions
Financial liabili ties designated at fair value through profit or loss.
Changes in fair value are recognised in the income statement in the
line Other opera ting result. interest incurred is reported in the line
interest and simi lar expense.
(vi) Financial Assets Available-For-Sale
Available-for-sale financial assets include equity and debt securities
as well as other inte rests in non-consolidated companies. Equity
investments classified as availablefor-sale are those which are
neither classified as held for trading nor designated at fair value
through profit or loss.
Debt securities in this category are those which are intended to
be held for an indefinite period of time and which may be sold in
response to needs for liquidity or in response to changes in market
conditions.
Available-for-sale financial assets are subsequently measured at fair
value. Unrealised gains and losses are recognised in other compre-
hensive income and reported in the Available-for-sale reserve until
the financial asset is disposed of or impaired. If available-for-sale
assets are disposed of or impaired, the cumulative gain or loss pre-
viously recognised in other comprehensive income is reclassified
to profit or loss and reported under the line item Other opera ting
result. In the statement of financial position, available-for-sale
financial assets are disclosed in the line item Financial assets
available-for-sale.
If the fair value of investments in non-quoted equity instruments can-
not be measured reliably, they are recorded at cost less impairment.
However, if the range of reasonable fair value estimates is significant
and the probabilities of the vari ous estimates cannot be reasonably
assessed, an entity is precluded from measuring the instrument at fair
value. There is no market for such investments. The Group does not
have any specific plan to dispose of such investments.
interest and dividend income on available-for-sale financial assets
are reported in the income statement in the line interest and simi-
lar income.
85
(vii) Financial Assets Held-to-maturity
Non-derivative financial assets with fixed or determinable pay-
ments and fixed maturities are reported in the statement of financial
position as Financial assets held to maturity if the Group has the
intention and ability to hold them until maturity. After initial reco-
gnition, held-to-maturity financial investments are subsequently
measured at amortised cost. Amortised cost is calculated by taking
into account any discount, premium and/or transaction costs that
are an integral part of the effective interest rate. interest earned on
financial assets held to maturity is reported in the income state-
ment in the line interest and simi lar income. Losses arising from
impairment of such investments as well as occasional realised gains
or losses from selling are recognised in the income statement in the
line Other opera ting result. Impairment allowances for incurred
but not reported losses are shown in the position Impairment allow-
(viii) Loans and Receivables
The statement of financial position line items Loans and advances
to financial institutions and Loans and advances to customers
include assets meeting the definition of loans and receivables.
Furthermore, finance lease receivables which are accounted for
under IAS 17 are also pre sented in these statement of financial
position line items.
Loans and receivables are non-derivative financial assets (including
debt securities) with fixed or determinable payments that are not
quoted in an active market, other than:
Those that the Group intends to sell immediately or in the
near term and those that the Group upon initial reco gnition
designates as at fair value through proft or loss;
Those that the Group, upon initial reco gnition, designates as
available-for-sale; or
Those for which the Group may not recover substantially
all of its initial investment, other than because of credit
deterioration.
After initial measurement, loans and receivables are subsequently
measured at amortised cost including impairment. interest income
earned is included in the line interest and simi lar income in the
income statement. Finance lease receivables are subsequently
measured as specified in the chapter Leasing. Allowances for
impairment and incurred but not reported losses are reported in the
statement of financial position line Impairment allowance for loans
and advances. Losses arising from impairment are recognised in the
income statement in the line Impairment allowance for credit risk.
(ix) Deposits and Other Financial Liabili ties
Financial liabili ties are measured at amortised cost, unless they are
measured at fair value through profit or loss. Except those which
are held for trading, financial liabili ties are reported in the statement
of financial position in the lines Deposits by banks, Customer
deposits Debt securities in issue or Subordinated liabili ties.
interest expenses incurred are reported in the line interest and
simi lar expense in the income statement.
Derecognition of Financial Assets and Financial
Liabili ties
A financial asset (or where applicable a part of a financial asset or
part of a group of simi lar financial assets) is derecognised:
When the contractual rights to receive cash fows from the
asset have expired; or
The Group has transferred its rights to receive cash fows
from the assetor has assumed an obligation to pay the
received cash fows in full without material delay to a third
party under a pass-through arrangement;
and either the Group:
Has transferred substantially all the risks and rewards
connected with the owner ship of the asset; or
Has neither transferred nor retained substantially all the
risks and rewards connected with the owner ship of the asset
but has transferred control of the asset.
A financial liability is derecognised when the obligation under the
liability is discharged, cancelled or expires.
Repurchase and Reverse Repurchase
Agreements
Transactions where securities are sold under an agreement to repur-
chase at a specified future date are also known as repos or sale
and repurchase agreements. Securities sold are not derecognised
from the statement of financial position as the Group retains sub-
stantially all the risks and rewards of owner ship because the secu-
rities are repurchased when the repo transaction ends. Furthermore,
the Group is the beneficiary of all the coupons and other income
payments received on the transferred assets over the period of the
repo transactions. These payments are remitted to the Group or are
reflected in the repurchase price.
The corresponding cash received is recognised in the statement
of financial position with a corresponding obligation to return it
as a liability in the respective lines Amounts owed to financial
institutions or Amounts owed to customers reflecting the trans-
actions economic substance as a loan to the Group. The diffe-
rence between the sale and repurchase prices is treated as interest
expense and recorded in the income statement in the line interest
and simi lar expense and is accrued over the life of the agreement.
Financial assets subject to repurchase agreements and which remain
on the Groups statement of financial position are measured accord-
ing to the rules applicable to the respective statement of financial
Conversely, securities purchased under agreements to resell at
a specified future date are not recognised in the statement of finan-
cial position. Such transactions are also known as reverse repos.
The consideration paid is recorded in the statement of financial
position in the respective lines Loans and advances to financial
institutions or Loans and advances to customers, reflecting the
transactions economic substance as a loan by the Group. The diffe-
rence between the purchase and resale prices is treated as interest
86
income which is accrued over the life of the agreement and recorded
in the income statement in the line interest and simi lar income.
Securities Lending and Borrowing
In securities lending transactions, the lender transfers owner ship of
securities to the borrower on the condition that the borrower will
retransfer, at the end of the agreed loan term, owner ship of instru-
ments of the same type, quality and quantity and will pay a fee deter-
mined by the duration of the lending. The transfer of the securities to
counterparties via securities lending does not result in derecognition
unless the risks and rewards of owner ship are also transferred.
Substantially all the risks and rewards of owner ship are retained by
the Group as a lender because the securities are received at the end of
the securities lending transaction. Furthermore, the Group is the ben-
eficiary of all the coupons and other income payments received on
the transferred assets over the period of the securities borrowings.
Securities borrowed are not recognised on the statement of financial
position, unless they are then sold to third parties. In this case the
obligation to return the securities is recorded as a trading liability.
Determination of Fair Value
Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market par-
ticipants at the measurement date.
The best indication of an assets or liabilitys fair value is provided
by quoted market prices in an an assets active market. Where quoted
market prices in an active market are available, they are used to meas-
ure the assets or liabilitys value (level 1 of the fair value hierarchy).
The measurement of fair value by the Group is based prima rily on
external sources of data (stock market prices or broker quotes in
highly liquid market segments). Where no market prices are available,
fair value is determined on the basis of valua tion models that are based
on observable market information (level 2 of the fair value hierarchy).
In some cases, the fair value of an asset or liability can be determined
neither on the basis of market prices nor of valua tion models that rely
entirely on observable market data. In such cases, indi vidual valua tion
parameters not observable in the market are estimated on the basis of
reasonable assumptions (level 3 of the fair value hierarchy).
For assets and liabili ties held at the end of the reporting period that
are measured at fair value on a recurring basis (i.e. those for which
measurement at fair value at the end of each period is required or
permitted by IFRS), the Group determines whether transfers have
occurred between levels in the hierarchy by re-assessing the classi-
fication (based on the lowest level input that is significant to the fair
value measurement as a whole) at the date of the event or change in
circumstances that caused the transfer.
Credit valua tion adjustments (CVA) for counterparty risk and
debt value adjustments (DVA) for the Groups own credit risk
are applied to all overthe-counter (OTC) derivatives. For CVA
the adjustment is driven by the expected positive exposure of all
derivatives and the credit quality of the counterparty. DVA is driven
by the expected negative exposure and the Groups credit quality.
The modelling of the expected exposure is based on option replica-
tion strategies. This modelling approach is used consi dered the most
rele vant portfolios and pro ducts. The exposure for the Ministry of
Finance of the Czech Republic is based on Monte Carlo simulations
taking into considering netting. The methodo logy for the remaining
pro ducts is determined by market value plus add-on considerations.
The probability of default is determined from internal PDs mapped
to a basket of liquid titles pre sent in the central European market.
Thereby market based valua tion concepts have been incorporated.
Counterparties with liquid credit default swap (CDS) markets are
valued by the respective single-name market based PD. Groups
probability of default has been derived from the buy-back levels
of Erste groups issuances. For counterparties with Credit Support
Annex (CSA) agreements in place no CVA/DVA was taken into
account for all cases with small threshold amounts.
The Group employs only generally accepted standard valua-
tion models. Fair value is determined for non-option derivatives
(e.g. interest rate swaps, cross currency swaps, foreign exchange
forwards and forward rate agreements) by discounting the respec-
tive cash flows. OTC options are valued using appropriate market
standard option pricing. The Group uses only valua tion models
which have been tested internally and for which the valua tion
parameters (such as interest rates, exchange rates and volatility)
have been independently determined.
Impairment of Financial Assets and Credit Risk
Losses of Contingent Liabili ties
At each reporting date the Group assesses whether there is any
objective evidence that a financial asset or group of financial assets
is impaired. A financial asset or group of financial assets is deemed
to be impaired if, and only if, there is objective evidence of impair-
ment as a result of one or more events that have occurred after the
initial reco gnition of the asset (an incurred loss event) and that
loss event (or events) has an impact on the estimated future cash
flows of the financial asset or the group of financial assets that can
be reliably estimated.
Evidence of impairment may include indications that the borrower
or a group of borrowers is experiencing significant financial dif-
ficulty, the probability that they will enter bankruptcy or other
financial reorganisation, default or delinquency in interest or prin-
cipal payments. For assessment at portfolio level, indications of
impairment are observable data indicating that there is a measurable
decrease in the estimated future cash flows, such as changes in
arrears or economic conditions that correlate with defaults. The
Group uses the Basel II definition of default as a primary indicator
of loss events. More specifically default occurs when interest or
principal payments on a material exposure are more than 90 days
past due or full repayment is unlikely for reasons such as restruc-
turing resulting in a loss to the lender or initiation of bankruptcy
proceedings.
87
Credit risk losses resulting from contingent liabili ties are recognised
if it is pro bable that there will be an outflow of resources to settle
a credit risk-bearing contingent liability which will result in a loss.
(i) Financial Assets Carried at Amortised Cost
The Group first individually assesses significant loans and financial
assets held-to-maturity to determine whether objective evidence of
impairment exists. If no objective evidence of impairment exists
for an individually assessed financial asset, the Group includes the
asset in a group of financial assets with simi lar credit risk character-
istics and collectively assesses them for impairment. Assets that are
individually assessed for impairment and for which an impairment
loss is, or continues to be, recognised are not included in a collective
assessment of impairment.
If an impairment loss has been incurred, the amount of the loss is
measured as the diffe rence between the assets carrying amount and
the pre sent value of estimated future cash flows discounted at the
original effective interest rate. The calculation of the pre sent value
of the estimated future cash flows of a collateralised financial asset
also reflects the cash flows that may result from foreclosure less costs
for obtaining and selling the colla teral.
In respect of loans and advances, any impairment is reported in
the allowance account referred to as Impairment allowance for
loans and advances in the statement of financial position and the
amount of the loss is recognised in the income statement in the line
Impairment allowance for credit risk. Impairment allowances for
loans and advances include specific risk allowances for loans and
advances for which objective evidence of impairment exists. In addi-
tion, impairment allowances for loans and advances include portfolio
risk allowances for incurred but not reported losses. For financial
assets held-to-maturity, impairment is recognised directly by reduc-
ing the asset account and in the income statement in the line Other
opera ting result. Incurred but not reported losses on financial assets
held-to-maturity recognised at portfolio level are pre sented both in
the statement of financial position and in the income statement in the
line Impairment allowance for loans and advances and Impairment
allowance for credit risk, respectively.
Loans together with the associated allowances are removed from the
statement of financial position when there is no realistic prospect of
future recovery and all colla teral held has been realised by the Group.
If, in a subsequent year, the amount of the estimated impairment
loss increases or decreases, the previously recognised impairment
loss is increased or reduced by adjusting the allowance account
in case of loans and advances. In the case of impaired financial
assets held-to-maturity no allowance account is used, but the carrying
amount is increased or decreased directly.
(ii) Financial Assets Available-For-Sale
In cases of debt instruments classified as available-for-sale, the
Group assesses individually whether there is objective evidence of
impairment based on the same criteria as used for financial assets
carried at amortised cost. However, the amount recorded for impair-
ment is the cumulative loss measured as the diffe rence between the
amortised cost and the current fair value, less any impairment loss
on that investment previously recognised in the income statement.
On recognising impairment, any amount of losses retained in the
other comprehensive income item Gain/(Loss) on revaluation of
financial assets available-for-sale is reclassified to the income state-
ment and shown as an impairment loss in the line Other opera ting
result. If, in a subsequent period, the fair value of a debt instrument
increases, the impairment loss is reversed through the income state-
ment in the line Other opera ting result. Impairment losses and their
reversals are recognised directly against the assets in the statement
of financial position.
In cases of equity investments classified as available-for-sale, objec-
tive evidence also includes a significant or prolonged decline in the
fair value of the investment below its cost. For this purpose within
the Group a significant decline means a market price below 80%
of the acquisition cost and a prolonged decline refers to a market
price which is permanently below the acquisition cost for a period
of 9 months up to the reporting date. Where there is evidence of
impairment, the cumulative loss measured as the diffe rence between
the acquisition cost and the current fair value, less any impairment
loss on that investment previously recognised in the income statement
is shown as an impairment loss in the income statement in the line
Other opera ting result. Any amount of losses previously recognised
in the other comprehensive income item Gain/(Loss) on revaluation
of financial assets available-for-sale has to be reclassified to the
income statement as part of the impairment loss in the line Other
opera ting result.
Impairment losses on equity investments are not reversed through
the income statement; increases in the fair value after impairment
are recognised directly in other comprehensive income. Impairment
losses and their reversals are recognised directly against the assets
in the statement of financial position.
(iii) Contingent Liabili ties
Impairment allowances for credit losses from contingent liabili ties
(particularly financial guaran tees as well as credit commitments)
are included in the statement of financial position line Provisions.
The related expense is reported in the income statement in the line
Impairment allowance for credit risk.
Hedge Accounting
The Group makes use of derivative instruments to manage expo-
sures to interest rate risk and foreign currency risk. At inception of
a hedge relationship, the Group formally documents the relationship
between the hedged item and the hedging instrument, including
the nature of the risk, the objective and strategy for undertaking
the hedge and the method that will be used to assess the effectiveness
of the hedging relationship. Hedge effectiveness is assessed at incep-
tion and throughout the term of each hedging relationship. The exact
88
conditions for each particular type of hedge and for testing the related
hedge effectiveness are specified in the internal hedge policy.
(i) Fair Value Hedges
Fair value hedges are employed to reduce market risk. For qualify-
ing and designated fair value hedges, the change in the fair value of
a hedging instrument is recognised in the income statement in the line
Net trading result. The change in the fair value of the hedged item
attributable to the hedged risk is also recognised in the income state-
ment in the line Net trading result and adjusts the carrying amount
of the hedged item.
If the hedging instrument expires, is sold, terminated or exercised or
when the hedge no longer meets the criteria for hedge accounting,
the hedge relationship is ended. In this case, the fair value adjustment
of the hedged item shall be amortised to the income statement in
the line Net interest income until maturity of the hedged financial
instrument.
(ii) Cash Flow Hedges
Cash flow hedges are used to eliminate uncertainty in the future cash
flows in order to stabilise net interest income. For designated and
qualifying cash flow hedges, the effective portion of the gain or loss on
the hedging instrument is recognised in other comprehensive income
and reported under the Net gain/(loss) on cash flow hedges. The
ineffective portion of the gain or loss on the hedging instrument is
recognised in the income statement in the line Net trading result. For
determination of the effective and ineffective portions derivatives are
consi dered at their dirty price, i.e. including the interest component.
When the hedged cash flow affects the income statement the gain or
loss on the hedging instrument is reclassified from other comprehen-
sive income into Net interest income. With respect to the accounting
for hedged items in cash flow hedges there is no change in comparison
to when no hedging is applied.
When a hedging instrument expires, is sold, terminated, exercised, or
when a hedge no longer meets the criteria for hedge accounting, the
hedge relationship is ended. In this case the cumulative gain or loss on
the hedging instrument that has been recognised in other comprehen-
sive income shall remain separately in Net gain/(loss) on cash flow
hedges until the hedged transaction occurs.
(iii) Net Investment Hedge
The Group makes use of a net investment hedge in foreign operations.
The changes in fair values of hedging instruments that are attributable
to the fluctuation of foreign currency exchange rates are recognised in
the Translation reserve within equity. Foreign currency derivatives
and foreign currency financial liabili ties serve as hedging instruments.
Offsetting Financial Instruments
Financial assets and financial liabili ties are offset and the net amount
is reported in the statement of financial position if, and only if, there
is a currently enforceable legal right to offset the recognised amounts
and there is an intention to settle on a net basis or to realise the asset
and settle the liability simultaneously.
The Group enters into close-out netting arrangements with its major
counterparties to derivative and repurchase contracts. These arrange-
ments commonly create a right to set-off that becomes enforceable
and affects the realisation or settlement of indi vidual financial assets
and financial liabili ties only in the case of a specified default event or
in other circumstances not expected to arise in the normal course of
business. Thus, they do not provide a basis for offsetting.
Leasing
The determination of whether an arrangement is, or contains, a lease
is based on the substance of the arrangement at the inception date. The
arrangement is assessed for whether fulfilment of the arrangement
is dependent on the use of a specific asset or assets or whether the
arrangement conveys a right to use the asset or assets, even if that right
is not explicitly specified in the arrangement.
A lease is an agreement whereby the lessor conveys to the lessee in
return for a payment or series of payments the right to use an asset for
an agreed period of time. A finance lease at the Group is a lease that
transfers substantially all the risks and rewards incidental to owner-
ship of an asset. All remaining lease agreements within the Group are
classified as opera ting leases.
The Group as A Lessor
The lessor in the case of a finance lease reports a receivable against
the lessee in the line Loans and advances to customers or Loans
and advances to financial institutions. The receivable is equal to the
pre sent value of the contractually agreed payments taking into account
any residual value. interest income on the receivable is reported in the
income statement in the line Interest and simi lar income.
In the case of opera ting leases, the leased asset is reported by the lessor
in pro perty and equipment or in investment pro perty and is depreci-
ated in accor dance with the principles applicable to the assets involved.
Lease income is recognised on a straight-line basis over the lease term
in the income statement in the line interest and simi lar income.
Lease agreements in which the Group is the lessor almost exclusively
consist of finance leases.
The Group as A Lessee
From the perspective of a lessee, the Group has not entered into any
leases meeting the conditions of finance leases. Opera ting lease pay-
ments are recognised as an expense in the income statement in the line
Other administra tive expenses on a straight-line basis over the lease
term.
Business combinations and goodwill
(i) Business combinations
Business combinations are accounted for using the acquisition
method of accounting. Goodwill repre sents the future economic
benefits resulting from the business combination, arising from
assets that are not individually identified and separately recognised.
Goodwill is measured as the excess of the sum of the consideration
89
transferred, the amount of any non-controlling inte rests and the
fair value of the previously held equity interest over the net of the
acquisition-date amounts of the identifiable assets acquired as well
as the liabili ties assumed.
If, after reassessment of all components described above, the cal-
culation results in a negative amount, it is recognised as a gain on
bargain purchase and reported in the income statement in the line
Other opera ting result in the year of acquisition.
Non-controlling inte rests that are pre sent owner ship inte rests in the
acquiree are measured at the proportionate share of the acquirees
identifiable net assets. Other types of non-controlling inte rests are
measured at fair value or, when applicable, on the basis specified in
another statement of IFRS. Acquisition costs incurred are expensed
and included in the income statement line Other opera ting result.
At the acquisition date, the identifiable assets acquired and the
liabili ties assumed are generally recognised at their fair values.
(ii) Goodwill and goodwill impairment testing
Goodwill arising on an acquisition of a business is carried at cost as
esta blished as of the date of acquisition of the business less accumu-
lated impairment losses, if any. Goodwill is tested for impairment
annually in November, or whenever there is an indication of pos-
sible impairment during the year, with any impairment determined
recognised in profit or loss. The impairment test is carried out for
each cash-generating unit (CGU) to which goodwill has been
allocated. A cash-generating unit is the smallest identifiable group
of assets that generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets. An impair-
ment loss recognised in respect of goodwill cannot be reversed.
Pro perty and Equipment
Pro perty and equipment is measured at cost less accumulated depre-
ciation and accumulated impairment.
Depreciation is calculated using the straight-line method to write
down the cost of pro perty and equipment to their residual val-
ues over their estimated useful lives. Depreciation is recognised
in the income statement in the line Depreciation and amortization
and impairment in the line Other opera ting result.
The estimated useful lives are as follow:
Useful life in years
Buildings 15 50
Offce furniture and equipment 4 10
Vehicles 4 8
Computer hardware 4 6
Land is not depreciated.
Pro perty and equipment is derecognised on disposal or when no
future economic benefits are expected from its use. Any gain or
loss arising on disposal of the asset (calculated as the diffe rence
between the net disposal proceeds and the carrying amount of the
asset) is recognised in the income statement in the line Other
opera ting result in the year the asset is derecognised.
Investment pro perty
Investment pro perty is pro perty (land and buildings or part of
a building or both) held for the purpose of earning rental income
or for capital appreciation. In case of partial own use, the pro-
perty is investment pro perty only if the owner-occupied portion is
insignificant. Investments in land and buildings under construction,
where the future use is expected to be the same as for investment
pro perty, are treated as investment pro perty.
Investment pro perty is measured initially at cost, including trans-
action costs. Subsequent to initial reco gnition, investment pro perty
is measured at cost less accumulated depreciation and impairment.
Together with rental income, depreciation is recognised in the
income statement in the line interest and simi lar income using
the straight-line method over an estimated useful life. The estimated
useful lives of investment properties are identical to those of build-
ings as reported under pro perty and equipment. Any impairment
losses, as well as their reversals, are recognised in the income
statement line Other opera ting result.
Pro perty Held for Sale (Inventory) and Pro perty
Under Construction
The Group also invests in pro perty that is held for sale in the ordi-
nary course of business or pro perty in the process of construction or
development for such sale. This pro perty is measured at the lower of
cost and net realizable value in accor dance with IAS 2 Inventories.
The cost of acquiring inventory not only includes the purchase price
but also all other directly attributable expenses, such as transpor-
tation costs, customs duties, other taxes and costs of conversion
of inventories, etc.
Sales of these assets/apartments are recognized as revenues in the
income statement line Other opera ting result, together with costs
of sales and other costs incurred in selling the assets.
Intangible Assets
In addition to goodwill, the Groups other intangible assets con-
sists the Groups intangible assets consist of computer software,
licenses and know-how. An intangible asset is recognised only
when its cost can be measured reliably and it is pro bable that the
expected future economic benefits that are attributable to it will
flow to the Group.
Costs of internally generated software are capitalised if the Group
can demonstrate technical feasibility and intention of completing
the software, ability to use it, how it will generate pro bable eco-
nomic benefits, availability of resources and ability to measure
the expenditures reliably. Intangible assets acquired separately
are measured on initial reco gnition at cost. Following initial reco-
gnition, intangible assets are carried at cost less any accumulated
amortisation and any accumulated impairment losses.
90
The cost of intangible assets acquired in a business combination
is their fair value as of the date of acquisition. In the case of the
Group these are brands, customer relationships and distribution
networks and they are capitalised on acquisition if they can be
measured with sufficient reliability.
Intangible assets with finite lives are amortised over their useful
economic lives using the straight-line method. The amortisation
period and method are reviewed at least at each financial year end
and adjusted if necessary. The amortisation expense on intangible
assets with finite lives is recognised in the income statement in
the line Depreciation and amortization.
The estimated useful lives of intangible assets are 46 years.
Impairment of Non-Financial Assets (Pro perty
and Equipment, Investment Pro perty, Intangible
Assets)
The Group assesses at each reporting date whether there is an indi-
cation that a non-financial asset may be impaired. If any indication
exists, or when annual impairment testing for an asset is required,
the Group estimates the assets recoverable amount. An assets
recoverable amount is the higher of an assets or cash generating
units (CGU) fair value less costs to sell and its value in use. If
the carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is consi dered impaired and is written down to
its recoverable amount. In measuring value in use, the estimated
future cash flows are discounted to their pre sent value using
a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
For non-financial assets excluding goodwill, an assessment is
made at each reporting date as to whether there is any indica-
tion that previously recognised impairment losses may no longer
exist or may have decreased. If such indication exists, the Group
estimates the assets or CGUs recoverable amount. A previously
recognised impairment loss is reversed only if there has been
a change in the assumptions used to determine the assets recov-
erable amount since the last impairment loss was recognised.
The reversal is limited so that the carrying amount of the asset
does not exceed its recoverable amount nor exceeds the carrying
amount that would have been determined, net of depreciation, had
no impairment loss been recognised for the asset in prior years.
Impairments and their reversals are recognised in the income state-
ment in the line Other opera ting result.
Financial Guaran tees
In the ordinary course of business, the Group provides financial
guaran tees, consisting of vari ous types of letters of credit and guaran-
tees. According to IAS 39, a financial guarantee is a contract that
requires the guarantor to make specified payments to reimburse the
holder for a loss it incurs because a specified debtor fails to make
payment when due in accor dance with original or modified terms of
a debt instrument. If the Group is in a position of being a guarantee
holder, the financial guarantee is not recorded in the statement of
financial position but is taken into consideration as colla teral when
determining impairment of the guaran teed asset.
The Group as a guarantor recognises financial guaran tees as soon as it
becomes a contracting party, i.e. when the guarantee offer is accepted.
Financial guaran tees are initially measured at fair value. Generally
the initial measurement is the premium received for a guarantee. If
no premium is received at contract inception the fair value of the
financial guarantee is nil, as this is the amount at which the guarantee
could be settled in an orderly transaction between market participants.
Subsequent to initial reco gnition the financial guarantee contract is
reviewed for the possibility that provisioning will be required under
IAS 37.
The premium received is recognised in the income statement in the
line Fee and commission income on a straight-line basis over the
life of the guarantee.
Provisions
Provisions are recognised when the Group has a pre sent obliga-
tion as a result of a past event, it is pro bable that an outflow of
resources embodying economic benefits will be required to settle
the obligation, and a reliable estimate can be made of the amount of
the obligation. In the statement of financial position, provisions are
reported in the line Provisions. They include impairment allowances
for credit risk losses related to contingent liabili ties (particularly
financial guaran tees) as well as provisions for legal disputes and
restructuring. Expenses or income from the allocation or release of
impairment allowances for contingent liabili ties are pre sented in the
income statement line Impairment allowance for credit risk. All
other expenses or income related to provisions are reported in the
line Other opera ting result.
Taxes
(i) Current Tax
Current tax assets and liabili ties for the current and prior years are
measured as the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute
the amounts are those enacted at the end of the reporting period
(ii) Deferred Tax
Deferred tax is recognised for temporary differences between the tax
bases of assets and liabili ties and their carrying amounts as at the report-
ing date. Deferred tax liabili ties are recognised for all taxable tempo-
rary differences. Deferred tax assets are recognised for all deductible
temporary differences and unused tax losses to the extent it is pro-
bable that taxable profit will be available against which the deductible
temporary differences and carry forward of unused tax losses can be
utilised. Deferred taxes are not recognised on temporary differences
arising from the initial reco gnition of goodwill.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer pro bable
91
that sufficient taxable profit will be available to allow all or part of
the deferred tax asset to be utilised. Unrecognised deferred tax assets
are reassessed at each reporting date and are recognised to the extent it
has become pro bable that future taxable profit will allow the deferred
tax asset to be recovered.
Deferred tax assets and liabili ties are measured at the tax rates that are
expected to apply in the year when the asset is realised or the liability
is settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted as at the end of the reporting period. For the
subsidiaries, local tax environments apply.
Deferred tax relating to items recognised in other comprehensive
income is also recognised in other comprehensive income and not in
the income statement.
Deferred tax assets and deferred tax liabili ties are offset if a legally
enforceable right to offset exists and the deferred taxes relate to the
same taxation authority.
Fiduciary assets
The Group provides trust and other fiduciary services that result in the
holding or investing of assets on behalf of its clients. Assets held in
a fiduciary capacity are not reported in the financial statements, as they
are not the assets of the Group.
These assets are recorded off-balance sheet as per Note 51 where they
are valued either at nomi nal or fair value depending on the nature of
the financial instruments and the availability of market prices.
Dividends on Ordinary and on Prefe rence Shares
Dividends on ordinary and prefe rence shares are recognised as a liabil-
ity and deducted from equity when they are approved by the Groups
shareholders.
Reco gnition of Income and Expenses
Revenue is recognised to the extent that it is pro bable the eco-
nomic benefits will flow to the entity and the revenue can be
reliably measured. Regarding the lines reported in the income
statement, their description and revenue reco gnition criteria are
as follows:
(i) Net interest Income
interest income or expense is recorded using the effective interest
rate (EIR) method. The calculation includes origination fees
resulting from the lending business as well as transaction costs that
are directly attributable to the instrument and are an integral part
of the EIR (apart from financial instruments at fair value through
profit or loss), but no future credit losses. interest income from
individually impaired loans is calculated by applying the original
effective interest rate used to discount the estimated cash flows
for the purpose of measuring the impairment loss.
Interest and simi lar income mainly includes interest income on
loans and advances to financial institutions and customers, on
balances with central banks and on bonds and other interest-bear-
ing securities in all portfolios. interest and simi lar expense mainly
includes interest paid on deposits by banks and customer deposits,
deposits of central banks, debt securities in issue and subordinated
debt. In addition, net interest income includes interest on derivative
financial instruments held in the banking book.
Also reported in interest and simi lar income is current income from
shares and other equity-related securities (especially dividends) as
well as income from other investments in companies categorised
as available-for-sale. Such dividend income is recognised when
the right to receive the payment is esta blished.
Net interest income also includes rental income and the corre-
sponding depreciation charge from investment properties. Such
rental income constitutes income from opera ting leases and is
recognised on a straight-line basis over the lease term.
(ii) Impairment Allowance for Credit Risk
This item includes allocations to and releases of specific and port-
folio risk impairment allowances for loans and advances and for
contingent liabili ties bearing credit risk. Also reported in this item
are direct write-offs of loans and advances as well as recoveries on
written-off loans previously removed from the statement of finan-
cial position. Furthermore allocations to and releases of portfolio
risk provisions for held-to-maturity investments with respect to
incurred but not reported losses are part of this item.
(iii) Net Fee and Commission Income
The Group earns fee and commission income from a diverse range
of services it provides to its customers.
Fees earned for the provision of services over a period of time are
accrued over that period. These fees include lending fees, guarantee
fees, commission income from asset manage ment, custody and
other manage ment and advisory fees as well as fees from insur-
ance brokerage, building society brokerage and foreign exchange
transactions.
Fee income earned from providing transaction services, such as
arranging the acquisition of shares or other securities or the pur-
chase or sale of businesses, is recognised on completion of the
underlying transaction.
(iv) Net Trading Result
Results arising from trading activities include all gains and losses
from changes in fair value (clean price) on financial assets and
financial liabili ties classified as held for trading, including all deriv-
atives not designated as hedges. In addition, for derivative financial
instruments held in the trading book, Net trading result contains
also interest income or expense.
However, interest income or expenses on non-derivative trading
assets and liabili ties and on derivatives held in the banking book are
not part of Net trading result as they are reported as Net interest
92
income. It also includes any ineffective portions recorded in hedg-
ing transactions as well as foreign exchange gains and losses.
(v) Gene ral Administra tive Expenses
Gene ral administra tive expenses repre sent the following expenses
incurred in the reporting period: personnel and other administra tive
expenses, as well as depreciation and amortisation.
Personnel expenses include wages and salaries, bonuses, statutory
and voluntary social security contributions, staff-related taxes and
levies. They also include expenses for severance payments.
Other administra tive expenses include information technology
expenses, expenses for office space, office opera ting expenses,
advertising and marketing, expenditures for legal and other con-
sultants as well as sundry other administra tive expenses.
(vi) Other Opera ting Result
Other opera ting result reflects all other income and expenses not
directly attributable to the Groups ordinary activities. This includes
especially impairment losses or any reversal of impairment losses
as well as results on the sale of pro perty and equipment and other
intangible assets. Also included here are amortisation and impair-
ment of customer relationships and any impairment losses on
goodwill. In addition, Other opera ting result encompasses the
following: expenses for other taxes and deposit insurance contri-
butions; income from the release of and expenses for allocations to
other provisions; impairment losses (and their reversal, if any) on
investments in associates accounted for under the equity method;
realised gains and losses from the disposal of equity investments;
and the result from financial instruments.
Result from financial instruments consists of the following items:
Changes in the clean price of assets and liabili-
ties designated at fair value through proft or loss.
Furthermore this position contains changes in clean
prices of derivatives which are related to fnancial
liabili ties designated at fair value through proft or
loss. Designation of such liabili ties at fair value
was chosen to remove or reduce an accounting
mismatch between the liability and the derivative;
Realised gains and losses from selling fnancial
assets available-for-sale as well as related
impairment losses and reversals of impairment
losses. However, the interest and dividend element
on these assets and reversals of impairment losses
on equity instruments are not part of this position
and is reported in the line Interest and simi lar
income; and
Impairment losses and reversals of impairment
losses as well as occasional gains and losses from
the disposal of fnancial assets held-to-maturity.
However, this position does not include incurred
but not reported l osses recognised for fnancial
assets held-to-maturity on a portfolio level which
are part of the position Impairment allowance for
credit risk.
Factoring
Recourse Factoring
The Group recognises funding/prepayments made to factoring
clients as loans. Receivables received as part of factoring trans-
actions are maintained off-balance sheet as colla teral received on
the loans granted.
Non-recourse Factoring
The Group recognises receivables obtained as part of non-recourse
factoring transactions in Other assets and, at the same time, rec-
ognises a corresponding liability to the factoring client in Other
liabili ties.
3.5 Reclassifcation
Due to the changes in the remuneration principles for pension
fund manage ment within pension reform in the Czech Republic
the Group refined the pre sentation of the Consolidated Income
Statement (refer to Note 4.1). The amounts reported for 2012
were reclassified to reflect the pre sentation for the current period.
Reclassified amounts were calculated as the best estimate by apply-
ing the pension reform principles (effective as of 1 January 2013)
to the Penzijn fond esk spoitelny, a. s. figures reported within
the Consolidated Income Statement for 2012.
The Group believes that this pre sentation provides more rele vant
information to the users of Groups financial statements.
93
Reclassified Categories Are Pre sented in the Following Table:
CZK mil. Note
2012
Reclassifed Previously
reported
interest and simi lar income 32 36,781 37,717
Net trading result 37 2,150 2,194
Other opera ting result 39 (1,145) (2,011)
Net proft of the SPS Transformed Fund 4.1 114
4. Sub sidiary and Associate Undertakings
Name of company Registered offce Principal activities
Group interest of
shareholders equity
2013 2012
Associate undertakings
CBCB Czech Banking Credit
Bureau, a. s. Prague
Provision of information
from the client information
banking register
20.0% 20.0%
Erste Group Shared Services (EGSS),
s. r. o.
Hodonn
foreign payments
services
40.0% 40.0%
CI-Unternehmensbeteiligungs G.m.b.H.
Austria
Provision of manage ment
services
40.0% 40.0%
Procurement Services CZ, s. r. o.
Prague
Provision of procurement
services
40.0% 40.0%
Prvn certifkan autorita, a. s.
Prague
Digital signature
certifcation services
23.3% 23.3%
s IT Solutions SK, spol. s r.o. Slovakia Provision of software 23.5% 23.5%
Newstin, a. s. * Prague Consultancy 21.2%
*) Newstin, a. s. was liquidated in May 2013 but it is still registered in the Commercial Register.
Group interest of
shareholders equity
2013 2012
Sub sidiary undertakings held through esk spoitelna, a. s.
brokerjet esk spoitelny, a. s. Prague Investment services 51.0% 51.0%
CEE Pro perty Development Portfolio B.V.
(CPDP B.V.)

The Netherlands Real estate investment 20.0% 20.0%
CEE Pro perty Development Portfolio 2 N.V.
(CPDP 2 N.V.)

CS Investment Limited Guernsey
Investments and equity
holdings
100.0% 99.9%
CS Pro perty Investment Limited (CSPIL) Cyprus
Investments in securities,
issuance of loans
100.0% 100.0%
Czech and Slovak Pro perty Fund B.V.
(CSPF B.V.)
Czech TOP Venture Fund B.V.

(CTVF B.V.)
The Netherlands
Manage ment and
fnancing services
84.0% 84.0%
Erste Corporate Finance, a. s. Prague Consultancy 100.0% 100.0%
Erste Energy Services, a. s. Prague Electricity and gas trading 100.0% 100.0%
Factoring esk spoitelny, a. s. Prague Factoring 100.0% 100.0%
GRANTIKA esk spoitelny, a.s. Brno Business consulting 100.0% 100.0%
IT Centrum s. r. o. Prague
Lease of real estate,
apartments and
non-residential premises
100.0%
S do domu, a. s. Prague
Financial advisory
network
100.0% 100.0%
esk spoitelna penzijn
spolenost, a. s.
Prague Pension insurance 100.0% 100.0%
Realitn spolenost esk spoitelny, a. s. Prague Real estate activities 100.0% 100.0%
94
Group interest of
shareholders equity
2013 2012
REICO investin spolenost esk
spoitelny, a. s.
Prague Real estate investment 100.0% 100.0%
s Autoleasing, a. s.

Prague Leasing 100.0% 100.0%
s IT Solutions CZ, s. r. o. Prague
Provision of software
and advisory involving
hardware and software
40.0% 40.0%
Erste Leasing, a. s. Znojmo Leasing 100.0% 100.0%
Stavebn spoitelna esk spoitelny, a. s.

Prague
Construction savings
bank
95.0% 95.0%
MOPET CZ a. s. Prague Mobile payment services 91.0% 12.5%
VRNOSTN PROGRAM IBOD, a. s. Prague
Manage ment of loyalty
program
100.0%
Held through CSPF B.V.
CSPF Residential B.V. The Netherlands
Investments and equity
holdings
100.0%
Atrium Center s. r. o. Slovakia Real estate investment 100.0% 100.0%
BECON s. r. o. Prague Real estate investment 100.0% 100.0%
BELBAKA a. s.
Prague Real estate investment 100.0%
BGA Czech, s. r. o. Prague Real estate investment 100.0% 100.0%
Jgeho Residential s. r. o. Slovakia Real estate investment 100.0%
Nov Butovice Development s. r. o. Prague Real estate investment 100.0% 100.0%
Smchov Real Estate, a. s.

Trenn Retail Park a. s.

Slovakia Real estate investment 100.0% 100.0%
RVG Czech, s.r.o Prague Real estate investment 100.0% 100.0%
Trenn Retail Park 1 a. s. Slovakia Real estate investment 100.0% 100.0%
Trenn Retail Park 2 a. s. Slovakia Real estate investment 100.0% 100.0%
Held through CSPF Residential B.V.
SATPO Jeseniova, s. r. o. Prague Real estate investment 50.0%
SATPO Krlovsk vyhldka, s. r. o. Prague Real estate investment 50.0%
SATPO Na Malvazinkch, a. s. Prague Real estate investment 50.0%
SATPO Sacre Coeur, s. r. o. Prague Real estate investment 50.0%
SATPO Sacre Coeur II, s. r. o. Prague Real estate investment 50.0%
SATPO vdsk s. r. o. Prague Real estate investment 50.0%
Held through CPDP B.V.
CPP Lux S.A.R.L. Luxemburg Real estate investment 99.9% 99.9%
CP Praha s. r. o. Prague Real estate investment 70.7% 69.3%
Held through CPDP 2 N.V.
CPDP 2003 s. r. o. Prague Real estate investment 100.0% 100.0%
CPDP Jungmannova s. r. o. Prague Real estate investment 100.0%
CPDP Logistics Park Kladno I a. s.

CPDP Logistics Park Kladno II a. s. Prague Real estate investment 100.0% 100.0%
CPDP Polygon s. r. o. Prague Real estate investment 100.0% 100.0%
CPDP Prievozsk a. s. Slovakia Real estate investment 100.0% 100.0%
CPDP Shopping Mall Kladno, a. s. Prague Real estate investment 100.0% 100.0%
Gallery MYK a. s. Prague Real estate investment 100.0% 100.0%
TAVARESA a. s.

Prague Real estate investment 100.0%
Campus Park a. s. Prague Real estate investment 100.0% 100.0%
Held through CPP Lux S.A.R.L.
CP Praha s. r. o. Prague Real estate investment 29.3% 30.7%
Held through CSPIL
Offce Center Stodlky GAMA a. s. Prague Real estate investment 40.0%
Held through GRANTIKA esk
spoitelny, a.s.
Euro Dotcie, a. s.

Slovakia Consultancy 66.0% 66.0%
95
Group interest of
shareholders equity
2013 2012
Held through esk spoitelna
penzijn spolenost, a. s.
Transformovan fond penzijnho pipojitn
se sttnm pspvkem esk spoitelna
penzijn spolenost, a. s. (SPS
Transformed Fund)
Prague Pension insurance 100.0%
Held through CSIL
Genesis Private Equity Fund B L.P. Guernsey Venture funds 100.0% 100.0%
Held through s Autoleasing, a. s.
DINESIA a. s. Prague Leasing 100.0% 100.0%
s Autoleasing SK, s. r. o. Slovakia Leasing 100.0% 100.0%
Held through brokerjet esk
spoitelny, a. s.
Investinweb s.r.o Prague Consultancy 100.0% 100.0%
Held through Erste Leasing, a. s.
S SERVIS, s. r. o. Znojmo Consultancy 100.0% 100.0%
In spite of the fact that the Group only holds 40% of the issued
share capital of the company and does not have a majority of voting
rights or statutory body repre sentation, the Groups investment in
s IT Solutions CZ, s. r. o. is also pre sented as an equity investment
in sub sidiary undertakings as the Group is entitled to substantially
all of the profits from the company in accor dance with the provi-
sions of the Memorandum of Association on the partners share in
the distributable profits.
The Group fully consolidates the investments in the real estate
funds CPDP B.V., and CSPF B.V. in its consolidated financial state-
ments. While the Group holds 20% of the issued share capital of
CPDP B.V., and CSPF B.V., and does not have a majority of voting
rights or Board repre sentation, it has provided significant additional
funding to the funds for investment purposes which results in the
Group receiving substantially all of the rewards and bearing sub-
stantially all of the risks of the investment.
All investments consolidated in previous periods using the equity
method were sold in 2013. With a view to managing foreign cur-
rency risk exposures associated with the Banks investments in the
foreign subsidiaries CS Investment Limited, CSPIL, CTVF, CPDP
2 N.V. and CSPF B.V. denomi nated in EUR, the Bank has defined
these investments as hedged items within a net investment hedge.
Hedging instruments include foreign currency interest rate swaps.
The portion of the gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised through Other
comprehensive income directly in equity.
During the year ended 31 December 2013, the portfolio of sub
sidiary and associate undertakings underwent the following
changes:
The Bank merged with IT Centrum s.r.o., its wholly owned
sub sidiary as at 1 January 2013. esk spoitelna, a. s.
became the successor company and, as a result of a national
merger by consolidation, the assets and liabili ties of the
dissolving company IT Centrum s. r. o. were transferred to
the Bank;
In January 2013 Penzijn fond esk spoitelny, a. s.
changed its name to esk spoitelna penzijn
spolenost, a. s.;
In January 2013 Partner esk spoitelny, a. s. changed its
name to S do domu, a. s.;
In January 2013 CSPF B.V. sold 100% of its equity
investment in Jgeho Residential s. r. o. for CZK 7 million;
In April 2013 CPDP 2 N.V. sold 100% of its equity
investment in CPDP Jungmannova s. r. o. for
CZK 120 million;
In May 2013 CSPF B.V. sold 100% of its shares in
BELBAKA a. s. for CZK 20 million;
In June 2013 a new company was esta blished,
VRNOSTN PROGRAM IBOD, a. s., with 100% of
the share capital held by the Bank;
In September 2013 S MORAVA Leasing a. s. changed its
name to Erste Leasing a. s.;
In September 2013 CPDP 2 B.V. changed legal status from
limited company (B.V.) to jointstock company (N.V.) and
the share capital held by the Bank increased from 20% to
100%;
In September 2013 CPDP 2 N.V. sold 100% of its shares in
TAVARESA a. s. for CZK 3 million;
In November 2013 the Bank bought additional shares
in MOPET CZ a. s. from the existing shareholders and
increased the share capital held by the Bank from 12.5% to
91%;
In November CSPIL sold the investment in Offce Center
Stodlky GAMA a. s., that was classifed as joint venture;
In December CSPF Residential B.V. sold all SATPO
projects (SATPO Jeseniova, s. r. o., SATPO Krlovsk
vyhldka, s. r. o., SATPO Sacre Coeur II, s. r. o., Satpo Na
Malvazinkch, a. s., Satpo Sacre Coeur s. r. o. and Satpo
vdsk s.r.o.) for CZK 100 million and subsequently CSPF
Residential B.V. has been liquidated.
96
The following table pre sents newly esta blished subsidiaries owned by esk Spoitelna, a. s. that have been consolidated for the first time
in 2013:
CZK mil. Acquisition
date
Voting
power
in %
Assets acquired
as at the
acquisition date
Liabili ties
acquired as at the
acquisition date
Loss Revenue since
the acquisition
date
VRNOSTN PROGRAM
IBOD, a. s.
24 June 2013 100.0% 10 (50) 22
Erste Energy
Services, a.s.
1 July 2013 100.0% 103 33 (68) 180
4.1 Transformovan fond penzijnho
pipojitn se sttnm pspvkem esk
spoitelna Penzijn spolenost, a. s.
(SPS Transformed Fund)
In accor dance with legisla tion related to the pension reform
in the Czech Republic, Penzijn fond esk spoitelny, a. s.
(Pension Fund) was transformed into esk spoitelna pen-
zijn spolenost, a. s. (SPS or Pension Company) and SPS
Transformed Fund into which the liabili ties owed to policy holders
of supplementary pension insurance and related fund assets were
transferred as of 1 January 2013.
Moreover, the new legisla tion changed the remuneration for pen-
sion fund manage ment. In accor dance with the legisla tion that was
effective until the reform, at least 85% of the total profit for the year
of the Pension Fund had to be distributed to pension fund members
(and any potential loss had to be fully born by the shareholders).
As of 1 January 2013 the Pension Company is compensated by
a manage ment fee and a performance fee. The net profit for the
period of the CSPS Transformed Fund is fully distributed to pension
fund members. The manage ment fee is charged as a percentage
of the net assets of the CSPS Transformed Fund at the end of the
period and amounts to 0.6% per annum while a performance fee
amounting to 15% is based on the CSPS Transformed Funds profits
for the period, as defined by the law.
Due to the pension reform described above the Group has recon-
sidered the power to govern the financial and opera ting policies
of the CSPS Transformed Fund. Applying IAS 27 (2008) and SIC
12 the Group concluded that it controls the CSPS Transformed
Fund. However, in order to reflect the changes in asset manage ment
remuneration principles, the Group newly pre sents the net profit of
the CSPS Transformed Fund on a separate line in the Consolidated
Income Statement. The Group believes that this pre sentation pro-
vides more rele vant information to the users of Groups financial
statements.
The table below shows the composition of the Net profit of the SPS Transformed Fund:
CZK mil. 2013
Net interest income 831
of which: Loans and advances to credit institutions 25
Debt securities available-for-sale 467
Debt securities held-to-maturity 321
Income from shares available-forsale 18
Net trading result ( foreign currency translations) (181)
Other opera ting result (545)
of which: Result from the sale of securities available-for-sale 326
Manage ment fee (280)
Distributions to the pension fund members (591)
Net proft of the SPS Transformed Fund 105
The net profit of the SPS Transformed Fund reported for 2012
(reclassified) amounting to CZK 114 million repre sents 15% of the
net profit of Penzijn fond esk spoitelny, a. s. for 2012, i.e. the
share of the profit attributable to the Group.
97
5. Cash and Balances with the CNB
CZK mil. 2013 2012
Cash (refer to Note 42) 20,631 19,593
Nostro accounts with the CNB (refer to Note 42) 569 607
Minimum reserve deposits with the CNB 9,309 1,601
Overnight deposits with the CNB (refer to Note 42) 47,072 700
Total 77,581 22,501
Minimum reserve deposits repre sent mandatory deposits calcu-
lated in accor dance with CNB regulations and whose withdrawal
is restricted (refer to Note 42). Minimum reserve deposits accrue
interest at the CNBs two week repo rate. The Group is authorised
to make withdrawals of minimum reserve deposits in an amount
that exceeds the actual average level of minimum reserve deposits
for the rele vant holding period calculated pursuant to the CNBs
regulations. The nostro balances repre sent balances with the CNB
relating to settlement activities and were available for withdrawal
at the year end.
6. Loans and Advances to Financial Institutions, Net
CZK mil. 2013 2012
Nostro accounts (refer to Note 42) 2,070 1,812
Loans and advances 23,134 10,172
Provisions for losses on loans and advances to fnancial institutions (31)
Term deposits 47,769 50,941
Debt securities with banks 1,289 1,135
Other 1,117 1,260
Total 75,348 65,320
As at 31 December 2013, the Group provided certain financial insti-
tutions with loans of CZK 19,432 million (2012: CZK 6,670 million)
under reverse repurchase transactions which were collateralised by secu-
rities amounting to CZK 19,523 million (2012: CZK 6,763 million).
7. Loans and Advances to Customers
a) Analysis of Loans and Advances to Customers by Type of Loan
CZK mil. 2013 2012
Corporate loans 156,116 149,569
Debt securities with corporate customers 201
Mortgage loans (both retail and corporate customers) 210,893 193,812
Retail loans 80,659 84,678
Public sector loans 17,422 16,539
Construction savings loans 37,596 39,476
Factoring 2,106 1,871
Finance leases 2,482 3,145
Cumulative change in carrying value due to application of fair value hedging 8 13
Total 507,483 489,103
As at 31 December 2013, the Group provided certain clients with
loans of CZK 75 million (2012: CZK 876 million) under reverse
repurchase transactions which were collateralised by securities
amounting to CZK 75 million (2012: CZK 871 million).
b) Analysis of Loans and Advances to Customers by Credit Risk Assessment Policies
At 31 December 2013
CZK mil.
Individually
signifcant
loans
Individually
insignifcant
loans
Total
Individually impaired 11,355 14,831 26,186
Collectively impaired 12,563 6,518 19,081
Unimpaired 192,928 269,288 462,216
Total 216,846 290,637 507,483
98
At 31 December 2012
CZK mil.
Individually
signifcant
loans
Individually
insignifcant
loans
Total
Unimpaired 179,583 256,381 435,964
Total 208,804 280,299 489,103
Individually significant loans repre sent corporate loans or retail
loans where the Groups exposure exceeds CZK 5 million.
Individually impaired loans are those loans where objective
evidence demonstrates that the associated cash flow is at risk
(incurred loss event). The Group defines the loss event in accor-
dance with BASEL II criteria. This classification corresponds to
the R internal rating (default). Collectively impaired loans are
loans that show an indication of impairment on a collective basis.
Portfolio allowances are created for loans where impairment have
not been yet identified (unimpaired) based on calculated prob-
abilities of default.
The Group uses vari ous types of colla teral in order to mitigate
credit risk exposure. The list of colla teral instruments is set out
in an internal regulation which also outlines the guidance to be
followed in determining the values of indi vidual types of colla teral.
The Group establishes the nomi nal value of colla teral based upon
a market valua tion which is subsequently used as a basis for arriving
at the realisable value by applying a discount factor set for each
type of colla teral. Colla teral that is valued at the realisable value
is taken into account in provisioning (refer to Note 3.4). Colla teral
valua tion rules also set out when and how often the valuations of
indi vidual colla teral instruments are updated (refer to Note 44.1).
c) Finance Leases
Loans and advances to customers also include investments in finance leases.
CZK mil. 2013 2012
Gross investment in fnance leases 2,675 3,457
Of which:
Less than 1 year 967 1,124
From 1 year to 5 years 1,586 2,109
Over 5 years 122 224
Unrealised fnancial income (193) (312)
Subtotal 2,482 3,145
Impairment allowance (287) (460)
Net investment in fnance leases 2,195 2,685
Of which:
Less than 1 year 795 873
From 1 year to 5 years 1,301 1,638
Over 5 years 99 174
The principal assets held under lease arrangements include vehicles and other technical equipment.
99
8. Impairment Allowance for Loans and Advances to Customers
a) Creation and Use of Impairment Allowance
CZK mil. 2013 2012
At 1 January 18,244 17,976
Charge for impairment allowances 7,276 8,399
Release of impairment allowances (refer to Note 34) (3,570) (3,914)
Net charge for impairment allowances 3,706 4,485
Unwinding of interest on impaired receivables (refer to Note 32) (655) (711)
Use of impairment allowances for loans written off and assigned (3,079) (3,490)
foreign exchange differences from impairment allowances in foreign currency 73 (16)
At 31 December 18,289 18,244
Net change in impairment allowance 45 268
The use of the allowance for loans written-off and assigned
of CZK 3,079 million (2012: CZK 3,490 million) has no impact
on the Groups profit.
The unwinding of discount repre sents interest income on impaired
loans on the basis of the EIR in respect of the discounted value
of loans.
b) Impairment Allowances for Loans and Advances by Class
At 31 December 2013
CZK mil.
Individually
signifcant
loans
Individually
insignifcant
loans
Total
Individually impaired (5,546) (10,054) (15,600)
Collectively impaired (820) (517) (1,337)
Portfolio impairment on unimpaired loans (830) (522) (1,352)
Total (7,196) (11,093) (18,289)
At 31 December 2012
CZK mil.
Individually
signifcant
loans
Individually
insignifcant
loans
Total
Individually impaired. (6,617) (9,220) (15,837)
Collectively impaired (897) (506) (1,403)
Portfolio impairment on unimpaired loans (600) (404) (1,004)
Total (8,114) (10,130) (18,244)
100
c) Impairment Allowances by Indi vidual Classes of Financial Assets
2013
CZK mil.
At
1 Jan
Charge for
impairment
allowances
Writeoff
of loans
Amounts
recovered
during the
year
Unwinding
of
discounts
x)
foreign
exchange
rate gains
or losses
At
31 Dec
Change
in the
balance
Retail loans/loans to
households

Overdraft loans 330 237 (98) (144) (18) 307 (23)
Credit cards 235 285 (57) (155) (18) 290 55
Other loans 4,550 1,913 (738) (621) (168) 4,936 386
Mortgage loans 2,100 834 (62) (333) (112) 2,427 327
loans
859 776 (22) (554) 1,059 200
Finance leases 3 2 (2) 3
Subtotal 8,077 4,047 (979) (1,807) (316) 9,022 945
MSE
xx)

Overdraft loans 19 (2) (12) (1) 4 (15)
Other loans 2,200 654 (536) (301) (55) 1,962 (238)
Mortgage loans 731 252 (91) (137) (39) 716 (15)
Municipal loans 18 25 (19) (7) (2) 15 (3)
loans
4 (2) 2 2
Finance leases 227 8 (44) 191 (36)
Subtotal 3,195 943 (692) (459) (97) 2,890 (305)
Corporate loans
Corporate customers 2,458 766 (574) (534) (65) 73 2,124 (334)
SMEs
xxx)
2,933 1,218 (732) (582) (92) 2,745 (188)
Corporate mortgage
loans
1,561 286 (102) (185) (85) 1,475 (86)
Municipalities 20 16 (3) 33 13
Subtotal 6,972 2,286 (1,408) (1,304) (242) 73 6,377 (595)
Total 18,244 7,276 (3,079) (3,570) (655) 73 18,289 45
x
) Unwinding of discounts interest income from individually impaired loans and advances.
xx
) MSE individuals businesses and small companies with annual turnover of less than CZK 30 million.
xxx
) SME small and medium sized enterprises with annual turnover between CZK 30 million and CZK 1,000 million.
101
2012
CZK mil.
At
1 Jan
Charge for
impairment
allowances
Writeoff
of loans
Amounts
recovered
during the
year
Unwinding
of
discounts
x)

foreign
exchange
rate gains
or losses
At
31 Dec
Change
in the
balance
Retail loans/loans to
households
Overdraft loans 312 306 (122) (148) (18) 330 18
Credit cards 196 223 (105) (59) (20) 235 39
Other loans 3,774 2,552 (974) (601) (201) 4,550 776
Mortgage loans 1,632 963 (16) (359) (120) 2,100 468
loans
771 697 (152) (457) 859 88
Finance leases 5 (2) 3 (2)
Subtotal 6,690 4,741 (1,371) (1,624) (359) 8,077 1,387
MSE
xx)
Overdraft loans 89 (53) (4) (12) (1) 19 (70)
Other loans 2,522 674 (417) (513) (66) 2,200 (322)
Mortgage loans 700 363 (153) (129) (50) 731 31
Municipal loans 22 35 (30) (9) 18 (4)
Finance leases 222 45 (40) 227 5
Subtotal 3,555 1,064 (644) (663) (117) 3,195 (360)
Corporate loans
Corporate customers 2,642 971 (497) (581) (61) (16) 2,458 (184)
SMEs
xxx)
3,571 1,209 (826) (929) (92) 2,933 (638)
Corporate mortgage loans 1,493 413 (152) (111) (82) 1,561 68
Municipalities 25 1 (6) 20 (5)
Subtotal 7,731 2,594 (1,475) (1,627) (235) (16) 6,972 (759)
Total 17,976 8,399 (3,490) (3,914) (711) (16) 18,244 268
x
) Unwinding of discounts interest income from impaired loans and advances.
xx
) MSE individuals businesses and small companies with annual turnover of less than CZK 30 million.
xxx
102
9. Trading Assets
CZK mil. 2013 2012
Listed debt securities 26,548 40,872
Listed equity securities and other variable yield securities 2 9
Total 26,550 40,881
Of the held for trading portfolio, securities of CZK 21,790 million
(2012: CZK 7,853 million) were transferred as colla teral for loans
received under repurchase transactions.
Debt Securities Comprise:
CZK mil. 2013 2012
Variable yield debt securities
Issued in CZK 637 933
Issued in other currencies 55 62
Total 692 995
Fixed income debt securities
Issued in CZK 25,856 39,877
Total debt securities 26,548 40,872
Equity Securities and Other Variable Yield Securities Comprise:
CZK mil. 2013 2012
Shares and share certifcates
Issued in CZK 2 7
Issued in other currencies 2
Total 2 9
Debt Securities Were Issued by the Following Issuers:
CZK mil. 2013 2012
State institutions in the Czech Republic 26,245 40,624
foreign state institutions 118 62
foreign fnancial institutions 185 182
Other foreign entities 4
Total 26,548 40,872
Equity Securities and Other Variable Yield Securities Held for Trading Were Issued by the Following Issuers:
CZK mil. 2013 2012
foreign fnancial institutions 2
Other entities in the Czech Republic 7
Total 2 9
103
10. Financial Assets Designated as at Fair Value Through Proft or Loss
CZK mil. 2013 2012
Debt securities
Listed 3,519 6,984
Unlisted
Equity securities and other variable yield securities
Unlisted 704 221
Total 4,223 7,205
Of the financial assets designated at fair value through profit or
loss portfolio, securities of CZK 1,403 million (2012: CZK 0) were
transferred as colla teral for loans received under repurchase trans-
actions and other loan agreements.
CZK mil. 2013 2012
Issued in other currencies 2,520 2,560
Total 3,184 3,217
Issued in other currencies 315 3,454
Total 335 3,767
CZK mil. 2013 2012
Total 704 221
CZK mil. 2013 2012
State institutions in the Czech Republic 683 839
Financial institutions in the Czech Republic 2,235 3,823
foreign fnancial institutions 1,773
Total 3,519 6,984
Equity Securities and Other Variable Yield Securities Were Issued by the Following Issuers:
CZK mil. 2013 2012
Financial institutions in the Czech Republic 595 111
Total 704 221
104
11. Positive Fair Value Of Derivative Financial Instruments
CZK mil.
2013 2012
Fair
Value
Notional
Amount
Fair Value
Notional
Amount
Fair value hedge
foreign currency 50 9,241 43 7,199
interest rate 895 14,080 1,120 9,739
Total fair value hedge 945 23,321 1,163 16,938
Non-hedging
foreign currency 9,551 272,066 10,263 279,580
interest rate 11,104 326,601 15,153 338,125
Other 513 14,708 202 19,153
Total Non-hedging 21,168 613,375 25,618 636,858
Total 22,113 636,696 26,781 653,796
As at 31 December 2013, the loss on hedging derivatives
used for fair value hedging was CZK 237 million (2012:
gain CZK 228 million); the gain due to changes in the fair value of
hedged items was CZK 250 million (2012: loss CZK 266 million).
12. Financial Assets Available-For-Sale
CZK mil. 2013 2012
Debt securities
Listed 80,575 64,780
Unlisted 599
Total 81,174 64,780
Listed 787 1,503
Unlisted 334 383
Total 1,121 1,886
Total 82,295 66,666
Listed and unlisted equity securities and other variable yield secu-
rities include equity investments and holdings that are not partici-
pating inte rests with controlling or significant influence in the total
amount of CZK 347 million (2012: CZK 260 million).
The avai l abl e - for - sal e port fol i o i ncl udes securi t i es
of CZK 22,586 million (2012: CZK 313 million) that were trans-
ferred as colla teral for loans received under repurchase transactions.
CZK mil. 2013 2012
Total 34,395 33,439
Total 46,779 31,341
105
CZK mil. 2013 2012
Issued in CZK 558 1,555
Total 1,121 1,886
CZK mil. 2013 2012
foreign state institutions 5,804 12,787
foreign fnancial institutions 4,639 3,027
Other entities in the Czech Republic 2,029 1,696
Total 81,174 64,780
CZK mil. 2013 2012
foreign fnancial institutions 1,026 856
Other foreign entities 37 36
Total 1,121 1,886
13. Financial Assets Held-to-maturity, Net
CZK mil. 2013 2012
Bonds and other fxed income securities
Listed 154,733 181,967
Provision for losses on fnancial assets held to maturity (13)
Total 154,720 181,967
The held-to-maturity portfolio includes securities of CZK 5,847 mil-
lion (2012: CZK 1,885 million) that were transferred as colla-
teral for loans received under repurchase transactions and other
loans agreements. Additionally, this portfolio includes an amount
of CZK 27,839 million (2012: 20,258 million) pledged as security
against loans from financial institutions.
CZK mil. 2013 2012
Total variable yield debt securities 7,748 8,950
Issued in CZK 127,512 158,159
Total fxed income debt securities 146,985 173,017
106
CZK mil. 2013 2012
Other entities in the Czech Republic 551 506
Other foreign entities 480 1,090
Total 154,733 181,967
14. Investment Pro perty
CZK mil. 2013 2012
Cost value
At 1 January 13,580 14,407
Additions 30 22
Disposals (1,265) (764)
foreign exchange rate gains or losses 187 (85)
At 31 December 12,532 13,580
Accumulated depreciation including impairment
At 1 January (4,019) (3,068)
Depreciation (223) (249)
Impairment (277) (799)
Disposals 312 113
foreign exchange rate gains or losses 5 (16)
At 31 December (4,202) (4,019)
Net book value
At 31 December 8,330 9,561
In 2013, rental income arising from investment pro perty amounted
to CZK 771 million (2012: CZK 882 million), see Note 32.
Opera ting expenses related to investment pro perty amounted
to CZK 211 million (2012: CZK 220 million).
As at 31 December 2013, the fair value of investment pro perty
amounted to CZK 8,634 million (2012: CZK 9,830 million) (refer
to Note 45). Colla teral held for investment pro perty financing
amounted to CZK 3,742 million in 2013 (2012: CZK 4,879 mil-
lion) (refer to Note 49).
107
15. Pro perty Under Construction
CZK mil. 2013 2012
At 1 January 1,598 2,501
of which:
inventories 1,511 2,399
investment pro perty 87 102
Impairment loss/ impairment loss reversal 106 (79)
Sale of completed buildings (1,237) (824)
At 31 December 467 1,598
of which:
inventories 383 1 511
investment pro perty 84 87
Assets under construction include both pro perty under construc-
tion measured at cost less any impairment, and buildings under
construction classified as inventory.
Colla teral for loans to finance real estate amounted to CZK 191 mil-
lion in 2013 (2012: CZK 1,111 million) (refer to Note 49).
16. Pro perty and Equipment
CZK mil. Land and
buildings
Equipment,
vehicles and
computer
hardware
Total
Cost value
At 1 January 2012 20,680 8,526 29,206
Additions 471 644 1,115
Disposals (201) (1,450) (1,651)
At 31 December 2012 20,950 7,720 28,670
Additions 475 448 923
Disposals (366) (457) (823)
At 31 December 2013 21,059 7,711 28,770
Accumulated depreciation including impairment allowances
At 1 January 2012 (7,520) (6,276) (13,796)
Depreciation (refer to Note 38) (723) (689) (1,413)
Impairment charge (320) (3) (323)
Disposals 177 1,278 1,455
At 31 December 2012 (8,386) (5,690) (14,076)
Impairment charge (6) (6)
Disposals 332 430 762
At 31 December 2013 (8,725) (5,879) (14,604)
Net book value
At 31 December 2012 12,564 2,030 14,594
At 31 December 2013 12,334 1,832 14,166
The balances as at 31 December 2013 shown above
include CZK 512 million (2012: CZK 612 million) in pro perty
and equipment under construction.
The acquisition cost of fully depreciated tangible assets
still in use was CZK 5,208 million as at 31 December 2013
(2012: CZK 4,964 million).
108
17. Intangible Assets
CZK mil. Goodwill Software Other Total
Cost value
At 1 January 2012 43 7,605 6,768 14,416
Additions 423 635 1,058
Disposals (26) (25) (51)
Transfers 297 (295) 2
At 31 December 2012 43 8,299 7,083 15,425
Disposals (73) (514) (587)
Transfers 496 (496)
At 31 December 2013 43 9,497 6,271 15,811
Accumulated amortisation including impairment allowances
At 1 January 2012 (9) (5,404) (6,059) (11,472)
Amortisation (refer to Note 38) (667) (121) (788)
Disposals 24 23 47
At 31 December 2012 (9) (6,051) (6,157) (12,217)
At 31 December 2013 (9) (6,706) (5,763) (12,478)
Net book value
At 31 December 2012 34 2,248 926 3,208
At 31 December 2013 34 2,791 508 3,333
Other intangible assets include licenses and know-how. In addition,
the item includes CZK 684 million in intangibles under construction
as at 31 December 2013 (2012: CZK 713 million).
The acquisition cost of fully amortised intangible assets
(2012: CZK 7,416 million).
18. Other Assets
CZK mil. 2013 2012
Accrued income 31 17
Deferred expenses 1,069 1,295
vari ous receivables 1,768 1,269
Accruals 515 1,102
State subsidy 1,142 1,188
Investments in Non-consolidated entities 33 98
Other assets 1,502 231
Receivables from factoring transactions 3,540 3,323
Receivables from securities trading 575 384
Total 10,175 8,907
The state subsidy receivable involves claims in respect of the
participants of the building savings scheme offered by Stavebn
spoitelna esk spoitelny, a. s. The state subsidy is provided to
the participants from the Finance Ministry of the Czech Republic
based on the amount of customer deposits at the year end with
a limit of CZK 2,000 per participant.
The significant increase in other assets is due to ATM clearing
receivables amounting to CZK 733 million (settled in January
2014).
109
19. Amounts Owed to Financial Institutions
CZK mil. 2013 2012
Loro accounts (refer to Note 42) 1,514 3,169
Loans received 43,569 35,555
Total 73,036 44,344
As at 31 December 2013, the Group received loans from finan-
cial institutions of CZK 8,860 million (2012: CZK 2,532 million)
under repurchase transactions which were collateralised by securi-
ties amounting to CZK 8,859 million (2012: CZK 2,512 million).
20. Amounts Owed to Customers
CZK mil. 2013 2012
Public sector 70,445 57,843
Current accounts 41,914 44,379
Savings deposits 91 851
Other amounts due to customers (repos) 19,372 5,000
Corporate clients 114,703 107,912
Savings deposits 96 6,849
Other amounts due to customers 3,929 3,055
Resident individuals 528,829 522,869
Savings deposits 194,122 197,491
Total 713,977 688,624
Other amounts due to customers includes loans received from
customers under repurchase transactions, amounts owed from can-
celled deposits, pension insurance deposits and deposits relating
to anonymous savings books.
As at 31 December 2013, the Group received loans from customers
of CZK 23,135 million (2012: CZK 7,835 million) under repur-
chase transactions which were collateralised by securities amount-
ing to CZK 23,134 million (2012: CZK 7,853 million).
21. Trading Liabili ties
CZK mil. 2013 2012
Pay ables arising from short sales shares 3
110
22. Financial Liabili ties Designated at Fair Value Through Proft or Loss
CZK mil. 2013 2012
Customer deposits 12,616 15,908
Liabili ties arising from issued securities 1,818 1,995
Total 14,434 17,903
The Group issued the following bonds which are pre sented within Liabili ties arising from issued securities:
Type ISIN Date of
issue
Maturity interest rate 2013 2012
CZK mil. CZK mil.
Bonds CZ0003702284
February
2010
February
2014
x
) 140 142
Bonds CZ0003702474
October
2010
November
2014
x
) 853 843
Bonds CZ0003702516
December
2010
January
2015
x
) 825 860
Bonds CZ0003703076
January
2012
January
2013
x
) 150
Total 1,818 1,995
x)
Bonds bear no interest, yield is determined as the diffe rence between the rate of issue and the bond value payable at its fnal maturity date.
The ISINs CZ0003702284, CZ0003702474, CZ0003702516
and CZ0003703076 issues were placed as structured bonds, the
yield of which is determined as equal to the diffe rence between
the issue rate and another value in accor dance with the issue
terms and conditions. The amount of another value will be based
on a set of indexes and an equity bucket and will be payable as
of the final maturity of the bonds. Issued bonds are not traded on
any market.
Change in the Fair Value of Debt Securities:
CZK mil. 2013 2012
Change in the fair value of debt securities arising from changes in the issuers credit
profle
Customer deposits (46) (136)
Liabili ties arising from issued securities at fair value (4) (17)
Total (50) (153)
Diffe rence between the carrying amount and the contractually agreed nomi nal value
due at maturity
Customer deposits 171 99
Liabili ties arising from issued securities at fair value 8 45
Total 179 144
Short sales are short-term trading liabili ties which mature between
one and three months. Changes in the fair value of these trading
liabili ties are not analysed since the liabili ties are different at each
reporting date.
The change in the fair value arising from the changes in the credit
profile of the issuer (the Bank) is determined as equal to the diffe-
rence between the fair values of the liabili ties as at the previous
and current reporting dates, net of the effect of the change in fair
value due to the change in the risk-free interest rate.
111
23. Negative Fair Value of Derivative Financial Instruments
CZK mil.
2013 2012
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair value hedge
interest rate 40 9,739
Total fair value hedge 271 9,241 172 11,989
Cash fow hedge
foreign currency 151
Total cash fow hedge 152 1,400
Non-hedging
interest rate 10,360 326,601 14,752 339,565
Other 156 14,620 422 19,153
Total 24,446 623,928 26,358 651,021
Gains or losses on hedging derivatives are disclosed in Note 11.
24. Bonds in Issue
Type ISIN Date of issue Maturity interest
rate
2013 2012
CZK mil. CZK mil.
Mortgage bonds CZ0002000623 October 2005 October 2015 4.75% 4,953 4,951
Mortgage bonds CZ0002000755 February 2006 February 2016 4.80% 4,625 4 645
Mortgage bonds CZ0002001068 June 2007 October 2015 4.50% 761 762
Mortgage bonds CZ0002001084 July 2007 July 2014 Floating 1,517 1,537
Mortgage bonds CZ0002001274 November 2007 November 2014 Floating 568 566
Mortgage bonds CZ0002001282 November 2007 November 2017 5.90% 1,999 2,020
Mortgage bonds CZ0002001415 November 2007 November 2023 6.15% 481 490
Mortgage bonds CZ0002001423 December 2007 December 2017 5.85% 5,094 5,153
Mortgage bonds CZ0002001647 December 2007 December 2017 3.90% 974 1,006
Mortgage bonds CZ0002001654 December 2007 December 2022 Floating 179 476
Mortgage bonds CZ0002002173 November 2009 May 2013 3.20% 1,590
Mortgage bonds CZ0002002215 April 2010 October 2013 0.25% 2,526
Mortgage bonds CZ0002002264 January 2011 January 2013 0.20% 908
Mortgage bonds CZ0002002306 April 2011 April 2015 0.30% 124 127
Mortgage bonds CZ0002002330 June 2011 June 2016 0.30% 41 40
Mortgage bonds CZ0002002744 December 2012 December 2021 2.75% 18
Mortgage bonds CZ0002002751 December 2012 June 2023 3.25% 125 15
Mortgage bonds CZ0002002769 December 2012 December 2016 1.50% 53 1
Bonds CZ0003701054 September 2005 September 2017
x
) 262 253
Bonds CZ0003701062 October 2005 October 2013
x
) 293
Bonds CZ0003702011 July 2009 January 2014
xx
) 623 593
xx
) 521 493
Bonds CZ0003702078 November 2009 November 2016
xx
) 563 537
Bonds CZ0003702359 April 2010 April 2013 3.00% 714
Bonds CZ0003702367 April 2010 April 2013 Floating 1,188
Depository bills of exchange 1 79
Cumulative change in carrying amount due to fair value hedging 1,314 1,515
Total 26,550 34,156
x
) Bonds were issued with a combined yield.
xx
) Bonds bear no interest, yield is determined as the diffe rence between the rate of issue and the bond value payable at its fnal maturity date.
112
Of the aggregate carrying value of the mortgage bonds,
CZK 12,967 million (2012: CZK 10,010 million) was hedged
against interest rate risk through interest rate swaps linked to a mar-
ket floating rate. In accor dance with the applicable accounting
policies, these mortgage bonds are re measured at fair value to the
extent of the hedged interest rate risk.
The ISINs CZ0003701054 and CZ0003701062 issues were placed
with a share index option which is recorded separately and is
re measured at fair value.
The ISINs CZ0002001647, CZ0002001654, CZ0002002165,
CZ0002002173, CZ0002002215, CZ0002002264, CZ0002002306,
CZ0002002330, CZ0002002744, CZ0002002751, CZ0002002769,
CZ0002002777, CZ0002002785 mortgage bond issues and the
ISINs CZ0003702011, CZ0003702037, CZ0003702078 bond
issues are not traded on any regulated market. Other issues of mort-
gage bonds and bonds are traded on the official regulated market
of the Prague Stock Exchange (PSE). The diffe rence between
the nomi nal values of the issued mortgage bonds and the carrying
amounts of the rele vant issues in the above table arises from the
diffe rence in valua tion and from the elimination of bonds held by
Group companies.
25. Provisions
CZK mil. Impairment
allowance
for off
balance
sheet credit
risks
Provision
for legal
disputes
Other
provisions
Total
At 1 January 2012 377 2,056 87 2,520
Charge for the year 241 103 22 366
Amounts released (139) (385) (35) (559)
Net charge/(release)(refer to Notes 34 and 39) 102 (282) (13) (193)
Use of provisions (27) (38) (11) (76)
At 31 December 2012 452 1,736 63 2,251
Charge for the year 279 209 507 995
Net charge /(release) (refer to Notes 34 and 39) (90) 66 504 480
At 31 December 2013 347 1,801 446 2,594
Impairment allowances for off-balance sheet credit risks expo-
sures are recorded to cover losses that result from off-balance sheet
exposures.
Impairment allowance for off-balance sheet credit risks includes
a provision for the guarantee against the risk of s Autoleasing, a. s.
in the amount of CZK 75 million (2012: CZK 130 million). The pur-
pose of the guarantee is the participation of the Group in the risk
of clients whose lease contract was concluded via the Group or cli-
ents taken into s Autoleasing, a. s.s portfolio from Vchodoesk
leasingov, a. s.s portfolio. The participation payments are subject
to a contract for risk participation and are paid quarterly within
two months after the end of each quarter of the year.
Provisions for legal disputes are explained in detail in Note 49.
Other provisions include an estimated amount for the Banks
constructive obligation to meet any potential future claims of
clients resulting from statute-barred deposits on anonymous
passbooks.
113
26. Other Liabili ties
CZK mil. 2013 2012
Deferred expenses 3 6
Income received in advance 213 237
Pay ables from the loyalty programme 265 346
vari ous creditors 2,343 3,121
Pay ables from factoring transactions 1,920 1,282
Pay ables from securities trading 732 552
Pay ables from payment transactions 775 1,351
Accruals 2,983 2,469
Other pay ables 866 1,334
Total 10,100 10,698
Accruals largely comprise amounts for staff and manage ment
bonuses, unbilled supplies and contributions to the Deposit
Insurance Fund.
27. Deferred Taxes
Deferred tax is calculated on all temporary differences under the
liability method using a principal tax rate of 19%, depending on
the year in which the rele vant asset/liability will be realised/settled.
This rate is 5% in respect of SPS Transformed Fund.
The Group has assessed tax losses totalling CZK 881 million
(2012: CZK 724 million) that will expire in 2018 and which were
not included in the calculation of the deferred tax asset as it is not
pro bable that future taxable profit will be available against which
the unused tax losses can be utilised.
Net Deferred Income Tax Assets/(Liabili ties) Are as Follows:
CZK mil. 2013 2012
Net balance at 1 January (246) 628
Movements arising from acquisitions and changes in Non-controlling inte rests 35 48
Movement for the year Other comprehensive income statement (refer to Note 41b) 81 (296)
Movement for the year Income statement (refer to Note 41a) 156 (626)
Net balance at 31 December asset/(liability) 26 (246)
Deferred Income Tax Assets and Liabili ties Are Attributable to the Following Items:
CZK mil. 2013 2012
Deferred tax assets
Risk and other provisions 159 183
Other assets 35
Customer deposits, deposits by banks 26 24
Tax losses carried forward (including current year) 3 2
Investments in subsidiaries and associates 17
Loans to customers and credit institutions 162
Other liabili ties 322 97
Deferred tax asset adjustment (net of liabili ties) (598) (187)
Total deferred tax asset 126 119
Deferred tax liabili ties
Loans to customers, credit institutions (72)
AFS portfolio (excluding investments and Erste Group shares) (196) (236)
Intangible assets (184) (130)
Pro perty and equipment (318) (59)
Derivative fnancial instruments, cash fow hedge and net investment hedge (16)
Other assets (39)
Deferred tax liability adjustment (net of assets) 598 187
Total deferred tax liability (100) (365)
Net deferred tax asset/(liability) 26 (246)
114
Items generating temporary differences are shown in the table
based on the indi vidual deferred tax asset/liability positions of the
consolidated entities.
The impact of deferred tax liabili ties on equity arises from changes
in the fair value of securities available-for-sale and the effective
part of the cash flow hedge and of the hedge of net investments
in foreign operations. The deferred tax (expense)/income in the
income statement consists of the following temporary differences:
CZK mil. 2013 2012
Income
Loans to customers, credit institutions 56 1
Pro perty and equipment 24
Customer deposits, deposits by banks 78
Other provisions 119 14
Investments in subsidiaries and associates 17
Other liabili ties 171
Deferred tax credit 363 117
Expense
Risk provisions (145)
Intangible assets (9) (25)
Pro perty and equipment (161)
Other assets (6) (343)
Tax losses carried forward (including current year) (25) (69)
Trading liabili ties, derivative fn. instr. (11)
Other liabili ties (6) (150)
Deferred tax charge (207) (743)
The deferred tax credit/ (charge) in the income statement 156 (626)
28. Subordinated Debt
ISIN Date
of issue
Maturity
date
interest
rate
Nomi nal
value in CZK
mil.
Carrying
amount at
31 December
2013
CZK mil.
Carrying
amount at
31 December
2012
CZK mil.
CZ0003701906 12 March 2009 12 March 2019 5% p.a. 2,000 1,784 1,844
CZ0003702342 24 March 2010 24 March 2020
6M PRIBOR
+0.40%
1,000 312 418
Total 2,096 2,262
The issue CZ0003701906 of the Banks subordinated debt was
made in certificate form. The bond is not placed on a regulated
market. The debt is unsecured and unconditional. interest income
is payable once a year retroactively. Upon its discretion, the Bank
is entitled to repay the CZ0003701906 issue bonds prematurely
on 12 March 2014 at 100% of the bonds nomi nal value together
with any unpaid interest to date (if rele vant). If the Banks bonds
are not prematurely repaid, the fixed interest rate will be increased
by 1.50% p.a.
On 6 March 2009 (issue CZ0003701906) and 18 March 2010
(issue CZ0003702342) the CNB issued certificates confirming that
these issues of subordinated debt are compliant with all regula tory
requirements and may be included in the additional capital of the
Bank for the purposes of calculating the capital adequacy ratio
(refer to Note 44.5).
115
29. Non-Controlling interest
CZK mil. 2013 2012
At 1 January 122 26
Proft for the year (11) (209)
Proceeds from sales of subsidiaries 285
Dividends paid to minority shareholders (80) (40)
Newly consolidated entities and capital increases 338
Purchase of Non-controlling interest 7
At 31 December 316 122
30. Share Capital
Authorised, Issued and Fully Paid Share Capital Is as Follows:

2013 2012
Number of
shares
CZK mil. Number of
shares
CZK mil.
Ordinary shares of CZK 100 each 140,788,787 14,079 140,788,787 14,079
Prefe rence shares of CZK 100 each 11,211,213 1,121 11,211,213 1,121
Total 152,000,000 15,200 152,000,000 15,200
Prefe rence shareholders are not entitled to vote at the annual
shareholders meeting. They have a right to receive dividends
each year if the Bank is profitable. The amount of the dividend is
proposed by the Board of Directors and subject to approval at the
annual shareholders meeting. In the case of liquidation, prefe rence
shareholders have a right to the assets of the Bank before ordinary
shareholders but after other creditors. Prefe rence shareholders have
a right to purchase shares offered by the Bank when it increases
its share capital in the same proportion as the current holding.
Prefe rence shares can only be issued to municipalities and local
governments in the Czech Republic. The prefe rence shares can
only be transferred to entities other than municipalities and local
governments of the Czech Republic subject to the approval of the
Board of Directors.
116
31. Revaluation Gains and Losses
In the table below there is a summary of valua tion differences including any non-controlling interest (where rele vant):
CZK mil. Financial assets
availableforsale
Hedging derivatives
Translation
reserve
Total
2013 2012 2013 2012 2013 2012 2013 2012
At 1 January
Gain/(loss) on fair value changes 1,673 (338) 1,673 (338)
Deferred tax (liability)/asset (230) 52 (22) (9) (252) 43
foreign exchange differences
arising upon consolidation
(487) (358) (487) (358)
Hedges of net investments in
foreign operations
113 46 113 46
Cash fow hedges
Total at 1 January 1,443 (286) 91 37 (487) (358) 1,047 (607)
Changes during the year
Gain/(loss) on fair value changes (472) 2,010 (472) 2,010
Deferred tax (liability)/asset 37 (283) 44 (13) 81 (296)
283 (129) 283 (129)
foreign operations
(241) 67 (241) 67
Cash fow hedges 11 11
Total changes during the year (435) 1,727 (186) 54 283 (129) (338) 1,652
At 31 December
Gain/(loss) on fair value changes 1,202 1,673 1,202 1,673
Deferred tax (liability)/asset (194) (230) 22 (22) (172) (252)
(204) (487) (204) (487)
foreign operations
(128) 113 (128) 113
Total at 31 December 1,008 1,443 (95) 91 (204) (487) 709 1,047
Unrealised gains from available-for-sale financial assets
recognised in the equity of SPS Transformed Fund in the amount
of CZK 235 million as at 31 December 2013 (31 December 2012:
gain CZK 565 million) were included within the available-for-sale
reserve. In accor dance with Czech law, when an available-for-sale
financial asset is disposed of the gain or loss on the disposal is
posted to the income statement.
117
32. interest and Simi lar Income
CZK mil. 2013 2012
Financial assets not at fair value through proft or loss:
Loans and advances to fnancial institutions 617 1,014
Loans and advances to customers 25,710 27,839
Of which: Unwinding of discount (refer to Note 8) 655 711
Debt securities availableforsale 654 1,089
Debt securities heldtomaturity 5,366 6,308
Income from shares and other variable yield securities availableforsale 46 44
Total fnancial assets not at fair value through proft or loss 32,393 36,294
Financial assets fair value through proft or loss:
Debt securities held for trading 201 399
Debt securities designated upon initial reco gnition as at fair value through proft or loss 113 278
Income from shares and other variable yield securities designated upon initial reco gnition as at fair
value through proft or loss
6 3
Total fnancial assets at fair value through proft or loss 320 680
Other:
Net proft from investment properties 548 633
Of which: Rental income (refer to Note 14) 771 882
Depreciation (refer to Note 14) (223) (249)
Other 86 110
Subtotal 33,347 37,717
Reclassifcation (936)
Total 33,347 36,781
The reclassification (refer to Note 3.5) related to interest and simi-
lar income for 2012 includes the income that would be allocated
to the SPS Transformed Fund in the amount of CZK 936 million
(of which CZK 555 million is attributable to debt securities avail-
able-for-sale, CZK 313 million to debt securities held-to-maturity
and CZK 68 million to term deposits).
33. interest and Simi lar Expense
CZK mil. 2013 2012
Amounts owed to fnancial institutions (330) (664)
Amounts owed to customers (4,202) (5,117)
Bonds in issue (774) (1,093)
Subordinated debt (92) (104)
Other (40) (146)
Total (5,438) (7,124)
118
34. Impairment Allowance for Credit Risks
CZK mil. 2013 2012
Charge for offbalance sheet impairment allowances (refer to Note 25) (279) (241)
Release of offbalance sheet impairment allowances (refer to Note 25) 369 139
Net charge for the year 90 (102)
Charge for impairment allowances (7,320) (8,399)
Release of impairment allowances (refer to Note 8) 3,570 3 914
Net charge for the year (3,750) (4,485)
Total net charge for the year (3,660) (4,587)
Writeoffs of loans not covered by impairment allowances (29) (87)
Recoveries of amounts previously writtenoff 357 967
Total (3,332) (3,707)
Charge for impairment allowances also includes the charge for
allowances to financial institutions in the amount of CZK 31 mil-
lion (2012: CZK 0 million) and the charge for allowances to
financial assets held-to-maturity in the amount of CZK 13 million
(2012: CZK 0 million).
35. Fee and Commission Income
CZK mil. 2013 2012
Lending activities 4,314 4,389
Payment transactions 8,181 8,344
Custody, trustee and administration of assets 297 262
Other securities transactions 521 635
Construction savings activities 512 556
foreign exchange transactions 33 40
Mediation of insurance activities 562 572
Other fnancial activities 745 614
Total 15,165 15,412
36. Fee and Commission Expense
CZK mil. 2013 2012
Lending activities (1,281) (1,368)
Payment transactions (1,759) (1,536)
Securities transactions (166) (164)
Mediation of construction savings activities (173) (113)
Other fnancial activities (492) (463)
Total (3,871) (3,644)
119
37. Net Trading Result
CZK mil. 2013 2012
Realised and unrealised gains/(losses) on trading assets 477 926
Derivative instruments 938 332
foreign exchange trading 1,267 936
Reclassifcation (44)
Total 2,682 2,150
The reclassification (refer to Note 3.5) related to Net trading result
for 2012 includes the foreign exchange gains that would be allocated
to the SPS Transformed Fund in the amount of CZK 44 million.
With effect from 4 February 2008, esk spoitelna transferred
its financial markets trading to make use of Erste Group Banks
business model. The market risk arising from the sales activities
of the Financial Markets Division (i.e., transactions with retail and
corporate clientele), with the exception of equity risk and trans-
actions for the Groups liquidity manage ment purposes (money
market), was transferred to Erste Group Bank using back-to-back
transactions. Trading gains (i.e. from Erste Group Banks market
positions) are distributed according to approved rules to the rele vant
banks within the Group and reported in the Net trading result.
The basic principle underlying these rules involves Erste Group
Bank absorbing potential losses in indi vidual classes of assets in
exchange for the risk premium derived from the VaR) indicator.
The remaining positive result after deducting expenses (calculated
using the Cost Income Ratio) is reallocated to indi vidual partici-
pants in the model based on the results from the sale of assets in
indi vidual asset groups.
The net trading result includes the income from the market positions of Erste Group Bank structured as follows:
CZK mil. 2013 2012
Realised and unrealised gains on trading assets 465 703
foreign exchange trading 300 283
Total 787 1,016
120
38. Gene ral Administra tive Expenses
a) Composition of Gene ral Administra tive Expenses
CZK mil. 2013 2012
Personnel expenses
Wages and salaries (6,471) (6,490)
Social security costs (2,069) (1,834)
Other personnel expenses (473) (459)
Total personnel expenses (9,013) (8,783)
Other administra tive expenses
Data processing expenses (2,151) (2,237)
Building maintenance and rent (1,525) (1,645)
Costs of business transactions (1,006) (1,075)
Advertising and marketing (900) (1,157)
Advisory and legal services (468) (540)
Other administra tive expenses (469) (621)
Total other administra tive expenses (6,519) (7,275)
Depreciation and amortisation
Amortisation of intangible assets (refer to Note 17) (777) (788)
Depreciation of pro perty and equipment (refer to Note 16) (1,284) (1,413)
Total depreciation and amortisation (2,061) (2,201)
Total (17,593) (18,259)
Building maintenance and rent includes lease payments under opera ting leases amounting to CZK 605 million (2012: CZK 733 million).
b) Board of Directors and Supervisory Board Remuneration
CZK mil. 2013 2012
Remuneration 83 59
The total amount includes the remuneration of the manage ment and supervisory bodies of the Bank.
In accor dance with the CNB Decree No. 123/2007 Coll. apply-
ing European regulation (Capital Requirements Directive III,
No. 2010/76/EU) and stipulating the prudential rules for banks,
credit unions and investment firms, the Bank has implemented
a set of Remuneration Policy Principles and set up a remuneration
policy committee. The newly accepted remuneration principles are
outlined in order to support proper and effective risk manage ment
and to avoid instigating risk acceptance in excess of the risk lev-
els accepted by the Bank. Special remuneration principles have
been implemented for employees having significant influence on
the Banks overall risk profile. They may receive part of their pay
in the form of non-monetary rewards and the payment of both
the monetary and non-monetary portions of their salaries may be
deferred for up to three years.
c) Number of Board Members and Full Time Employees
CZK mil. 2013 2012
Board of Directors 5 5
Supervisory Board 9 9
Staff 10,454 11,014
The number of Board members relates to the Bank only.
121
39. Other Opera ting Result
CZK mil. 2013 2012
Contribution to the Deposit Insurance Fund (927) (911)
Proft sharing of SPS Transformed Fund clients (643)
Impairments and write ups, net (798) (1,200)
Net (creation)/ release of provisions for legal disputes and other provisions (refer to Note 25) (570) 295
Losses on the sale of real estate (195) (88)
Other taxes (101) (84)
(Losses)/Gains from the revaluation/sale of securities at fair value through proft or loss that are not
held for trading *
(542) 42
Gains from the sale of fnancial assets availableforsale 80 628
Gains on the sale of fnancial assets heldtomaturity 134 62
Gains on the revaluation/sale of equity investments 230 14
Other opera ting income/(expenses) 1,105 (126)
Subtotal (1,584) (2,011)
Reclassifcation 866
Total (1,584) (1,145)
*Including revaluation of derivatives related to liabili ties measured at fair value through profit or loss.
The reclassification (refer to Note 3.5) related to Other opera-
ting result for 2012 includes gains from the sale of financial
assets available-for-sale in the amount of CZK 335 million and
an expense of CZK 1,201 million that would be allocated to
the SPS Transformed Fund. The expense was calculated as
the the best estimate of the SPS Transformed Funds results
corresponding to the Banks 2012 profit share of the esk
spoitelna penzijn fond.
Other opera ting income/(expenses) in 2013 includes a net gain
of CZK 625 million due to the reversal to the income statement of
the statute-barred anonymous passbook deposits. The net gain is
after the Groups CZK 1,537 million donation to the foundation
Nadace Depositum Bonum and will be used to settle the related tax
liability as well as to voluntarily create a provision for any future
claims received over the next 3 years from clients who previously
held such deposits.
The following table shows in detail the impairments and write ups realised during year:
CZK mil. 2013 2012
Tangible and intangible assets impairment (611) (1,236)
Tangible and intangible assets write up 72 35
Impairment of fnancial assets availableforsale (259) 1
Total impairments and write ups, net (798) (1,200)
122
40. Other Comprehensive Income
CZK mil. 2013 2012
Financial assets availableforsale
Unrealized profts on revaluation (361) 2,578
Reclassifcation adjustments to the income statement (111) (568)
Total fnancial assets availableforsale (472) 2,010
Cash fow hedge
Gains and losses on the hedging instruments 11
Reclassifcation adjustments to the income statement
Total cash fow hedge 11
Total (461) 2,010
The hedged cash flows are likely to occur within the next five to ten years and will then be recognised in the income statement. There were
no cash flow hedges in 2012.
41. Income Tax
a) Income Statement
CZK mil. 2013 2012
Current tax expense (4,060) (3,549)
Deferred tax income/(expense) (refer to Note 27) 156 (626)
Total (3,904) (4,175)
b) Other Comprehensive Income Statement
CZK mil. 2013 2012
Expense/(income) as a result of deferred tax on items charged directly to equity (refer to Note 27)
Hedge of net investment in foreign currency equity investments 46 (13)
Loss/(gain) on revaluation of fnancial assets availableforsale 37 (283)
Cash fow hedge (2)
Total 81 (296)
The tax on the Groups profit before tax differs from the theoretical amount that would arise using the basic tax rate of the Czech Republic
as follows:
CZK mil. 2013 2012
Tax calculated at a tax rate of 19% (3,701) (3,910)
Non-taxable income 542 538
Non-deductible expenses (526) (407)
Prior period over/(under) accrual 94 (305)
Other (313) (91)
Income tax expense (3,904) (4,175)
Effective tax rate 20.04% 20.29%
Further information about deferred tax is pre sented in Note 27.
123
42. Cash and Cash Equivalents
Cash and cash equivalents at the end of the year as shown in the consolidated statement of cash flows consists of the following balances:
Cash and cash equivalents 2013 2012
Overnight deposits with the CNB 47,072 700
Treasury bills and treasury bonds with maturity of less than three months 27,163 17,041
Nostro accounts with fnancial institutions (refer to Note 6) 2,070 1,812
Loro accounts with fnancial institutions (refer to Note 19) (1,514) (3,169)
Total cash and cash equivalents 95,991 36,584
For the purposes of determining cash and cash equivalents, the
minimum reserve deposit with the CNB (refer to Note 5) is not
included as a cash equivalent due to restrictions on its availability.
43. Financial Instruments
The Group classifies financial instruments into trading and banking
(investment) portfolios in accor dance with BASEL II rules as per
CNB Regulation No. 123/2007 as amended by Regulation 282/2008
Coll., on the rules of prudent business of banks, savings and
lending associates and securities traders (henceforth Regulation
123/2007). The Group applies vari ous techniques to the manage-
ment of the risk within the banking and trading books (refer to
Note 44).
The table below shows the classes of financial assets and liabili ties
reported by the Group according to IFRS 7 requirements. However,
as per Note 3.3 the financial assets and liabili ties are measured in
accor dance with the categories as defined by IAS 39.
The balances of financial instruments in the indi vidual categories are as follows:
As at 31 December 2013 Loans and
advances
not held for
trading
Financial
assets held
tomaturity
Financial
assets at
fair value
through
proft or
loss
Financial
assets
available
forsale
Financial
liabili ties
measured at
amortised
cost
Financial
liabili ties at
fair value
through
proft or
loss
Financial assets
Cash and balances with CNB 77,581
Loans and advances to fnancial
institutions, net
75,348
Net loans and advances to customers 489,194
Trading assets 26,550
Financial assets designated upon
initial reco gnition as at fair value
through proft or loss
4,223
Derivative instruments 22,113
trading 21,167
hedging 945
Financial assets availableforsale 82,295
Financial assets heldtomaturity, net 154,720
Other assets 7,056
Financial liabili ties
Amounts owed to fnancial institutions 73,036
Amounts owed to customers 713,977
Financial liabili ties at fair value 14,434
trading 24,025
hedging 421
Bonds in issue 26,550
Other liabili ties 5,773
Subordinated debt 2,096
124
advances
not held for
trading
Financial
assets held
tomaturity
Financial
assets at
fair value
through
proft or
loss
Financial
assets
available
forsale
Financial
liabili ties
measured at
amortised
cost
Financial
liabili ties at
fair value
through
proft or
loss
Financial assets
institutions, net
65,320
Financial assets designated upon
initial reco gnition as at fair value
7,205
trading 25,618
hedging 1,163
Other assets 6,181
trading 26,186
hedging 172
44. Risk Manage ment
Financial instruments may create certain risks for the Group. The
most significant risk is credit risk. In addition, the investment port-
folio of the Group is exposed to interest rate risk and liquidity
risk. The risks attached to the trading portfolio include market
risks, specifically foreign exchange, interest rate and equity risks
and other risks relating to trading with complex instruments. All
transactions with financial instruments also carry operatio nal risk.
Risk manage ment for the Group is performed by a division of the
Bank managed by a member of the Board of Directors exclusively
responsible for risk manage ment the Chief Risk Officer. This
division, which is completely independent of the business divisions
of the Bank, centralises all departments tasked with risk manage-
ment, namely:
Compliance, Financial Crime and Anti-Fraud Manage ment;
Legal services;
Central Risk Manage ment;
Credit Risk Manage ment for Corporate Banking;
Credit Risk Manage ment for Retail Banking;
Restructuring and Workout;
Credit Risk Controlling and Portfolio Manage ment; and
Security.
Risk manage ment activities in the Banks subsidiaries are under-
taken by persons independent of the business units. The Credit
Risk Controlling and Portfolio Manage ment Department of the
Bank provides specialist guidance to and oversees the staff involved
in managing credit risk in the subsidiaries and is responsible for
monitoring the subsidiaries portfolios. Market risks within the
Group are managed by the Bank.
Manage ment and control systems are continuously reviewed by
the Internal Audit which prepares a verification report annually.
44.1 Credit Risk
In the course of its business, the Group is exposed to credit risk
which is the risk that a counterparty will be unable to pay amounts
owing in full when due.
Credit Risk Manage ment Methodo logy
In managing credit risk, the Group applies a unified methodo logy
which sets out applicable procedures, roles and authorities. The lend-
ing policy defines a comprehensive policy for the Groups credit risk
manage ment. It defines the basic principles related to identification,
measurement, monitoring, controlling and credit risk manage ment. It
contains the basic lending rules including limitations for loan grant-
ing and describes indi vidual credit risk manage ment tools, such as
the rating system, colla teral manage ment, limit setting, setting of
approval policy, monitoring, provision making policy, reporting,
controlling and portfolio manage ment. In addition it defines credit
risk manage ment organization and discloses the lending process.
125
Breakdown of the Portfolio for Credit Risk
Manage ment Purposes
For the purpose of determining impairment allowances the loans and
advances are segmented into non-default (performing) loans where
the principal and interest is not past due for more than 90 days or there
are no other indications that would suggest that the repayment of the
receivable is unlikely (bankruptcy proceedings, forced restructurings,
etc.) and default (non-performing) loans.There are two large sub-port-
folios within these receivables, i.e. receivables which are individually
significant comprising receivables from corporate entities or receiva-
bles where the Groups credit exposure is higher than CZK 5 million,
and receivables which are individually insignificant.Within these two
sub-portfolios the Group also monitors five customer portfolios for
individually significant receivables and 16 pro duct portfolios for indi-
vidually insignificant receivables.The Group monitors a number of
risk parameters within these portfolios (PD probability of default,
LGD loss given default, CCF credit conversion factors).PD is
further monitored at the level of vari ous internal rating grades.
Receivables with debtor default correspond to individually impaired
receivables (rating R). Receivables without debtor default with inter-
nal ratings of 1 6 are consi dered to be unimpaired. Receivables with
internal ratings of 78 are collectively impaired.
For credit risk manage ment purposes, the Groups loan portfolio is
broken down as follows:
Retail receivables are receivables from individuals/
households and small enterprises with an annual turnover
of up to CZK 30 million and small municipalities
(MSE). The methods of managing the credit risk of retail
receivables are based on statistical models calibrated using
historical data.
Receivables from corporate counterparties include
receivables from small and medium sized enterprises
with an annual turnover of between CZK 30 to
1,000 million (SME) receivables from large businesses
(with an annual turnover exceeding CZK 1,000 million)
and public sector receivables, factoring receivables
and lease receivables. While the methods of managing the
credit risk of corporate receivables are based on statistical
models (particularly for the portfolio of receivables from
mid-size enterprises), great emphasis is also put on regular,
discrete analysis of indi vidual customers.
Receivables arising from specifc pro ducts provided
by the subsidiaries repre sent specialised fnancial pro-
ducts that require their own risk manage ment techniques
refecting their specifcs. These largely include factoring
receivables, leasing receivables, instalment sales,
loans issued to fnance the acquisition of securities and
construction savings loans. The portfolios of these pro ducts
are regularly monitored both on an indi vidual basis (for
individually signifcant exposures) and a portfolio basis.
With the exception of a limited number of borderline cases, the imple-
mented breakdown of the portfolio corresponds to the asset classes as
defined in CNB Regulation 123/2007 which implements the BASEL
II rules.
For the purpose of provisioning, monitoring and predicting losses, the
Group differentiates between individually significant and individually
insignificant exposures. The credit risk attached to individually signif-
icant exposures is managed on an indi vidual basis with the minor use
of portfolio models. The Group aggregates individually insignificant
exposures into portfolios and manages the risk on a portfolio basis.
Individually significant loans predominantly include loans from the
Groups corporate portfolio. These loans are additionally split into
the following sub-portfolios:
Large corporate clients with an annual turnover
exceeding CZK 1,000 million (the exposure of which is
managed using a unifed method throughout Erste Group
Bank and its subsidiaries (the Erste Group) or at the Group
level);
Project fnance and corporate mortgages;
Small and medium sized enterprises (turnover from CZK 30
to 1,000 million);
Municipality loans; and
Loans in the Workout Department.
Corporate loans match the corporate or special funding asset class
(segment) under BASEL II.
Individually insignificant loans (below CZK 5 million), including
MSE loans, principally encompass the Groups retail loans. These
loans are divided into 16 pro duct portfolios. The key portfolios include
mortgage retail loans, credit card loans, overdraft loans and consumer
loans. The Groups retail loans match the Retail asset class (segment)
under BASEL II.
Collection of Key Risk Manage ment Information
In managing credit risk, the Group refers not only to the Banks port-
folio information but also the portfolio information of other members
of the Group. The Group also uses information obtained from external
sources such as credit bureaus or ratings provided by reputable rating
agencies. This data provides a basis for modelling credit risk and
supports debt recovery, valua tion of receivables and the calculation
of credit losses.
The internal ratings of the Group reflect the ability of counterparties to
meet their financial obligations. The degree of risk is reflected in the
internal rating and corresponding probability of default of the debtor
in the following twelve months. The definition of default is in line with
the requirements set out in CNB Regulation 123/2007 (BASEL II).
The Group allocates internal ratings to all clients with credit exposures.
The Group uses the rating scale with thirteen grades for non-defaulted
counterparties and one grade for default counterparties (internal rating
R). In the case of private individuals there are only eight rating
grades for non-defaulted clients.
126
To allocate the internal rating grade the Group uses several rating models for different counterparty segments. All rating models comply
with Erste Group Bank standards:
Segment Rating tool
Government (sovereign) and banking
Unifed model for the whole Erste Group. The model places great emphasis on
independent external ratings combined with other information
Specialized fnancing
Unifed model for the whole Erste Group, which is prima rily based on projected cash
fows
Corporate customers Rating based on fnancial information and soft factors
MSE
In addition to the fnancial results of the company, information about the enterprise
owner or the entrepreneur himself is also taken into account
Individuals Behavioural and application scoring
Municipal clients Model based on budget analysis
The Group reviews ratings on a regular basis. The ratings of coun-
terparties from the banking, corporate and sovereign segments are
reviewed at least annually. For retail customers the Group has
develo ped a behavioural rating and the client ratings are updated
monthly.
The rating instruments are periodically adjusted to reflect changing
economic conditions and the Groups business plans, validation
(consistency of results testing) and performance testing undertaken
by the Credit Risk Controlling Department.
In the case of counterparties with an external rating provided by an
external rating agency, the Group uses this information as an addi-
tional source of information. Based upon its historical experience,
the Group has created a transfer bridge between its own internal
ratings and the external ratings.
In addition to the internal ratings outlined above, the Group allo-
cates each exposure a risk group according to CNB Regulation
No. 123/2007. In accor dance with this regulation, the Group main-
tains five groups of risk profiles namely, standard, watch, sub-
standard, doubtful and loss.
In compliance with the regula tory requirements arising from BASEL
II, rating instruments are subject to annual validations performed
by the Credit Risk Controlling Department, Erste Group Bank
Competence Centre and Internal Audit. The application of internal
rating tools is limited for certain specialised pro ducts provided by
the subsidiaries, hence the internal rating tools are not used by all
of the entities included in the Group, specifically s Autoleasing a. s.,
Erste Factoring, a. s. and brokerjet esk spoitelny, a. s. The prin-
cipal reason relates to the lack of appropriate input data used in
arriving at the internal rating and monitoring receivables which the
clients are obliged to provide to the Group. As such, these pro ducts
require an increased level of loan colla teral.
Exposure limits
Exposure limits are defined as the maximum exposure that the
Group may accept in respect of a client with a given rating and
underlying colla teral. In setting the system of limits, the Group
strives to protect its revenues and capital from concentration risk.
Concentration risk is measured as the potential loss that may arise
from an exposure to the top twenty groups to which the Group
records the highest exposure (the potential loss is determined
by using Credit VaR methodo logy with a one-year horizon and
a reliability corresponding to a one-sided 95% percentile of loss
distribution) and several other indicators (especially exposure to
economically related parties) for which limits have been esta blished.
The VaR of the twenty groups to which the Bank records the highest
exposure decreased from 1.2% to 0.8% in 2013 in comparison to
2012. Decrease of VaR 95% to Tier 1 capital ratio (from 0.9% in
2012 to 0.6% in 2013) was positively influenced by decrease of
concentration risk and additionally strengthened Tier 1 capital by
+8.2 CZK bio.
The structure of approval authorities is based on the materiality
of the impact of a potential loss from a provided exposure on the
Groups financial performance and the risk profile of the rele-
vant loan transaction. The highest approval authorities rest with
the Credit Committee of the Board of Directors, with the Credit
Committee of the Supervisory Board only having an advisory role.
Lower approval authorities are categorised taking into account the
seniority of the staff of the Corporate Credit Risk Manage ment
Department and the Retail Credit Risk Manage ment Department.
Risk Parameters
The Group uses its own internal models in determining the risk
parameters, namely PD, LGD and CCF risk parameters. All of
the models are develo ped according to BASEL II requirements
and were subject to review by the regulator. The monitoring of
historical risk parameters and their prediction serve as a basis for
the quantitative manage ment of portfolio credit risk.
The Group currently employs risk parameters for portfolio mon-
itoring, non-performing (defaulted) loan portfolio manage ment,
portfolio protection measurement, risk valua tion and prediction
of the Groups risk profile development under different scenarios.
All models are back tested at least annually and validated by the Banks
specialists who are independent of the Risk Manage ment Department.
127
Impairment Allowance for Loan Losses
The Group recognises impairment allowances for incurred losses.
These losses are determined and recognised in accor dance with IAS
39. The Group uses adjusted risk parameters estimated as part of the
implementation of the BASEL II rules to assess the amount of loss.
Loan loss impairment allowances are determined for all impaired
loans. The impairment methodo logy is regularly reviewed and
adjusted if necessary.
Manage ment of Credit Risk in the Trading
Portfolio
The credit risk inherent in the trading portfolio is managed through
the limits system applied to all counterparties.
Colla teral
The Group defines colla teral as assets that can be realized in case the
primary source of repayment fails. Collateralisation of the Groups
receivables arising from lending transactions is governed by the
following principles: Collateralisation of the Groups receivables
repre sents the Groups protection as a creditor that may be used as
a secon dary source of payment. The selection of indi vidual colla-
teral instruments required to secure a specific deal depends on the
Groups loan pro ducts, requirements and professional assessment
by the Groups responsible employees. The possibility to pledge
the colla teral is always assessed before the colla teral is accepted
by the Group.
The value of colla teral (nomi nal value of colla teral) is determined
with reference to the market prices of simi lar types of colla teral. If
more than one market price for the colla teral is determined using
vari ous valua tion techniques in a particular business transaction,
the lowest market price is used.
If the colla teral instrument involves real estate, movable assets,
a business or its branch, trademarks, an asset declared as a his-
torical monument, antiquities, paintings, jewels, manuscripts,
etc., the price has to be determined on the basis of an appraisal
made by an expert appraiser contracted by the Group or an inter-
nal appraiser for the purpose of evaluating the loan application.
The expert appraisal or price estimate must not be older than six
months at the date on which the loan contract is entered into.
For real estate valua tion purposes a detailed, in-house methodo-
logy is used.
The realisable value of colla teral is determined by using the valua-
tion rates set in the Colla teral Catalogue. In determining the valua-
tion rates, it is necessary to assess indi vidual instruments by their
specific features, e.g. real estate by the character of its construction,
etc. and always following a physical inspection. The overall setup
of maximum valua tion rates is reviewed annually.
The expert valua tion always has to be reviewed. Other conditions
taken into account in determining the realisable value of colla teral
are, among others, as follows:
A comprehensive assessment of all available and, with
respect to the particular case, signifcant circumstances
and background documentation;
Any insurance or pledges of receivables from insurance
proceeds in favour of the Group;
The possibility of realising the colla teral at a particular time
and place and the amount of realisation costs which, in most
cases, needs to be viewed as a sale in distress; and
Comparison to market trends.
The Colla teral Catalogue also includes requirements for the peri-
odic revaluation of colla teral. Typically, the colla teral value is
analysed and updated upon the regular monitoring/credit review
of clients. With respect to pro duct portfolios of retail mortgages,
the Group uses portfolio models for updating nomi nal colla teral
values. In addition, the Group regularly monitors the loan-to-value
ratio, mainly in respect of mortgage loans and project financing
loans.
Credit Risk Pricing
The accepted risk is reflected in risk margins used in the pricing of
indi vidual types of counterparties and deals. The risk margins are
based on estimated risk parameters, the expected development of
the macroeconomic environment and changes in the credit process
within the Group, which may have an impact on risk level within
the credit portfolio.
Stress Testing
The Group regularly performs stress testing of the sensitivity of its
portfolio to the deterioration of the credit quality of receivables. In
addition to the sensitivity of the portfolio to stress changes in the
PD and LGD risk factors, the Group performs scenario analy ses
modelling the impact of adverse developments in macroeconomic
factors (such as changes in the economic growth rate, changes in
interest rates and changes in inflation). The breakdown of credit
risk by industries is shown in Note 44.1 b).
Restructuring
Restructuring of doubtful loan receivables reflects the Groups
business decisions. Any receivable whose terms and conditions
have been renegotiated because of the debtors distress is consi-
dered restructured. Renegotiations of loan terms and conditions
include payment schedule changes (deferrals and reductions of reg-
ular payments, extended maturities, etc.), interest rate reductions,
penalty interest waivers, or the provision of a new loan specifically
for the repayment of the doubtful receivable.
Restructuring is only possible on the basis of a new loan agree-
ment. Restructured debt initially receives an internal rating of R.
Rating improvement is possible six months from the restructuring
date at the earliest. Restructured loans continue to be tested for
impairment, either individually or on a collective basis. As part
of the half-year reviews of restructured receivables, the Group
decides whether to improve the internal rating or to extend the
monitoring period by another six months.
128
Write-offs
Write-offs are generally recorded after all reasonable restructur-
ing or collection activities have taken place and the possibility
of further recovery is consi dered remote. The loan is written-off
against the related account Impairment allowance for credit risks
in the income statement. If the reason for provisioning is no longer
deemed appropriate, the redundant impairment charge is released
into income. The rele vant amount and recoveries of loans and
advances previously written-off are also reflected in the income
statement through Impairment allowance for credit risks.
a) Structure of Credit Risk by On-balance Sheet and Off-balance Sheet Items
The Group is exposed to credit risk arising from the following items:
CZK mil. 2013 2012
Credit risk exposures relating to onbalance sheet items
Cash and balances with CNB 56,950 2,907
Loans and advances to fnancial institutions 75,348 65,320
Loans and advances to customers, net of impairment allowances: 489,194 470,859
a) Retail loans 255,770 246,781
Overdraft loans 5,810 6,282
Credit cards 4,382 4,820
Other loans 58,232 60,281
Mortgage loans 152,669 137,059
Finance leases 15 70
Loans to purchase securities 298 316
b) Retail loans MSE 53,681 52,528
Overdraft loans 250 330
Municipal loans 9,638 9,927
Construction savings loans 2,171 665
c) Corporate loans 179,743 171,550
Large enterprises 54,804 52,545
SMEs 80,420 75,829
Corporate mortgages 28,372 24,098
Municipalities 12,196 13,054
Factoring 2,106 1,871
Finance leases 1,845 4,153
Positive fair value of derivative fnancial instruments 22,113 26,781
Financial assets at fair value through proft and loss
Debt trading assets 26,548 40,872
Debt fnancial assets designated upon initial reco gnition as at fair value through proft or loss 3,519 6,984
Debt fnancial assets availableforsale 81,174 64,780
Debt fnancial assets heldtomaturity 154,720 181,967
vari ous receivables included in other assets 1,799 1,286
Receivables from factoring transactions included in other assets 3,540 3,323
Receivables from securities trading included in other assets 575 384
State subsidy included in other assets 1,142 1,188
Credit risk exposure relating to offbalance sheet items
Amounts owed from guaran tees and letters of credit 21,975 19,363
Undrawn loan commitments 75,248 72,286
Total 1,013,845 958,300
The resulting credit exposure as at 31 December 2013 and 2012
repre sents a worst case scenario, without taking into account
any colla teral held or other related credit enhancements. For
pre sented assets, the exposures set out above are based on
net carrying amounts as reported in the statement of financial
position.
As shown above, 56% of the total exposure is derived from loans
and advances to financial institutions and customers (2012: 56%);
26% repre sents investments in debt securities (2012: 31%).
The Group has no outstanding exposure to the sovereign debt of
Greece, Italy, Ireland, Portugal or Spain.
129
Colla teral Securing the Above Receivables Is as Follows:
CZK mil. 2013 2012
Loans and advances to customers: 264,133 260,648
Retail loans 141,938 144,617
Retail loans MSE 20,836 22,590
Total 284,783 268,431
The value of colla teral is the lower of the colla terals nomi nal value
multiplied by a valua tion rate and the receivable balance. It is not
always certain that the estimated colla teral values will be realised.
For details of the determination of colla teral fair values, refer to
the description above.
b) Credit Risk by Indi vidual Sectors
Set out below is a summary of loans and advances to customers
and financial institutions together with debt securities by indi vidual
sectors in the distribution of the credit exposure of the Group:
CZK mil. 2013 2012
Financial institutions 192,344 19% 117,895 12%
Resident individuals 294,113 28% 282,907 29%
Trade 48,715 5% 43,632 5%
Energy sector 12,901 1% 12,313 1%
State institutions 248,151 24% 286,532 29%
Public sector 17,951 2% 11,139 1%
Construction industry 17,333 2% 17,781 2%
Hotels, public catering services 2,966 3,436
Manufacturing industry 59,214 6% 59,926 6%
Real estate 71,470 7% 70,976 7%
Agriculture 16,628 2% 15,667 2%
Transporting 12,664 1% 11,934 1%
Other 37,684 3% 42,406 5%
Subtotal 1,032,134 100% 976,544 100%
Impairment allowance for loans and advances to customers
(refer to Note 8)
(18,289) (18,244)
Total 1,013,845 958,300
130
c) Assessment of Asset Quality Using Risk Profle
As at 31 December 2013 and 2012, the Group reports the following financial assets which are neither past their due dates, nor individually
impaired, broken down by risk category:
CZK mil.
Investment
grade
Standard
monitoring
Special
monitoring
Total
(14c) (56) (78)
Retail loans/loans to households
Overdraft loans 4,829 565 164 5,558
Credit cards 3,468 422 88 3,978
Other loans 49,070 4,400 1,021 54,491
Mortgage loans 144,170 4,361 1,237 149,768
Construction savings loans 31,051 1,321 287 32,659
Leases 13 1 1 15
MSE

Overdraft loans 117 124 3 244
Mortgage loans 12,657 9,402 1,233 23,292
Other loans 9,900 14,130 1,426 25,456
Construction savings loans 290 1,829 53 2,172
Leases 150 107 21 278
Corporate loans
Large enterprises 28,410 23,441 1,779 53,630
SME 22,227 51,491 6,409 80,127
Mortgage loans 18,470 5,544 2,803 26,817
Factoring 70 1,516 409 1,995
Other 8,405 3,760 72 12,237
Total loans and advances to customers 333,595 122,414 17,006 473,015
Total loans and advances to fnancial institutions 73,813 1,319 5 75,137
Securities with external rating
Securities held for trading 26,430 26,430
Securities designated upon initial reco gnition as at fair value
2,890 2,890
Financial assets availableforsale 78,520 563 79,083
Financial assets heldtomaturity 150,581 150,581
Securities with no external rating
Securities held for trading 118 1 1 120
Financial assets designated upon initial reco gnition as at fair value
584 67 682 1,333
Financial assets availableforsale 3,212 3,212
Financial assets heldtomaturity 3,130 1,021 4,151
Total securities 265,465 68 2,267 267,800
Positive fair value of derivative fnancial instruments 19,202 2,313 585 22,100
131
CZK mil.
Investment
grade
Standard
monitoring
Special
monitoring
Total
(14c) (56) (78)
Credit cards 3,703 433 141 4,277
Other loans 49,194 5,166 1,591 55,951
Mortgage loans 125,157 6,331 2,119 133,607
Construction savings loans 33,485 1,982 584 36,051
Leases 37 3 2 42
MSE

Mortgage loans 11,737 9,142 1,104 21,983
Other loans 9,174 15,682 1,374 26,230
Construction savings loans 66 521 79 666
Leases 289 166 73 528
Corporate loans
SME 16,879 50,831 8,847 76,293
Mortgage loans 13,792 7,227 1,008 22,027
Factoring 194 1,330 229 1,753
Other 4,415 8,118 261 13,058
Securities held for trading 40,711 40,711
6,337 6,337
Financial assets heldtomaturity 173,571 637 174,208
Securities with no external rating
Securities held for trading 166 4 170
101 51 716 868
Total securities 294,269 688 1,762 296,719
Positive fair value of derivative fnancial instruments 23,201 2,743 807 26,751
132
d) Financial Assets Past Their Due Dates
As at 31 December 2013 and 2012, the Group reports the following financial assets which are past their due dates, but not individually impaired:
CZK mil.
Past due
date by less
than 30
days
Past due
date by 30
60 days
Past due
date by 60
90 days
Past due
date more
than 90
days
Total
Overdraft loans 113 46 15 8 182
Credit cards 325 23 8 356
Other loans 2,462 303 148 2 2,915
Mortgage loans 339 478 204 1,021
Construction savings loans 688 202 59 1 950
Finance leases 1 1
Subtotal 3,928 1,052 434 11 5,425
MSE
Overdraft loans 1 1
Other loans 556 146 95 35 832
Mortgage loans 9 109 106 224
Construction savings loans 3 3
Finance leases 37 9 13 47 106
Subtotal 605 265 214 82 1,166
Total retail loans 4,533 1,317 648 93 6,591
Corporate loans
Corporate customers 115 115
SME 992 184 87 149 1,412
Corporate mortgage loans 43 4 3 3 53
Factoring 111 111
Total corporate loans 1,150 188 90 263 1,691
Total 5,683 1,505 738 356 8,282
CZK mil.
Past due
date by less
than 30
days
Past due
date by 30
60 days
Past due
date by 60
90 days
Past due
date more
than 90
days
Total
Credit cards 424 35 16 9 484
Other loans 2,714 401 189 14 3,318
Mortgage loans 308 609 342 43 1,302
Construction savings loans 836 219 74 3 1,132
Finance leases 4 1 7 12
Subtotal 4,348 1,306 638 86 6,378
MSE
Overdraft loans 1 1 2
Other loans 616 227 116 49 1,008
Mortgage loans 18 312 76 2 408
Finance leases 71 25 18 51 165
Subtotal 706 565 210 102 1,583
Corporate loans
Corporate customers 1,614 489 642 2,745
SME 1,226 278 103 284 1,891
Corporate mortgage loans 1 14 5 20
Factoring 118 118
Municipalities 10 10
Total corporate loans 2,851 781 750 402 4,784
Total 7,905 2,652 1,598 590 12,745
133
e) Analysis of Individually Impaired Financial Assets
CZK mil.
Individually impaired
2013 2012
Credit cards 338 293
Subtotal 12,610 12,140
MSE
Total retail loans 16,570 16,549
Corporate loans
Corporate customers 3,122 2,975
SME 3,499 4,719
Corporate mortgage loans 2,977 3,612
Total corporate loans 9,616 11,324
Total loans and advances to fnancial institutions 242 166
Positive fair value of derivative transactions 13 30
Total 26,441 28,069
44.2 Market Risk
The Group is exposed to the impact of market risks. Market risks
arise from open positions in interest rate, currency, equity, com-
modity financial instruments and even the credit spread included in
the rele vant positions within banking book (i.e. the credit spread is
a part of a discounting factor). The value of open positions changes
subject to gene ral and specific financial market movements. The
Group is exposed to the market risk arising from open positions in
the trading book. However, a significant component of market risk
is also the interest rate risk associated with assets and liabili ties
and credit spread risk associated with marked-to-market positions
included in the banking book. There are several reasons why credit
spread was included: 1. The requirement in calculating economic
capital to include the credit spread and to cover the impact of this
risk factor; 2. A more precise calculation of security prices; and 3.
To reflect the credit rating of issuers/counterparties.
Trading book transactions in the capital, money, interbank and
derivative markets can be segmented as follows:
Client quotations and client transactions, execution of client
orders;
making); and
Managing open positions in the interbank, derivative and
capital markets arising from above mentioned activities.
The Group trades in the following derivative financial instruments
through the OTC market:
foreign currency forwards (including non-delivery
forwards) and swaps;
foreign currency options;
interest rate swaps;
Asset swaps;
Forward rate agreements;
Cross-currency swaps;
interest rate options such as swaptions, caps and foors;
Commodity derivatives; and
Credit derivatives.
In the area of exchange traded derivatives, the Group trades the
following instruments:
Bond futures;
Equity and equity indices futures;
interest rate futures;
Options in respect of bond futures.
The Group also trades, on behalf of its clients, with other less common
currency options, such as digital or barrier. Certain option contracts
or options on vari ous underlying equity baskets or equity indices
form part of other financial instruments as embedded derivatives.
Derivative financial instruments are also entered into to hedge
against interest rate risk inherent in the banking book ( interest rate
swaps, FRA, swaptions) and to refinance the mismatch between
foreign currency assets and liabili ties ( foreign exchange swaps
and cross currency swaps).
134
The majority of open positions arising from client transactions
in the Groups trading book are transferred to the Group portfo-
lio through back-to-back transactions. As such, the market risk
arising from the Groups OTC transactions is managed within
the Erste Group Bank portfolio. The Group retains in the trading
portfolio the money market risk due to liquidity manage ment
(money market), equity risk and partially a residual risk from
previously closed transactions. This residual risk is dynamically
hedged at a macro level in line with the Groups limits trading
strategy and set for market risk.
In addition to the calculation of sensitivities to indi vidual risk
factors, the Group uses the value at risk methodo logy to estimate
and manage the market risk of open positions held and to deter-
mine the maximum losses expected on these positions. The VaR
values are calculated on a confidence level of 99% for a period
of one trading day. To calculate the values, the KvaR+ system
is used along with historical simulations based on the last 520
trading days. Assuming a normal distribution of losses, VaR is
also determined for a period of one month, or possibly one year
and for higher probability levels (99.9%, 99.98%). The Board
of Directors establishes VaR limits for the trading and banking
book portfolio as the Groups maximum acceptable exposure to
market risk. For the trading portfolio VaR sub- limits (1 day, 99%)
in respect of indi vidual trading desks are esta blished and limits
for sensitivity values of the trading portfolio to indi vidual risk
factors such as foreign exchange rates, equity prices, interest rates,
volatility and other risk parameters of option contracts facilitate
the maintenance of the overall market risk profile. These limits
are approved by the Financial Market and Risk Manage ment
Committee and are monitored on a daily basis.
The market risk VaR indicator is also calculated for the banking
book using special models for current accounts and other liabili-
ties without specified maturity. The VaR (1 month, 99%) of the
banking book is reported to the Assets and Liabili ties Committee
(ALCO) on a monthly basis while compliance with the limit is
monitored by Risk Manage ment on a daily basis. The acceptable
level of risk is based on the assessment of the capital available to
cover risks based on the Internal Capital Adequacy Assessment
Process (ICAAP) methodo logy. The overall VaR is subsequently
allocated to indi vidual sub-portfolios of the banking book, taking
into account both the perspective of strategic portfolio manage-
ment and the accounting measurement of securities portfolios.
The table below summarizes the VaR values as at 31 December
2013 and 2012 on the confidence level of 99%. The table has
been extended because of the inclusion of credit spread risk into
the rele vant positions of the banking book portfolio. The table
shows only esk spoitelna, a. s. amounts:
2013
CZK mil.
Total Market
Risk
Correlation
Effect
interest
Rate Risk
foreign
Currency
Risk
Equity Risk Commodity
Risk
Credit
Spread risk
Trading book
Daily value 6 (4) 5 5
Monthly value 28 (18) 23 22 1
Average of daily values
per year
6 (3) 5 4
Average of monthly
values per year
28 (14) 21 18 1 2
Banking book
Daily value 230 (85) 194 2 12 107
Monthly value 1,080 (390) 908 7 55 500
Average of daily values
per year
220 (102) 196 4 26 96
Average of monthly
values per year
1,034 (476) 917 18 123 452
135
2012
CZK mil.
Total Market
Risk
Correlation
Effect
interest
Rate Risk
foreign
Currency
Risk
Equity
Risk
Commodity
Risk
Trading book
Average of daily values per year 12 (6) 11 7
Average of monthly values per year 58 (24) 50 31 1
Banking book
Daily value 127 (2) 126 1 2
Monthly value 595 (14) 592 7 10
Average of daily values per year 362 (11) 361 7 5
Average of monthly values per year 1,696 (56) 1,694 33 25
In addition, the Group uses stress testing or an analysis of impacts
of adverse developments in market risk factors on the market value
of the trading book and on the parts of the banking book revalued
to market values. Scenarios are develo ped on the basis of historical
experience and expert opinions of the Macroeconomic Analy ses
Department. The stress testing is undertaken on a monthly basis
and its results are reported to ALCO. In addition, the Group mon-
itors financial news, analy ses market movements and prepares for
different scenarios with respect to the position of the economy.
44.2.1. interest Rate Risk
interest rate risk is the risk that the value of financial instruments
will fluctuate due to changes in market interest rates. The Group
manages the interest rate risk of the banking (investment) book by
monitoring the repricing dates of the Groups assets and liabili ties
and using models which show the potential impact that changes in
interest rates may have on the Groups net interest income.
For monitoring and measuring the banking book interest rate expo-
sures, the Group uses a simulation model focused on monitoring
potential impacts of market interest rate movements on the net
interest income. Simulations are performed over a period of 36
months. A basic analysis focuses on the sensitivity of the net interest
income to one-off changes of market interest rates (rate shock). In
addition, the Group performs the traditional gap analysis.
In order to measure the interest rate risk exposure within the trading
portfolio, the Group uses the pre sent value of a basis point gap
(PVBP gap) defined as a matrix of sensitivity factors to interest
rates by currency for indi vidual portfolios of interest rate pro ducts.
These factors measure the portfolio market value sensitivity with
a parallel shift of the yield curve of the rele vant currency within
the predefined period to maturity. The system of PVBP gap limits
is set in respect of each interest rate pro duct portfolio by currency.
The analy ses noted above are performed on a monthly basis. The
current level of the interest rate risk exposure is assessed by ALCO
on a monthly basis in the context of the overall development of
financial markets and the Czech banking sector, as well as any
structural changes in the Groups statement of financial position.
The following table is based on the exposure of the Group to interest
rates for derivative and non-derivative instruments as of the report-
ing date. The model assumes a fixed structure of the statement of
financial position according to interest rate sensitivity. The deter-
mined changes which occurred at the beginning of the year are
constant during the reported period, i.e. the model is based on the
assumption that the funds released as a result of the payment or
sale of interest rate assets and liabili ties will be re-invested in assets
and liabili ties with the same interest rate sensitivity and residual
maturity. A new calculation method which also takes credit spreads
into account was implemented from 2014. The following table
shows the impact on the income statement and other comprehen-
sive income of the Group if the CZK or EUR yield curves sharply
increased/decreased by 100 points at the beginning of the respective
year and other interest rates remained unchanged. Figures reported
for 2013 were recalculated in order to have a basis for year-to-year
comparison.
CZK mil.
2014 2013
interest rate
increase
interest rate
decrease
interest rate
increase
interest rate
decrease
CZK
Income statement 1,622 (490) 1,506 (789)
Other comprehensive income (631) 573 (292) 206
EUR
Income statement 9 (4) 194 (83)
Other comprehensive income (130) 116 (55) 21
136
44.2.2. foreign Currency Risk
foreign currency risk is the risk that the value of financial instru-
ments in both the trading and banking books will fluctuate due to
changes in foreign exchange rates. The Group manages this risk by
establishing and monitoring limits on open positions, also including
delta equivalents of currency options. In addition, the Group mon-
itors special sensitivity limits for foreign currency option contracts
known as greeks sensitivity analysis. The foreign currency risk
of all financial instruments is transferred via the currency posi-
tions which are managed by the Trading Department in accor dance
with set currency sensitivity limits. In addition to the monitoring
of limits, the Group uses the VaR concept for measuring the risk
arising from open positions in all currency instruments (refer to
Note 44.2).
foreign currency exposures are prima rily carried by the Bank and
real estate companies within the Group as they generate the bulk
of their rental income in EUR. The foreign currency risk of other
Group entities is limited. With regard to real estate companies,
the Group uses inherent hedging where the companies exposed
to foreign currency risk as a result of EUR denomi nated rental
income are refinanced by loans denomi nated in EUR.
44.2.3. Equity Risk
To monitor and manage the equity risk inherent in the trading and
banking books, the Group uses VaR methodo logy and sensitivity
analysis which is based on the exposure to the risk of changes in the
price of shares as of the reporting date. With respect to the increased
volatility of share prices, the equity risk repre sents a significant
component of risks despite smaller volu mes of share positions.
44.2.4. Commodity Risk
The commodity instruments appear solely in the trading portfolio
as supporting instruments for client transactions. These commodity
derivatives repre sent sporadic transactions within the Groups port-
folio and are secured on a back-to-back basis with a third party.
44.3 Liquidity Risk
Liquidity risk is the risk that the Group will not be able to raise
sufficient funds to satisfy its financial liabili ties when they mature
or to finance its assets. The Groups short-term liquidity posi-
tion is monitored and managed based on expected cash flows
and adjusting the structure of interbank deposits and placements
accordingly and/or taking other decisions aimed at adjusting the
short term liquidity position of the Group, for example, by taking
a decision to balance the short term liquidity position in indi vidual
currencies. The short term liquidity reserve is also predicted for
the following months.
Mid- and long-term liquidity is monitored and stressed tested on
a monthly basis through the Survival Period Analysis (SPA) simu-
lation models which take into account the anticipated possibility of
renewal, preliminary repayment or sale of the Groups indi vidual
positions. The vari ous portfolios of liquidity ratios such as Basel III
LCR and NSFR ratios are monitored on a monthly basis. The results
are pre sented and discussed in the Opera ting Liquidity Committee
(OLC) and ALCO which subsequently decide on the need to take
actions with respect to the liquidity risk exposure.
137
a) Analysis of fnancial liabili ties based on remaining maturities
The breakdown of remaining contractual maturities of the Groups financial liabili ties based on undiscounted cash flows as at 31 December
2013 and 2012 was as follows:
CZK mil.
Demand and
less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
Over
5 years
Total
Non-derivative liabili ties
Amounts owed to fnancial institutions 32,083 2,839 155 12,384 18,429 65,890
Amounts owed to customers 510,965 64,399 40,904 33,235 59,351 708,854
Financial liabili ties at fair value 12,275 12,275
Bonds in issue 518 138 4,522 20,197 760 26,135
Subordinated debt 2,038 2,038
Total 555,841 67,376 45,581 65,816 80,578 815,192
Banking book derivatives
liabili ties
22,831 1,371 20, 117 44,319
Contingent liabili ties
Financial guaran tees and letters of
credit
1,606 1,861 7,672 10,073 763 21,975
Undrawn loan commitments 2,081 4,172 35,113 22,807 11,075 75,248
Total 3,687 6,033 42,785 32,880 11,838 97,223
CZK mil.
Demand and
less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
Over
5 years
Total
Non-derivate liabili ties
Amounts owed to fnancial institutions 12,426 4,956 852 9,595 20,799 48,628
Bonds in issue 1,070 215 7,789 26,940 1,058 37,072
Subordinated debt 92 2 2,299 2,393
Total 536,009 54,130 47,371 108,757 105,683 851,950
Banking book derivatives
liabili ties
10,586 763 5,143 24,609 29,066 70,167
Financial guaran tees and letters of
credit
2,336 1,851 4,570 10,024 582 19,363
Total 5,299 6,672 37,505 30,112 12,061 91,649
The maturity analysis of undiscounted contractual cash flows of
derivative financial instruments includes the remaining contractual
maturities for derivative financial liabili ties in the banking book
since these are essential for an understanding of the timing of the
cash flows.
b) Analysis of Liquidity Gaps
The liquidity gap analysis pre sented below contains the data regu-
larly pre sented to manage ment of the Group. Generally all interest
sensitive assets and liabili ties are included. interest accruals are
treated as non-sensitive items.
CZK mil. Demand and
less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
Over
5 years
As at 31 December 2013 2,225 (37,802) 38,023 88,217 28,292
As at 31 December 2012 47,895 (63,112) (13,696) (67,336) 36,124
138
44.4 Operatio nal Risk
In accor dance with CNB Regulation 123/2007, the Group defines
operatio nal risk as the risk of losses arising from the inappropriateness
or failure of internal processes, human errors or failures of systems or
the risk of losses arising from external events, including losses due to
the breach of or failure to fulfil legal regulations.
With assistance from Erste Group Bank, the Group put in place a stan-
dardised categorisation of operatio nal risks. This classification became
the basis of the Book of Risks of esk spoitelna, develo ped in
coope ration with the Risk Manage ment and Internal Audit depart-
ments. The Book of Risks is a tool used to achieve unification of
risk categorisation in order to ensure consistent risk monitoring and
evaluation.
The Group has cooperated with an external supplier in developing
a specialised software application to collect data about operatio nal risk
which conforms to the data collection requirements. The data is not
only used with a view to quantifying operatio nal risks and monitoring
trends in the development of these risks but also for the purpose of pre-
venting recurrence of operatio nal risks. In addition to monitoring actual
occurrence of operatio nal risk, the Group also pays attention to how
the operatio nal risk is perceived by manage ment. In this respect, the
Group has introduced and is further expanding methods with the aim of
identifying severe potential threats in order to implement preventative
mea sures before losses materialise. For this purpose, the following
tools are used: Risk and Control Self-Assessment, Key Risk Indicators
and Scenario Analysis. The Group also actively manages risks related
to outsourced activities. Depending on the specific method, this type
of assessment is done on a continuous, monthly or annual basis.
esk spoitelna successfully passed validation for managing of
operatio nal risk according to Advanced Measurement Approaches
(AMA). Based on this method a capital charge related to operatio nal
risk is properly computed and allocated since July 1st, 2009.
An important tool in mitigating losses arising from operatio nal risks is
the Groups insurance programme which was put in place in 2002. This
insurance programme involves insurance against pro perty damage as
well as risks arising from banking activities and liability risks. Since
2004, the Group has been a member of the Erste Group insurance
programme which enhances the insurance protection specifically with
regard to damages that may materially impact the income statement.
Top manage ment of the bank is informed quarterly about the risk
profile and the most important operatio nal risk events via the CORS
(Compliance, Operatio nal Risk and Security) committee. The chair-
man of the committee is the Chief Risk Officer (member of the Board
of Directors responsible for risk manage ment).
44.5 Capital Manage ment
With respect to the Internal Capital Adequacy Assessment Process
(ICAAP) the Group has been using the Erste Group Bank
methodo logy since 2009. This methodo logy was approved by
the Board of Directors of Erste Group Bank in December 2008
to serve as a uniform set of rules for capital manage ment within
the Group.
The Group methodo logy is continuously updated in order to reflect
the latest trends, best practices and regula tory requirements. The
Banks approach contains minor modifications driven by local
regula tory requirements or other local specifics.
Within ICAAP, all major risks are quantified and covered by
internal capital. The Groups economic capital is quantified using
a confidence level of 99.9% and a 1-year holding period. From
a modelling point of view, complex advanced approaches based on
VaR methodo logy are used for market risk, operatio nal and liquidity
risk or IRB for credit risk. The Bank also develo ped models for
other risk types (business, strategic, reputational and concentration
risk). The overall risk of the Group is calculated as the sum of indi-
vidual risk requirements, i.e. no diversification effect is consi dered
among risks as this is a more conservative approach. The resulting
aggregate risk exposure is compared to internal capital resources
derived from Pillar 1 capital resources with some adjustments
(mainly profit of the current year is added to capital resources).
Additionally, the Group performs stress testing which is used as an
additional input for internal capital adequacy assessment. Finally,
the results of the economic capital quantification are allocated to
business lines in order to compare their risk adjusted profitability.
The ICAAP results for the Group are submitted to the Board
of Directors on a quarterly basis; the Board decides on any mea-
sures to be adopted with respect to ICAAP as well as risks and
capital manage ment in gene ral.
The Group meets the internal limits approved by the Board of
Directors with a sufficient buffer.
The Group has also implemented new procedures including an
emergency response plan and recovery plans with respect to new
regula tory requirements with the aim to be well prepared for severe
unfavourable market developments and, if appropriate, to take ade-
quate mea sures in a timely manner.
esk spoitelna, a. s. in a close coope ration with Erste Group Bank
pays sufficient resources to ICAAP in order to gradually improve
the risk quantification and overall capital adequacy manage ment
system. As a result, the Group is prepared for the upcoming regula-
tory changes driven mainly by Capital Requirement Directive /
Capital Requirement Regulation, which are already reflected in
ICAAP forecasts, and Recovery and Resolution Directive.
The Group manages its capital with the objective of maintaining
a strong capital base in order to support its business activities,
to comply with all regula tory capital requirements and to ensure
a stable return for shareholders.
139
From a Pillar 1 point of view, the Groups capital principally consists
of share capital, reserve funds, retained earnings, revaluation gains
or losses and additional capital in the form of subordinated debt. For
the quantification of capital requirements, the Group uses advanced
approaches for all Pillar 1 risks. The results summarised in the table
below clearly indicate that the Group is well capitalised and has suf-
ficient capital to cover both new capital buffers (conservative and
systemic risk buffers).
A statutory reserve fund is created in compliance with current
legisla tion up to 20% of share capital depending on the legal form
of the company. Use of the statutory reserve fund is limited by
legisla tion and the articles of the Group. The fund is not available
for distribution to shareholders.
Statement of capital for the Banks capital adequacy calculation on a standalone basis per CNB methodo logy (BASEL II):
CZK mil. 2013 2012
Total capital 75,653 67,157
Original capital (Tier 1) 76,164 68,207
Of which:
Share capital (refer to Note 30) 15,200 15,200
Share premium 2 2
Reserve funds and retained earnings 64,005 55,977
Deductible items from original capital (3,043) (2,972)
Additional capital (Tier 2) 2,040 2,189
Aggregate amount of all deductible items from original and additional capital (2,551) (3,239)
Total capital requirement 75,653 33,522
Capital adequacy ratio for the year 17.73% 16.03%
Capital adequacy ratio Pillar I capital requirements 8.00% 8.00%
The Group meets the capital adequacy requirements as determined
by the regulator.
The adequacy of the Banks capital is monitored by the CNB using,
among other mea sures, the rules and ratios esta blished by the Basel
Committee on Banking Supervision which were adopted by the CNB.
45. Fair Value of Assets and Liabili ties
The following table summarises the carrying values and fair val-
ues of those assets and liabili ties not pre sented in the statement of
financial position at their fair value.
CZK mil.
Carrying
value
Estimated fair value
Level 1 Level 2 Level 3
Financial assets
Loans and advances to customers, net of impairment allowances 489,194 202 467,452
Investment pro perty 8,330 8,634
Amounts owed to fnancial institutions 73,036 70,887
Bonds in issue 26,550 28,940
As at 31 December 2012 (Reclassifed)
CZK mil.
Carrying
value
Financial assets
Loans and advances to customers, net of impairment allowances 470,859 482,168
Investment pro perty 9,561 9,830
140
As at 31 December 2012 (Reclassifed)
CZK mil.
Carrying
value
Classes of assets and liabili ties for which the carrying amount
approximates fair value are not shown in the table (cash, pay ables
and receivables from securities trading, vari ous receivables, pay-
ables from the loyalty programme, vari ous creditors, pay ables and
receivables from factoring, pay ables from payment transactions ,
other pay ables).
a) Loans and Advances to Financial Institutions
The fair value of loans and advances to financial institutions is esti-
mated as the pre sent value of discounted future cash flows, where
the applied discount factor is based on market-related interest rates.
b) Loans and Advances to Customers
Loans and advances to customers are carried net of impairment
allowances. The fair value is estimated as the pre sent value of dis-
counted future cash, where the applied discount factor is based on
market-related interest rates.
c) Securities and Other Assets Held-to-maturity
The fair value of financial assets is based on market prices or price
quotations obtained from brokers or dealers. If this information is
not available, the fair value is estimated using quoted market values
for securities with simi lar credit risk character istics, maturity or
yield rates or, as and when appropriate, according to the recover-
ability of the net asset value of these securities.
d) Investment Pro perty
The valuations of investment pro perty were performed by an
accredited independent valuer with a recognised and rele vant pro-
fessional qualification. The valua tion of investment pro perty is
carried out using the comparative and investment methods. The
assessment is made on the basis of a comparison and analysis of
appropriate comparable investment and rental transactions, together
with evidence of demand within the vicinity of the rele vant pro-
perty. The character istics of such simi lar transactions are then
applied to the pro perty, taking into account size, location, terms,
covenant and other material factors.
e) Amounts Owed to Financial Institutions and
Customers
The estimated fair value of amounts owed to financial institutions
and customers with no stated maturity which include non- interest
earning deposits, is equal to the amount payable on demand. The
fair value of fixed income deposits and other liabili ties with no
stated market value is estimated as the pre sent value of discounted
future cash flows and the applied discount factor is equal to the
interest rates currently offered on the market for deposits with simi-
lar maturities. The fair value of pro ducts with no contractually
stated maturity (such as sight deposits, passbooks, overdraft facili-
ties) is consi dered equal to their carrying value.
f) Bonds in Issue
The aggregate fair value is based on quoted market prices. The fair
value of securities where no market price is available is estimated
as the pre sent value of discounted future cash flows and the applied
discount factor is equal to the interest rate adjusted by the Banks
own credit risk.
g) Subordinated Debt
The fair value of issued subordinated debt is estimated as the pre-
sent value of discounted future cash flows and the applied discount
factor is equal to the interest rate adjusted by the Groups own
credit risk.
45.1 Fair Value Hierarchy
The following table shows the classification of financial instru-
ments at fair value in accor dance with the defined levels (refer
to Note 3.4) which were used to determine the fair value of the
financial instruments as of 31 December 2013:
CZK mil. Level 1 Level 2 Level 3 Total
Assets
Trading assets 3,306 23,244 26,550
Debt securities 3,304 23,244 26,548
Equity securities and other variable yield securities 2 2
1,240 2,874 109 4,223
Debt securities 645 2,874 3,519
Equity securities and other variable yield securities 595 109 704
Positive fair value of derivative fnancial instruments 88 22,025 22,113
Financial assets availableforsale 53,814 28,150 331 82,295
Debt securities 53,313 27,861 81,174
Equity securities and other variable yield securities 501 289 331 1,121
141
Total assets 58,448 76,293 440 135,181
Liabili ties
Financial liabili ties designated upon initial reco gnition as at fair value
14,434 14,434
Liabili ties arising from issued securities at fair value 1,818 1,818
Negative fair value of derivative fnancial instruments 24,446 24,446
The following table shows the classification of financial instruments at fair value in accor dance with the above levels which were used to
determine the fair value of the financial instruments as of 31 December 2012:
Assets
Trading assets 7,180 33,701 40,881
2,616 4,479 110 7,205
Positive fair value of derivative fnancial instruments 20 26,761 26,781
Equity securities and other variable yield securities 1,660 226 1,886
Total assets 71,726 69,471 336 141,533
Liabili ties
Trading liabili ties 3 3
Liabili ties from short sale shares 3 3
Financial liabili ties designated upon initial reco gnition as at fair value
17,903 17,903
Negative fair value of derivative fnancial instruments 26,358 26,358
Total liabili ties 3 44,261 44,264
Based on the analysis of changes of selected valua tion factors
affecting the fair value of financial instruments, the Bank does not
believe the change of input parameters to have a significant impact
on the fair value of financial instruments classified as Level 3.
142
The following tables show the changes in the fair value of financial instruments for 2013 and 2012 which is determined using valua tion
models not based on ascertainable market data (Level 3):
CZK mil. At 1
January
2013
Gains/losses from
revaluation
Pur-
chases
Sales Transfer
to / from
Level 3
At 31
Decem-
ber
2013
Unre-
alised
gains /
losses
x)
in inco-
me sta-
tement
in other
compre-
hensive
income
Assets
Securities designated upon initial
reco gnition as at fair value through
proft or loss
110 (13) 12 109 (13)
Financial assets availableforsale 226 16 109 (20) 331
Total assets 336 (13) 16 121 (20) 440 (13)
x
) Included in the income statement from instruments held as at 31 December 2013
CZK mil. At 1
January
2012
Gains/losses from
revaluation
Pur-
chases
Sales Transfer
to / from
Level 3
At 31
Decem-
ber 2012
Unre-
alised
gains /
losses
x)
in inco-
me state-
ment
in other
compre-
hensive
income
Assets
Securities designated upon initial
reco gnition as at fair value through
proft or loss
1,067 (67) (890) 110 (84)
Financial assets availableforsale 762 (31) 40 (491) (54) 226
Total assets 1,829 (67) (31) 40 (1,381) (54) 336 (84)
x
Gains and losses related to securities designated upon initial reco-
gnition as at fair value through profit or loss are reported in the
income statement in the line Other opera ting result.
Gains and losses from revaluation of financial assets available-for-sale
are reported in the statement of comprehensive income in the line
Gains/losses from revaluation of financial assets available-for-sale.
affecting the fair value of financial instruments, the Group does not
Trading assets, financial assets designated upon initial reco gnition
as at fair value through profit or loss and financial assets availa-
ble-for-sale totalling CZK 3,541 million were transferred from
Level 1 to Level 2 in 2013 (2012: 4,275 million) The reclassifi-
cation resulted from decreases in market depth for the rele vant
securities.
143
46. Current and Non-Current Assets and Liabili ties
The following table shows the distribution of assets and liabili ties to current (due within one year) and non-current (due over one year)
based on their expected maturity:
CZK mil.
2013 2012
Current Non-current Current Non-current
Assets
Cash and balances with CNB 8,784 68,797 3,159 19,342
Loans and advances to fnancial institutions 43,502 31,846 34,599 30,721
Loans and advances to customers 127,805 379,678 137,148 351,955
Impairment allowances for loans and advances (1,026) (17,263) (18,244)
Financial assets at fair value through proft or loss 26,573 4,200 43,025 5,061
Positive fair value of derivative transactions 22,063 50 26,781
Financial assets availableforsale 24,198 58,097 8,829 57,837
Financial assets heldtomaturity 14,245 140,475 52,633 129,334
Equity investments in sub sidiary and associated undertakings 109
Other assets 10,474 26,225 10,605 27,509
Total 276,618 692,105 316,779 603,624
Liabili ties
Amounts owed to fnancial institutions 38,058 34,978 11,823 32,521
Amounts owed to customers 265,922 448,055 214,012 474,612
Financial liabili ties at fair value 7,681 6,753 8,691 9,215
Negative fair value of derivative transactions 24,289 157 26,350 8
Bonds in issue 4,699 21,851 7,604 26,552
Provisions 7 2,587 92 2,159
Subordinated debt 70 2,026 73 2,189
Other liabili ties 9,669 945 10,973 217
Total 350,395 517,352 279,618 547,473
47. Offsetting Financial Instruments
The following table shows the financial assets subject to offsetting, enforceable master netting arrangements and simi lar agreements:
CZK mil. Gross
amounts of
recognised
fnancial
assets
Amounts
of fnancial
liabili ties set
off against
fnancial
assets
Net
amounts of
fnancial
assets in
the state-
ment of
fnancial
position
Related amounts not set off in the
statement of fnancial position
Net amount
after
potential
offsetting
Financial
instruments
Cash
colla teral
received
Non cash
fnancial
colla teral
received
As at
31 December 2013
Derivatives 22,113 22,113 11,393 963 9,757
Reverse repurchase
agreements
19,507 19,507 19,507
Total 41,620 41,620 11,393 963 19,507 9,757
As at
31 December 2012

Derivatives 26,781 26,781 11,348 111 15,422
Reverse repurchase
agreements
7,546 7,546 7,541 5
Total 34,327 34,327 11,348 111 7,541 15,427
The net amount after potential offsetting of derivatives
includes CZK 3,648 million related to derivative instruments
with the Ministry of Finance of the Czech Republic as at
31 December 2013 (2012: CZK 8,555 million).
144
The following table shows the financial liabili ties subject to offsetting, enforceable master netting arrangements and simi lar agreements:
CZK mil. Gross
amounts of
recognised
fnancial
liabili ties
Amounts
of fnancial
assets set
off against
fnancial
liabili ties
Net amounts
of fnancial
liabili ties in
the statement
of fnancial
position
Net amount
after
potential
offsetting
Financial
instru-
ments
Cash
colla teral
pledged
Non cash
fnancial
colla teral
pledged
As at
31 December 2013
Derivatives 24,446 24,446 11,393 9,137 3,916
Repurchase
agreements
31,995 31,995 31,993 2
Total 56,441 56,441 11,393 9, 137 31,993 3,918
As at
31 December 2012

Derivatives 26,358 26,358 11,348 12,159 2,851
Repurchase
agreements
10,367 10,367 10,347 20
Total 36,725 36,725 11,348 12,159 10,347 2,871
48. Transferred Financial Assets
The Group has no continuing involvement in financial assets that have been derecognised. The following table shows all transferred finan-
cial assets that have not been derecognised:
As at
31 December 2013
CZK mil.
Loans and
advances
to credit
institutions
Loans and
advances to
customers
Trading
assets
Financial
assets
available
forsale
Financial
assets held
tomaturity
Total
Repurchase agreements
Carrying amount of transferred assets 21,790 3,634 5,971 31,395
Carrying amount of associated liabili-
ties
8,860 23,135 31,995
Carrying amount of transferred
assets
21,790 3,634 5,971 31,395
Carrying amount of associated
liabili ties
8,860 23,135 31,995
Liabili ties that have recourse only to the transferred assets
(repurchase agreement)
Fair value of transferred assets 21,790 3,634 6,536 31,960
Fair value of associated liabili ties 8,859 23,134 31,993
Net position (8,859) (23,134) 21,790 3,634 6,536 (33)
As at
31 December 2012
CZK mil.
Loans and
advances
to credit
institutions
Loans and
advances to
customers
Trading
assets
Financial
assets
available
forsale
Financial
assets held
tomaturity
Total
Repurchase agreements
Carrying amount of transferred assets 7,853 313 1,885 10,051
Carrying amount of associated liabili-
ties
2,532 7,835 10,367
Carrying amount of transferred
assets
7,853 313 1,885 10,051
Carrying amount of associated
liabili ties
2,532 7,835 10,367

Liabili ties that have recourse only to the transferred assets
(repurchase agreement)

Fair value of transferred assets 7,853 313 2,223 10,389
Fair value of associated liabili ties 2,532 7,835 10,367
Net position (2,532) (7,835) 7,853 313 2,223 22
145
49. Contingent Assets and Liabili ties
In the ordinary course of business, the Group becomes party to
vari ous financial transactions that are not reflected in the state-
ment of financial position and are referred to as off-balance sheet
financial instruments. The following repre sent the notional amounts
of these off-balance sheet financial instruments, unless stated oth-
erwise.
It is not practicable to disclose the information about uncertainties
relating to the amounts or timing of any outflows related to con-
tingent liabili ties or the possibility of any related reimbursements.
Legal Disputes
At the reporting date the Group was involved in vari ous claims and
legal proceedings of a nature consi dered normal to its business. The
Czech legal environment is still evolving, legal disputes are costly
and their outcome unpredictable. Many parts of the legisla tion
remain untested and there is uncertainty about the interpretation
that courts may apply in a number of areas. The impact of these
uncertainties cannot be quantified and will only be known as the
specific legal disputes in which the Group is named are resolved.
The Group is involved in vari ous claims and legal proceedings of
a special nature. The Group also acts as a defendant in a number of
legal disputes filed with the arbitration court. The Group does not
disclose the details underlying the disputes as the disclosure may
have an impact on the outcome of the disputes and may seriously
harm the Groups inte rests.
Whilst no assurance can be given with respect to the ultimate out-
come of any such claim or litigation, the Group believes that the
vari ous asserted claims and litigation in which it is involved will
not materially affect its financial position, future opera ting results
or cash flows.
If, in connection with the litigation, the Group has a pre sent obli-
gation (legal or constructive) as a result of a past event and it is
pro bable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can
be made of the obligation, the Group recognises a provision for
legal disputes (refer to Note 25).
Assets Pledged
The Group pledges assets that are on its statement of financial
position in vari ous day-to-day transactions that are conducted under
the usual terms and conditions applying to such agreements.
Assets are pledged as colla teral under repurchase agreements with
other banks and customers in the amount of CZK 60,767 million
(2012: CZK 10,051 million). Mandatory reserve deposits are
also held with the local central bank in accor dance with statutory
requirements (refer to Note 5). These deposits are not available
to finance the Groups day-to-day operations.
The Group has received loans to finance investment pro perty and
pro perty under construction for which it has pledged real estate
of CZK 3,933 million (2012: CZK 5,990 million) as collaterals
(refer to note 14 and 15).
Commitments to Extend Credit and
Commitments from Guaran tees and Letters of
Credit
Guaran tees and standby letters of credit, which repre sent irrevo-
cable assurances that the Group will make payments in the event
that a customer cannot meet its obligations to third parties, carry
the same credit risk as loans. Documentary and commercial letters
of credit, which are written undertakings by the Group on behalf
of a customer authorising a third party to draw drafts on the Group
up to a stipulated amount under specific terms and conditions, are
collateralised by the underlying shipments of goods to which they
relate and therefore carry less risk than a direct borrowing.
Commitments to extend credit repre sent unused portions of clients
authorisations to extend credit in the form of loans, guaran tees or
letters of credit. The credit risk attached to commitments to extend
credit repre sents a potential loss for the Group. The Group estimates
the potential loss on the basis of historical developments of CCFs,
PDs and LGDs. CCFs indicate the likelihood of the Group paying
out on a guarantee or having to grant a loan on the basis of an issued
commitment to extend credit.
Guaran tees, irrevo cable letters of credit and undrawn loan commit-
ments are subject to simi lar credit risk monitoring and credit poli-
cies as utilised in the extension of loans. Manage ment of the Group
believes that the market risk associated with guaran tees, irrevo cable
letters of credit and undrawn loan commitments is minimal.
In 2013, the Group recorded impairment allowances for off-balance
sheet risks to cover potential losses that may be incurred in connec-
tion with these off-balance sheet transactions. As at 31 December
2013, the aggregate balance of these allowances was CZK 347 mil-
lion (2012: CZK 452 million). Refer to Note 25.
CZK mil. 2013 2012
Amounts owed under guaran tees and letters of credit 21,975 19,363
Irrevo cable undrawn loan commitments 75,248 72,286
146
Opera ting Leases
The following table pre sents future cash flows from opera ting lease agreements where the Group is a lessee:
CZK mil.
Less than 1
year
1 to 5
years
Over 5 years Total
Future opera ting lease expenses 586 1,254 166 2,006
CZK mil.
Less than 1
year
1 to 5
years
Over 5 years Total
50. Segment Reporting
a) Industry Segments
The Groups segment reporting is based on Erste Group Bank
requirements for pre sentation and measurement.
Segment Structure
The Group structure of segment reporting is in line with Erste
Group Bank and has been divided into the following segments:
Retail;
Corporate Clientele;
Real Estate (RE);
Asset and Liability Manage ment (ALM);
Group Corporate Investment Banking (GCIB);
Group Markets (GM);
Corporate Center; and
Free Capital.
For segment reporting the rules used in the Groups manage ment
report apply. The report is prepared monthly for the Board of
Directors as well as for the Erste Group Bank Board of Directors.
The report is reconciled to the monthly reporting package and the
same segments used in the Groups controlling report are used for
Erste Group Bank segment reporting. Segment reporting and the
basis for accounting for any transactions between reportable seg-
ments is based on the measurement principles used in the Groups
financial statements.
Information about total segment assets and liabili ties, impairment
losses recognised for each reportable segment during the period or
their reversals is not provided to the Board of Directors.
Retail, Corporate Clientele, RE, ALM and the Corporate Center
form the main activities of esk spoitelnas finance group for
which it is prima rily responsible. Fully consolidated subsidiaries
are allocated to the respective segments in the segment report (see
the definitions below).
Retail
The retail segment comprises branch networks within which
the Bank sells pro ducts to citizens, traders, entrepreneurs and
micro-businesses. In addition, the retail segment contains the capital
results of the subsidiaries Stavebn spoitelna esk spoitelny, a. s.,
SPS Transformed Fund, and S do domu, a. s.
Retail provides services to their clients through the branch network,
external sales channels and indirect banking. The pro duct range is
very broad: from lending pro ducts to assets under manage ment.
In order to better understand the retail clients (understanding their
opportunities and meeting their needs) they are differentiated into
the following subsegments:
Mass market;
Mass affuent;
Erste Premier;
MSE; and
Municipality.
Corporate Clientele
The segment of corporate clients comprises:
SME Segment Clients with an annual turnover of
between CZK 30 million and CZK 1,000 million, where
service is provided by 13 Regional Corporate Centers;
LLC Segment (Local Large Corporates) Clients with an
annual turnover above CZK 1,000 million (active mainly
in the Czech Republic), where service is provided from the
headquarters in Prague;
Non-proft sector Clients from non-governmental
organizations (organizations that are neither part of the
government nor conventional proft generating businesses)
such as foundations, political parties, churches, trade
unions. Service is provided from the headquarters in
Prague; and
Public sector Governmental (mainly state branches,
counties, statutory towns, health insurance funds, state
funds, public universities and cities). Service is provided
from the headquarters in Prague and by the Regional
Corporate Centres (for cities, public universities and health
care organizations).
In addition, the segment contains the capital results of the sub-
sidiaries s Autoleasing, a. s., Factoring esk spoitelny, a. s.,
Erste Leasing, a. s. and REICO investin spolenost esk
spoitelny, a. s.
Real Estate
The real estate segment covers commercial pro perty projects
financed by esk spoitelnas finance group. Part of this segment
is real estate funds, which focus on development projects and pro-
perty for institutional clients.
147
Asset and Liability Manage ment
The Asset and Liability Manage ment Section is responsible for the
manage ment of the statement of financial position structure (bank-
ing book) taking into account market conditions in order to monitor
the Groups liquidity position and to secure a high return from
capital. ALM also monitors the transformation margin that arose
as a result of the mismatch in the statement of financial position
from a time and currency perspective. The transformation margin,
as well as ALMs own activities (financial assets held-to-maturity,
financial assets available-for-sale, financial assets designated upon
initial reco gnition as at fair value through profit or loss on the asset
side and bonds issued on the liability side) are the main parts of
this segment/section.
Group Corporate Investment Banking
Group Corporate Investment Banking consists of Group Large
Corporate and Institutional Equity Sales. The group large corporate
client segment involves large corporations (clients with an annual
turnover above CZK 1,000 million) opera ting on the Erste Group
Bank markets (not only locally in the Czech Republic). The equity
sales department works for financial institutions, (e.g. investment
banks, mutual funds or insurance companies) and sells them mar-
ket investment pro ducts. The equity sales department focuses on
the sale of stocks, preferred stocks, preferred bonds, reverse repos
and other equity-related pro ducts.
Group Markets
The group markets segment is responsible for trading in foreign
exchange and interest rate pro ducts, as well as in securities for
all customer groups. Moreover, it is tasked to design and develop
pro ducts that cater to market demand in core markets. GM com-
prises the divisionalised business units such as Treasury Trading
and Treasury Sales (retail, corporate and institutional transactions).
Corporate Center
The Corporate Center segment includes the positions and items
that cannot be directly allocated to a business segment. In addi-
tion, it includes the capital result of the subsidiaries broker-
jet esk spoitelny, a. s., Czech TOP Venture Fund B.V., s IT
Solutions CZ, s. r. o., CS Investment Limited and GRANTIKA
esk spoitelny, a.s.
Free Capital
Free capital is not a segment but rather the diffe rence between the capital in the books of account and allocated capital.
CZK mil.
Retail Corporate
Clientele
Real Estate ALM Corporate
Center
Core Bank
Net interest income 18,332 3,536 614 2,823 602 25,907
Impairment allowance for credit risk (2,319) (694) (101) 9 (3,105)
Net fee and commission income 9,887 1,134 60 (258) (238) 10,585
Net trading income 360 209 19 (88) 753 1,253
Total gene ral administra tive expenses (13,910) (1,913) (93) (83) (746) (16,745)
Other opera ting result (749) (88) (5) (6) (442) (1,290)
Proft before tax 11,601 2,184 494 2,388 (62) 16,605
Income tax (2,159) (441) (94) (475) (190) (3,359)
Non-controlling interest (27) 38 11
Proft for the year attributeble to
equity holderes of the parent
9,415 1,743 400 1,913 (214) 13,257
Average riskweighted assets 140,525 132,915 21,796 2,384 35,302 332,922
Cost/income Ratio 48.67% 39.21% 13.42% 3.35% 66.79% 44.36%
ROE
(1)
53.06% 12.72% 18.16% 35.15% (6.01%) 31.08%
CZK mil.
GCIB GM Free Capital Total
Net interest income 726 376 900 27,909
Impairment allowance for credit risk (227) (3,332)
Net fee and commission income 547 162 11,294
Net trading income 54 1,375 2,682
Total gene ral administra tive expenses (304) (544) (17,593)
Other opera ting result (189) (1,479)
Proft before tax 607 1,369 900 19,481
Income tax (114) (260) (171) (3,904)
Non-controlling interest 11
Proft for the year attributable to equity holders of the parent 493 1,109 729 15,588
Average riskweighted assets 37,425 18,653 56,078
Cost/income Ratio 22.91% 28.44% 0.00% 42.00%
ROE
(1)
12.73% 39.64%
2)
16.19%
(1)
ROE = Return on equity
(2)
In the case of Free capital ROE is not calculated
148
CZK mil.
Retail Corporate
Clientele
Center
Core Bank
Net interest income 22,529 4,345 869 586 201 28,530
Net fee and commission income 10,489 1,071 40 (294) (62) 11,244
Net trading income 303 233 17 69 (198) 424
Total gene ral administra tive expenses (15,256) (1,899) (407) (81) 247 (17,396)
Other opera ting result (1,195) (200) (798) 146 17 (2,030)
Proft before tax 13,719 2,788 (612) 426 968 17,289
Income tax (2,516) (574) (303) (81) (85) (3,559)
Non-controlling interest (32) 242 (1) 209
Proft for the year attributable to equity
holders of the parent
11,171 2,214 (673) 345 882 13,939
ROE
(1)
61.74% 17.38% (30.90%) 2.94% 22.36% 28.61%
CZK mil.
Other opera ting result 19 (2,011)
Proft before tax 868 1,640 781 20,578
Income tax (166) (302) (148) (4,175)
Non-controlling interest 209
Cost/income Ratio 20.34% 26.42% 0.00% 40.98%
ROE
(1)
17.80% 39.83%
2)
19.30%
(1)
(2)
In the case of Free Capital ROE is not calculated.
The majority of revenue from external customers is generated in
the Czech Republic.
Other opera ting result shown in the table above includes Other
opera ting result and Net profit of the SPS Transformed Fund
lines from the Consolidated Income Statement for 2013. For
2012 the table shows the amount of Other opera ting result as
reported, i.e. before reclassification (refer to Notes 3.5).
149
51. Fiduciary Activities on Behalf of
Clients
a) Assets under Administration
The Group provides custody, trustee, investment manage ment and
advisory services to third parties which involve the Group making
purchase and sale decisions in relation to a wide range of financial
instruments. Those assets that are held in a fiduciary capacity are
not included in these financial statements.
At 31 December 2013, the Group administered CZK 326,891 mil-
lion (2012: CZK 308,097 million) of assets repre senting security
certificates and other assets received from customers into its cus-
tody for administration and safe keeping, split as follows:
CZK mil. 2013 2012
Customer securities in custody 138,582 117,884
Other values in custody 50 5
Customer securities under administration 159,759 170,688
Customer securities for safekeeping 1
Total customer assets under administration 298,391 288,578
Other customer securities in custody 26 79
Assets received for manage ment 28,474 19,440
Total 326,891 308,097
Customer securities for safe-keeping does not include bills of
exchange and other securities collateralising loans and other assets
that do not relate to the provision of investment services.
The Group also acts as a depositary for several mutual, investment
and pension funds, whose assets amounted to CZK 177,603 million
as at 31 December 2013 (2012: CZK 161,015 million).
b) Pay ables Arising from the Provision of
Investment Services
Investment services involve receiving and providing instructions
related to investment instruments, performing instructions relat-
ing to investment instruments to a third party account, proprietary
trading with investment instruments, manage ment of customer
assets under a contractual arrangement with the client if these
assets include an investment instrument, and investment instrument
underwriting or placement.
Additional investment services involve administration and cus-
tody of investment instruments, issuing loans to the client for the
purpose of trading with investment instruments if the issuer of
the loan takes part in the transaction, advisory services relating to
capital structuring, industrial strategy, investments in investment
instruments, provision of advice and services related to mergers
and acquisitions, implementation of foreign exchange transactions
relating to the provision of investment services, services related
to the underwriting of investment instrument issues and rental of
safety-deposit boxes.
In connection with the provision of these services, the Group
received cash and investment instruments from clients or obtained
cash or investment instruments for its clients (customer assets) in
exchange for these values, which amounted to CZK 298,391 mil-
lion as at 31 December 2013 (2012: CZK 288,578 million), includ-
ing advances received, customer assets were CZK 300,467 million
(2012: CZK 290,421 million).
52. Related Party Transactions
Related parties involve connected entities or parties that have a spe-
cial relationship to the Group.
Parties are consi dered to be related if one party has the ability to
control the other or exercise significant influence over the other in
making financial or operatio nal decisions. The Group is controlled
by Erste Group Bank over which DIE ERSTE sterreichische
Spar-Casse Privatstiftung (Erste Stiftung) exercises significant
influence. The remaining investment in Erste Group Bank AG is
held by minority shareholders and institutional investors via pub-
licly traded shares on the stock exchanges in Vienna, Prague and
Bucharest.
The parties that have a special relationship to the Group are consi-
dered to be members of the Groups statutory and supervisory
bodies and manage ment, legal entities exercising control over the
Group (including entities with a qualified interest in these entities
and manage ment of these entities), persons closely related to the
members of the Groups statutory and supervisory bodies, manage-
ment, and entities exercising control over the Group, legal entities
in which any of the parties listed above holds a qualified interest,
entities with a qualified interest in the Group and any other legal
entity under their control, members of the CNBs Banking Board,
and legal entities which the Group controls.
Pursuant to the definitions outlined above, the categories of the
Groups related parties principally comprise Erste Group Bank,
members of its Board of Directors and Supervisory Board, and
other related parties, which include companies directly or indirectly
controlled by Erste Group Bank.
A number of banking transactions are entered into with related
parties in the normal course of business. These principally include
loans, deposits and other transactions. These transactions were
carried out on an arms length basis and were settled exclusively
150
in cash. The interest rates charged to and by related parties are at
normal commercial rates. Outstanding balances at the year-end
are unsecured.
Guaran tees received repre sent payment guaran tees related to the
Banks credit exposures. Issued guaran tees relate to amounts owed
by the Banks subsidiaries to financial institutions outside of the
Group. They are provided under standard market conditions.
For the year ended 31 December 2013 the Group has not made any
provision for doubtful debts relating to amounts owed by related
parties (2012: CZK 0).
The Group has the following amounts due from/owing to related parties as at 31 December 2013 and 2012:
CZK mil.
2013 2012
Erste Group
Bank
Members of
the Board
of Direc-
tors and
Supervisory
Board
Other Erste Group
Bank
Members of
the Board
of Direc-
tors and
Supervisory
Board
Other
Assets
institutions
28,688 1,819 27,485 1,588
Loans and advances to customers 37 226 37 237
Financial assets at fair value through
proft or loss
185 181
Financial assets heldtomaturity
Positive fair value of derivative
fnancial instruments
3,736 434 4,457 68
Other assets 10 94 35 44
Total assets 36,823 37 2,573 34,888 37 1,937
Liabili ties
Amounts owed to fnancial institutions 25,203 717 4,416 592
Amounts owed to customers 32 585 22 603
Negative fair value of derivative
fnancial instruments
6,184 5,839 3
Bonds in issue
Subordinated debt
Other liabili ties 15 101 65 54
Total liabili ties 31,402 32 1,403 10,320 22 1,252
Revenues
interest income 649 2 10 706 2 27
Fee and commission income 7 410 42 387
Net trading result 1,156 356 1,566 24
Total other opera ting income 37 17 50
Total income 1,849 2 793 2,314 2 488
Expenses
interest expense 65 11 179 57
Fee and commission expense 110 76
Gene ral administra tive expenses 53 83 612 44 59 796
Other opera ting expenses
Total expenses 118 83 733 223 59 929
The column Erste Group Bank includes related party transactions
between the Group and Erste Group Bank while the column Other
includes transactions with all other companies that are included in
the consolidated Erste Group. Information on associates and joint
ventures is not material.
151
53. Dividends
Manage ment of the Bank has proposed that total dividends
of CZK 9,120 million be declared in respect of the profit for the
year ended 31 December 2013, which repre sents 60 CZK per both
ordinary and prefe rence share (2012: CZK 7,600 million, that is,
CZK 50 per both ordinary and prefe rence share). The declaration
of dividends is subject to the approval of the Annual Gene ral
Meeting. Dividends paid to shareholders are subject to a with-
holding tax of 15% or a percentage set out in the rele vant double
tax treaty. Dividends paid to shareholders that are tax residents of
an European Union member country and whose interest in a sub-
sidiarys share capital is no less than 10% and that hold the entitys
shares for at least one year are not subject to withholding tax.
54. Subsequent Events
In the statement of financial position as at 31 December 2013 the
Group shows subordinated debt amounting to CZK 2,096 mil-
lion (refer to Note 28). From 1 January to 28 February 2014
the Bank repurchased a part of this debt in the nomi nal amount
of CZK 941 million for the price approximately equal to the nomi-
nal amount.
152
Independent Auditors Report | Separate Statement of Financial Position | Independent Auditors Report
Separate Financial Statements
Prepared in Accor dance with International Financial Reporting
Standards as Adopted by the European Union
Financial Section 2
Separate Statement of Financial Position 154
Income Statement 155
Statement of Comprehensive Income 156
Statement of Changes in Shareholders Equity 156
Statement of Cash Flows 157
Notes to the Separate Financial Statements 159
153
Ernst & Young Audit, s. r. o. with its registred offce at Na Florenci 2116/15, 110 00 Prague 1 Nov Msto,
to the Shareholders of esk spoitelna, a. s.
We have audited the accompanying financial statements of esk spoitelna, a. s., which comprise the statement of financial position as at
31 December 2013, and the income statement, statement of comprehensive income, statement of changes in shareholders equity and state-
ment of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. For details
of esk spoitelna, a. s., see Note 1 to the financial statements.
Manage ments Responsibility for the Financial Statements
Manage ment is responsible for the preparation and fair pre sentation of these financial statements in accor dance with International Financial
Reporting Standards as adopted by the European Union, and for such internal control as manage ment determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accor dance with the
Act on Auditors and International Standards on Auditing as amended by implementation guidance of the Chamber of Auditors of the Czech
Republic. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
as to 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 proce-
dures selected depend on the auditors judgment, including an 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 rele vant to the entitys preparation
and fair pre sentation 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 entitys internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by manage ment, as well as evaluating the overall pre-
sentation 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 financial statements pre sent fairly, in all material respects, the financial position of esk spoitelna, a. s. as at
31 December 2013, and its financial performance and its cash flows for the year then ended in accor dance with International Financial
Reporting Standards as adopted by the European Union.
Ernst & Young Audit, s.r.o.
License No. 401
Repre sented by Partner
Roman Hauptfleisch
Auditor, License No. 2009
4 March 2014
Prague, Czech Republic
154
Separate Statement of Financial Position
Independent Auditors Report | Separate Statement of Financial Position | Income Statement
Assets
Assets
1. Cash and balances with the Czech National Bank 4 76,441 21,491
2. Loans and advances to fnancial institutions, net 5 49,384 47,975
3. Loans and advances to customers 6 472,886 451,471
4. Impairment allowance for loans and advances to customers 7 (16,679) (16,795)
Net loans and advances to customers 456,207 434,676
5. Financial assets at fair value through proft or loss 30,652 48,025
a) Trading assets 8 26,551 40,881
b) Financial assets designated at fair value through proft or loss 9 4,101 7,144
6. Positive fair value of derivative transactions 10 22,210 26,994
7. Financial assets available-for-sale 11 61,158 45,671
8. Financial assets held-to-maturity, net 12 134,380 159,955
9. Equity investments in sub sidiary and associate undertakings 13 5,968 6,396
10. Pro perty and equipment 14 13,732 12,686
11. Intangible assets 15 3,043 2,936
12. Income tax receivable
13. Deferred tax asset 25 2
14. Other assets 16 2,702 1,990
Total assets 855,879 808,795
Liabili ties and Shareholders Equity
Liabili ties and shareholders equity
1. Amounts owed to fnancial institutions 17 97,830 63,671
2. Amounts owed to customers 18 568,470 549,406
3. Financial liabili ties at fair value 14,434 17,906
a) Trading liabili ties 19 3
b) Financial liabili ties designated at fair value through proft or loss 20 14,434 17,903
4. Negative fair value of derivative transactions 21 24,294 26,222
5. Bonds in issue 22 43,216 51,488
6. Provisions 23 2,460 2,150
7. Income tax liability 347 102
8. Deferred tax liability 25 172
9. Other liabili ties 24 6,531 7,823
10. Subordinated debt 26 2,096 2,262
11. Shareholders equity 27 96,201 87,593
Total liabili ties and shareholders equity 855,879 808,795
The accompanying notes are an integral part of these financial statements.
Separate Financial Statements
155
Income Statement
1. interest and simi lar income 29 31,535 33,681
2. interest and simi lar expense 30 (4,043) (5,775)
Net interest and simi lar income 27,492 27,906
3. Impairment allowance for credit risk 31 (2,951) (3,376)
Net interest income after impairment allowance for credit risk 24,541 24,530
4. Fee and commission income 32 14,617 14,970
5. Fee and commission expense 33 (3,567) (3,330)
Net fee and commission income 11,050 11,640
6. Net trading result 34 2,593 2,245
7. Personnel expenses 35 (7,908) (7,699)
8. Other administra tive expenses 35 (6,451) (7,197)
9. Depreciation and amortisation 35 (1,950) (2,052)
Total gene ral administra tive expenses 35 (16,309) (16,948)
10. Other opera ting result 36 (1,940) (2,180)
11. Income tax expense 38 (3,715) (3,725)
The accompanying notes are an integral part of these financial
statements.
These financial statements were prepared by the Bank and approved
for issue by the Board of Directors on 4 March 2014 and are subject
to approval at the Gene ral Meeting of shareholders.
Pavel Kysilka Wolfgang Schopf
Chairman of the Board Vice Chairman of the Board
Independent Auditors Report | Income Statement | Statement of Comprehensive Income
156
Statement of Comprehensive Income
CZK mil. Note 31
December
2013
31
December
2012
1. Proft for the year 16,220 15,562
Other comprehensive income
Items that may be subsequently reclassifed to proft or loss:
Revaluation of fnancial assets available-for-sale 37, 28 (109) 1,272
Deferred tax 25, 28, 38 21 (242)
Net (loss)/gain on revaluation of fnancial assets available-for-sale (88) 1,030
Deferred tax 38 (2)
Net gain on cash fow hedges 9
2. Other comprehensive income after tax (79) 1,030
3. Total comprehensive income for the year after tax 16,141 16,592
Statement of Changes in Shareholders
Equity
CZK mil. Retained
earnings
Revaluation
of fnancial
assets
availablefor
sale
Cash
fow
hedges
Statutory
reserve
fund
Share
premium
Share
capital
Total
equity
At 1 January 2012 57,496 (187) 3,040 12 15,200 75,561
Other comprehensive income after tax 1,030 1,030
Dividends (4,560) (4,560)
At 31 December 2012 68,498 843 3,040 12 15,200 87,593
Other comprehensive income after tax (88) 9 (79)
Dividends (7,600) (7,600)
Retained earnings of the dissolving
company
67 67
At 31 December 2013 77,185 755 9 3,040 12 15,200 96,201
Income Statement | Statement of Comprehensive Income, Statement of Changes in Shareholders Equity | Statement of Cash Flows
157
Statement of Cash Flows
Adjustments for Non-cash transactions
Creation of impairment allowances for loans and advances 31 3,270 4,281
Depreciation and amortisation 35 1,950 2,052
Unrealised net (proft)/loss on fnancial assets at fair value through proft or loss and
liabili ties at fair value
(264) 684
Creation of impairment allowances against equity investments 36 497 1,094
Change in fair values of derivatives 2,804 (1,713)
Gain on the sale of real estate 36 (25) (53)
Accrued interest, amortisation of discount and premium 745 225
Other non-cash transactions (232) 477
Opera ting proft before changes in opera ting assets and liabili ties 28,680 26,334
Cash fows from opera ting activities
(Increase)/decrease in opera ting assets
Deposits with the CNB (6,924) 10,478
Loans and advances to fnancial institutions (1,193) 21,886
Loans and advances to customers (26,256) (14,388)
Financial assets at fair value through proft or loss 22,550 (13,331)
Financial assets available-for-sale (4,784) (29,876)
Other assets (549) 1,389
Increase/(decrease) in opera ting liabili ties
Amounts owed to fnancial institutions 35,788 (5,014)
Financial liabili ties at fair value (3,472) 1,448
Other liabili ties (1,398) (3,507)
Net cash fow from opera ting activities before income tax 61,920 21,412
Income tax paid (3,780) (2,825)
Net cash fow from opera ting activities 58,140 18,587
Cash fows from investing activities
Purchase of fnancial assets held-to-maturity (29,893) (40,879)
Proceeds from the disposal of fnancial assets held-to-maturity 47,570 38,759
Proceeds from the sale of equity investments 845 562
Purchase of equity investments (962) (1,318)
Purchase of tangible and intangible assets (1,759) (2,009)
Proceeds from the sale of tangible and intangible assets 59 210
Net cash fow from investing activities 15,860 (4,675)
Statement of Changes in Shareholders Equity | Statement of Cash Flows | Notes to the Separate Financial Statements
158
Cash fows from fnancing activities
Proceeds from bonds issued 1,925 2,497
Repurchase of bonds in issue (10,140) (12,850)
Redemption of subordinated debt (169) (266)
Net cash fow from fnancing activities (15,984) (15,179)
Net increase/(decrease) in cash and cash equivalents 58,016 (1,267)
Cash and cash equivalents at beginning of year 35,907 37,874
Cash and cash equivalents at end of year 39 93,923 36,607
Cash Flows From interest and Dividends
Dividends received 1,881 838
interest received 30,359 33,218
interest paid 4,385 (5,853)
Statement of Changes in Shareholders Equity | Statement of Cash Flows | Notes to the Separate Financial Statements
159
1. Introduction
esk spoitelna, a. s. (the Bank), having its registered office
address at Olbrachtova 1929/62, Prague 4, 140 00, Corporate
ID 45244782, is the legal successor of the Czech State Savings
Bank and was founded as a joint stock company in the Czech
Republic on 30 December 1991. The Bank is a universal savings
bank offering retail, corporate and investment banking services
in the Czech Republic.
The Banks majority shareholder is EGB Ceps Holding GmbH,
which is a 100% sub sidiary of EGB Ceps Beteiligungen GmbH,
a wholly-owned sub sidiary of Erste Group Bank AG (Erste
Group Bank) which is the ultimate parent.
The Bank is subject to the regula tory requirements of the Czech
National Bank (CNB). These regulations include those pertain-
ing to minimum capital adequacy requirements, categorisation
of exposures and off-balance sheet commitments, credit risk
connected with clients of the Bank, liquidity, interest rate risk
and foreign currency position. The Bank offers a complete range
of banking and other financial services, such as savings and cur-
rent accounts, asset manage ment, consumer credit and mortgage
lending, investment banking, securities and derivatives trading,
portfolio manage ment, project finance, foreign trade financing,
corporate finance, capital and money market services and foreign
exchange trading.
The Bank together with its subsidiaries and associated companies
(refer to Note 13) forms the Group.
2. Basis of Preparation
The financial statements of the Bank for the 2013 financial year
and the comparative information were prepared in compliance
with applicable International Financial Reporting Standards as
adopted by the European Union (IFRS) on the basis of IAS
Regulation (EC) No. 1606/2002.
The financial statements have been prepared on a cost basis,
except for financial assets available-for-sale, derivative financial
instruments, financial assets and liabili ties held for trading, and
financial assets and liabili ties designated at fair value through
profit or loss, all of which have been measured at fair value. The
carrying values of recognised assets and liabili ties that are desig-
nated as hedged items in fair value hedges that would otherwise
be carried at amortised cost are adjusted to record changes in
the fair values attributable to the risks that are being hedged in
effective hedge relationships.
The financial statements have been prepared on a going concern
basis.
Except as otherwise indicated, all amounts are stated in millions
of Czech crowns (CZK). The tables in this report may contain
rounding differences. The Bank also prepares consolidated financial
statements in accor dance with IFRS and interpretations approved
by the IASB as adopted by the European Union which pre sent the
results of the Banks financial group.
3. Signifcant Accounting Policies
3.1 Signifcant Accounting Judgements,
Estimates and Assumptions
The financial statements contain amounts that have been determined
on the basis of judgements and by use of estimates and assumptions.
The estimates and assumptions used are based on historical experi-
ence and other factors, such as planning as well as expectations and
forecasts of future events that are currently deemed to be reason-
able. As a consequence of the uncertainty associated with these
assumptions and estimates, actual results could in future periods
lead to adjustments in the carrying amounts of the related assets
or liabili ties. The most significant use of judgement, assumptions
and estimates are as follows:
Fair Value of Financial Instruments
Where the fair values of financial assets and financial liabili ties
recorded in the statement of financial position cannot be derived
from active markets, they are determined using a variety of valua-
tion techniques that include the use of mathematical models. The
inputs to these models are derived from observable market data
where possible, but where observable market data is not available
judgement is required to establish fair values. Disclosures for valua-
tion models, the fair value hierarchy and fair values of financial
instruments can be found in Note 42.
Impairment of Financial Assets
The Bank reviews its financial assets not measured at fair value
through profit or loss at each reporting date to assess whether an
impairment loss should be recorded in the income statement. In
particular, it is required to determine whether there is objective
evidence of impairment as a result of a loss event occurring after
initial reco gnition and to estimate the amount and timing of future
cash flows when determining an impairment loss.
The Bank regularly assesses the realisable value of colla teral for
impairment. With respect to a large amount of colla teral of the same
type, the Bank uses portfolio models to determine if the realisable
Notes to the Separate Financial Statements
Statement of Cash Flows | Notes to the Separate Financial Statements | Report on Relations between Related Parties
160
value of the colla teral decreased. The Bank takes into account the
realisable value of colla teral in calculating the impairment allow-
Disclosures concerning impairment are provided in Note 41.1. The
development of loan loss impairment allowances is described in
Note 7.
Impairment of Non-Financial assets
The Bank reviews its non-financial assets at each reporting date
to assess whether there is an indication of impairment loss which
should be recorded in the income statement. Judgement and esti-
mates are required to determine the value in use and fair value
less costs to sell by estimating the timing and amount of future
expected cash flows and the discount rates. Assumptions and esti-
mates used to measure recoverable amounts used of non-financial
assets for impairment testing calculations are described in the part
Impairment of non-financial assets (pro perty and equipment, intan-
gible assets) in the Accounting Policies discussion under the Notes.
Deferred Tax Assets
Deferred tax assets are recognised in respect of tax losses and
deductible temporary differences to the extent that it is pro bable
that taxable profit will be available against which the losses can be
utilised. Judgement is required to determine the amount of deferred
tax assets that can be recognised, based upon the likely timing and
level of future taxable profits, together with future tax planning
strategies. Disclosures concerning deferred taxes are in Note 25.
Legal Provisions
The Bank is involved in a number of ongoing legal disputes, the
resolution of which may have an adverse financial impact on the
Bank. Based upon historical experience and expert opinion, the
Bank assesses the developments in these cases, and the likelihood
and amount of potential financial losses which are then appropri-
ately provided for, if necessary. Nevertheless, the actual results may
differ from the estimated losses at the reporting date. The provision
for legal disputes is disclosed in Note 23.
3.2 Changes in Accounting Policies and
Disclosures
The accounting policies adopted are consistent with those used in
the previous financial year except for standards and interpretations
which became effective for financial years beginning on or after
1 January 2013. As regards new standards and interpretations and
their amendments only those which are rele vant for the business
of the Bank are listed below.
Effective standards and interpretations
The following standards and their amendments have been manda-
tory since 2013:
Amendments to IAS 1 Pre sentation of Items of Other
Comprehensive Income
IAS 19 (revised 2011) Employee Benefits
Amendments to IFRS 7 Offsetting Financial Assets and
Liabili ties
IFRS 13 Fair Value Measurement
Annual improvements to IFRSs (issued in 2012)
Application of these standards had no material effect on the reco-
gnition and measurement methods of the Bank. However, there
were following pre sentation and disclosure impacts:
Amendments to IAS 1 led to a new way of grouping of
other comprehensive income items and their tax effects in the
statement of comprehensive income;
Amendments to IFRS 7 result in new disclosures in the area
of derivatives, repo and securities lending transactions that
are subject to netting agreements but are not off-set in the
statement of fnancial position; and
Application of IFRS 13 resulted in enhanced disclosures about
fair value measurements.
Standards and Interpretations not Yet Effective
The standards and interpretations shown below were issued by IASB
but are not yet effective. Thereof, the following standards and amend-
ments have been endorsed by the EU:
Ventures
Liabili ties
guidance
entities
Although they have been endorsed by the EU, the Bank decided
not to apply them before they become effective.
Amendments to IAS 19 Defined Benefit Plans: Employee
Contributions
Amendments to IAS 19 were issued in November 2013 and
are effective for annual periods beginning on or after 1 July
2014.
The amendments clarify that contributions from employees or third
parties that are linked to service must be attributed to periods of
service using the same attribution method as used for the gross
benefit. However, the contribution may be recognised as a reduction
in the service cost if the amount of the contributions is independent
of the number of years of service.
161
cant impact on the Banks financial statements.
After revision, only the part rele vant for indi vidual financial state-
ments was kept in IAS 27. This is due to the fact that IFRS 10
becomes the new standard rele vant for consolidated financial state-
ments. This resulted in a change of the name of IAS 27.
The revised IAS 27 is not expected to have a significant impact on
the Banks financial statements.
Ventures
Joint ventures are added into the scope of the revised IAS 28, which
also results in a change in the name of the standard. This is due to
the fact that under IFRS 11 the equity method is the only way of
including joint ventures into the consolidated financial statements.
IAS 28 revised is not expected to have a significant impact on the
Banks financial statements.
Liabili ties
Amendments to IAS 32 were issued in December 2011 and are
effective for annual periods beginning on or after 1 January 2014.
The amendments clarify the meaning of the terms currently and
settlement on net basis.
The amendments are not expected to have a significant impact on
the Banks financial statements.
Amendments to IAS 36 were issued in May 2013 and are effective
The amendments require an entity to disclose the recoverable amount
of an indi vidual asset (including goodwill) or a cash-generating unit for
which the entity has recognised or reversed an impairment loss during
the reporting period. Additional disclosures are required if the recover-
able amount is determined based on fair value less costs of disposal.
Application of these amendments will result in new disclosures
concerning recoverable amount.
Amendments to IAS 39 were issued in June 2013 and are effective
Under the amendments there would be no need to discontinue hedge
accounting if a hedging derivative was novated, provided certain
criteria are met.
cant impact on the Banks financial statements.
IFRS 9 Financial Instruments
IFRS 9 rele vant for classification and measurement of financial
assets was issued in November 2009 then supplemented by regu-
lation for financial liabili ties in October 2010. In November 2013
part for hedge accounting was issued. Currently IFRS 9 is available
for application, but there is no effective date.
IFRS 9 introduces two classification criteria for financial assets:
1) an entitys business model for managing the financial assets,
and 2) the contractual cash flow character istics of the financial
assets. As a result, a financial asset is measured at amortised cost
only if both the following conditions are met: a) the asset is held
within a business model whose objective is to hold assets in order
to collect contractual cash flows, and b) the contractual terms of
the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal out-
standing. All financial assets which do not fulfil these conditions
are measured at fair value with changes recognised in profit or
loss. For investments in equity instruments which are not held for
trading an entity may make an irrevo cable election at initial reco-
gnition to measure them at fair value with changes recognised in
other comprehensive income.
Based on changes in the business model an entity shall reclassify
all affected assets from fair value to amortised cost category or
vice versa.
The objective of the new hedge accounting model is to reflect in
accounting actual risk manage ment practices of entities hedging
risks. Significant improvements which the Bank expects to make
use of have been brought in following areas: retrospective effec-
tiveness test is no longer required and the 80125% corridor was
abandoned, when options are used as hedging instruments volatil-
ity of the time value is recognised through other comprehensive
income rather than profit or loss, possibility to hedge synthetic
positions containing derivatives.
This standard will have an effect on measurement and pre sentation
of financial instruments. As IFRS 9 has not yet been published in
its final version, its impact cannot be quantified.
162
Union, however, IFRS 10 becomes effective, at the latest, as
from the commencement date of its first financial year starting
on or after 1 January 2014. It replaces IAS 27, Consolidated
and Separate Financial Statements and interpretation SIC-12,
Consolidation Special Purpose Entities.
IFRS 10 defines the principle of control for all entities, includ-
ing those that were previously consi dered special purpose enti-
ties under SIC-12. An investor controls an investee when it is
exposed or has rights to variable returns from the investee and
has the ability to affect those returns through its power over
the investee. The assessment of control is based on all facts
and circumstances, and the conclusion is reassessed if there are
changes in those facts and circumstances.
Furthermore, IFRS 10 addresses other issues such as control with
less than majority voting rights, control solely through rights
other than voting rights, and delegated decision rights. Parts
dealing with consolidation procedures, non-controlling inte rests
and loss of control were taken over into IFRS 10 from IAS 27.
IFRS 11 was issued in May 2011 and is effective for annual
periods beginning on or after 1 January 2013. As adopted by
the European Union, however IFRS 11 becomes effective, at the
latest, as from the commencement date of its first financial year
starting on or after 1 January 2014. It supersedes IAS 31, Inte-
rests in Joint Ventures and SIC-13, Jointly-controlled Entities
Nonmonetary Contributions by Venturers.
The core principle of IFRS 11 is that a party to a joint arrange-
ment determines the type of joint arrangement in which it is
involved by assessing its rights and obligations and accounts
for those rights and obligations in accor dance with that type of
joint arrangement. IFRS 11 classifies joint arrangements as either
joint ventures or joint operations. IFRS 11 requires use of the
equity method of accounting for joint ventures by eliminating
the option to use the proportionate consolidation method. A joint
operator recognises its assets, liabili ties, revenues and expenses
separately in relation to its interest in the arrangement.
As the Bank did not apply the proportionate consolidation
method allowed in IAS 31, application of this standard is not
expected to have a significant impact on the Banks financial
statements.
after 1 January 2014.
The objective of IFRS 12 is to require disclosure of information
enabling users of financial statements to evaluate the nature of,
and risks associated with, an investors inte rests in other entities
as well as the effects of those inte rests on the investors financial
position, financial performance and cash flows. Disclosures are
provided separately for subsidiaries, joint operations, joint ven-
tures, associates, and unconsolidated structured entities. IFRS 12
is a comprehensive disclosures standard. Therefore, there are
no specific disclosure requirements in IFRS 10, IFRS 11 and
IAS 28.
Application of this standard is not expected to have a signifi-
cant impact on the Banks financial statements. However, it will
result in new disclosures especially in the area of non-controlling
inte rests.
guidance
Amendments to IFRS 10, IFRS 11 and IFRS 12 were issued in
June 2012 and their effectiveness is aligned with the effective
date of the standards.
The amendments change the transition guidance to provide further
relief from retrospective application.
nificant impact on the Banks financial statements.
entities
Amendments to IFRS 10, IFRS 12 and IAS 27 were issued in
October 2012 and are effective for annual periods beginning on
or after 1 January 2014.
The amendments provide an exemption from consolidation of
subsidiaries under IFRS 10 for entities which meet the definition
of an investment entity, such as certain investment funds. Instead,
such entities will measure their investments in subsidiaries at fair
value through profit or loss.
Annual Improvements to IFRSs 20102012 and 20112013
Cycle
In December 2013, the IASB issued two sets of amendments to
vari ous standards. The amendments are effective for annual peri-
ods beginning on or after 1 July 2014.
IFRIC 21 Levies
IFRIC 21 was issued in May 2013 and is effective for annual peri-
ods beginning on or after 1 January 2014.
163
The interpretation addresses when a liability for a levy imposed
by a government is recognised. The liability is recognised pro-
gressively if the obligating event occurs over a period of time.
If an obligation is triggered on reaching a minimum threshold, the
liability is recognised when that minimum threshold is reached.
Application of these amendments is not expected to have a signif-
icant impact on the Banks financial statements.
3.3 Summary of Signifcant Accounting
Policies
foreign Currency Translation
The financial statements are pre sented in CZK, which is the functio-
nal currency of the Bank. The functio nal currency is the currency
of the primary business environment in which an entity operates.
Transactions in foreign currencies are initially recorded at the
spot rate of exchange effective as of the date of the transaction.
Monetary assets and liabili ties denomi nated in foreign currencies
are translated at the spot rate of exchange as at the reporting date.
All resulting exchange rate differences that arise are recognised in
the income statement in the line Net trading result or in the line
Other opera ting result. Non-monetary items that are measured
in terms of historical cost in a foreign currency are translated using
the spot exchange rates as at the date of reco gnition.
For foreign currency translation, exchange rates quoted by the CNB
are used.
Cash and Balances with Central Banks
The Bank considers cash and deposits with the CNB, treasury bills
and treasury bonds with a residual maturity of three months or less
and nostro and loro accounts with financial institutions to be cash
equivalents.
Balances with central banks include only claims (deposits) against
central banks which are repayable on demand. Repayable on
demand means that it may be withdrawn at any time or with a term
of notice of only one business day or 24 hours. Mandatory minimum
reserves are also shown under this position.
Financial Instruments Reco gnition and
Measurement
A financial instrument is any contract giving rise to a financial
asset of one party and a financial liability or equity instrument of
another company. In accor dance with IAS 39, all financial assets
and liabili ties which also include derivative financial instruments
have to be recognised in the statement of financial position and
measured in accor dance with their assigned categories.
Accordingly to IAS 39 the Bank Uses the Following Categories
of Financial Instruments:
Financial assets or fnancial liabili ties at fair value through
proft or loss;
Financial assets available-for-sale;
Financial assets held-to-maturity; and
Loans and receivables.
IAS 39 categories of financial instruments are rele vant for measure-
ment and they reflect the character istics of financial instrument as
well as the Banks intention to sell or to hold them, given the Banks
ability to hold them to maturity. These categories are not necessarily
the line items pre sented in the statement of financial position due
to the fact that, in accor dance with IFRS 7, for disclosure purposes
financial instruments are grouped into classes that are appropriate
to the nature of the information disclosed and that take into account
the character istics of the financial instruments.
Specific relationships between the statement of financial position
line items and categories of financial instruments are described
in Note 40.
(i) Initial Reco gnition
Financial instruments are initially recognised when the Bank
becomes a party to the contractual provisions of the instrument.
Regular way (spot) purchases and sales of financial assets are
recognised directly at trade date or at settlement date. Financial
assets and liabili ties arising from securities measured at fair value
are recognized using trade date accounting. Financial assets pur-
chased and issued measured at amortized cost are recognized using
settlement date accounting. The classification of financial instru-
ments at initial reco gnition depends on their character istics as well
as the purpose and manage ments intention for which the financial
instruments were acquired.
(ii) Initial Measurement of Financial Instruments
Financial instruments are measured initially at their fair value
including transaction costs. In the case of financial instruments at
fair value through profit or loss, however, transaction costs are not
included but are recognised directly in profit or loss. Subsequent
measurement is described in the points below.
(iii) Derivative Financial Instruments
Derivatives used by the Bank include mainly interest rate swaps,
futures, forward rate agreements, interest rate options, currency
swaps and currency options. Derivatives are measured at fair value.
Derivatives are carried as assets when their fair value is positive
and as liabili ties when their fair value is negative. All derivatives,
regardless of their internal classification, are disclosed under the
line item Positive/Negative fair value of derivative transactions,
which can be found, depending on their fair value as at the reporting
date, on the asset or liability side of the statement of financial posi-
tion. Hence, the line item Positive/Negative fair value of derivative
transactions contains both derivatives held in the trading book
and banking book and includes also derivatives designated for
hedge accounting.
Changes in fair value (clean price) are recognised in the income
statement in the line Net trading result, except for those
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resulting from the effective part of cash flow hedges which are
reported in other comprehensive income. Furthermore, changes
in fair value (clean price) of derivatives related to financial
liabili ties designated at fair value through profit or loss are
pre sented in the income statement in the line Other opera-
ting result. The interest income/expense related to derivative
financial instruments is recognised in the income statement in
the line Net interest income for those held in the banking book
or designated as hedging instruments in fair value hedges or in
the line Net trading result for those held in the trading book.
(iv) Financial Assets and Financial Liabili ties
Held for Trading
Financial assets and financial liabili ties held for trading include
debt securities as well as equity instruments acquired or issued
principally for the purpose of selling or repurchasing in the
near term. Financial instruments held for trading are measured
at fair value and are pre sented as Trading assets or Trading
liabili ties in the statement of financial position. Changes in
fair value (clean price) resulting from financial instruments
held for trading are reported in the income statement in the line
Net trading result. Nonetheless, interest income and expenses
are reported in the income statement in the line Net interest
income.
If securities purchased under agreement to resell are subse-
quently sold to third parties, the obligation to return the secu-
rities is recorded as a short sale within Trading liabili ties.
(v) Financial Assets or Financial Liabili ties
Designated at Fair Value Through Profit or
Loss
Financial assets or financial liabili ties classified in this category
are those that have been designated by manage ment on initial
reco gnition (fair value option).
The Bank uses the fair value option in case of financial assets
managed on a fair value basis. In accor dance with a documented
investment strategy, the performance of the portfolio is evalu-
ated and regularly reported to the manage ment board. The port-
folio consists largely of investments in bonds issued by EU
governments and EU municipalities.
Financial assets designated at fair value through profit or loss
are recorded in the statement of financial position at fair value in
the line Financial assets designated at fair value through profit
or loss with changes in fair value recognised in the income
statement in the line Other opera ting result. interest earned on
debt instruments as well as dividend income on equity instru-
ments is shown in the position interest and simi lar income.
The Bank uses the fair value option in case of some hybrid finan-
cial liabili ties, if:
Such classifcation eliminates or signifcantly reduces
an accounting mismatch between the fnancial liability
otherwise measured at amortised cost and the related
derivative measured at fair value; or
The entire hybrid contract is designated at fair value
through proft or loss due to existence of an embedded
derivative.
The amount of fair value change attributable to changes in own
credit risk for financial liabili ties designated at fair value through
profit or loss is calculated by the method described in IFRS 7.
This amount is the diffe rence between the pre sent value of the
liability and the observed market price of the liability at the end
of the period. The rate used for discounting the liability is the sum
of the observed (benchmark) interest rate at the end of the period
and the instrument-specific component of the internal rate of return
determined at the start of the period.
Financial liabili ties designated at fair value through profit or loss
are reported under the respective financial liabili ties positions
Financial liabili ties designated at fair value through profit or loss.
Changes in fair value are recognised in the income statement in
the line Other opera ting result. interest incurred is reported in
the line interest and simi lar expense.
(vi) Financial Assets Available-For-Sale
Available-for-sale financial assets include equity and debt secu-
rities as well as other inte rests in non-consolidated companies.
Equity investments classified as available-for-sale are those which
are neither classified as held for trading nor designated at fair value
through profit or loss. Debt securities in this category are those
which are intended to be held for an indefinite period of time and
which may be sold in response to needs for liquidity or in response
to changes in market conditions.
Available-for-sale financial assets are subsequently measured at
fair value. Unrealised gains and losses are recognised in other com-
prehensive income and reported in the Gains/(Losses) of revalua-
tion of financial assets available-for-sale until the financial asset
is disposed of or impaired. If available-for-sale assets are disposed
of or impaired, the cumulative gain or loss previously recognised
in other comprehensive income is reclassified to profit or loss
and reported under the line item Other opera ting result. In the
statement of financial position, available-for-sale financial assets
are disclosed in the line item Financial assets available-for-sale.
If the fair value of investments in non-quoted equity instruments
cannot be measured reliably, they are recorded at cost less impair-
ment. This is the case when the range of reasonable fair value
estimates as calculated by valua tion models is significant and
the probabilities of the vari ous estimates cannot be reasonably
assessed. There is no market for such investments. The Bank does
not have any specific plan to dispose of such investments.
interest and dividend income on available-for-sale financial assets
are reported in the income statement in the line interest and simi-
lar income.
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(vii) Financial Assets Held-to-maturity
Non-derivative financial assets with fixed or determinable pay-
ments and fixed maturities are reported in the statement of financial
position as Financial assets held-to-maturity, if the Bank has the
intention and ability to hold them until maturity. After initial reco-
gnition, held-to-maturity financial assets are subsequently measured
at amortised cost. Amortised cost is calculated by taking into account
any discount, premium and/or transaction costs that are an integral part
of the effective interest rate. interest earned on financial assets held
to maturity is reported in the income statement in the line interest
and simi lar income. Losses arising from impairment of such invest-
ments as well as occasional realised gains or losses from selling are
recognised in the income statement in the line Other opera ting result.
Impairment allowances for incurred but not reported losses are shown
in the position Impairment allowance for loans and advances.
(viii) Loans and Receivables
The statement of financial position line items Loans and advances to
financial institutions and Loans and advances to customers include
assets meeting the definition of loans and receivables.
Loans and receivables are non-derivative financial assets (includ-
ing debt securities) with fixed or determinable payments that are not
quoted in an active market, other than:
Those that the Bank intends to sell immediately or in the
near term and those that the Bank upon initial reco gnition
designates as at fair value through proft or loss;
Those that the Bank, upon initial reco gnition, designates as
available-for-sale; or
Those for which the Bank may not recover substantially
all of its initial investment, other than because of credit
deterioration.
After initial measurement, loans and receivables are subsequently
measured at amortised cost. interest income earned is included in the
line interest and simi lar income in the income statement. Allowances
for impairment and incurred but not reported losses are reported in
the statement of financial position line Impairment allowance for
loans and advances. Losses arising from impairment are recognised
in the income statement in the line Impairment allowance for credit
risk.
(ix) Deposits and Other Financial Liabili ties
Financial liabili ties are measured at amortised cost, unless they are
measured at fair value through profit or loss. Except those which
are held for trading, financial liabili ties are reported in the state-
ment of financial position in the lines Amounts owed to financial
institutions, Amounts owed to customers, Bonds in issue or
Subordinated liabili ties. interest expenses incurred are reported
in the line interest and simi lar expense in the income statement.
Derecognition of Financial Assets and Financial
Liabili ties
A financial asset (or where applicable a part of a financial asset or
part of a group of simi lar financial assets) is derecognised:
When the contractual rights to receive cash fows from the
asset have expired; or
The Bank has transferred its rights to receive cash fows
from the asset or has assumed an obligation to pay the
received cash fows in full without material delay to a third
party under a pass-through arrangement;
and either the Bank:
Has transferred substantially all the risks and rewards
connected with the owner ship of the asset; or
Has neither transferred nor retained substantially all the
risks and rewards connected with the owner ship of the asset
but has transferred control of the asset.
A financial liability is derecognised when the obligation under the
liability is discharged, cancelled or expires.
Repurchase and Reverse Repurchase
Agreements
Transactions where securities are sold under an agreement to repur-
chase at a specified future date are also known as repos or sale
and repurchase agreements. Securities sold are not derecognised
from the statement of financial position as the Bank retains sub-
stantially all the risks and rewards of owner ship because the securi-
ties are repurchased when the repo transaction ends. Furthermore,
the Bank is the beneficiary of all the coupons and other income
payments received on the transferred assets over the period of the
repo transactions. These payments are remitted to the Bank or are
reflected in the repurchase price.
The corresponding cash received is recognised in the statement
of financial position with a corresponding obligation to return
it as a liability in the respective lines Amounts owed to finan-
cial institutions or Amounts owed to customers reflecting the
transactions economic substance as a loan to the Bank. The diffe-
rence between the sale and repurchase prices is treated as interest
expense and recorded in the income statement in the line interest
and simi lar expense and is accrued over the life of the agreement.
Financial assets subject to repurchase agreements and which remain
on the Banks statement of financial position are measured accord-
ing to the rules applicable to the respective statement of financial
Conversely, securities purchased under agreements to resell at
a specified future date are not recognised in the statement of finan-
cial position. Such transactions are also known as reverse repos.
The consideration paid is recorded in the statement of financial
position in the respective lines Loans and advances to financial
institutions or Loans and advances to customers, reflecting
the transactions economic substance as a loan by the Bank. The
diffe rence between the purchase and resale prices is treated as
interest income which is accrued over the life of the agreement
and recorded in the income statement in the line interest and
simi lar income.
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Securities Lending and Borrowing
In securities lending transactions, the lender transfers owner ship of
securities to the borrower on the condition that the borrower will
retransfer, at the end of the agreed loan term, owner ship of instru-
ments of the same type, quality and quantity and will pay a fee
determined by the duration of the lending. The transfer of the
securities to counterparties via securities lending does not result
in derecognition unless the risks and rewards of owner ship are
also transferred.
Substantially all the risks and rewards of owner ship are retained
by the Bank as a lender because the securities are received at the
end of the securities lending transaction. Furthermore, the Bank
is the beneficiary of all the coupons and other income payments
received on the transferred assets over the period of the securities
borrowings.
Securities borrowed are not recognised on the statement of financial
position, unless they are then sold to third parties. In this case the
obligation to return the securities is recorded as a trading liability.
Determination of Fair Value
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
The best indication of a assets or liabilitys fair value is provided
by quoted market prices in an active market. Where quoted market
prices in an active market are available, they are used to measure
the assets or liabilitys value (level 1 of the fair value hierarchy).
The measurement of fair value at the Bank is based prima rily on
external sources of data (stock market prices or broker quotes in
highly liquid market segments). Where no market prices are avail-
able, fair value is determined on the basis of valua tion models that
are based on observable market information (level 2 of the fair value
hierarchy). In some cases, the fair value of an asset or liability can
be determined neither on the basis of market prices nor of valua tion
models that rely entirely on observable market data. In such cases,
indi vidual valua tion parameters not observable in the market are
estimated on the basis of reasonable assumptions (level 3 of the
fair value hierarchy).
For assets and liabili ties held at the end of the reporting period that
are measured at fair value on a recurring basis (i.e. those for which
measurement at fair value at the end of each period is required or
permitted by IFRS), the Bank determines whether transfers have
occurred between levels in the hierarchy by re-assessing the classi-
fication (based on the lowest level input that is significant to the fair
value measurement as a whole) at the date of the event or change
in circumstances that caused the transfer or year-end.
Credit valua tion adjustments (CVA) for counterparty risk and
debt value adjustments (DVA) for the Banks own credit risk
are applied to all overthe-counter (OTC) derivatives. For CVA
the adjustment is driven by the expected positive exposure of all
derivatives and the credit quality of the counterparty. DVA is driven
by the expected negative exposure and the Banks credit quality.
The modelling of the expected exposure is based on option rep-
lication strategies. This modelling approach is used for the most
rele vant portfolios and pro ducts. The adjustment for the Ministry
of Finance of the Czech Republic is calculated based on Monte
Carlo simulations taking into account netting. The methodo logy
for the remaining pro ducts is determined by market value plus
add-on considerations. The probability of default is determined
from internal PDs mapped to a basket of liquid titles pre sent in the
central European market. Thereby market based valua tion concepts
have been incorporated. Counterparties with liquid credit default
swap (CDS) markets are valued by the respective single-name
market based PD. Banks probability of default has been derived
from the buy-back levels of Erste groups issuances. For counter-
parties with Credit Support Annex (CSA) agreements in place
no CVA/DVA was taken into account for all cases with small
threshold amounts.
The Bank employs only generally accepted standard valua tion
models. Fair value is determined for non-option derivatives (e.g.
interest rate swaps, cross currency swaps, foreign exchange for-
wards and forward rate agreements) by discounting the respective
cash flows. OTC options are valued using appropriate market
standard option pricing. The Bank uses only valua tion models
which have been tested internally and for which the valua tion
parameters (such as interest rates, exchange rates and volatility)
have been independently determined.
Impairment of Financial Assets and Credit Risk
Losses of Contingent Liabili ties
At each reporting date the Bank assesses whether there is any
objective evidence that a financial asset or group of financial assets
is impaired. A financial asset or group of financial assets is deemed
to be impaired if, and only if, there is objective evidence of impair-
ment as a result of one or more events that have occurred after the
initial reco gnition of the asset (an incurred loss event) and that
loss event (or events) has an impact on the estimated future cash
flows of the financial asset or the group of financial assets that
can be reliably estimated.
Evidence of impairment may include indications that the bor-
rower or a group of borrowers is experiencing significant finan-
cial difficulty, the probability that they will enter bankruptcy or
other financial reorganisation, default or delinquency in interest
or principal payments. For assessment at portfolio level, indica-
tions of impairment are observable data indicating that there is
a measurable decrease in the estimated future cash flows, such
as changes in arrears or economic conditions that correlate with
defaults. The Bank uses the Basel II definition of default as a pri-
mary indicator of loss events. More specifically default occurs
when interest or principal payments on a material exposure are
more than 90 days past due or full repayment is unlikely for reasons
such as restructuring resulting in a loss to the lender or initiation
of bankruptcy proceedings.
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Credit risk losses resulting from contingent liabili ties are recognised
if it is pro bable that there will be an outflow of resources to settle
a credit risk-bearing contingent liability which will result in a loss.
(i) Financial Assets Carried at Amortised Cost
The Bank first individually assesses significant loans and financial
assets held-to-maturity to determine whether objective evidence of
impairment exists. If no objective evidence of impairment exists
for an individually assessed financial asset, the Bank includes the
asset in a group of financial assets with simi lar credit risk character-
istics and collectively assesses them for impairment. Assets that are
individually assessed for impairment and for which an impairment
loss is, or continues to be, recognised are not included in a collec-
tive assessment of impairment.
If an impairment loss has been incurred, the amount of the loss is
measured as the diffe rence between the assets carrying amount
and the pre sent value of estimated future cash flows discounted at
the original effective interest rate. The calculation of the pre sent
value of the estimated future cash flows of a collateralised financial
asset also reflects the cash flows that may result from foreclosure
less costs for obtaining and selling the colla teral.
In respect of loans and advances, any impairment is reported in
the allowance account referred to as Impairment allowance for
loans and advances in the statement of financial position and the
amount of the loss is recognised in the income statement in the line
Impairment allowance for credit risk. Impairment allowances for
loans and advances include specific risk provisions for loans and
advances for which objective evidence of impairment exists. In
addition, impairment allowances for loans and advances include
portfolio risk provisions for incurred but not reported losses. For
financial assets held-to-maturity, impairment is recognised directly
by reducing the asset account and in the income statement in the line
Other opera ting result. Incurred but not reported losses on finan-
cial assets held-to-maturity recognised at portfolio level are pre-
sented both in the statement of financial position and in the income
statement in the line Impairment allowance for loans and advances
and Impairment allowance for credit risk, respectively.
Loans together with the associated allowances are removed from
the statement of financial position when there is no realistic pros-
pect of future recovery and all colla teral held has been realised
by the Bank.
If, in a subsequent year, the amount of the estimated impairment
loss increases or decreases, the previously recognised impairment
loss is increased or reduced by adjusting the allowance account
in case of loans and advances. In the case of impaired financial
assets held-to-maturity no allowance account is used, but the car-
rying amount is increased or decreased directly.
(ii) Financial Assets Available-For-sale
In cases of debt instruments classified as available-for-sale, the
Bank assesses individually whether there is objective evidence of
impairment based on the same criteria as used for financial assets
carried at amortised cost. However, the amount recorded for impair-
ment is the cumulative loss measured as the diffe rence between the
amortised cost and the current fair value, less any impairment loss
on that investment previously recognised in the income statement.
On recognising impairment, any amount of losses retained in the
other comprehensive income item Gain/(Loss) on revaluation of
financial assets available-for-sale is reclassified to the income
statement and shown as an impairment loss in the line Other opera-
ting result. If, in a subsequent period, the fair value of a debt
instrument increases, the impairment loss is reversed through the
income statement in the line Other opera ting result. Impairment
In cases of equity investments classified as available-for-sale,
objective evidence also includes a significant or prolonged
decline in the fair value of the investment below its cost. For this
purpose at the Bank, a significant decline means a market price
below 80% of the acquisition cost and a prolonged decline refers
to a market price which is permanently below the acquisition cost
for a period of 9 months up to the reporting date. Where there is
evidence of impairment, the cumulative loss measured as the diffe-
rence between the acquisition cost and the current fair value, less
any impairment loss on that investment previously recognised in
the income statement is shown as an impairment loss in the income
statement in the line Other opera ting result. Any amount of losses
previously recognised in the other comprehensive income item
Gain/(Loss) on revaluation of financial assets available-for-sale
has to be reclassified to the income statement as part of the impair-
ment loss in the line Other opera ting result.
Impairment losses on equity investments are not reversed through
the income statement; increases in the fair value after impairment
are recognised directly in other comprehensive income. Impairment
(iii) Contingent Liabili ties
Impairment allowances for credit losses from contingent liabili ties
(particularly financial guaran tees as well as credit commitments)
are included in the statement of financial position line Provisions.
The related expense is reported in the income statement in the line
Impairment allowance for credit risk.
Hedge Accounting
The Bank makes use of derivative instruments to manage expo-
sures to interest rate risk and foreign currency risk. At inception of
a hedge relationship, the Bank formally documents the relationship
between the hedged item and the hedging instrument, including the
nature of the risk, the objective and strategy for undertaking the
hedge and the method that will be used to assess the effectiveness
of the hedging relationship. Hedge effectiveness is assessed at
inception and throughout the term of each hedging relationship.
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The exact conditions for each particular type of hedge and for
testing the related hedge effectiveness are specified in the internal
hedge policy.
(i) Fair Value Hedges
Fair value hedges are employed to reduce market risk. For qualify-
ing and designated fair value hedges, the change in the fair value
of a hedging instrument is recognised in the income statement in
the line Net trading result. The change in the fair value of the
hedged item attributable to the hedged risk is also recognised in
the income statement in the line Net trading result and adjusts
the carrying amount of the hedged item.
If the hedging instrument expires, is sold, terminated or exercised
or when the hedge no longer meets the criteria for hedge account-
ing, the hedge relationship is ended. In this case, the fair value
adjustment of the hedged item shall be amortised to the income
statement in the line Net interest income until maturity of the
hedged financial instrument.
(ii) Cash Flow Hedges
Cash flow hedges are used to eliminate uncertainty in the future
cash flows in order to stabilise net interest income. For desig-
nated and qualifying cash flow hedges, the effective portion of
the gain or loss on the hedging instrument is recognised in other
comprehensive income and reported under the Net gain/(loss)
on cash flow hedges. The ineffective portion of the gain or loss
on the hedging instrument is recognised in the income statement
in the line Net trading result. For determination of the effective
and ineffective portions derivatives are consi dered at their dirty
price, i.e. including the interest component. When the hedged cash
flow affects the income statement the gain or loss on the hedging
instrument is reclassified from other comprehensive income into
Net interest income. With respect to the accounting for hedged
items in cash flow hedges there is no change in comparison to
when no hedging is applied.
When a hedging instrument expires, is sold, terminated, exercised,
or when a hedge no longer meets the criteria for hedge accounting,
the hedge relationship is ended. In this case the cumulative gain or
loss on the hedging instrument that has been recognised in other
comprehensive income shall remain separately in Net gain/(loss)
on cash flow hedges until the hedged transaction occurs.
Offsetting Financial Instruments
Financial assets and financial liabili ties are offset and the net
amount is reported in the statement of financial position if, and
only if, there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis or to realise the asset and settle the liability simultaneously.
The Bank enters into close-out netting arrangements with its major
counterparties to derivative and repurchase contracts. These arrange-
ments commonly create a right to set-off that becomes enforceable
and affects the realisation or settlement of indi vidual financial assets
and financial liabili ties only in the case of a specified default event or
in other circumstances not expected to arise in the normal course of
business. Thus, they do not provide a basis for offsetting.
Leasing
The determination of whether an arrangement is, or contains, a lease
is based on the substance of the arrangement at the inception date. The
arrangement is assessed for whether fulfilment of the arrangement
is dependent on the use of a specific asset or assets or whether the
arrangement conveys a right to use the asset or assets, even if that
right is not explicitly specified in the arrangement.
A lease is an agreement whereby the lessor conveys to the lessee in
return for a payment or series of payments the right to use an asset for
an agreed period of time. A finance lease at the Bank is a lease that
transfers substantially all the risks and rewards incidental to owner-
ship of an asset. All remaining lease agreements within the Bank are
classified as opera ting leases.
The Bank as A Lessor
In the case of opera ting leases, the leased asset is reported by the lessor
in Pro perty and equipment or in Other assets and is depreciated in
accor dance with the principles applicable to the assets involved. Lease
income is recognised on a straight-line basis over the lease term in the
income statement in the line interest and simi lar income.
The Bank as A Lessee
From the perspective of a lessee, the Bank has not entered into any
leases meeting the conditions of finance leases. Opera ting lease pay-
ments are recognised as an expense in the income statement in the line
Other administra tive expenses on a straight-line basis over the lease
term.
Pro perty and Equipment
Pro perty and equipment is measured at cost less accumulated depre-
ciation and accumulated impairment.
Depreciation is calculated using the straight-line method to write
down the cost of pro perty and equipment to their residual values over
their estimated useful lives. Depreciation is recognised in the income
statement in the line Depreciation and amortization and impairment
in the line Other opera ting result.
The estimated useful lives are as follow:
Useful life in years
Buildings 15 50
Offce furniture and equipment 4 10
Vehicles 4 8
Computer hardware 4 6
Land Is not Depreciated.
Pro perty and equipment is derecognised on disposal or when no
future economic benefits are expected from its use. Any gain or
loss arising on disposal of the asset (calculated as the diffe rence
between the net disposal proceeds and the carrying amount of the
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asset) is recognised in the income statement in the line Other
opera ting result in the year the asset is derecognised.
Intangible Assets
The Banks intangible assets consist of computer software,
licenses and know-how. An intangible asset is recognised only
when its cost can be measured reliably and it is pro bable that the
expected future economic benefits that are attributable to it will
flow to the Bank.
Intangible assets with finite lives are amortised over their useful
economic lives using the straight-line method. The amortisation
period and method are reviewed at least at each financial year end
and adjusted if necessary. The amortisation expense on intangible
assets with finite lives is recognised in the income statement in
the line Depreciation and amortization.
The estimated useful lives of intangible assets are 46 years.
Impairment of Non-Financial Assets (Pro perty
and Equipment, Intangible Assets)
The Bank assesses at each reporting date whether there is an indi-
cation that a non-financial asset may be impaired. If any indication
exists, or when annual impairment testing for an asset is required,
the Bank estimates the assets recoverable amount. An assets
recoverable amount is the higher of an assets or cash generating
units (CGU) fair value less costs to sell and its value in use. If
the carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is consi dered impaired and is written down to its
recoverable amount. In measuring value in use, the estimated future
cash flows are discounted to their pre sent value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
For non-financial assets an assessment is made at each report-
ing date as to whether there is any indication that previously
recognised impairment losses may no longer exist or may have
decreased. If such indication exists, the Bank estimates the
assets or CGUs recoverable amount. A previously recognised
impairment loss is reversed only if there has been a change in
the assumptions used to determine the assets recoverable amount
since the last impairment loss was recognised. The reversal is
limited so that the carrying amount of the asset does not exceed its
recoverable amount nor exceeds the carrying amount that would
have been determined, net of depreciation, had no impairment
loss been recognised for the asset in prior years.
Impairments and their reversals are recognised in the income
statement in the line Other opera ting result.
Financial Guaran tees
In the ordinary course of business, the Bank provides financial
guaran tees, consisting of vari ous types of letters of credit and
guaran tees. According to IAS 39, a financial guarantee is a contract
that requires the guarantor to make specified payments to reimburse
the holder for a loss it incurs because a specified debtor fails to
make payment when due in accor dance with original or modified
terms of a debt instrument. If the Bank is in a position of being
a guarantee holder, the financial guarantee is not recorded in the
statement of financial position but is taken into consideration as
colla teral when determining impairment of the guaran teed asset.
The Bank as a guarantor recognises financial guaran tees as soon
as it becomes a contracting party, i.e. when the guarantee offer is
accepted. Financial guaran tees are initially measured at fair value.
Generally the initial measurement is the premium received for
a guarantee. If no premium is received at contract inception the fair
value of the financial guarantee is nil, as this is the amount at which
the guarantee could be settled in an orderly transaction between
market participants. Subsequent to initial reco gnition the financial
guarantee contract is reviewed for the possibility that provisioning
will be required under IAS 37.
The premium received is recognised in the income statement in the
line Fee and commission income on a straight-line basis over the
life of the guarantee.
Provisions
Provisions are recognised when the Bank has a pre sent obliga-
tion as a result of a past event, it is pro bable that an outflow of
resources embodying economic benefits will be required to settle
the obligation, and a reliable estimate can be made of the amount
of the obligation. In the statement of financial position, provisions
are reported in the line Provisions. They include impairment
allowances for credit risk losses related to contingent liabili ties
(particularly financial guaran tees and loan commitments) as well as
provisions for legal disputes. Expenses or income from the alloca-
tion or release of impairment allowances for contingent liabili ties
are pre sented in the income statement line Impairment allowance
for credit risk. All other expenses or income related to provisions
are reported in the line Other opera ting result.
Taxes
(i) Current Tax
Current tax assets and liabili ties for the current and prior years are
measured as the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute
the amounts are those enacted at the end of the reporting period
(ii) Deferred Tax
Deferred tax is recognised for temporary differences between the
tax bases of assets and liabili ties and their carrying amounts as at
the reporting date. Deferred tax liabili ties are recognised for all
taxable temporary differences. Deferred tax assets are recognised
for all deductible temporary differences and unused tax losses to
the extent it is pro bable that taxable profit will be available against
170
which the deductible temporary differences and carry forward of
unused tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer pro-
bable that sufficient taxable profit will be available to allow all or
part of the deferred tax asset to be utilised. Unrecognised deferred
tax assets are reassessed at each reporting date and are recognised
to the extent it has become pro bable that future taxable profit will
allow the deferred tax asset to be recovered.
Deferred tax assets and liabili ties are measured at the tax rates
that are expected to apply in the year when the asset is realised or
the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted as at the end of the reporting
period.
Deferred tax relating to items recognised in other comprehensive
income is also recognised in other comprehensive income and not
in the income statement.
Deferred tax assets and deferred tax liabili ties are offset if a legally
enforceable right to offset exists and the deferred taxes relate to the
same taxation authority.
Fiduciary Assets
The Bank provides trust and other fiduciary services that result in
the holding or investing of assets on behalf of its clients. Assets held
in a fiduciary capacity are not reported in the financial statements,
as they are not the assets of the Bank. These assets are recorded
off-balance sheet as per Note 48 where they are valued either at
nomi nal or fair value depending on the nature of the financial instru-
ments and the availability of market prices.
Dividends on ordinary and on prefe rence shares
Dividends on ordinary and prefe rence shares are recognised as
a liability and deducted from equity when they are approved by
the Banks shareholders.
Reco gnition of Income and Expenses
Revenue is recognised to the extent that it is pro bable the eco-
nomic benefits will flow to the entity and the revenue can be
reliably measured. Regarding the lines reported in the income
statement, their description and revenue reco gnition criteria are
as follows:
(i) Net interest Income
interest income or expense is recorded using the effective interest
rate (EIR) method. The calculation includes origination fees result-
ing from the lending business as well as transaction costs that are
directly attributable to the instrument and are an integral part of the
EIR (apart from financial instruments at fair value through profit
or loss), but no future credit losses. interest income from individu-
ally impaired loans is calculated by applying the original effective
interest rate used to discount the estimated cash flows for the pur-
pose of measuring the impairment loss.
interest and simi lar income mainly includes interest income on loans
and advances to financial institutions and customers, on balances
with central banks and on bonds and other interest-bearing securities
in all portfolios. interest and simi lar expense mainly includes interest
paid on deposits by banks and customer deposits, deposits of central
banks, debt securities in issue and subordinated debt. In addition, net
interest income includes interest on derivative financial instruments
held in the banking book.
Also reported in interest and simi lar income is current income from
shares and other equity-related securities (especially dividends) as
well as income from other investments in companies categorised
as available-for-sale. Such dividend income is recognised when the
right to receive the payment is esta blished.
(ii) Impairment Allowance for Credit Risk
This item includes allocations to and releases of specific and port-
folio risk impairment allowances for loans and advances and for
contingent liabili ties bearing credit risk. Also reported in this item
are direct write-offs of loans and advances as well as recoveries on
written-off loans previously removed from the statement of finan-
cial position.
Furthermore allocations to and releases of portfolio risk provisions
for held-to-maturity investments with respect to incurred but not
reported losses are part of this item.
(iii) Net Fee and Commission Income
The Bank earns fee and commission income from a diverse range of
services it provides to its customers. Fees earned for the provision
of services over a period of time are accrued over that period. These
fees include lending fees, guarantee fees, commission income from
asset manage ment, custody and other manage ment and advisory fees
as well as fees from insurance brokerage, building society brokerage
and foreign exchange transactions.
Fee income earned from providing transaction services, such as arrang-
ing the acquisition of shares or other securities or the purchase or sale of
businesses, is recognised on completion of the underlying transaction.
(iv) Net Trading Result
Results arising from trading activities include all gains and losses
from changes in fair value (clean price) on financial assets and
financial liabili ties classified as held for trading, including all
derivatives not designated as hedges. In addition, for derivative
financial instruments held in the trading book, Net trading result
contains also interest income or expense. However, interest income
or expenses on non-derivative trading assets and liabili ties and on
derivatives held in the banking book are not part of Net trading
result as they are reported as Net interest income. It also includes
any ineffective portions recorded in hedging transactions as well
as foreign exchange gains and losses.
171
(v) Gene ral Administra tive Expenses
Gene ral administra tive expenses repre sent the following expenses
incurred in the reporting period: personnel and other administra tive
expenses, as well as depreciation and amortisation.
Personnel expenses include wages and salaries, bonuses, statutory
and voluntary social security contributions, staff-related taxes and
levies. They also include expenses for severance payments.
Other administra tive expenses include information technol-
ogy expenses, expenses for office space, office opera ting
expenses, advertising and marketing, expenditures for legal
and other consultants as well as sundry other administra tive
expenses.
(vi) Other Opera ting Result
Other opera ting result reflects all other income and expenses not
directly attributable to the Banks ordinary activities. This includes
especially impairment losses or any reversal of impairment losses
as well as results on the sale of pro perty and equipment and other
intangible assets.
In addition, Other opera ting result encompasses the following:
expenses for other taxes and deposit insurance contributions;
income from the release of and expenses for allocations to other
provisions; and the result from financial instruments.
Result from financial instruments consists of the following items:
Changes in the clean price of assets and liabili ties
designated at fair value through proft or loss. Furthermore
this position contains changes in clean prices of derivatives
which are related to fnancial liabili ties designated at fair
value through proft or loss. Designation of such liabili ties
at fair value was chosen to remove or reduce an accounting
mismatch between the liability and the derivative;
Realised gains and losses from selling fnancial assets
available-for-sale as well as related impairment losses
and reversals of impairment losses. However, the interest
and dividend element on these assets and reversals of
impairment losses on equity instruments are not part of this
position; and
Impairment losses and reversals of impairment losses as
well as occasional gains and losses from the disposal of
fnancial assets held-to-maturity. However, this position
does not include incurred but not reported losses recognised
for fnancial assets held-to-maturity on a portfolio level
which are part of the position Impairment allowance for
credit risk.
4. Cash and Balances with the Czech National Bank
CZK mil. 2013 2012
Minimum reserve deposits with the CNB 8,170 546
Overnight deposits with the CNB 47,072 700
Total 76,441 21,491
Minimum reserve deposits repre sent mandatory deposits calcu-
lated in accor dance with CNB regulations and whose withdrawal
is restricted (refer to Note 39). Minimum reserve deposits accrue
interest at the CNBs two week repo rate. The Bank is authorised
to make withdrawals of minimum reserve deposits in an amount
that exceeds the actual average level of minimum reserve deposits
for the rele vant holding period calculated pursuant to the CNBs
regulations. The nostro balances repre sent balances with the CNB
relating to settlement activities and were available for withdrawal
at the year end.
5. Loans and Advances to Financial Institutions, Net
CZK mil. 2013 2012
Nostro accounts (refer to Note 39) 2,070 1,812
Loans and advances 4,436 4,174
Provisions for losses on Loans and advances to fnancial institutions (31)
Debt securities with banks 1,289 1,135
Other 1,117 1,260
Total 49,384 47,975
As at 31 December 2013, the Bank provided certain financial insti-
tutions with loans of CZK 734 million (2012: CZK 672 million)
under reverse repurchase transactions which were collateralised by
securities amounting to CZK 824 million (2012: CZK 768 million).
172
6. Loans and Advances to Customers
a) Analysis of Loans and Advances to Customers by Type of Loan
CZK mil. 2013 2012
Debt securities with corporate customers 201
Mortgage loans (both retail and corporate customers) 210,893 193,812
Retail loans 78,195 82,138
Public sector loans 17,422 16,539
Cumulative change in carrying value due to application of fair value hedging 8 13
Total 472,886 451,471
As at 31 December 2013, the Bank provided certain clients with
loans of CZK 75 million (2012: CZK 876 million) under reverse
amounting to CZK 75 million (2012: CZK 871 million).
A corporate loan in the amount of CZK 80 million (2012: CZK 89 mil-
lion) was hedged against interest rate risk through interest rate swaps
linked to a market floating rate. In accor dance with the applicable
accounting policies, the loan is re measured at fair value to the extent
of the hedged interest rate risk.
b) Analysis of Loans and Advances to Customers According to Credit Risk Assessment Policies
At 31 December 2013
CZK mil.
Individually
signifcant
loans
Individually
insignifcant
loans
Total
Unimpaired 204,110 226,171 430,281
Total 228,509 244,377 472,886
At 31 December 2012
CZK mil.
Individually
signifcant
loans
Individually
insignifcant
loans
Total
Unimpaired 189,548 211,614 401,162
Total 219,406 232,065 451,471
Individually significant loans repre sent corporate loans or
retail loans where the Banks exposure exceeds CZK 5 million.
Individually impaired loans are those loans where objective evi-
dence demonstrates that the associated cash flow is at risk (loss
event). The Bank defines the loss event in accor dance with BASEL
II criteria. This classification corresponds to the R internal rating
(default). Collectively impaired loans are loans that show an indi-
cation of impairment on a collective basis. Portfolio provisions are
created for loans where impairment have not been yet identified
(unimpaired) based on calculated probabilities of default.
The Bank uses vari ous types of colla teral in order to mitigate credit
risk exposure. The list of colla teral instruments is set out in an
internal regulation which also outlines the guidance to be followed
in determining the values of indi vidual types of colla teral. The
Bank establishes the nomi nal value of colla teral based upon a mar-
ket valua tion which is subsequently used as a basis for arriving
at the realisable value by applying a discount factor set for each
type of colla teral. Colla teral that is valued at the realisable value
is taken into account in provisioning (refer to Note 3.3). Colla teral
valua tion rules also set out when and how often the valuations of
indi vidual colla teral instruments are updated (refer to Note 41.1).
173
7. Impairment Allowance for Loans and Advances to Customers
a) Creation and Use of Impairment Allowances
CZK mil. 2013 2012
At 1 January 16,795 16,476
Charge for impairment allowances 6,338 7,627
Release of impairment allowances (refer to Note 31) (3,023) (3,448)
Net charge for impairment allowances 3,315 4,179
Unwinding of discount (refer to Note 29) (655) (711)
Use of allowance for loans writtenoff and assigned (refer to Note 7(c)) (2,849) (3,133)
foreign exchange differences from allowances in foreign currency 73 (16)
At 31 December 16,679 16,795
Net change in impairment allowance (116) 319
The use of the allowance for loans written-off and assigned
of CZK 2,849 million (2012: CZK 3,133 million) has no impact
on the Banks profit.
The unwinding of discount repre sents interest income on impaired
loans on the basis of the EIR in respect of the discounted value
of loans.
b) Impairment Allowance for Loans and Advances by Class
At 31 December 2013
CZK mil.
Individually
signifcant
loans
Individually
insignifcant
loans
Total
Collectively impaired 705 323 1,028
Portfolio impairment on unimpaired loans 830 522 1,352
Total 7,303 9,376 16,679
At 31 December 2012
CZK mil.
Individually
signifcant
loans
Individually
insignifcant
loans
Total
Collectively impaired 751 350 1,101
Portfolio impairment on unimpaired loans 600 404 1,004
Total 8,134 8,661 16,795
174
c) Impairment Allowances by Indi vidual Classes of Financial Assets
2013
CZK mil.
At
1 Jan
2013
Charge for
impair-
ment al-
lowances
Writeoff
of loans
Amounts
recovered
during
the year
Unwinding
of dis-
counts
x)
foreign
exchange
rate gains
or losses
At
31 Dec
2013
Change
in the
balance
Retail loans/loans
to households
Overdraft loans 330 237 (98) (144) (18) 307 (23)
Credit cards 235 285 (57) (155) (18) 290 55
Other loans 4,382 1,925 (703) (621) (168) 4,815 433
Mortgage loans 2,100 834 (62) (333) (112) 2,427 327
Subtotal 7,047 3,281 (920) (1,253) (316) 7,839 792
MSE
xx)
Overdraft loans 19 (2) (12) (1) 4 (15)
Other loans 2,081 536 (486) (298) (55) 1,778 (303)
Mortgage loans 730 252 (91) (137) (39) 715 (15)
Municipal loans 3 11 (3) (2) 9 6
Subtotal 2,833 799 (579) (450) (97) 2,506 (327)
Corporate loans
Corporate customers 2,286 766 (558) (550) (65) 73 1,952 (334)
SMEs
xxx)
2,703 1,190 (690) (582) (92) 2,529 (174)
Corporate mortgage
loans
1,906 286 (102) (185) (85) 1,820 (86)
Municipalities 20 16 (3) 33 13
Subtotal 6,915 2,258 (1,350) (1,320) (242) 73 6,334 (581)
Total 16,795 6,338 (2,849) (3,023) (655) 73 16,679 (116)
x)
interest income on individually impaired loans and advances.
xx)
MSE individuals businesses and small companies with annual turnover of less than CZK 30 million.
xxx
175
2012
CZK mil.
At
1 Jan
2012
Charge for
impair-
ment allo-
wances
Writeoff
of loans
Amounts
recovered
during the
year
Unwinding
of dis-
counts
x)
foreign
exchange
rate gains
or losses
At
31 Dec
2012
Change
in the
balance
Retail loans/loans
to households
Overdraft loans 312 306 (122) (148) (18) 330 18
Credit cards 196 223 (105) (59) (20) 235 39
Other loans 3,620 2,478 (914) (601) (201) 4,382 762
Mortgage loans 1,632 963 (16) (359) (120) 2,100 468
Subtotal 5,760 3,970 (1,157) (1,167) (359) 7,047 1,287
MSE
xx)
Overdraft loans 89 (53) (4) (12) (1) 19 (70)
Other loans 2,371 637 (359) (502) (66) 2,081 (290)
Mortgage loans 700 362 (153) (129) (50) 730 30
Municipal loans 8 6 (11) 3 (5)
Subtotal 3,168 952 (516) (654) (117) 2,833 (335)
Corporate loans
Corporate customers 2,470 971 (497) (581) (61) (16) 2,286 (184)
SMEs
xxx)
3,390 1,145 (811) (929) (92) 2,703 (687)
Corporate mortgage
loans
1,663 588 (152) (111) (82) 1,906 243
Municipalities 25 1 (6) 20 (5)
Subtotal 7,548 2,705 (1,460) (1,627) (235) (16) 6,915 (633)
Total 16,476 7,627 (3,133) (3,448) (711) (16) 16,795 319
x
) interest income on individually impaired loans and advances.
xx
) MSE individuals businessmen and small companies with annual turnover of less than CZK 30 million.
xxx
176
8. Trading Assets
CZK mil. 2013 2012
Listed debt securities 26,549 40,872
Listed equity securities and other variable yield securities 2 9
Total 26,551 40,881
Of the trading assets portfolio, securities of CZK 21,790 million
(2012: CZK 7,853 million) were transferred as colla teral for loans
received under repurchase transactions.
CZK mil. 2013 2012
Total 643 995
Issued in other currencies
Total 25,906 39,877
Equity securities and other variable yield securities comprise:
CZK mil. 2013 2012
Issued in CZK 2 7
Issued in other currencies 2
Total 2 9
Debt securities were issued by the following issuers:
CZK mil. 2013 2012
Total 26,549 40,872
Equity securities and other variable yield securities held for trading were issued by the following issuers:
CZK mil. 2013 2012
foreign fnancial institutions 2
Total 2 9
177
9. Financial Assets Designated at Fair Value Through Proft or Loss
CZK mil. 2013 2012
Debt securities
Listed 3,474 6,984
Unlisted 627 160
Total 4,101 7,144
Of the financial assets designated at fair value through profit or
loss portfolio, securities of CZK 1,403 million (2012: CZK 0) were
transferred as colla teral for loans received under repurchase trans-
actions and other loan agreements.
CZK mil. 2013 2012
Total 3,159 3,217
Issued in CZK 313
Total 315 3,767
CZK mil. 2013 2012
Total 627 160
CZK mil. 2013 2012
State institutions in the Czech Republic 639 839
foreign fnancial institutions 1,773
Total 3,474 6,984
CZK mil. 2013 2012
Total 627 160
178
10. Positive Fair Value of Derivative Transactions
CZK mil.
2013 2012
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair value hedge
foreign currency 2,240
interest rate 895 13,630 1,120 9,739
Total fair value hedge 895 13,630 1,120 11,979
Non-hedging
interest rate 11,229 327,581 15,409 342,870
Other 535 15,434 202 19,153
Total 22,210 628,658 26,994 653,582
As at 31 December 2013, the loss on hedging derivatives used for fair
value hedging was CZK 237 million (2012: gain CZK 153 million),
the gain due to changes in the fair value of hedged items
was CZK 250 million (2012: loss CZK 200 million).
11. Financial Assets Available-For-Sale
CZK mil. 2013 2012
Debt securities
Listed 59,976 45,298
Unlisted 599
Listed 289 183
Unlisted 294 190
Total 61,158 45,671
Listed and unlisted equity securities and other variable yield secu-
rities include equity investments and holdings that are not partici-
pating inte rests with controlling or significant influence in the total
amount of CZK 347 million (2012: CZK 260 million).
The avai l abl e - for - sal e port fol i o i ncl udes securi t i es
of CZK 3,888 million (2012: CZK 313 million) that were trans-
ferred as colla teral for loans received under repurchase transactions.
CZK mil. 2013 2012
Total 23,146 22,533
Total 37,429 22,765
CZK mil. 2013 2012
Issued in CZK 58 78
Total 583 373
179
CZK mil. 2013 2012
Other entities in the Czech Republic 1,065
Total 60,575 45,298
CZK mil. 2013 2012
Total 583 373
12. Financial Assets Held-to-maturity, Net
CZK mil. 2013 2012
Debt securities
Listed 134,393 159,955
Provisions for losses on fnancial assets heldtomaturity (13)
Total 134,380 159,955
The held-to-maturity portfolio includes securities of CZK 5,847 mil-
lion (2012: CZK 1,885 million) that were transferred as colla-
teral for loans received under repurchase transactions and other
loans agreements. Additionally, this portfolio includes an amount
of CZK 27,839 million (2012: 20,258 million) pledged as security
against loans from financial institutions.
CZK mil. 2013 2012
Total 7,253 8,003
Issued in CZK 107,654 137,094
Total 127,127 151,952
CZK mil. 2013 2012
Other entities in the Czech Republic 554 506
Other foreign entities 480 1,090
Total 134,380 159,955
180
13. Equity Investments in Sub sidiary and Associate Undertakings
Name of the company Registered offce Principal activities
CBCBCzech Banking Credit
Bureau, a. s.
Prague 4, Na Vtzn plni 1719/4
Provision of information from the client
information banking register
Erste Group Shared Services (EGSS),
s. r. o.
Hodonn, Nrodn tda 44 foreign payments services
CIUnternehmensbeteiligungs G.m.b.H. Vienna, Graben 21, Austria Provision of manage ment services
Procurement Services CZ, s. r. o. Prague 4, Budjovick 1912/64B Provision of procurement services
Prvn certifkan autorita, a. s. Prague 9, Podvinn mln 2178/6 Digital signature certifcation services
s IT Solutions SK, spol. s r.o. Bratislava, Tomikova 48, Slovakia Provision of software
Sub sidiary undertakings
brokerjet esk spoitelny, a. s. Prague 6, Evropsk 2690/17 Investment services
CEE Pro perty Development Portfolio B.V. Naritaweg 165, Amsterdam, Netherlands Real estate investment
CEE Pro perty Development Portfolio 2
N.V.
Naritaweg 165, Amsterdam, Netherlands Real estate investment
CS Investment Limited
Ogier House, St. Julians Avenue, St
Peter Port, Guernsey
Investments and equity holdings
CS Pro perty Investment Limited 10, Diomidous Street, Nicosia, Cyprus
Investments in securities, issuance of
loans
Czech and Slovak Pro perty Fund B.V.
Prins Bernhardplein 200, Amsterdam,
Netherlands
Real estate investment
Czech TOP Venture Fund B.V. Postweg 11 Groesbeek, the Netherlands Manage ment and fnancing services
esk spoitelna penzijn
spolenost, a. s.
Prague 4, Polkova 1976/2 Pension insurance
S do domu, a. s. Prague 4, Polkova 1976/2 Financial advisory network
Erste Corporate Finance, a. s. Prague 6, Evropsk 2690/17 Consultancy
Erste Energy Services, a. s. Prague 6, Evropsk 2690/17 Electricity and gas trading
Erste Leasing, a. s. Znojmo, Horn nmst 264/18 Leasing
Factoring esk spoitelny, a. s. Prague 4, Budjovick 1518/13B Factoring
GRANTIKA esk spoitelny, a.s. Brno, Jnsk 448/10 Business consulting
MOPET CZ a. s. Prague 4, Hvzdova 1716/2b Mobile payment services
Realitn spolenost esk spoitelny, a. s. Prague 3, Vinohradsk 180/1632 Real estate activities
REICO investin spolenost esk
spoitelny, a. s.
Prague 4, Antala Staka 2027/79 Real estate investment
s Autoleasing, a. s. Prague 4, Budjovick 1518/13B Leasing
s IT Solutions CZ, s. r. o. Prague 4, Antala Staka 32/1292
Provision of software and advisory
involving hardware and software
Stavebn spoitelna esk spoitelny, a. s. Prague 3, Vinohradsk 180/1632 Construction savings bank
VRNOSTN PROGRAM IBOD, a. s. Prague 4, Olbrachtova 1929/62 Manage ment of loyalty program
At 31 December 2013
Name of the company
Share
capital
in CZK mil./
EUR ths
Currency Owner ship
%
Voting
power in %
Net Carrying
amount
in CZK mil.
CBCB Czech Banking Credit Bureau, a. s. 1 CZK 20.00% 20.00% 0.2
Erste Group Shared Services (EGSS), s.r.o. 0.2 CZK 40.00% 40.00% 0.1
CIUnternehmensbeteiligungs
G.m.b.H.
18 EUR 40.00% 40.00% 0.2
Procurement Services CZ, s. r. o. 0.2 CZK 40.00% 40.00% 0.1
Prvn certifkan autorita, a. s. 20 CZK 23.25% 23.25% 8
s IT Solutions SK, spol. s r.o. 7 EUR 23.50% 23.50%
Total associate undertakings 9
brokerjet esk spoitelny, a. s. 160 CZK 51.00% 51.00% 82
CEE Pro perty Development Portfolio B.V. 20 EUR 20.00% 20.00%
CEE Pro perty Development
Portfolio 2 N.V.
45 EUR 100.00% 100.00% 842
181
At 31 December 2013
Name of the company
Share
capital
in CZK mil./
EUR ths
Currency Owner ship
%
Voting
power in %
Net Carrying
amount
in CZK mil.
CS Investment Limited 0.5 EUR 100.00% 100.00% 14
CS Pro perty Investment Limited 120 EUR 100.00% 100.00% 964
Czech and Slovak Pro perty Fund B.V. 30 EUR 20.00% 20.00% 746
Czech TOP Venture Fund B.V. 19 EUR 84.00% 84.00% 30
esk spoitelna penzijn spolenost, a. s. 350 CZK 100.00% 100.00% 841
S do domu, a. s. 4 CZK 100.00% 100.00%
Erste Corporate Finance, a. s. 6 CZK 100.00% 100.00% 15
Erste Energy Services, a. s. 2 CZK 100.00% 100.00% 60
Erste Leasing, a. s. 200 CZK 100.00% 100.00% 148
Factoring esk spoitelny, a. s. 114 CZK 100.00% 100.00% 167
GRANTIKA esk spoitelny, a.s. 7 CZK 100.00% 100.00% 30
MOPET CZ a. s. 144 CZK 90.97% 90.97%
Realitn spolenost esk spoitelny, a. s. 2 CZK 100.00% 100.00%
REICO investin spolenost esk spoitelny, a. s. 25 CZK 100.00% 100.00%
s Autoleasing, a. s. 500 CZK 100.00% 100.00% 676
s IT Solutions CZ, s. r. o. 0.2 CZK 40.00% 40.00% 4
Stavebn spoitelna esk spoitelny, a. s. 750 CZK 95.00% 95.00% 1,198
VRNOSTN PROGRAM IBOD, a. s. 2 CZK 100.00% 100.00% 10
Total sub sidiary undertakings 5,827
foreign exchange differences on hedges relating to
equity investments denomi nated in EUR
132
Total equity investments 5,968
The Bank pre sents its investments in the real estate funds CEE Pro-
perty Development Portfolio B.V., and Czech and Slovak Pro perty
Fund B.V. as equity investments in sub sidiary undertakings. While
the Bank holds 20% of the issued share capital of the funds and does
not have a majority of voting rights or Board repre sentation, it has
provided significant additional funding to the funds for investment
purposes which results in the Bank receiving substantially all of the
returns and bearing substantially all of the risks of the investments. The
second shareholder of CEE Pro perty Development Portfolio B.V. and,
following the completion of the shareholding changes, also Czech and
Slovak Pro perty Fund B.V. bears minimal risks and receives minimal
returns from its investment in the funds.
In spite of the fact that the Bank only holds 40% of the issued share cap-
ital of the company and does not have a majority of voting rights or stat-
utory body repre sentation, the Banks investment in s IT Solutions CZ,
s. r. o. is also pre sented as an equity investment in sub sidiary undertak-
ings as the Bank is entitled to substantially all of the profits from the
company in accor dance with the provisions of the Memorandum of
Association on the partners share in the distributable profits.
The Bank merged with IT Centrum s.r.o, its wholly owned sub sidiary
as at 1 January 2013. esk spoitelna, a. s. became a successor com-
pany and, as a result of the national merger by consolidation, the assets
and liabili ties of the dissolving company IT Centrum s. r. o. were
transferred to the Bank.
Statement of financial position of IT Centrum s. r. o. as at 1 January 2013:
CZK mil.
Assets
1. Loans and advances to fnancial institutions 51
2. Pro perty and equipment 1,441
3. Other assets 11
Total assets 1,503
Liabili ties and shareholders equity
1. Amounts owed to fnancial institutions* 1,099
2. Negative fair value of derivative transactions 49
3. Other liabili ties 1
Total liabili ties 1,149
4. Shareholders equity 354
Share capital 179
Retained earnings 175
Total liabili ties and shareholders equity 1,503
* The whole amount relates to loans from esk spoitelna, a. s.
182
During the year ended 31 December 2013, the portfolio of equity
investments underwent the following changes:
In January 2013 Penzijn fond esk spoitelny, a. s.
changed the company name to esk spoitelna penzijn
spolenost, a. s.;
In January 2013 Partner esk spoitelny, a. s. changed the
company name to S do domu, a. s.;
In January 2013 the accumulated loss of REICO investin
spolenost esk spoitelny, a. s. was eliminated through
a share capital decrease of CZK 65 million, neither the
carrying amount of the equity investment nor the provision
changed;
In connection with business activities in March 2013,
the carrying amount of the equity investment in the CEE
Pro perty Development Portfolio 2 B.V. was increased
by CZK 60 million through the payment of additional share
premium on already held shares;
In March, August and October 2013 the share premium
on already held shares of MOPET CZ a. s. was increased
by CZK 16 million overall, subsequently in September and
October the equity investment was impaired through the
income statement by CZK 36 million, i.e. the full carrying
amount of the investment was reduced to zero;
In April 2013 the Bank was repaid a portion of the share
capital and the share premium provided to CS Investment
Limited, the carrying amount of the equity investment was
decreased by CZK 239 million;
In connection with business activities in April, August,
October and November 2013, the carrying amount of
the equity investment in the Czech and Slovak Pro perty
Fund B.V. was increased by CZK 209 million through
the payment of additional share premium on already held
shares. The impairment allowance against the investment
was increased by CZK 32 million;
In June 2013 a new company was esta blished,
VRNOSTN PROGRAM IBOD, a. s., with 100% of the
share capital held by the Bank;
In June 2013 the registered capital of Erste Energy
Services, a. s. was increased by the additional contribution
of CZK 46 million;
In September 2013 S MORAVA Leasing a. s. changed the
company name to Erste Leasing a. s.;
In September 2013 CEE Pro perty Development
Portfolio 2 B.V. changed its legal status from limited
company (B.V.) to joint-stock company (N.V.) and the share
capital held by the Bank increased from 20% to 64.44%, the
carrying amount of the equity investment was not changed;
In November 2013 the Bank bought shares of
MOPET CZ a. s. from existing shareholders and increased
the share capital held by the Bank from 12.5% to 87.5%;
In December 2013 the Bank bought the remaining shares
of CEE Pro perty Development Portfolio 2 N.V. from
existing shareholders and the share capital held by the Bank
increased from 64.44% to 100%. The purchase price of the
shares was offset against the receivable from the Seller, so
the book value of the participation was not changed;
In December 2013 the share capital of MOPET CZ a. s.
was increased by CZK 40 million and the share capital held
by the Bank increased from 87.5% to 90.97%, the equity
investment was impaired, so the full carrying amount of the
investment is zero;
In December 2013 the Bank bought loan receivables
and cancelled the issued share premium of CS Pro perty
Investment Limited in the amount of CZK 387 million;
In December 2013 the Bank increased the share premium
by capitalising the loan receivables in the Czech and
Slovak Pro perty Fund B.V., the book value of the
participation was not changed because the Bank also
increased the impairment allowance against the investment
by CZK 366 million.
With a view to managing foreign currency risk exposures associated
with the Banks investments in the foreign subsidiaries and asso-
ciates CS Investment Limited, CS Pro perty Investment Limited,
Czech TOP Venture Fund B.V., CEE Pro perty Development
Portfolio 2 N.V. and Czech and Slovak Pro perty Fund B.V. denomi-
nated in EUR, the Bank has defined these investments as hedged
items within the fair value hedge of these shareholdings. Hedging
instruments include foreign currency interest rate swaps.
CEE Pro perty Development Portfolio B.V., CEE Pro perty
Development Portfolio 2 N.V., CS Investment Limited, CS
Pro perty Investment Limited, the Czech and Slovak Pro perty
Fund B.V., Czech TOP Venture Fund B.V., s Autoleasing, a. s., Erste
Leasing, a. s., brokerjet esk spoitelny, a. s. and GRANTIKA
esk spoitelny, a.s., hold investments in other entities with which
they form sub-groups (detailed information is provided in the con-
solidated financial statements).
183
The Creation and Release of Impairment Allowances Against Equity Investments Was as Follows:
CZK mil. 2013 2012
At 1 January 4,758 3,664
Creation 497 1,094
Release
Net creation for the year (refer to Note 36) 497 1,094
At 31 December 5,255 4,758
Of which the most signifcant are:
Czech and Slovak Pro perty Fund B.V. 1,854 1,456
CEE Pro perty Development Portfolio 2 B.V. 1,330 1,330
CEE Pro perty Development Portfolio B.V. 1,038 1,038
s Autoleasing, a. s. 390 390
At 31 December 2012
Name of the company
Share
capital
in CZK mil./
EUR ths
Currency Owner ship
%
Voting
power in %
Net Carrying
amount
in CZK mil.
CBCB Czech Banking Credit Bureau, a. s. 1 CZK 20.00% 20.00% 0.2
Erste Group Shared Services (EGSS), s.r.o. 0.2 CZK 40.00% 40.00% 0.1
CIUnternehmensbeteiligungs
G.m.b.H.
18 EUR 40.00% 40.00% 0.2
Procurement Services CZ, s. r. o. 0.2 CZK 40.00% 40.00% 0.1
Prvn certifkan autorita, a. s. 20 CZK 23.25% 23.25% 8
s IT Solutions SK, spol. s r.o. 7 EUR 23.50% 23.50%
Total associate undertakings 9
brokerjet esk spoitelny, a. s. 160 CZK 51.00% 51.00% 82
CEE Pro perty Development Portfolio B.V. 20 EUR 20.00% 20.00%
CEE Pro perty Development
Portfolio 2 B.V.
20 EUR 20.00% 20.00% 782
CS Investment Limited 8 EUR 100.00% 100.00% 253
CS Pro perty Investment Limited 120 EUR 100.00% 100.00% 1,330
Czech and Slovak Pro perty Fund B.V. 30 EUR 20.00% 20.00% 578
Czech TOP Venture Fund B.V. 19 EUR 84.00% 84.00% 89
Erste Corporate Finance, a. s. 6 CZK 100.00% 100.00% 15
Erste Energy Services, a. s. 2 CZK 100.00% 100.00% 14
Factoring esk spoitelny, a. s. 114 CZK 100.00% 100.00% 167
GRANTIKA esk spoitelny, a.s. 7 CZK 100.00% 100.00% 30
IT Centrum s. r. o. 179 CZK 100.00% 100.00% 288
Partner esk spoitelny, a. s. 4 CZK 100.00% 100.00%
Penzijn fond esk spoitelny, a. s. 350 CZK 100.00% 100.00% 841
Realitn spolenost esk spoitelny, a. s. 2 CZK 100.00% 100.00%
REICO investin spolenost esk spoitelny, a. s. 90 CZK 100.00% 100.00%
s Autoleasing, a. s. 500 CZK 100.00% 100.00% 676
s IT Solutions CZ, s. r. o. 0.2 CZK 40.00% 40.00% 4
S MORAVA Leasing, a. s. 200 CZK 100.00% 100.00% 148
Stavebn spoitelna esk spoitelny, a. s. 750 CZK 95.00% 95.00% 1,198
Total sub sidiary undertakings 6,495
foreign exchange differences on hedges relating to
equity investments denomi nated in EUR
(108)
Total equity investments 6,396
184
14. Pro perty and Equipment
CZK mil. Land
and
buildings
Equipment,
vehicles and
computer
hardware
Total
Cost
At 1 January 2012 18,466 8,149 26,615
Additions 468 584 1,052
Disposals (200) (1,342) (1,542)
At 31 December 2012 18,734 7,391 26,125
Additions * 2,044 559 2,603
Disposals (200) (613) (813)
Transfers 1 3 4
At 31 December 2013 20,579 7,340 27,919
Accumulated depreciation including impairment allowances
At 1 January 2012 (7,184) (6,004) (13,188)
Disposals 177 1 210 1,387
At 31 December 2012 (7,992) (5,447) (13,439)
Depreciation * (refer to Note 35) (809) (713) (1,522)
At 31 December 2013 (8,616) (5,571) (14,187)
Net book value
At 31 December 2012 10,742 1,944 12,686
At 31 December 2013 11,963 1,769 13,732
*Additions to Pro perty and equipment and related depreciation as at 31 December 2013 also include tangible assets of the company IT Centrum s. r. o. in the amount of CZK 1,726 milli-
on, respectively CZK 285 million, i.e. the net book value of CZK 1,441 million (refer to Note 13).
The balances as at 31 December 2013 shown above
include CZK 500 million (2012: CZK 598 million) in pro perty
under construction.
The acquisition cost of fully depreciated tangible assets
(2012: CZK 4,805 million).
185
15. Intangible Assets
CZK mil. Software Other Total
Cost
At 1 January 2012 6,886 6,742 13,628
Disposals (25) (25) (50)
Transfers 297 (297)
At 31 December 2012 7,497 7,038 14,535
Disposals (69) (504) (573)
Transfers 491 (497) (6)
At 31 December 2013 8,612 6,229 14,841
Accumulated amortisation including impairment allowances
At 1 January 2012 (4,862) (6,043) (10,905)
Disposals 23 25 48
At 31 December 2012 (5,464) (6,135) (11,599)
At 31 December 2013 (6,061) (5,737) (11,798)
Net book value
At 31 December 2012 2,033 903 2,936
At 31 December 2013 2,551 492 3,043
Other intangible assets include licenses and know-how. In addition,
the item includes CZK 678 million in assets under construction as
at 31 December 2013 (2012: CZK 650 million).
The acquisition cost of fully amortised intangible assets
(2012: CZK 7,200 million).
16. Other Assets
CZK mil. 2013 2012
Accrued income 16 16
Other tax receivables 121 110
Receivables from securities trading 568 377
Trade receivables 565 458
Accruals 475 640
vari ous receivables 868 34
Total 2,702 1,990
The significant increase in vari ous receivables is due to ATM clearing receivables amounting to CZK 733 million (settled in January 2014).
186
17. Amounts Owed to Financial Institutions
CZK mil. 2013 2012
Loro accounts (refer to Note 39) 1,535 3,191
Loans received 38,019 25,535
Total 97,830 63,671
As at 31 December 2013, the Bank received loans from financial
institutions of CZK 8,860 million (2012: CZK 2,532 million) under
repurchase transactions, which were collateralised by securities
amounting to CZK 8,859 million (2012: CZK 2,512 million).
18. Amounts Owed to Customers
CZK mil. 2013 2012
Public sector 70,444 57,842
Savings deposits 90 850
Other amounts due to customers (repos) 19,372 5,000
Corporate clients 116,332 111,579
Savings deposits 64 6,814
Resident individuals 381,694 379,985
Savings deposits 99,342 99,614
Other amounts due to customers 167 2,324
Total 568,470 549,406
Other amounts due to customers include loans received from cus-
tomers under repurchase transactions, amounts owed from can-
celled deposits and deposits relating to anonymous savings books.
As at 31 December 2013, the Bank had received loans from cus-
tomers of CZK 23,135 million (2012: CZK 7,835 million) under
amounting to CZK 23,134 million (2012: CZK 7,853 million).
19. Trading Liabili ties
CZK mil. 2013 2012
Pay ables arising from short sales shares 3
187
20. Financial Liabili ties Designated at Fair Value Through Proft or Loss
CZK mil. 2013 2012
Liabili ties arising from issued securities 1,818 1,995
Total 14,434 17,903
The Bank issued the following bonds which are pre sented within Liabili ties arising from issued securities:
Type ISIN Date of
issue
Maturity interest
rate
2013
CZK mil.
2012
CZK mil.
Bonds CZ0003702284
February
2010
February
2014
x
) 140 142
Bonds CZ0003702474
October
2010
November
2014
x
) 853 843
Bonds CZ0003702516
December
2010
January
2015
x
) 825 860
Bonds CZ0003703076
January
2012
January
2013
x
) 150
Total 1,818 1,995
x)
Bonds bear no interest, yield is determined as the diffe rence between the rate of issue and the bond value payable at its fnal maturity date.
The ISINs CZ0003702284, CZ0003702474, CZ0003702516
and CZ0003703076 were issued as structured bonds, the yield of
which is determined as equal to the diffe rence between the issue
rate and another value in accor dance with the issue terms and
conditions. The amount of another value will be based on a set
of indexes and an equity bucket and will be payable as of the final
maturity of the bonds. Issued bonds are not traded on any market.
Change in the Fair Value of Debt Securities:
CZK mil. 2013 2012
Change in the fair value of debt securities arising from changes in the issuers credit
profle
Customer deposits (46) (136)
Liabili ties arising from issued securities at fair value (4) (17)
Total (50) (153)
Diffe rence between the carrying amount and the contractually agreed nomi nal value
due at maturity
Customer deposits 171 99
Liabili ties arising from issued securities at fair value 8 45
Total 179 144
Short sales are short-term trading liabili ties which mature between
one and three months. Changes in the fair value of these trading
liabili ties are not analysed since the liabili ties are different at each
reporting date.
The change in the fair value arising from the changes in the credit
profile of the issuer (the Bank) is determined as equal to the diffe-
rence between the fair values of the liabili ties as at the previous
and current reporting dates, net of the effect of the change in fair
value due to the change in the risk-free interest rate.
188
21. Negative Fair Value of Derivative Transactions
CZK mil.
2013 2012
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair value hedge
Total fair value hedge 264 2,505 48 11,989
Cash fow hedge
Total cash fow hedge 1 1,400
Non-hedging
interest rate 10,360 327,581 14,740 342,870
Other 162 15,346 422 19,153
Total 24,294 618,844 26,222 654,326
Gains or losses on hedging derivatives are disclosed in Note 10.
22. Bonds in issue
Type ISIN Date
of issue
Maturity interest rate 2013
CZK mil.
2012
CZK mil.
Mortgage bonds CZ0002000755 February 2006 February 2016 4.80% 7,961 8,035
Mortgage bonds CZ0002001068 June 2007 October 2015 4.50% 761 762
Mortgage bonds CZ0002001084 July 2007 July 2014 Floating 1,517 1,537
Mortgage bonds CZ0002001134 August 2007 August 2017 Floating 3,004 3,012
Mortgage bonds CZ0002001191 October 2007 October 2022 Floating 2,003 2,010
Mortgage bonds CZ0002001274 November 2007 November 2014 Floating 967 964
Mortgage bonds CZ0002001407 December 2007 December 2022 Floating 3,999 3,999
Mortgage bonds CZ0002001423 December 2007 December 2017 5.85% 5,094 5,153
Mortgage bonds CZ0002001647 December 2007 December 2017 3,90% 974 1,006
Mortgage bonds CZ0002001654 December 2007 December 2022 Floating 179 476
Mortgage bonds CZ0002002173 November 2009 May 2013 3.20% 1,590
Mortgage bonds CZ0002002215 April 2010 October 2013 0.25% 2,526
Mortgage bonds CZ0002002264 January 2011 January 2013 0.20% 908
Mortgage bonds CZ0002002306 April 2011 April 2015 0.30% 124 127
Mortgage bonds CZ0002002330 June 2011 June 2016 0.30% 41 40
Mortgage bonds CZ0002002744 December 2012 December 2021 2.75% 18
Bonds CZ0003701054 September 2005 September 2017
x
) 262 253
x
) 293
Bonds CZ0003702011 July 2009 January 2014
xx
) 623 593
xx
) 521 493
Bonds CZ0003702078 November 2009 November 2016
xx
) 563 537
Bonds CZ0003702359 April 2010 April 2013 3.00% 1,225
Bonds CZ0003702367 April 2010 April 2013 Floating 1,228
189
Type ISIN Date
of issue
Maturity interest rate 2013
CZK mil.
2012
CZK mil.
Depository bills of exchange 26 79
Cumulative change in carrying value due to application of fair value hedging 1,314 1,515
Total 43,216 51,488
x)
Bonds were issued with a combined yield.
xx)
Bonds bear no interest, yield is determined as the diffe rence between the rate of issue and the bonds value payable
at its fnal maturity date.
Of the aggregate carrying value of the mortgage bonds,
CZK 12,967 million (2012: CZK 10,010 million) was hedged
against interest rate risk through interest rate swaps linked to a mar-
ket floating rate. In accor dance with the applicable accounting
policies, these mortgage bonds are re measured at fair value to the
extent of the hedged interest rate risk.
The ISINs CZ0003701054 and CZ0003701062 issues were placed
with a share index option which is recorded separately and is
re measured at fair value.
The ISINs CZ0002001647, CZ0002001654, CZ0002002165,
CZ0002002173, CZ0002002215, CZ0002002264, CZ0002002306,
CZ0002002330, CZ0002002744, CZ0002002751, CZ0002002769,
CZ0002002777, CZ0002002785 mortgage bond issues and the
ISINs CZ0003702011, CZ0003702037, CZ0003702078 bond
issues are not traded on any regulated market. Other issues of
mortgage bonds and bonds are traded on the official free market
of the Prague Stock Exchange (PSE).
23. Provisions
CZK mil. Impairment
allowance
for off
balance
sheet credit
risks
Provision
for legal
disputes
Other
provisions
Total
At 1 January 2012 376 1,743 39 2,158
Charge for the year 236 73 309
Net charge/(release) 102 (6) (34) 62
At 31 December 2012 451 1,699 2,150
At 1 January 2013 451 1,699 2,150
Charge for the year (refer to Notes 31 and 36 ) 275 169 500 944
Amounts released (refer to Notes 31 and 36 ) (364) (143) (507)
Net charge/(release) (89) 26 500 437
At 31 December 2013 347 1,724 389 2,460
Impairment allowances for off-balance sheet credit exposures are
recorded to cover losses that result from off-balance sheet expo-
sures.
Impairment allowance for off-balance sheet credit risks includes
a provision for the guarantee against the risk of s Autoleasing, a. s.
in the amount of CZK 75 million (2012: CZK 130 million). The
purpose of the guarantee is the participation of the Bank in the
risk of clients whose lease contract was concluded via the Bank or
clients taken into Autoleasing, a. s.s portfolio from Vchodoesk
leasingov, a. s.s portfolio. The participation payments are subject
to a contract for risk participation and are paid quarterly within two
months after the end of each quarter of the year.
Provision for legal disputes is explained in detail in Note 46.
Other provisions include an estimated amount for the Banks con-
structive obligation to meet any potential future claims of clients
resulting from statute-barred deposits on anonymous passbooks.
190
24. Other Liabili ties
CZK mil. 2013 2012
Income received in advance 182 238
Pay ables from the loyalty programme 251 346
vari ous creditors 1,590 2,622
Pay ables from securities trading 732 552
Pay ables from payment transactions 775 1,324
Accruals 2,663 2,084
Other liabili ties 337 655
Total 6,531 7,823
Accruals largely comprise amounts for staff and manage ment bonuses, unbilled supplies and contributions to the Deposit Insurance Fund.
25. Deferred tax
Deferred tax is calculated from all temporary differences under the liability method using a principal income tax rate of 19% (2012: 19%).
Net Deferred Income Tax Assets/(Liabili ties) Are as Follows:
CZK mil. 2013 2012
Balance at the beginning of the year (172) 437
Movement for the year Equity (refer to Note 38) 19 (242)
Movement for the year Income/(Expense) (refer to Note 38) 155 (367)
Net balance at the yearend asset/(liability) 2 (172)
Deferred Income Tax Assets and Liabili ties Are Attributable to the Following Items:
CZK mil. 2013 2012
Deferred tax assets
Non-tax deductible reserves and provisions 328 181
Other temporary differences 311 119
Total deferred tax asset 639 300
Deferred tax liabili ties
Accelerated depreciation for tax purposes (458) (274)
Changes in the fair value of fnancial assets availableforsale (177) (198)
Cash fow hedge, effective part (2)
Total deferred tax liability (637) (472)
Net deferred tax asset/(liability) 2 (172)
The impact of deferred tax assets on equity arises from changes in
the fair value of financial assets available-for-sale and the effective
part of the cash flow hedge. The deferred tax income/(expense)
in the income statement consist of the following temporary dif-
ferences:
CZK mil. 2013 2012
Provisions 147 (137)
Accelerated depreciation for tax purposes (184) 4
Other temporary differences 192 (234)
Total (refer to Note 38) 155 (367)
191
26. Subordinated Debt
ISIN Date of
issue
Maturity
date
interest
rate
Nomi-
nal value
in CZK mil.
Carrying
amount at
31 Decem-
ber 2013
Carrying
amount at
31 Decem-
ber 2012
CZ0003701906
12 March
2009
12 March
2019
5% p.a. 2,000 1,784 1,844
CZ0003702342
24 March
2010
24 March
2020
6M PRIBOR
+0.40%
1,000 312 418
Total 2,096 2,262
The issue CZ0003701906 of the Banks subordinated debt was made
in certificate form. The bond is not placed on a regulated market. The
debt is unsecured and unconditional. interest income is payable once
a year retroactively. Upon its discretion, the Bank is entitled to repay
the CZ0003701906 issue bonds prematurely on 12 March 2014 at 100%
of the bonds nomi nal value together with any unpaid interest to date
(if rele vant). If the Banks bonds are not prematurely repaid, the fixed
interest rate will be increased by 1.50% p.a.
On 6 March 2009 (issue CZ0003701906) and 18 March 2010
(issue CZ0003702342) the CNB issued certificates confirming that
these issues of subordinated debt are compliant with all regula tory
requirements and may be included in the additional capital of the
Bank for the purposes of calculating the capital adequacy ratio
(refer to Note 41.5).
27. Share Capital
Authorised, Issued and Fully Paid Share Capital Is as Follows:
2013 2012
Number of
shares
CZK mil. Number of
shares
CZK mil.
Ordinary shares of CZK 100 each 140,788,787 14,079 140,788,787 14,079
Prefe rence shares of CZK 100 each 11,211,213 1,121 11,211,213 1,121
Total 152,000,000 15,200 152,000,000 15,200
Prefe rence shareholders are not entitled to vote at the annual
shareholders meeting. They have a right to receive dividends
each year if the Bank is profitable. The amount of the dividend is
proposed by the Board of Directors and subject to approval at the
annual shareholders meeting. In the case of liquidation, prefe rence
shareholders have a right to the assets of the Bank before ordinary
shareholders but after other creditors. Prefe rence shareholders have
a right to purchase shares offered by the Bank when it increases
its share capital in the same proportion as the current holding.
Prefe rence shares can only be issued to municipalities and local
governments in the Czech Republic. The prefe rence shares can
only be transferred to entities other than municipalities and local
governments of the Czech Republic subject to the approval of the
Board of Directors.
28. Revaluation Gains or Losses
CZK mil.
Financial assets
availableforsale
Cash fow
hedges
2013 2012 2013
At 1 January
Gain/(loss) on revaluation 1,040 (232)
Deferred tax (liability)/asset (197) 45
Total at 1 January 843 (187)
Changes during the year
(Loss)/gain on revaluation (109) 1,272 11
Deferred tax asset/(liability) 21 (242) (2)
Statement of other comprehensive income (88) 1,030 9
At 31 December
Gain on revaluation 931 1,040 11
Deferred tax liability (176) (197) (2)
Total at 31 December 755 843 9
There were no cash flow hedges in 2012.
192
29. interest and Simi lar Income
CZK mil. 2013 2012
Financial assets not at fair value through proft or loss:
Loans and advances to fnancial institutions 605 957
Loans and advances to customers 23,009 24,971
Of which: unwinding of discount (refer to Note 7) 655 711
Debt securities availableforsale 609 593
Debt securities heldtomaturity 5,012 5,518
Income from shares and other variable yield securities availableforsale 38 18
Total fnancial assets not at fair value through proft or loss 29,273 32,057
Financial assets at fair value through proft or loss:
Trading debt securities 201 399
Debt securities designated as at fair value through proft or loss 112 277
Shares and other variable yield securities designated as at fair value through proft or loss 6 3
Total fnancial assets at fair value through proft or loss 319 679
Other:
Dividends from equity investments 1,836 817
Other 107 128
Total 31,535 33,681
30. interest and Simi lar Expense
CZK mil. 2013 2012
Amounts owed to fnancial institutions (691) (927)
Amounts owed to customers (2,162) (3,070)
Bonds in issue (1,060) (1,529)
Subordinated debt (92) (104)
Other (38) (145)
Total (4,043) (5,775)
31. Impairment Allowance for Credit Risks
CZK mil. 2013 2012
Charge for offbalance sheet impairment allowances (refer to Note 23) (275) (236)
Release of offbalance sheet impairment allowances (refer to Note 23) 364 134
Net charge for the year 89 (102)
Charge for impairment allowances (6,382) (7,627)
Release of impairment allowances (refer to Note 7) 3,023 3,448
Net charge for the year (3,359) (4,179)
Total net (charge)/release for the year (3,270) (4,281)
Writeoffs of loans not covered by impairment allowances (13) (11)
Recoveries of amounts previously writtenoff 332 916
Total (2,951) (3,376)
Charge for impairment allowances also includes the charge for
allowances to financial institutions in the amount of CZK 31 mil-
lion (2012: CZK 0 million) and the charge for allowances to
financial assets held-to-maturity in the amount of CZK 13 million
(2012: CZK 0 million).
193
32. Fee and Commission Income
CZK mil. 2013 2012
Lending activities 3,877 3,951
Payment transactions 8,182 8,351
Custody, trustee and administration of assets 312 288
Securities transactions 616 577
Mediation of insurance activities 540 546
Mediation of construction savings activities 564 509
foreign exchange transactions 33 40
Other fnancial activities 493 708
Total 14,617 14,970
33. Fee and Commission Expense
CZK mil. 2013 2012
Lending activities (1,108) (1,185)
Payment transactions (1,740) (1,520)
Securities transactions (119) (123)
Mediation of construction savings activities (118) (92)
Other fnancial activities (482) (410)
Total (3,567) (3,330)
34. Net Trading Result
CZK mil. 2013 2012
foreign exchange trading 1,410 906
Total 2,593 2,245
With effect from 4 February 2008, the Bank transferred its financial
markets trading to make use of Erste Group Banks business model.
The market risk arising from the sales activities of the Financial Markets
Division (i.e., transactions with retail and corporate clientele), with
the exception of equity risk and transactions for the Banks liquid-
ity manage ment purposes (money market), is regularly transferred to
Erste Group Bank using back-to-back transactions. Trading gains (i.e.
from Erste Group Banks market positions) are distributed according
to approved rules to the rele vant banks within the Group and reported
in the Net trading result.
The basic principle underlying these rules involves Erste Group
Bank absorbing potential losses in indi vidual classes of assets in
exchange for the risk premium derived from the Value at Risk
(VaR) indicator. The remaining positive result after deducting
expenses (calculated using the Cost Income Ratio) is reallocated
to indi vidual participants in the model based on the results from
the sale of assets in indi vidual asset groups.
The net trading result includes the income from the market positions of Erste Group Bank structured as follows:
CZK mil. 2013 2012
foreign exchange trading 300 283
Total 787 1,016
194
35. Gene ral Administra tive Expenses
(a) Composition of Gene ral Administra tive Expenses
CZK mil. 2013 2012
Personnel expenses
Wages and salaries (5,663) (5,679)
Social security costs (1,809) (1,599)
Other personnel expenses (436) (421)
Total personnel expenses (7,908) (7,699)
Other administra tive expenses
Data processing expenses (2,642) (2,777)
Building maintenance and rent (1,458) (1,620)
Costs of business transactions (881) (920)
Advertising and marketing (743) (946)
Advisory and legal services (334) (388)
Other administra tive expenses (393) (546)
Total other administra tive expenses (6,451) (7,197)
Depreciation
Amortisation of intangible assets (refer to Note 15) (713) (737)
Depreciation of pro perty and equipment (refer to Note 14) (1,237) (1,315)
Total depreciation and amortisation (1,950) (2,052)
Total (16,309) (16,948)
Building maintenance and rent includes lease payments under opera ting leases amounting to CZK 605 million (2012: CZK 733 million).
(b) Board of Directors and Supervisory Board Remuneration
CZK mil. 2013 2012
Remuneration 83 59
Remuneration to the members of the Board of Directors and Supervisory Board is accounted for as short-term employee benefits.
(c) Number of Board Members and Full Time Employees
2013 2012
Board of Directors 5 5
Supervisory Board 9 9
Staff 9,366 9,890
In accor dance with the Czech National Banks Decree No. 123/2007
Coll. applying European regulation (Capital Requirements Directive
III, No. 2010/76/EU) and stipulating the prudential rules for banks,
credit unions and investment firms, the Bank has implemented
a set of Remuneration Policy Principles and set up a remuneration
policy committee. The newly accepted remuneration principles are
outlined in order to support proper and effective risk manage ment
and to avoid instigating risk acceptance in excess of the risk levels
accepted by the Bank. Special remuneration principles have been
implemented for employees having significant influence on the
Banks overall risk profile. They may receive part of their pay
in the form of non-monetary rewards and the payment of both
the monetary and non-monetary portions of their salaries may be
deferred for up to three years.
195
36. Other Opera ting Result
CZK mil. 2013 2012
Contribution to the Deposit Insurance Fund (859) (843)
Impairments and write ups, net (769) (1,441)
Net (creation)/release of provisions for legal disputes and other provisions (refer to Note 23) (526) 40
Gains on the sale of real estate 25 53
Other taxes (71) (58)
(Losses)/gains from the revaluation/sale of fnancial assets and liabili ties at fair value through proft
or loss that are not designed for trading
(493) 66
Losses from the sale of fnancial assets availableforsale 43
Gains on the sale of fnancial assets heldtomaturity 134 62
Other opera ting income/(expenses) 576 (59)
Total (1,940) (2,180)
Other opera ting income/(expenses) in 2013 includes a net gain
of CZK 625 million due to the reversal to income statement of the
statute-barred anonymous passbook deposits. The net gain is after
the Banks CZK 1,537 million donation to the foundation Nadace
Depositum Bonum and will be used to settle the related tax liability
as well as to voluntarily create a provision for any future claims
received over the next 3 years from clients who previously held
such deposits.
The following table shows in detail the impairments and write-ups realised during year:
CZK mil. 2013 2012
Impairment of tangible and intangible fxed assets (64) (328)
Net creation of impairment allowances against Non-credit receivables
(9) (30)
(Impairment)/write up of availableforsale securities (199) 11
Creation of impairment allowances against equity investments (refer to Note 13) (497) (1,094)
Total impairments and write ups, net (769) (1,441)
37. Other Comprehensive Income
CZK mil. 2013 2012
Financial assets availableforsale
Unrealized proft on revaluation 15 1,272
Reclassifcation adjustments to the income statement (124)
Total fnancial assets availableforsale (109) 1,272
Cash fow hedge
Gains and losses on the hedging instruments 11
Reclassifcation adjustments to the income statement
Total cash fow hedge 11
Total (98) 1,272
The hedged cash flows are likely to occur within the next five to ten
years and will then be recognised in the income statement. There
were no cash flow hedges in 2012.
196
38. Income Tax
a) Income Statement
CZK mil. 2013 2012
Current tax expense (3,870) (3,358)
Deferred tax income/(expense) (refer to Note 25) 155 (367)
Total (3,715) (3,725)
b) Other Comprehensive Income Statement
CZK mil. 2013 2012
Revaluation of fnancial assets availableforsale (refer to Note 25) 21 (242)
Cash fow hedges (refer to Note 25) (2)
Total 19 (242)
The tax on the Banks profit before tax differs from the theoretical amount that would arise using the basic tax rate of the Czech Republic
as follows:
CZK mil. 2013 2012
Tax calculated at a tax rate of 19% (3,788) (3,665)
Non-taxable income 350 551
Non-deductible expenses (258) (525)
Tax allowances and credits, including the utilisation of tax losses, tax recoveries and additional
taxes for prior periods
(19) (86)
Income tax expense (3,715) (3,725)
Effective tax rate 18.64% 19.32%
Further information about deferred income tax is pre sented in Note 25.
39. Cash and Cash Equivalents
Cash and cash equivalents at the end of the year as shown in the statements of cash flows are composed of the following balances:
CZK mil. 2013 2012
Overnight deposits with the CNB (refer to Note 4) 47,072 700
Treasury bills and treasury bonds with maturity of less than three months 25,117 17,041
Nostro accounts with fnancial institutions (refer to Note 5) 2,070 1,812
Loro accounts with fnancial institutions (refer to Note 17) (1,535) (3,191)
Total cash and cash equivalents 93,923 36,607
For the purposes of determining cash and cash equivalents, the
minimum reserve deposit with the CNB (refer to Note 4) is not
included as a cash equivalent due to restrictions on its availability.
197
40. Financial Instruments
The Bank classifies financial instruments into trading and bank-
ing (investment) portfolios in accor dance with BASEL II rules
as per CNB Regulation No. 123/2007 as amended by Regulation
282/2008 Coll., on the rules of prudent business of banks, sav-
ings and lending associates and securities traders (henceforth
Regulation 123/2007). The Bank applies vari ous techniques to
the manage ment of the risk within the banking and trading books
(refer to Note 41).
The table below shows the classes of financial assets and liabili-
ties reported by the Bank according to the IFRS 7 requirements.
However, as per Note 3.3 the financial assets and liabili ties are
measured in accor dance with the categories as defined by IAS 39.
The Balances of Financial Instruments in Indi vidual Categories Are as Follows:
advances
not intended
for trading
Financial
assets held
tomaturity
Financial
assets at
fair value
through
proft or
loss
Financial
assets
available
forsale
Financial
liabili ties
measured at
amortised
value
Financial
liabili ties at
fair value
through
proft or
loss
Financial assets
institutions, net
49,384
Financial assets designated as at fair
4,101
Of which: trading 21,315
Of which: hedging 895
Other assets 2,492
198
advances not
intended for
trading
Financial
assets held
tomaturity
Financial
assets at
fair value
through
proft or
loss
Financial
assets
availablefor
sale
Financial
liabili ties
measured at
amortised
value
Financial
liabili ties at
fair value
through
proft or
loss
Financial assets
institutions
47,975
Net loans and advances to
customers
434,676
Financial assets designated as at
fair value through proft or loss
7,144
Of which: hedging 1,120
Financial assets availablefor
sale
45,671
Financial assets heldtomaturity 159,955
Other assets 1,525
Amounts owed to fnancial
institutions
63,671
41. Risk Manage ment
Financial instruments may result in certain risks for the Bank.
The most significant risk is credit risk. In addition, the investment
portfolio of the Bank is exposed to interest rate risk and liquidity
risk. The risks attached to the trading portfolio include market
risks, specifically foreign exchange, interest rate and equity risks
and other risks relating to trading with complex instruments. All
transactions with financial instruments also carry operatio nal risk.
Risk manage ment in the Bank is performed by a division managed
by a member of the Board of Directors exclusively responsible for
risk manage ment the Chief Risk Officer. This division, which
is completely independent of the business divisions of the Bank,
centralises all departments tasked with risk manage ment, namely:
Compliance, Financial Crime and Anti-Fraud Manage ment;
Legal services;
Central Risk Manage ment;
Credit Risk Manage ment Corporate Banking;
Credit Risk Manage ment Retail Banking;
Restructuring and Workout;
Credit Risk Controlling and Portfolio Manage ment; and
Security.
Manage ment and control systems are continuously reviewed by
the Internal Audit which prepares a verification report annually.
41.1 Credit Risk
The Bank takes on exposure to credit risk which is the risk that a coun-
terparty will be unable to pay amounts owing in full when due.
Credit Risk Manage ment Methodo logy
In managing credit risk, the Bank applies a unified methodo logy
which sets out applicable procedures, roles and authorities. The
lending policy defines a comprehensive policy for the Banks credit
risk manage ment. It defines the basic principles related to iden-
tification, measurement, monitoring, controlling and credit risk
manage ment. It contains the basic lending rules, including limita-
tions for loan granting and describes indi vidual credit risk manage-
ment tools, such as a rating system, colla teral manage ment, limit
setting, setting of approval policy, monitoring, provision making
policy, reporting, controlling and portfolio manage ment. In addition
it defines credit risk manage ment organization and discloses the
lending process.
199
Breakdown of the Portfolio for Credit Risk
Manage ment Purposes
For the purpose of determining impairment allowances the loans
and advances are segmented into non-default (performing) loans
where the principal and interest is not past due for more than 90
days or there are no other indications that would suggest that the
repayment of the receivable is unlikely (bankruptcy proceedings,
forced restructurings, etc.) and default (non-performing) loans.
There are two large sub-portfolios within these receivables, i.e.
receivables which are individually significant comprising receiva-
bles from corporate entities or receivables where the Banks credit
exposure is higher than CZK 5 million and receivables which are
individually insignificant. Within these two subportfolios the Bank
also monitors 5 customer portfolios for individually significant
receivables and 16 pro duct portfolios for individually insignificant
receivables. The Bank monitors a number of risk parameters within
these portfolios (PD probability of default, LGD loss given
default, CCF credit conversions factors). PD is further monitored
at the level of vari ous internal rating grades.
Receivables with debtor default correspond to individually
impaired receivables (rating R). Receivables without debtor
default with internal ratings of 1 6 are consi dered to be unim-
paired. Receivables with internal ratings of 7 8 are collectively
impaired.
For credit risk manage ment purposes, the Banks loan portfolio is
broken down as follows:
Retail receivables are receivables from individuals/
households and small enterprises with an annual
turnover of up to CZK 30 million and small
municipalities (MSE). The methods of managing
the credit risk of retail receivables are based on
statistical models calibrated using historical data.
Receivables from corporate counterparties
include receivables from small and medium
sized enterprises with an annual turnover of
between CZK 30 to 1,000 million (SME), receivables
from large businesses (with an annual turnover
exceeding CZK 1,000 million) and public sector
receivables. While the methods of managing the credit
risk of corporate receivables are based on statistical
models (namely for the portfolio of receivables from
mid-size enterprises), great emphasis is also put on
regular, discrete analysis of indi vidual customers.
With the exception of a limited number of borderline cases, the
breakdown of the portfolio corresponds to the asset classes as
defined in CNB Regulation No. 123/2007 which implements the
BASEL II rules.
For the purpose of provisioning, monitoring and predicting
losses, the Bank differentiates between individually significant
and individually insignificant exposures. The credit risk attached
to individually significant exposures is managed on an indi vidual
basis with the minor use of portfolio models. The Bank aggregates
individually insignificant exposures into portfolios and manages
the risk on a portfolio basis.
Individually significant loans predominantly include loans from
the Banks corporate portfolio. These loans are additionally split
into the following sub-portfolios:
Large corporate clients with annual turnover
exceeding CZK 1,000 million (the exposure of which
is managed using a unifed method throughout Erste Group
Bank and its subsidiaries (the Erste Group) or at the Bank
level);
Project fnance and corporate mortgages;
Small and medium sized enterprises (turnover from CZK 30
to 1,000 million);
Municipality loans; and
Loans in the Workout Department.
Corporate loans match the corporate or special funding asset
class (segment) under BASEL II.
Individually insignificant loans (up to CZK 5 million), including
MSE loans, principally encompass the Banks retail loans. These
loans are divided into 16 pro duct portfolios. The key portfolios
include mortgage retail loans, credit card loans, overdraft loans and
consumer loans. The Banks retail loans match the Retail asset
class (segment) under BASEL II.
Collection of Key Risk Manage ment Information
In managing credit risk, the Bank refers not only to its own portfolio
information but also the portfolio information of other members
of the esk spoitelna Group. The Bank also uses information
obtained from external sources such as credit bureaus or ratings
provided by reputable rating agencies. This data provides a basis
for modelling credit risk and supports debt recovery, valua tion of
receivables and the calculation of credit losses.
The internal rating of the Bank reflects the ability of counterparties
to meet their financial obligations. The degree of risk is reflected
in the internal rating and corresponding probability of default
of the debtor in the following twelve months. The definition of
default is in line with the requirements set out in CNB Regulation
No. 123/2007 (BASEL II).
The Bank allocates internal ratings to all clients with credit
exposures. The Bank uses the rating scale with 13 grades
for non-defaulted counterparties and one grade for defaulted coun-
terparties (internal rating R). In the case of private individuals
there are only 8 rating grades for non-defaulted clients.
200
To allocate the internal rating grade the Bank uses several rating models for different counterparty segments. All rating models comply
with Erste Group Bank standards:
Segment Rating tool
Government (sovereign) and banking
Unifed model for the whole Erste Group. The model places great
emphasis on independent external ratings combined with other
information
Specialized fnancing
Unifed model for the whole Erste Group which is prima rily based on
projected cash fows
Corporate customers Rating based on fnancial information and soft factors
MSE
In addition to the fnancial results of the company, information about
the enterprise owner or the entrepreneur himself is also taken into
account
Individuals Behavioural and application scoring
Municipal clients Model based on budget analysis
The Bank reviews ratings on a regular basis. The ratings of coun-
terparties from the banking, corporate and sovereign segments are
reviewed at least annually. For retail customers the Bank has develo-
ped a behavioural rating and the client ratings are updated monthly.
The rating instruments are periodically adjusted to reflect changing
economic conditions and the Banks business plans, validation
(consistency of results testing) and performance testing undertaken
by the Credit Risk Controlling Department.
In the case of counterparties with an external rating provided by an
external rating agency, the Bank uses this information as an addi-
tional source of information. Based upon its historical experience,
the Bank has created a transfer bridge between its own internal
ratings and the external ratings.
In addition to the internal ratings outlined above, the Bank allo-
cates each exposure a risk group according to CNB Regulation
No. 123/2007. In accor dance with this regulation, the Bank main-
tains five groups of risk profiles namely, standard, watch, sub-
standard, doubtful and loss.
In compliance with the regula tory requirements arising from
BASEL II, rating instruments are subject to annual validations
performed by the Credit Risk Controlling Department, Erste Group
Bank Competence Centre and Internal Audit.
Exposure limits
Exposure limits are defined as the maximum exposure that the Bank
may accept in respect of a client with a given rating and underlying
colla teral. In setting the system of limits, the Bank strives to protect
its revenues and capital from concentration risk.
Concentration risk is measured as the potential loss that may arise
from an exposure to the top twenty groups to which the Bank
records the highest exposure (the potential loss is determined
by using Credit VaR methodo logy with a one-year horizon and
a reliability corresponding to a one-sided 95% percentile of loss
distribution), and several other indicators (especially exposure
to economically related parties) for which limits have been esta-
blished.
The VaR of the twenty groups to which the Bank records the highest
exposure decreased from 1.2% to 0.8% in 2013 in comparison to 2012.
Decrease of VaR 95% to Tier1 capital ratio (from 0.9% in 2012 to
0.6% in 2013) was positively influenced by decrease of concentration
risk and additionally strengthened Tier1 capital by +8.2 CZK bio.
The structure of approval authorities is based on the materiality
of the impact of a potential loss from a provided exposure on
the Banks financial performance and the risk profile of the rele-
vant loan transaction. The highest approval authorities rest with
the Credit Committee of the Board of Directors, with the Credit
Committee of the Supervisory Board only having an advisory role.
Lower approval authorities are categorised taking into account the
seniority of the staff of the Corporate Credit Risk Manage ment
Department and the Retail Credit Risk Manage ment Department.
Risk Parameters
The Bank uses its own internal models in determining the risk
parameters, namely PD, LGD and CCF risk parameters.
All of the models are develo ped according to BASEL II require-
ments and were subject to review by the regulator. The monitoring
of historical risk parameters and their prediction serve as a basis
for the quantitative manage ment of portfolio credit risk.
The Bank currently employs risk parameters for portfolio moni-
toring, defaulted loans portfolio manage ment, portfolio protection
measurement, risk valua tion and prediction of the Banks risk pro-
file development under different scenarios.
All models are back-tested at least annually and validated by the
Banks specialists who are independent of the Risk Manage ment
Department.
Impairment Allowance for Loan Losses
The Bank recognises impairment allowances for incurred losses.
These losses are determined and recognised in accor dance with
IAS 39. The Bank uses adjusted risk parameters estimated as part
of the implementation of the BASEL II rules to assess the amount
of loss.
201
Loan loss impairment allowances are determined for all impaired
loans. The impairment methodo logy is regularly reviewed and
adjusted if necessary.
Manage ment of Credit Risk in the Trading
Portfolio
The credit risk inherent in the trading portfolio is managed through
the limit system applied to all counterparties.
Colla teral
The Bank defines colla teral as assets that can be realized in case the
primary source of repayment fails. Collateralisation of the Banks
receivables arising from lending transactions is governed by the
following principles: colla teral repre sents the Banks protection as
a creditor that may be used as a secon dary source of payment. The
selection of indi vidual colla teral instruments required to secure
a specific deal depends on the Banks loan pro ducts, requirements
and professional assessment by the Banks responsible employees.
The possibility to pledge the colla teral is always assessed before
the colla teral is accepted by the Bank.
The value of colla teral (nomi nal value of colla teral) is determined
with reference to the market prices of simi lar types of colla teral. If
more than one market price for the colla teral is determined using
vari ous valua tion techniques in a particular business transaction,
the lowest market price is used.
If the colla teral instrument involves real estate, movable assets,
a business or its branch, trademarks, an asset declared as a histori-
cal monument, antiquities, paintings, jewels, manuscripts, etc. the
price has to be determined on the basis of an appraisal made by an
expert appraiser contracted by the Bank or an internal appraiser for
the purpose of evaluating the loan application. The expert appraisal
or price estimate must not be older than six months at the date on
which the loan contract is entered into. For real estate valua tion
purposes a detailed, in-house methodo logy is used.
The realisable value of colla teral is determined by using the
valua tion rates set out in the Colla teral Catalogue of the Bank.
In determining the valua tion rates, it is necessary to assess indi-
vidual instruments by their specific features, e.g. real estate by the
character of its construction, etc. and always following a physi-
cal inspection. The overall setup of maximum valua tion rates is
reviewed annually.
The expert valua tion always has to be reviewed. Other conditions
taken into account in determining the realisable value of colla teral
are, among others, as follows:
A comprehensive assessment of all available and, with
respect to the particular case, signifcant circumstances
and background documentation;
Any insurance or pledges of receivables arising from
insurance proceeds in favour of the Bank;
The possibility of realising the colla teral at a particular time
and place and the amount of realisation costs which, in most
cases, needs to be viewed as a sale in distress; and
A comparison to market trends.
The Colla teral Catalogue also includes requirements for the peri-
odic revaluation of colla teral. Typically, the colla teral value is ana-
lysed and updated upon the regular monitoring/credit review of
clients. With respect to pro duct portfolios of retail mortgages, the
Bank uses portfolio models for updating nomi nal colla teral values.
In addition, the Bank regularly monitors the loan to value ratio,
mainly in respect of mortgage loans and project financing loans.
Credit risk pricing
The accepted risk is reflected in risk margins used in the pricing
of indi vidual types of counterparties and deals. The risk margins
are based on estimated risk parameters, the expected development
of the macroeconomic environment and changes in the credit pro-
cess within the Bank, which may have an impact on risk levels
within the credit portfolio.
Stress testing
The Bank regularly undertakes the stress testing of the sensi-
tivity of its portfolio to the deterioration of the credit quality of
receivables. In addition to the sensitivity of the portfolio to stress
changes in the PD and LGD risk factors, the Bank performs scenario
analy ses modelling the impact of adverse developments in mac-
roeconomic factors (such as changes in the economic growth rate,
changes in interest rates and changes in inflation). The breakdown
of credit risk by industries is shown in Note 41.1 (b).
Restructuring
Restructuring of doubtful loan receivables reflects the Banks busi-
ness decisions. Any receivable whose terms and conditions have
been renegotiated because of the debtors distress is consi dered
restructured. Renegotiations of loan terms and conditions include
payment schedule changes (deferrals and reductions of regular pay-
ments, extended maturities, etc.), interest rate reductions, penalty
interest waivers, or the provision of a new loan specifically for the
repayment of the doubtful receivable.
Restructuring is only possible on the basis of a new loan agree-
ment. Restructured debt initially receives an internal rating of R.
Rating improvement is possible six months from the restructuring
date at the earliest. Restructured loans continue to be tested for
impairment, either individually or on a collective basis. As part of
the half-year reviews of restructured receivables, the Bank decides
whether to improve the internal rating or to extend the monitoring
period by another six months.
Write-offs
Write-offs are generally recorded after all reasonable restructur-
ing or collection activities have taken place and the possibility
of further recovery is consi dered remote. The loan is written-off
202
against the related account Impairment allowance for credit risks
in the income statement. If the reason for provisioning is no longer
deemed appropriate, the redundant impairment charge is released
into income. The rele vant amount and recoveries of loans and
advances previously written-off are also reflected in the income
statement through Impairment allowance for credit risks.
a) Structure of Credit Risk by On-Balance Sheet and Off-Balance Sheet Items
The Bank is exposed to credit risk arising from the following items:
CZK mil. 2013 2012
Credit risk exposures relating to onbalance sheet items
Cash and balances with CNB 55,811 1,853
Loans and advances to customers, net of impairment allowances: 456,164 434,676
a) Retail loans 218,883 206,251
Overdraft loans 5,810 6,282
Credit cards 4,382 4,820
Municipal loans 9,638 9,927
Large enterprises 68,931 65,953
SMEs 76,862 72,846
Corporate mortgages 32,093 28,989
Municipalities 12,196 13,054
Positive fair value of derivative transactions 22,210 26,994
Financial assets at fair value through proft and loss
Debt trading assets 26,549 40,872
Debt fnancial assets designated at fair value through proft and loss 3,474 6,984
Debt fnancial assets availableforsale 60,575 45,298
Debt fnancial assets heldtomaturity 134,380 159,955
vari ous receivables and Receivables from securities trading in other assets 1,608 1,509
Credit risk exposure relating to offbalance sheet items
Guaran tees and letters of credit 27,287 27,388
Undrawn loan commitments 74,048 70,980
Total 911,490 864,484
The resulting credit exposure as at 31 December 2013 and 2012
repre sents a worst case scenario, without taking into account any
colla teral held or other related credit enhancements. For on-balance
sheet assets, the exposures set out above are based on net carrying
amounts as reported in the statement of financial position.
As shown above, 55% of the total exposure is derived from loans
and advances to financial institutions and customers (2012: 56%);
25% repre sents investments in debt securities (2012: 29%).
The Bank has no outstanding exposure to the sovereign debt of
Greece, Italy, Ireland, Portugal or Spain.
203
Colla teral securing the above receivables is as follows:
CZK mil. 2013 2012
Loans and advances to customers: 246,387 247,016
a) Retail loans 128,997 127,915
Total 248,338 248,804
The value of colla teral is the lower of the colla terals nomi nal value
multiplied by a valua tion rate and the receivable balance. It is not
always certain that the estimated colla teral values will be realised.
For details of the determination of colla teral values, refer to the
description above.
b) Credit Risk by Indi vidual Sectors
Set out below is a summary of loans and advances to customers and financial institutions together with debt securities by indi vidual sectors
in the distribution of the credit exposure of the Bank:
CZK mil. 2013 2012
Financial institutions 175,993 19% 125,290 14%
Resident individuals 254,804 27% 240,154 27%
Trade 46,825 5% 42,410 5%
Energy sector 11,341 1% 10,107 1%
State institutions 211,900 23% 247,582 28%
Public sector 17,951 2% 11,139 1%
Construction industry 17,013 2% 17,723 2%
Hotels, public catering services 2,904 1% 3,421 1%
Manufacturing industry 58,155 6% 58,575 7%
Real Estate 72,962 8% 69,418 8%
Agriculture 13,373 1% 13,040 1%
Transporting 12,435 1% 11,311 1%
Other business activities 32,513 4% 31,109 4%
Subtotal 928,169 100% 881,279 100%
Impairment allowance for loans and advances (refer to Note 7) (16,679) (16,795)
Total 911,490 864,484
204
c) Assessment of Asset Quality Using Risk Profle
As at 31 December 2013 and 2012, the Bank reports the following financial assets which are neither past their due dates, nor individually
impaired, broken down by risk category:
CZK mil.
Investment
grade
Standard
monitoring
Special
monitoring
Total
(14c) (56) (78)
Credit cards 3,468 422 88 3,978
Other loans 47,166 4,308 922 52,396
Mortgage loans 144,171 4,361 1,237 149,769
MSE

Mortgage loans 12,657 9,402 1,233 23,292
Municipal loans 5,448 4,033 153 9,634
Other loans 2,907 8,533 841 12,281
Corporate loans
SME 19,798 49,682 6,043 75,523
Corporate mortgages 21,940 5,544 2,803 30,287
Municipalities 8,379 3,760 72 12,211
Trading assets 26,431 26,431
Financial assets designated as at fair value through proft or loss 2,835 2,835
Financial assets heldtomaturity 130,241 130,241
Financial assets with no external rating
Trading assets 118 1 1 120
Financial assets designated as at fair value through proft or loss 584 682 1,266
Total Financial assets 223,934 1 2,267 226,202
Positive fair value of derivative transactions 19,299 2,313 585 22,197
205
CZK mil.

Investment
grade
Standard
monitoring
Special
monitoring
Total
(14c) (56) (78)
Credit cards 3,703 433 141 4,277
Other loans 47,326 5,051 1,538 53,915
Mortgage loans 125,157 6,331 2,119 133,607
MSE

Mortgage loans 11,737 9,142 1,104 21,983
Municipal loans 3,857 5,840 213 9,910
Other loans 3,710 8,536 960 13,206
Corporate loans
SME 14,764 47,058 8,332 70,154
Corporate mortgages 18,180 7,227 1,008 26,415
Municipalities 4,403 8,382 261 13,046
Financial assets with external rating
Trading assets 40,711 40,711
Financial assets designated at fair value through proft or loss 6,327 6,327
Financial assets heldtomaturity 151,559 637 152,196
Financial assets with no external rating
Trading assets 166 4 170
Financial assets designated at fair value through proft or loss 101 716 817
Total Financial assets 251,252 637 1,762 253,651
Positive fair value of derivative transactions 23,414 2,743 807 26,964
206
d) Financial Assets Past Their Due Dates
As at 31 December 2013 and 2012, the Bank reports the financial assets which are past their due dates, but not individually impaired:
CZK mil.
Past due
date by less
than
30 days
Past due
date by
30 60 days
Past due
date
by
60 90 days
Past due
date more
than 90
days
Total
Credit cards 325 23 8 356
Other loans 2,352 286 143 2,781
Mortgage loans 339 478 204 1,021
Subtotal 3,129 833 370 8 4,340
MSE
Overdraft loans 1 1
Mortgage loans 9 109 106 224
Municipal loans 13 13
Other loans 193 97 63 2 355
Subtotal 215 207 169 2 593
Corporate loans
Corporate customers 115 115
SME 565 10 36 611
Corporate mortgage loans 43 4 3 3 53
Municipalities
Total corporate loans 723 14 39 3 779
Total 4,067 1,054 578 13 5,712
CZK mil.
Past due
date by less
than
30 days
Past due
date by
30 60 days
Past due
date
by
60 90 days
Past due
date more
than 90
days
Total
Credit cards 424 35 16 9 484
Other loans 2,552 369 181 13 3,115
Mortgage loans 308 609 342 43 1,302
Subtotal 3,346 1,054 556 75 5,031
MSE
Overdraft loans 1 1 2
Mortgage loans 18 312 76 2 408
Municipal loans 1 1
Other loans 254 178 95 15 542
Subtotal 273 491 172 17 953
Corporate loans
Corporate customers 1,614 489 642 2,745
SME 840 160 22 1,022
Corporate mortgage loans 1 14 5 20
Total corporate loans 2,465 663 669 3,797
Total 6,084 2,208 1,397 92 9,781
207
e) Analysis of Individually Impaired Financial Assets
CZK mil.
Individually impaired
2013 2012
Credit cards 338 293
Subtotal 10,681 10,376
MSE
Municipal loans 18
Total retail loans 14,340 14,414
Corporate loans
Corporate customers 3,122 2,975
SME 3,259 4,371
Corporate mortgage loans 3,572 4,460
Total corporate loans 9,971 11,824
Total loans and advances to fnancial institutions 242 166
Trading assets
Positive fair value of derivative transactions 13 30
Total 24,566 26,434
41.2 Market Risk
The Bank is exposed to the impact of market risks. Market risks
arise from open positions in interest rate, currency, equity and
commodity financial instruments and even the credit spread
included into the rele vant positions within banking book
portfolio (i.e. the credit spread is a part of a discounting fac-
tor). The value of open positions changes subject to gene ral
and specific financial market movements. The Bank is exposed
to the market risk arising from open positions in the trading
book. However, a significant component of market risk is also
the interest rate risk associated with assets and liabili ties and
credit spread risk associated with marked-to-market positions
included in the investment (banking) book. There are several
reasons why credit spread was included: 1. The requirement
in calculating economic capital to include the credit spread
and to cover the impact of this risk factor; 2. A more precise
calculation of security prices; and 3. To reflect the credit rating
of issuers/counterparties.
Trading book transactions in the capital, money, interbank and
derivative markets can be segmented as follows:
Client quotations and client transactions, execution of client
orders;
making); and
Managing open positions in the interbank, derivative and
capital markets arising from the above mentioned activities.
The Bank trades in the following derivative financial instruments
on the OTC market:
foreign currency forwards (including non-delivery
forwards) and swaps;
foreign currency options;
interest rate swaps;
Asset swaps;
Forward rate agreements;
Cross-currency swaps;
interest rate options such as swaptions, caps and foors;
Credit derivatives.
In the area of exchange-traded derivatives, the Bank trades the
following instruments:
Bond futures;
Equity and equity indices futures;
interest rate futures;
Options in respect of bond futures.
The Bank also trades, on behalf of its clients, with other less common
currency options, such as digital or barrier. Certain option contracts
or options on vari ous underlying equity baskets or equity indices
form part of other financial instruments as embedded derivatives.
Derivative financial instruments are also entered into to hedge
against interest rate risk inherent in the banking book ( interest
208
rate swaps, forward rate agreements, swaptions) and to refinance
the mismatch between foreign currency assets and liabili ties
( foreign exchange swaps and cross currency swaps).
The majority of open positions arising from client transactions in
the Banks trading book are transferred to the Erste Group Bank
portfolio through back-to-back transactions. As such, the market
risk arising from the Banks OTC transactions is managed within
the Erste Group Bank portfolio. The Bank retains in the trading
portfolio the money market risk due to liquidity manage ment,
equity risk and partially a residual risk from previously closed trans-
actions. This residual risk is hedged dynamically at a macro-level in
line with the Banks trading strategy and limits set for market risk.
In addition to the calculation of sensitivities to indi vidual risk
factors, the Bank uses value at risk methodo logy to estimate and
manage the market risk of open positions held and to determine
the maximum losses expected on these positions. The VaR values
are calculated on a confidence level of 99% for a period of one
trading day. To calculate the values, the KVaR+ system is used
along with historical simulations based on the last 520 trading days.
Assuming a normal distribution of losses, VaR is also determined
for a period of one month, or possibly one year and for higher
probability levels (99.9%, 99.98%). The Board of Directors estab-
lishes VaR limits for the trading and banking book portfolio as the
Banks maximum exposure of the Bank to market risk that may be
accepted. For the trading portfolio VaR sub- limits (1 day, 99%) in
respect of indi vidual trading desks are esta blished and limits for
sensitivity values of the trading portfolio to indi vidual risk factors
such as foreign exchange rates, equity prices, interest rates, volatil-
ity and other risk parameters of option contracts facilitate the main-
tenance of the overall market risk profile. These limits are approved
by the Financial Market and Risk Manage ment Committee and are
monitored on a daily basis.
The market risk VaR indicator is also calculated for the banking
book using special models for current accounts and other liabili-
ties without specified maturity. The VaR (1 month, 99%) of the
banking book is reported to the Assets and Liabili ties Committee
(ALCO) on a monthly basis while compliance with the limit is
monitored by Risk Manage ment on a daily basis. The acceptable
level of risk is based on the assessment of the capital available to
cover risks based on the Internal Capital Adequacy Assessment
Process (ICAAP) methodo logy. The overall VaR is subsequently
allocated to indi vidual sub-portfolios of the banking book, taking
into account both the perspective of strategic portfolio manage ment
and the accounting distribution of securities portfolios.
The table below summarizes the VaR values as at 31 December
2013 and 2012 on the confidence level of 99%. The table is
extended because of the inclusion of credit spread risk into the
rele vant positions of the banking book portfolio:
2013
CZK mil.
Total
Market
Risk
Correlati-
on Effect
interest
Rate Risk
foreign
Currency
Risk
Equity
Risk
Commodi-
ty Risk
Credit
Spread
Risk
Trading book
Average of daily values for the year 6 (3) 5 4
Average of monthly values for the
year
28 (14) 21 18 1 2
Banking book
Daily value 230 (85) 194 2 12 107
Monthly value 1,080 (390) 908 7 55 500
Average of daily values for the year 220 (102) 196 4 26 96
year
1,034 (476) 917 18 123 452
209
2012
CZK mil.
Total Market
Risk
Correlation
Effect
interest Rate
Risk
foreign
Currency
Risk
Equity Risk Commodity
Risk
Trading book
Average of daily values for the year 12 (6) 11 7
year
58 (24) 50 31 1
Banking book
Daily value 127 (2) 126 1 2
Monthly value 595 (14) 592 7 10
Average of daily values for the year 362 (11) 361 7 5
year
1,696 (56) 1,694 33 25
In addition, the Bank uses stress testing or an analysis of impacts of
adverse developments in market risk factors on the market value of the
trading book and on the parts of the banking book revaluated to market
values. Scenarios are develo ped on the basis of historical experience
and expert opinions of the Macroeconomic Analy ses Department.
The stress testing is undertaken on a monthly basis and its results are
reported to ALCO. In addition, the Bank monitors financial news,
analy ses market movements and prepares for different scenarios with
respect to the position of the economy.
41.2.1. interest Rate Risk
interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates. The Group manages
the interest rate risk of the banking (investment) book by monitoring
the repricing dates of the Banks assets and liabili ties and using models
which show the potential impact that changes in interest rates may have
on the Banks net interest income.
For monitoring and measuring the banking book interest rate exposures,
the Bank uses a simulation model focused on monitoring potential
impacts of market interest rate movements on the net interest income.
Simulations are performed over a period of 36 months. A basic analysis
focuses on the sensitivity of the net interest income to one-off changes
of market interest rates (rate shock). In addition, the Bank performs
the traditional gap analysis.
In order to measure the interest rate risk exposure within the trading
portfolio, the Bank uses the pre sent value of a basis point (PVBP gap)
defined as a matrix of sensitivity factors to interest rates by currency for
indi vidual portfolios of interest rate pro ducts. These factors measure
the portfolio market value sensitivity with a parallel shift of the yield
curve of the rele vant currency within the predefined period to maturity.
The system of PVBP limits is set in respect of each interest rate pro duct
portfolio by currency.
The analy ses noted above are performed on a monthly basis. The
current level of the interest rate exposure is assessed by ALCO on
a monthly basis in the context of the overall development of financial
markets and the Czech banking sector, as well as any structural changes
in the Banks statement of financial position.
The following table is based on the exposure of the Bank to interest
rates for derivative and non-derivative instruments as of the reporting
date. The model assumes a fixed structure of the statement of financial
position according to interest rate sensitivity. The determined changes
which occurred at the beginning of the year are constant during the
reported period, i.e. the model is based on the assumption that the
funds released as a result of the payment or sale of interest rate assets
and liabili ties will be re-invested in assets and liabili ties with the same
interest rate sensitivity and residual maturity. A new calculation method
which also takes credit spreads into account was implemented from
2014. The following table shows the impact on the income statement
and the statement of comprehensive income if the CZK or EUR yield
curves sharply increased/decreased by 100 points at the beginning
of the respective year and other interest rates remained unchanged.
Figures reported as for 2013 were recalculated in order to have a basis
for year-to-year comparison.
CZK mil.
2014 2013
interest rate
increase
interest rate
decrease
interest rate
increase
interest rate
decrease
CZK
Income statement 1,409 (412) 1,298 (682)
Statement of comprehensive income (631) 573 (292) 206
EUR
Income statement 10 (4) 194 (83)
Statement of comprehensive income (130) 116 (55) 21
210
41.2.2. foreign Currency Risk
foreign currency risk is the risk that the value of financial instruments
in both the trading and banking book will fluctuate due to changes in
foreign exchange rates. The Bank manages this risk by establishing and
monitoring limits on open positions, also including delta equivalents
of currency options. In addition, the Group monitors special sensitivity
limits for foreign currency option contracts known as greeks sensi-
tivity analysis. The foreign currency risk of all financial instruments is
transferred via currency positions which are managed by the Trading
Department in accor dance with set currency sensitivity limits. In addi-
tion to the monitoring of limits, the Bank uses the VaR concept for
measuring the risk arising from open positions in all currency instru-
ments (refer to Note 41.2).
41.2.3. Equity Risk
To monitor and manage the equity risk inherent in the trading and
banking books, the Bank uses the VaR method and sensitivity analysis
which is based on the exposure to the risk of change in the price of
shares as of the reporting date. With respect to the increased volatility
of share prices, the equity risk repre sents a significant component of
risks despite smaller volu mes of share positions.
41.2.4. Commodity Risk
The commodity instruments appear solely in the trading portfolio
as supporting instruments for client transactions. These commodity
derivatives repre sent sporadic transactions within the Groups portfolio
and are secured on a back to back basis with a third party.
41.3 Liquidity Risk
Liquidity risk is the risk that the Bank will not be able to raise
sufficient funds to satisfy its financial liabili ties when they
mature or to finance its assets. The Banks short-term liquidity
position is monitored and managed based on expected cash flows
and adjusting the structure of interbank deposits and placements
accordingly and/or taking other decisions aimed at adjusting the
short term liquidity position of the Bank, for example, by tak-
ing a decision to balance the short term liquidity position in
indi vidual currencies. The short term liquidity reserve is also
predicted for the following months.
Mid- and long-term liquidity is monitored and stress tested on
a monthly basis through the Survival Period Analysis (SPA)
simulation models which take into account the anticipated pos-
sibility of renewal, preliminary repayment or sale of the Banks
indi vidual positions. The vari ous portfolio of liquidity ratios such
as BASEL III LCR and NSFR ratios are monitored on a monthly
basis. The results are pre sented and discussed in the Opera ting
Liquidity Committee (OLC) and ALCO which subsequently
decide on the need to take action with respect to the liquidity
risk exposure.
a) Analysis of fnancial liabili ties based on remaining maturities
The breakdown of remaining contractual maturities of the Banks financial liabili ties based on undiscounted cash flows as at 31 December
2013 and 2012 was as follows:
CZK mil.
On demand
and less
than
1 month
1 to 3
months
3 months to
1 year
1 to 5 years Over 5 years Total
Amounts owed to fnancial institutions 39,810 6,992 6,200 25,046 18,940 96,988
Bonds in issue 518 138 5,372 28,697 7,360 42,085
Total 561,667 15,050 41,067 65,910 33,580 717,274
Banking book derivative
liabili ties
22,831 1,371 20,117 44,319
Amounts owed under guaran tees and
letters of credit
1,606 1,861 7,672 14,473 1,675 27,287
Total 3,687 6,033 41,585 37,280 12,750 101,335
The maturity analysis of undiscounted contractual cash flows of
derivative financial instruments includes only the remaining con-
tractual maturities for derivative financial liabili ties in the banking
book since these are essential for an understanding of the timing
of the cash flows.
211
CZK mil.
On demand
and less
than 1
month
1 to 3
months
3 months to
1 year
1 to 5 years Over 5 years Total
Amounts owed to fnancial institutions 6,941 4,877 10,485 22,745 21,365 66,413
Bonds in issue 1,082 376 7,997 37,450 8,457 55,362
Subordinated debt 92 2 2,299 2,393
Total 493,427 20,636 54,544 101,122 35,578 705,307
Banking book derivative
liabili ties
10,586 763 5,143 24,609 29,066 70,167
Amounts owed under guaran tees and
letters of credit
2,512 2,237 4,601 16,350 1,688 27,388
Total 5,421 6,971 36,941 36,075 12,960 98,368
b) Analysis of liquidity gaps
The liquidity gap analysis pre sented below contains the data regularly pre sented to manage ment of the Bank. Generally all interest sensitive
assets and liabili ties are included. interest accruals are treated as non-sensitive items.
CZK mil. On demand
and less
than 1
month
1 to 3
months
3 months
to 1 year
1 to 5
years
Over 5 years
As at 31 December 2013 (6,924) 13,659 37,920 68,228 6,083
As at 31 December 2012 49,936 (2,557) 6,199 35,756 (34,153)
41.4 Operatio nal Risk
In accor dance with CNB Regulation 123/2007, the Bank defines
operatio nal risk as the risk of losses arising from the inappropri-
ateness or failure of internal processes, human errors or failures of
systems or the risk of losses arising from external events, including
losses due to the breach of or failure to fulfil legal regulations.
With assistance from Erste Group Bank, the Bank put in place
a stan dardised categorisation of operatio nal risks. This classifica-
tion became the basis of the Book of Risks of esk spoitelna,
develo ped in coope ration with the Risk Manage ment and Internal
Audit Departments. The Book of Risks is a tool used to achieve
unification of risk categorisation in order to ensure consistent risk
monitoring and evaluation.
The Bank has cooperated with an external supplier in developing
a specialised software application to collect data about operatio nal
risk which conforms to the data collection requirements. The data
is not only used with a view to quantifying operatio nal risks and
monitoring trends in the development of these risks but also for
the purpose of preventing recurrence of operatio nal risks. In addi-
tion to monitoring actual occurrence of operatio nal risk, the Bank
also pays attention to how the operatio nal risk is perceived by the
Banks manage ment. In this respect, the Bank has introduced and
is further expanding methods with the aim of identifying severe
potential threats in order to implement preventative mea sures
before losses materialise. For this purpose, the following tools are
used: Risk and Control Self-Assessment, Key Risk Indicators and
Scenario Analysis. The bank also actively manages risks related to
outsourced activities. Depending on the specific method, this type
of assessment is done on a continuous, monthly or annual basis.
The Bank successfully passed validation for managing of operatio-
nal risk according to Advanced Measurement Approaches (AMA).
Based on this method a capital charge related to operatio nal risk is
properly computed and allocated since 1 July 2009.
An important tool in mitigating losses arising from operatio nal
risks is the Banks insurance programme which was put in place in
2002. This insurance programme involves insurance against pro-
perty damage as well as risks arising from banking activities and
liability risks. Since 2004, the Bank has been a member of the
Erste Group insurance programme which enhances the insurance
protection specifically with regard to damages that may materially
impact the income statement.
Top manage ment of the bank is informed quarterly about the risk
profile and the most important operatio nal risk events via the CORS
(Compliance, Operatio nal Risk and Security) committee. The chair-
man of the committee is the Chief Risk Officer (member of the
Board of Directors responsible for risk manage ment).
212
41.5 Capital Manage ment
With respect to the ICAAP the Bank has been using the Erste Group
Bank methodo logy since 2009. This methodo logy was approved by
the Board of Directors of Erste Group Bank in December 2008 to serve
as a uniform set of rules for capital manage ment within the Group.
The Group methodo logy is continuously updated in order to reflect
the latest trends, best practices and regula tory requirements. The
Bank approach contains minor modifications driven by local regula-
tory requirements or other local specifics.
Within ICAAP, all major risks are quantified and covered by internal
capital. The Banks economic capital is quantified using a confidence
level of 99.9% and a 1-year holding period. From a modelling point of
view, complex advanced approaches based on VaR methodo logy are
used for market risk, operatio nal and liquidity risk or IRB for credit
risk. The Bank also develo ped models for other risk types (business,
strategic, reputational, concentration risk). The overall risk of the Bank
is calculated as the sum of indi vidual risk type requirements, i.e. no
diversification effect is consi dered among risks as this is a more con-
servative approach. The resulting aggregate risk exposure is compared
to internal capital resources derived from Pillar 1 capital resources
with some adjustments (mainly profit of the current year is added to
capital resources).
Additionally, the Bank performs stress testing which is used as an
additional input for internal capital adequacy assessment. Finally,
the results of the economic capital quantification are allocated to
business lines in order to compare their risk adjusted profitability.
The Bank meets internal limits approved by the Board of Directors
with a sufficient buffer.
The ICAAP results of the Bank are submitted to the Board
of Directors on a quarterly basis; the Board decides on any mea sures
to be adopted with respect to ICAAP as well as risks and capital
manage ment in gene ral.
The Bank has also implemented new procedures including an
emergency response plan and recovery plans with respect to new
regula tory requirements with the aim to be well prepared for severe
unfavourable market developments and, if appropriate, to take ade-
quate mea sures in a timely manner.
The Bank in a close coope ration with Erste Group Bank pays suf-
ficient resources to ICAAP in order to gradually improve the risk
quantification and overall capital adequacy manage ment system.
As a result, the Bank is prepared for the upcoming regula tory
changes driven mainly by Capital Requirement Directive / Capital
Requirement Regulation, which are already reflected in ICAAP
forecasts, and Recovery and Resolution Directive.
The Bank manages its capital with the objective of maintaining
a strong capital base in order to support its business activities, to
comply with all regula tory capital requirements and also to ensure
stable return for shareholders.
From a Pillar 1 point of view, the Banks capital principally con-
sists of share capital, reserve funds, retained earnings, revaluation
gains or losses and additional capital in the form of subordinated
debt. For the quantification of capital requirements, the Bank uses
advanced approaches for all Pillar 1 risks. The results summarised
in the table below clearly indicate that the Bank is well capitalised
and has sufficient capital to cover both new capital buffers (con-
servative and systemic risk buffers).
A statutory reserve fund is created in compliance with current
legisla tion up to 20% of share capital depending on the legal form
of the company. Use of the statutory reserve fund is limited by
legisla tion and the articles of the Bank. The fund is not available
for distribution to shareholders.
Statement of Capital for the Banks Capital Adequacy Calculation per CNB Methodo logy (BASEL II)
CZK mil. 2013 2012
Total capital 75,653 67,157
Original capital (Tier 1) 76,164 68,207
Of which:
Share capital (refer to Note 27) 15,200 15,200
Share premium 2 2
Reserve funds and retained earnings 64,005 55,977
Deductible items from original capital (3,043) (2,972)
Additional capital (Tier 2) 2,040 2,189
Aggregate amount of all deductible items from original and additional capital (2,551) (3,239)
Total capital requirement 34,139 33,522
Capital adequacy ratio for the year 17.73% 16.03%
Capital adequacy ratio Pillar I capital requirements 8.00% 8.00%
The Bank meets the capital adequacy requirements as determined by the regulator.
213
The adequacy of the Banks capital is monitored by the CNB using,
among other mea sures, the rules and ratios esta blished by the Basel
Committee on Banking Supervision which were adopted by the
CNB.
42. Fair Value of Financial Instruments
The following table summarises the carrying values and fair values
of those financial assets and liabili ties not pre sented in the statement
of financial position at their fair value:
2013
CZK mil.
Carrying
value
Estimated
fair value
Financial assets
Loans and advances to fnancial institutions, net of impairment
allowances
49,384 46,767
Loans and advances to customers, net of impairment allowances 456,207 202 431,826
Financial assets heldtomaturity, net of impairment allowances 134,380 125,833 22,114
2012
CZK mil.
Carrying
value
Estimated
fair value
Financial assets
Loans and advances to customers, net of impairment allowances 434,676 412,942
Classes of assets and liabili ties for which the carrying amount
approximates fair value are not shown in the table (cash, pay ables
and receivables from securities trading, trade and vari ous receiva-
bles, pay ables from the loyalty programme, vari ous creditors, pay-
ables from payment transactions and other liabili ties).
a) Loans and Advances to Financial Institutions
The fair value of loans and advances to financial institutions is esti-
mated as the pre sent value of discounted future cash flows, where
the applied discount factor is based on market-related interest rates.
b) Loans and Advances to Customers
Loans and advances to customers are carried net of impairment
allowances. The fair value is estimated as the pre sent value of
discounted future cash flows, where the applied discount factor is
based on market-related interest rates.
c) Financial Assets Held-to-maturity
The fair value of financial assets held-to-maturity is based on market
prices or price quotations obtained from brokers or dealers. If this
information is not available, the fair value is estimated using quoted
market values for securities with simi lar credit risk character istics,
maturity or yield rates or, as and when appropriate, according to the
recoverability of the net asset value of these securities.
d) Amounts Owed to Financial Institutions and
Customers
The estimated fair value of amounts owed to financial institutions
and customers with no stated maturity which include non- interest
earning deposits, is equal to the amount payable on demand. The
fair value of fixed income deposits and other liabili ties with no
stated market value is estimated as the pre sent value of discounted
future cash flows and the applied discount factor is equal to the
interest rates currently offered on the market for deposits with simi-
lar maturities. The fair value of pro ducts with no contractually
stated maturity (such as sight deposits, passbooks, overdraft facili-
ties) is consi dered equal to their carrying value.
214
e) Bonds in Issue
The aggregated fair value is based on quoted market prices. The
fair value of securities where no market price is available is esti-
mated as the pre sent value of discounted future cash flows and the
applied discount factor is equal to the interest rate adjusted by the
Banks own credit risk.
f) Subordinated Debt
The fair value of issued subordinated debt is estimated as the pre-
sent value of discounted future cash flows and the applied discount
factor is equal to the interest rate adjusted by the Banks own credit
risk.
42.1 Fair Value Hierarchy
The following table shows the classification of financial instru-
ments at fair value in accor dance with the defined levels (refer
to Note 3.3) which were used to determine the fair value of the
financial instruments as at 31 December 2013:
Assets
Trading assets 3,306 23,245 26,551
Financial assets designated at fair value through proft or loss 1,185 2,873 43 4,101
Debt securities 601 2,873 3,474
Positive fair value of derivative transactions 88 22,122 22,210
Debt securities 34,902 25,673 60,575
Total assets 39,770 73,913 337 114,020
Liabili ties
Trading liabili ties
Pay ables arising from short sales shares
Financial liabili ties designated at fair value through proft or loss 14,434 14,434
Negative fair value of derivative transactions 24,294 24,294
The following table shows the classification of financial instruments at fair value in accor dance with the above levels which were used to
determine the fair value of the financial instruments as of 31 December 2012:
Assets
Trading assets 7,181 33,700 40,881
Financial assets designated at fair value through proft or loss 2,606 4,479 59 7,144
Positive fair value of derivative transactions 20 26,974 26,994
Total assets 51,804 68,637 249 120,690
Liabili ties
Trading liabili ties 3 3
Pay ables arising from short sales shares 3 3
Financial liabili ties designated at fair value through proft or loss 17,903 17,903
Total liabili ties 3 44,125 44,128
215
affecting the fair value of financial instruments, the Bank does not
The following tables show the changes in the fair value of financial
instruments for 2013 and 2012 the fair value of which is deter-
mined using valua tion models not based on ascertainable market
data (Level 3):
CZK mil. At 1
January
2013
Gains/losses from
revaluation
Pur-
chases
Sales Transfer
to/from
Level 3
At 31
Decem-
ber 2013
Un-
realised
gains/
losses
x)
in inco-
me state-
ment
in other
compre
hensive
income
Assets
Financial assets designated at fair
x
)
59 (16) 43 (16)
Financial assets availableforsale 190 15 109 (20) 294
Total assets 249 (16) 15 109 (20) 337 (16)
x
CZK mil. At 1
January
2012
Gains/losses from
revaluation
Pur-
chases
Sales Transfer
to/from
Level 3
At 31
Decem-
ber 2012
Un-
realised
gains/
losses
x)
in inco-
me state-
ment
in other
compre
hensive
income
Assets
Financial assets designated at fair
x
)
936 13 (890) 59 (4)
Financial assets availableforsale 181 (31) 40 190
Total assets 1,117 13 (31) 40 (890) 249 (4)
x
Gains and losses related to securities designated upon initial reco-
gnition as at fair value through profit or loss are reported in the
income statement in the line Other opera ting result.
Gains and losses from revaluation of financial assets available-for-sale
are reported in the statement of comprehensive income in the line
Gains/losses from revaluation of financial assets available-for-sale.
Trading assets, Financial assets designated at fair value through
profit or loss and Financial assets available-for-sale total-
ling CZK 1,785 million were transferred from Level 1 to Level
2 in 2013 (2012: CZK 4,275 million). The reclassification resulted
from decrease in market depth for the rele vant securities.
216
43. Current and Non-Current Assets and Liabili ties
The following table shows the distribution of assets and liabili ties to current (due within one year) and non-current (due over one year)
based on their expected maturity:
CZK mil.
2013 2012
Current Non-current Current Non-current
Assets
Cash and balances with CNB 7,644 68,797 2,149 19,342
Loans and advances to fnancial institutions, net 18,340 31,044 17,762 30,213
Loans and advances to customers 123,865 349,021 128,794 322,677
Impairment allowances for loans and advances (16,679) (16,795)
Financial assets at fair value through proft or loss 26,573 4,079 43,025 5,000
Positive fair value of derivative transactions 22,210 26,994
Financial assets availableforsale 22,888 38,270 7,798 37,873
Financial assets heldtomaturity, net 11,978 122,402 49,007 110,948
Equity investments in sub sidiary and associated undertakings 5,968 6,396
Other assets 2,704 16,775 1,990 15,622
Total 236,202 619,677 277,519 531,276
Liabili ties
Amounts owed to fnancial institutions 53,398 44,432 22,862 40,809
Amounts owed to customers 222,719 345,751 145,552 403,854
Financial liabili ties at fair value 7,682 6,752 8,691 9,215
Bonds in issue 5,751 37,465 8,337 43,151
Provisions 2,460 2,150
Subordinated debt 70 2,026 73 2,189
Other liabili ties 6,878 7,925 172
Total 320,792 438,886 219,662 501,540
44. Offsetting Financial Instruments
The following table shows the financial assets subject to offsetting, enforceable master netting arrangements and simi lar agreements:
CZK mil. Gross
amounts of
recognized
fnancial
assets
Amounts
of fnancial
liabili ties set
off against
fnancial
assets
Net
amounts
of fnancial
assets
in the
statement
of fnancial
position
Net amount
after
potential
offsetting
Financial
instruments
Cash
colla teral
received
Non-cash
fnancial
colla teral
received
As at
31 December 2013
Derivatives 22,210 22,210 11,386 963 9,861
Reverse repurchase
agreements
809 809 809
Total 23,019 23,019 11,386 963 809 9,861
As at
31 December 2012
Derivatives 26,994 26,994 11,348 111 15,535
Reverse repurchase
agreements
1,549 1,549 1,549
Total 28,543 28,543 11,348 111 1,549 15,535
The net amount after potential offsetting of derivatives
includes CZK 3,648 million related to derivative instruments with
Ministry of Finance of the Czech Republic as at 31 December 2013
(2012: CZK 8,555 million).
The following table shows the financial liabili ties subject to offset-
ting, enforceable master netting arrangements and simi lar agree-
ments:
217
CZK mil. Gross
amounts of
recognized
fnancial
liabili ties
Amounts
of fnancial
assets set
off against
fnancial
liabili ties
Net amounts
of fnan-
cial liabili-
ties in the
statement
of fnancial
position
Net amount
after
potential
offsetting
Financial
instruments
Cash
colla teral
pledged
Non-cash
fnancial
colla teral
pledged
As at
31 December 2013
Derivatives 24,294 24,294 11,386 9,137 3,771
Repurchase
agreements
31,994 31,994 31,960 34
Total 56,288 56,288 11,386 9,137 31,960 3,805
As at
31 December 2012
Derivatives 26,222 26,222 11,348 12,159 2,715
Repurchase
agreements
10,367 10,367 10,367
Total 36,589 36,589 11,348 12,159 10,367 2,715
45. Transferred Financial Assets
The Bank has no continuing involvement in financial assets that have been derecognised.
The following table shows all transferred financial assets that are not derecognised:
As at
31 December 2013
CZK mil.
Loans and
advance
to credit
institutions
Loans and
advance to
customers
Trading
assets
Financial
assets
designated
at fair value
through
proft or
loss
Financial
assets
available
forsale
Financial
assets held
tomaturity
Total
Repurchase
agreements
Carrying amount of
transferred assets
21,790 3,634 5,971 31,395
Carrying amount of
associated liabili ties
8,860 23,135 31,995
Carrying amount of
transferred assets
21,790 3,634 5,971 31,395
Carrying amount of
8,860 23,135 31,995
Liabili ties that have
recourse only to
the transferred
assets (repurchase
agreement)

Fair value of transferred
assets
21,790 3,634 6,536 31,960
Fair value of associated
liabili ties
8,859 23,134 31,993
Net position (8,859) (23,134) 21,790 3,634 6,536 (33)
218
As at
31 December 2012
CZK mil.
Loans and
advance
to credit
institutions
Loans and
advance to
customers
Trading
assets
Financial
assets
designated
at fair value
through pro-
ft or loss
Financial
assets
available
forsale
Financial
assets held
tomaturity
Total
Repurchase
agreements
Carrying amount of
transferred assets
7,853 313 1,885 10,051
Carrying amount of
2,532 7,835 10,367
Carrying amount of
transferred assets
7,853 313 1,885 10,051
Carrying amount of
2,532 7,835 10,367

Liabili ties that have
recourse only to
the transferred
assets (repurchase
agreement)
Fair value of transferred
assets
7,853 313 2,223 10,389
Fair value of associated
liabili ties
2,532 7,835 10,367
Net position (2,532) (7,835) 7,853 313 2,223 22
46. Contingent Assets and Liabili ties
In the ordinary course of business, the Bank becomes party to
vari ous financial transactions that are not reflected in the statement
of financial position and are referred to as off-balance sheet financial
instruments. The following repre sent the notional amounts of these
off-balance sheet financial instruments, unless stated otherwise.
It is not practicable to disclose the information about uncertainties
relating to the amounts or timing of any outflows related to con-
tingent liabili ties or the possibility of any related reimbursements.
Legal Disputes
At the reporting date the Bank was involved in vari ous claims and
legal proceedings of a nature consi dered normal to its business.
The Czech legal environment is still evolving, legal disputes are
costly and their outcome unpredictable. Many parts of the legisla-
tion remain untested and there is uncertainty about the interpretation
that courts may apply in a number of areas. The impact of these
uncertainties cannot be quantified and will only be known as the
specific legal disputes in which the Bank is named are resolved.
The Bank is involved in vari ous claims and legal proceedings of
a special nature. The Bank also acts as a defendant in a number of
legal disputes filed with the arbitration court. The Bank does not dis-
close the details underlying the disputes as the disclosure may have
an impact on the outcome of the disputes and may seriously harm the
Banks inte rests.
Whilst no assurance can be given with respect to the ultimate outcome
of any such claim or litigation, the Bank believes that the vari ous
asserted claims and litigation in which it is involved will not materially
affect its financial position, future opera ting results or cash flows.
If, in connection with the litigation, the Bank has a pre sent obli-
gation (legal or constructive) as a result of a past event and it is
pro bable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can
be made of the obligation, the Bank recognises a provision for legal
disputes (refer to Note 23).
Assets Pledged
The Bank pledges assets that are on its statement of financial posi-
tion in vari ous day-to-day transactions that are conducted under the
usual terms and conditions applying to such agreements.
Assets are pledged as colla teral under repurchase agreements and
simi lar operations with other banks and customers in the amount
of CZK 60,767 million (2012: CZK 10,051 million). Mandatory
reserve deposits are also held with the local central bank in accor-
dance with statutory requirements (refer to Note 4). These deposits
are not available to finance the Banks day-to-day operations.
Commitments to Extend Credit and
Commitments from Guaran tees and Letters of
Credit
Guaran tees and standby letters of credit, which repre sent irrevo-
cable assurances that the Bank will make payments in the event
that a customer cannot meet its obligations to third parties, carry
the same credit risk as loans. Documentary and commercial letters
219
of credit, which are written undertakings by the Bank on behalf
of a customer authorising a third party to draw drafts on the Bank
up to a stipulated amount under specific terms and conditions, are
collateralised by the underlying shipments of goods to which they
relate and therefore carry less risk than a direct borrowing.
Commitments to extend credit repre sent unused portions of clients
authorisations to extend credit in the form of loans, guaran tees or
letters of credit. The credit risk attached to commitments to extend
credit repre sents a potential loss for the Bank. The Bank estimates
the potential loss on the basis of historical developments of credit
conversion factors, probability of default and loss given default.
Credit conversion factors indicate the likelihood of the Bank paying
out on a guarantee or having to grant a loan on the basis of an issued
commitment to extend credit.
Guaran tees, irrevo cable letters of credit and undrawn loan commit-
ments are subject to simi lar credit risk monitoring and credit poli-
cies as utilised in the extension of loans. Manage ment of the Bank
believes that the market risk associated with guaran tees, irrevo cable
letters of credit and undrawn loan commitments is minimal.
In 2013, the Bank recorded provisions for off-balance sheet risks
to cover potential losses that may be incurred in connection with
these off-balance sheet transactions. As at 31 December 2013,
the aggregate balance of these allowances was CZK 347 million
(2012: CZK 451 million). Refer to Note 23.
CZK mil. 2013 2012
Amounts owed under guaran tees and letters of credit 27,287 27,388
Irrevo cable undrawn loan commitments 74,048 70,980
Opera ting Leases
The following table pre sents future cash flows from opera ting lease agreements where the Bank is a lessee:
CZK mil.
Less than
1 year
1 to 5
years
Over
5 years
Total
CZK mil.
Less than
1 year
1 to 5
years
Over
5 years
Total
47. Segment Reporting
The Banks segment reporting is based on Erste Group Bank
requirements for pre sentation and measurement.
Segment Structure
The Banks structure of segment reporting is in line with that of
Erste Group Bank and has been divided into the following segments:
Retail;
Corporate Clientele;
Real Estate (RE);
Asset and Liability Manage ment (ALM);
Group Corporate Investment Banking (GCIB);
Group Markets (GM);
Corporate Centre; and
Free Capital.
For segment reporting the rules used in the Banks manage ment
report apply. The report is prepared monthly for the Board of
Directors as well as for the Erste Group Bank Board of Directors.
The report is reconciled to the monthly reporting package and
the same segments used in the Banks controlling report are used
for Erste Group Bank segment reporting. Segment reporting as
well as the basis for accounting for any transactions between
reportable segments is based on the measurement principles used
in the Bankss financial statements.
Information about total segments assets and liabili ties, impairment
losses recognised for each reportable segment during the period nor
their reversals is not provided to the Board of Directors.
Retail, Corporate Clientele, RE, ALM and the Corporate Centre
form the main activities of the Bank for which it is prima rily respon-
sible.
Retail
The retail segment comprises branch networks within which
the Bank sells pro ducts to citizens, traders, entrepreneurs and
micro-businesses.
Retail provides services to their clients through the branch network,
external sales channels and indirect banking. The pro duct range is
very broad: from lending pro ducts to assets under manage ment.
In order to better understand the retail clients (understanding their
opportunities and meeting their needs) they are differentiated into
the following sub-segments:
Mass market;
Mass affuent;
220
Erste Premier;
MSE; and
Municipality.
Corporate Clientele
The segment of corporate clients comprises:
SME Segment Clients with an annual turnover of
between CZK 30 million and CZK 1,000 million, where
service is provided by 13 Regional Corporate Centres;
LLC Segment (Local Large Corporates) Clients with an
annual turnover above CZK 1,000 million (active mainly
in the Czech Republic) where service is provided from the
headquarters in Prague;
Non-proft sector Clients from non-governmental
organizations (organizations that are neither part of the
government nor conventional proft generating businesses)
such as foundations, political parties, churches, trade
unions. Service is provided from the headquarters in
Prague; and
Public sector Governmental clients (mainly state branches,
counties, statutory towns, health insurance funds, state
funds, public universities and cities). Service is provided
from the headquarters in Prague and by the Regional
Corporate Centres (for cities, public universities and health
care organizations).
Real Estate
The real estate segment covers commercial pro perty projects
financed by esk spoitelna finance group. Part of this segment
is real estate funds, which focus on development projects and pro-
perty for institutional clients.
Asset and Liability Manage ment
The Asset and Liability Manage ment Section is responsible for
the manage ment of the statement of financial position structure
(banking book) taking into account market conditions in order to
monitor the Banks liquidity position and to secure a high return
from capital. ALM also monitors the transformation margin that
arose as a result of the mismatch in the statement of financial
position from a time and currency perspective. The transforma-
tion margin, as well as ALMs own activities (financial assets
held-to-maturity, financial assets available-for-sale, financial assets
designated at fair value through profit or loss on the asset side
and bonds issued on the liability side) are the main parts of this
segment/section.
Group Corporate Investment Banking
Group Corporate Investment Banking consists of Group Large
Corporate and Institutional Equity Sales. The group large corporate
client segment involves large corporations (clients with an annual
turnover above CZK 1,000 million) opera ting on the Erste Group
Bank markets (not only locally in the Czech Republic). The equity
sales department works for financial institutions, (e.g. investment
banks, mutual funds or insurance companies) and sells them market
investment pro ducts. The equity sales department focuses on the
sale of stocks, preferred stocks, preferred bonds, reverse repos and
other equity-related pro ducts.
Group Markets
The group markets segment is responsible for trading in foreign
exchange and interest rate pro ducts, as well as in securities for
all customer groups. Moreover, it is tasked to design and develop
pro ducts that cater to market demand in core markets. GM com-
prises the divisionalised business units such as Treasury Trading
and Treasury Sales (retail, corporate and institutional transactions).
Corporate Centre
The Corporate Centre segment includes the positions and items that
cannot be directly allocated to a business segment.
Free Capital
Free capital is not a segment but rather the diffe rence between the capital in the books of account and allocated capital.
CZK mil.
Retail Corporate
Clientele
Centre
Core Bank
Net interest income 17,187 2,862 614 2,823 1,960 25,446
Net fee and commission income 9,615 848 60 (258) 76 10,341
Net trading income 361 224 19 (88) 648 1,164
Total gene ral administra tive expenses (13,250) (1,535) (93) (83) (500) (15,461)
Other opera ting result (690) 50 (5) (6) (1,100) (1,751)
Proft before tax 11,123 1,917 494 2,388 1,093 17,015
Income tax (2,116) (364) (94) (475) (115) (3,164)
Proft for the year attributable to
equity holders of the parent 9,007 1,553 400 1,913 978 13,851
ROE
(1)
58.24% 11.32% 18.16% 35.15% 27.09% 34.27%
221
CZK mil.
Other opera ting result (189) (1,940)
Proft before tax 607 1,369 944 19,935
Income tax (114) (260) (177) (3,715)
Cost/income Ratio 22.91% 28.44% 39.65%
ROE
(1)
12.73% 39.63%
(2)
17.71%
(1)
(2)
In the Case of Free Capital ROE is not Calculated
CZK mil.
Retail Corporate
Clientele
Centre
Core Bank
Net interest income 20,036 3,692 819 586 646 25,779
Net fee and commission income 10,713 834 46 (294) (183) 11,116
Net trading income 274 233 9 69 (110) 475
Total gene ral administra tive expenses (14,572) (1,545) (108) (81) 221 (16,085)
Other opera ting result (669) (90) (4) 146 (1,582) (2,199)
Proft before tax 12,889 2,609 255 426 (245) 15,934
Income tax (2,447) (505) (48) (81) (15) (3,096)
Proft for the year attributable to
equity holders of the parent 10,442 2,104 207 345 (260) 12,838
Cost/income Ratio 46.97% 32.46% 12.36% 22.44% (62.61)% 43.04%
ROE
(1)
66.12% 16.53% 9.45% 2.94%
(2)
27.66%
CZK mil.
Other opera ting result 19 (2,180)
Proft before tax 868 1,640 845 19,287
Income tax (166) (302) (161) (3,725)
Proft for the year attributable to equity holders of the parent
702 1,338 684 15,562
Cost/income Ratio 20.34% 26.42% 40.55%
ROE
(1)
17.80% 38.83%
(2)
19.10%
(1)
(2)
In the case of Free Capital ROE is not calculated
The majority of revenues from external customers is generated in the Czech Republic.
222
48. Fiduciary Activities on Behalf of Clients
a) Assets under Administration
The Bank provides custody, trustee, investment manage ment and
advisory services to third parties which involve the Bank making
purchase and sale decisions in relation to a wide range of financial
instruments. Those assets that are held in a fiduciary capacity are
not included in these financial statements.
The Bank admi ni s t er ed CZK 351, 442 mi l l i on
(2012: CZK 339,300 million) of assets as at 31 December 2013
repre senting security certificates and other assets received from
customers into its custody for administration and safe keeping,
split as follows:
CZK mil. 2013 2012
Customer securities in custody 138,582 117,884
Other values in custody 50 5
Customer securities under administration 152,885 163,996
Customer securities for safekeeping 1
Total customer assets under administration 291,517 281,886
Other customer securities under administration 26 79
Assets received for manage ment 59,899 57,335
Total 351,442 339,300
The Bank also acts as a depositary for several mutual, investment
and pension funds, whose assets amounted to CZK 177,603 million
as at 31 December 2013 (2012: CZK 161,015 million).
b) Pay ables Arising from the Provision of
Investment Services
Investment services involve receiving and providing instruc-
tions related to investment instruments, performing instructions
relating to investment instruments to a third party account, pro-
prietary trading with investment instruments, manage ment of
customer assets under a contractual arrangement with the client
if these assets include an investment instrument, and investment
instrument underwriting or placement.
Additional investment services involve administration and cus-
tody of investment instruments, issuing loans to the client for the
purpose of trading with investment instruments if the issuer of
the loan takes part in the transaction, advisory services relating to
capital structuring, industrial strategy, investments in investment
instruments, provision of advice and services related to mergers
and acquisitions, implementation of foreign exchange transac-
tions relating to the provision of investment services, services
related to the underwriting of investment instrument issues and
rental of safety-deposit boxes.
In connection with the provision of these services, the
Bank received cash and investment instruments from cli-
ents or obtained cash or investment instruments for its cli-
ents (customer assets) in exchange for these values, which
amounted to CZK 291,517 million as at 31 December 2013
(2012: CZK 281,886 million).
49. Related Party Transactions
Related parties involve connected entities or parties that have a spe-
cial relationship to the Bank.
Parties are consi dered to be related if one party has the ability to
control the other or exercise significant influence over the other
in making financial or operatio nal decisions. The Bank is con-
trolled by Erste Group Bank over which DIE ERSTE sterreichis-
che Spar-Casse Privatstiftung exercises significant influence. The
remaining investment in Erste Group Bank is held by minority
shareholders and institutional investors via publicly traded shares
on the stock exchanges in Vienna, Prague and Bucharest.
The parties that have a special relationship to the Bank are consi-
dered to be members of the Banks statutory and supervisory
bodies and manage ment, legal entities exercising control over the
Bank (including entities with a qualified interest in these entities
and manage ment of these entities), persons closely related to the
members of the Banks statutory and supervisory bodies, manage-
ment, and entities exercising control over the Bank, legal entities
in which any of the parties listed above holds a qualified interest,
entities with a qualified interest in the Bank and any other legal
entity under their control, members of the CNBs Banking Board,
and legal entities which the Bank controls.
Pursuant to the definitions outlined above, the categories of the
Banks related parties principally comprise Erste Group Bank, the
Banks subsidiaries, which include both direct and indirect invest-
ments with controlling influence, members of its Board of Directors
and Supervisory Board, and other related parties, which include
companies directly or indirectly controlled by Erste Group Bank.
A number of banking transactions are entered into with related
parties in the normal course of business. These principally include
loans, deposits and other transactions. These transactions were
carried out on an arms length basis and were settled exclusively
in cash. The interest rates charged to and by related parties are at
normal commercial rates. Outstanding balances at the year-end
are unsecured except for loans to finance investment pro perty and
pro perty under construction.
223
Guaran tees received repre sent payment guaran tees related to the
Banks credit exposures. Issued guaran tees relate to amounts
owed by the Banks subsidiaries to financial institutions outside
of the Group. They are provided under standard market conditions.
The Bank has the Following Amounts due from/owing to Related Parties as at 31 December 2013 and 2012:
2013
CZK mil.
Erste Group
Bank
Subsidiaries Members of
the Board
of Direc-
tors and
Supervisory
Board
Other
related
parties
Assets
Loans and advances to fnancial institutions 28,688 53
Net receivables from clients 17,778 37 226
Trading assets 185
Positive fair value of derivative transactions 3,736 148 434
Other assets 8 264 86
Total assets 32,617 18,190 37 799
Liabili ties
Amounts owed to fnancial institutions 25,203 30,344 448
Amounts owed to customers 1,668 32 607
Negative fair value of derivative transactions 6,184 7
Other liabili ties 15 54 81
Total liabili ties 31,402 48,739 32 1,136
Offbalance sheet
Undrawn loans 242 3
Issued guaran tees 4 5,313 55
Received guaran tees 1,474 222
Positive nomi nal value of derivatives 199,683 2,433 4,824
Negative nomi nal value of fnancial derivatives (202,122) (2,424) (4,389)
Income
interest income 501 354 2 13
Dividends received 1,830
Fee and commission income 7 830 376
Net trading result 1,114 (82) 356
Other income 11 56 7
Total income 1,633 2,988 2 752
Expenses
interest expense 65 725
Fee and commission expense 102 74
Gene ral administra tive expenses 53 1,039 83 303
Other expenses 42
Total expenses 160 1,866 83 377
The column Other related parties includes transactions with all other companies that are included in the consolidated Erste Group.
224
2012
CZK mil.
Erste Group
Bank
Subsidiaries Members of
the Board
of Direc-
tors and
Supervisory
Board
Other
related
parties
Assets
Loans and advances to fnancial institutions 27,485 56
Net receivables from clients 16,276 37 237
Trading assets 181
Positive fair value of derivative transactions 4,457 245 67
Other assets 35 233 36
Total assets 32,158 16,754 37 396
Liabili ties
Amounts owed to fnancial institutions 4,298 29,347 305
Amounts owed to customers 3,992 22 636
Bonds in issue 53 17,333
Negative fair value of derivative transactions 5,839 28
Other liabili ties 8 20 38
Total liabili ties 10,198 50,720 22 979
Offbalance sheet
Undrawn loans 115
Issued guaran tees 5 8,029 52
Received guaran tees 1,116 202
Positive nomi nal value of derivatives 218,789 4,409 4,836
Negative nomi nal value of fnancial derivatives (219,292) (4,409) (4,769)
Income
interest income 680 383 2 22
Dividends received 811
Fee and commission income 42 1,014 377
Net trading result 1,752 60 24
Other income 59 16
Total income 2,474 2,327 2 439
Expenses
interest expense (164) (1,100)
Fee and commission expense (52) (57)
Gene ral administra tive expenses (44) (1,148) 59 (405)
Other expenses (120)
Total expenses (328) (2,300) 59 (462)
The column Other related parties includes transactions with all other companies that are included in the consolidated Erste Group.
50. Dividends
Manage ment of the Bank has proposed that total dividends
of CZK 9,120 million be declared in respect of the profit for the
year ended 31 December 2013, which repre sents 60 CZK per both
ordinary and prefe rence share (2012: CZK 7,600 million, that is,
CZK 50 per both ordinary and prefe rence share). The declaration of
dividends is subject to the approval of the Annual Gene ral Meeting.
Dividends paid to shareholders are subject to a withholding tax of
15% or a percentage as set out in the rele vant double tax treaty.
Dividends paid to shareholders that are tax residents of a European
Union member country and whose interest in a sub sidiarys share
capital is no less than 10% and that hold the entitys shares for at
least one year are not subject to withholding tax.
51. Subsequent Events
In the statement of financial position as at 31 December 2013
the Bank shows subordinated debt amounting to CZK 2,096 mil-
lion (refer to Note 26). From 1 January to 28 February 2014
the Bank repurchased a part of this debt in the nomi nal amount
of CZK 941 million for the price approximately equal to the nomi-
nal amount.
225
Report on Relations between Related Parties
pursuant to 66a(9) of Act No. 513/1991 Coll., the Commercial Code for the
accounting period from 1 January 2013 to 31 December 2013
A. Chart of Parties Whose Relationships
Are Described
B. Controlling Parties
Erste Group Bank AG,
Am Graben 21, Vienna, Austria
(Erste Group Bank )
EGB Ceps Beteiligungen Gmb,
(EGB Ceps Beteiligungen)
EGB Ceps Holding Gmb,
(EGB Ceps Holding)
C. Other Related Parties Whose
Relationships Are Described
Other related parties, Erste Group Bank
Allgemeine Sparkasse Obersterreich
Bankaktiengesellschaft,
Promenade 11, Linz, Austria
Banca Comerciala Romana s.a.,
Regina Elisabeta Blvd 5, Bucharest, Romania
Brokerjet Bank AG,
Mariahilfer Strasse 121, Vienna, Austria
CT Borsk Pole, a. s.,
Budjovick 1518/13a, Prague 4, Czech Republic
CT Brno Herpick, spol. s r.o.,
CT Rho, spol. s r.o.,
CTFinance s.r.o.,
CTP Herpick, spol. s r.o.,
CTPark Bor, spol. s r.o.,
Epsilon Immorent, s.r.o.,
Erste Bank der oesterreichischen Sparkassen AG,
Erste Bank Hungary Nyrt,
Hold utca 16, Budapest, Maarsko
Notes to the Separate Financial Statements | Report on Relations between Related Parties | esk spoitelna Financial Group
Erste Group Bank
other related parties*
EGB Ceps Beteiligungen
EGB Ceps Holding
esk spoitelna
Brokerjet S Campus Park CPDP 2
CPDP 2003 CPDP LPK II CPDP SMK
S do domu
CS Propert
Investment
SPS
Dinesia
Erste Corporate
Finance
Erste Energy Services
Erste Leasing Factoring S Gallery Myk
Grantika S
Realitn spolenost S
S IT Solutions CZ
Investisn web
Reico S
Stavebn spoitelna S
Mopet
s Autoleasing
VP Ibod
* enterprises listed in Part C. Other related parties, Erste Group Bank
226
Erste Group Immorent R, s.r.o.,
Erste Group IT International, spol. s r.o.,
Tomikova 48, Bratislava, Slovakia
Erste Group Shared Services (EGSS), s.r.o.,
Nrodn tda 44, Hodonn, Czech Republic
Erste-Sparinvest Kapitalanlagegesellschaft m.b.H.,
Habsburgergasse 1, Vienna, Austria
Erste & Steiermrkische bank d.d.,
Jadranski trg 3, Rijeka, Croatia
Grand Hotel Marienbad s.r.o.,
Immorent Brno Retail, s.r.o.,
Immorent Financeprojekt s.r.o.,
Immorent Cheb s.r.o.,
Immorent Inprox Budweis s.r.o.,
Immorent Investment XX, s.r.o.,
Immorent Jilsk s.r.o., Budjovick 1518/13a, Prague 4,
Czech Republic
Immorent Leasfnance s.r.o., Budjovick 1518/13a,
Prague 4, Czech Republic
Immorent Orange s.r.o.,
Immorent Orion, s.r.o.,
Immorent Ostrava I s.r.o.,
Immorent Plze s.r.o.,
Immorent PTC, s.r.o.,
Immorent Senior Park a.s.,
Immorent TMIS s.r.o.,
Immorent Vega, s.r.o.,
Investin spolenost esk spoitelny, a. s.,
Evropsk 2690/17, Prague 6, Czech Republic
Lambda Immorent s.r.o.,
Leasing Pro perty s.r.o.,
LogCap R s.r.o., Budjovick 1518/13a, Prague 4, Czech
Republic
Mal tpnsk 17, s.r.o.,
CI Unternehmensbeteiligungs-gesellschaft.m.b.H.,
Omega Immorent s.r.o.,
Procurement Services CZ, s.r.o.,
Budjovick 1912/64b, Prague 4, Czech Republic
Proxima Immorent, s.r.o.,
Quelfor a.s.,
S IT Solutions AT Spardat Gmb,
Geiselbergstrasse 2125, Vienna, Austria
Slovensk sporitea, a. s.,
Tomikova 48, Bratislava, Slovakia
Theta Immorent s.r.o.,
Tramir Pro perty, s.r.o.,
Zeta Immorent s.r.o.,
227
Other related parties, esk spoitelna Group
brokerjet esk spoitelny, a. s.,
(Brokerjet S)
Campus Park a.s.,
Vodikova 710/31, Prague 1, Czech Republic
(Campus Park)
CEE Pro perty Development Portfolio 2 N.V.,
Naritaweg 165, 1043 BW Amsterdam, Netherlands
(CPDP 2)
CPDP 2003 s.r.o.,
(CPDP 2003)
CPDP Logistics Park Kladno II a.s.,
(CPDP LPK II)
CPDP Shopping Mall Kladno, a. s.,
(CPDP SMK)
CS Pro perty Investment Limited,
Diomidous Street 2024, Nicosia, Cyprus
(CS Pro perty Investment)
S do domu, a. s.,
Polkova 1976/2, Prague 4, Czech Republic
(S do domu)
esk spoitelna-penzijn spolenost, a. s.,
Polkova 1976/2, Prague 4, Czech Republic (SPS)
Dinesia a.s.,
Stelnin 8, Prague 8, Czech Republic (Dinesia)
Erste Corporate Finance, a. s.,
(Erste Corporate Finance)
Erste Energy Services, a. s.,
(Erste Energy Services)
Erste Leasing, a. s.,
Horn nmst 264/18, Znojmo, Czech Republic
(Erste Leasing)
Factoring esk spoitelny, a. s.,
Budjovick 1518/13B, Prague 4, Czech Republic
(Factoring S)
Gallery Myk a.s.,
(Gallery Myk)
GRANTIKA esk spoitelny, a.s.,
Jakubsk nm. 127/5, Brno, Czech Republic
(Grantika S)
Investinweb s.r.o.,
Evropsk 2690/17, Praha 6, esk republika
(Investinweb)
Mopet CZ a.s.,
Hvzdova 1716/2b, Praha 4, esk republika
(Mopet)
Realitn spolenost esk spoitelny, a. s.,
Vinohradsk 180/1632 , Prague 3, Czech Republic
(Realitn spolenost S)
Reico investin spolenost esk spoitelny, a. s.,
Antala Staka 2027/79, Prague 4, Czech Republic
(Reico S)
s Autoleasing, a. s.,
(s Autoleasing )
S IT Solutions CZ, s.r.o.,
Antala Staka 32/1292, Prague 4, Czech Republic

(S IT Solutions CZ)
Stavebn spoitelna esk spoitelny, a. s.,
Vinohradsk 180/1632, Prague 3, Czech Republic
(Stavebn spoitelna S)
Vrnostn program Ibod, a. s.,
Olbrachtova 1929/62, Prague 4. Czech Republic
(VP Ibod)
D. Transactions with Related Parties
esk spoitelna identified relationships with the related parties
listed in sections B and C and compiled them into the following
categories.
Related Party Transactions Recorded on the
Asset Side of esk spoitelnas Statement of
Financial Position
Loans and Advances to Financial Institutions
Within approved gene ral limits (see article Gene ral limits), esk
spoitelna provided related parties that are financial institutions
with funds on the basis of contracts for, inter alia, the provision of
228
loans, term deposits, current account administration and overdraft
facili ties under standard market conditions in an aggregate amount
of CZK 28,741 million. esk spoitelna incurred no detriment as
a result of these transactions during the current accounting period.
Loans and Advances to Customers
Within approved gene ral limits (see article Gene ral limits), esk
spoitelna provided related parties that are not financial institutions
with funds on the basis of contracts for, inter alia, the provision
of loans and overdraft facili ties under standard market conditions
in an aggregate amount of CZK 16,877 million. esk spoitelna
incurred no detriment as a result of these transactions during the
current accounting period.
Securities Held for Trading
esk spoitelna holds held-for-trading bonds and simi lar securities
issued by related parties, which were purchased under standard mar-
ket conditions in an aggregate amount of CZK 185 million. esk
spoitelna incurred no detriment as a result of these transactions
during the current accounting period.
Positive Fair Value of Derivative Transactions
esk spoitelna entered into contracts for hedging or trading
derivatives with related parties under standard market conditions,
the positive fair value of which was CZK 4,272 million at the end
of the accounting period. esk spoitelna incurred no detriment as
Other Assets
Other assets includes other trade receivables of esk spoitelna
from related parties recorded on the asset side of esk spoitel-
nas statement of financial position in an aggregate amount of
CZK 358 million. esk spoitelna incurred no detriment as a result
of these transactions during the current accounting period.
Related Party Transactions Recorded on the
Liability Side of esk spoitelnas Statement of
Financial Position
Amounts Owed to Financial Institutions
During the accounting period, esk spoitelna provided related
parties that are financial institutions with monetary services associ-
ated, inter alia, with the administration of current and term accounts,
received loans and loro accounts based on contracts for the opening
and administration of accounts under standard market conditions
in an aggregate amount of CZK 55 995 million. esk spoitelna
Amounts Owed to Clients
During the accounting period, esk spoitelna provided related
parties that are not financial institutions with monetary services
associated, inter alia, with the administration of current and term
accounts, loans received and credit balances on overdraft facili-
ties based on contracts for the opening and administration of
accounts under standard market conditions in an aggregate amount
of CZK 1,772 million. esk spoitelna incurred no detriment as
Bonds Issued by esk spoitelna
Related parties hold bonds and simi lar securities issued by esk
spoitelna, which were purchased under standard market conditions
in an aggregate amount of CZK 16,666 million. esk spoitelna
Negative Fair Value of Derivative Transactions
esk spoitelna entered into contracts for hedging or trading finan-
cial derivatives under standard market conditions with related par-
ties, the negative fair value of which was CZK 6,191 million. esk
Other Liabili ties
Other liabili ties includes other trade pay ables of esk spoitelna
from related parties recorded on the liability side of esk spoitel-
nas statement of financial position in an aggregate amount of
CZK 150 million. esk spoitelna incurred no detriment as a result
of these transactions during the current accounting period.
Related Party Transactions Impacting esk
spoitelnas Income Statement
interest Income
During the accounting period, esk spoitelna generated total
interest income of CZK 2,679 million, including dividends, from
transactions with related parties enacted under standard market
conditions. esk spoitelna incurred no detriment as a result of
these transactions during the current accounting period.
interest Expense
During the accounting period, esk spoitelna incurred a total
interest expense of CZK 764 million from transactions with related
parties enacted under standard market conditions. esk spoitelna
Fee and Commission Income
During the accounting period, esk spoitelna received fee and
commission income prima rily comprising fees and commissions for
asset manage ment, depository services and the sale of subsidiaries
pro ducts in an aggregate amount of CZK 1,213 million as a part
of transactions with related parties enacted under standard market
Fee and Commission Expense
During the accounting period, esk spoitelna incurred fee and
commission expenses prima rily comprising transaction fees in an
aggregate amount of CZK 176 million as a part of transactions with
229
related parties enacted under standard market conditions. esk
Net Trading Result
During the accounting period, esk spoitelna incurred a net
profit of CZK 1,402 million from securities transactions, foreign
currency transactions and simi lar transactions with related par-
ties, enacted under standard market conditions. esk spoitelna
Gene ral Administra tive Expenses
During the accounting period, esk spoitelna incurred
CZK 1,395 million in gene ral administra tive expenses in
respect of related parties, in particular for the purchase of goods,
materials, insurance and advisory, professional, consulting or
maintenance services under standard market conditions. esk
Other Income/Expense
During the accounting period, esk spoitelna reported a posi-
tive balance of other income and expenses in an aggregate amount
of CZK 32 million as part of other transactions with related par-
ties, in particular the provision of outsourcing services and client
centre services, and as part of profit and loss from the sale and
revaluation of securities valued at fair market value and avail-
able-for-sale financial assets, all executed under standard market
Other Banking and Trading Relationships with
Related Parties
Gene ral limits
esk spoitelna has instituted approved gene ral limits for related
party transactions; these apply to current and term deposits,
loans, repurchase transactions, own securities, letters of credit
and guaran tees provided and received in an aggregate amount
of CZK 97,328 million. Under these limits, the total exposure
to related parties was CZK 54,822 million. esk spoitelna
Guaran tees Provided and Received
esk spoitelna provided related parties with guaran tees under
standard market conditions. Guaran tees provided totalled CZK
5,372 million. esk spoitelna received related party guaran-
tees based on contracts for the acceptance of bank guaran tees
under standard market conditions in an aggregate amount of
CZK 1,696 million. esk spoitelna incurred no detriment as
a result of the performance of these contracts during the current
accounting period.
Fixed-term Contracts
During the accounting period, esk spoitelna entered into
fixed-term contracts with related parties under standard market
conditions. The nomi nal value of receivables and pay ables arising
from fixed-term contracts was 206,490 million and 208,485 mil-
lion, respectively, at the 2013 year-end. esk spoitelna incurred
no detriment as a result of these transactions during the current
accounting period.
Equity Transactions with Related Parties
During the accounting period, esk spoitelna, as a market
maker, purchased and sold shares of related parties under standard
market conditions with an aggregate turnover of CZK 5,018 mil-
lion. esk spoitelna incurred no detriment as a result of these
transactions during the current accounting period.
Dividends Paid
Based on a 22 April 2013 Gene ral Meeting decision, esk
spoitelna paid dividends totalling CZK 7,600 million to related
parties during the accounting period. esk spoitelna incurred
no detriment as a result of the execution of this decision.
230
E. Non-banking Related Party Transactions
In previous accounting periods, esk spoitelna entered into contracts with related parties listed in Sections B and C pertaining to non-bank-
ing relations, the financial details of which are pre sented in Section D for the accounting period. During the accounting period, esk
spoitelna entered into new contracts with related parties listed in Sections B and C pertaining to nonbanking relationships, the financial
details of which are included in Section D for the accounting period. The list below includes significant non-banking contracts concluded
with related parties during the accounting period. Immaterial contractual relations under which esk spoitelna received or provided
non-banking services with related parties, whose financial details are also included in Section D and which resulted in no detriment to
esk spoitelna, are not included in this report.
Contract name Contractual party Performance description Detriment
Contract for sublease of
Investinweb s. r. o.
Gene ral contract for sublease of
None
incurred
3 Contract for lease of
non-residential premises and
movables
Erste Leasing, a. s.
Lease of non-residential premises
and movables
None
incurred
Lease agreement Vrnostn program lbod, a. s.
Agreement on settlement of
expenses
None
incurred
2 Contract for lease of
s IT Solutions CZ, s. r. o. Lease of non-residential premises
None
incurred
Lease agreement S do domu, a. s. Lease of non-residential premises
None
incurred
Framework contract Vrnostn program lbod, a. s.
Framework contract for software
development for the IBOD
programme
None
incurred
Outsourcing contract Procurement Services CZ, s. r. o. Provision of IT services
None
incurred
Contract for participation in
IBOD Loyalty Programme
Vrnostn program lbod, a. s.
Implementing contract on IBOD
Loyalty Programme participation
None
incurred
3 Contract on provision of
a prmium in excess of basic
capital
Mopet CZ, a. s.
Provision of a prmium in excess of
basic capital
None
incurred
Contract on provision of
a prmium in excess of basic
capital
Erste Energy Services, a. s.
Provision of a prmium in excess of
basic capital
None
incurred
2 Share transfer contract Mopet CZ, a. s. Purchase of Mopet CZ a. s. shares
None
incurred
Receivable set-off agreement Mopet CZ, a. s.
Set-off of a receivable from
Mopet CZ a. s. for payment of the
purchase price for Mopet CZ a. s.
shares against the obligation to pay
the purchase price of these shares
None
incurred
Share subscription contract Mopet CZ, a. s.
Subscription of shares subsequent
to a basic capital increase
None
incurred
Transfer agreement CS Pro perty Investment Limited
Purchase of a loan receivable of the
companies Czech and Slovk Pro-
perty Fund B.V.
None
incurred
Receivable set-off contract CS Pro perty Investment Limited
Set-off of a receivable for payment
of the price of shares subsequent to
a capital reduction of the company
CS Pro perty Investment Limited
against an obligation to pay the
purchase price of a loan receivable
None
incurred
2 Contract for provision of
outsourcing services
brokerjet esk spoitelny, a. s.
Provision of outsourcing services
in fnancial accounting, controlling,
asset manage ment, procurement
support, human resources,
marketing, internal audit, corporate
Communications, IS/IT security,
data processing, fre safety,
workplace health and safety and
fnancial analy ses
None
incurred
Contract for provision of
CEE Pro perty Development Portfolio 2 B.V.
in fnancial accounting, human
resources, fre safety and workplace
health and safety
None
incurred
231
Contract for provision
of outsourcing
services + addendum
Erste Corporate Finance, a. s.
in fnancial accounting, human
resources and IS/IT security
None
incurred
Erste Group Shared Services, s. r. o.
support, human resources, internal
audit and IS/IT security
None
incurred
2 Contract for provision of
Erste Energy Services, a. s.
asset manage ment, human
resources, internal audit, corporate
Communications, IS/IT security, fre
safety, workplace health and safety
and compliance
None
incurred
Factoring esk spoitelny, a. s.
audit, marketing, corporate
Communications and IS/IT security,
fre safety, workplace health and
safety
None
incurred
GRANTIKA esk spoitelny, a.s.
Provision of outsourcing services in
internal audit, marketing, corporate
Communications, human resources,
fre safety, workplace health and
safety
None
incurred
of outsourcing
services + addendum
Investin spolenost esk spoitelny, a. s.
Communications and IS/IT security
None
incurred
of outsourcing
services + addendum
S do domu, a. s.
None
incurred
of outsourcing
services + addendum
Procurement Services CZ, s. r. o.
audit and IS/IT security
None
incurred
of outsourcing
services + addendum
Reico investin spolenost esk
spoitelny, a. s.
None
incurred
of outsourcing
services + addendum
Realitn spolenost S, a. s.
human resources, marketing,
corporate Communications and IS/
IT security
None
incurred
of outsourcing
services + addendum
None
incurred
Erste Leasing, a. s.
in human resources, internal
audit, controlling, corporate
Communications, fre safety,
workplace health and safety
None
incurred
232
of outsourcing
services + addendum
Stavebn spoitelna S, a. s.
Provision of outsourcing
services in fnancial accounting,
controlling, asset manage ment,
procurement support, human
resources, marketing, corporate
Communications, payment systm
and IS/IT security
None
incurred
of outsourcing
services + addendum
S IT Solutions CZ, s. r. o.
Communications, contractual
documentation and IS/IT security
None
incurred
of outsourcing
services + addendum
esk spoitelna penzijn spolenost, a. s.
and compliance
None
incurred
Contract for lease of
esk spoitelna penzijn spolenost, a. s. Lease of real estate
None
incurred
Contract for lease of
GRANTIKA esk spoitelny, a.s. Lease of real estate
None
incurred
Framework contract GRANTIKA esk spoitelny, a.s.
Framework contract for the
provision of online auction services
None
incurred
Contract for the processing
of domestic payment systm
orders
Erste Group Shared Services, s. r. o.
Processing of domestic payment
systm orders
None
incurred
of outsourcing
services + addendum
for performance of certain
obligations of pension companies
related to fund manage ment,
bookkeeping for pension funds,
unit trusts and a transformed
fund, back-offce activity and the
processing of requests for coope-
ration and processing of execution
orders
None
incurred
2 Addendum of Contract for
the provision of a daily mutual
fund equity calculation
Investin spolenost esk spoitelny, a. s.
Provision of daily calculation of
mutual fund equity, calculation of
current value of share certifcates,
keeping the books for mutual funds
and related activities
None
incurred
2 Addendum of Contract for
the provision of a daily mutual
fund equity calculation
Reico investin spolenost esk
spoitelny, a. s.
Provision of daily calculation of
mutual fund equity, calculation of
current value of share certifcates,
keeping the books for mutual funds
and related activities
None
incurred
5 Contracts for
work + addendums
Erste Group IT International, spol. s r.o.
Deliveries of information systems
and technology, including
maintenance and associated
services
None
incurred
12 Contracts for
services + addendums
Erste Group Bank AG
services
None
incurred
43 Contracts for
services or Contracts for
work + addendums
S IT Solutions AT Spardat GmbH
services
None
incurred
2 Service contracts S IT Solutions AT Spardat GmbH
Provision of the IT services of S IT
Solutions AT Spardat GmbH
None
incurred
233
F. Other Legal Acts
During the accounting period, esk spoitelna (the drafter of this
report) neither adopted nor enacted any other legal acts to the ben-
efit or upon the initiative of related parties.
G. Other de Facto Mea sures
Within Erste Group Bank, esk spoitelna takes part in group
projects whose common aim is to fully exploit the business potential
of central European markets in all segments as well as economies of
scale and cost synergies, concentration of support activities within
the group and performance measurement transparency and compa-
rability. These projects cover, for example, information technology,
risk manage ment and service activity. esk spoitelna incurred no
detriment as a result of its involvement in the foregoing projects.
H. Conclusion
It is clear from our review of the legal relationships between esk
spoitelna and its related parties that esk spoitelna incurred no
detriment as a result of contracts, other legal acts or other mea
sures executed, effected or adopted by esk spoitelna during
the accounting period from 1 January 2013 to 31 December 2013
to the benefit or upon the initiative of indi vidual related parties.
Prague, 31 March 2014
Wolfgang Schopf Ji korvaga
Vicechairman Member of the Board
of the Board of Directors of Directors
234
esk spoitelna Financial Group
Overview of key members of the esk spoitelna Financial Group, fgures are
unaudited and in accor dance with International Financial Reporting Standards
(IFRS), unless otherwise indicated
Stavebn spoitelna esk spoitelny, a. s.
Stavebn spoitelna esk spoitelny, a. s., with its registered office
at Vinohradsk 180, Prague 3, was incorporated on 22 June 1994.
Its principal business is the provision of financial services pursuant
to Act No. 96/1993 Coll. esk spoitelna, a. s. holds a 95% stake
and Bausparkasse der sterreichischen Sparkassen AG holds the
remaining 5%. Stavebn spoitelna S offers its clients construction
savings with state support and a statutory entitlement to construc-
tion savings loans.
In 2013, Stavebn spoitelna S operated in a construction
savings market impacted, like in previous years, by the eco-
nomic situation as well as the uncertainty elicited by legisla-
tive changes being discussed by the Chamber of Deputies of
the Czech Republic. These changes could have had a major
impact on construction savings banks and their clients, but
were not approved. An extraordinarily important event for
which Stavebn spoitelna S spent many months prepar-
ing was the 1 January 2014 effective date of new legisla-
tion related to the new Civil Code. The company took this
opportunity to make all client documents requiring revision
simpler and more understandable.
In 2013, Stavebn spoitelna S fulfilled its mission We
Finance Better Housing for All not only by providing loans
to savings participants, but also financing larger investment
undertakings of housing cooperatives and apartment owner
associations. Stavebn spoitelna S promoted future client
interest in construction savings loans by introducing a new
tariff with a highly advantageous interest rate.
Stavebn spoitelna S recorded more than 163 thousand
loan accounts at the 2013 year end, having lent its clients
CZK 37.6 billion for better housing. With a 10% increase
year-to-year, the company was second on the market in
new loan growth in 2013. New loans extended to housing
cooperatives and apartment owner associations reported sig-
nificant year-to-year growth in the number and volu me of
contracted loans, which reached CZK 1.8 billion.
Stavebn spoitelna S records more than 927 thousand con-
struction savings accounts with a target amount in excess
of CZK 218 billion and savings totalling CZK 94.8 billion.
In 2013, Stavebn spoitelna S carried on its longstanding coope-
ration with the civic association Portus Praha and was once again
the gene ral sponsor of the well-known Action with Bricks cam-
paign. This activity in the field of social responsibility is just one
more way in which Stavebn spoitelna S supports better housing,
in this case for the handicapped.
Stavebn spoitelna esk spoitelny, a. s. 2013 2012 2011 2010 2009
Share capital (CZK million) 750 750 750 750 750
Total assets (CZK billion) 99.3 103.5 103.7 103.0 100.8
Loans and advances to clients (CZK billion) 37.6 39.5 41.7 45.1 45.5
Client deposits (CZK billion) 94.8 97.9 98.0 97.5 95.0
Net proft (CZK million) 535 649 1,028 1,267 1,509
Number of client accounts (million) 1.1 1.2 1.1 1.2 1.1
Average headcount 210 205 200 212 215
Correspondence address: Vinohradsk 180, 13011 Praha 3
Free info-line: 800207207
Telephone: 224309111
Website: www.burinka.cz
e-mail: burinka @ burinka.cz
Report on Relations between Related Parties | esk spoitelna Financial Group | Independent Auditors Report
235
esk spoitelna penzijn spolenost, a. s. was created as a result
of the transformation of Penzijn fond esk spoitelny, a. s.
(PFS) on 1 January 2013. PFS was founded as a joint stock
company in 1994 pursuant to a Memorandum of Association. The
registered office of the pension company is Polkova 1976/2,
140 21 Prague 4. esk spoitelna is its sole shareholder. The
companys principal business until 31 December 2012 was the
provision of supplementary pension insurance schemes pursuant
to Act No. 42/1994 Coll. on supplementary state-contributory pen-
sion insurance as amended by Act No. 170/1999 Coll. and Act
No. 36/2004 Coll. As of 1 January 2013, esk spoitelna penzijn
spolenost offers a new pro duct portfolio of supplementary pension
savings pursuant to Act No. 427/2011 Coll. and retirement savings
pursuant to Act No. 426/2011 Coll.
In early 2013, the transformation was successfully completed, and
the original Penzijn fond esk spoitelny was split into S pen-
zijn spolenost and 8 indi vidual funds. As of 1 January 2013,
original supplementary pension insurance contracts became
a part of the SPS Transformed Fund, which was closed to new
clients. At the same time, three new funds were esta blished pur-
suant to Act No. 427/2011 Coll.: the compulsory Conservative
Participation Fund, the Balanced Participation Fund and the
Dynamic Participation Fund. Another four new funds were esta-
blished pursuant to Act No. 426/2011 Coll.: the Government Bond
Retirement Fund, the Conservative Retirement Fund, the Balanced
Retirement Fund and the Dynamic Retirement Fund. The new
S penzijn spolenost participation and retirement funds offer
a variety of investment strategies and number among the most
successful by volu me of client funds acquired.
The compulsory Conservative Participation Fund became hands
down the most successful new fund on the pension savings mar-
ket. Given slow growth in the volu me of assets in participation
and retirement funds, demanding financial market conditions and
persistently low interest rates, yield for 2013 corresponded to
the money market yield. Owing to the pension companys sound
investment policy, none of the funds experienced a rate drop in
2013. Estimated client fund valorisation for 2013 in the SPS
Transformed Fund will be roughly equal to average annual infla-
tion.
esk spoitelna penzijn spolenost executed more than
24 thousand new supplementary pension insurance contracts and
more than 14 thousand retirement savings contracts in 2013. At
31 December 2013, S penzijn spolenost had 1,023 thousand
unique clients. Assets on supplementary pension savings accounts
in participation funds totalled CZK 440 million. For Q1-Q3 2013,
28% of market participants (the largest share of the market) were
in S penzijn spolenost participation funds. For 2013, esk
spoitelna penzijn spolenost reported losses of CZK 40 mil-
lion. Pension reform indirectly impacted the influx of new clients
with employer contributions. The monthly volu me of employer
contributions increased by CZK 6.5 million year-to-year to
CZK 115.9 million in December 2013.
esk spoitelna penzijn spolenost, a. s. 2013 2012 2011 2010 2009
Assets in indi vidual funds (CZK million)
Transformed Fund 50,152 42,482 38,083 32,351 29,573
Conservative Participation Fund 414
Balanced Participation Fund 18
Dynamic Participation Fund 8
Conservative Retirement Fund 21
Balanced Retirement Fund 27
Dynamic Retirement Fund 12
Government Bond Retirement Fund 1
Net (loss)/proft (CZK million) (40) 757 874 807 459
Number of unique participants (thousand) 1 023 1 059 938 908 833
Data for years 2009to2012 are for Penzijn fond esk spoitelny,a.s.
Correspondence address: Polkova 1976/2, 14021 Praha 4
Website: www.ceskapenzijni.cz
e-mail: info @ cs - ps.cz
236
The leasing company s Autoleasing, a. s., founded on 6 October 2003,
is a wholly-owned sub sidiary of esk spoitelna. Its registered
office is located at Budjovick 1518/13B in Prague 4, the share
capital amounts CZK 500 million. Its principal business is provid-
ing finance leases for a wide range of passenger and utility vehi-
cles and providing consumer loans for vehicles up to 3.5 tons to
individuals non-entrepreneurs, individuals entrepreneurs and
corporate entities.
In 2013, s Autoleasing reported profit of CZK 97 million. In the
course of the year, the company completed financing transactions
at an aggregate initial debt value of CZK 3,366 million. The
company creates provisions to cover all known risks arising
from its lease and loan contract portfolio. Material facts that
may favourably impact s Autoleasing meeting its future busi-
ness targets include closer coope ration with the parent bank. In
2013, s Autoleasing successfully launched the business activity
of its sub sidiary s Autoleasing SK in Slovakia, which provides
loans for new and used vehicles up to 3.5 tons to individuals
non-entrepreneurs, individuals entrepreneurs and corporate
entities.
s Autoleasing, a. s. 2013 2012 2011 2010 2009
Volu me of new transactions (CZK billion) 3.4 3.4 2.9 2.6 1.1
Net proft/(loss) (CZK million) 97 74 50 19 (135)
Number of new contracts 12,398 12,765 13,067 13,833* 1,316
Number of own points of sale 1 1 1 1 1
* the increase in the number of new contracts was affected by the merger with Autovr
Correspondence address: Budjovick 1518/13B, 14000 Praha 4
Website: www.sautoleasing.cz
Erste Leasing, a. s. (S MORAVA Leasing, a. s. until 1 September 2013)
S Morava leasing a.s. operates under the new name Erste
Leasing, a. s. as of 1 September 2013. Since 1991, Erste Leasing
offered financing to small and medium-sized enterprises in the
Czech Republic. From 2011 Erste Leasing became a 100% sub-
sidiary of esk spoitelna. Thanks to its extensive network of
points of sale and close coope ration with esk spoitelna regional
corporate centres, the companys operations span the entire country.
It offers clients leasing and loan financing to purchase machinery
and equipment, prima rily in the areas of agriculture, private sector
services and machine engineering.
In 2013, Erste Leasing achieved record profits of CZK 35 million.
During 2013, the company financed transactions in an aggregate
amount of CZK 2.7 billion for year-to-year growth of more than
24%. The company executed a total of 2,137 new leasing and loan
contracts. At CZK 1.8 billion, agriculture machinery, equipment
and agricultural land purchases was the most financed sector.
Agricultural financing thus comprises 67% of total new transac-
tions in 2013.
The primary goal for 2014 is to expand financing beyond the agri-
cultural sector in accor dance with the adopted Business Strategy
for the years 2013 and 2014, to increase transaction volu me by
making optimal use of the distribution channels of esk spoitelna
commercial centres and large corporate client departments and to
maintain the companys number one position according to the
Czech Leasing and Finance Association.
Erste Leasing, a. s. 2013 2012 2011
Share capital (CZK million) 200 200 200
Total assets (CZK billion) 5.4 4.9 4.8
Volu me of new transactions (CZK billion) 2.7 2.2 2.1
Number of new contracts 2,137 1,868 1,768
Net proft (CZK million) 35 18 15
Number of own points of sale 13 13 13
Average headcount 62 59 59
Correspondence address: Horn nmst 264/18, 66902 Znojmo
Website: www.ersteleasing.cz
237
Factoring esk spoitelny, a. s.
Factoring esk spoitelny, a. s., esta blished in November
1995, has been a wholly-owned sub sidiary of esk spoitelna
since 2001. The companys registered office is at Budjovick
1518/13B, Prague 4. Its share capital is CZK 114 million.
The companys focus is on domestic, export and import fac-
toring, comprehensive manage ment and debt manage ment for
a broad range of corporate clientele opera ting in industry, trade
and services.
Factoring S has been the leading factoring company on the
Czech market since 2004. In 2013, it increased its market share to
nearly 37%, reporting total business turnover of CZK 53.5 billion
from assigned and managed receivables. The company posted
its best business result ever with a net profit of CZK 62 million.
In 2013, the company continued to implement a proactive busi-
ness policy while strictly adhering to risk manage ment rules and
other mea sures designed to ensure effective manage ment of the
receivable portfolio of factoring clients.
Factoring esk spoitelny, a. s. 2013 2012 2011 2010 2009
Equity (CZK million) 289 248 189 155 47
Net proft/(loss) (CZK million) 62 58 34 (2) (90)
Contracted amounts (CZK billion) 53.5 49.2 41.7 31.2 26.3
Correspondence address: Budjovick 1518/3B, 14000 Praha 4
Website: www.factoringcs.cz
brokerjet esk spoitelny, a. s.
Brokerjet esk spoitelny, a. s. was esta blished on
17 September 2003. esk spoitelna has a 51% shareholding and
Brokerjet Bank AG 49%. Brokerjet Bank is a member of Erste
Group Bank Financial Group and is a leading online securities
trader in Austria. The shareholder structure provides Brokerjet S
with a unique combination of a strong foundation and extensive
sales network as a member of esk spoitelna Financial Group and
the business infrastructure and long-term experience of Brokerjet
Bank. The companys registered office is at Evropsk 2690/17,
Prague 6.
Peaking financial markets and low market volatility offered little
incentive for clients to enter into margin positions during 2013. This
was reflected in the Brokerjet business results as a slight reduction
in net interest income due to lower loan volu me. Nonetheless, the
downward slide was halted in 2013 in other selected key business
parameters. The year saw a slight rise in market transactions reflected
in 5% year-to-year growth in net fee income. The total number of
clients reached nearly 21 thousand. Brokerjet S continued in 2013
to carry out its policy of strict cost manage ment, which was reflected
in a 3% year-to-year reduction in purchased services. Unfortunately,
however, not even the above-described moderate business recovery or
ongoing pressure on efficiencies were enough to propel the company
to net profit.
Given low public interest in investing at this time, Brokerjet S is
planning to exploit the commercial potential inherent in long-observed
key trends in client behaviour. The first of these, given ever decreasing
trading volu mes on the Prague Stock Exchange, is the growing shift
among clients toward trading in foreign stocks, prima rily on the US
and German exchanges. To simplify trading, the company offers cli-
ents a new Markets Section with real-time data from these markets.
The second trend is continuously growing demand for information,
investment recommendations and trading ideas, i.e. content. Here,
the company has been offering its clients a personal broker service
since 2011. The services offered by personal brokers to clients were
further expanded in 2013 to include assisting clients in their active
search for suitable investment opportunities. The priority for 2014
is to expand the offering of the content to the on-line clients as well.
Brokerjet S also plans to deepen its successful collaboration with
Erste Premier and Erste Private Banking esk spoitelny. Planned
development activities are focused on increasing active client numbers
and company income.
brokerjet esk spoitelny, a. s. 2013 2012 2011 2010 2009
Subordinated debt (CZK million) 0 0 0 60 60
238
brokerjet esk spoitelny, a. s. 2013 2012 2011 2010 2009
Volu me of managed assets (CZK million) 8,950 6,692 7,734 9,147 7,970
Net (loss)/proft (CZK million) (11) (2) 10 18 5
Correspondence address: Evropsk 2690/17, 16000 Praha 6
Website: www.brokerjet.cz
e-mail help @ brokerjet.cz
REICO Investin spolenost esk spoitelny, a. s.
Reico investin spolenost esk spoitelny, a. s., esta blished on
13 June 2006, has always been a wholly owned sub sidiary of esk
spoitelna. The companys registered office is located at Antala
Staka 2027/79, Prague 4, 140 00.
Reico investin spolenost esk spoitelny manages the special
real estate investment fund S nemovitostn fond. Share capital
increased year-to-year by CZK 1.1 billion to CZK 3.1 billion at the
2013 year end as a result of higher investment by retail and insti-
tutional investors and seed capital provided by esk spoitelna.
Reico investin spolenost esk spoitelny also manages the
closed-end investment fund V.I.G. ND, uzaven investin
fond, a. s., which held CZK 2.9 billion at the 2013 year end.
While the real estate market remained stable in 2013, it also saw
a year-to-year increase in investor demand, particularly for com-
mercial real estate. The largest investor groups continued to be
based in the Czech Republic and Slovakia, followed by the US.
The Czech market saw a number of significant investment trans-
actions in 2013, including a new acquisition by S nemovitostn
fond the Trianon multi-use building in Prague 4. This brought
the total number of the funds real estate holdings to 8 commercial
buildings, 7 of them in the Czech Republic and 1 in Slovakia.
Thanks to this acquisition, nearly 80% of the value of the real estate
portfolio comprises properties of the highest investment grade. S
nemovitostn fond reported 3.20% performance in 2013. The pri-
mary reason for this valorisation was rental income. From a finan-
cial perspective, the S nemovitostn fond portfolio is healthy;
most rental properties are at 90% or more occupancy, assuring
stable rental income. The current values of buildings in the port-
folio are stable with significant potential for long-term growth.
The financial indicators of investin spolenost Reico for 2013
reflect favourable real estate market development and growing
investor interest in S nemovitostn fond. As a result, the company
managed a higher volu me of funds than in previous years, reporting
profit of CZK 27 million in 2013.
REICO Investin spolenost esk spoitelny, a. s 2013 2012 2011 2010 2009
Equity (CZK million) 46 19 24 34 59
Total assets (CZK million) 59 29 38 45 71
Net proft/(loss) (CZK million) 27 (5) (11) (18) (12)
Volu me of managed assets (CZK billion) 6.0 4.9 3.0 1.7 1.2
Correspondence address: Antala Staka 2027/79, 14000, Praha 4
Website: www.reico.cz
e-mail nemofond @ reicofunds.cz
GRANTIKA esk spoitelny, a.s.
GRANTIKA esk spoitelny, a.s. was formerly Raven EU
Advisory, of which esk spoitelna became the majority owner
in 2007 and sole owner in 2008. The companys restructuring cul-
minated with a name change to GRANTIKA esk spoitelny, a.s.
in April 2009. GRANTIKA moved office to the esk spoitelna
Jnsk branch in Brno, completing its S Financial Group inte-
gration.
GRANTIKA esk spoitelny, a.s. offers a comprehensive service
pertaining to the European Union subsidy policy, in particular
advice on grants and tenders. M&A advisory services cover the
purchase, sale and valua tion of enterprises. GRANTIKA also
offers advisory services for financial and investment analy ses
and restructuring.
239
GRANTIKA esk spoitelny, a.s. has a network of branches
in Prague, Zln, Plze, Hradec Krlov and Ostrava. The com-
pany offers its services in Slovakia through the sub sidiary Euro
Dotcie, a. s. GRANTIKA operates pursuant to ISO 9001:2001
and ISO 10006:2004 standards.
GRANTIKA reported net profit of CZK 5 million for 2013, its
highest net profit in 8 years. Grantika successfully increased opera-
ting income while reducing opera ting costs owing to higher income
from success fees, the large volu me of European Union grants
and new M&A and financial advisory business. The company also
reported a significant increase in income from ancillary services
like tenders and grant manage ment in 2013.
GRANTIKA completed a total of 250 projects helping 100 cli-
ents with EU Structural Fund grant applications, tenders and grant
manage ment. The company also executed 30 contracts for the
newly offered M&A and financial advisory services.
GRANTIKA esk spoitelny, a.s. 2013 2012 2011 2010 2009
Net proft/(loss) (CZK million) 5 (1) (1) 0 (2)
Income from principal activities (CZK million) 43 37 42 47 42
Added value (CZK million) 33 26 29 32 30
Correspondence address: Jnsk 10, 60200 Brno
Website: www.grantikacs.com
e-mail: info @ grantikacs.com
S do domu, a. s. (Partner esk spoitelny, a. s. until
23 January 2013)
S do domu, a. s., opera ting under the name Partner esk
spoitelny, a. s. until 23 January 2013, has its registered office at
Polkova 1976/2, Prague 4. The company commenced operations
on 1 July 2009 and is a wholly-owned sub sidiary of esk spoitelna.
S do domu prima rily engages in the manage ment of external sales
of pro ducts and services of the esk spoitelna Financial Group via
a network of exclusive external financial intermediaries.
S do domu increases the number of esk spoitelna distribution
channels, thus contributing to the greater overall comfort of client
services. It also attracts new clients to the S Financial Group
and reaches out to inactive clients through marketing campaigns.
In 2013, S do domu continued the major transformation that began
in 2012 with the primary objective of ensuring future business
growth geared toward balanced financial performance and increas-
ing the companys significance in fulfilling the business plans of
the S Financial Group, all while maintaining current business
performance. These goals will be furthered by a new strategy of
collaborating with the best external financial advisors, supporting
and developing parent company synergies and working under a new
model for mutual coope ration with esk spoitelna and its subsidi-
aries to acquire new active clients and regain the interest of inactive
clients. These changes required efficient investment in strength-
ening the companys organisational structure and improving its
reporting and manage ment and in growing the business network
by increasing the number of financial advisors and improving their
training, technical equipment and motivation, as the competition
at this top level is very high.
S DO DOMU, a. s. 2013 2012 2011 2010 2009
Total assets (CZK million) 26 27 32 19 64
Net (loss)/proft (CZK million) (9) 1 1 (15) (3)
Sales (CZK million) 116 92 90 91 79
Correspondence address: Polkova 1976/2, 14021 Praha 4
Website: www.csdodomu.cz
e-mail: domu @ csdodomu.cz
240
ERSTE ENERGY SERVICES, a. s.
Erste Energy Services a.s., with its registered office at Evropsk
2690/17, Prague 6, commenced its activity on 7 August 2012. The
company is a wholly-owned sub sidiary of esk spoitelna. Its
principal business is electricity trading.
In 2013, the company had its first full year of operation. Primary
business objectives for 2013 were to increase the volu me of pur-
chased electricity from renewable sources, begin selling electricity
to end users in the corporate customer segment and commence the
sale of gas.
In 2013, the company executed 128 contracts at a value of
CZK 720 million for the purchase of 750 GWh of electricity from
renewable sources. This is a more than two-fold increase compared
to 2012. The company is becoming a key player on the market, in
particular in the purchase of electricity from biogas stations, where
it has garnered a one-third market share.
The company began supplying electricity to the first end users
in autumn 2013, and electricity supply contracts at a value of
CZK 235 million have been executed for more than 900 offtake
points for 2014 with a total supply volu me of 250 GWh. A major
increase in supplied volu mes of gas and electricity is expected in
2014.
In IT, the first part of a project to implement billing systems was
completed and a module was set up to manage renewable sources,
enabling the company to process large volu mes of prima rily small
electricity producers, a typical example being rooftop solar systems.
IT systems investment will necessarily continue in 2014 as the
company gradually develops and expands its activities.
The company was granted a gas trading license in July 2013, mak-
ing it a fully-fledged market participant.
Correspondence address: Evropsk 2690/17, Praha 6
Telephone: 224 995 470, 224 995 369
Website: www.eres.cz
e-mail: eres@eres.cz
241
To the Shareholders of esk spoitelna, a. s.
I. We have audited the consolidated fnancial statements of esk spoitelna, a. s. (the Company) as at 31 December 2013 pre sented In
the annual report of the Company on pages 69151, on which we have issued an audit report, dated 4 March 2014, which is pre sented
on page 70. We have also audited the separate fnancial statements of esk spoitelna, a. s. (the Company) as at 31 December 2013
pre sented in the annual report of the Company an pages 152224, on which we have issued an audit report, dated 4 March 2014, which
is pre sented on page 153 (together referred to further as the fnancial statements).
II. We have also audited the consistency of the annual report with the fnancial statements described above. The manage ment of esk
spoitelna, a.s. is responsible for the accuracy of the annual report. Our responsibility is to express, based on our audit, an opinion on the
consistency of the annual report with the fnancial statements.
We conducted our audit in accor dance with International Standards on Auditing and the related implementation guidance issued by the
Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the audit to obtain reasonable assurance
as to whether the information pre sented in the annual report that describes the facts refected in the fnancial statements is consistent, in
all material respects, with the fnancial statements. We have checked that the accounting information pre sented in the annual report is
consistent with that contained in the audited fnancial statements as at 31 December 2013. Our work as auditors was confned to cheek-
ing the annual report with the aforementioned scope and did not include a review of any Information other than that drawn from the
audited accounting records of the Company. We believe that our audit provides a reasonable basis for our opinion.
Based on our audit, the accounting information pre sented in the annual report is consistent, in all material respects, with the fnancial
statements described above.
III. In addition, we have reviewed the accuracy of the information contained in the report on related parties of esk spoitelna, a. s. for the
year ended 31 December 2013 pre sented in the annual report of the Company on pages 225233. As described in the report on related
parties, the Company prepared this report in accor dance with the Commercial Code. The manage ment of esk spoitelna, a. s. is re-
sponsible for the preparation and accuracy of the report on related parties. Our responsibility is to issue a report based on our review.
We conducted our review in accor dance with the applicable International Standard on Review Engagements and the related Czech
standard No. 56 issued by the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the re-
view to obtain moderate assurance as to whether the report on related parties is free from material misstatement. The review is limited
primarily to enquiries of company personnel, to analytical procedures applied to fnancial data and to examining, on a test basis, the
accuracy of information, and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not
express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the report on related parties of esk spoitelna, a. s.
for the year ended 31 December 2013 is materially misstated.

Ernst & Young Audit, s. r. o.
oprvnni . 401
zastoupen partnerem

Roman Hauptfleisch
auditor, oprvnni . 2009
24. dubna 2014
Praha, esk republika
Ernst & Young Audit, s. r. o. with its registred offce at Na Florenci 2116/15, 110 00 Prague 1 Nove Mesto,
242
esk spoitelna Selected Consolidated
Financial Performance fgures in
1st Quarter 2014
according to International Financial Reporting Standards
(Unaudited)
esk spoitelna Selected Consolidated
Financial Performance fgures in 1st Quarter
2014
CZK mil. 31 March
2014
31 March
2013
Net interest income 6,710 6,912
Net fee and commision income 2,787 2,933
Dividend income 10 0
Net trading and fair value result 589 457
Rental income from investment properties & other opera ting leases 220 221
Personnel expenses (2,130) (2,372)
Other administra tive expenses (1,819) (1,788)
Depreciation and amortisation (570) (579)
Gains/losses on fnancial assets and liabili ties not measured at fair value through proft or loss, net 116 167
Net impairment loss on fnancial assets not measured at fair value through proft or loss (976) (940)
Other opera ting result 64 231
Pre-tax proft from continuing operations 5,001 5,242
Taxes on income (993) (1,038)
Post-tax proft from continuing operations 4,008 4,204
Net proft of the year
attribuatable to non-controlling inte rests (8) 0
attributable to owners of the parent 4,000 4,204
Opera ting Income 10,316 10,523
Opera ting Expenses (4,519) (4,739)
Opera ting Result 5,797 5,784
Total Assets 913,938 979,597
Loans and advances to customers, net 491,418 475,755
Shareholders' equity attributable to owners of the parent bank 104,601 97,249
Independent Auditors Report | esk spoitelna Selected Consolidated Financial Performance Figures | Proceedings of the Ordinary Gene ral Meeting
Transformovan fond penzijnho pipojitn se sttnm pspvkem esk spoitelna penzijn spolenost, a. s. (Transformovan fond
SPS SPS Transformed Fund) that gathers the funds of supplementary pension insurance with government contribution in the third
pillar was de-consolidated from the consolidating group of esk spoitelna as of 1 January 2014. SPS Transformed Fund continues to
be administered by the esk spoitelna Group via esk spoitelna penzijn spolenost, a. s.
243
Conclusions of the Ordinary Gene ral Meeting
of 23 April 2014
At the esk spoitelna Ordinary Gene ral Meeting held on
23 April 2014 in Prague, the shareholders approved, inter alia, the
Board of Directors Report on the Banks Performance and Financial
Position in 2013. The attending shareholders were also pre sented
with the reports of the Supervisory Board and the Audit Committee
for 2013 and approved the standalone annual financial statements,
consolidated financial statements and profit allocation proposal.
Funds to be distributed totalled CZK 77,185 million; CZK 9,120 mil-
lion was allocated for the payment of dividends amounting to
CZK 60 per share. The balance of retained earnings from previ-
ous years thus totals CZK 68,065 million. The Gene ral Meeting
appointed the company Ernst & Young Audit, s. r. o. to perform
the audit of the standalone and consolidated financial statements of
esk spoitelna for 2014.
The Gene ral Meeting also appointed Andreas Treichl as a member of
the esk spoitelna Supervisory Board and John Stack as a member
of the Audit Committee to replace Stefan Doerfler, who resigned from
the Audit Committee. The Gene ral Meeting approved contracts for
the performance of duties between esk spoitelna and the members
of the Supervisory Board and Audit Committee as submitted by the
Board of Directors and published online at www.csas.cz.
In light of the private law recodification effective from 1 January 2014
and the ensuing need to make extensive changes to the esk
spoitelna Articles of Association, the Bank opted not to make incre-
mental changes to the Articles, but to carry out a gene ral revision.
The Gene ral Meeting approved these new Articles of Association.
The approved changes are of a technical nature or are those changes
that the new legisla tion required.
esk spoitelna Selected Consolidated Financial Performance Figures | Proceedings of the Ordinary Gene ral Meeting | Index
244
Index
A
ATM 2, 46, 24, 29, 35, 36, 57, 59, 108, 185
Audit Committee 12, 14, 61, 68
Auditor 69, 70, 152, 153, 241
Advisor for enterpreneurs 27
B
Bank of the Year 4, 7, 9, 17, 23, 24
Basel 22, 44, 47, 48, 86, 98, 123, 125127, 136, 139, 166, 172,
197, 199, 200, 210, 212, 213
Board of Directors 9, 10, 11, 1315, 37, 40, 60, 64, 120, 150,
194, 223, 224
Bonus Programme 7, 29, 39
Branch 2, 14, 23, 26, 27, 35, 38, 59, 64, 127, 146, 201, 219, 238
brokerjet esk spoitelny 11, 93, 95, 126, 147, 180, 182, 183,
227, 230, 237, 238
Building saving 108
BUSINESS 24 5, 7, 9
C
Capital adequacy 2, 21, 22, 48, 49, 51, 64, 78, 114, 134, 138,
139, 159, 191, 208, 212
Capital participation 66
Card programme 28
Cashback 6
Client deposits (liabili ties to clients) 20, 21, 25, 26, 42, 234
Conservative mix 26
Consumer loans 18, 24, 36, 125, 199, 236
Contactless Cards 5, 6, 24, 25, 28
Corporate account 28, 39
Corporate banker 7, 13, 24, 3035, 39, 41, 46, 198
Corporate clients 7, 9, 11, 13, 20, 3133, 39, 41, 45, 66, 109,
125, 146, 186, 199, 220
Cost/income ratio 18, 42, 147, 148, 220, 221
Credit cards 2, 5, 24, 28, 36, 100, 101, 128, 130, 131, 132, 133,
174, 175, 202, 204207
Czech National Bank (NB) 10, 16, 18, 38, 41, 60, 63, 68, 78,
82, 154, 159, 171, 194
esk spoitelna penzijn spolenost 5, 11, 17, 26, 9396,
180182, 232, 235
D
Deposi t I nsurance Fund 19, 113, 121, 190, 195
Dividents 49, 52, 66, 77, 78, 91, 115, 151, 156, 158, 170, 198,
223225
E
Equity investments 61, 76, 84, 87, 92, 104, 121, 122, 143, 154,
157, 164, 167, 178, 180183, 192, 195, 216
Erste Corporate Banking 7, 29, 3032, 35, 39
Erste Energy Services 33, 42, 93, 96, 180183, 225, 227, 230,
231, 240
Erste Group Bank 10, 1215, 32, 34, 38, 45, 4749
Erste Group Bank 5254, 63, 78, 119, 125, 126, 134, 138, 146,
147, 149, 159, 193, 199, 200, 208, 211, 212, 219, 220, 222, 223
Erste Leasing 7, 22, 23, 25, 28, 35, 93, 95, 146, 180182, 220,
225, 227, 230, 231, 236, 237
Erste Premier 2225, 35, 146, 220, 237
Erste Private Banking 17, 22, 23, 25, 38, 237
European Investment Bank (EIB) 7, 9, 21, 30, 31
F
Factoring esk spoitelny 7, 93, 146, 180, 181, 183, 227,
231, 237
FAKTURA 24 31
Fee and commission income 2, 18, 42, 73, 90, 91, 118, 147,
150, 155, 169, 170, 193, 220224, 228
G
Gene ral Meeting 6, 13, 15, 5255, 6163, 67, 72, 151, 155,
224, 229, 243
GRANTIKA esk spoitelny, a.s. 11, 33, 93, 94, 147, 180,
182, 183, 225, 227, 231, 232, 238, 239
I
iBod 7, 9, 29, 39, 9496, 180182, 225, 227, 230
Income Tax 71, 73, 76, 113, 122, 147, 148, 154, 155, 157, 190,
196, 220, 221
INOSTART 31
Internet saving 21, 27
Investin spolenost esk spoitelny 11, 26, 93, 146, 180,
182, 183, 226, 227, 232, 238
Issued Bonds 21, 110, 187
245
L
Loans and advances to clients 2, 19, 20, 42, 234
Loans and advances to financial institutions 2, 20, 71, 76,
85, 88, 91, 97, 117, 123, 128131, 133, 139, 140, 143, 150, 154,
157, 165, 170, 171, 181, 192, 197, 198, 202205, 207, 213, 216,
223, 224, 227
M
Ministry of Finance 15, 86, 143, 166, 216
Mobile bank 6, 22, 36, 38
Model portfolios 23
Mortgage bonds 21, 111, 112, 188, 189
Mortgages 7, 20, 23, 24, 30, 32, 125, 127, 128, 199, 201, 202,
204, 205
Mutual funds 18, 23, 26, 34, 42, 42, 147, 220, 232
N
Net interest income 2, 46
Net interest margin 2
Net profit 2, 234, 236238
Non- interest income 2, 18
O
Ombudsman 38, 56, 58
Opera ting expenses 2, 18, 92, 106, 150, 171, 242
Opera ting income 2, 18, 19, 121, 150, 195, 239, 242
Opera ting profit 2, 18, 45, 54, 76, 157
P
Payment machine 2, 6, 29, 36
Pension savings 26, 235
PLATBA 24 36
Prague Stock Exchange 34, 53, 112, 189, 237
Premier banker 23, 25
Premium deposits 22, 25
Private Account 2, 18, 2123, 25, 38
Private banking 7, 17, 22, 23, 25, 38, 237
Private clientele 25
Provisions and allowances 72, 76, 79, 90, 97, 112114, 121,
143, 154, 160, 169, 171, 179, 189, 190, 195, 216
Public sector 13, 20, 21, 33, 97, 109, 125, 129, 146, 172, 186,
199, 203, 220
R
Rating 2, 44, 125, 126, 199, 200
Regional corporate centres 31, 35, 146, 220, 236
Reico investin spolenost S 225, 227, 231, 232, 238
Risks 45, 45, 47, 68, 118, 138, 192, 211
ROA 2, 17, 42, 147, 148, 220, 221
ROE 2, 17, 42, 147, 148, 220, 221
S
S Autoleasing 180, 181, 183, 183, 225, 227, 231
Saving CS 21, 22, 27
Securities 2, 22, 34, 35, 50, 86, 93, 96, 97, 102105, 106, 108,
110, 113, 117, 118, 121, 126, 128, 130, 131, 140142, 146, 149,
166, 171, 172, 176179, 185, 187, 190, 192, 193, 195, 200, 202,
204, 214, 219, 222, 228
Segment 9, 20, 22, 2747, 125, 145, 146, 165, 198, 199, 206,
218, 219, 232
Service quality 23, 37, 64, 66
SERVIS 24 5, 6, 9, 25, 27, 31, 35, 36, 39
Shareholders equity 72, 75, 92, 93, 94, 152, 153, 155, 180, 241
S IT Solutions CZ 14, 93, 95, 147, 180, 181, 183, 225, 227,
230, 232
SME 12, 20, 21, 30, 31, 33, 35, 41, 100, 101, 125, 128, 130 133,
146, 174, 199, 202, 204 207, 220
Stavebn spoitelna esk spoitelny 11, 24, 26, 46, 47, 93,
108, 146, 180, 181, 183, 225, 227, 232, 234
Strategy 58, 236
Supervisory Board 7, 10, 12 15, 40, 44, 52, 53, 54, 55, 60 65,
67, 120, 126, 149, 150, 194, 200, 222, 223, 224, 243
T
TOP ENERGY 31
TOP EXPORT 31
TOP INOVACE 31
Top Stock 26
Transformed Fund 5, 26, 73, 93, 94, 96, 113, 116, 117, 119,
121, 146, 148, 232, 235
Z
Zlat koruna 6, 28,
246
esk spoitelna, a. s.
Olbrachtova 1929/62, 140 00 Prague 4, Czech Republic
I: 45244782
Telephone: +420 956 711 111
Telex: 121010 SPDB C,
121624 SPDB C,
121605 SPDB C
Swift: GIBA CZ PX
Information line: 800 207 207
E-mail: csas@csas.cz
Internet: www.csas.cz
Annual Report 2013

Published on internet:
http://www.csas.cz/static_internet/en/Obecne_informace/FSCS/
CS/Prilohy/vz_2013.pdf
Pro duction
Omega Design, s. r. o.
Material for the Public
www.domena.cz
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