ČESKÁ SPOŘITELNA

Transcription

ČESKÁ SPOŘITELNA

ČESKÁ SPOŘITELNA
Jsme Vám blíž.
ANNUAL REPORT 2005
Consolidated Financial Highlights
under International Financial Reporting Standards (IFRS)*
BALANCE SHEET HIGHLIGHTS
(CZK mil.)
2005
2004
2003
Total assets
654,064
581,780
Loans and advances to financial institutions
Loans and advances to customers
97,846
283,420
77,112
239,289
Securities
192,210
34,898
481,556
43,322
Amounts owed to financial institutions
Amounts owed to customers
Shareholders’ equity
2002
2001
555,417
519,691
491,605
82,121
214,903
128,737
188,578
120,104
186,655
191,627
180,738
143,309
135,053
32,905
29,641
31,858
31,142
444,771
39,299
428,572
34,408
402,728
29,831
390,752
24,455
PROFIT AND LOSS ACCOUNT HIGHLIGHTS
(CZK mil.)
2005
2004
2003
2002
2001
Net interest income
18,719
17,416
15,874
15,933
15,156
Net fee and commission income
Operating income
8,384
28,834
8,238
27,217
7,915
25,268
6,848
23,574
6,198
22,187
–16,395
–15,883
–15,073
–14,151
–15,224
12,439
9,134
11,334
8,137
10,195
7,615
9,423
5,805
6,963
1,798
2005
2004
2003
2002
2001
ROE
22.3 %
21.8 %
23.7 %
21.4 %
7.6 %
ROA
Cost/income
1.5 %
56.9 %
1.4 %
58.4 %
1.4 %
59.7 %
1.1 %
60.0 %
0.4 %
68.6 %
Non-interest income/operating income
35.1 %
36.0 %
37.2 %
32.4 %
31.7 %
3.0 %
3.0 %
2.9 %
3.0 %
3.1 %
58.9 %
12.4 %
53.8 %
13.3 %
50.1 %
14.6 %
46.8 %
16.5 %
47.8 %
16.5 %
Operating expenses
Operating profit
Net profit net of minority interests
BASIC RATIOS
Net interest margin
Customer loans/customer deposits
Capital adequacy (BIS)
KEY OPERATING INDICATORS
Number
Staff (average headcount)
Česká spořitelna’s branches
Clients
Sporogiro accounts
of which: product packages
Active bank cards
of which: credit cards
Servis 24 electronic banking users
ATMs
2005
2004
2003
2002
2001
11,406
11,805
12,786
13,061
14,539
646
5 326,378
647
5,353,923
666
5,519,627
673
5,393,492
684
4,754,847
2,725,133
2 761,062
2,757,929
2,755,113
2,727,306
1 089,748
685,053
371,341
9,277
0
2 941,843
2,758,486
2,576,552
2,363,651
2,210,867
340,510
204,564
101,155
28,051
5,387
993,892
1,076
828,826
1,071
677,926
1,067
373,889
1,011
83,268
954
RATING
Rating agency
Long-term rating
Short-term rating
Outlook
Fitch
A–
F2
stable
Moody‘s
A2
Prime-1
stable
Standard & Poor‘s
A–
A2
positive
*Effective from 1 January 2005, Česká spořitelna has made certain accounting changes arising from the adoption of IAS 39 Revised. The Bank has retroactively restated the relevant consolidated profit and loss
account amounts for the year ended 31 December 2004. Figures for 2001 to 2003 were not restated.
Content
Key Figures
2
Company Profile
3
The Year 2005 Review
5
Opening Statement from the Chairman of the Board of Directors
and Chief Executive Officer
7
Board of Directors as of 31 December 2005
11
Česká spořitelna’s Supervisory Board as of 31 December, 2005
15
The Macroeconomic Framework for Česká spořitelna’s Business
17
Report on Performance and Business Activities
46
Strategic Plans for the Year 2006
48
Risk Management in 2005
54
Other Information for Shareholders
63
Česká spořitelna’s Declaration
70
Organisational Chart of ČS as of 31 December 2005
72
Report of the Supervisory Board
73
74
75
Financial Section I
Independent Auditors’ Report to the Shareholders of Česká spořitelna, a. s.
Consolidated Financial Statements as of 31 December 2004 and 2005
147
148
149
Financial Section II
Independent Auditor’s Report to the Shareholders of Česká spořitelna, a. s.
Unconsolidated Financial Statements as of 31 December 2004 and 2005
217
Report on Relations between Related Parties
231
Česká spořitelna’s Financial Group
240
Auditor’s Report
242
Česká spořitelna Selected Consolidated Financial Information
for the Three Months Ended 31 March 2006
243
Conclusions of the Annual General Meeting of Shareholders Held on 26 April 2006
244
Index
1
Company Profile
The year 2005 marked two important anniversaries for Česká
spořitelna: 180 years since its establishment in the Bohemian
region and five years since becoming part of the largest banking group in Central Europe, the Erste Group.
We can easily say that those five years with Erste Bank have
been pivotal for Česká spořitelna. During that period Česká
spořitelna has become a modern European bank competitive in
a challenging international environment which seeks continual
improvements in services rendered to its clients and takes
advantage of the support from its strong financial group.
Česká spořitelna’s success achieved in 2005 is largely attributable to the great efforts of the Bank’s employees. Thanks to
clients being aware of these endeavours, Česká spořitelna
defended its ranking as Most Trustworthy Bank in the MasterCard contest; the Bank’s management was recognised as well
– Jack Stack, Česká spořitelna’s CEO, was elected Banker of
the Year. In addition, Česká spořitelna won, for the third time,
the Bank of the Year international award in The Banker Awards
2005 competition.
Customer satisfaction is paramount to the banking business,
including Česká spořitelna. Hence, it is appropriate that Česká
spořitelna was the first bank in the Czech Republic to adopt the
Code of Banking Practices which clearly sets out the rights and
duties of financial institutions, as well as their clients.
Česká spořitelna continues to be the leader on the domestic
mortgage market. Having jump-started this market several
years ago, the Bank has become the financial institution
providing the largest volume of mortgage loans and serving
the largest number of clients, whom it assists in financing
real estate purchases. Last year, the Bank granted mortgages
totalling CZK 45.5 billion. Newly provided private mortgages
grew year-on-year by 22 percent, and “American mortgages”
exceeded five thousand.
In 2005, Česká spořitelna concluded loans with small and
medium-sized enterprises worth CZK 16.7 billion, which is an
increase of 25 percent over the previous period. Small and medium-sized companies are one of the key segments for Česká
spořitelna and thus the Bank keeps expanding its product and
service offering and improving its customer services in this
2
respect. Last September, Česká spořitelna offered companies,
for example, the Internet banking “Business 24” service; in addition, the Bank adopted a number of measures to substantially
speed up the loan approval process, subsequently accelerating
and simplifying its administrative processes.
In the prior year, Česká spořitelna was the first bank in the
Czech Republic to start developing a network of special ATMs
for blind citizens; it is the only bank to provide clients with
such services to date. At the end of 2005, 35 ATMs of this kind
were in operation across the Czech Republic.
In 2005, Česká spořitelna acted as a local listing agent on the
dual issue of shares and convertible bonds of Orco Property
Group, as well as on the dual issue of shares from Central
European Media Enterprises Ltd. Česká spořitelna has become
the most active listing agent on the Prague Stock Exchange.
At present, Česká spořitelna not only serves over five million clients, but also desires to be a reliable partner for the
more than ten million citizens of the Czech Republic. Hence,
the Bank is largely engaged in helping those who need it,
and every year organises charitable initiatives worth tens
of millions of Czech crowns. In 2005, for the first time, the
Bank’s clients had the chance to get actively involved in Česká
spořitelna’s charitable activities by donating their points from
the loyalty Bonus programme to charitable projects.
News was also reported from within the Erste Group family
which continued its expansion on the European market: in
August, the Serbian Novosadska banka became part of the
group; at the year-end, contracts for the acquisition of BCR,
the largest Romanian bank were concluded. Nonetheless,
Česká spořitelna continues to be one of the cornerstones of the
whole Erste Bank Group.
Company Profile
Opening Statement from the Chairman
of the Board of Directors
January
• Česká spořitelna offers a new special programme called
Senior. It includes a set of products and services under
advantageous conditions intended for seniors.
• Both retail and corporate clients can use the English version
of Česká spořitelna’s internet banking.
• Česká spořitelna extended its offering of advantageous
packages for retail clients – it introduced the Xtra account
intended for 10 to 15 year-old children and the Exclusive
account which is suitable for high net-worth clients.
• Česká spořitelna was voted by the expert jury on the
penize.cz server as the internet bank of 2005.
February
June
• The 180th anniversary of the adoption of Spořitelna Česká’s
statutes (12 February 1825).
• The Financial Group of Česká spořitelna manages over
CZK 100 billion, making it the second largest manager of
assets in the Czech market. Investiční společnost České
spořitelny manages CZK 64 billion and Česká spořitelna
manages assets worth CZK 38 billion through its asset
management and private banking.
• Česká spořitelna acted as a local listing agent for the dual issuance of Orco Property Group’s shares and convertible bonds.
• Česká spořitelna acted as a local listing agent for the dual
issue of Central European Media Enterprises Ltd.’s shares.
Česká spořitelna became the most active listing agent of
shares on the Prague Stock Exchange.
• Česká spořitelna was awarded the first prize in the Zlatá
koruna (The Golden Crown) competition with four of its
products receiving the highest prize, The Golden Crown,
namely: Výhodný program, Profit program, Servis 24 and
Loan for Studies under the Student+ programme). Another
four programmes also won prizes.
March
July
• Česká spořitelna installed the first ATM for the blind and
weak-sighted which is located in Česká spořitelna’s branch
at Jugoslávská street 19, Prague 2. With assistance from
NCR and the United Organisation of the Blind and Weaksighted (SONS), another 34 ATMs for the blind and weaksighted were brought into operation by the end of 2005.
• Česká spořitelna’s personal packages designed for the
complex management of finances were used by more than
750,000 clients as of March.
• The aggregate amount of retail loans exceeded CZK
100 billion.
• The number of direct banking clients exceeded 1 million.
• The Bonus Programme has been in place for two years.
Česká spořitelna’s clients, namely credit/debit card
owners, can collect points when they pay with cards which
can be subsequently exchanged for rewards. Since the
beginning of the programme, the clients have picked up
over 100,000 rewards.
• Fast Intragroup Transfer (FIT) provides for a quicker and
cheaper payment system between all clients within the Erste
Bank Group (i.e. Erste Bank in Austria, Česká spořitelna,
Slovenská sporiteľňa, Erste Bank Hungary and Erste Bank
Croatia.)
April
• Česká spořitelna’s ATMs became multifunctional centres.
It is possible to place payment orders and make insurance
premium payments to Kooperativa at all Česká spořitelna’s
ATMs. Česká spořitelna was the first on the market to
introduce this service.
May
• With a view to strengthening its capital base in connection with a robust growth in lending transactions, Česká
spořitelna issued ten-year subordinated bonds in the
aggregate amount of CZK 3 billion.
August
• Standard & Poor‘s increased the rating of Česká
spořitelna’s long-term bonds from BBB+ to A- and the
outlook from stable to positive.
• Česká spořitelna introduced three innovations in credit
cards. University students can obtain a credit card under the
Student+ Programme, a credit card can be acquired when
a mortgage is taken and clients can apply for a credit card
through a free telephone line 800-207-207.
3
September
• The Česká spořitelna Financial Group launched the
‘2005–2006 Effectiveness Programme’ targeted at reducing general administrative expenses by CZK 750 million
in 2005–2006. This relates to staff costs and operating
expenses.
• Servis 24 was profoundly enhanced through the introduction of a variety of new functions and the extension of
safety features, such as the introduction of SMS authorisation codes, a graphic keyboard and a change in transaction
limits. The new functions consist of a cross-border payment
system within the EU, notices regarding foreign payments,
an option to display a retirement benefit scheme, new
support functions and integration of GSM banking into
Servis 24 GSM Banking.
• For the third consecutive year, Česká spořitelna was
awarded a distinguished international award “Bank of the
Year“ within The Banker Awards 2005, the most prestigious
event in the banking world. The prize is awarded annually
by The Banker, a renowned financial monthly, based on an
international jury’s evaluation.
October
• With effect from 15 October, Česká spořitelna has assumed
responsibility for all transactions effected through a lost or
a stolen card from the moment the card is blocked by the
client.
• Česká spořitelna’s and the Mamma Endowment Fund’s
campaign called “Even a small payment can be valuable”
won among more than 70 competitors from the whole of
Europe and was awarded the Grand Prix 2005 prize by the
European Financial Management Association (EFMA). The
prize confirmed the success of the initiative thanks to which
more than CZK 3.5 million was gathered which enabled
the purchase of a mammography machine which is of vital
importance to the effective prevention and diagnosis of
breast cancer.
4
• Peter Cecelsky, a member of the Board of Directors of
Česká spořitelna, accepted an offer from Linzer Sparkasse
to become a member of its Board of Directors. Hence, the
number of members of Česká spořitelna’s Board of Directors was reduced from eight to seven.
November
• Česká spořitelna offered a new service involving direct
banking called Business 24 for corporate clients. Business 24 facilitates the administration of current accounts
denominated in Czech crowns and foreign currencies and
the making of cash-free transactions through a computer
with access to the Internet.
• In the fourth year of the MasterCard Bank of the Year
competition, the general public voted for Česká spořitelna
as the most trustworthy bank of the year. Jack Stack, CEO
of Česká spořitelna was awarded the title ‘Banker of the
Year’ based on the polling of the CEOs of all of the banks
active in the Czech Republic.
December
• Česká spořitelna adopted a Code of Banking Services
in which it voluntarily set out its own banking service
standards for its retail clients. In parallel, Česká spořitelna
endorses compliance with all of the points in the Code of
Behaviour between Banks and Clients issued by the Czech
Banking Association. In its own Code, Česká spořitelna
commits to providing even more advantageous service
parameters to its clients than the Czech Banking Association requires.
• The number of clients using Česká spořitelna’s personal
packages designed for the complex management of finances
exceeded 1 million.
• Readers of Měšec.cz, a financial news server, voted Česká
spořitelna the most popular financial institution in the third
year of the Zlatý měšec 2005 opinion poll.
of the Board of Directors and CEO
Dear Shareholders, Clients, and Colleagues,
On behalf of the Supervisory Board, the Board of Directors
and the 11,000 employees of the Česká spořitelna Group, I am
very pleased to report record results for the full year 2005.
Since Česká spořitelna experienced a loss in 1999 and since
its privatization in 2000 by the Czech government to the Erste
Group, we have been able to report steady improvement in our
financial performance each year. This financial performance
improvement is the end product of the work of every member
of the Česká spořitelna team. Without their increasing professionalism, we would not be able to report record results. Every
day our 11,000 employees are working to meet our client
needs and to provide the best service in the Czech Republic.
The financial results are only a small part of the story at Česká
spořitelna. Much happened in 2005 in terms of service quality,
products and services, marketing and contributing to the communities where we do business.
In 2005 we introduced several new services to our clients.
A few of these include: the first ATM for the sight impaired in
the Czech Republic, an English version of Internet Banking
services for both retail and corporate clients, children’s corners
in 215 branches where our younger clients can play or draw
while their parents meet with their banker, and the introduction
of a calculator on the Česká spořitelna website for calculating
the monthly repayment of consumer loans.
2005 was not without controversy. Česká spořitelna was
accused of being a member of a cartel along with two of our
competitors. The charge was dismissed as having no merit after
Česká spořitelna and the other accused banks fully cooperated
with the government investigative unit.
John James Stack – Chairman and CEO
One result was the canceling of nine fees, including the fee for
closing an account. These fees were so called “nuisance fees”
and were not reflective of Česká spořitelna being a modern
financial service provider.
Another result was the development of a Code of Banking
Services for retail clients, which went into effect on 1 January
2006. In this Code, we have voluntarily declared our own
standards of banking services to our retail clients. Our goals
are to enable our clients to know in advance what type of
service they should receive at Česká spořitelna, to help them to
better understand basic banking services, and to allow them to
use our products and services in a completely transparent and
safe manner. The Code is a living document, and we expect to
reissue it periodically as we receive feedback from our clients
as well as our employees.
Another controversy involved accusations by the Minister of
Finance and several consumer groups that banking services in
the Czech Republic were overpriced and consumer unfriendly.
Česká spořitelna embraced this increase in consumer awareness and used it to initiate an examination of its practices and
policies.
5
Highlights of the business results include:
• Record loan growth leading to very favorable increases in
revenue;
• Implementation of the 2005–2006 Efficiency Program with
the objective of decreasing the number of employees by 10
percent and achieving annual savings of CZK 750 million;
• ESPA Guaranteed Funds proving very attractive to our
clients. The underlying asset is the new Central European
equity index – NTX;
• Česká spořitelna is the leading bank in introducing new
securities on the Prague Stock Exchange. As a listing agent
the Bank has brought to the Prague Stock Exchange the
first dual listing, the first foreign share, the first combined
issue of shares and exchangeable bonds, and a large media
company issue.
The highlights are numerous and are the direct result of our
distribution network, our complete offering of products and
services, and the growing professionalism of our staff. Combining these three characteristics along with a commitment to
providing excellent customer service gives Česká spořitelna
a clear competitive advantage in the marketplace. Our customers (consumers, micro businesses, small and medium
sized enterprises, large corporations, government entities and
non-profits) recognize these characteristics and are conducting
more and more of their financial service activities with Česká
spořitelna.
It is not enough to have business results. We at Česká
spořitelna are committed to contributing to the communities
where we do business as well as conducting all of our business in a highly ethical and transparent manner. Corporate
Social Responsibility is an effort taken very seriously at Česká
spořitelna, whether it entails supporting non-profits in the
Czech Republic or issuing a Code of Banking Services or
being transparent in all our dealings.
6
2005 was a very good year in meeting our client needs and in
business results. As a result, Česká spořitelna was recognized
with several prestigious awards, including Most Trustworthy
Bank of the Year in the MasterCard competition, “The Bank
of the Year” in The Banker Awards 2005, et al. We are very
proud of these awards, but we are even prouder of the trust
that our clients place in us by allowing us to provide them with
financial services.
In summary, we continue to build a financial services provider
that is helping our clients meet their financial needs and is
producing above average returns for our shareholders.
Thank you for your continued support.
Jack Stack
Chairman and CEO
April, 2006
Board of Directors
as of 31 December 2005
Česká spořitelna’s Supervisory Board as
of 31 December, 2005
Board of Directors
PAVEL KYSILKA
Member of the Board of Directors
and Deputy CEO
DUŠAN BARAN
Vice Chairman of the Board of Directors
and First Deputy CEO
HEINZ KNOTZER
and Deputy CEO
DANIEL HELER
and Deputy CEO
PETR HLAVÁČEK
and Deputy CEO
MARTIN ŠKOPEK
and Deputy CEO
7
John James Stack
Born on 4 August 1946
Chairman of the Board of Directors and CEO
Mr. Stack is an American citizen. He studied at Iona College
majoring in mathematics and economics (BA, 1968) and the
Harvard Graduate School of Business Administration specialising in finance and management (MBA, 1970).
From 1970 until 1976, Mr. Stack worked in municipal
government in New York. From 1977 until 1999 he served at
Chemical Bank, which merged into Chase Manhattan Bank,
in a variety of increasingly important positions. Before joining
Česká spořitelna he was an Executive Vice President at Chase
Manhattan Bank.
On 1 March 2000, Mr. Stack became Deputy Chairman of the
Board of Directors of Česká spořitelna. On 4 July 2000, he was
elected Chairman of the Board of Directors and CEO of Česká
spořitelna and re-elected to the function in 2004. Since 2005 Mr.
Stack has been a member of the Czech Banking Association.
Dušan Baran
Born on 6 April 1965
Mr. Baran is a graduate of the Mathematics and Physics
Faculty of Charles University in Prague; an International
Executive MBA program at Katz Graduate School of Business,
the University of Pittsburgh together with the CMC Graduate
School of Business in Čelákovice and a banking course at the
Graduate School of Banking, University of Colorado, Colorado, US. During 1991–1993 he worked for Agrobanka, a. s. in
the treasury function. He joined Česká spořitelna in November
1993, where he held various managerial positions in the
Treasury and Risk Management divisions. He was appointed a
member of the Board of Directors and Deputy CEO of Česká
spořitelna in May 1998 and was promoted to Chairman of the
Board of Directors and CEO in March 1999. On 4 July 2000
he was elected Vice Chairman of the Board of Directors of
Česká spořitelna and appointed the First Deputy CEO. He is
also the Chief Financial Officer of Česká spořitelna. Mr. Baran
is the Vice Chairman of the Steering Committee of the Czech
8
Institute of Directors. He is the Treasurer of the Board of
Directors of the European Savings Banks Group (ESBG) in
Brussels and a full member of the WSBI-ESBG Coordination
Committee in Brussels.
Peter Cecelsky
Born on 28 June 1948
Member of the Board of Directors and Deputy CEO
Mr. Cecelsky graduated from the Technical University in
Vienna with a specialization in Economic and Industrial
Engineering. During his career, Mr. Cecelsky held various
positions in international IT companies.
He started his career with Philips as a senior analyst and
programmer. In 1978, he began to work at BAWAG as a
project manager for personnel administration. With experience
gained as the CIO at Austrowaren and Casino’s Austria, he left
to work for Digital, where he, among others, worked in the
London office as the European presales support manager for
retail banking in Europe. From 1993, he held the position of
senior manager and ‘proxy’ in the banking division of KPMG
developing the Professional Services segment. In the period
1996–2000, he worked at Tandem and Compaq Company where
he assumed responsibility for Consulting services, Professional
Services for Central and Eastern Europe and the development of
eBusiness solutions for a region of 14 countries.
Since 2001, Mr. Cecelsky has been working in the Erste Bank
Group. He was initially tasked with purchasing part of the
business of a Software house in Slovakia and subsequently was
responsible for developing the company. Since 2002, he has
been CEO of SporDat.
Mr. Cecelsky has been a member of the Board of Directors
of Česká spořitelna since 23 July 2003, responsible for the IT
Division.
Mr. Peter Cecelsky resigned from his function in Česká
spořitelna as of 1 December 2005.
Board of Directors
Česká spořitelna’s Supervisory Board as
of 31 December, 2005
Daniel Heler
Born on 12 December 1960
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. Montagu, UBS,
N. M. Rothschild, Shearson and Bayerische Hypobank. He has
also attended a number of courses focused on global banking,
profitability in banking, retail banking strategy, treasury and
risk management. He has worked in the banking sector since
1983. First he held various positions in the Department of
Foreign Exchange and Money Markets and then, in 1990,
he became the Director of the Financial Markets Division
of Československá obchodní banka Praha. In 1992 he was
appointed as Treasurer and member of the Board of Directors
of Crédit Lyonnais Bank Praha. In 1998, he was appointed as
a member of the Board of Directors of Erste Bank Sparkassen
(CR) and assumed responsibility for Financial Markets. In
1999, he became the Vice Chairman of the Board of Directors
of Erste Bank Sparkassen (CR) and since 1 July 2000 he has
been the member of the Board of Directors of Česká spořitelna
responsible for asset management, investment banking, treasury trading and sales, balance sheet management and financial
institutions and corresponding banking.
Mr. Heler is additionally a member of the bodies of the following companies: Nadace České spořitelny, Erste Corporate
Finance, a. s., the Stock Exchange Chamber and the Deposit
Insurance Fund.
Petr Hlaváček
Born on 19 November 1955
Mr. Petr Hlaváček graduated from the Prague University of
Economics and the University of Toronto. He has been active
in the banking sector since 1984. After nine years of work for
the Canadian Imperial Bank of Commerce, he joined the Czech
National Bank as an advisor to a member of the Banking Board
in 1993. In 1994 he joined Česká spořitelna where he held the
post of Director of the Capital Investment Division. In June
1999 he was appointed as the member of the Board of Directors
of Česká spořitelna responsible for the preparation of privatisa-
tion and investment banking. In 2000 he joined the Senior
Management Team and became Director of the Transformation
Program ‘Naše spořitelna’. In his capacity as a Board member,
he is responsible for project management and the IT area.
Mr. Hlaváček is additionally a member of the bodies of the
following companies: Servis 1 – ČS, a. s., Consulting České
spořitelny, a. s. and Informatika České spořitelny, a. s.
Heinz Knotzer
Mr. Heinz Knotzer is a graduate of the University of Vienna
where, in 1987, he obtained the title of JUDr. (Doctor of Jurisprudence). He started his career in banking in 1988 after practicing as legal assistant at courts of both levels in Austria. He
worked in the legal division of Oesterreichische Investitionkredit AG (Investkredit) and later joined Girozentrale und Bank
der Oesterreichischen Sparkassen AG (which, after a merger
in 1997, became a part of Erste Bank), where he worked in the
Investment Banking Division. Beginning 1996 he was seconded
to Creditanstalt, a. s., Prague, after successfully completing
special professional training at Creditanstalt AG, Vienna,
and assumed at first the position Manager of the Division for
Corporate Customers at the bank’s main office in Prague and
later, he became the Assistant General Director for the Division
for Corporate Customers. In 1998, within the framework of the
merged Bank Austria Creditanstalt Czech Republic, a. s., he
became the director of the Division for Corporate Customers II
responsible for corporate banking at nine branches, the International Business Division and the Loans Division. In June 1999
he joined Erste Bank Sparkassen (CR), a. s. and was appointed
as a Member of the Board of Directors and Executive Director.
After the successful privatization and acquisition of Česká
spořitelna by Erste Bank der oesterreichischen Sparkassen AG
and the consecutive transfer of their Czech operation into Česká
spořitelna in 2000 he was named Director of the Commercial
Centers Section of Česká spořitelna. Since July 2003 he is a
member of the bank’s Senior Management Team. In August
2004 he was appointed a member of the Board of Directors
and a Deputy CEO of Česká spořitelna. He is responsible for
corporate and commercial banking, mortgages and real estate
finance and the municipalities section.
9
He is Member of the Supervisory Board of sAutoleasing, a. s.,
Leasing České spořitelny, a. s., Factoring České spořitelny, a. s.,
Consulting České spořitelny, a. s. and Erste Corporate
Finance, a. s.
Pavel Kysilka
Born 5 September 1958
Mr. Kysilka is a graduate of Faculty of Economics of the
University of Economics in Prague; in 1986 he passed internal
postgraduate research there. In 1986–1990 he worked at the
Institute of Economics of the Czechoslovak Academy of
Sciences.
In 1990–1991 Mr. Kysilka worked in the Ministry for Economic Policy as the Chief economic advisor to the Minister for
economic policy. In the 1990s he held various positions up to
the post of Executive Governor in the Czech National Bank,
where he also managed the splitting of the Czechoslovak currency in 1993. At the same time in 1994–1997 he acted as an
expert of the International Monetary Fund and he participated
in implementation of national currencies in several Eastern
European countries. In the 90’s he was President of Česká
ekonomická společnost. Before joining Česká spořitelna,
Mr. Kysilka worked in Erste Bank Sparkassen (CR) in Prague
as Executive Director responsible for IT, Organization,
Human Resources, and Services. He started to work for Česká
spořitelna in 2000 as Chief Economist and Member of the
Senior Management Team. On October 5, 2004, the Supervisory Board of Česká spořitelna appointed him a Member of
the Board of Directors. Mr. Kysilka is responsible for payment
systems, financial market analyses, security, and the EU Office.
Among others he is member of the Scientific Board and the
Managing Board of the University of Economics in Prague.
10
Martin Škopek
A graduate of the Prague University of Economics, during
1993–1995 Mr. Škopek studied at The Jack T. Conn Graduate
School of Community Banking, Oklahoma City University.
From 1990–1999 he worked in various positions at Komerční
banka. In October 1999 he became a member of the Board
of Directors and a Deputy CEO of Česká spořitelna. He is
responsible for retail banking.
He is member of the Supervisory Board of Stavební spořitelna
České spořitelny, a. s. and Investiční společnost České
spořitelny, a. s. He is also a member of the Regional Board
of Directors of VISA Europe and a member of the Academic
Board of Vysoká škola finanční a správní.
Česká spořitelna’s Supervisory Board
as of 31 December, 2005
The Macroeconomic Framework
for Česká spořitelna’s Business
Česká spořitelna’s Supervisory
Board as of 31 December 2005
Andreas Treichl
Chairman of the Supervisory Board
Mr. Andreas Treichl studied economic sciences at Vienna
University in 1971–1975. After completing a training program
in New York, he began his career at Chase Manhattan Bank
in 1977, which sent him to Brussels (1979 –1981) and Athens
(1981–1983). In 1983 he began to work at Die Erste for the
first time. In 1986 he accepted a General Manager position
with Chase Manhattan Bank Vienna, which was purchased by
Credit Lyonnais in 1993. In 1994 Mr. Treichl was appointed
to the Management Board of Die Erste. In July 1997, he was
appointed as CEO. In addition to being Chairman and CEO of
Erste Bank der oesterreichischen Sparkassen, Andreas Treichl
is responsible, among other areas, for Group Communications,
Corporate Strategic Development, Group Marketing, Company
Secretary, Internal Audit, Legal Services, Investors Relations
and Česká spořitelna.
He became a member of the Supervisory Board of Česká
spořitelna at the Extraordinary General Meeting in June 2000;
subsequently he was elected its Chairman. The General Meeting in May 2003 re-elected Mr. Treichl to this function.
Mr. Treichl is additionally a member of the bodies of the
following companies: Erste Bank der oesterreichischen
Sparkassen AG, Bausparkasse der oesterreichischen Sparkassen Aktiengesellschaft, Donau Allgemeine Versicherungs-AG,
Erste Bank Hungary Rt, Kaertner Sparkasse AG, Slovenská
sporiteľňa, a. s., Sparkassen Versicherung AG, Sparkassebeteiligungs und Service AG fuer Oberoesterreich und Salzburg,
Staiermaerkische Bank und Sparkassen AG, Tiroler Sparkasse
Bankaktiengesellschaft Innsbruck, MAK – Oesterreischisches
Museum fuer Angewandte Kunst, Die Erste oesterreischische
Spar-Casse Privatstiftung, Oesterrichischen Sparakssenverband, Felima Privatstiftung, Ferdima Privatstiftung.
Reinhard Ortner
Born on 6 January 1949
Vice Chairman of the Supervisory Board
Mr. Reinhard Ortner completed studies of social and economic
sciences at Vienna University in 1971, where he specialised in
monetary theory and policy. In 1971, he joined Erste oesterreichische Spar-Casse, where he has held various positions
in the accounting and controlling functions since 1973. In
1977–1984, he was Director of the Accounting, Administration
and Finance function. He has been a member of the Board of
Directors of Erste Bank der oesterreichischen Sparkassen AG
since 1984. Mr. Ortner is responsible for Group Accounting,
Planning and Controlling, International Business, Management
of Subsidiaries, Investments, Slovenská sporiteľna, a. s., Erste
Bank Hungary and Erste Bank Croatia. He was elected as a
member of the Supervisory Board of Česká spořitelna at the
Extraordinary General Meeting that was held on 27 June 2000;
the General Meeting in 2003 re-elected Mr. Ortner to the
function of a Member of the Supervisory Board.
Mr. Ortner is additionally a member of the bodies of the following companies: Erste Bank der oesterreichischen Sparkasen
AG, Erste Bank Hungary, Erste Steiermaerkische Banka d. d.
Rijeka, Slovenská sporiteľna, a. s., Oesterreischische Kontrollbank AG, VBV Pensionkasse AG, Oesterreichische Lotterien
Gesellschaft m. b. H, Erste Bank a. s. Novi Sad.
Christian Coreth,
Born on 31 March 1946
Member of the Supervisory Board
Mr. Coreth graduated from the University of Vienna in 1972
with a Law Degree. In the period from 1972 to 1982, he
worked for Creditanstalt-Bankverein, Vienna. From the Deputy
Head of the International Loan Department, where he started
in 1982, he moved to New York to European American Bank
(EAB) as Senior Vice President.
In 1985, Mr. Coreth returned to Creditanstalt in Vienna to
work as the Head of the Financial Institutions department.
From 1987, he worked in the International Division where
he managed the Corporate and Financial Institutions Department. From 1988 to 1998, he worked as Deputy Head of the
International Division where he was primarily responsible for
business activities in Asia and Latin America.
Since 1998, Mr. Coreth has worked as Head of the International Division of Erste Bank der oesterreichischen Sparkassen
AG in Vienna. In July 2004 he was appointed to the Managing
11
Board of Erste Bank der oesterreichischen Sparkassen AG with
responsibility for Group Risk Management.
He was elected a member of Česká spořitelna’s Supervisory
Board on 22 May 2002.
Mr. Coreth is additionally a member of the bodies of the following companies: Slovenská sporiteľna, a. s., Erste Reinsurance S.A. and Oesterreichische Kontrollbank AG.
Zlata Gröningerová
Born on 4 July 1957
Mrs. Gröningerová graduated from the Production-Economics Faculty of the School of Economics in 1982 where she
specialised in the economics of industry. From 1982, she
worked at the School of Economics as an assistant professor.
In the period from 1985 to 1990, she worked as an associate
professor in the Finance and Lending Department, specialising
in financial management of enterprises. In the period from
1990 to 1991, she was employed with Investiční banka, a. s.
as a banking specialist with a focus on privatisation projects
and marketing. Until 1993, she held the position of ‘proxy’ for
Suezinvestiční, a. s. She returned to the banking environment
in 1994 when she joined Investiční a poštovní banka, a. s. as a
banking specialist focused on financial transactions. In 1996
she joined Konsolidační banka Praha, s. p. ú. (‘KOB’) as a
director of the Equity Investment Funding Department. Later
she moved to the position of Senior Director of the Commercial and Commercial Specialists Departments and she sat
on the Banking Board from 1998. In 2001–2004 she was CEO
and Member of the Managing Board of Konsolidační agentura.
Since 2005 she has been General Director of Technometra
Radotín, a. s. Mrs. Gröningerová was elected to the function of
a Supervisory Board member as of 15th May 2003.
Mrs. Gröningerová is additionally a member of the bodies of
the following companies: Technometra Radotín, a. s.
Maximilian Hardegg
Born on 26 February 1966
Mr. Hardegg graduated from Agricultural Sciences in Weihenstephan, Germany. In the period 1991–1993, he worked at
AWT Trade and Finance Corp, which is part of the Creditanstalt Group. At AWT he was responsible for the import of food
products and the introduction of EU standards into the Czech
Republic, Poland, Hungary and Ukraine. He also worked as an
advisor to the Czech Ministry of Agriculture in respect of the
privatisation of agriculture.
Since 1993, he has been engaged in agriculture management.
He has participated in the Phare, Sapard and Leader+titles
projects, which are designed to support cooperation among
agricultural systems within the EU. He is also a member of
lobbyist groups in Austria and the EU, which are focused on
supporting sustainable development in land use and agriculture. He was elected a member of Česká spořitelna’s Supervisory Board on 22 May 2002 and re-elected in April 2005.
Mr. Hardegg is member of the Supervisory Board of DIE
ERSTE oesterreichische Spar-Casse Privatstiftung.
Monika Houštecká
Born on 6 December 1963
Mrs. Houštecká graduated from the Economic University,
Faculty of Domestic Trade. After completion of her studies,
she worked in the area of trade and in 1994 she started to work
in Česká spořitelna. First, as a trainee in OP Praha 2, later
on as loan specialist. Since 1997 Mrs. Houštecká has been
working in the HQ in the area of Financing of Foreign Trade.
In 1999 she became a manager of HQ and was asked to lead
the team of Bank Guarantees, in 2000 she was entrusted with
deputizing of the Director of Trade Finance Department. As of
August 2000 Mrs. Houštecká was appointed to the function of
the Director of the Trade Finance Department.
With effect from 28th November 2003 Mrs. Houštecká has
been elected by the ČS employees to the function of a Supervisory Board Member.
12
Herbert Juranek
Central Risk Management in ČS. Mrs. Laušmanová is a member
of Czech Banking Association, she is Head of the Commission
for the Bank Regulation.
Mr. Juranek graduated from the Commercial College in
Austria – Bruck/Leitha. He began his career in Girozentrale
der österreichischen Sparkassen in the area of securities.
In Girocredit Bank, A. G. he was responsible for derivate
clearing and technical support. During 1996 –1998 in Reuters
Ges. m. b. H., he lead all sales and risk management activities
of Reuters Austria. Since 1999, he has performed various
functions in Erste Bank der oesterreichischen Sparkassen
AG – mainly leading operations activities with securities. As
the CEO of “ecetra Central European e-Finance” and “ecetra
Internet Services AG” he took overall responsibility for the
online broker and internet bank of Erste Bank Group. In the
meantime, Mr. Juranek as the Group IT General Manager is in
charge of all IT, project management and bank-organization related activities within Erste Bank Group with a direct reporting
hierarchy in Austria and a matrix structure on a Group level.
As of 12 August 2005, she was elected by the ČS employees as
a Member of the Supervisory Board of Česká spořitelna, a. s.
Mr. Juranek was elected by the Supervisory Board to the function of a Supervisory Board Member as of 5th October 2004.
Additionally he is a member of the bodies of the following
companies: Slovenská sporiteľna, a. s. Spardat Ges. m. b. H.,
IT Austria Ges. m. b. H., ecetra Central European e-Finance,
ecetra Internet Services AG and, Erste Steimerkische Banka
Rijeka, a. d., Dezentrale IT – Infrastruktur Services GmbH,
SporDat, spol. s r. o.
Monika Laušmanová
Born on 30 October 1962
Mrs. Laušmanová graduated from the Faculty of Mathematics
and Physics. Her carrier started at the Faculty of Mathematics
where she worked as an assistant in the area of finance and
insurance mathematics.
In 1997 she worked as a risk manager and analyst in Expandia
Finance. In 1998 she joined Erste Bank (CR) in the position of
Head of Risk Management. Since the merger of Česká spořitelna
and Erste Bank Mrs. Laušmanová has been responsible for
Marek Pospěch
Born on 1 October 1967
Following graduation from a secondary professional school of
construction in Valašské Meziříčí, Mr. Pospěch worked with
Tesla Rožnov in the control and quality assurance department
for six years. In 1992, he joined Česká spořitelna’s branch
office in Ostrava where he worked in the operations security
department. From 1995, he worked in the general administration department and is currently a head office manager of the
property management department. With effect from 1994, he
has sat on the Organisation-wide Committee of the CS Labour
Union. With effect from 1 April 2002, he has been elected by
the employees of Česká spořitelna as a member of the Supervisory Board, and re-elected in July 2005.
Libuše Růžičková
Born on 18 February 1949
Following graduation from a secondary school of economics in
Prague, Mrs. Růžičková joined the Artia Praha Foreign Trade
Organisation where she worked in a foreign language-publishing house for six years. In 1975, she joined Česká spořitelna as
a financial accountant at the Prague 3 regional branch. Since
1978, she has held managerial positions within the accounting
and general ledger functions in the Prague 3 regional branch,
the Prague municipal branch and Česká spořitelna’s Head
Office. At present she is Deputy Director of the Taxes and
Accounting Section.
With effect from 11 May 2002, she was elected by the employees of Česká spořitelna as a member of the Supervisory Board
and her term of office finnished as of 11 August 2005.
13
Bernhard Spalt
Mr. Spalt graduated from the Law Faculty of Vienna University
where he specialised in European law.
During his studies in 1991, he joined DIE ERSTE oesterreichische Spar-Casse Bank AG, where he started to work in the
Legal Department. From September 1994 to June 1997, he performed various positions in the Work Out Department. In June
1997, he started to work in the Secretariat of the Management
Board and in June 1998 he was appointed as Head of this unit.
In September 1999, he was seconded to Erste Bank Sparkassen
(CR), a. s. where he led the Work Out Department. Following the sale of Erste Bank Sparkassen (CR), a. s. to Česká
spořitelna, a. s., Mr. Spalt took over the responsibility of the
Work Out Department in Česká spořitelna, a. s. In June 2002,
he returned to Erste Bank, Vienna where he presently leads the
Strategic Risk Management Division. Mr. Spalt was co-opted
to the Supervisory Board of Česká spořitelna, a. s. on 21 August 2002 and subsequently was elected to the function of a
Supervisory Board member as of 15 May 2003 by the General
Meeting.
Mr. Spalt is a member of the bodies of the following companies: Erste Bank Hungary Rt. and Erste Reinsurance S. A.
Jitka Šrotýřová
Mrs. Šrotýrová graduated from the secondary school of general
education in Prague. In 1967, she joined Tesla Prague as a
specialist. From 1970 to 1984 she worked as a supply manager
for Tesla Eltos and the Project and Engineering Organisation.
She has worked with Česká spořitelna since 1985, largely
as a senior professional official of the recreation department
where she is in charge of the operation of recreation facilities.
Since 1986, she has been a member of the Organisation-wide
Committee of the CS Labour Union. She is also chairwoman
of the Sports Committee at Česká spořitelna.
14
With effect from 1 April 2002, she has been elected by the
employees of Česká spořitelna as a member of the Supervisory
Board, in July 2005 she has been re-elected to this position
again.
Manfred Wimmer
Born on 31 January 1956
Mr. Wimmer graduated from the Law Faculty of the University
of Innsbruck where he was awarded the Doctor of Law degree.
From 1978 to 1982, he worked as an academic assistant in
private law. From 1982 to 1998, he worked in the International
Division of Creditanstalt in Vienna where he held positions
in international project financing, financial institutions and
marketing. In 1998, he joined the International Division of
Erste Bank der oesterreichischen Sparkassen AG, where he
was in charge of the Česká spořitelna acquisition team from
September 1999. From February 2002 Mr. Wimmer was Head
of the Strategic Group Development Division of Erste Bank
responsible for Group Strategy, Co-ordination of CE activities and Investor relations. Since August 2005 Mr. Wimmer
has been Executive Director Group Architecture and Group
Program Management.
He has been a member of the Supervisory Board of Česká
spořitelna since 27 June 2000; the General Meeting in 2003
re-elected Mr. Wimmer to the function of a Member of the
Supervisory Board.
Mr. Wimmer is additionally a member of the bodies of the
following companies: Slovenská sporiteľna, a. s., Erste &
Steiermaerkische banka d. d. Rijeka, Erste Bank Hungary Rt,
Novosadska Banka a. d.
Report on Performance and Business
Activities Consolidated Results of Operations
The Macroeconomic Framework for
Česká Spořitelna’s Business
The Czech economy is growing fast
The Czech economy grew by 6 percent in 2005, which is the
highest growth rate for the past ten years. The significant
growth can be attributed to exporters who managed to
increase their sales by 11.1 percent, causing record trade
numbers. By contrast, household consumption, which
increased by 2.6 percent, does not create unbalanced trends,
such as excessive inflation growth or growth in consumer imports. In other words, the current growth has much healthier
and more sustainable foundations than in 1996, when there
was high economic growth, but it was linked with growing
imbalances which finally resulted in a recession. In addition,
investment activities accelerated during 2005 and investments
grew by 3.7 percent in 2005. The Bank anticipates similar
success to take place in 2006. GDP growth will amount to
approximately 5 percent with the favourable growth structure
remaining unchanged.
Households spend money for homes
In 2005, household consumption rose by 2.6 percent and
real wages increased by 3.5 percent. Households do not
only purchase consumer goods but also invest in homes. The
unemployment rate dropped to 8.9 percent, driven by high
economic growth accompanied by relatively reasonable wage
growth in the business sector. In 2006, household consumption expected to grow by 2.8 percent will be driven by several
factors. Real wage growth will be slightly lower than in 2005.
On the other hand, the unemployment rate will decrease to
8.3 percent. The decrease in income taxes will increase net
wages; however, the growth of energy prices will offset the
positive impact arising from lower taxes.
Exporters were the key driver of the economy
In 2005, exporters became the driver of the economy. The
economy was primarily boosted by the inflow of foreign
capital in the previous years, fuelled by investment incentives and the accession of the Czech Republic to the EU.
Imports were unable to follow this pace and grew by 4.8
percent. Lower imports relate to reasonable consumption and,
primarily, to the decrease in import requirements of Czech
production, since foreign suppliers join Czech producers
in the Czech Republic. For the whole of 2005, the trade
balance was in a surplus of approximately CZK 40 billion as
compared to the deficit of CZK 26.4 billion in 2004. In 2006,
exports are expected to maintain their strong growth and the
trade balance is anticipated to end in a surplus of as much as
CZK 76 billion.
Czech economy is still a low-inflation economy
The average inflation of consumer prices reached 1.9 percent
in 2005. More than half of the increase was due to growth
in regulated prices (primarily energy price) and fuel prices,
whereas demand inflation, which is the most closely linked
to consumption, remained moderate. Low inflation is fuelled
by the appreciating crown, reasonable demand and strong
competition. The situation will be similar in 2006. Demand
inflation will remain low due to a lack of demand pressures
and the growing exchange rate. Average inflation will accelerate to 2.6 percent, primarily as a result of the increase in
regulated prices (electricity, gas, heat) and higher consumption taxes (on cigarettes).
Crown still attractive
In 2005, the Czech crown exchange rate gained another 4.8
percent against the euro and appreciated nearly by CZK 1.5
to CZK 29 to EUR 1 (24.5 CZK/USD). A negative interest
differential and outflow of dividends ran counter to the
appreciation. However, the factors that drove the appreciation
of the crown were substantially stronger, namely excellent
performance of the economy, growing trade surplus and
significant interest of foreign investors in acquiring Czech equities. Fast appreciation of the exchange rate was reflected in
low inflation but businesses managed to cope with the strong
exchange rate, thanks to reasonable wage growth among
15
others, and the economy did not respond by deceleration.
According to the estimates of the Bank, the above-mentioned
factors will be accompanied by a weakening dollar and the
crown will continue to appreciate this year. At the year-end,
we expect the crown to be close to CZK 28 to EUR 1 (CZK
21.9 to USD 1).
Interest rates at historically low levels
In 2005, the Czech National Bank (ČNB) responded to the
quickly strengthening exchange rate, which decreased the
inflation outlook, by decreasing the interest rates in three
steps, in January, March and April to a record low of 1.75
percent. This resulted in the decline of the whole yield curve.
16
However, the ČNB increased the repo rate from 1.75 percent
to 2.00 percent based on its forecast, which suggested quick
inflation growth in 2006. Annual real rates remained nil or
negative throughout the year, stimulating economic growth.
The Bank anticipates a further increase in rates to 2.25
percent in 2006; nonetheless, the necessity to tighten the
currency policy will be postponed to the latter half of 2006
due to the quickly strengthening exchange rate in early 2006.
In addition to the development of the short end of the yield
curve, long-term yields will be influenced by lower issuance
of government bonds with continued high demand for them,
and the yield curve will get flatter.
Report on Performance
and Business Activities Consolidated
Results of Operations
and Business Activities
CONSOLIDATED RESULTS OF OPERATIONS
(INTERNATIONAL FINANCIAL REPORTING
STANDARDS)
The Česká spořitelna Group increased its profits for the sixth
year in a row. This record financial performance reflects the
continuing expansion of lending transactions, growing deposits
and assets under management, increased transaction volume
and numbers, employee professionalism, increasing interest and
non-interest income, effective cost management, and increased
quality of provided services and client satisfaction. Clients have
once again voted Česká spořitelna “the Most Trustworthy Bank
of 2005” in a competition organised by MasterCard. This indicator of the Bank’s healthy and stable development is increasing
operating profit based on the growth in operating income and
consistent management of administrative expenses.
PROFIT AND LOSS ACCOUNT
For the year ended 31 December 2005 Česká spořitelna
reported, under International Financial Reporting Standards
(IFRS), a consolidated net profit, net of minority interest, of
CZK 9,134 million, which represents an increase of 12 percent (CZK 997 million) relative to 2004 when the net profit
amounted to CZK 8,137 million. The increase in net profit was
reflected in an improvement in return on equity (ROE) to 22.3
percent and return on assets (ROA), which reached 1.5 percent.
ROE was 21.8 percent and ROA 1.4 percent in 2004. The level
of the consolidated net profit generated for the year ended 31 December 2004 was impacted by the one-off gain on the sale of the
non-life insurance business of Pojišťovna České spořitelny. For
this reason, profit before taxes and minority interest (gross profit)
decreased year-on-year by 7 percent to CZK 12,310 million.
Effective from 1 January 2005, Česká spořitelna has made
certain accounting changes arising from the adoption of IAS 39
Revised. To ensure comparability of its results of operations, the
Bank has retroactively restated the relevant consolidated profit
and loss account amounts for the year ended 31 December 2004.
Operating profit, determined as the difference between operating income and expenses, reflects the results of the Bank’s
primary activities. Year-on-year, the Bank’s operating profit
rose by 10 percent to CZK 12,439 million. In addition, there
Net profit and operating profit (CZK million)
12,500
12,439
11,334
10,195
10,000
7,500
9,423
9,134
7,615
8,137
6,963
5,805
5,000
2,500
1,798
0
2001
Operating profit
2002
2003
2004
2005
Net profit
was a favourable improvement in the cost/income ratio from
58.4 percent to 56.9 percent. The increase in the Bank’s operating
and net profit was driven by the increase in operating income.
Total operating income, comprising net interest income, net
fee and commission income, net profit on financial operations and net insurance income, rose by 6 percent to CZK
28,834 million. Non-interest income accounts for 35 percent
of the total operating income. Operating expenses, comprising staff costs, administrative expenses and depreciation/
amortisation charges on property and equipment and intangible
assets, increased by 3 percent to CZK 16,395 million.
The successful operating results were predominantly driven by
net interest income despite the low-interest rate environment
which was below the level of interest rates in the eurozone for
the substantial part of 2005 (the two-week repo rate announced
by the Czech National Bank gradually decreased from 2.5 percent to 1.75 percent and was 2.0 percent at year-end). Net interest income for the year ended 31 December 2005 amounted
to CZK 18,719 million, which represents a year-on-year
increase of 7 percent. The successful result was primarily
caused by an increase in lending (the total volume of loans and
advances to customers, net of the Czech Consolidation Agency’s
impact, grew year-on-year by 25 percent) giving rise to a notable
increase in interest income on client receivables (of 14 percent).
A decrease in interest income on debt securities was inter alia
17
due to the maturity of bonds with higher interest rates. Real
estate rental income, which was predominantly driven by
investment in property, trebled. With respect to interest expenses,
interest expenses on client deposits increased principally as
a result of the growth in their volume. While average interest
rates were lower in 2004, the Bank managed to maintain the net
interest margin in relation to gross assets at 3.0 percent; interest
margin in relation to interest earning assets dropped from 3.7
percent to 3.5 percent.
Net interest income and net fee
and commission income (CZK mil.)
20 000
15,156
15,933
15,874
12,000
7,915
8,000
8,238
8,384
Net insurance income contributed to the profit figure by
CZK 374 million, the same amount achieved in the last period.
The amount of the net insurance income was primarily due
to financial profits on Pojišťovna České spořitelny’s financial
placements.
6,848
6,198
Structure of operating income in 2005 (CZK mil.)
4,000
374 (1%)
Net insurance income
0
2001
2002
Net interest income
2003
2004
2005
Net fee and commission income reached CZK 8,384 million,
a year-on-year increase of 2 percent. The relatively low growth
in net fee and commission income was due to changes made
to the Bank’s methodological treatment applicable to the
recognition of non-recurring fees (e.g., fees associated with
loan application acceptance, assessment and evaluation); in
2005, non-recurring fees arising from lending transactions were
accrued over the entire loan term. If this treatment had not been
applied, the net fee and commission income would have risen
by 5 percent over the previous period. Since the first quarter
of 2004, Česká spořitelna has made no increases in fees; on
the contrary, some fees were cancelled. Thus, the achieved
year-on-year growth in net fee and commission income
was mainly driven by the growing volume and number of
financial transactions effected by the Group’s clients (for
example, the volume of card transactions grew by 2 percent, the
number of giro account transactions rose by 22 percent), and
18
The net profit on financial operations grew year-on-year
by 14 percent primarily due to income on foreign currency
transactions, especially transactions denominated in foreign
currencies of Central European countries. Income arising
from realised and unrealised gains on sales and revaluation
of securities held for trading fell; indeed, these figures were
uncommonly high in the previous period. The net profit on
financial operations for the year ended 31 December 2005
totalled CZK 1,357 million.
18,719
17,416
16 000
a notable growth in income arising from investment in open-ended mutual funds and broker services (e.g., net sales with
respect to mutual funds grew by 53 percent).
1,357 (5%)
18,719 (65%)
Net interest income
8,384 (29%)
Net profit on financial operations
In September 2005, Česká spořitelna Group launched the
Efficiency Programme for 2005 – 2006 aimed at attaining
staff savings and cutting administrative expenses, which should
total CZK 750 million in the period between 2005 and 2006.
Strict cost control is imperative for Česká spořitelna’s long-term
success. Compared to 2004, general administrative expenses
(operating expenses) grew by 3 percent to CZK 16,395 million.
Of total general administrative expenses, staff costs are the
largest item. In comparison with 2004, staff costs rose by
4 percent to CZK 7,343 million owing to: costs associated
with severance payments due to staff reduction of 8 percent du-
ring 2005; growth in employee wages; and the new programme
under which Erste Bank Group employees obtain their share in
profit depending on the Group’s results.
Other administrative expenses reached CZK 5,684 million,
which was the same level as in 2004. While the Bank managed to cut data processing costs, office space costs and trading
transactions costs (materials consumption, cash circulation and
card insurance) in 2005, its advertising and marketing expenses
rose due to the boom of loans as well as costs associated with
advisory and legal services. Data processing expenses are the
most significant component (28 percent) of administrative
expenses, followed by office space costs (23 percent), trading
transaction costs (17 percent) and advertising and marketing
expenses (14 percent).
Sizeable investments in information systems and technologies (intangible assets, software, and hardware) in the previous
years led to depreciation/amortisation of tangible and intangible assets increasing by 7 percent to CZK 3,368 million.
Structure of operating expenses in 2005 (CZK mil.)
3,368 (20%)
Depreciation and amortisation
of tangible and intangible
assets
7,343 (45%)
Staff costs
5,684 (35%)
Administrative expenses
The net balance of provisions for credit risks was CZK
(386) million as of 31 December 2005, which represents
a decrease in net charges for provisions of 24 percent over
the previous period. In 2004, the costs of provisioning charges
were driven by provisioning for possible future risks in legacy
portfolios in respect of Leasing České spořitelny. While a part
of these provisions was released in 2005, provisions for retail
receivables were created.
At the end of 2005, the aggregate net balance of other operating income and expenses amounted to CZK 257 million,
which was an improvement of CZK 820 million compared to
2004. This achievement was mainly due to: gains on the sale
of securities carried within the available-for-sale portfolio
(an increase of CZK 623 million); decrease in the contribution to the Deposit Insurance Fund owing to the decline in
the contribution rate of 50 percent (savings of CZK 349 million); gains on the sale and revaluation of real estate owned
by real estate funds (an improvement of CZK 153 million);
and gains on the sale and revaluation of equity investments
(gains of CZK 138 million). By contrast, the share of clients of
Penzijní fond ČS in profit increased (an increase of CZK 148
million), income arising from at-fair-value-through-profit-or-loss securities worsened (a decrease of CZK 282 million) and
the release of other provisions declined by CZK 201 million.
The level of profit generated by the Česká spořitelna Group for
the year ended 31 December 2004 was markedly impacted by
the one-off sale of the non-life insurance business of Pojišťovna
České spořitelny. While the effect was CZK 2,907 million, the
impact on net profit, net of income tax and minority interest,
was CZK 1,156 million.
Tax liability of the Česká spořitelna Group for the year ended
31 December 2005 was CZK 3,064 million, which represents
an effective tax rate of 24.9 percent. This amount comprises the
current year tax charge of CZK 3,223 million and the aggregate
impact of movements in deferred taxation of CZK 159 million.
BALANCE SHEET
As of 31 December 2005, the consolidated asset of Česká
spořitelna markedly increased year-on-year by 12 percent to
CZK 654.1 billion, which, in absolute terms, represents an
increase of CZK 72.3 billion, primarily due to amounts owed
to customers and issued debt securities on the liabilities side
of the balance sheet and the increase in customer loans and
receivables from banks on the asset side.
Liabilities and Equity
Client (primary) deposits have traditionally formed the key
resource of Česká spořitelna’s funding in respect of lending
transactions. During the year ended 31 December 2005, the
balance of primary deposits increased by 8 percent (i.e. by
CZK 36.8 billion) to a record-breaking CZK 481.6 billion.
Deposits denominated in foreign currencies accounted for
19
Total assets (CZK bil.)
Clients deposits (CZK bil.)
700
525
654.1
491.6
519.7
555.4
375
350
250
175
125
0
481.6
390.8
402.8
2001
2002
428.6
444.8
2003
2004
0
2001
2002
2003
2004
2005
CZK 19.6 billion. Client deposits accounted for 74 percent of
all liabilities.
All client segments contributed to the year-on-year increase
in deposits. Deposits made by private individuals, which
account for 79 percent of all client deposits, increased by
6 percent to CZK 378.4 billion. The largest increase in deposits was noted in respect of giro accounts, construction savings
accounts and pension insurance deposits. By contrast, deposits
in savings books suffered a slight decline. Deposits made by
corporate clients rose by 12 percent to CZK 68.3 billion,
particularly with respect to current accounts and foreign currency accounts. Deposits made by the public sector reached
CZK 34.9 billion, which represents a notable increase of
36 percent due to new acquisitions.
The volume of client funds under the Group’s management
(i.e. deposits made by clients and mutual funds of Investiční
společnost České spořitelny) totalled CZK 553.2 billion, with
a year-on-year increase of 10 percent. The share of subsidiaries
in managed client funds with respect to the parent company
grew by 2 percentage points to 30 percent.
The balance of amounts owed to financial institutions, comprising loans, term placements and current account balances,
increased year-on-year by 6 percent and was CZK 34.9 billion
as of 31 December 2005, of which loans under repo transactions accounted for CZK 15.2 billion.
20
500
581.8
2005
The substantial increase in debt securities of 100 percent to
CZK 39.3 billion is primarily attributable to the increase in
the volume of issued mortgage bonds, a stable and long-term
resource of mortgage loans funding. In 2005, the Bank placed
six new issues of mortgage bonds; on the face of the balance
sheet of the Group, issued mortgage bonds accounted for CZK
21.8 billion. The volume of issued depository bills increased
significantly to CZK 14.8 billion, the volume of structured
bonds was CZK 2.7 billion.
In the context of dynamic lending growth, Česká spořitelna
issued ten-year subordinated bonds totalling CZK 3.0
billion to strengthen its capital base.
The balance of shareholders’ equity, comprising share
capital, share premium, capital funds arising from revaluation
(especially securities carried within the available-for-sale
portfolio), retained earnings and profit for the period, grew
year-on-year by 10 percent to CZK 43.3 billion, which was
mainly attributable to the profit generated for the year ended
31 December 2005. By contrast, the balance of equity decreased as a result of the payment of dividends for 2004 amounting
to CZK 4.6 billion.
The capital ratio according to the BIS methodology was
12.4 percent as of 31 December 2005 compared to 13.3
percent as of 31 December 2004. In 2005, the total capital used
to calculate the capital adequacy (Tier 1 a Tier 2) under the BIS
methodology was CZK 46.3 billion and risk weighted assets
were CZK 349.5 billion; in 2004, the total capital was CZK
40.0 billion and risk weighted assets were CZK 273.4 billion.
Assets
Česká spořitelna’s active transactions that generate the
predominant portion of interest income are loans and advances
to customers. The year 2005 was notable for continued massive lending growth; the total volume of loans and advances
to customers, including receivables from Česká konsolidační
agentura, grew by 18 percent and reached CZK 283.4 billion. Of all active transactions, clients’ loans accounted for
43 percent. Česká spořitelna was successful in boosting the
proportion of client loans relative to client deposits by more
than 5 percentage points and achieving 58.9 percent.
Structure of liabilities and equity (CZK bil.)
The volume of loans to private individuals reached CZK
132.1 billion, a notable increase of 34 percent over the
previous period (an increase of CZK 33.7 billion). This
exceptional achievement was mainly attributable to housing
loans, i.e., mortgage loans and construction savings loans.
The retail mortgage loan portfolio rose by 48 percent to CZK
59.1 billion. Bridging loans and construction savings loans
grew by 26 percent to CZK 19.5 billion over the previous year.
Rapid growth was also noted in respect of consumer and cash
loans to private individuals which rose by 38 percent to CZK
34.9 billion. The proportion of retail loans to private individuals to total loans and advances to customers, including ČKA,
rose from 41 percent in 2004 to 47 percent in 2005.
Loans and advances to customers (CZK bil.)
43.3 (7%)
Equity
300
52.0 (8%)
Other liabilities
283.4
239.3
240
214.9
42.2 (6%)
Bonds in issue
and subordinated debt
481.6 (74%)
34.9 (5%)
Amounts owed
to financial institutions
180
186.7
188.6
132.1
120
98.4
60
73.0
43.7
54.7
0
Compared to the year ended 31 December 2004, the volume
of loans and advances to customers, excluding amounts due
from ČKA, rose notably by 25 percent (CZK 54.3 billion) to
CZK 267.8 billion, specifically in respect of mortgage loans,
consumer loans and corporate loans; e.g., the aggregate
portfolio of mortgage loans to private individuals and
corporate clients rose by 45 percent to CZK 80.9 billion.
Česká spořitelna is the largest mortgage bank in the Czech
Republic. The massive growth in loans provided to all client
segments is the result of: proactive offering; quality, professional advice; sound demand for housing loans and consumer
purchasing triggered by a favourable macroeconomic environment, including low interest rates; and the dynamic growth in
the financing of small- and medium-sized enterprises and large
businesses, as well as regions and municipalities.
2001
2002
2003
2004
2005
Total loans and advances to customers (including ČKA)
Amounts due from private individuals
Česká spořitelna also experienced substantial growth in the
volume of loans and advances to customers in the business
and corporate segment where the aggregate loan portfolio
increased by 19 percent to CZK 121.8 billion. The Group’s
offering includes both standard loan products and special
projects focused on investment loans, exports or leasing.
Česká spořitelna provides its corporate clients with sound
support in using guarantee funds or drawing subsidies from
EU funds. Similarly, as in the private individual segment, the
most significant increases were attributable to mortgage loans
advanced to corporate clients, the volume of which reached
CZK 19.5 billion, a year-on-year increase of 42 percent. Loans
to small- and medium-sized businesses grew by 25 percent
21
to CZK 33.9 billion, the volume of loans to large corporate
clients increased by 23 percent to CZK 53.7 billion.
The public sector is the long-term partner of Česká spořitelna. The aggregate balance of loans issued to this segment
(net of amounts due from Česká konsolidační agentura) was
CZK 13.9 billion, an increase of 12 percent over the previous
period, of which mortgage loans rose by 16 percent to CZK
2.2 billion. The balance of amounts due from Česká konsolidační agentura fell notably year-on-year by 39 percent to CZK
15.7 billion. The total volume of loans to the public sector was
CZK 29.5 billion at the end of 2005.
At the end of 2005, classified loans and advances to customers
accounted for 4.7 percent of the total loans and advances to
customers (in respect of the parent bank, in accordance with
the CNB classification). Česká spořitelna focuses primarily
on preventing distressed loans from originating and
monitoring and assessing issues requiring immediate corrective
action. With regard to noted instances of distressed loans,
Classified loans and advances to customers*
20
the principal aim is to adopt timely and effective solutions.
This approach has resulted in a gradual improvement of the
quality of the whole loan process and a further reduction in the
proportion of classified loan exposures.
Loans and advances to financial institutions grew, year-on-year, by 27 percent to CZK 97.8 billion; in particular, the
volume of reverse repo transactions grew by 25 percent to
CZK 47.3 billion. Of this balance, placements with financial
institutions and loans provided to banks amounted to CZK
49.1 billion and CZK 48.2 billion, respectively.
As of 31 December 2005, the aggregate balance of the portfolio of securities at fair value, securities available for sale and
securities held to maturity was CZK 192.2 billion, the same
level achieved in 2004. Changes were noted with respect to
the securities in the at-fair-value portfolio (an increase of CZK
7.8 billion) and the available–for-sale portfolio (a decrease of
CZK 7.0 billion). Bonds comprised 95 percent of the securities
portfolios. In investing in securities, Česká spořitelna focused
Structure of assets (CZK bil.)
19.7%
67.7 (10%)
Other assets
15
14.4%
19.6 (3%)
Property and equipment
and intangible assets
10
6.6%
5
5.3%
4.7%
2004
2005
0
2001
2002
2003
* The proportion of client classified receivables to total client receivables for the parent bank, in
accordance with the CNB classification.
22
97.8 (15%)
Loans and advances
to financial institutions
192.2 (30%)
Securities portfolio
276.8 (42%)
Net loans and advances
to customers including ČKA
on acquiring debt securities issued by government institutions
of the Czech Republic which accounted for 58 percent of the
portfolio, bonds issued by foreign financial institutions comprised 25 percent of the portfolio, bonds issued by financial
institutions in the Czech Republic accounted for 6 percent.
Other bonds were issued by foreign government institutions,
other entities in the Czech Republic with an implicit state
guarantee and other foreign entities which carry the minimum
rating of A.
Real estate financing is one key area of interest to Česká spořitelna: the Bank initiated its financing of real estate investment
funds, operating as part of the Group, for institutional investors
focused on the Czech and Slovak markets. Investment in real
estate was aimed at achieving rental income or capital appreciation. Investment in real estate totalled 6.4 billion at the end
of 2005.
land and structure accounted for 58 percent, decreased year-on-year by 3 percent to 19.6 billion. The balance of intangible
assets stayed at CZK 4.5 billion. By contrast, the balance of
property and equipment continues to gradually decline in the
long-term as the Bank further optimises the structure of its
own immovable assets; in addition, the Bank has designated
additional redundant assets of CZK 0.3 billion as held for
sale. Hence, the total balance of property and equipment fell
to CZK 14.8 billion. The aggregate proportion of property
and equipment and intangible fixed assets to total assets was
3 percent.
The aggregate balance of property and equipment and
intangible fixed assets, including assets held for sale, of which
23
Business Activities and Operations
In 2005, Česká spořitelna won, for the third time in a row,
the prestigious International Bank of the Year award in The
Banker Awards contest, which is the most distinguished annual
event in the banking world. The award is granted by The
Banker, a renowned financial monthly, following a rating by
an international panel. In addition, the Bank received a number
of other appraisals and rewards. The recognition by clients,
citizens and international panels to the Bank mirrors the
professional attitude of the Bank’s employees, the growing
quality of services and the offer of excellent sales networks
and comprehensive services rendered to individuals, firms,
the public sector and non-profit organisations.
PRIVATE CLIENTELE
Private clientele – citizens of the Czech Republic as well as
foreign clients who reside in the Czech Republic, students,
entrepreneurs, sole traders and independent professionals –
represent the Bank’s key client segments.
Financing the Needs of Private Individuals
The Bank’s positive growth trend in loans granted to private
individuals, reported for a number of previous years, continued also in 2005. Česká spořitelna achieved the highest
ever year-on-year increase in the portfolio of cash and
consumer loans. The aggregate portfolio of these types of
loans increased year-on-year by almost 38 percent to CZK
34.9 billion. Throughout 2005, the number of newly concluded
consumer and cash loans increased by 71 percent to 355,000.
Total portfolio for cash and consumer loans
(CZK bil.)
40
34.9
30
25.4
The most important factors driving the growth in loans include
innovative product offer, low client interest rates, greater
confidence of people in their ability to make repayments, and
the continued increase in income of the population. In 2005,
major changes in products focused on an accelerated and
streamlined process of granting the loan as well as on
a proactive sales approach to cash loans. New changes presented towards the public brought along a new product called
Easy Loan which positively impacted the Bank’s business
results achieved in the last quarter of 2005. The volume of cash
loans newly concluded in the fourth quarter of 2005 grew by
85 percent compared to the same period in 2004, mainly owing
to Easy Loan. By the end of 2005, the Bank provided 95,000
Easy Loans worth CZK 4.9 billion.
The cash and consumer loans collateralised by a pledge on real
estate, the so-called ‘American Mortgage’, have experienced massive development following their introduction to
the market. Unlike traditional consumer loans or cash loans,
these have the advantage of carrying a significantly lower
interest rate and repayments spread across a longer period of
time. Clients may use mortgages practically for anything, for
example to furnish a household, purchase a car or to acquire
a cooperative flat. Demand for consumer and cash mortgage
loans grew very rapidly and robustly following their introduction in May 2004. The role of this type of loan in financing the
needs of private individuals becomes more important. Since
May 2004, the Bank has provided more than 7,500 cash and
consumer mortgage loans worth CZK 3.8 billion.
Loans granted in the form of credit cards enjoy notable
year-on-year growth of 41 percent. The aggregate balance
of loans on 340,000 credit cards as of 31 December 2005 was
over CZK 2 billion.
20.8
20
17.4
13.1
10
0
2001
24
A substantial growth was noted especially in cash loans whose
volume rose by 47 percent to CZK 29.4 billion.
2002
2003
2004
2005
Overdraft loans on sporogiro accounts, that is, the substitute
product of credit cards, maintained a stable position owing to
the dynamic development in credit cards. An overdraft facility
on a sporogiro account was provided to 833,000 clients. At
the end of 2005, the aggregate drawing of overdraft loans was
worth CZK 5.8 billion.
In 2004, the balance of the social loans that originated in the
past continued to decrease, falling by 16 percent to CZK 5.0
billion. The slow reduction of the volume of social loans is due
to the residual portfolio of social loans because 90 percent is
composed of long-term loans used to finance investments in
housing construction.
Product Packages for Private Clientele
Personal product packages designed for a comprehensive
administration of financial means are a global trend. They
are popular because they mirror the most frequent needs
of customers in banking services while being a quick, well
organised and comfortable solution for all of their financial
requirements and are cheaper than stand-alone products and
services.
Česká spořitelna’s offering of product packages for private
clientele is built upon the needs of all major client segments,
covering periods from childhood (‘Xtra konto’) and students’
financial needs (‘Student+’), the period of independent
financial life and family life associated with complex banking
requirements (the Advantageous Programme and the Comprehensive Programme) and/or with high financial requirements
(the Exclusive programme) to mature adulthood (the Senior
account). In 2005, the Bank complemented its offer of product
packages for private clientele with the ‘Extra konto’, the
Exclusive Programme and the Senior Account.
In mid-2005, Česká spořitelna responded to the wishes of
parents of young clients and designed a special account for
juniors between 10 and 15 years of age. The Extra Account
(‘Xtra konto’) helps younger clients get their first experience
in managing money. In over seven months, parents opened
more than 5,000 Extra Accounts for their children.
The very successful Student+ programme, designed for all
high school and university students between 15 and 30 years
of age, offers students and young people a quality financial
product for a favourable student price, together with other
benefits from Česká spořitelna’s business partners. After
two years of existence, the Student+ programme has become
one of the most popular student accounts in the Czech Republic. At present, nearly 165,000 high school and university
students use the Student+ programme. Since August 2005,
university students involved in the Student+ programme may
now choose to get either a Credit+ credit card or an overdraft
loan, the latter being offered from the outset of the programme.
The loan to cover studying expenses provided as part of the
Student+ programme ranked first in the Golden Crown contest
where a professional panel rates financial products for private
individuals and small and medium-sized enterprises in the
Czech Republic; the Student+ programme ranked third.
The Advantageous Programme is the most established
and widespread personal product package. It includes
a combined offering of products and services of the Česká
spořitelna Group, accompanied by advantageous pricing. The
Advantageous Programme was launched in 2002. During 2005,
the number of clients of this Programme grew by 317,000
which is an increase of 66 percent. At the end of 2005, the
number of Advantageous Programme holders neared 800,000,
which only confirms its dominant market position. More
than 20 percent of new Advantageous Programme holders were
clients who did not have a basic account with Česká spořitelna.
The Advantageous Programme ranked first in the Golden
Crown contest.
The Comprehensive Programme is designed for more
demanding clients and includes a combined offering of
standard and more complex products and services of the Česká
spořitelna Group. In 2004, the Comprehensive Programme was
revised and the positive changes were instrumental in quadrupling the number of clients using this product to the current
81,000 over two years.
In the middle of 2005, the Bank extended its offering of
product and service packages for private individuals to include
a special account for the most affluent clientele – the
‘Exclusive Programme’. Owing to the flexibility and scope of
its products and services, this Programme is well positioned to
become a popular product within the given segment.
In early 2005, the Bank offered senior citizens a product package designed in response to a marketing research with potential
senior clients. The Senior Account is intended for all clients
over sixty-five years of age or for those who draw their
retirement pension or permanent disability pension. The
programme includes a sporogiro account carrying a favourable
25
Total number of clients using product packages
for private clientele in thousand
1,090
1,000
750
Savings and Investments
685
500
371
250
0
0
9
2001
2002
2003
2004
– an account carrying an advantageous interest rate and a flat
fee or an account carrying a zero interest rate and no fee.
Specific accounts offer clients comfortable and professional
administration of entrusted funds.
2005
interest rate. Products used as part of the programme are
provided for free over the entire period of its life; the transfer
from/to the other programmes offered by Česká spořitelna
is also free of charge. During 2005, the Bank provided this
account to more than 42,000 clients.
Products for Independent Professions
The Professional Programme, designed for clients from
independent professions, has become a product in demand
because it is fully variable and allows the combination of
products to meet the individual client’s needs. The increase in
sales of this programme shows the growing market share
of the Bank’s clients with independent professions. Over the
previous period, the number of clients using the ‘Professional
Programme’ increased by 31 percent to more than 3,000.
The programme offers a wide range of banking and financial
products of Česká spořitelna’s selected subsidiaries, developed
to meet the needs of this client segment. Business loans
(investment loans, operating loans and overdraft loans) granted
up to a defined limit and extended with special simplified
administration and an advantageous interest rate rank among
major advantages of this programme.
The low interest rate on traditional deposit products continuously drives the customer demand for other investment
opportunities which would provide greater yield on deposited
funds. Česká spořitelna along with its subsidiary, Investiční
společnost České spořitelny, which has ranked ‘number one’
in assets management on the Czech market for a long time,
offers clients investment of available funds in open-ended
mutual funds.
Investiční společnost offers clients a wide range of mutual
funds. The optimum solution for clients, with regard to potential risk and yield to be generated, is to spread or diversify the
investment which allows participating in a number of investment strategies at the same time and combining different types
of securities (bonds, shares, money market instruments). Since
2004, the Bank has been offering clients the opportunity to put
together a specific investment profile tailored to their individual needs. As a follow up to investment profiles, four new
profile funds (Prudent, Conservative, Balanced and Dynamic)
were offered in 2005. Both the profile funds and investment
profiles deal with comprehensive solutions for clients’
investments, well-qualified diversification of investment
into different types of assets aimed at reducing the potential risk and increasing yield, the designation of the type of
Volume of assets managed by Investiční
společnost ČS (CZK bil.)
80
71.6
58.9
60
48.3
The year 2005 saw a continued increase in the sale of specific
deposit products designed for clients from independent
professions for administering third party funds. This involves
current accounts (Czech crowns and foreign currency) for
depositing funds received by notaries, attorneys, court bailiffs,
bankruptcy trustees, and auctioneers. Notaries, attorneys and
court bailiffs may newly open accounts in two modifications
26
40.1
40
24.7
20
0
2001
2002
2003
2004
2005
investor through an investment questionnaire, participation in
a number of investment opportunities at the same time, and
liquidity as an opportunity to convert assets into cash. Contrary
to investment profiles where the proportion of individual
components remains unchanged and changes, if any, require
a client’s active involvement, the structure of profile funds is
actively managed by the fund manager.
During 2005, the volume of assets managed by Investiční
společnost grew by 22 percent to CZK 71.6 billion. The
increasingly sought-after equity funds showed the highest
relative growth, the reported figures almost doubled, partly
owing to the developments on equity markets. Sporotrend
appreciated funds invested in 2005 by more than 42 percent
thus becoming the most successful mutual fund in the
Czech Republic. Assets in mixed funds grew by 77 percent
which is attributable to the profile funds referred to above;
assets administered by bond funds increased by 26 percent.
The money market fund Sporoinvest showed the lowest growth
dynamics in administered assets with an increase of less than
12 percent. In the Golden Crown contest, Sporoinvest was
awarded the Bronze Crown.
Clients may invest not only in the mutual funds of Investiční
společnost but also in the mutual funds managed by Erste
– Sparinvest, Erste Bank’s subsidiary. Investments in foreign
mutual funds managed by Erste Sparinvest and in other companies more than doubled and amounted to CZK 8.9 billion.
Savings and Investments (CZK bil)
71.6 (15%)
Mutual funds
of Investiční společnost ČS
36.2 (8%)
Term deposits
26.3 (6%)
Other deposits
15.7 (4%)
Pension insurance
deposits
81.0 (18%)
Construction savings deposits
114.6 (26%)
Sporogiro accounts
104.6 (23%)
Savings books
Registered savings books, measured in terms of their number
(more than 2 million) and the amount of deposited funds (CZK
104.6 billion at the 2005 year-end having suffered a yearon-year decline of 6 percent are one of the most significant
financial products offered by Česká spořitelna. Savings books
are fairly traditional products, and yet, the Bank came up
with a new product – the Children Savings Book carrying
an advantageous interest rate. The Children Savings Book
(by clients referred to as The Cricket due to the mascot that
goes along with the savings book) is designed for the youngest clientele, from birth until eighteen years of age. Between
May 2005 and year-end 2005, the Bank opened almost 11,000
Children Savings Books with a balance of almost CZK 140
million. For registered savings books on which clients may win
a price, the Bank enhanced the reward programme.
In 2005, the conversion of the not yet converted former
anonymous savings books of Česká spořitelna, which began in
2002 pursuant to the amended Banking Act, continued. During
2005, 74,000 anonymous savings books were converted in the
aggregate amount of CZK 1.2 billion. At the end of 2005, the
Bank maintained 2.7 million anonymous savings books with
a balance of CZK 5 billion.
The interest of clients in term deposit accounts of individuals denominated in Czech crowns has slightly declined
due to low interest rates. The portfolio of individuals’
term deposits denominated in Czech crowns dropped below
100,000 accounts, with a balance of CZK 31.4 billion, hence,
suffering a decline by 3 percent over 2004. On the other hand,
individuals showed increasing interest in term deposit accounts
denominated in foreign currencies. During 2005, the number
of such accounts grew by 17 percent to almost 21,000, the
balance increased by 2 percent to CZK 4.7 billion. In 2005, the
Bank improved the design of bank account statements making
them more user friendly and lowered the minimum opening
deposit required for term accounts denominated in Euro and
USD. Clients have the option to manage their term accounts
through the Servis 24 direct banking service.
Compared to the previous period the construction savings
market showed increasing interest in new deposit contracts
in 2005. Stavební spořitelna České spořitelny, with assistance from the parent bank, played an important role in this
development in concluding a total of 189,000 new deposit
contracts, the agreed target amount of CZK 31.2 billion. Total
27
client deposits in construction savings accounts grew by 14
percent over the year 2004 amounting to CZK 81.0 billion
while serving 1.2 million clients altogether.
One of the most popular long-term savings schemes which
will provide clients with additional income in the future (wage,
pension, etc.), complemented with a state contribution, is pension
insurance. In 2005, Penzijní fond České spořitelny strengthened
its position among the three biggest pension funds in the Czech
Republic and reported a dynamic growth in the volume of
funding in clients’ personal accounts which amounted to
more than CZK 15.1 billion or to CZK 15.7 billion if revenues
for 2005 are included, thus constituting a 26 percent year-on-year
increase in clients’ funds. As of 31 December 2005, Penzijní
fond served nearly 480,000 clients, a year-on-year increase of 17
percent. The results of Penzijní fond are, inter alia, attributable
to the further development of cooperation with employers. Under
the corporate programme, Podílový fond started to cooperate
with more than five thousand employers who make contributions
to the complementary pension schemes of their employees.
The combination of insurance and long-term savings taking the
form of capital or investment life insurance from Pojišťovna
České spořitelny is an interesting investment opportunity.
Premiums written by Pojišťovna in 2005 amounted to CZK
2.5 billion, hence suffering a decline over the previous year
which was mainly due to lower sales in the so called lump sum
premiums. Pojišťovna’s regular premium grew year-on-year by
25 percent; in absolute terms regular premium totalled CZK
1.3 billion. The investment Flexi insurance won the Silver
Crown award under the Golden Crown contest.
Transaction Accounts
Česká spořitelna is the strongest giro account player on the
giro account market for private clientele, whose characteristic
product is the sporogiro account. At the end of 2005, the
Bank maintained 2.76 million sporogiro accounts in its
portfolio, with a balance of almost CZK 114.6 billion. In
a year-on-year comparison, the volume of deposits on sporogiro accounts rose by 15 percent. For the first time ever, the
balance of sporogiro accounts exceeded the balance of savings
books, sporogiro accounts thereby becoming the product with
the largest volume of deposits made by clients. Over the previous period, the number of transactions effected in sporogiro
28
Number of sporogiro accounts (thousands)
3,000
2,725
2,727
2,755
2,762
2,759
2,400
1,800
1,200
600
637
743
794
821
832
0
2001
2002
Number of sporogiro accounts
2003
2004
2005
Number of sporogiro accounts with an overdraft
accounts increased by 22 percent to more than 550 million.
With regard to more than 30 percent of sporogiro accounts,
clients had negotiated an overdraft loan. Clients may newly
choose the frequency of interest accrual on sporogiro accounts
and the sending of account statements. A sporogiro account
is the most widely used current account for citizens of the
Czech Republic, ideal for administration and management
of family finances.
At the end of 2005, in addition to sporogiro accounts, Česká
spořitelna managed another 14,000 current accounts of
individuals administered in Czech crowns and 53,000 current
accounts of individuals managed in various foreign currencies,
primarily in Euros and American dollars.
In deposit accounts, Česká spořitelna has introduced a new
product – a security current account (‘jistotní běžný účet’)
aimed at securing the due settlement of the purchase price
between the seller and the buyer in buying or selling the real
estate through Česká spořitelna.
Card Programme
In terms of the card programme, the year 2005 was a very
successful period and confirmed Česká spořitelna’s dominant
position in this significantly developing market, evidence of
which is the increasing number of payment cards and the continuing massive expansion of credit cards, the growing volume
of transactions and the great success of loyalty programmes.
Number of active cards (thousands)
Card transactions in ČS´s network (CZK billion)
2,942
3,000
25.8
25
2,758
21.9
2,577
2,400
2,211
2,364
19.8
20
26.2
20.9
17.9
1,800
15.6
15
13.6
13.0
1,200
10
8.4
600
0
5
5
2001
28
2002
Number of active cards in thousand
101
2003
205
341
0
2004
2005
Number of credit cards in thousand
Compared to 2004, the total number of payment cards
increased by 183,000 to 2.94 million cards, the year-on-year
growth being 7 percent. The overall increase in the number
of all active cards is mainly driven by the expansion of the
‘Kredit+’ credit card. Numerous marketing initiatives took
place in 2005 aimed at promoting the sales in credit cards. In
addition, the Bank made it much easier for clients to get the
Kredit+ credit card. Clients may newly apply for the credit
card by free calls on 800-207-207, university students may get
the card as part of the Student+ programme and the credit card
is also offered along with the mortgage loan which is new as
well. The simplified offering showed results: the number
of issued ‘Kredit+’ cards increased year-on-year by 66
percent to 341,000. With regard to debit cards, the exchange
of domestic payment cards for cards with international validity
continued to take place.
Following the rapid growth in 2004, the number of card transactions executed by Česká spořitelna’s contractual partners
slightly declined by 5 percent to less than 21 million payments.
The volume of card transactions, being the most critical factor
in terms of the Bank’s income from fees and commissions,
slightly grew by 2 percent to CZK 26.2 billion compared to
its major growth in 2004. The number of acceptance places
of Česka spořitelna’s contractual partners slightly increased
exceeding 11,000.
2001
2002
2003
2004
2005
Volume of card transactions in ČS’s network
Number of card transactions in ČS’s network
For every card payment or for the recharging of mobile
telephone credit using Česká spořitelna’s cards, clients receive bonuses under the loyalty ‘Bonus’ programme which
continues to be the only programme of its kind offered on the
domestic banking market. The ‘Bonus’ programme has moved
from the initial phase where clients were mainly collecting
points to a stabilised stage where clients are also ordering their
bonuses. The drawing of points has accelerated rapidly; in
2005, cardholders used 240 percent points more as compared
to the previous year. This positive trend was due to an easier
access to bonuses through the newly introduced Internet sales
and an expanded offering of bonuses by two attractive options:
mobile telephone credit recharging and charitable projects
contributions.
The Bank also offers the ‘Partner’ discount programme for
embossed payment cards. A similar discount programme called
Student+ is a feature of the cards for students, issued as part
of the package of the same name. Partner and Student+
cardholders receive discounts when making card payments
at a number of well-known shops operating throughout
the Czech Republic. The Partner and Student+ cards are the
only multi-brand cards available on the market in the Czech
Republic.
At the end of 2005, Česká spořitelna operated 1,076 ATMs
serving as multifunctional centres. Clients may use ATMs
not only to withdraw cash, which is the basic function, but
29
also to get their sporogiro account balance, recharge mobile
telephones from Vodafone and Eurotel, find out their score
under the ‘Bonus’ programme, enter payment orders and
pay premiums to the Kooperativa insurance company. Česká
spořitelna was the first bank in the Czech Republic to
launch an ATM for blind and weak-sighted citizens in
spring 2005. The special programme in place assists clients
in servicing the ATM through voice navigation. At the end of
2005, 38 ATMs were available across the Czech Republic.
The ATMs were brought into operations with assistance from
NCR and the Czech Blind United (SONS). During 2005, all
ATMs were revamped to accept chip cards.
In 2005, the volume of cash withdrawals in the network of
Česká spořitelna’s ATMs totalled CZK 236.0 billion which
represents an increase of 6 percent over the previous year; the
number of withdrawals increased by 2 percent to 76 million
and the average amount drawn was CZK 3,111. The popularity of mobile telephone credit recharging has been growing
rapidly. In 2005, more than 2.8 million recharges were made
in the total volume of CZK 850 million, which is a year-onyear increase of 35 percent and 28 percent in the number of
recharges and the volume, respectively. The average amount of
mobile telephone credit recharging was CZK 305.
In May 2005, the Bank substantially enhanced insurance
covering misused debit payment cards if lost or stolen.
Damages now include compensation of costs arising from lost
or stolen home keys, lost or stolen ID cards and the reimbursement of the card blocking fees. In addition, damages include
compensation for stolen cash withdrawn by the insured party
from the account to which the card pertains. As of October
2005, Česká spořitelna guarantees all transactions effected
through a lost or stolen payment card which occur after the
card is blocked by the client.
since its introduction in 2001. In 2005, the number of users
increased by 20 percent to nearly one million (994,000)
clients who executed 15.8 million electronic transactions over
2005. In autumn 2005, Česká spořitelna took another major
step in integrating the service offering of direct banking to
citizens and small-sized business segment in that it expanded
the existing two basic pillars, that is, S24 – Telebanking and
Internetbanking by a third pillar – S24 GSM banking. Servis
24 ranked first in the Golden Crown contest.
Servis 24 Internetbanking underwent substantial innovations aimed at introducing a number of new functionalities,
increasing user comfort and expanding security features
by authorisation SMS codes, a graphic keypad and changes
in transaction limits. The new functionalities include Internet
banking in English, the execution of cross-border payment
transactions within European Union countries, advice notes
of foreign payment transactions, possible access to additional
pension insurance data in Penzijní fond, the recharging of mobile telephone credits from all operators and the introduction
of new support functions. According to the professional panel
of the penize.cz server, Česká spořitelna won the Internet Bank
of 2005 contest mainly due to its S24 Internetbanking. As of
31 December 2005, Servis 24 – Internetbanking served in total
over 553,000 clients who executed 11.9 million transactions.
Number of clients of Servis 24 (thousand)*
994
1,000
829
750
682
500
374
250
83
0
Česká spořitelna’s paramount task in 2006 is to smoothly kickoff the conversion of the existing portfolio of cards to chip
technology and to finalise the revamping of sales terminals
accepting chip cards.
Internet and Telephone Banking Servis 24
The flagship of direct banking for Česká spořitelna – Servis
24 – has steadily been increasing the number of its clients
30
2001
2002
2003
2004
2005
* Note: clients using more Servis 24 channels have been counted only once..
At the end of 2005, the total number of Servis 24 Telebanking users exceeded 700,000 clients who effected 2.6 million
transactions during the year. Under S24 Telebanking, clients
may now access their additional pension insurance accounts
in Penzijní fond České spořitelny with the assistance of
a telephone banker, recharge prepaid mobile telephones for all
operators via the voice system (IVR) and execute cross-border
payment transactions with the assistance of the telephone
banker.
In integrating the channels of direct banking to citizens and
small-sized businesses, clients were migrated from the old
GSM banking SIM Toolkit service to a new Servis 24 GSM
banking service, which offers clients wider functionalities. At
the end of 2005, S24 GSM banking served nearly 72,000 users
who executed 1.3 million transactions during 2005.
FINANCING HOUSING AND REAL ESTATE
Česká spořitelna successfully continued further development
of its products and services in the financing for real estate and
mortgages. In 2005, the Bank again granted the largest
number and amount of mortgage loans on the Czech
mortgage market. Česká spořitelna hence reconfirmed its
position as the largest mortgage bank in the Czech Republic,
a position which it achieved in 2001.
Mortgage Loans to Citizens
Česká spořitelna rather easily defended its leading position on
the market for private mortgages. In 2005, the Bank provided
this segment with more than 17,000 new mortgage loans
in the aggregate amount of CZK 24.8 billion, which
represents year-on-year growth of 30 percent. The average
amount of negotiated loans grew by 7 percent to CZK 1.4
million. The interest of clients in mortgage loans in 2005 was
encouraged by record low interest rates and a wider offering of
new housing by developers. In response to these developments
the Bank successfully: expanded its offer of real estate and
financial services provided by mortgage centres, introduced
a new product called Mortgage for Newlyweds with the
lowest repayments on the market, and further streamlined
the process of granting mortgages. Česká spořitelna’s mortgages ranked second in the Mortgage of the Year award, the
prestigious competition organised by MasterCard. In 2005, the
aggregate balance of the mortgage loans portfolio increased
by 48 percent to CZK 59.1 billion.
Construction Savings Loans
Within the Česká spořitelna Group, clients extensively use
the services of Stavební spořitelna České spořitelny for the
financing of their housing. In 2005, Stavební spořitelna, with
intensive assistance from the parent bank, provided nearly
32,000 loans in a total volume of CZK 7 billion. As of 31
December 2005, the Bank maintained more than 148,000 loan
accounts and the aggregate volume of loans provided to
clients to improve their housing was CZK 19.5 billion, which
is a year-on-year increase of 26 percent over the previous
year. Of the overall portfolio of Stavební spořitelna’s loans,
construction savings loans accounted for CZK 6.5 billion,
the year-on-year growth being 14 percent. Bridging loans
whose volume equalled CZK 13.0 billion at the 2005 year-end
substantially grew by 33 percent.
Real Estate Financing – Corporate Mortgage Loans
Corporate mortgage loans – services in real estate financing
are targeted to developers and investors, i.e. the financing of
projects designed for the real estate market (offices, business
centres, housing, hotels, etc.). The Bank pays special attention
to the comprehensive financing of housing projects including
synergy effects resulting from the private financing of home
buyers and aligned services rendered by Realitní společnost
České spořitelny. The development in real estate financing was
also driven by the rapid growth in loans for project financing at
mortgage centres of Česká spořitelna, which deal mainly with
projects aimed at new regional housing construction.
Portfolio of mortgage loans (CZK bil.)
100
80.9
80
60
55.6
59.1
39.9
40
33.6
24.2
21.0
20
12.9
14.6
8.6
0
2001
2002
Portfolio of mortgage loans in total
2003
2004
2005
Portfolio of mortgage loans to citizens
31
At the end of 2005, corporate mortgage loans totalled
CZK 21.7 billion, which represents a growth of 39 percent
compared to the previous period. The aggregate balance of the
portfolio of mortgage loans grew by 45 percent, thus exceeding
CZK 80 billion (CZK 81 billion sharp).
Mortgage Centres
In 2005, the Bank completed the unique concept of mortgage
centres. Mortgage centres are specialised functions that provide comprehensive one-stop housing solutions. Clients have
the opportunity to benefit from real estate services, products
for home financing and project financing, and free advisory
services, all in one place. Mortgage centres work with Realitní
společnost České spořitelny and development companies in the
Czech Republic, which allows them to offer real estate at different price levels. Real estate professionals are available on the
spot to provide advice and help in selecting the appropriate real
estate. In the same place and with assistance from specialised
loan advisors, clients may chose the best form of financing for
selected housing as well as real estate insurance or insurance of
risk associated with loan repayments. Thus, the whole process
of real estate selection and funding is as expedient as possible.
At the end of 2005, Česká spořitelna ran 14 mortgage
centres in the following towns across the Czech Republic:
Brno, České Budějovice, Kolín, Liberec, Olomouc, Ostrava,
Plzeň, Pardubice, Zlín, and five centres in Prague.
Česká spořitelna also operates a specialised portal
www.hypotecnicentrum.cz. At this address, bank clients, as
well as the public at large, may become acquainted with Česká
spořitelna´s housing and financing offering.
Other Bank Activities on the Real Estate Market
Real estate financing is one of the key areas of interest to
Česká spořitelna which is manifested in its other activities. In
2004, the Bank initiated its financing of real estate investment
funds for institutional investors CEE Property Development
Portfolio B.V. and Czech & Slovak Property Fund B.V., where
Česká spořitelna is one of the investors and shareholders. Both
funds are focused on the Czech and Slovak markets. SG Asset
Management, s.r.o., and Czech & Slovak Investment Advisors, s.r.o, act as the managers of these funds. The funds are
organised as closed funds.
32
In 2003, Česká spořitelna’s subsidiary – Realitní společnost
České spořitelny was established to promote the sales of
financial products and services together with real estate services, mainly in housing. In 2005, Realitní společnost expanded
into regions closely aligned with mortgage centres. The share
of Realitní společnost in the market for sales of new housing
increased by 15 percent in Prague and its environs. Outside
Prague, the company extended its sales network by franchise
partnerships with selected real estate agencies.
The Bank also supports the development of the real estate
market and housing in the form of sponsorship activities, for
example, with general partnerships with the Association for
Real Estate Market Development (a prestigious supra-national
organisation), or with the largest Central European Conference
on the real estate market, CEDEM. The Bank is also a standing
partner of the yearbook called Czech Architecture (Česká
architektura).
In the forthcoming years, Česká spořitelna will further develop
its position in real estate as a provider of first-class comprehensive services to real estate entrepreneurs and investors and
reinforce its leading market position. The Bank will support
the development of real estate investment funds both for
institutional investors and small-scale investors. On the real
estate market, Česká spořitelna will pursue two key development paths: a bank for housing and a bank for professional
investors and developers.
COMPANY AND CORPORATE CLIENTELE
Company clientele, whether retail clients with an annual
turnover of up to CZK 30 million, small and medium-sized
enterprises (SME) with an annual turnover from CZK 30
million to CZK 1.5 billion or large corporate clients with an
annual turnover exceeding CZK 1.5 billion, are among key
client groups upon which the Group of Česká spořitelna
concentrates. The Group’s range of offerings includes classic
products for administration of accounts and provision of loans,
special projects focusing on investment loans, export, equity
participation, leasing, syndicated loans, etc. The Bank provides
company clientele with significant assistance in using guarantee funds or drawing subsidies from the funds of the European
Union.
Company Clientele with a Turnover
of up to CZK 30 million
There was a notable increase of newly provided loans for
retail clients in 2005 compared to the previous year. In 2005,
over 3,000 new loans were negotiated in an aggregate value
of CZK 6.1 billion, which represents a year-on-year increase
of 30 percent. This development was positively affected by
proactive activities of company consultants during 2005, and
the expansion of the product offer by the 5 Plus investment
loan with a guarantee of the European Investment Fund
(EIF), provided since October 2004. The 5 Plus investment
loan has five benefits, of which the most attractive one for
clients is the guaranteed 5-day period for the approval of the
loan and simpler administrative procedure when applying for
the loan. By the end of 2005, the Bank provided 864 of these
loans in an aggregate amount of CZK 1.6 billion, which
resulted in the overall year-on-year increase in the volume of
new investment loans of 40 percent. The guarantee line agreed
with EIF was extended to 2006. The 5 Plus investment loan
was awarded the Bronze Crown in the Golden Crown contest,
where a professional panel rates financial products designed
for individuals and small and medium-sized enterprises in the
Czech Republic. As of 31 December 2005, the Bank managed
nearly 7,000 special purpose loans in the segment of company
clientele with a turnover of up to CZK 30 million, with
a portfolio balance of CZK 8.2 billion, i.e. up by 24 percent
compared to 2004.
regions of the Czech Republic which are mainly targeted at
small and medium-sized enterprises (SME). Commercial
centres provide complex services to the entire Group of
Česká spořitelna.
In terms of all products in 2005, Česká spořitelna provided
small and medium-sized enterprises with a turnover from
CZK 30 million to CZK 1.5 billion with new loans of CZK
16.8 billion, representing a year-on-year growth of 32
percent. The aggregate portfolio of drawn loans went up by 25
percent compared to 2004, totalling CZK 33.9 billion.
Designed primarily for SMEs as an addition to classic banking
products, the TOP programmes (TOP Kapitál, TOP Podnik,
and TOP Export) are part of Česká spořitelna’s strategy to
support the development of the Czech economy.
The TOP Kapitál programme focuses on funding companies
through venture capital. Česká spořitelna launched this
programme in 2002 by establishing two venture capital
funds – the Czech TOP Venture Fund and the Genesis Private
Equity Fund “B”. The funds are managed by consulting firms,
Czech Venture Partners s.r.o. and Genesis Capital s.r.o. Česká
spořitelna has investment commitments of EUR 10 million in
each fund. The investments of the funds are concentrated on
small and medium-sized Czech firms with prospective business
plans and strong, fully involved management.
The ‘Profit Programme’ ranks among popular programmes within entrepreneurs and small business. This
package significantly facilitates financial management of
a small company. It enables non-stop access to company funds
according to the choice of the client and offers advantageous
management of private accounts to company representatives.
Another very attractive feature of the package is a simple
procedure for obtaining an overdraft loan. The number of
users of the Profit Programme grew during 2005 by almost 34
percent to almost 29 thousand. In the Golden Crown contest,
Profit Programme received the Golden Crown.
Since 2001, Česká spořitelna has offered the TOP Podnik
programme designed for financing investment needs of SME
clients. The programme is designed for companies operating in
industry, commerce, services, and production and processing
of agricultural products. Under the TOP Podnik programme,
Česká spořitelna provided 129 loans in the total amount of
CZK 2.1 billion in 2005 in the form of investment mediumterm and long-term loans provided under advantageous interest
rate conditions. Now, the programme offers obtaining a loan in
euros. Since the inception of the programme, the Bank has
provided loans totalling CZK 7.4 billion.
Company Clients with a Turnover from CZK 30 million
to CZK 1.5 billion
The objective of the TOP Export programme, introduced
by Česká spořitelna in July 2002, is to assist first-rate Czech
SMEs in increasing the volume of exports and penetrating new
foreign markets. Česká spořitelna offers local exporters cheaper
In addition to its network of branches, Česká spořitelna also
operates a network of 15 commercial centres located in all
33
funding of their export plans in the form of FX overdraft loans
secured by export receivables or full-value factoring. By the
end of 2005, the balance of approved loans exceeded CZK 400
million.
Following the accession of the Czech Republic to the
European Union in 2004, Česká spořitelna began to offer
programmes designed to support clients in the realisation of
projects funded from the structural funds of the EU – EU
business programme for entrepreneurs and companies
and EU Region programme for towns, municipalities and
non-profit organisations. Both programmes involve comprehensive services related to the support in obtaining grants from
structural funds including the identification of a suitable grant
programme, drafting applications for grants from a subsidiary,
Consulting České spořitelny, and of course the financing of
projects applying for grants. The EU programme also includes
various seminars and educational programmes for clients. In
the spring and autumn of 2005, Česká spořitelna organised
28 seminars for its clients. In 2005, Česká spořitelna funded
almost 100 projects for entrepreneurs and businesses, in connection with which an aggregate amount of more than CZK 1.5
billion was requested from EU funds.
In 2005, Česká spořitelna continued its successful cooperation
with the European Investment Bank (EIB). The cooperation
focuses on supporting small and medium-sized firms and funding the needs of the public and non-profit sectors. Involvement
in the EIB projects was initiated in 2004 by obtaining a global
loan of EUR 50 million and joining the follow-up programme
of the European Commission, entitled the Municipal Infrastructure Facility. In 2005, Česká spořitelna successfully
placed EUR 50 million of the obtained global loan and drew
another EUR 50 million in September 2005. In total, Česká
spořitelna received EUR 100 million from the European
Investment Bank in 2005. As of the end of 2005, EIB
confirmed the funding of 89 projects for which almost EUR 58
million were used from the aggregate global loan.
The Bank also continued in fulfilling the Land (Půda) programme in cooperation with the Support and Guarantee Fund
for Farming and Forestry (PGRLF). In 2005, 48 loan contracts
were entered into in the aggregate amount of CZK 69 million.
34
The Fund, assisted by Česká spořitelna, reduced the administrative burden connected with the use of the programme.
The FINESA Programme, introduced in 2003, saw dynamic
development in 2005. Since its inception, more than CZK
200 million has been provided for twelve projects in the field
of energy savings and renewable sources of energy under
this programme. Other projects worth several hundred million
crowns are at an advanced stage of preparation or are close to
contract signing. All projects have been supported by a partial
banking guarantee issued by International Finance Corporation. In connection with the approval of Act No. 180/2005
Coll., on Support of Production of Electricity from Renewable Sources, and the commitment of the Czech Republic to
increase the share of electricity generated from renewable
sources of energy, the Bank anticipates a significant increase in
the volume of loans for financing the production facilities.
The CS German Desk serves as Česká spořitelna’s contact and
information centre for companies from Germany (or Germanspeaking representatives of companies from other countries),
providing potential clients with German-speaking banking
advisors in each of the 15 commercial centres. The CS German
Desk also expanded its activities in terms of cooperation with
German savings banks. Since 2004, Česká spořitelna has been
a member of the Czech-German Chamber of Commerce and
Industry.
In cooperation with Consulting ČS, Česká spořitelna prepared
a non-financial product FIT TEST in 2005, targeted at
commercial centre clients with a turnover of up to CZK 250
million. FIT TEST is an electronic form for management of
SMEs operating in commerce, production and service sectors,
which helps prepare a diagnosis of key factors affecting
success in business making. This product is also connected
with a discount on advisory services provided by Consulting České spořitelny. In 2005, 517 total FIT TESTs were
distributed. Clients can order FIT TESTs directly on Česká
spořitelna’s Internet portal.
Corporate Clients
In the corporate client segment, the Bank kept up the trend of
having a very successful year in 2004 and recorded another
dynamic increase of all performance indicators. The volume
of loan portfolio at the end of 2005 reached CZK 53.7 billion,
rising year-on-year by 23 percent. The average amount of term
deposits and sight deposits went up by 9 percent to CZK 8.2
billion. During 2005, further improvements were made
to the quality of the loan portfolio, while decreasing the
provisioning levels. High quality client service and wider use
of a broad range of offered products and services of the ČS
Group facilitated the significant increase of fee and commission income by 21 percent.
As of 31 December 2005, Česká spořitelna acted as the
arranger or agent of or participated in syndicated loans in the
total drawn amount of CZK 15.0 billion, which, in comparison
with the previous period, constitutes an increase of 42 percent.
The Bank strengthened its role as an agent in syndicated loan
arrangements; this part accounted for more than 60 percent of
syndicated loan exposures of the total amount of loans. Following another increase by 19 percent in the volume of provided
bank guarantees to CZK 12.2 billion, Česká spořitelna also
became one of the greatest providers of banking guarantees
on the Czech banking market.
During 2005, the Bank actively participated in the Group Large
Corporates project, aimed at reinforcing the position of Erste
Bank among corporate clients in Central and Eastern Europe.
The project largely facilitated the harmonisation and development of product offerings for supranational clients using the
services of more banks within the Erste Bank Group.
Business 24, Homebanking – Electronic Banking for
Corporate Clients
Business 24 is a completely new direct Internet banking
product in the Czech Republic, designed for company and
corporate clients. Česká spořitelna introduced Business 24
Internet banking to clients in the last quarter of 2005. Business 24 enables executing key payment transactions – making
one-off payment orders or collection orders, executing crossborder payment transactions, importing and exporting data
and their subsequent use in the accounting systems, obtaining
updated information about unsuccessful transactions, viewing
transaction history, working contextually with a selected client,
using client certificates for high quality security, etc. Following
a two-month live operation, the Bank had almost 500 Business
24 users at the end of 2005. The development of Business 24
will be the key priority of Česká spořitelna’s direct banking
in 2006.
In connection with launching Business 24 and in accordance
with the Bank’s strategic intentions, the development of
the Homebanking OfficeLine product was curbed. Česká
spořitelna plans to gradually transfer the Homebanking
OfficeLine clients to Business 24, Servis 24 or Homebanking
MultiCash web platforms so that Homebanking OfficeLine
could be terminated at the end of 2006. As a result of the
already performed transfer of some clients, the aggregate
number of clients in 2005 fell by 11 percent to slightly less
than 20,000.
The state-of-the-art electronic multi-banking system Homebanking MultiCash attracted a 44 percent increase of
clients compared to the prior period, owing to a wide range
of services, high availability of the system and quality
client support. At the end of 2005, the Bank registered 1,306
corporate and SME clients with the Homebanking MultiCash
product. In 2005, Česká spořitelna finalised the expansion of
the banking typology and put the Homebanking MultiCash
system in operation using a geo-cluster backup solution which
guarantees high availability and stability of the system. For
the following period, Homebanking MultiCash remains one
of Česká spořitelna’s development platforms of electronic
banking for large corporations.
SERVICES FOR THE PUBLIC AND NON-PROFIT
SECTORS
In 2005, Česká spořitelna continued to successfully fulfil its
strategic objective, which is to improve the quality of financial
services already provided to traditional clients and partners
from the public sector: municipalities, towns and regions.
The Bank maintains accounts of most regions, towns and
municipalities in the Czech Republic; as of 31 December
2005, the Bank maintained more than 26 thousand accounts of this client segment. As of the end of 2005, the
balance of deposit accounts in the public sector was CZK 34.9
billion, which represents a year-on-year increase of 36 percent
owing to, among others, efforts to attract new clients. In connection with the public sector financing, the volume of loans
35
net receivables from Czech Consolidation Agency increased by
12 percent to CZK 13.9 billion.
In 2005, the Bank also focused its attention on providing
financial services to non-profit sector, particularly housing
associations of apartment unit owners, for which it created
a beneficial product package entitled Domov Programme.
The Bank also provided services to non-profit organisations,
citizens’ associations, foundations, foundation funds, subsidised organisations, professional chambers, public universities,
health insurance companies, etc.
Česká spořitelna has a team of 33 specialised regional advisors
for public and non-profit sector covering the entire territory
of the Czech Republic. The main focus is to provide qualified
consulting services, particularly relating to project funding
from EU funds and assistance in structuring and the optimisation of funds.
In 2005, Česká spořitelna continued to draw the credit line
facility (global loan) provided by the European Investment
Bank. Česká spořitelna offers these resources to its clients
under advantageous conditions for financing projects in the
fields of transport, environment, health, human resources, and
support to small and medium-sized enterprises. In addition,
subsidies from the European Commission’s community infrastructure development programme can be drawn in selected
regions through Česká spořitelna. The aggregate amount of
funds drawn under this programme as of the end of 2005 was
EUR 3 million.
The Bank closely monitors the interests and plans of its clients
and modifies its focus accordingly. The trend in the past several
years has been to gradually increase the volume of infrastructure, social services and real estate investments. Despite that
general economic development requires such investments,
the public sector cannot finance this development by further
increasing its indebtedness. The amount of needed funds could
lead to problems with fulfilling the Maastricht criteria.
In the 1990s a concept of cooperation of the public and
private sectors was developed in Great Britain under similar
circumstances, and subsequently applied in other countries. In
late 2004/early 2005, the Public Private Partnership (PPP)
36
issue started to be discussed in the Czech Republic and there is
a general agreement on the usefulness of this approach. Česká
spořitelna has closely followed this development and decided,
in mid-2005, to establish a new department specialised in
the financing of PPP projects. A number of PPP projects are
still in the preparation stage but the Bank has already entered
into negotiations with its public and corporate sphere clients.
Česká spořitelna and its subsidiaries make use of the services
of experts in the strategic advisory services, project management and structured financing. The aim of the Bank is to assist
clients in all phases of the project.
FINANCIAL MARKETS
In 2005, Česká spořitelna confirmed its position as a major
investment bank and a key player in the capital markets
segment. In the capital market area, Česká spořitelna provides
special and highly functional consultations during acquisitions, issuance of bonds and shares. In addition, it offers and
provides tailored services and consulting to small and institutional investors interested in investing in securities, open-ended
mutual funds, or other instruments of the capital market in
Czech crowns or foreign currencies. The clients may also use
information from the EU Office of Česká spořitelna, as well as
reports and analyses of the chief economy department of Česká
spořitelna.
The Sale of Investments Products
The year 2005 was very important and successful in terms of
sale of financial market products. Due to the persistent pressure for improvement of quality and complexity of services
to corporate clientele, the Bank recorded an increase in
the total number of clients as well as in the volume of
concluded transactions. In cooperation with Erste Bank,
Česká spořitelna is able to respond in a timely and appropriate manner to the immediate needs of the clients and bring
innovative, tailored solutions depending on the particular needs
of clients. The approach formerly adopted in relationships with
large corporations has become a common practice within in the
SME segment.
Generally, capital markets have seen a significant increase
owing to new issues on the Czech market and inflow of new
money to the region. In this dynamic environment, Česká
spořitelna is able to further increase its market share and
strengthen its position as one of the most significant players on
the capital market. The year 2005 was also successful in terms
of trading with shares: the Bank strengthened the coordination
of its activities within all countries where Erste Bank Group
operates, and in the trading with debt instruments, primarily
owing to many structured issues with a high added value.
Česká spořitelna is one of the three largest dealers in
bonds, shares and participation certificates on the Prague
Stock Exchange. In 2005, it effected trades worth CZK 404.5
billion, which represents a 24 percent growth in the volume
of trades compared with 2004. Owing to the development of
capital markets in 2005, the structure of effected transactions
is balanced, while in 2004, debt securities accounted for three
quarters of all transactions.
in 2005 reached almost CZK 3.0 billion. Aggregate assets in
these funds totalled CZK 3.7 billion. The manager of ESPA
Zajištěné fondy is the Austrian company Erste Sparinvest
KAG.
Another option for retail clients is a new deposit product
– share premium deposit, which derives its interest income
on deposits from the development of the stock market without
the risk of loss of the deposited amount. The deposit holder
has a share in the increase of stock prices but does not
lose anything if they decrease. Share premium deposits are
a combination of a term deposit and a secured fund but with
a shorter period of maturity, insurance of a deposit and yield.
The aggregate balance of purchased premium deposits in 2005
was CZK 1.8 billion.
Volume of implemented trades on the Prague Stock
Exchange in 2005 (CZK bil.)
In 2005, Česká spořitelna also issued a three-year structured
bond “Everbest” with an attractive yield profile targeted at
retail clients. The bond became popular with clients and the
whole issue was subscribed within a short period of time.
197.3 (49%)
Shares and participation
certificates
Trading on Financial Markets
207.2 (51%)
Bonds
Investment Products for Retail Clients
In circumstances when interest rates are low and stock markets
grow, the interest of retail clients shifts from savings products
to investment products. Open-ended mutual funds of
Investiční společnost České spořitelny reported a 22 percent
increase of managed assets to CZK 71.6 billion in 2005.
Foreign mutual investment funds Erste Sparinvest have also
become increasingly popular.
Česká spořitelna also offers other modern investment products. During 2005, it offered, through its branches, ESPA-ČS
Zajištěné fondy, in a number of issues. The funds Zajištěné
fondy combine a guarantee of a full return on the initial
investment and the possibility to have a share in the growth of
share price. The volume of sales of ESPA-ČS Zajištěné fondy
In 2005, Česká spořitelna strengthened its position among
major domestic market makers in respect of all products
traded on the currency, interest rate and equity markets.
The basic orientation of the Bank remains currency, interest
rate and equity markets in the CEE4 region (Czech Republic,
Slovakia, Poland and Hungary) but the Bank also focuses on
searching for new business opportunities. This gradual expansion aims at new markets (Turkey, Romania, Ukraine, etc.),
as well as new products (commodity, structured products,
credit derivatives). Nevertheless, the primary objective of
the Bank is trading on local markets where Česká spořitelna
gained dominant position in recent years, which they wish to
retain in subsequent years.
Initial Offerings of Securities
Česká spořitelna has again confirmed its strong position in the
market of bond initial offerings. Included among the significant
successes in 2005 is the position of the lead manager of the
subordinated bonds of Wüstenrot stavební spořitelna a. s. – the
first bond placement of subordinated bonds in the Czech
Republic. Česká spořitelna was also the arranger of the bond
programme of mortgage bonds of Wüstenrot hypoteční banka,
37
a. s. and placed the first issue within this programme. Česká
spořitelna also introduced four of its own issues of structured
bonds (i. e., bonds with a flexible yield established according
to specific investor requirements) in a total volume of CZK
1.85 billion, which were designed for institutional investors.
During 2005, Česká spořitelna also placed six issues of its
own mortgage bonds in the aggregate amount of CZK 12.5
billion and in May 2005 placed an issue of its own subordinated bonds of CZK 3 billion.
In 2005, Česká spořitelna significantly livened the stock market by placing two new issues on the Prague Stock Exchange.
In February and June 2005, it performed dual quotation of
shares and convertible bonds of Orco Property Group S.A.
and Class A Common Stock of Central European Media
Enterprises Ltd., respectively, in both cases on the main
Prague Stock Exchange market, the SPAD segment.
management products both for individual and institutional
investors. Asset management activities include assets of institutional clients, specifically pension funds and insurance
companies, assets of non-profit organisations, municipalities and private clientele in the aggregate amount of CZK
42.6 billion which constitutes a 17 percent increase in the
volume of managed assets when compared to the 2004 yearend. The year-on-year increase resulted from the combination
of a well planned growth and successful new acquisitions. The
Bank proactively offers its clients asset management services
as an integral component of its product offering. In 2005,
Česká spořitelna continued to operate as a mutual fund investment advisor for certain mutual funds managed by its fellow
subsidiary Erste Sparinvest in Austria, which are designed for
investors in Czech crowns and therefore meet the requirements
of domestic Czech investors.
Volume of actively managed assets (CZK bil.)
Financial Institutions
During 2005, Česká spořitelna became a respected bank for
financial institutions in the Czech Republic. The number of
clients from among international banks using the services
of cash management increased by almost 20 percent. There
was also a significant growth in the number of clients from
among non-banking financial institutions compared to 2004.
During this period, the number of client accounts rose almost
by one third. The same increase was reported in the volume of
funds entrusted for administration and safe-keeping. One of the
main reasons is also the fact that Česká spořitelna prepared in
2005 a number of new products and activities with added value
for its clients.
42.6
40
36.4
30
25.0
20
10
18.5
8.3
0
2001
2002
2003
2004
2005
Depositary
In 2005, Česká spořitelna decreased the number of its multiplicity accounts at foreign banks in standard currencies and
increased the range in more “exotic” currencies so as to expand
investment possibilities for the clients of Česká spořitelna.
In 2005, Česká spořitelna continued in the trend of financing
banking or state institutions. This involved the financing of
domestic and foreign entities in the form of direct and indirect
participation in credit transactions.
Asset Management
Česká spořitelna offers a comprehensive range of asset
38
In 2005, Česká spořitelna continued to be a leader in the
provision of depository services for investment companies and
their mutual funds, investment and pension funds. At the end
of 2005, the Bank provided these services to 15 mutual and
pension funds, which largely comprised the open-ended mutual
funds of Investiční společnost České spořitelny. The assets
managed by the Bank in a depositary capacity amounted to
CZK 90.2 billion, representing a year-on-year increase of
21 percent.
DISTRIBUTION CHANNELS
In terms of direct banking services, Česká spořitelna is at
the forefront of banks operating on the market. Products
such as Servis 24 Internetbanking and Telebanking, GSM
banking and Homebanking MultiCash and OfficeLine are able
to quickly and promptly satisfy the financial needs of over
one million clients. The cornerstone of direct banking at
Česká spořitelna is the most widely used product of direct
banking, Servis 24, and the efficient direct banking centre
– the Client Centre in Prostějov.
The Client Centre continues to maintain a high availability of
its services. A total of 82 percent of all calls are received by
telephone bankers within 20 seconds who provide high quality responses. In 2005, the client centre significantly extended
cooperation with its branches in selling products to the clients
of Česká spořitelna Group and strengthened its selling role
on top of its transaction and information tasks. In addition to
telephone services, the Client Centre’s task is to respond to
the e-mail inbox of Česká spořitelna ‘Napište nám’ (Write to
Us) (csas@csas.cz) and some other service mailboxes. During
2005, more than 54,000 e-mail inquiries were answered and 99
percent of them within one business day.
Number of electronic debit transactions in millions
Mobile Sales Network
1.3 (3%)
GSM banking
2.6 (5%)
Servis 24 Telebanking
11.9 (26%)
Servis 24 Internetbanking
29.7 (65%)
Homebanking a Business 24
0.1 (1%)
Transaction ATMs
Client Centre
Česká spořitelna’s Client Centre provides a wide range of
services to the clients of the Group via a non-stop 24/7 system
in Czech and English.
In 2005, positive trends in previous years continued in the
client centre. Compared to 2004, the total number of processed
client calls rose by 2 percent. Calls provided by telephone
bankers accounted for a significant portion of this increase,
going up by more than 17 percent. Bankers responded
to a total of 2.6 million calls. On the other hand, interest in
anonymous services provided through automatic voice system
(IVR) has steadily declined due to an increasing usage of the
Internet contact.
A major growth has been shown in connection with actively
contacting clients (outbound calls), mainly with the objective
of offering the Group’s products. The total number of active
calls exceeded 428,000 (i. e., increase of 7 percent).
The mobile sales network is an alternative for every client within
Česká spořitelna’s broad client spectrum, who, for whatever
reason, is unable or does not wish to conclude banking deals at
Česká spořitelna’s branches. Key benefits of this form of serving
clients primarily involve the mobility of personal advisors and
an offering of comprehensive financial advisory services. As
part of an external sales network, Česká spořitelna opted for
building a quality network of exclusive sales representatives
and strategic alliance with Kooperativa insurance company,
following the acquisition of a non-life portfolio of Pojišťovna
ČS. During 2005, mutual cooperation continued to develop;
today both companies are strongly interconnected in terms of
sale and make use of the synergies arising from their position on
the market. Česká spořitelna views its mobile sales network and
the strategic alliance as a major long-term competitive edge.
Web Portal
Česká spořitelna’s web portal csas.cz, being one of its main
banking entry points, underwent numerous changes and user
improvements in 2005. The Bank’s priority was user-friendly
navigation and a better structure of its web pages to expedite
the search for information. This was connected with web portal
technological improvements and better searching for information in documents throughout all portals of the bank. For
English speaking clients, an English version has been prepared.
The portal enables using the new consumer loans calculator to
compute the amount of instalments for different types of loans
and request to be contacted by the Bank’s staff. A Press Centre
page has been prepared for journalists, where they can find
information needed for their work.
39
Treasury – analyses and markets (www.csas.cz/treasury)
is a completely new section, and every client or Internet user
can find sufficient information supporting his/her investment
decisions. Clients can benefit from real time monitoring of,
for example, the development of FX rates, stock prices on the
Prague Stock Exchange, corporate bond rates, share indices or
selected commodities, etc. This section also includes a number
of charts and analyses of individual markets. Analyses can
be ordered and regularly received in electronic form. The
Bank’s portal www.hypotecnicentrum.cz offers more space
to cooperating partners and the presentation of their projects in
which Česká spořitelna participates.
The quality of Česká spořitelna’s web pages was confirmed by
its fantastic 8th place in WEB Top 100 contest, which evaluates web pages of all companies in the Czech Republic.
By a system of training and development activities, Česká
spořitelna has been successful in creating an environment
guaranteeing expertise and professional approach of staff.
In 2005, almost all training processes related to internal and
external education became more effective – this primarily
involved a very important adaptation process for newly hired
employees. The training and development of current personnel
is largely dependent upon changes and adjustments of offered
product lines, innovation of banking applications and statutory
requirements for employee training.
Centralised training events were organised in training centres,
while decentralised events took place in individual sections and
branches and in the form of a distant e-learning. Thousands of
CS employees received 37 thousand days of standard trainings
in all kinds of areas, and more than 150 thousand hours of
e-learning.
System of Payment
The number of domestic payment transactions effected through
the clearing centre of CNB increased in 2005 compared to the
previous period by 13 percent to 177.4 million of transactions;
the number of swift reports for the same period rose by 16
percent. The growing amount of payment transactions is an
important feature of higher income from fees and commission.
As was the case in previous years, foreign payments showed
a continuing growth trend. The number of transactions notably
increased year-on-year by 33 percent. The overall increase was
driven, among others, by the persistent trend of more frequent
payment transactions within the European Union, mainly
reflected in the increase of corporate client payment transactions. Another important aspect in the number of processed
transactions is the use of synergies within the Erste Bank
Group involving the performance of payment transactions
under beneficial terms and prices.
NON-COMMERCIAL ACTIVITIES
Human Resources
Česká spořitelna views its qualified, quality, satisfied, professional employees motivated for long-term optimum performance as its competitive advantage.
40
On the basis of feedback, internal programmes designed
for different staff groups were updated and modified.
For example, the “Special Trainee Programme” for junior
employees, or the “Management Development Programme”
for managers with work experience between 2 to 5 years.
Recently, employees have been offered an internal program,
organised in cooperation with other members of the Erste
Bank Group in Slovakia, Austria, Hungary and Croatia, called
“Potential Development Prospective Managers”, which offers
prospective employees the possibility to broaden their managing knowledge and skills on an international level.
Significant changes were made in the system of employee development monitoring and assessment, which was modified in
order to simplify managers’ approach to their subordinates in
terms of their personal development and facilitates the precise
identification of each individual’s training needs. The Bank
also introduced a new self-presentation at the employment opportunities trade fair for students and launched
a campaign to search for new talents from among all types
of university graduates. Česká spořitelna ranked 12th in the
Most Desired Company competition.
Under the Effectiveness Programme, the number of
employees (physical headcount) of the whole financial
group decreased during 2005 by 884 persons (by 8 percent)
to 10,755. Only in Česká spořitelna, the staffing level dropped
by 831 to 10,069. Employees whose employment was
terminated received extraordinary compensations under
the Assistance Programme 2005, receiving three monthly
salaries as compensation. In addition, these employees were
offered new job search assistance from a Consultation Service
with the Bank, and almost 200 employees made use of it. The
qualification structure of the Bank’s personnel continued to
improve. More than 23 percent of employees have a master’s
or bachelor’s degree, the proportion of men is more than one
fourth of all employees. The average age of staff is 39.4. More
than 56 percent of Česká spořitelna’s staff has been employed
with the Bank for more than 10 years.
Number of employees
15,000
14,539
12,998
13,098
12,000
staffing requirements of processes. Centralisation of backoffice activities of regional branches continued. Other organisational changes facilitated higher flexibility in managing
project coordination and financial management of projects and
prerequisites for ensuring the compliance with the documents
of the Basle Committee on Banking Supervision.
Restructuring of the branch facilitated the decrease of the
number of regional branches from 33 to 30, and the current
30 regional branches were newly grouped into two regions,
namely the western and eastern region. As of 31 December
2005, Česká spořitelna had 646 branches, that is, one branch
less than at the end of 2004. The clients also use a state-wide
network of 15 commercial centres and a network of 14
specialised mortgage bond centres.
Quality of Services
12,823
11,421
11,234
11,805
11,019
11,406
10,689
9,000
6,000
3,000
In 2005, Česká spořitelna continued to expand its clientoriented system of service provision. User-friendliness and
improvement of products and services were the key points
for all projects and activities of the Bank. In order to ensure
further increase of client satisfaction, the Bank started implementing Six Sigma and Kaizen methods and created a Service
Improvement Plan to implement specific partial improvements.
These activities will continue in 2006.
0
2001
2002
2003
Number of employees of the ČS Group*
2004
2005
Number of employees of Česká spořitelna*
* average recalculated headcount
During the year ending 31 December 2005, the aggregate
average salary of the Bank’s employee amounted to CZK
36,444 (2004: CZK 34,025) which represents a year-on-year
increase of 7 percent.
During 2005, the process of organisational restructuring Česká
spořitelna continued both in banking and non-banking activities. The optimisation of the management system and higher
effectiveness created pre-conditions for further improvement
of the client service offer. The gradual centralisation of
non-banking activities, mainly in the area of accounting and
controlling, HR, and purchase and administration of assets
within the ČS Group, contributed to the decrease of the
Client satisfaction (CSI)
80
69.03
73.29
73.39
78.24
77.50
2002
2003
2004
2005
60
40
20
0
2001
Same as in previous years, the quality of external services
provided to clients is monitored on an ongoing basis. Major attention is paid to the survey of client satisfaction with services.
Telephone surveys showed that bank clients appreciated the
41
quality of services, expressed in terms of the Customer Satisfaction Index (CSI). In 2005, its value slightly decreased year-onyear by three quarters of a point to almost 77.50 (the maximum
being 100 points). The level of customer satisfaction has became
part of the employee motivation system since 2004.
Czech Republic, but also on our Central European neighbours,
the European Union and the United States. In all these regions,
the Economic and Strategic Analyses Department closely
monitors economies and ratios and makes prognoses thereof in
relation to currency, interest rate and stock markets.
Česká spořitelna also continued in its efforts to improve the
quality of internal services which is regularly measured using
the ‘Service Level Index’. Internal clients’ satisfaction is
seen by the Bank as the key for the ability to provide quality
services. The Bank continued improving the quality of internal
services; the SLI index rose year-on-year from 72.64 by more
than one point to 74.01. The measurement methodology
remained unchanged during 2005 to achieve the maximum
index level.
EU Office of Česká spořitelna
For the fifth year, the service quality team, the ombudsman
team, was involved in identifying and dealing with specific
suggestions from clients which were not resolved at the counter. On the basis of these suggestions, the ombudsman team
proposed a series of corrective measures and system changes.
In 2005, the ombudsman team collected and addressed almost
5,500 customer complaints. The ombudsman team also
continued analysing the substance of complaints obtained from
the Client Centre, the branch network and subsidiaries. They
help set the parameters for making refinements to an array of
services to make their use by clients easier and more effective.
An increase in the total number of collected complaints is
evidence of the continued interest of customers in the events in
Česká spořitelna and in the quality of services, and also of the
Bank’s ability to address these issues.
Economic and Strategic Analyses
The client orientation of Economic and Strategic Analyses
of Česká spořitelna again strengthened in 2005. A team of
analysts processes information provided on the Bank’s website
under the analytical reports section and online data service
(www.csas.cz/analyza). The group of analytical reports was
expanded to include a tenth regular report which focuses on the
market with oil and oil derivatives. The Economic and Strategic Analyses Department prepares background documentation
to assist customers in decisions about business-making and
investments and for the decision-making process of various
sections of Česká spořitelna. The team focuses not only on the
42
The purpose of the EU Office of Česká spořitelna is to
monitor, analyse, and inform about current events in the
European Union within the bank’s internal communication
and inform the clients and the general public about these
events in regular reports. The EU Newsletter received a grant
from the Office of the Czech Government as one of the best
local media informing about the European Union. In addition
to the EU Newsletter, the EU Office publishes Short Notes,
which immediately respond to major impulses from the
European Union.
During 2005, the EU Office presented itself on several seminars and conferences in the Czech Republic and abroad, such
as the conference on the Lisbon strategy, organised in April
2005 within the Luxembourg summit under Luxembourg’s
chairing to the EU bodies. The Bank’s own publication activities significantly increased, as well as the frequency of quotations in press, radio and television. In the first half of 2005,
ČS’s EU Office was one of the main authors participating in
the preparation of two chapters of the governmental Economic
Growth Strategy, which has become the key strategic economic
basis for other governmental EU-related activities.
During 2005, the EU Office also launched an intense cooperation with the governmental Section for Information about
European Issues and made significant progress in relation to
consulting and advisory activities on a regional level. The EU
Office also started offering information products in English,
which serve foreign clients of Česká spořitelna and are used
within the whole Erste Bank Group.
Project Management
Česká spořitelna’s projects form an important element of
the complex development and improvement in the quality of
services. Projects that took place or are currently underway
in the Bank are focused on developing business activities,
sharing synergies with the whole Erste Bank Group,
and strengthening the Bank’s infrastructure, as well as
complying with applicable legislative requirements and
international regulations.
One of major projects for Česká spořitelna clients was CIC III,
which brought a number of new functionalities of electronic
banking designed for retail and corporate clients. Retail
clients of the Bank can use new functionalities of Service 24,
corporate clients can benefit from new internet banking project
entitled Business 24. In 2005, the successful project Hypotéky
(mortgages) continued within which 14 mortgage centres were
made available. Česká spořitelna continues expanding its Data
Warehouse. From the data warehouse, information for the sales
area of the Bank are drawn, as well as data necessary for the
fulfilment of obligations arising from regulatory regulations.
A major one of them is the Anti-Money Laundering Act and
the continuous implementation of Basle criteria.
Česká spořitelna participated in other significant New Group
Architecture projects launched in the Erste Bank Group in
2004. The output of this project is represented by coordinated
activities in business areas, such as consumer credits, card
strategy, and many others. Attention has been given to
coordination of activities supporting the banking operations,
for example, in the IT sector or central procurement.
Information Technology (IT)
The principal objectives of all IT areas involve supporting and
taking an active part in the implementation of the Bank’s key
development activities with the objective of putting in place
a flexible and stable IT environment facilitating the implementation of the Bank’s set business strategy while optimising
operating expenses.
In the legislative area, work continued on the Basel II project
with the goal of implementing risk management within the
Group in compliance with the planned requirements of the
Czech National Bank and with the standards agreed to with
Erste Bank. The AML project addressing the fulfilment of requirements for measures against legalisation of proceeds from
criminal activities (anti-money laundering activities) continued
in the form of implementation of a complex AML information
system, which will be fully compliant with international and
Czech legislation. The Bank also developed a data warehouse,
providing for data extract for purposes of Basel II and AML.
The process of optimisation of IT and other costs continued
in the form of centralisation of selected activities within the
Group (such as central SAP for subsidiaries). In connection
with SAP, centralisation at the level of Erste Bank is under way
– the APO module for cash management was the first one to be
migrated.
New products were successfully launched in backend applications in the area of sporogiro accounts (Senior, Xtra konto,
Exclusive konto); bank statements were modified so as to better comply with client requirements; the new module enables
the monthly recording of interest; also, on-line authentication
of credit transactions (ATM, POS) was put into pilot operation.
The Bank successfully completed a challenging Central
Starbank project, involving the centralisation of the originally
decentralised system for management and administration of
current accounts, loans, overdrafts and term deposits. In connection with CRM, integration with data warehouse was intensified and, owing to the transition of a new version, the system
was stabilised, fully in compliance with the user requirements
on the provision of customer tailored services. At the same
time, the Application Scoring project for private individuals
and its integration with CRM, CPS and ODS continued based
on online communication via Tuxedo middleware, scheduled
for implementation in early 2006.
Traditionally, great attention was paid to distribution channels.
GSM banking was made available to the Bank’s clients within
Servis 24; the Bank’s offer was expanded by products of Penzijní fond ČS and Stavební spořitelna. Other activities in this
area include the increase of the robustness of the whole system
and level of security (SMS authorisation, graphic virtual
keyboard). The credit card project continued with the aim to
implement a new system in 2006. Given the enormous growth
of the number of credit cards, it was also necessary to ensure
sufficient capacity of the current system. In 2005, a charge
back module was implemented. The Loyalty Programme for
payment cards was interconnected with eCommerce and the
Bank ensured that chip cards are accepted by ČS’s ATMs.
43
In the area of central systems, the Unix/Oracle environment
was consolidated due to the necessity to comply with requirements for Servis 24, Basel II, AML, DON, eCommerce and
other. The applications operated on big hall IBM computers
connected to alternative distribution channels began working in
7x24 schemes. Ensuring the security of parameters required by
sales departments (availability, response period, etc.) involves
the preparation of the monitoring system, which should enable
the ongoing monitoring of defined service parameters. The
aim is to ensure the measuring of quality of IT services with
gradual transition to the measuring of quality of sales activities. The analytical phase of WAN III was completed, whereby
the concept of acceleration of data network was defined and
telecommunication service providers were selected. The key
objective is to increase the WAN data network thereby improving the environment for the operation of application equipment
at the branch network of Česká spořitelna.
In order to optimise IT costs within the Erste Bank Group,
the process of integration of IT development units within the
whole group was launched. A similar process was applied in
other IT areas – IT operation and decentralised systems.
Security Policy
The Bank attaches a great deal of importance to the security
policy. The Bank operates an independent and stand-alone
security department which has been charged with overseeing financial security, investigating incidents of operational
risks, maintaining IT security and physical security. The
Bank’s operations in these areas are primarily focused on
preventing all negative phenomena which jeopardise the
security of staff, clients and assets of the Bank.
Major attention has been given to the issues of preventing
money laundering, the financing of terrorism and execution of
international sanctions; the system set in this area conforms to
the applicable legislation, requirements of regulatory bodies
and international standards. The security policy monitoring
the mitigation of operational risk – in particular the potential
criminal activity of clients or employees of the Bank and the
impact thereof on the Bank’s costs, is a priority reference point
in evaluating and administering warnings in software applications, in assessing methodological procedures and evaluating
new development projects in the Bank. In 2005, Česká
44
spořitelna initiated a security integration project for physical
and technical security. The aim is to fully centralise physical
security at the required level, ensure that it is financially stable
with the primary goal being the protection of life and health of
the Bank’s staff and clients and its assets.
Internal Audit
Internal audit at Česká spořitelna is an independent, objective,
assurance and consulting activity designed to add value and
improve the Bank’s processes. It helps the Bank accomplish
its objectives by bringing a systematic, disciplined approach
to evaluate and improve the effectiveness of risk management,
control, and governance processes. In all of the Bank’s functions, Internal Audit monitors processes and activities, reviews
the implementation of actions highlighted by internal and
external audits and reviews. In 2005, Internal Audit provided
the Bank’s management, Audit Committee and Supervisory
Board with objective information and assurance on the level of
risks faced by the Bank.
Partnerships
Česká spořitelna is aware of its commitments to the public.
As a company with corporate social responsibility, it feels
moral obligation to assist and participate in public projects
related to culture, education, sports, and social and charity
events.
Key cultural events supported by Česká spořitelna in 2005
traditionally included classical music festivals – the Prague
Spring International Music Festival, the ‘Smetanova Litomyšl’
International Opera Festival, and also recently the Český
Krumlov International Music Festival. Contemporary music
projects supported by ČS included the Colours of Ostrava festival, Colour of Music, the Khamoro Gypsy Music Festival, and
the Respect Festival. Česká spořitelna has been a long-term
partner of the Czech film industry. The Bank participated in the
Finále Plzeň Festival of Czech Films, the Jihlava International
Documentary Film Festival and the Famufest student film festival. In 2005, the Bank again supported the Vinohrady Theatre
and a number of other regional theatres and the Prague Theatre
Festival of German Language. In the area of education, Česká
spořitelna cooperated with the Prague School of Economics
and the Chamber of Commerce, supported the Secondary
School Professional Activity (SOČ) and the Eurorebus project
or the schola ludus project (school as a game).
The key sport event supported by the Bank is the project Wheel
for Life. This series of 17 regional mountain bike competitions
enables the public to experience a wide range of tracks, active
outdoor activity, recreational bikers can experience a joint
event with professional bikers and the youngest can compete
in tracks of different length. Wheel for Life brings together
a favourite sport activity, cycling, and the Bank with the highest
number of clients. Česká spořitelna is also a long-term general
partner of the Czech Junior Tennis Team, the Czech Athletics
Federation and, since 2005, the Czech Golf Federation.
Through its foundation, founded in 2002, the Bank supported
charitable projects particularly in the social sphere. The Česká
spořitelna Foundation (Nadace České spořitelny) cooperates with non-profit organisations such as civil associations,
public service organisations, foundations and foundation
funds. Financial donations of the foundation were granted
in 2005 to long-term partner organisations, such as such the
Czech Catholic Charity (social and charity activities targeted
at abandoned mothers with children in need, drug addicts,
physically or mentally disabled people), the VIA Foundation
(with the assistance of the ČS Foundation, it implemented
a third programme “We assist people in improving their life
environment”, involving the maintenance of public places,
playgrounds and parks), Život 90- občanské sdružení (Citizens’
Association for Life 90- which assists senior citizens and
deals with active lifestyle of older people; the ČS Foundation
facilitated the expansion of the Areíon emergency care), and
the Sananim Society for the prevention and treatment of drug
addiction in young people (the Foundation supported the
programme of prevention and treatment of young mothers
with children in the Daily Support Centre in Prague 7 and the
Therapeutic House in Karlov). The Foundation also continued
its cooperation with the Institute of Finance and Administration, Tereza Maxová Foundation and the Mamma Foundation
Fund.
Česká spořitelna also makes efforts to involve its clients in
charity activities. In spring 2005, the Bank granted part of
its income from card transactions to the Mamma Foundation
Fund. Since November 2005, clients receiving points for card
payments within the loyalty card bonus programme have been
able to donate these points to charity.
45
STRATEGIC OBJECTIVES
Česká spořitelna‘s vision is to be the first choice bank for all
client groups.
• Through the excellent performance of our employees,
we provide superb advice, help and service to our clients;
• Through superb advice, help, and services to our clients,
we provide extraordinary returns to our shareholders;
• Through extraordinary returns to our shareholders,
we provide a challenging and rewarding environment
for our employees; and
• Through extraordinary returns to our shareholders, we help in
the development of the communities where we do business.
Česká spořitelna‘s mission is to be the financial services provider
enabling all our clients to achieve their specific wishes and needs.
In order to achieve this vision and mission, Česká spořitelna‘s
strategy entails the following:
• Providing high quality products and services building customer
satisfaction, loyalty, and multiple products per household;
• For consumers, providing a full range of products and channels creating competitive advantage due to our physical and
remote presence and the quality of our staff; in particular,
building competitive advantage in housing, wealth management, and sales and service capabilities;
• For commercial clients, through our professional staff and
full range of services, offering a complete relationship to
large corporations, small- and medium- sized enterprises
(SMEs), micro-businesses, public entities and non-profits;
• In information technology, improving efficiency and building platforms to support customer and professional staff
through rapid product and project delivery and ease of use
for clients and staff; and
• In brand management, expanding customer understanding
of Česká spořitelna‘s relationship capabilities and educating
clients about financial services.
In these strategic components, Česká spořitelna‘s goal is to
increase revenues at rates near 10 percent and expenses in the
3 to 5 percent range. The strength of the Czech economy and
the under-penetration of financial products necessitate continued investment in people, products, services and infrastructure
46
in order to implement Česká spořitelna‘s strategy and taking
advantage of attractive market conditions.
MACROECONOMIC FORECAST
The Business Plans and Budget for 2006 are based upon the
following macroeconomic forecast:
• Continued strong economic growth in the Czech Republic;
• Moderate inflation;
• Declining rate of unemployment;
• Relatively low interest rates; and
• Further moderate strengthening of the CZK/EUR
exchange rate.
BUSINESS POLICY
In 2006, Česká spořitelna’s Business Divisions have the
following business priorities:
Retail Banking
Mortgage loans will continue to be the priority growth product
of Retail Banking. The Bank expects the market to grow and
develop further; innovations will include the introduction of
e-mortgages and products for foreign clients. Marketing support
will be developed to enhance growth in consumer loans and
innovations in sales techniques; for example, we have already
introduced a loan agreement which can be signed on the client’s
very first visit to the branch. In all client segments, the Bank will
support alternative distribution channels with the aim of satisfying
client‘s increasing demands for 24 hour availability. In the card
business, chip cards will be introduced, and support will be given
to achieve further growth in the number of credit cards and in the
use of cards for cashless payments; the Bonus Programme will
be further developed to grow card usage. Also, the introduction of
purchasing and prepaid cards is planned, as well as debit cards for
foreign currency accounts and greater security for electronic card
payments over the Internet. Wealth creation will receive increasing
emphasis as the emerging middle class seek to diversify their savings and investments; further education and certification of staff,
marketing support and an open fund architecture are planned.
Corporate Banking
Regarding large corporations, the Bank’s attention will focus
on satisfying the increased sophistication of clients through
Report on Performance and Business
Activities Consolidated Results of Operations
customised products and providing interconnected types of
products and services. The goal of our professional staff is
to be the first choice bank for the most significant domestic
and foreign companies and the local bank for supranational
corporations and their Czech subsidiaries.
For SMEs, the Bank has developed a strategy of providing
its clients with comprehensive services. Aside from SMEs‘
traditional banking products, it will offer SME clients other
financial services, such as factoring; leasing; insurance; advice
and support for clients in company management in obtaining
subsidies and using EU funds; etc. The Bank will continue to
implement programmes from European financial institutions
(the European Investment Bank and the European Investment
Fund) focused on increasing the availability of financing for
this segment. Simplification and optimisation of bank internal
processes will speed up service and financing, creating a
competitive advantage for Ceska sporitelna.
debt-securities and deposits) and investment consulting. The
Bank’s attention will be given to ensuring that a comprehensive
offering of products is made available on one retail platform,
including the possibility of telephone orders through the Client
Centre. A targeted campaign will lead to the strengthening of
Česká spořitelna’s image as a bank providing financial market
services to corporate clientele with highly professional experts.
ANTICIPATED ECONOMIC AND FINANCIAL
POSITION
Given the continuing environment of low interest rates and
strong economic growth, Ceska sporitelna will focus in 2006
on continuing to improve the quality of services and products
across the Financial Group, on further growing the volume
and number of loans to all client segments, and on increasing
efficiency through thoroughly managing operating costs and
making highly selective investments.
Financial Markets
In the year ending 31 December 2006, Česká spořitelna
projects a year-on-year increase in Net Profit of no less
than 10%, Return on Equity (ROE) exceeding 20%, and
Cost/Income Ratio is anticipated to drop below 54%. The
planned increase in Net Interest Income of 7 to 10% is based
on the assumption of a continuing moderate increase in interest
rates throughout 2006. Fee and commission income should
grow approximately 5%, due to the increasing number and volume of transactions. The Bank anticipates that the volume of
personnel costs will decline slightly, as compared to 2005, due
to staff reductions made in the latter half of 2005 and in 2006.
Purchased deliverables will reflect the expected development
in inflation and the increasing business demands of the Bank.
The expected moderate increase in depreciation/amortisation
charges for tangible and intangible assets in 2006 is linked to
the necessary investments in banking technologies and projects
in previous years.
The goal of Financial Markets is to maintain a leading position
among domestic market makers. The Bank will continue to
focus on the development of services for financial institutions
and enhance its position as a significant regional financing partner through bond and stock issues. Significant growth in retail
and corporate lending restricts the room within which the Bank
can make its own financial investments. As such, the potential
areas for growth include mid-term structured products (premium
Ceska sporitelna expects its Consolidated Total Assets
to grow by 5 to 10% in 2006. The Bank plans to realise an
increase in loans to clients by approximately 15 to 20%. The
planned increase is related to the implementation of Česká
spořitelna’s strategic plans to improve the ratio of client loans
and deposits. With respect to liabilities, the Bank expects an
increase of client deposits of approximately 3 to 5% in 2006.
For real estate clients, the Bank will continue its strategy as
a provider of comprehensive financing and bank services for
developers and investors. The Bank expects its participation
in real estate funds to expand. Česká spořitelna will continue
to pursue two main lines of development in the real property
market: as a bank for professional investors and developers,
and as a bank for financing housing needs. Česká spořitelna
plans to be the leading bank in financing housing co-operatives
and condominiums.
In providing services to the public and non-profit sectors,
Česká spořitelna‘s goal is to hold its leading position on the
market, to enhance its participation in infrastructure and environmental projects, and to become more involved in services
provided to foundations.
47
One of the key elements of the Bank’s internal management and control system is its risk management processes.
As a result of its business and other activities, the Bank is
inevitably exposed to a variety of risks, such as credit, market,
liquidity, and operational risks. Česká spořitelna gives great
attention to risk management commensurate with its size,
complexity and the number of products and business activities
and other operations. The Bank has a risk management strategy
in place, approved by the Board of Directors, consisting of risk
management principles including risk identification, monitoring and measuring processes as well as sets of limits and
restrictions. Through the adoption of these principles the Bank
maintains its risk exposures at an acceptable level, thereby
keeping its management processes effective.
The following departments at Česká spořitelna are involved in
managing risk:
• The Central Risk Management Department which is
primarily responsible for market and operational risks and
for managing risks taken by the whole Česká spořitelna
Group on a consolidated basis;
• The Credit Risk Management Department which assumes
responsibility for credit risk within the Group; and
• The Balance Sheet Management Department which
manages interest rate risk inherent in the banking book and
liquidity risk based upon the decisions of the Assets and
Liabilities Management Committee.
In addition to the Board of Directors, approval authorities relating to risk management rest with the following committees:
• The Assets and Liabilities Management Committee;
• The Credit Committee of the Board of Directors of Česká
spořitelna; and
• The Financial Markets and Risk Management Committee.
CREDIT RISK
The Bank takes on exposure to credit risk which is the risk that
a counterparty will be unable to pay amounts in full when due.
In managing credit risk, the Bank applies a unified methodology
which is adopted on a Group-wide basis and sets out applicable
procedures, roles and authorities. The lending policy includes:
• Prudent credit process guidelines, including procedures for
the prevention of money laundering and fraudulent activities;
• General guidelines regulating the acceptability of client seg-
48
ments on the basis of their principal activities, geographical
areas, maximum maturity period, product and purpose of
the loan;
• Principal framework of the rating system and of setting up
and revising borrower rating;
• Basic principles underlying the system of limits and the
structure of approval authorities; and
• Rules of loan collateral management.
In 2005, the Bank placed great emphasis on enhancing the efficiency of the collection of data essential to the risk management
process and replaced its existing data collection system with
a more comprehensive solution involving a data warehouse,
while the responsibility for data processing has remained with
the Risk Management Department. This solution is highly flexible when developing analyses drawing on a unified, group-wide
source of data. The collected data allows the Risk Management
Department to have detailed control over the Bank’s individual
exposures to all its clients. The quality of data significantly
improved, which provides a better basis for its utilisation in
recovering debts, valuing exposures and determining losses.
Rating is perceived as one of the key risk management tools.
Assessing the borrower is an obligatory part of every loan
approval process or when making major changes to lending
terms. The assessment takes into account the borrower’s
financial position, identified weaknesses (such as management,
competitiveness) for corporate clients, or social demographic
indicators for retail clients. The Bank uses a 13+R rating
scale for all clients with the exception of retail clients-private
individuals (8+R) where ‘R’ means client in default.
All information essential for assessing clients is collected and
stored centrally. Revisions of the rating and identification of
the approval level are an integral part of such information.
The information is processed by a statistical software. Regular
reviews and back-testing of statistical models are performed at
least on an annual basis.
For the purposes of making regular updates of the client rating,
the Bank has implemented behavioural scoring which is based
on the client’s account history and loan repayment ability with
respect to all of its exposures to the Group. The rating based
on behavioural scoring reflects the risk attributable to the
client as well as the receivable. The rating of retail clients also
strengthened the Bank’s position by allowing it to control its
risk exposures during an accelerated lending process.
Modification of the rating tools technology applied in respect
of corporate clients resulted in a more flexible environment in 2005 facilitating the introduction of scorecards and
centralisation of data collection. Another upgrade of rating
tools is planned for the clients of the small and medium-sized
business segment where behavioural scoring is scheduled to be
implemented in early 2006. Rating tools for municipalities also
underwent changes, both in the technological environment and
by introducing scorecards. The new rating instrument is linked
to the public administration’s financial information system,
which expands the availability of data for risk management of
all municipalities in the Czech Republic. During 2005, the Bank
tested a pilot operation of a newly developed rating tool for
special loans. The testing primarily focused on data collection
and on client customisation of the technological environment.
The Bank uses in its internal model risk rates such as the
probability of failure, loan losses and loan conversion factors.
Improvements made by the Bank in 2005 primarily related to
the quality of the input information referred to above and the
development of models for setting up risk parameters taking
into account the current portfolio structure. The Bank also expanded statistical-method-based calculation tools based on the
historical data sampling method. A partial objective in this area
is to obtain detailed information about stress behaviour and
potential sensitivity of the principal segments of the portfolio.
In addition to the overall objective of updating the estimation
processes to the level matching the Basel II concept, the Bank
creates an environment facilitating quantitative portfolio
management. At present, the Bank refers to risk parameters in
monitoring and measuring portfolio risks.
In 2005, the Bank began to make greater use of risk parameters
obtained through rating tools, collection of data on defaulted
loans and loss loans and the subsequent calculation of risk
parameters. At present, portfolio risk measurement and management involves managing the coverage of risk through loss
loan provisioning, managing concentration risk via a system
of large exposure limits and the credit Value at Risk (VaR)
technique. During 2005, the Bank launched the pilot operation of the calculation of risk weighted assets and the capital
requirement for credit risk under new Basel II rules.
Beginning 1 January 2005, the Bank has implemented
a provisioning policy in accordance with IAS 39 Revised. The
policy is based on two components, namely individual and
collective losses.
Individual losses represent the losses arising from individually
impaired receivables. Impairment of a receivable is identified
based on loss making events that can be ascertained individually. Impairment of non-retail receivables and retail receivables
with a value exceeding CZK 5 million is measured on an individual basis taking into account the present value of expected
future cash flows using the original effective interest rate of
that receivable. The level of impairment of retail receivables
is determined using the provisioning matrix based on the
classification of the receivable and the segment it belongs to,
where the classification represents the ascertained status of impairment or an event. Each individual component of this matrix
is derived from historical experience with defaulted receivables
and the potential recoverability of similar types of receivables.
All exposures are revalued on a monthly basis depending on
whether a loss making event occurred. The collective losses
component reflects the aggregate impairment of assets which
are not impaired individually. Aggregate impairment covers
collective losses arising from internal or external loss making
events. Loss making events are measurable and identifiable
in relation to the current portfolio. The extent of impairment
reflects the Bank’s expert estimate as to the sensitivity of the
public to loss making events.
The Bank manages the loan portfolio concentration risk through
a system of large exposure limits. In 2005, the Bank began to
report in its regular management statements results of the credit
VaR technique in respect of the portfolio of the biggest debtors.
Large exposure limits are defined as the maximum exposure
that the Bank may accept in respect of a client with a given
rating and underlying collateral. In setting the system of limits,
the Bank strives to protect its revenues and capital from risk
concentration. Risk concentration is measured as the capital required for the given portfolio. The credit VaR technique is based
on the simulation of a potential development of debtors using
the Monte Carlo method which draws upon the Bank’s internal
experience with debtor failures and the related correlations. The
function of a loss affecting the impairment of a portfolio for the
relevant scenario is based upon regulatory rules for the measurement and calculation of provisions against receivables in default.
49
One of the successes achieved in 2005 involved the implementation of the prototype of the tool for calculating the capital
requirement for credit risk based on the new Basel II rules. In
the latter half of 2005, as part of the implementation process,
this tool was subject to comprehensive testing and set to
comply with internal requirements and changes in applicable
regulations. In late 2005, the pilot calculation of risk weighted
assets and the capital requirement was launched. The first
output was presented to the Bank’s management together with
the closing results for 2005 and the 2006 forecast. The year
2006 is expected to see the finalisation of the setting and finetuning of calculations, specifically in respect of double defaults
and assets held for trading.
MARKET RISKS
Market risks undertaken by the Bank principally relate to
transactions in financial markets which are traded in both the
trading and banking books, and interest rate risk associated
with assets and liabilities in the banking book.
Trading book transactions in the capital, money and derivative
markets can be segmented as follows:
• Client quotations and client transactions, execution of client
orders;
• Interbank market quotations;
• Active trading in the interbank market; and
• Distribution of financial market products to small clients.
Derivative transactions are also entered into to hedge against
interest rate risk inherent in the banking book and to refinance
the gap between foreign currency assets and liabilities.
Market risk inherent in the trading book and banking book
is monitored and measured by the Central Risk Management
Department, which is independent and separate from the
Financial Markets Division, to ensure that the reported data
and risk measurement is correct and free from bias. All limits
for market risks inherent in the trading book are proposed
by the Central Risk Management Department and business
departments, and approved by the Financial Markets and Risk
Management Committee. The set of market limits need to
comply with the maximum risk exposure (measured via the
VaR method) as approved by the Bank’s Board of Directors
and also need to be confirmed by the parent company, Erste
50
Bank. The VaR method is used to quantify aggregate risk with
respect to the banking book as well as the Bank’s subsidiaries,
following specific procedures modelling the behaviour of
assets and liabilities in those portfolios.
In order to measure the interest rate risk exposure in respect
of financial market transactions, the Bank uses the ‘PVBP
gap’ defined as a matrix of interest rate sensitivity factors by
currency for the individual portfolios of interest rate products.
These factors measure the portfolio market value sensitivity with
a parallel shift of the yield curve of the relevant currency within
the predefined period to maturity. The system of PVBP limits is
set in respect of each interest rate product trading portfolio by
currency. The limits are compared to the value that represents
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. By adopting this approach, the Bank manages not only
the risk attached to a parallel shift of the yield curve, but also
any possible ‘flip’ of the yield curve. A limit for the simple sum
of PVBP values is set for major currencies such as CZK, EUR,
USD. With regard to currency options, the PVBP limits also
include the rho and phi equivalents. In addition, the Bank monitors other special limits for interest rate option contracts, such as
the gamma and vega limits for interest rates and their volatility.
The sensitivities of foreign currency derivative contracts to
foreign exchange rate movements are measured in the form
of delta equivalents and are reflected in the Bank’s foreign
currency position. The Bank monitors special limits for
foreign currency option contracts, such as limits for the 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. In addition, the Bank monitors the sensitivity of
value to the period to maturity (theta) as well as interest rate
sensitivity (rho) which is measured, together with other interest
rate instruments, in the form of PVBP.
The equity risk of the trading book is monitored using the delta
sensitivities of portfolio market values to equity price movements both by equity issue and in aggregate for each of the
markets and the entire portfolio.
The Central Risk Management Department uses other sophisticated procedures to assess the value and risks inherent in
structured products whose explicit valuation is not feasible.
Monte Carlo is the most frequent method used to simulate
the probability distribution for the price and prospective
development of complex transactions. In this respect, the Bank
cooperates closely with the parent company, Erste Bank.
• Value at Risk with a confidence level of 99.8 percent (the
worst historical scenario over the series of the most recent
500 scenarios); and
• What-if scenarios as proposed by the Analysis Department
on the basis of the most recent macroeconomic situation.
In order to measure market risk inherent in the trading and
banking books on an aggregate basis, the Bank uses the Value
at Risk concept. Value at Risk is calculated with a confidence
level of 99 percent over the holding period of one trading
day. The calculation is performed using the KvaR+ system
and historical simulations based on historical data over the
most recent 500 trading days. VaR limits are established for
individual trading desks/portfolios. The VaR method is complemented with ‘back testing’ which is designed to review the
model for correctness. Back testing involves comparing daily
estimates of VaR to the hypothetical results of the portfolio on
the assumption that the positions within the portfolio remain
unchanged for one trading date. Back testing results have,
to date, confirmed the correctness of the setting of the VaR
calculation model.
Stress scenario results are compared with the Bank’s capital
allocated pursuant to the standard CNB methodology and the
new internal capital model for calculating capital requirements
from market risks.
Following an approval by the Czech National Bank (ČNB),
the Value at Risk concept is also used to calculate the capital
requirement in respect of foreign currency risk, general interest
rate risk, general and specific equity risk and risk associated
with trading book option contracts. The review and approval
of the model by the Czech National Bank and Internal Audit
involved examining both the quantitative requirements and
qualitative aspects of risk management. The Bank has been
using its internal model to calculate the capital requirement in
respect of market risks, as the only bank to do so in the Czech
Republic, since 31 December 2003. Value at Risk calculations
are also applied in assessing the risks inherent in the asset
portfolios of the Bank’s subsidiaries (for Penzijní fond ČS and
Pojišťovna ČS) and in assessing market risks in the banking
book of Stavební spořitelna ČS using special models for the
mapping of the Bank’s balance sheet.
The Bank’s trading book undergoes regular monthly stress
testing. The following scenarios are applied:
• Scenarios derived from 10-15 year historical data using
maximum positive and negative changes (one-day and
ten-day) for interest rates, equity prices, exchange rates and
volatilities separately;
In addition to sensitivity and VaR limits, the Bank has
established and monitors, on a daily basis, stop-loss limits
for individual trading desks. The monthly stop-loss limit is
compared to the current monthly result of the relevant trading
desk; the annual stop-loss limit is compared to the difference
between the best result (realised and unrealised profit) in the
relevant year and the current result of the trading desk.
The Risk Management Department also monitors market
conformity of transactions entered into on financial markets
with the objective of detecting market manipulations and
preventing operational risks.
Guidance on sensitivity, VaR and stop-loss limits together with
the method of determination of the limit and measures to be
taken if the limit is transgressed, is given in the Bank’s internal
regulation, the Risk Management Manual, which forms part of
the Risk Management Strategy in terms of the CNB Regulation
2/2004 on Internal Management and Control System at Banks.
INTEREST RATE RISK
The Bank manages interest rate risk inherent in the banking
book by using the following techniques: simulation of net
interest income, sensitivity of net interest income to changes
in market interest rates (parallel/non-parallel discreet shift in
yield curves, stochastic simulation of the yield curve), simulation of changes in the theoretical market value of the banking
book when a market yield curve shifts by +100 basis points
(including key rate duration), duration, and gap analyses.
The most recent interest rate risk exposure undertaken by
the Bank is assessed on a monthly basis by the Assets and
Liabilities Management Committee within the context of the
51
overall developments in financial markets, the Czech banking
sector, and structural changes in the Bank’s balance sheet.
The key parameter monitored in respect of the Bank’s interest rate sensitivity involves the relative change in the Bank’s
projected net interest income should the market interest rates
immediately show a parallel decrease/increase by +100/-100
basis points over the horizon of the following 36 months on the
assumption of a stable balance sheet structure (ie, the product
structure of assets and liabilities). At the end of 2005, the sensitivity of the Bank’s net interest income to a parallel increase
in market interest rates of 100 basis points was 3 percent (in
other words, if the market interest rate levels increased by 100
basis points, Česká spořitelna’s net interest income over a period
of three years would increase by 3 percent. If market interest
rate levels decreased by 100 basis points, the sensitivity of net
interest income was 4 percent. The sensitivity’s asymmetry has
been attributable to the low absolute level of market interest
rates: should market interest rates fall further, the Bank is unable
to decrease the client deposit interest rates any further (negative
deposit interest rates cannot be applied).
LIQUIDITY RISK
Liquidity risk is the risk that the Bank will encounter difficulties in meeting its financial commitments when they fall due,
or in raising funds to finance its assets. The Bank’s liquidity
position is monitored and managed based on expected cash
inflows and outflows and by adjusting interbank deposits and
loans accordingly.
In terms of liquidity management, the key trend for the year
ended 31 December 2005 involved the continued growth of
the volume of medium-term and long-term assets, particularly
client loans (mortgage loans, retail loans). The volume of client
deposits rose by approximately 7 percent year-on-year. Both
trends resulted in the relatively stable current liquidity ratio (see
the following table) throughout 2005. The current liquidity ratio
is defined as the proportion of assets readily convertible to cash
and a significant portion of liabilities. For illustrative purposes,
the assets readily convertible to cash as of 31 December 2005
amounted to CZK 59 billion, the denominator used in calculating current liquidity included CZK 400 billion in liabilities.
Current Liquidity Ratio in 2004 and 2005
31 March
30 June
30 September
31 December
2004
41.23%
24.44%
20.76%
15.51%
2005
21.94%
17.61%
19.73%
14.86%
OPERATIONAL RISKS
In accordance with the draft Regulation of the Czech National
Bank giving guidance on internal control and management
systems of banks, the Bank defines operational risk as the risk
of loss arising from the inappropriateness or failure of internal
processes, human error, or system failure, or the risk of loss
resulting from external events. The Bank’s management is
informed of developments in, and levels of operational risks at
regular intervals.
Česká spořitelna uses a ‘Risk Book’, developed by the Risk
Management functions and Internal Audit, as a tool to unify risk
identification for the purposes of the whole Česká spořitelna
Financial Group and to standardise risk categorisation, the aim
being to achieve consistency in risk monitoring and assessment.
52
In the context of implementing the new capital adequacy concept
under Basel II, Česká spořitelna is preparing for the implementation of the most advanced technique for calculating the capital
requirement from operational risks including qualitative requirements applicable to the management of such risk. The Bank has
continued in developing a software application that is used not
only to collect data on operational risk with a view to quantifying
operational risks and calculating the capital requirement but it
also serves as a database of valuable information for managing
risk, preventing recurrences of operational risks, and streamlining the processes for harmful event record-keeping including
insurance claims and payment. Information about operational risk
incidents in the Česká spořitelna Financial Group is assessed at
regular monthly intervals in terms of the frequency and level of
financial losses for individual departments, products and types of
operational risks. With regard to any negative trends, specialist
groups are called to deal with the incidents and revise work
procedures to mitigate the impacts of operational risks. The collection and assessment of data regarding improper dealings on the
part of the Bank’s clients is of specific importance to prevention.
Česká spořitelna does not rely only on the data obtained
from real operational risk events in assessing and managing
operational risks. Another valuable source is the expert views
of the management regarding risks in their areas of concern.
The internal risk assessments are collected and expert risk
scenarios are evaluated twice a year.
A tool of importance in mitigating losses arising from operational risks is the Bank’s insurance programme which was put
in place in 2002. This programme involves insurance of property damage as well as risks arising from banking activities
and liability risks. On 1 March 2004, the Bank joined the Erste
Bank Group joint insurance programme which substantially
expanded the Bank’s insurance protection specifically with
regard to damage that may materially impact its profit or loss.
Česká spořitelna is perceived as the leading Czech bank in the
monitoring and management of operational risks. Drawing upon
its experience in the management of operational risks, Česká
spořitelna is actively involved in a joint project of the Czech
National Bank, the Czech Banking Association, and the Czech
Chamber of Auditors on the implementation of new regulatory
rules ensuing from Basel II in respect of operational risks.
MCZK*
Capital adequacy
2005
CAPITAL ADEQUACY
At the end of 2003, the Bank revised its methodology for calculating the capital requirement in respect of foreign currency risk,
general interest rate risk, general and specific equity risk and
risk associated with trading book option contracts on the basis
of the Czech National Bank’s approval of the Bank’s request for
the use of its internal model according to CNB Notice 333/2002.
The internal model for calculating the capital requirement on the
basis of the VaR method has been in place since 31 December
2003. The model has contributed to a non-negligible decrease in
the capital requirement in respect of the trading book.
Česká spořitelna’s capital adequacy exceeded 8 percent as
required by the Czech National Bank in 2005. The increasing
volume of client loans necessitated the strengthening of regulatory capital of the Bank through the issuance of subordinated
debt. The Bank issued subordinated debt at an aggregate
nominal value of CZK 3 billion in 2005. The debt will mature in
ten years and the Bank has an option for premature repayment
of the debt after the elapse of five years. On a year-on-year
basis, capital adequacy decreased from 8.97 percent at the 2004
year-end to 8.70 percent at the same date a year later (unconsolidated figures under Czech National Bank rules). The change in
the capital adequacy ratio was marginal in 2005 as the increasing capital adequacy requirements arising from increased client
lending were offset by the inclusion of retained earnings brought
forward from 2004 in regulatory capital (CZK 2.6 billion) and
the issuance of the subordinated debt referred to above.
2004
2003
2002
2001
8.70%
8.97%
10.30%
12.85%
15.06%
27,260
24,301
21,910
22,583
20,184
Tier 2 and Tier 3
2,998
1,047
1,258
7,693
7,475
Sum of deductible items
6,413
6,301
5,032
5,350
1,415
Total capital
28,176
23,297
22,115
24,926
26,244
Capital requirement A
24,489
19,055
15,664
14,035
12,641
Capital requirement B
1,426
1,713
1,506
1,481
1,302
306,107
238,193
195,796
175,432
158,007
Tier 1
Risk weighted assets
* Figures reported under Czech National Bank rules in CZK million.
53
Structure of shareholders of Česká spořitelna as of
31 December 2005
Ownership percentage
Structure of shareholders of Česká spořitelna as of
31 December 2005
Share of voting power
1,57%
Municipalities and local
governments of the Czech
Republic
0,00%
Municipalities and local
governments of the Czech
Republic
97,98%
Erste Bank der oesterreichischen
Sparkassen AG, Graben 21,
Vienna, Austria
99,52%
Erste Bank der oesterreichischen
Sparkassen AG, Graben 21,
Vienna, Austria
0,45%
Other legal
and individuals
0,48%
Other legal
and individuals
The members of Česká spořitelna’s Board of Directors and Supervisory Board held no shares in Česká spořitelna as of 31 December 2005.
INFORMATION ON THE ACQUISITION OF TREASURY
SHARES AND SHARES OF ERSTE BANK
• Marketability of shares: Shares are not traded on any
public markets.
During the year ended 31 December 2005, Česká spořitelna
did not hold or trade any treasury shares, and acted as the
market maker in respect of the shares of its controlling
entity, Erste Bank, in the Prague Stock Exchange. For this
purpose, Česká spořitelna acquired, under normal market
conditions, 5,116 thousand shares with an aggregate
purchase price value of CZK 6,346 million and sold 5,070
thousand shares with an aggregate selling price value of
CZK 6,293 million. The lowest and the highest purchase
prices per share in 2005 were CZK 1,076 and CZK 1,393,
respectively. At the start of 2005, Česká spořitelna held
3,547 shares; at the end of 2005, it held 50,000 shares, which
represents a 0.02 percent share of Erste Bank’s issued share
capital. The average nominal value of one share of Erste
Bank was EUR 2 at the end of 2005.
Mortgage Bonds Issuance Programme of Česká
spořitelna, a.s.
INFORMATION ON SECURITIES ISSUED
Shares of Česká spořitelna, a.s.
• Class: Ordinary and priority shares
• Type: 140,788,787 ordinary bearer shares, 11,211,213
priority registered shares
• Form: Book-entry
• Number of shares: 152,000,000
• Total issue volume: CZK 15,200,000,000
• Nominal value per shares: CZK 100
54
• Maximum volume of outstanding mortgage bonds: CZK
10,000,000,000
• Term of the programme: 15 years
• Maximum maturity of any bonds issued under the Bond
Programme: 10 years
Under the Bond Programme, the Bank has issued mortgage
bonds as follows:
5.80 percent mortgage bonds due in 2007
•
•
•
•
•
•
•
•
ISIN: CZ0002000201
Issue date: 8 November 2002
Type: Bearer
Form: Book-entry
Total issue volume: CZK 3,000,000,000
Nominal value per bond: CZK 100,000
Number of bonds: 30,000
Coupons: Fixed 5.80 percent interest rate p.a. paid annually
in arrears
• Mortgage bonds traded on: Prague Stock Exchange, free
market
• Denomination of the bonds: CZK
• Bond maturity: Mortgage bonds will be redeemed at
their nominal value on 8 November 2007
•
•
•
•
•
•
•
•
ISIN: CZ0002000235
Issue date: 6 March 2003
Type: Bearer
Form: Book-entry
in arrears
• Mortgage bonds traded on: Prague Stock Exchange, free
market
• Bond maturity: Mortgage bonds will be redeemed at their
nominal value on 6 March 2008
•
•
•
•
•
•
•
•
ISIN: CZ0002000276
Issue date: 21 August 2003
Type: Bearer
Form: Book-entry
in arrears
• Mortgage bonds traded on: Prague Stock Exchange,
official free market
nominal value on 21 August 2008
•
•
•
•
•
•
•
•
•
ISIN: CZ0002000342
Issue date: 26 April 2004
Type: bearer
Form: Certificate (mortgage bonds represented by a collective bond)
Total issue volume: Up to CZK 1,000,000,000
Volume issued until 31 December 2004: CZK
300,000,000
Number of bonds: Up to 100,000
Number of bonds issued at 31 December 2004: 30,000
• Issue period: Until 30 April 2004
• Coupons: Fixed 3.50 percent interest rate p.a. paid annually
in arrears
• Mortgage bonds traded on: --• Denomination of the bonds: CZK
nominal value on 26 April 2009
•
•
•
•
•
•
•
•
•
•
•
ISIN: CZ0002000409
Issue date: 23 August 2004
Type: bearer
Form: Certificate (mortgage bonds represented by a collective bond)
Total issue volume: CZK 700,000,000
in arrears
Mortgage bonds traded on: --Denomination of the bonds: CZK
Bond maturity Mortgage bonds will be redeemed at
their nominal value on 23 August 2009
Stand-Alone Mortgage Bond Issues
•
•
•
•
•
•
•
•
ISIN: CZ0002000524
Issue date: 5 May 2005
Type: Bearer
Form: Book-entry
Nominal value per bond: CZK 1,000,000
in arrears
nominal value on 5 May 2010
• ISIN: CZ0002000516
55
•
•
•
•
•
•
•
Type: Bearer
Form: book-entry
Number of bonds: 600
Coupons: Fixed 1.85 percent interest rate p.a. paid
quarterly in arrears
nominal value on 6 August 2006
•
•
•
•
•
•
•
•
ISIN: CZ0002000573
Issue date: 30 June 2005
Type: bearer
Form: book-entry
in arrears
nominal value on 30 June 2010
•
•
•
•
•
•
•
•
ISIN: CZ0002000623
Issue date: 7 October 2005
Type: bearer
Form: book-entry
in arrears
56
nominal value on 7 October 2015
Variable-rate mortgage bonds due in 2012
•
•
•
•
•
•
•
•
ISIN: CZ0002000763
Issue date: 19 December 2005
Type: bearer
Form: book-entry
Total issue volume: Up to CZK 10,000,000,0001
Coupons: Variable interest rate paid quarterly in arrears,
established as 3M PRIBOR + margin, where the margin
means the value minus 0.20 percent p.a.
nominal value on 19 December 2012
Note 1: As of 31 December 2005, the Bank issued 2,000 mortgage bonds with a nominal value of CZK
2,000,000,000. The remaining mortgage bonds may be issued within three years after the issue date, that
is, within the additional issue period.
•
•
•
•
•
•
•
•
ISIN: CZ0002000771
Issue date: 22 December 2005
Type: bearer
Form: book-entry
Total issue volume: Up to 5,000,000,0001
in arrears
nominal value on 22 December 2008
Note 1: As of 31 December 2005, the Bank issued 900 mortgage bonds with a nominal value of CZK
900,000,000 The remaining mortgage bonds may be issued within 18 months after the issue date, that is,
within the additional issue period.
Bonds Issuance Programme of Česká spořitelna, a.s.
• Maximum volume of outstanding bonds: CZK
10,000,000,000
• Term of the programme: 10 years
• Maximum maturity of any bonds issued under the Bond
Programme: 10 years
Under the Bond Programme, the Bank has issued bonds as
follows:
Bonds with fixed 1.00 percent interest income p.a. and
an option to participate in the positive development of
the DJ EUROSTOXX 50 share index
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ISIN: CZ0003700759
Issue date: 2 February 2004
Type: bearer
Form: book-entry
Total issue volume: Up to 500,000,000
Volume issued until 31 December 2004: CZK
400,000,000
Number of bonds: Up to 50,000
Number of bonds issued at 31 December 2004: 40,000
Issue period: 6 weeks from the issue date
in arrears
Bonds traded on: Prague Stock Exchange, free market
Denomination of the bonds: CZK
Bond maturity: Bonds will be redeemed at their nominal
value on 2 February 2008; at maturity, a bond holder is
entitled to a bonus derived from the movement of the DJ
EUROSTOXX 50 share index in accordance with the terms
and conditions of the issue.
Bonds with floating interest income
•
•
•
•
•
•
•
•
•
ISIN: CZ0003700767
Issue date: 16 February 2004
Type: bearer
Form: book-entry
Coupons: Floating interest rate paid semi-annually in arrears
Bonds traded on: Prague Stock Exchange, official free market
• Bond maturity: Bond maturity is optional and at the issuer’s
discretion, the bonds may be redeemed at their full nominal
value on 16 February and 16 August starting from 16 February 2005; the final maturity date is 16 February 2014.
Premium bonds (with an option to participate in the
positive development of the DJ EUROSTOXX 50 share
index) due in 2008
•
•
•
•
•
•
•
•
ISIN: CZ0003701013
Type: bearer
Form: Certificate (bonds represented by a collective bond)
Coupons/yield : The yield is derived from the movement
of the DJ EUROSTOXX 50 share index in accordance with
the terms and conditions of the issue.
• Bonds traded on: --• Denomination of the bonds: CZK
• Bond maturity: Bonds will be redeemed at their nominal
value on 30 June 2008
Bonds with optional maturity of 2009/2012
•
•
•
•
•
•
•
•
ISIN: CZ0003701047
Issue date: 14 July 2005
Type: bearer
Form: book-entry
Premature redemption: At the issuer’s discretion, bonds
can be prematurely redeemed at their nominal value on 14
July 2009
• Coupons /yield : Bonds bear a fixed interest rate of varying
amount: (i) 2.72 percent p.a. for the period from the issue
date to 14 July 2009 (included); and (ii) 3.55 percent
p.a. from 14 July 2009 (excluded) to the date of the final
maturity of bonds, unless they are prematurely redeemed by
the issuer. The interest rate is payable annually in arrears.
• Bonds traded on: Prague Stock Exchange, official free
market
57
• Bond maturity: Bond maturity is optional and at the
issuer’s discretion, the bonds may be redeemed at their full
nominal value on 14 July 2009; the final maturity date is
14 July 2012
Bond with the yield derived from the stock basket due
in 2013
•
•
•
•
•
•
•
•
ISIN: CZ0003701062
Issue date: 17 October 2005
Type: bearer
Form: book-entry
Coupons/yield: Bond yield consists of (i) basic interest
income and (ii) income derived from the stock basket in
accordance with the terms and conditions of the issue.
market
value on 17 October 2013
Subordinated bonds with a floating interest income
due in 2015
•
•
•
•
•
•
•
•
•
•
•
Stand-Alone Bond Issues and Issues of Subordinated
Bonds
Bonds with a combined yield due in 2017
•
•
•
•
•
•
•
•
ISIN: CZ0003701054
Issue date: 15 September 2005
Type: bearer
Form: book-entry
Coupons/yield: Bond yield consists of ((i) yield derived
from a discount, (ii) basic interest income, (iii) additional
interest income and (iv) yield derived from the stock basket
in accordance with the terms and conditions of the issue
market
value on 15 September 2017
58
•
•
ISIN: CZ0003701005
Type: bearer
Form: book-entry
Issuer’s right to premature redemption (purchase
option)1: The issuer has a right to prematurely redeem the
bonds as of 16 May 2010 at their nominal value
Coupons/Yield: Bonds bear a floating interest rate determined as the sum of the reference rate (6M PRIBOR) and a
0.46 percent margin p.a. (the “Margin”)
Interest rate step-up2: If the bonds are not redeemed by
the issuer as of 16 May 2010, the interest rate valid for the
period starting from that date to the date of final maturity of
bonds will be determined as the sum (i) of the reference rate
(6M PRIBOR) in accordance with issue terms and conditions and (ii) margin equal to the Margin + 1.40 percent p.a.
paid semiannually in arrears
Bonds traded on: Prague Stock Exchange, official free
market
Denomination of the bonds: CZK
Bond maturity: At the issuer’s discretion, the bonds may
be redeemed at their full nominal value on 16 May 2010,
the final maturity date is 16 May 2015 at their nominal value
Note: 1 Under Section 12 (2) (b) (4) of Regulation of the Czech National Bank No. 333/2002 Coll.,
stipulating prudential undertaking rules for controlling entities on a consolidated basis.
2
Under Section 12 (2) (b) (4) of Regulation of the Czech National Bank No. 333/2002 Coll.,
stipulating prudential undertaking rules for controlling entities on a consolidated basis.
Licences and Trademarks
Key licences acquired under intellectual property arrangements
relate to licences for the use of software:
• SAP R/3 (mySAP.com) by SAP (this software is used for
the maintenance of the Bank’s financial accounting records,
controlling, maintenance of issues related to the management of materials and HR records);
• Symbols by System Access (this software is used for trading in the commercial banking sector);
• Starbank and Centralised Starbank by Spordat (this software
is designed to support the maintenance of current accounts,
term accounts, foreign currency accounts and loans); and
• Siebel e-Finance by Siebel Systems (this software is
designed to support a consolidated customer profile).
Česká spořitelna owns several trademarks registered in the
Trademark Register held at the Industrial Property Office
which relate to its major products.
Financial investments in shares and bonds
MCZK, unconsolidated figures
2005
2004
Bonds
127,688
137,277
Shares
7,314
5,011
Equity investments
6,751
4,606
141,753
146,894
2005
2004
Tangible fixed assets
1,416
1,657
Intangible fixed assets
1,819
1,741
Total
3,235
3,398
Total financial investments
Acquisition of tangible and intangible fixed assets
MCZK, unconsolidated figures*
* Figures based on statements prepared in compliance with the Czech Statistical Office’s
methodology
As of 31 December 2005, Česká spořitelna owned or co-owned
392 buildings and 969 plots of land with an aggregate net book
value of CZK 10.6 billion.
Information on Principal Future Investments
For the year ending 31 December 2006, Česká spořitelna
anticipates acquiring assets in an aggregate amount of CZK
3,262 million. Of this amount, approximately CZK 1,438
million will be invested in projects, CZK 1,011 million in
information technologies, CZK 617 million in construction
projects, CZK 170 million in office and banking technology,
and others, and CZK 26 million in physical security.
Operating income
MCZK, unconsolidated figures
Net interest income
2005
2004
18,493
16,074
8,041
7,761
Profit on financial operations
1,263
1,268
27,797
25,103
Operating income
59
Classification of receivables
2005
Gross loans and advances to customers and financial institutions according to classification
312,673
Standard
187,928
Watch
6,217
Substandard
1,964
Doubtful
1,242
Loss
2,887
Portfolio of individually insignificant receivables from clients
112,435
Aggregate provisions against provided loans and advances
5,046
Watch
1,021
Substandard
901
Doubtful
839
Loss
2,085
Portfolio of individually insignificant receivables from clients
200
* Figures based on statements prepared in compliance with the Czech National Bank’s methodology
Loans and advances by type of collateral
2005
Bank guarantee and guarantee provided by a reputable third party
28 136
Cash collateral
458
Collateral in the form of bonds of reliable issuers and listed securities
9 039
Collateral in the form of a pledge on real estate
91 487
Other loan collateral
21 129
Uncollateralised
162 424
* Figures based on statements prepared in compliance with the Czech National Bank’s methodology
Audit Fees paid to Deloitte for the year ended 31 December 2005
MCZK
Audit services
Other
Total
Česká spořitelna
23
2
25
Consolidated group
15
0
15
60
REMUNERATION OF EXECUTIVE MANAGERS AND
MEMBERS OF THE SUPERVISORY BOARD
Executive Managers of the Issuer
The executive managers of Česká spořitelna, a.s. include the
Chairman of the Board of Directors, acting also as the CEO, and
members of the Board of Directors, acting also as Deputy CEOs.
Pursuant to the law, the Board of Directors is a statutory body
which manages the operations of the company and acts on its
behalf. Members of the Board of Directors of Česká spořitelna
exercise their powers with due professional care, in good faith,
with due care and diligence and in the best interests of the
company and its shareholders. They are experts in managing
large corporations and have international experience and the
ability to work as a team. Their position calls for ongoing perfection of their industry knowledge and corporate governance
skills, proactive approach to the discharging of their duties, the
ability to participate in developing corporate strategy and, last
but not least, loyalty to the company. Members of the Board of
Directors observe high ethical standards and are responsible
for ensuring that the company complies with the applicable
laws. They are also personally liable for damage arising from
the breach of legal obligations, and are responsible in their
capacity as Board members to the company as represented by
shareholders.
Members of the Board of Directors are remunerated based
on the “Contract for the Performance of Duties of a Member
of the Board of Directors” concluded in accordance with the
applicable provisions of Commercial Code 513/1991 Coll.
This Contract was approved by the General Meeting of the
company’s shareholders. The amount of Board members’
remuneration is subject to approval of the General Meeting.
The remuneration of the CEO and Deputy CEOs is paid in
the form of a salary for performed work. In accordance with
the company’s Articles of Association, the amount of salary
is approved by the Supervisory Board and is based, among
others, on qualified benchmarking analyses of remuneration in
the financial sector.
In addition, the CEO and Deputy CEOs are remunerated with
regard to their performance evaluation undertaken based on
the fulfilment of defined performance criteria. These criteria
reflect the overall financial objectives of the Česká spořitelna
and Erste Bank Financial Groups (financial indicators such as
ROE). Performance criteria are set for each calendar year and
are approved and subsequently assessed by the Supervisory
Board.
Based on their management and professional expertise,
experience and contribution to the company, the Board
members received the following remuneration arising from the
position of the CEO and Deputy CEO: monetary income in an
aggregate amount of CZK 48 million, bonuses in an aggregate
amount of CZK 43 million, income in kind in an aggregate
amount of CZK 2.5 million, and 12,000 shares of Erste Bank
and remuneration including income in kind in an aggregate
amount of CZK 1.0 million. These amounts were paid out
in connection with meeting financial, qualitative, development and effectiveness criteria. In 2005, the Board members
subscribed for 4,200 shares of Erste Bank under the Employee
Erste Bank Stock Ownership Programme (refer to the notes to
the financial statements), and received 24,000 options under
the Management Erste Bank Stock Option Programme (refer to
the notes to the financial statements).
Members of the Board of Directors or persons closely related
to them do not own shares or share purchase options of Česká
spořitelna. Since August 2002, the shares of Česká spořitelna
have not been publicly tradable.
Supervisory Board
The Supervisory Board is the company’s control body,
supervising the exercise of powers of the Board of Directors
and the performance of business activities of the company. The
Supervisory Board checks, in particular, whether the Board
of Directors performs its duties in compliance with legislation and Articles of Association of the company and whether
the members of the Board of Directors act in the interests
of the company with due professional care. Members of the
Supervisory Board perform their duties with professional
care. Members on the Supervisory Board are required to have
professional skills, be loyal to the company and maintain
61
the confidentiality of confidential information and matters.
Supervisory Board members are liable for damage arising from
the breach of legal obligations, and are responsible in their
capacity as members of the Supervisory Board to the company
as represented by shareholders.
Members of the Supervisory Board are remunerated in accordance with the applicable provisions of Commercial Code
513/1991 Coll. The amount of remuneration of Supervisory
Board members is subject to approval of the General Meeting
of shareholders.
The Chairman of the Supervisory Board is authorised to divide
the total amount between the various members of the Supervisory Board in dependence on discharge of an office.
spořitelna. Since August 2002, the shares of Česká spořitelna
have not been publicly tradable.
Members of the Supervisory Board are entitled to remuneration, including payments in kind, of CZK 4.3 million for their
work in the Supervisory Board of Česká spořitelna during
2005.
Affidavit
The below-signed do hereby declare that the information stated
in the Annual Report of Česká spořitelna, a.s. for the year
ended 31 December 2005 reflects the true state of affairs and
that no material circumstances that may have an impact on the
accurate and correct assessment of Česká spořitelna, a.s. have
been omitted.
Members of the Supervisory Board or persons closely related
to them do not own shares or share purchase options of Česká
Dušan Baran
Vice Chairman of the Board
Olbrachtova 62, Prague 4, 140 00
62
Martin Škopek
Member of the Board and
Deputy CEO
Olbrachtova 62, Prague 4,140 00
Organisational Chart of ČS
Regarding the Compliance of its Governance with the Corporate Governance
Code Based on OECD principles
In compliance with Česká spořitelna, a.s.’s (henceforth the
“Company”) statement in its 2004 Annual Report, the members of the Company’s Board of Directors continuously make
every effort to generally improve the Company’s corporate
governance standards and ensure, to the extent set out hereunder, compliance with the Corporate Governance Code based on
OECD principles (2004).
The Company continues to develop and enhance the Company’s governance practices at all times.
No major changes adversely affecting the Company’s corporate governance standards were effected in 2005.
The principles of the Company’s governance are indicated
below.
A. ORGANISATION OF THE COMPANY
As of 31 December 2005, the Company’s Board of Directors
seated seven members; effective from 1 December 2005, Mr.
Peter Cecelsky resigned as a member of the Board of Directors.
In accordance with the Banking Act, all members of the Board
of Directors are also executive members. All members of the
Board of Directors possess personal and professional qualifications as required to be a member of the Board of Directors.
Mr. John James Stack, Chairman of the Board of Directors
and CEO of the Company, has over 27 years of banking
experience. Mr. Stack is an experienced banker and manager.
Mr. Dušan Baran, Vice-chairman of the Board of Directors
and First Deputy CEO, has long-standing experience in the
financial sphere.
In addition, the Board of Directors comprises the following
members, all serving as Deputy CEOs: Mr. Daniel Heler, who
has worked in banking since 1983 and is hence a distinguished
expert in financial markets in particular; Mr. Heinz Knotzer,
who has wide ranging banking experience both in the Czech
Republic and Austria where his professional career started;
Mr. Martin Škopek, who gained his professional and practical
knowledge in finance during his studies in the United States
and while working in banking for several years; Mr. Petr
Hlaváček, who is an experienced banker whose professional
career includes a Czech as well as Canadian banking background; and Mr. Pavel Kysilka, who is a recognised economist
with deep insight into the private and public sector. Detailed
biographical data of the members of the Board of Directors
proving their capabilities, professional skills and experience is
published in the Annual Report on page 8–10.
The Company’s Board of Directors is a statutory body of the
Company which manages and acts on the Company’s behalf
while being responsible for its long-term strategic direction
and operational management. Its range of powers and duties
is defined under the Company’s Statutes and internal rules as
well as the legal regulations of the Czech Republic. The Board
of Directors exercises its powers and duties with due care and
diligence; in discharging its activities, it is accountable to the
extent set out by the legal regulations of the Czech Republic.
All members of the Board of Directors are internationally
experienced professionals who are skilled in managing large
corporations and have the ability to work in a team. The
members of the Board of Directors comply with legal rules and
ethical standards.
Pursuant to the Company’s Statutes, the Board of Directors
must obtain prior opinion or approval from the Supervisory
Board for a number of acts; in cases determined in a resolution
adopted by the Supervisory Board, the Board of Directors
must solicit the prior opinion of a committee established by the
Supervisory Board. The Board of Directors regularly presents
reports on the Company’s activities to the Supervisory Board
and its committees. In compliance with the Banking Act, the
Board of Directors is responsible for the establishment, maintenance and evaluation of an efficient and effective internal
management and control system of the Company.
The Board of Directors meets on a regular basis no less than
twice a month in compliance with the Company’s Statutes.
However, regular weekly sessions have become common
practice. Last year, the Board of Directors held, altogether,
53 meetings.
The Senior Management Team is an advisory body of
the Board of Directors which decides on crucial strategic
63
and business matters of the Company’s top management. It
comprises the members of the Board of Directors, the CEO,
the First Deputy CEO, the Deputy CEOs, and employees
appointed by the Board of Directors who, in 2005, were:
Mr. Frank Michael Beitz, Credit Risk Management Section
Director; Mr. Pavel Cetkovský, Group Balance Sheet
Management Section Director; Mr. Jozef Síkela, Corporate
Customers Section Director; and Mr. Jiří Škorvaga, Sales
Management Section Director. The Senior Management Team
discusses various matters put forward for discussion to the
Board of Directors as well as other matters which the members
of the Board of Directors propose for discussion.
The Supervisory Board of the Company comprises twelve
members. Seven members represent the principal shareholder
which is Erste Bank der österreichischen Sparkassen AG; they
are: Mr. Andreas Treichl, Chairman of the Supervisory Board;
Mr. Reinhard Ortner, Vice-Chairman of the Supervisory
Board; Mr. Christian Coreth; Mr. Maximillian Hardegg; Mr.
Herbert Juranek; Mr. Bernhard Spalt; and Mr. Manfred
Wimmer. In compliance with the law, the Supervisory Board
includes representatives of the Company’s employees; they
are: Mrs. Monika Houštecká, Mrs. Jitka Šrotýřová and
Mr. Marek Pospěch. Mrs. Jitka Šrotýřová and Mr. Marek
Pospěch were re-elected by the Company’s employees
upon the expiration of their term of office. Mrs. Monika
Laušmanová, elected by the Company’s employees in August
2005, became a new member of the Supervisory Board, replacing Mrs. Libuše Růžičková whose term of office had elapsed.
Mrs. Zlata Gröningerová is the twelfth member of the Supervisory Board who can be considered, in terms of relations
with the principal shareholders, an independent member of
the Supervisory Board. All members of the Supervisory Board
are professionals guaranteeing and ensuring the high-quality
functioning of the Supervisory Board; they have the personal
and professional qualifications required to hold the position of
a Supervisory Board member. A full list of all members of the
Supervisory Board, including their professional biographical
data, is published in the Annual Report on page 11–14.
The Supervisory Board overseas the execution of the Board
of Directors’ powers and duties as well as the performance of
the Company’s business activities. In addition to its duties and
powers ensuing from law, the Supervisory Board has, pursuant
64
to the Statutes, the right to give, in advance, its opinion on
certain acts having an impact on the Company’s assets (including, among other things, the making of construction investments and plans (projects) in acquiring tangible and intangible
fixed assets of the Company beyond the designated limit, the
transfer of an ownership title to the Company’s assets, the
Company’s equity investments, etc). The Supervisory Board
also gives, in advance, its opinion on the strategic concept of
the Company’s activities and development, planning tools and
regular financial balances. Furthermore, the Supervisory Board
gives, in advance, its opinion on the appointment and removal
of the Internal Audit Section Director and gives its opinion
in selecting an external auditor. To support its activities, the
Supervisory Board may establish Supervisory Board committees. In 2005, the Supervisory Board met five times altogether.
Pursuant to the Statutes, two thirds of the members of the
Supervisory Board are elected by the General Meeting, and
one third by the Company’s employees. The term of office of
a member of the Supervisory Board is three years. Members of
the Board of Directors are elected and removed by the Supervisory Board. In compliance with the Banking Act, nominees for
membership of the Board of Directors are consulted 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; members of the Board of Directors may be re-elected.
As noted above, the position of Chairman of the Board of
Directors in the Company is combined with the position of
CEO, and the position of member of the Board of Directors
is combined with the position of Deputy CEO. This combination is necessary for a bank because it is directly stated in the
Banking Act.
The Company is consistent in ensuring that the members of
the Board of Directors and the Supervisory Board are kept
up to date at all times; the Company has a well-administered
and well-developed system supporting the performance of
corporate governance.
The Company’s supreme bodies, i.e. the Board of Directors
and the Supervisory Board, have adopted binding Rules of
Procedure for the bodies. These Rules of Procedure deal in
great detail with organisational and process issues related to
the activities of the relevant body. The Rules of Procedure of
both bodies regulate the technical processes of the convening
of meetings and the voting of the bodies, the preparation of
meeting minutes, the activities of the body outside of meetings,
and the procedures addressing the potential bias of a member
of the body. In addition to the members of the Supervisory
Board, the members of the Board of Directors take part in the
Supervisory Board’s meetings. All members of the Board of
Directors participate in the meetings of the Board of Directors
as well as the members of the Senior Management Team and
the authors of presented materials introduced to the members
of the Board of Directors. The members of the Board of Directors and the Supervisory Board may solicit a legal opinion
on individual, discussed materials from the Company’s Legal
Services Section, or use the services of independent advisors.
The Company’s Secretary Office organises, on a regular basis,
legal seminars for the members of the Boards of Directors
and Supervisory Boards of the Company and other companies
within the Česká spořitelna Group, where members of these
bodies are introduced to new legislation applicable to the
performance of the position of corporate body member.
The Company has had the position of Secretary in place
for a long time. The Secretary of the bodies of the Company
manages administrative and organisational matters for the
Board of Directors and the Supervisory Board, including the
organisation of General Meetings. The Secretary acquaints
new members of administrative bodies with the activities of
these bodies and with the Company’s process of corporate
governance.
The Company’s Secretary ensures mutual co-operation among
the Company’s bodies. The Secretary is appointed by the
Company’s Board of Directors and reports directly to the CEO
and Chairman of the Board of Directors.
The Secretary is responsible for due and timely distribution of
invitations and materials for the meetings of the Company’s
Board of Directors and the Supervisory Board. Materials are
delivered in person to the members of the Company’s Board of
Directors and the Supervisory Board at least 5 days ahead of
the meeting. The Company has binding regulations in place for
the presentation of materials to be discussed at the meetings
of the Supervisory Board and the Board of Directors, which
stipulate basic rules for the preparation of materials, the presentation thereof, comment procedures prior to the presentation
of materials, and conditions for the archiving of materials.
The Secretary takes the minutes of all meetings of the Board of
Directors and Supervisory Board both in English and Czech.
The Company maintains an electronic database of all minutes
from the meetings of its bodies; these are available to authorised persons on the Intranet – the Company’s internal Internet
portal.
The Company’s Secretary is, inter alia, a member of the Czech
Institute of Corporate Secretaries (ČITOS) and the Steering
Committee thereof. ČITOS’s mission is to promote and support the professional development of due practices exercised
by the secretaries of administrative bodies.
B. COMPANY’S RELATIONSHIPS WITH
SHAREHOLDERS
The Company diligently observes compliance with all the
legal rights of shareholders and with the principle of equitable
treatment of all shareholders.
The Company’s shares are held in book-entry form. A list of all
shareholders is maintained by the Securities Centre. In addition
to ordinary shares, the Company has also issued registered
priority shares. The transferability of these shares is restricted
to municipalities of the Czech Republic; transfers to other
entities are subject to the approval of the Company’s Board of
Directors. A preference right to receive dividends is attached
to priority shares. Decisions regarding share transfers are given
by the Board of Directors following detailed information on
the assignee.
The Company complies with all duties to inform with respect
to its shareholders and other entities to the extent imposed by
legal regulations; the Company keeps shareholders updated
throughout the year, on a regular basis, through the press and
the website of the Company. The website, created mainly for
the purposes of shareholders and investors (www.csas.cz), provides information on the Company’s current operational results
to date, the structure of shareholders, planned events, etc. Press
65
releases covering material facts about the Company are issued
on a regular basis; the members of the Board of Directors
organise regular road shows for investors and shareholders. All
material information that the Company publishes on its website
is available in both Czech and English.
The Company, in compliance with the law, convenes its
General Meetings by making an announcement in the
press; such notices are published in Hospodářské noviny and
Obchodní věstník. The notice always includes basic information for shareholders about the conditions of participation at
the General Meeting and the exercising of shareholders’ rights.
The Company sends notices of the General Meeting, including
basic financial indicators, to all shareholders holding registered
shares. The publication of notices of the General Meeting on
the Company’s website goes without saying. Shareholders
may acquaint themselves in advance, within the statutory
period, with the basic materials (such as financial statements,
the Report on Relations or proposed changes to the Statutes)
which will form the subject matter of the General Meeting.
The Company always organises its General Meetings at venues
which are within the reach of all shareholders; the recent
practice is that General Meetings are held at the Company’s
registered office.
Before the General Meeting commences, at registration,
shareholders receive all supporting documents for the General
Meeting. Such supporting documents always include the Rules
of Procedure of the General Meeting to be approved by the
General Meeting. If members of the Supervisory Board are
being elected, shareholders are provided with detailed biographical data of all nominees proving their professional and
personal qualifications required to hold such an office.
The bodies of the General Meeting are set up by the Board of
Directors in such a way as to ensure that all the bodies are able
to perform their functions with due and professional care. In
most cases, a notary is present at the Company’s General Meetings. In compliance with the Rules of Procedure, shareholders
may, in person or by proxy, exercise their shareholder rights,
i.e. vote on the proposed items on the agenda, solicit and
receive explanations on such items, and put forward proposals
and counter-proposals.
66
The members of the Board of Directors and the Supervisory
Board take part in General Meetings (there must be at least
as many members as required for a quorum) as well as the
members of the committees of the Supervisory Board who
answer shareholders’ questions. The Company provides
enough time for shareholders to raise their questions on agenda
items prior to the vote being taken. All shareholders’ questions and answers are recorded in the minutes of the General
Meeting. Each item on the agenda of the General Meeting is
subject to a separate vote taken after the debate is closed on
the given item. All shareholders registered in the attendance
list and present at the General Meeting when the vote is being
taken are entitled to vote except for those shareholders who
hold priority shares. A right to vote at General Meetings is
not attached to the Company’s priority shares. In addition,
shares whose holders’ voting rights for General Meetings were
suspended by a decision of the Czech National Bank are not
considered voting shares; the shareholder is informed of such
a suspension on his/her registration in the attendance list and
the Company indicates this fact in the attendance list, including
the reasons for such suspension.
C. DISCLOSURE AND TRANSPARENCY OF
INFORMATION
The Company is consistent in preventing the misuse of insider
information of the Company which might allow persons who
have special relations with the bank to gain unauthorised gains
in dealing with the Company’s securities (insider dealing). The
members of the Board of Directors and their related parties
are obliged to promptly notify the Securities Commission of
transactions with securities issued by the Company or with
investment instruments derived from such securities, which
they perform on their own account.
To ensure identical terms and conditions for all members of
the Boards of Directors of the companies within the Erste
Bank Group, it is Erste Bank’s rules for securities trading that
apply – the members of the Company’s Board of Directors
are obliged to inform the Company’s Compliance Section
of dealings with Erste Bank’s shares or derivatives and to
comply with an imposed trading embargo during a designated
period.
The Company has a Compliance Section in place whose
principal activities include: the inspection of compliance of
the Company’s internal regulations with the legal regulations
and regulations of regulatory bodies governing the provision
of investment services and measures aimed at preventing
legalisation of proceeds arising from criminal activities (money
laundering); introducing employees to legal regulations,
internal regulations and procedures governing the provision
of investment services; and checking the insider information
handling system. The Compliance Section evaluates insider
information included in the Watch List and the Restricted List
of investment instruments as well as any dealings with investment instruments recorded in the above Lists. The Compliance
Section informs the Company’s Board of Directors and
Supervisory Board of its activities on a regular basis.
A list of persons with access to inside information is available
with the Company’s Secretary; the list is regularly updated.
The Company diligently fulfils and complies with all applicable legal regulations under Czech law, the principles of the
Corporate Governance Code based on OECD principles, the
recommendations of the EU Commission regarding corporate
governance and, on an ongoing basis, provides shareholders
and investors with all significant information on its business
activities as well as the Company’s financial and operational
results, the ownership structure, and other major events. All
information is prepared and disclosed in compliance with high
quality standards of accounting and financial and non-financial
disclosure. In addition, the Company discloses a great deal
of information beyond statutory requirements so as to allow
shareholders and investors to make well-founded decisions on
the ownership of the Company’s securities and the voting at
General Meetings. To publish such information the Company
uses various distribution channels such as the press or the
Company’s website where information is published both in
Czech and English to allow equal participation of foreign
investors and shareholders in decisions regarding the Company’s business and development.
The Company regularly publishes annual and semi-annual
reports. The annual report mainly includes audited financial
statements and gives a picture of the financial situation,
business activities and operating results of the Company;
in addition, in compliance with new legal regulations, the
report gives information on the remuneration policy of the
members of the Board of Directors and the Supervisory
Board. The level of remuneration for the members of the
Board of Directors and the Supervisory Board is approved
on an annual basis by the General Meeting; the remuneration
of the members of the Board of Directors, who are Company
employees serving as Deputies, is determined by the Supervisory Board. The Company has no equity option scheme for
remuneration either for the members of the Board of Directors
or the Supervisory Board.
Based on the recommendation of the Audit Committee, the
Supervisory Board approves an independent external auditor
annually. In 2005, Deloitte s.r.o. was appointed to carry out an
external audit of the Company.
D. COMMITTEES OF THE COMPANY’S
ADMINISTRATIVE BODIES
To support the Company’s activities and to ensure the internal
management and accountability of the Board of Directors
and the Supervisory Board, the Company has established
committees under these bodies. The rules of procedure of the
individual committees define the range of their powers and
duties including a precise description of the applicable rules
and tasks.
COMMITTEES OF THE SUPERVISORY BOARD
The powers of the Supervisory Board include the ability to establish committees and to define the content of their activities.
In compliance with corporate governance rules the Company
has established the following Supervisory Board Committees:
Audit Committee
The Audit Committee is an advisory body of the Company’s
Supervisory Board co-operating with the Company’s Board
of Directors and with the internal and external auditors.
Its principal role is to participate in the direction, planning
and evaluation of internal audit activities. The Committee
discusses material findings resulting from internal audits, gives
its opinion on the selection of an external auditor, monitors
the procedures and processes pertaining to the audit of the
annual financial statements, oversees accounting and financial
67
reporting, risk management and control, compliance with
legal regulations and regulator’s measures (the compliance
of procedures) and the functioning and effectiveness of the
Company’s internal management and control system.
As of October 2004, the Audit Committee comprised the
following members – Mr. Manfred Wimmer as Committee
Chairman, and Mrs. Zlata Gröningerová and Mr. Maximillian Hardegg as members. They all serve as members of the
Supervisory Board. Mr. Mario Catasta, Erste Bank’s Internal
Audit Section Director, regularly takes part in the meetings
of the Committee as a substitute member without the right to
vote. In compliance with the rules of procedure, the Committee
informs the Supervisory Board of its activities at least every 6
months; in 2005, the Committee met four times altogether.
Financial Markets Committee
The principal role of the Financial Markets Committee is
to oversee the activities and risk management system of
the Financial Markets Section. The Committee is regularly
updated on business activities, results and risk exposure;
it reassesses the management and control system, and key
principles of the business strategy and the risk management
strategy for the Financial Markets Section. The Committee
may set out medium- and long-term objectives for the activities
and risk management of the Financial Markets Section. As of
October 2004, the Committee had the following composition
– Mr. Reinhard Ortner, Chairman; Mr. Bernhard Spalt and
Mrs. Monika Houštecká, members; and Mr. Manfred Wimmer,
substitute member. They all serve as members of the Supervisory Board. The Committee meets at least twice a year; at least
once a year it reports its activities to the Supervisory Board. In
2005, the Committee met twice altogether.
COMMITTEES OF THE BOARD OF DIRECTORS
Committees of the Board of Directors are advisory bodies of
the Board of Directors established by resolution of the Board
of Directors. The purpose of the committees is to initiate
and present to the Board of Directors recommendations for
technical issues; the committees comprise the members of the
Board of Directors and selected employees of the Company.
All committees are accountable to the Board of Directors and
report on their activities at least once a year.
Credit Committee
The Credit Committee is the highest body assessing and
approving credit transactions and products as well as assessing and approving the business policy process, the system of
credit risk measurement and management, and the level of the
Company’s credit portfolio structure, aimed at achieving the
designated financial objectives, i.e. achieving the designated
level of profitability while maintaining the defined level of
credit risk.
Assets and Liabilities Management Committee
The Assets and Liabilities Committee is the highest body assessing and approving the process of planning, managing and
controlling financial flows and the structure of the Company’s
assets and liabilities, which is aimed at achieving the optimum
combination of the bank’s profitability and financial risks
taken. The Committee sets out the Company’s strategy in this
respect and assigns tasks to the Company’s organisational units
to fulfil the strategy.
Financial Markets and Risk Management Committee
The Financial Markets and Risk Management Committee is
a body dealing with decisions on the operational issues of risk
management processes related to financial markets.
Credit Committee
The Credit Committee is mainly an advisory and confirmation
body for credit exposures beyond the limits of the approval powers of the Board of Directors’ Credit Committee. The Committee meets at least twice a year; during the year the Committee in
most cases makes its decisions based on per rollam voting. The
Committee comprises the following members – Mr. Christian
Coreth, Chairman; Mr. Bernhard Spalt and Mr. Reinhard Ortner,
members; and Mr. Andreas Treichl, substitute member. They all
serve as members of the Company’s Supervisory Board.
68
Investment Committee
The Investment Committee is a body assessing the effectiveness
and efficiency of capital expenditure and purchased services.
ATM Committee
The ATM Committee is a body assessing and making decisions
regarding ATM issues (strategies, investments, locations, services, income, etc) aimed at ensuring a standard and complex
approach to the ATM network development.
IT Change Management Committee
The IT Change Management Committee deals with decisions
on changes to ‘legacy systems’ (in the go-live phase), including
changes resulting from projects.
Customer Services Committee
The Customer Services Committee is a body supporting the
quality of services provided to both external and internal
customers by means of regular monitoring of internal and
external indicators.
Marketing Committee for the Česká spořitelna Group
The Marketing Committee of the Česká spořitelna Group is
a body dealing mainly with the long-term marketing strategy
of the Company and the Česká spořitelna Group, the assessment of the effectiveness and efficiency of marketing costs,
and the discussing of strategic business objectives with respect
to marketing support.
music festivals (the International Music Festival Prague
Spring, Smetana’s Litomysl International Opera Festival, the
International Music Festival Český Krumlov, the International
Music Festival Colours of Ostrava, etc.); film festivals (Finále
Plzeň, the festival of Czech films, Famufest); theatres (Divadlo
na Vinohradech); secondary schools (secondary schools
initiatives, Eurorebus) and universities (The Prague School
of Economics); sports institutions and initiatives (the Czech
Athletic Federation, the Czech Tennis Association, the Czech
Golf Federation, Česká spořitelna MTB Team); and the enjoyment of sports activities by the public at large (mountain bike
competitions called Bike for Life).
In 2005, Česká spořitelna ranked fourth in the TOP corporate
philanthropist awards, thus becoming the most generous contributor from the banking sector; this achievement manifests
the Bank’s efforts to be a credible and reliable partner for its
investors, business partners, employees and local community
members.
Asset Allocation Committee
The Asset Allocation Committee is an advisory body of
a member of the Board of Directors who is in charge of financial markets management, which deals with recommendations
of investment strategies for the allocation of different classes of
clients’ assets (bonds, currencies, shares) on financial markets.
Retail Committee
Nadace České spořitelny (the Foundation of Česká spořitelna),
established by Česká spořitelna in 2002, deals particularly
with the sponsorship of social issues. In 2005, the Foundation
continued to support efforts in struggles against drug addiction,
improvement in the welfare of senior citizens, sponsorship of
a number of projects to help people in need and also participation in environmental protection.
The Retail Committee is a body assessing and approving
innovations and the launching or withdrawal of retail banking
products and services.
Sponsoring Committee
The Committee is an advisory body of the Board of Directors
on issues regarding the general sponsoring strategy.
E. THE COMPANY’S POLICY WITH RESPECT
TO STAKEHOLDERS
In 2005, in compliance with its long-term strategy, Česká
spořitelna, being a company with corporate social responsibility, continued to promote cultural, educational, sports,
charitable and social projects; hence, contributing to community development. As part of its long-term sponsoring strategy
referred to above Česká spořitelna supported, for example:
69
Organisational Chart
of ČS as of 31 December 2005
Chairman of the Board of
Directors and C. E. O.
John James Stack
Deputy Chairman of the Board
of Directors and 1st Deputy
C. E. O. Dušan Baran
Member of the Board of
Directors and Deputy C. E. O.
Daniel Heler
Heinz Knotzer
Office of the BoD and the
Supervisory Board Section
1001
Accounting and Taxes Section
Corporate Customers Section
2100
Group Balance Sheet
Management Section
3100
Credit Risk Management
and Credit Services Section
1200
Controlling and Planning Section
Treasury Section
2200
3600
Commercial Banking
Centres Section
4200
Internal Audit Section
Property Management Section
1400
2300
Financial Markets Products
Sales Section
3700
Real Estates and
Mortgages Section
4300
Legal Services
and Compliance Section
1500
Central Risk Management Section
Investment Products Section
Municipalities Section
2400
3800
4400
Human Resources Section
Procurement Section
Assets Management Department
Trade Finance Department
1600
7100
3010
4010
Marketing Section
Investors Relations Department
Business Support Sub-department
1700
2010
3001
Product Management and
Support Department
4020
Corporate Communication
Department
1010
Financial Markets Back-office
Department
2020
Service Quality Management
Department
1310
CS Financial Group and Capital
Participations Development
Department 2030
70
4100
IT Business Consultants Department
4030
Martin Škopek
Petr Hlaváček
Pavel Kysilka
Sales Management Section
Projects Management Section
5100
7200
Payment System and Settlement
Section
8100
Products and Process
Management Section
5200
IT Operation Section
Security Section
6200
8200
Remote Delivery Section
Organization Section
5300
6500
Economic and Strategic Research
Department
8010
Card Centre Section
IT Development Section
5400
6600
Corporate Cash Management
Department
8020
West Region Section
IT Decentralized Systems Section
EU Office
5600
6700
8001
District Branches in Region
Chief Technology Officer
Department
6010
East Region Section
5700
District Branches in Region
Mobile Sales Force Section
5800
Sporoservis Section
5900
Support Sub-department
5001
71
During the 2005 business year, the Supervisory Board of
Česká spořitelna, a.s. regularly discharged its duties under
the law and the Bank’s Articles of Association. As the Bank’s
oversight body, the Supervisory Board monitored the Board of
Directors’ exercise of its powers as well as the Bank’s operations, finances and the realization of its strategic plans. The
Supervisory Board was kept up to date on the Bank’s operations, its financial situation and other material and important
Bank matters.
In accordance with the legal provision, the Supervisory Board
reviewed the non-consolidated and consolidated financial statements as of 31. December 2005 and came to the conclusion
that the books and accounting records were kept in a transparent manner in accordance with accounting regulations and that
the accounts and year-end non-consolidated and consolidated
financial statements correctly reflect the financial situation of
Česká spořitelna, a.s. and consolidated unit as of 31. December
2005. The audit of the year-end financial statements was performed by Deloitte s. r. o. who confirmed that in their opinion,
72
the Bank’s financial statements give a true and fair view, in
all material respects, of the assets, liabilities and equity and
financial position of the Bank as of 31 December 2005 and of
the expenses, income and results of its operations for the year
then ended in accordance with International Financial Reporting Standards as adopted by the EU. The Supervisory Board
took into account and agreed with the auditor’s report.
The Supervisory Board also reviewed the Report on Relations
between related parties and in accordance with the Section 66a
(9) of the Commercial Code states that it took account of this
Report without comments.
In view of all above facts, the Supervisory Board recommends
that the General Meeting approve the financial statements of
Česká spořitelna, a.s. for the year ended 31. December 2005
and the proposed profit allocation as submitted by the Board of
Directors.
Consolidated Financial Statements
Prepared in Accordance with International Financial Reporting
Standards as Adopted by the European Union
for the Years Ended 31 December 2005 and 2004
74
Independent Auditor’s Report to the Shareholders of Česká spořitelna, a. s.
75
Consolidated Balance Sheets as of 31 December 2005 and 2004
76
Consolidated Profit and Loss Accounts for the Years Ended 31 December 2005 and 2004
77
Consolidated Statements of Changes in Shareholders’
Equity for the Years Ended 31 December 2005 and 2004
78
Consolidated Statements of Cash Flows for the Years Ended 31 December 2005 and 2004
80
Notes to the Consolidated Financial Statements
73
OfficeAddress:
Nile House
Karolinská 654/2
186 00 Prague 8
Czech Republic
Deloitte s. r. o.,
Registered address:
Týn 641/4
110 00 Prague 1
Czech Republic
Tel.: +420 246 042 500
Fax: +420 246 042 010
DeloitteCZ@deloitteCE.com
www.deloitte.cz
Registered at the Municipal Court
in Prague, Section C, File 24349
Id Nr.: 49620592
Tax Id. Nr.: CZ49620592
Independent Auditor’s Report
to the Shareholders of Česká spořitelna, a. s.
Having its registered office at: Prague 4, Olbrachtova 1929/62, 140 00
Identification number: 45244782
Principal activities: Retail, corporate and investment banking services
We have audited the accompanying consolidated financial statements of Česká spořitelna, a. s. (the “Bank”), which comprise the
balance sheet as of 31 December 2005, and the related statement of income, changes in equity and cash flows for the year then ended
and notes. These financial statements are the responsibility of the Bank’s Board of Directors. Our responsibility is to express an
opinion on the financial statements, taken as a whole, based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements give a true and fair view, in all material respects, of the assets, liabilities and equity and
financial position of Česká spořitelna, a. s. as of 31 December 2005 and of the expenses, income and results of its operations for the
year then ended in accordance with International Financial Reporting Standards as adopted by the EU.
In Prague on 14 March 2006
Audit firm:
Deloitte s.r.o.
Represented by:
Michael Jennings, with power of attorney
Audit. Tax. Consulting. Financial Advisory.
74
Member of
Deloitte Touche Tohmatsu
Consolidated Balance Sheets
as of 31 December 2005 and 2004
Consolidated Profit and Loss Accounts for the
Years Ended 31 December 2005 and 2004
Consolidated Balance Sheets
CZK million
Note
31 December 2005
31 December 2004
18,128
ASSETS
1. Cash and balances with the CNB
6
18,104
2. Loans and advances to financial institutions
7
97,846
77,112
3. Amounts due from Česká konsolidační agentura
8
15,653
25,843
9
267,767
213,446
10
(6,672)
(7,166)
36,542
28,759
11
19,604
15,204
13,555
4. Loans and advances to customers
5. Provisions for losses on loans and advances
6. Securities at fair value through profit or loss
(a) Securities held for trading
(b) Securities designated upon initial recognition as at fair value through
12
16,938
7. Positive fair value of financial derivative transactions
profit or loss
13
17,848
15,413
8. Securities available for sale
14
30,673
37,631
9. Assets held for sale
15
326
–
16
124,995
125,237
12,179
10. Securities and other assets held to maturity
11. Financial placements of insurance companies
17
10,292
12. Investment property
18
6,379
–
13. Intangible fixed assets
19
4,462
4,377
14. Property and equipment
20
14,787
15,720
15. Other assets
21
15,062
15,101
654,064
581,780
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
1. Amounts owed to financial institutions
22
34,898
32,905
2. Amounts owed to customers
23
481,556
444,771
3. Negative fair value of financial derivative transactions
24
14,570
12,567
4. Bonds in issue
25
39,282
19,649
5. Technical insurance provisions
26
10,625
9,288
6. Provisions for liabilities and other reserves
27
2,626
2,570
7. Other liabilities
28
23,338
19,029
8. Subordinated debt
30
9. Shareholders’ equity
(a) Minority interests
2,998
–
44,171
41,001
31
(b) Equity attributable to the Bank’s shareholders
Total liabilities and shareholders’ equity
849
1,702
43,322
39,299
654,064
581,780
The accompanying notes are an integral part of these consolidated financial statements.
These consolidated financial statements were prepared by the Bank and approved by the Board of Directors on 14 March 2006.
John James Stack
Chairman of the Board and
Chief Executive Officer
Dušan Baran
1st Deputy Chief Executive Officer
75
Consolidated Profit and Loss Accounts
CZK million
Note
Year ended
31 December 2005
Year ended
31 December 2004
23,528
1. Interest income and similar income
34
24,857
2. Interest expense and similar expense
35
(6 138)
(6,112)
18,719
17,416
Net interest income
3. Provisions for credit risks
36
Net interest income after provisions for credit risks
(386)
(505)
18,333
16,911
8,980
4. Fee and commission income
37
9,111
5. Fee and commission expense
38
(727)
(742)
8,384
8,238
6. Net profit on financial operations
39
1,357
1,189
7. General administrative expenses
40
(16 395)
(15,883)
8. Net insurance income
41
374
374
–
2,907
9. Profit on the sale of the non-life business of Pojišťovna České spořitelny, a. s.
10. Other operating income/(expenses), net
42
Profit before taxes
11. Income tax expense
43
Profit after taxes
12. Minority interests
31
Net profit for the year attributable to the Bank’s shareholders
76
257
(563)
12,310
13,173
(3 064)
(3,950)
9,246
9,223
(112)
(1,086)
9,134
8,137
Consolidated Profit and Loss Accounts for the
Years Ended 31 December 2005 and 2004
Consolidated Statements of Changes in
Shareholders’
Equity for the Years Ended 31 December
2005 and 2004
Consolidated Statements of Changes
in Shareholders’ Equity for the Years Ended 31 December
2005 and 2004
CZK million
Retained
earnings
Valuation
gains or
losses
Statutory
reserve
fund
Share
premium
Share
capital
Total equity
attributable to
the Bank’s shareholders
Minority
interests
Total
At 1 January 2004
(as originally presented)
17,812
–
1,395
1
15,200
34,408
1,390
35,798
Effect of the adoption of IAS 39
(refer to Note 3aa)
At 1 January 2004 (restated)
Dividends
Transfer to reserve funds
Use of funds
262
896
–
–
–
1,158
50
1,208
18,074
(4,560)
896
–
1,395
–
1
–
15,200
–
35,566
(4,560)
1,440
(119)
37,006
(4 679)
(383)
–
383
–
–
–
–
–
–
–
(6)
–
–
(6)
–
(6)
Purchase of an interest in jointly
controlled companies
(201)
–
–
–
–
(201)
(664)
(865)
Revaluation gains or losses
–
374
–
–
–
374
(41)
333
Foreign exchange differences
–
(11)
–
–
–
(11)
–
(11)
8,137
–
–
–
–
8,137
1,086
9 223
Net profit for the year
At 31 December 2004
21,067
1,259
1,772
1
15,200
39,299
1,702
41,001
At 1 January 2005
21,067
1,259
1,772
1
15,200
39,299
1,702
41,001
(5 529)
Dividends
(4 560)
–
–
–
–
(4 560)
(969)
(402)
–
402
–
–
–
–
–
–
–
(4)
–
–
(4)
–
(4)
–
(563)
–
–
–
(563)
4
(560)
–
16
–
–
–
16
–
16
9,134
–
–
–
–
9,134
112
9,246
712
2,170
1
15,200
43,322
849
44,171
Use of funds
At 31 December 2005
25,239
77
Consolidated Statements of Cash Flows
CZK million
Adjustments for non-cash transactions
Creation of provisions for losses on loans, advances and other assets
Depreciation and amortisation of assets
Impairment of tangible and intangible fixed assets
Note
2005
2004
12,310
13,173
510
223
3,368
3,150
–
(594)
Revaluation of investment property
(991)
–
Unrealised profit on securities at fair value through profit or loss
(435)
(969)
Creation of provisions against equity investments
Net gain/(loss) on the sale/revaluation of equity investments
4
–
(91)
51
Creation of other reserves, including technical insurance provisions
1,518
2,804
Change in fair values of financial derivatives
(432)
(1,355)
Income from statute-barred savings books
(44)
(62)
Gain on the sale of tangible assets
(44)
(102)
–
(2,907)
Profit on the sale of the non-life insurance business
Accrued interest, amortisation of discount and premium and fair value remeasurement of debt securities
Increase/(decrease) in minority interests
Operating profit before changes in operating assets and liabilities
575
(10)
5
(660)
16,253
12,742
Cash flows from operating activities
(Increase)/decrease in operating assets
Minimum reserve deposits with the CNB
(56)
3,717
(21 058)
8,688
Loans and advances to customers, including Česká konsolidační agentura
(45 238)
(20,332)
(9 053)
9,900
Securities at fair value through profit or loss
Securities available for sale
1,471
62
Other assets
(478)
2,454
Increase/(decrease) in operating liabilities
Other liabilities
Net cash flow from operating activities before income tax
1,786
3,213
36,829
(5,844)
5,733
(3,554)
(13,811)
11,046
(4,716)
(3,437)
(18 527)
7,609
Net increase in securities and other assets held to maturity
5,400
(10,987)
Financial placements of insurance companies
1,971
(5,147)
Income taxes paid
Net cash flow from operating activities
Cash flows from investing activities
Investment property
Net cash flow from the acquisition of an investment in a subsidiary
Selling price of the non-life insurance business
Purchase of tangible and intangible fixed assets
(5 388)
–
–
1,202
–
3,930
(5 146)
(4,472)
Proceeds from the sale of tangible and intangible fixed assets
2,343
2,700
Net cash flow from investing activities
(820)
(12,774)
78
Equity for the Years Ended 31 December
2005 and 2004
Consolidated Statements of Cash Flows
for the Years Ended 31 December 2005
and 2004
Notes to the Consolidated Financial
Statements
CZK million
Note
2005
2004
(4 560)
(969)
(4,560)
(119)
Cash flows from financing activities
Dividends paid
Dividends paid to minority shareholders
Payments made from the legal reserve fund
Bonds in issue
Receipt of subordinated debt
(4)
(6)
19,897
3,632
2,998
–
Net cash flow from financing activities
17,362
(1,053)
Net decrease in cash and cash equivalents
(1 984)
(6,218)
Cash and cash equivalents at beginning of year
25,085
31,303
23,101
25,085
Cash and cash equivalents at end of year
44
79
Notes to the Consolidated
Financial Statements
PREPARED IN ACCORDANCE WITH INTERNATIONAL
FINANCIAL REPORTING STANDARDS AS ADOPTED
BY THE EUROPEAN UNION FOR THE YEARS ENDED
31 DECEMBER 2005 AND 2004
1. INTRODUCTION
Česká spořitelna, a. s. (henceforth 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 on the territory of the Czech Republic.
The principal activities of the Bank are as follows:
• Acceptance of deposits from the general public;
• Extension of credit;
• Investing in securities on its own account;
• Payments and clearing;
• Issuance of payment facilities, e.g. payment cards, traveller’s cheques;
• Issuance of guarantees;
• Opening of letters of credit;
• Collection services;
• Proprietary or client-oriented trading with foreign currency
assets, forward and option contracts, including foreign
currency and interest rate transactions, and transferable
securities;
• Management of clients’ securities on clients’ accounts and
provision of advisory services;
• Participation in the issuance of shares and provision of
related services;
• Safe-keeping and administration of securities or other
assets;
• Rental of safe-deposit boxes;
• Provision of business advisory services;
• Issuance of mortgage bonds under special legislation;
• Financial brokerage;
• Depositary activities;
• Foreign exchange services (foreign currency purchases);
• Provision of banking information; and
• Maintenance of a separate part of the Securities Centre’s
records.
80
The Bank provides the following additional services through
its subsidiaries (together the “Group”):
• Funds management;
• Building society savings and loans;
• Pension insurance;
• Insurance;
• Finance leasing;
• Factoring;
• Consulting services;
• Provision of investment services;
• Real estate activities;
• Lease of information technology, installation and repair of
electronic equipment;
• Provision of software and advisory services in relation to
hardware and software; and
• Corporate management and finance.
The Bank is subject to the regulatory requirements of the
Czech National Bank (henceforth the “CNB”). These regulations include those pertaining to minimum capital adequacy
requirements, classification of loans and off balance sheet
commitments, credit risk connected with clients of the Bank,
liquidity, interest rate risk and foreign currency position.
Similarly, the Group companies are subject to regulatory
requirements, specifically in relation to insurance and collective investment.
2. BASIS OF PREPARATION
These consolidated financial statements comprise the accounts
of the Bank and its subsidiaries and have been prepared in
accordance with International Financial Reporting Standards
(IFRS) and interpretations approved by the International Accounting Standards Board (IASB) as adopted by the European
Union. These standards and interpretations were previously
called International Accounting Standards (IAS). As of the date
of issuance of these consolidated financial statements, IFRS as
adopted by the European Union do not differ from IFRS as issued by the IASB, except for portfolio hedge accounting under
IAS 39 which has not been approved by the EU. The Group
does not use portfolio hedging, and hence has determined
that portfolio hedge accounting under IAS 39 would have no
Consolidated Statements of Cash Flows for
the Years Ended 31 December 2005 and
2004
Statements
impact on the consolidated financial statements had it been
approved by the EU at the balance sheet date.
All figures are in millions of Czech crowns (MCZK), unless
stated otherwise.
These consolidated financial statements have been prepared
under the historical cost convention as modified by the
remeasurement to fair value of available for sale securities,
financial assets and liabilities at fair value through profit or
loss, all financial derivatives, investment property, assets held
for sale and issued debt securities which are hedged against
interest rate risk.
The accounting policies have been consistently applied by the
entities in the Group.
The presentation of consolidated financial statements in
conformity with IFRS requires management of the Group
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements
and their reported amounts of revenues and expenses during
the reporting period (refer to Note 4). Actual results could
differ from those estimates.
Comparative information has been restated, where necessary,
on a basis consistent with the current year presentation.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation
of the consolidated financial statements are set out below:
(a) Principles of Consolidation
The consolidated financial statements present the accounts and
results of the Bank and, to the extent that they are material to the
Group as a whole, of its controlled and associated companies.
Subsidiary Undertakings
An investment in a subsidiary is one in which the Bank holds,
directly or indirectly, more than 50 percent of its share capital
or in which the Bank can exercise more than 50 percent of
the voting rights or where the Bank can appoint or dismiss
a majority of the Board of Directors or Supervisory Board
members. Where an entity either began or ceased to be controlled during the year, the results are included only from the date
control commenced or up to the date control ceased.
All intercompany balances and transactions, including intercompany profits are eliminated on consolidation. Where necessary, accounting policies for subsidiaries have been changed to
ensure consistency with the policies adopted by the Bank.
Minority interests in the equity and results of companies that
are controlled by the Bank are shown as a separate item in the
consolidated financial statements.
Associate Undertakings
Associates are accounted for under the equity method of
accounting. An investment in an associate is one in which the
Bank holds, directly or indirectly, 20 percent to 50 percent of
its share capital and over which the Bank exercises significant
influence, but which it does not control.
Subsidiaries and associates whose results, equity and financial
position are, in aggregate, not material to the financial statements are accounted for at acquisition cost less provision for
any impairment and included in “Securities and other assets
held to maturity”.
Unconsolidated subsidiaries and associated companies
Some subsidiaries and associated companies are excluded
from consolidation due to immateriality. These unconsolidated
equity investments in subsidiary and associated undertakings
are recorded at acquisition cost including transaction costs less
provisions for any temporary diminution in value or write-offs
for any permanent diminution in value. These investments
in unconsolidated subsidiaries and associated companies are
presented in the balance sheet in “Securities and other assets
held to maturity”.
(b) Loans and Advances, Other Off Balance Sheet
Credit Exposures and Provisions for Losses on Loans
and Advances
Loans and advances are stated at the amount of outstanding
principal and overdue interest and fees. All loans and advances
are recognised when cash is advanced to borrowers.
81
Provisions for losses on loans and advances are recorded when
there are indications of incurred loss in relation to the recoverability of the loan balance. Provisions for losses on loans and
advances represent management’s assessment of potential
losses in relation to the Group’s on and off balance sheet
activities. Amounts are set aside to cover losses on loans and
advances that have been specifically identified and for potential
losses which may be present based on portfolio performance.
The level of provisions is established by comparing the carrying
amount of the loan and the present value of future expected
cash flows using the effective interest rate. The amount
necessary to adjust the provisions to their assessed levels,
after write-offs, is charged to the profit and loss account line
“Provisions for credit risks.” Write-offs are generally recorded
after all reasonable restructuring or collection activities have
taken place and the possibility of further recovery is considered
to be remote. The loan is written off against the related account
“Provisions for credit risks” in the profit and loss account. If
the reason for provisioning is no longer deemed appropriate,
the release of the provision is recognised in the profit and loss
account, similarly as for recoveries of loans and advances previously written off, in the line item “Provisions for credit risks.”
Securities at Fair Value through Profit or Loss
The portfolio includes debt and equity securities held for
trading, that is, securities held by the Group with the intention
of reselling them, thereby generating profits on price fluctuations in the short-term, and debt and equity securities that were
designated, upon initial recognition, as at fair value through
profit or loss. Securities at fair value through profit or loss are
recognised at cost at the acquisition date and subsequently
remeasured at fair value. Changes in the fair values of assets
held for trading are recognised in the profit and loss account as
“Net profit on financial operations”. Changes in the fair values
of securities not held for trading are reported as “Other operating income/(expenses), net” in the profit and loss account.
For debt and equity securities traded on the Prague Stock
Exchange (‘PSE’), fair values are derived from quoted prices.
The fair values of those securities not traded on the PSE are
estimated by the management of the Group as the best estimation of the cash flow projection reflecting the set of economic
conditions that will exist over the remaining maturity of the
securities.
Securities Available for Sale
(c) Debt and Equity Securities (including Participating
Interests Excluded from the Consolidation)
Securities held by the Group are categorised into portfolios
in accordance with the Group’s intent on the acquisition of
the securities and pursuant to the Group’s security investment
strategy. In accordance with the revised requirements of IAS
39 effective from 1 January 2005 the Group reassessed its
investment strategy and allocation of securities into individual
portfolios. The Group reallocated selected securities from the
“Securities available for sale” portfolio into the “Securities at
fair value through profit or loss” portfolio and from the “Securities held to maturity” portfolio into the “Securities available for
sale” portfolio. The principal difference among the portfolios
relates to the approach to the measurement of securities and the
recognition of their fair values in the financial statements.
All securities held by the Group are recognised using trade
date accounting and initially recorded at their cost including transaction costs (acquisition cost), the only exception
being securities at fair value through profit or loss which are
recognised at cost net of transaction costs.
82
Securities available for sale are securities held by the Group
for an indefinite period of time that are available for sale as
liquidity requirements arise or market conditions change.
Securities available for sale are carried at acquisition cost and
subsequently remeasured at fair value. Changes in the fair
values of available for sale securities are recognised in equity
as “Revaluation gains or losses”, with the exception of their
impairment and interest income and foreign exchange differences on debt securities. When realised, the relevant revaluation gains or losses are taken to the profit and loss account as
“Other operating income/(expenses), net”. Interest income on
coupons, amortisation of discounts or premiums, and dividends
are included in “Interest income and similar income”. Foreign
exchange differences are reported within “Net profit on
financial operations”.
Securities Held to Maturity
Securities held to maturity are financial assets with fixed
maturity and determinable payments that the Group has the
positive intent and ability to hold to maturity.
2004
Statements
Securities held to maturity are initially measured at acquisition
cost. Securities held to maturity are subsequently reported
at amortised cost using the effective interest rate, less any
provision for impairment. The amortisation of premiums and
discounts is included in “Interest income and similar income”.
A financial asset is impaired if its carrying amount is greater
than its estimated recoverable amount. The amount of the impairment loss for assets carried at amortised cost is calculated
as the difference between the asset’s carrying amount and the
present value of the expected future cash flows discounted at
the financial instrument’s original effective interest rate. When
an impairment of assets is identified, the Group recognises
provisions through the profit and loss account line “Other
operating income/(expenses), net.”
(d) Sale and Repurchase Agreements
Where debt or equity securities are sold under a concurrent
commitment to repurchase them at a pre-determined price,
they remain at fair value or amortised cost (refer to Note 3c)
within the relevant portfolio on the balance sheet and the consideration received is recorded in “Amounts owed to financial
institutions” or “Amounts owed to customers.” Conversely,
debt or equity securities purchased under a concurrent commitment to resell are not recognised in the balance sheet and
the consideration paid is recorded in “Loans and advances to
financial institutions” or “Loans and advances to customers.”
Interest is accrued evenly over the life of the agreement.
Securities borrowed are not recognised in the financial statements, unless they are sold to third parties, in which case the
purchase and sale are recorded with the gain or loss included
in trading income. The obligation to return them is recorded
at fair value as a trading liability and presented in “Other
liabilities”.
(e) Investment Property
Investment property is property (land or a building – or part
of a building – or both) held to earn rentals and/or for capital
appreciation or both. Property used by the lessees from within
the Group are not treated and presented as investment property.
The Group states investment property at fair value and gains
or losses arising from changes in the fair value are included
in the profit and loss account line “Other operating income/
(expenses), net”.
The fair value is the estimated amount for which an asset could
be exchanged between knowledgeable, willing parties in an
arm’s length transaction at the remeasurement date.
The valuation is based upon the calculation of expected yearly
net income by using a permanent (expected) yield method. The
expected yield is determined using the comparison method
(similar realised transactions on the same market). Given that
the valuation was performed on a post tax basis, the fair value
was increased by the effect of the tax.
The valuation of assets under construction is derived from the
most recent budget and the current state of completion which is
compared to the future value of flats and/or office and commercial premises. Such assets are presented as property and
equipment until their completion.
(f) Goodwill
Goodwill represents the excess of the acquisition cost over the
fair value of the Group’s share of the net assets of the acquired
subsidiary/associated undertaking at the date of acquisition.
Goodwill is reported in the balance sheet as a component of
“Intangible fixed assets”. Goodwill is not amortised and is
tested for impairment at least on an annual basis.
Goodwill is impaired if its carrying amount is greater than
its estimated recoverable amount. The recoverable amount is
defined as the estimated future economic benefits arising from
the acquisition of an equity investment. When an impairment
of assets is identified, the Group recognises the impairment
through the profit and loss account line “Other operating
income /(expenses), net.”
(g) Intangible Fixed Assets
Intangible fixed assets include identifiable assets without
physical substance with an estimated useful life exceeding one
year and a cost greater than CZK 60,000. Costs associated with
acquiring software are treated as intangible fixed assets and are
amortised on a straight line basis through “General administrative expenses – amortisation of intangible assets” over an
estimated useful life not exceeding four years. Research and
development, valuable rights and other intangible assets with
the exception of goodwill disclosed above are also amortised
over an estimated useful life not exceeding four years. Costs
83
associated with the maintenance of intangible assets (software)
are expensed through “General administrative expenses – other
administrative expenses” as incurred whilst costs of technical
improvements, if they exceed CZK 40,000 per one asset for
the period and are completed, are capitalised and increase
the acquisition cost of the intangible fixed asset (software).
Intangible fixed assets are carried at cost less accumulated
amortisation and provisions and are amortised on a straight
line basis over their estimated useful lives.
(h) Property and Equipment
Property and equipment includes identifiable tangible assets
with physical substance and with an estimated useful life
exceeding one year and a cost greater than CZK 13,000.
Property and equipment also includes selected low value
tangible assets with a cost between CZK 1,000 and CZK
12,999. Property and equipment is stated at historical cost less
accumulated depreciation and provisions and is depreciated
when ready for use through the profit and loss account line
“General administrative expenses – depreciation of property
and equipment” on a straight line basis over their estimated
useful lives. Depreciation periods for individual categories of
assets are as follows:
Buildings and structures
20–50 years
Electronic machines and equipment
6–12 years
Tools and other equipment
4–12 years
Equipment, fixtures and fitting
Selected low value machines and equipment
Leasehold improvements
4–6 years
2 years
Period of the lease
Land and works of art (irrespective of their cost) and assets
under construction are not depreciated. The gain and loss arising on the disposal of property and equipment is determined
based on its carrying value and is recognised in the profit and
loss account line “Other operating income/(expenses), net”
in the year of disposal. Property and equipment costing less
than CZK 13,000 that are not the selected low value fixed
assets, technical improvements costing less than CZK 40,000
and intangible fixed assets costing less than CZK 60,000 are
charged to the profit and loss account line “General administrative expenses” in the period of acquisition.
84
The depreciation period of selected buildings and structures
was extended from 30 years to 50 years to better reflect their
estimated useful lives.
(i) Assets Held for Sale
The category of ‘assets held for sale’ includes non-current assets that are taken out of active use at the date on which criteria
for sale are met, that is, the sale of the assets is approved by
management and steps have been initiated to locate a buyer.
At the same date, the assets held for sale are remeasured at
fair value and depreciation on such assets ceases. Changes
arising from the fair value remeasurement of the assets are
accounted for through the recognition of an extraordinary
write-off in the profit and loss account line “Other operating
income/(expenses), net.”
(j) Impairment of Assets
Where the carrying amount of an asset stated at net book value
or amortised cost is greater than its estimated recoverable
amount, it is written down immediately to its recoverable
amount. The recoverable amount is the greater of the following
amounts: the market value which can be recovered from the
sale of an asset under normal conditions, net of selling costs, or
the estimated future economic benefits arising from the use of
the asset.
The largest components of the Group’s assets are periodically
tested for impairment and temporary impairments are provisioned through the profit and loss account line “Other operating income/(expenses), net”. An increased carrying amount
arising from the reversal of a temporary impairment must not
exceed the carrying amount that would have been determined
(net of amortisation or accumulated amortisation) had no
impairment loss been recognised for the asset in prior years.
Repairs are charged to the profit and loss account line “General
administrative expenses – other administrative expenses” in the
year in which the expenditure is incurred.
(k) Provisions for Guarantees and Other Off Balance
Sheet Credit Related Commitments
In the normal course of business, the Group enters into credit
related commitments which are recorded in off balance sheet
accounts and primarily include guarantees, loan commitments
2004
Statements
and undrawn loan facilities. Provisions are made for estimated
losses on these commitments on the same basis as set out at
Note 3 (b) in respect of on balance sheet loan exposures.
(l) Provisions
Provisions are recognised when the Group has a present legal
or constructive obligation as a result of past events and it is
probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate of the amount of the obligation can be made.
(m) Shareholders’ Equity
The statutory reserve fund comprises funds that the Group is
required to retain according to current legislation. Use of the
statutory reserve fund is limited by legislation and the articles
of the Bank. The fund is not available for distribution to the
shareholders.
On acquisition of a business when the acquirer and the
acquiree are under common control, the difference between the
purchase price and net assets of the enterprise on the date of
acquisition is recognised as a reduction in equity in “Retained
earnings.”
Where the Bank or its subsidiaries purchase the Bank’s
treasury shares or obtain rights to purchase its treasury shares,
the consideration paid including any attributable transaction
costs net of income taxes, is shown as a deduction from total
shareholders’ equity. In selling treasury shares, the Bank
recognises the difference between their selling price and cost
as share premium.
(n) Accrued Interest
Interest receivable and payable accrued on outstanding loan
balances, debt securities, deposit products and bonds in issue
and subordinated debt is reported within “Other assets” and
“Other liabilities,” respectively.
(o) Foreign Currency
Transactions denominated in foreign currencies are recorded
in the local currency at official exchange rates as announced
by the CNB on the date of transaction. Assets and liabilities
denominated in foreign currencies are translated into the local
currency at the CNB exchange rate prevailing at the balance
sheet date. Realised and unrealised gains and losses on foreign
exchange are recognised in the profit and loss account in “Net
profit on financial operations”, with the exception of foreign
exchange rate differences on equity investments denominated
in foreign currencies which are reported at the historical
exchange rate, foreign exchange rate differences on equity
securities included in the available-for-sale portfolio which
are reported as a component of a change in the fair value and
foreign exchange rate differences on derivatives entered into
with a view to hedging currency risk associated with assets
or liabilities whose foreign exchange rate differences are not
reported in the profit and loss account.
(p) Interest Income and Interest Expense
Interest income and expense are recognised in the profit
and loss account lines “Interest income and similar income”
and “Interest expense and similar expense” when earned or
incurred, on an accruals basis. The Group accounts for the
accruals of interest using the effective interest rate method.
Outstanding penalties, contractual sanctions and interest on
non-performing loans, which are those loans that have overdue
interest and/or principal, or for which management of the
Group otherwise believes the contractual interest or principal
due may not be received, are only recognised on collection.
(q) Fees and Commissions
Fees and commissions are recognised in the profit and loss
account lines “Fee and commission income” and “Fee and
commission expense” on an accruals basis, with certain loan
origination fees and other related fees included in the effective
interest rate of the associated loan.
(r) Finance Lease Income
A Group Company as the Lessee
Leases of property and equipment under which the Group
assumes substantially all the rewards incidental to ownership
(finance leases) are recognised in the balance sheet by recording an asset and liability equal to the present value of all future
lease payments. Leasehold improvements on leased assets are
depreciated in accordance with the depreciation policy noted
above. The depreciation period is the estimated useful life
of the asset, or the lease term if shorter. Lease liabilities are
reduced by repayments of principal, whilst the finance charge
85
component of the lease payment is charged directly to the
profit and loss account.
A Group Company as the Lessor
Finance lease income is calculated under an effective interest
method to provide a constant rate of return on the net investment in the leases.
(s) Dividends
Dividends reduce retained earnings in the period in which they
are declared by the Annual General Meeting.
(t) Insurance Business
Insurance premiums are recognised in the accounting period in
which they incept and are recorded in “Net insurance income.”
Provisions are established for unearned premiums which relate
to periods after the balance sheet date. Amounts in respect of
insurance business are shown net of reinsurance costs.
Financial placements representing assets of an insurance
company which it uses to guarantee its payables arising from
insurance and reinsurance activities are reported in a separate
line “Financial placements of insurance companies” and
other assets, including tangible and intangible assets, are
presented in “Other assets”. All other liabilities, except for
provisions, are included in “Other liabilities”. The pre-tax
profit generated by Pojišťovna České spořitelny, a. s. is
included in a separate profit and loss account line “Net
insurance income”.
Technical Insurance Provisions
• Provisions for insurance claims reported but not settled
during the year (‘RBNS reserves’);
• Provisions for insurance claims incurred but not reported
during the year (‘IBNR reserves’).
The RBNS provision is calculated as equal to the sum of
provisions established in respect of individual insured events.
The provisions is also recorded for all estimated costs involved
in processing claims. The RBNS reserve also comprises
provisions established in respect of legal disputes where the
company acts as a defendant.
Provisions for all claims that were incurred prior to the yearend but were not reported are determined using the chain-ladder method.
Provision for the Fulfilment of Liabilities from the Used
Technical Interest Rate
A provision for the fulfilment of liabilities from the used
technical interest rate pursuant to Section 13 (2) of the Insurance Act, as set out in Section 18 (a) of the Insurance Act, is
created when it is noted that the current or anticipated yield on
the assets will not be sufficient to settle liabilities arising from
the used technical interest rate in respect of insurance policies
sold in the past.
(u) Pension Business
Contributions of participants, together with their appreciation
and State contribution claims in pension funds are included
in “Amounts owed to customers.” Pension policy costs are
amortised over four years, the average duration of the pension
policies.
Life Insurance Provision
The life insurance provision is created as a sum of provisions calculated under individual life insurance policies.
The life insurance provision represents the amount of payables, calculated by actuarial methods including the awarded
and declared profit shares (shares of premium surpluses)
and provisions for costs connected with policy management,
net of the value of future premiums.
Provision for insurance claims
Provisions for insurance claims under life and non-life insurance policies are as follows:
86
Technical Provision for Retirement Pension Schemes
The level of the charged provision is determined on the basis
of the present actuarial value of committed retirement benefits
to be paid decreased to reflect the amount of funds recorded on
behalf of pension recipients.
Up to 10 percent of the profits from the pension fund can be
distributed to the shareholders and no less than 5 percent of the
profits is allocated to the reserve fund. Reflecting this fact the
Bank accounts for the profit attributable to participants of the
retirement pension schemes as amounts owed to customers.
2004
Statements
(v) Taxation
Tax on the profit or loss for the year comprises the current
year tax charge, adjusted for deferred taxation. Current tax
comprises the tax payable calculated on the basis of the taxable
income for the year, using the tax rate enacted by the balance
sheet date, and any adjustment of the tax payable for previous
years.
Deferred tax is provided using the balance sheet liability
method on all temporary differences between the carrying
amounts for financial reporting purposes and the amounts used
for taxation purposes. The principal temporary differences
arise from certain non-tax deductible reserves and provisions,
tax and accounting depreciation on tangible and intangible
fixed assets and revaluation of other assets. The estimated
value of tax losses expected to be available for utilisation
against future taxable income and tax deductible temporary
differences are offset against the deferred tax liability within
the same legal tax unit to the extent that the legal unit has
a legally enforceable right to set off the recognised amounts
and intends either to settle on a net basis, or to realise the asset
and settle the liability simultaneously.
Deferred tax assets are recognised only to the extent that it is
probable that sufficient taxable profit will be available to allow
the asset to be recovered.
Deferred tax is calculated on the basis of the tax rates that are
expected to apply to the period when the asset is realised or the
liability is settled. The effect on deferred tax of any changes
in tax rates is charged to the profit and loss account, except to
the extent that it relates to items previously charged or credited
directly to equity.
(w) Financial Derivative Instruments
Financial derivatives include foreign currency and interest rate
swaps, currency forwards, forward rate agreements, foreign
currency and interest rate options (both purchased and sold),
futures and other derivative financial instruments. The Group
uses various types of derivative instruments in both its trading
and hedging activities.
Financial derivative instruments entered into for trading or
hedging purposes are stated at fair value. Unrealised gains and
losses are reported as “Positive fair value of financial derivative
transactions” and “Negative fair value of financial derivative
transactions.” Realised and unrealised gains and losses are
recognised in the profit and loss account line “Net profit on
financial operations”, the only exception being unrealised gains
and losses on cash flow hedges which are recognised in equity.
Fair values of derivatives are based upon quoted market prices
or pricing models which take into account current market and
contractual prices of the underlying instruments, as well as the
time value and yield curve or volatility factors underlying the
positions.
Certain derivatives embedded in other financial instruments are
treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the
host contract is not carried at fair value with gains and losses
Certain derivative transactions, while providing effective
economic hedges under the Group’s risk management positions, do not qualify for hedge accounting under the specific
rules in IAS 39 and are therefore treated as derivatives held for
trading with fair value gains and losses reported in income or
expenses.
Hedging derivatives are defined as derivatives that comply with
the Group’s risk management strategy, the hedging relationship
is formally documented and the hedge is effective, that is, at
inception and throughout the period, changes in the fair value
or cash flows of the hedged and hedging items are almost fully
offset and the results are within a range of 80 percent to 125
percent.
If the Group uses a fair value hedge, the hedged item is
remeasured at fair value and the gain or loss from the remeasurement is recognised to expense or income as appropriate.
The same accounts of expense and income that reflect the gain
or loss from remeasuring the hedged item at fair value are
also used in accounting for changes in fair values of hedging
derivatives that are attributable to the hedged risk.
If the Group uses a cash flow hedge, the gains or losses from
changes in fair values of hedging derivatives that are attributable to the hedged risk are retained in equity on the balance
87
sheet and are recognised to expense or income in the periods in
which the expense or income associated with the hedged items
are recognised.
(x) Transactions with Securities Undertaken on behalf
of Clients
Securities received by the Group into custody, administration
or safe-keeping are typically recorded at market or nominal
values if the market value is not available and maintained off
balance sheet. “Other liabilities” include the Group’s payables
to clients arising from cash received to purchase securities or
cash to be refunded to the client.
(y) Segment Reporting
Segment information is based on two segment formats. The
primary format represents business segments – retail banking
(including building savings products), corporate banking,
investment banking and other operations. The secondary
format represents the Group’s geographical markets – the
Czech Republic, EU countries, other European countries and
other regions.
Segment results include revenue and expenses directly
attributable to a segment and the relevant portion of revenue
and expenses that can be allocated to a segment, whether from
external transactions or from transactions with other segments
of the Group. Inter-segment transfer pricing is based on cost
plus an appropriate margin, as specified by the Group’s policy.
Unallocated items mainly comprise administrative expenses.
Segment results are determined before any adjustments for
minority interest.
Segment assets and liabilities comprise those operating assets
and liabilities that are directly attributable to the segment or
can be allocated to the segment on a reasonable basis. Segment
assets are determined after deducting related adjustments
that are reported as direct offsets in the Group’s consolidated
balance sheet. Segment assets and liabilities do not include
income tax items.
(z) Cash and Cash Equivalents
The Group considers cash and deposits with the CNB, treasury
bills with a residual maturity of three months or less, nostro
accounts with financial institutions and loro accounts with
88
financial institutions to be cash equivalents. For the purposes of
determining cash and cash equivalents, the minimum reserve
deposit with the CNB is not included as a cash equivalent due
to restrictions on its availability.
(aa) Changes in Accounting Policies for the Year Ended
31 December 2005
In accordance with the revised requirements of IAS 39 effective from 1 January 2005, the Group has revised or adjusted
its accounting policies for securities available for sale; upon
initial recognition securities at fair value through profit or loss
are stated at cost, that is, net of transaction costs. Securities
acquired under initial public offerings are categorised into
individual portfolios according to the Group’s strategy. Pursuant to IAS 39, the stated changes were applied retrospectively,
that is, comparative amounts for the year ended 31 December
2004 were appropriately restated.
In accordance with the transitional provisions of IAS 39
(Revised), the Group changed the original classification of
securities from the portfolios valid until 31 December 2004.
On 1 January 2005, the Group reallocated selected securities
held in the held-to-maturity portfolio into the available-forsale portfolio and the original available-for-sale portfolio
(originally revalued through profit or loss) was split between
the new available-for-sale portfolio (revalued through retained
earnings) and the at-fair-value-through-profit-or-loss portfolio.
The Group applied the above rules as of 1 January 2005 and
changed retrospectively the structure of securities classified in
portfolios as follows:
2004
Statements
Change as of 1 January 2004
Category
31 December 2003
CZK million
Category
1 January 2004
CZK million
Change
of which:
45,008
5,236
– Held for trading
39,772
–
5,236
5,236
At fair value through profit or loss,
Held for trading
39,772
– Designated upon initial recognition
Available for sale
34,037
6,537
Held to maturity and equity investments
113,466
27,500
Available for sale
103,338
(10 128)
Total
180,738
Total
182,383
1,645
As a result of these reallocations, the Group remeasured the transferred securities at fair value and increased shareholders’ equity
by CZK 1,645 million as of 1 January 2004. Net of the deferred tax of CZK 437 million and impact to minority interest of CZK 50
million, the net impact on the Group’s equity attributable to the Bank’s shareholders as of 1 January 2004 is CZK 1,158 million.
Category
31 December 2003
CZK million
Category
1 January 2004
CZK million
Change
of which:
28,759
13,555
15,204
–
13,555
13,555
At fair value through profit or loss,
Held for trading
Available for sale
15,204
37,631
(376)
137,030
38,007
Available for sale
125,237
(11 793)
Total
190,241
Total
191,627
1,386
As a result of these reallocations, the Group remeasured the transferred securities at fair value and increased shareholders’ equity by
CZK 1,386 million as of 1 January 2005. Net of the deferred tax of CZK 359 million, the opening balance of valuation gains of CZK
896 million, minority interest of CZK 5 million and the transfer of revaluation from the profit and loss account to equity of CZK 248
million, including the impact of deferred taxation, the net impact on the Group’s equity attributable to the Bank’s shareholders as of 1
January 2005 is CZK 374 million.
Under IAS 39, the Group also revised its policies for assessing loan receivables and receivables arising from securities for
impairment.
In the year ended 31 December 2005, the Group revised its segment reporting whereby the extant banking segment was split into
retail banking, corporate banking and investment banking. The Group’s management believes that the revised segmentation provides
89
a fairer view of the Group’s key activities and their impact on the Group’s financial position. Comparative balances have been
restated.
(bb) Changes in Accounting Policies arising from the Adoption of New IFRSs and Amendments to IASs effective 1
January 2006
At the date of authorisation of these financial statements, the following standards were in issue but not yet effective:
• IFRS 7 ‘Financial Instruments: Disclosures’ (effective 1 January 2007);
• Amendments to IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ (effective 1 January 2006);
• Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ in respect of cash flow hedge accounting (effective
1 January 2006);
• Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ and IFRS 4 ‘Insurance Contracts’ for financial
guarantee contracts (effective 1 January 2006); and
• Amendments to IAS 1 ‘Presentation of Financial Statements’ on capital disclosures (effective 1 January 2007).
The adoption of these standards in the future periods is not expected to have a material impact on the consolidated profit or equity.
4. SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES
(a) Impairment of Loans and Advances
The Group regularly assesses its loan portfolio for possible impairment. In determining impairment losses the Group assesses whether
there are observable data indicating that there is a measurable decrease in the estimated future cash flows from the portfolio although
the decrease cannot yet be identified with individual loans. Management of the Group uses estimates based on historical experience of
losses on loans that have similar risk characteristics. The methods and assumptions adopted in estimating amounts and the timing of
future cash flows are regularly reviewed to reduce differences between the estimated and actual data.
(b) Debt Securities Held to Maturity
In categorising debt securities as held to maturity the Group refers to the model of future cash flow developments such that the ability
to hold the debt securities is not jeopardised by the anticipated development in the structure of the Group’s balance sheet. A sale of
a significant volume of the held-to-maturity debt securities before their maturity would have implications in terms of IAS 39 (the
requirement to reverse the entire portfolio held to maturity and the reallocation of the held-to-maturity securities into one of the
remaining portfolios). In terms of the Group’s asset management policy, a purchase of a fixed-income debt security into the portfolio
of the held-to-maturity debt securities is primarily considered as a tool of the banking book interest rate risk management, the ability
to hold such a debt security to maturity is a pre-condition for using the debt security as a banking book interest rate risk management
tool.
(c) Permanent Impairment of Securities
Securities held by the Group, the only exception being debt securities in the held-to-maturity portfolio, are regularly marked to
market and the marked-to-market revaluation is recognised in the profit and loss account (the trading portfolio and the at-fair-valuethrough-profit-or-loss portfolio) or in the balance sheet (the available-for-sale portfolio) which reflects permanent impairment, if any,
of the securities (for instance, as a result of the bankruptcy of their issuer). If the Group concludes that some of its securities held to
maturity suffered permanent impairment (for instance, a full redemption of the nominal value of a debt security cannot be anticipated
with a sufficient degree of certainty), the carrying amount of the security is written down and the incurred loss is taken to the profit
and loss account. The same treatment applies to securities available for sale, permanent impairment is reflected in the profit and loss
account instead of the balance sheet where current fluctuations in the market value of the security are recognised.
90
2004
Statements
(d) Valuation of Instruments without Direct Quotations
(e) Financial instruments without direct quotations in an active market are valued using the mark-to-model technique. The models are
regularly reviewed by a skilled employee of the Risk Management Department that is different from the preparer of the model. Each
model is calibrated for the most recent available market data. While the models are built only on available data, their use is subject to
certain assumptions and estimates (eg, for correlations, volatilities, etc.). Changes in the model assumptions may affect the reported
market value of the relevant financial instruments.
(e) Provisions
The Group is involved in a number of ongoing legal disputes, the resolution of which may have an adverse financial impact on the
Group. Based upon historical experience and expert reports, the Group assesses the developments in these cases, and the likelihood
and the amount of potential financial losses which are appropriately provided for.
The Bank has decided to support the use of payment cards for electronic payments by valuing these transactions through the allocation of points corresponding to the transaction amount. These points can be retained and accumulated on clients’ personal accounts
for up to three calendar years from their allocation and subsequently exchanged for prizes or services of the Bank. Given that clients
have not yet utilised a substantial amount of the allocated points and the three-year period in respect of the points accumulated since
the inception of the programme will expire in 2006, it is likely that a significant proportion of these points will be utilised in 2006
in exchange for prizes. The potential financial impact associated with the exercising of the clients’ claims has been estimated and
appropriately provided for.
(f) Investment Property
The fair value of investment property is determined by an independent real estate appraiser and is based upon expected yearly net
income by using a permanent (expected) yield method. The expected yield is determined using the comparison method (similar
realised transactions on the same market).
91
5. COMPANIES INCLUDED IN CONSOLIDATION
The consolidated financial statements include the following subsidiaries:
Name of the company
Registered office
Principal activities
Group interest
2005
2004
–
Atrium Center s.r.o.
Prague
Investing in real estate
100.0,%
BGA Czech s.r.o.
Prague
100.0,%
–
brokerjet České spořitelny, a. s.
Prague
Investment services
51.0,%
51.0,%
CEE Property Development Portfolio B.V. (“CEE Property
Development”)
Netherlands
100.0,%
100.0,%
CF Danube Leasing, s.r.o.
Slovakia
Leasing
100.0,%
100.0,%
CPDP 2003 s.r.o
Prague
99.3,%
100.0,%
CS Investment Limited
Guernsey
Investing and investment holding
100.0,%
100.0,%
CS Property Investment Limited
Cyprus
Management and corporate
100.0,%
–
Czech TOP Venture Fund B.V.
Netherlands
finance
84.3,%
84.3,%
Czech and Slovak Property Fund B.V. (“CSPF B.V.”)
Netherlands
100.0,%
–
Factoring České spořitelny, a. s.
Prague
Factoring
100.0,%
100.0,%
Gallery Myšák a. s.
Prague
100.0,%
100.0,%
Informatika České Spořitelny, a. s.
Prague
IT services
100.0,%
100.0,%
Investiční společnost České spořitelny, a. s.
Prague
Investment management
100.0,%
100.0,%
Jegeho Residential s.r.o.
Slovakia
100.0,%
–
Leasing České spořitelny, a. s.
Prague
Leasing
100.0,%
100.0,%
Pojišťovna České spořitelny, a.s
Pardubice
Insurance
Penzijní fond České spořitelny, a. s.
Prague
Pension fund
s Autoleasing, a. s.
Prague
Smíchov Real Estate a. s.
Prague
Solitaire Real Estate a. s.
Prague
55.3,%
55.3,%
100.0,%
100.0,%
Leasing
100.0,%
100.0,%
100.0,%
–
100.0,%
–
Stodůlky Office Center s.r.o.
Prague
100.0,%
–
Stavební spořitelna České spořitelny, a. s.
Prague
Building savings bank
95.0,%
95.0,%
(a) Penzijní fond České spořitelny, a. s.
Up to 10 percent of the profits from the pension fund can be distributed to the shareholders and no less than 5 percent of the profits is
allocated to the reserve fund. The shareholders incur the entire loss, if any. All other profit is available for distribution to participants
(customers).
(b) Companies Consolidated since 2005
For the year ended 31 December 2005, the consolidated financial statements have included, for the first time, Czech and Slovak
Property Fund B.V. and CS Property Investment Limited, which were newly formed at the 2004 year-end, and the following entities
acquired by real estate funds during 2005:
92
2004
Statements
CZK million
Name of the entity
Voting power in %
Costs of
acquisition
Profit/(loss) since
the acquisition
date
CPDP B.V.
99,3,%
143
84
CSPF B.V.
100.0,%
12
21
CSPF B.V.
100.0,%
19
24
Acquisition date
Owner
CPDP 2003 s.r.o.
1 June 2005
Atrium Center s.r.o
1 Aug 2005
14 Sept 2005
BGA Czech s.r.o.
Smíchov Real Estate a. s.
17 March 2005
CSPF B.V.
100.0,%
36
41
Solitaire Real Estate a. s.
23 May 2005
CSPF B.V.
100.0,%
121
39
17
28 July 2005
CSPF B.V.
100.0,%
27
BLUE RAY, a. s.
20 May 2005
100,0,%
85
0
Jegeho Residential s.r.o.
27 Sept 2005
CSPF B.V.
100.0,%
2
(3)
The Bank fully consolidates the investments in the real-estate funds in its consolidated financial statements. While the Bank holds 20
percent of the issued share capital of the funds and does not have a majority of voting rights and Board representation, 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 investment. The second shareholder bears minimal risks and receives minimal returns
from its investment in the funds.
The acquisition cost of the above stated companies was equal to the fair value of net assets.
(c) Unconsolidated Investments
The following subsidiary and associated undertakings: Genesis Private Equity Fund B L.P., – FNE B.V., Jegeho Residential s. r. o.,
České nemovitosti, a. s., CBCB-Czech Banking Credit Bureau, a. s., První certifikační autorita, a. s., Servis 1 – ČS, a. s., Hotelová
společnost, s. r. o., Consulting ČS, a. s., Erste Corporate Finance, a. s. and SporDat, spol. s r. o., are excluded from consolidation due to
immateriality,
The aggregate value of unconsolidated assets of the entities referred to above was CZK 278 million as of 31 December 2005.
6. CASH AND BALANCES WITH THE CNB
CZK million
Cash
Nostro accounts with the CNB
Minimum reserve deposit with the CNB
Total
2005
2004
13,201
13,300
720
700
4,183
4,128
18,104
18,128
Minimum reserve deposits represent mandatory deposits calculated in accordance with regulations promulgated by the CNB, and
whose withdrawal is restricted. Minimum reserve deposits bear interest at the two week repo rate of the CNB. The nostro balances
represent balances with the CNB relating to settlement activities and were available for withdrawal at the year-end.
93
7. LOANS AND ADVANCES TO FINANCIAL INSTITUTIONS
CZK million
Nostro accounts
2005
2004
511
835
48,211
42,463
Placements with financial institutions
49,124
33,814
Total
97,846
77,112
As of 31 December 2005, the Group provided certain financial institutions with loans of CZK 47,270 million (2004: CZK 37,899
million) under reverse repurchase transactions which were collateralised by securities amounting to CZK 47,136 million (2004: CZK
37,435 million).
8. AMOUNTS DUE FROM ČESKÁ KONSOLIDAČNÍ AGENTURA
With effect from 1 September 2001, Konsolidační banka Praha, s.p.ú. was transformed into Česká konsolidační agentura (‘ČKA’)
pursuant to Act 239/2001 Coll. This entity’s receivables have been included in the government sector and are guaranteed by the State
pursuant to the Act referred to above.
CZK million
Amounts due from Česká konsolidační agentura
2005
2004
15,653
25,843
As of 31 December 2005, the Group had loans of CZK 14,900 million related to the loan portfolio restructuring effected by the State
with ČKA’s assistance (2004: CZK 18,600 million). These loans will fall due for repayment in the period from 2006 through 2008.
9. LOANS AND ADVANCES TO CUSTOMERS
The following table shows a breakdown of the loan balance by type of loan:
CZK million
2005
2004
Corporate loans
95,444
81,946
Mortgage loans
80,874
55,625
Retail loans
72,980
58,471
Public sector loans
11,693
10,519
Finance leases
Total
6,776
6,885
267,767
213,446
The principal loans and advances to customers are held by the Bank. The following table summarises information about the Bank’s
credit portfolio.
94
2004
Statements
Industry Sector Analysis
The table below details the breakdown of loans and advances to customers by industry sector:
CZK million
2005
2004
Non-financial institutions
92,032
74,572
Financial institutions
23,992
19,809
Government sector
13,884
12,287
Not-for-profit organisations
1,163
260
Households (self employed)
8,677
1,899
104,841
69,647
Resident individuals
Other
Total (only for the Bank)
18
10,115
244,607
188,589
Intra-group loans and advances
(6 450)
(990)
Loans and advances of other group companies
29,610
25,847
267,767
213,446
Total
As of 31 December 2005, the Bank provided certain customers with loans of CZK 1,014 million (2004: CZK 541 million) under
reverse repurchase transactions which were collateralised by securities amounting to CZK 1,362 million (2004: CZK 526 million).
The gross exposures shown above include loans in the aggregate amount of CZK 3,653 million (2004: CZK 2,932 million) on which
interest is no longer accrued.
Analysis of Loans and Advances to Customers according to Credit Risk Assessment Policies
In applying the new loan impairment assessment policies the Group allocates loans and advances to customers into the following
categories:
CZK million
Bank
Group companies net of
eliminations
Total
Individually impaired
12,285
2,180
14,465
Collectively impaired
1,861
1,861
Unimpaired
230,461
20,980
251,441
Total
244,607
23,160
267,767
95
Finance leases
Loans and advances to customers also include net investments in finance leases.
CZK million
2005
2004
Gross investment in finance leases
7,307
7,749
– Less than 1 year
4,240
3,854
– From 1 year to 5 years
2,972
3,766
Of which:
– Over 5 years
Unearned income
95
129
(531)
(864)
Subtotal
6,776
6,885
Provision
(1 403)
(1,420)
5,373
5,465
Net investment in finance leases
Of which:
– Less than 1 year
2,951
2,721
– From 1 year to 5 years
2,358
2,653
64
91
CZK million
2005
2004
At 1 January
7,166
7,656
– Over 5 years
The principal assets held under lease arrangements include cars and other technical equipment.
10. PROVISIONS FOR LOSSES ON LOANS AND ADVANCES
(a) Creation and use of provisions for losses on loans and advances
Net charge for provisions
Use of provisions for loans written off and assigned
FX differences from provisions in foreign currency
561
272
(1 045)
(742)
(10)
(20)
6,672
7,166
Bank
Group companies
Total
(4,846)
(1 626)
(6 472)
(200)
–
(200)
(5 046)
(1 626)
(6 672)
At 31 December
(b) Provisions for losses on loans and advances by category
CZK million
Total
96
2004
Statements
11. SECURITIES HELD FOR TRADING
CZK million
Listed debt securities
Listed equity securities and other variable yield securities
Total
2005
2004
17,823
13,597
1,781
1,607
19,604
15,204
Listed debt securities include Government treasury bills and treasury bills of the CNB in the aggregate amount of CZK 4 million
(2004: CZK 912 million) and Government bonds in the aggregate amount of CZK 9,858 million (2004: CZK 3,349 million) which
may be used for refinancing with the CNB (the amounts shown above do not reflect securities that were transferred to collateralise
loans received under repurchase transactions).
Debt securities comprise:
CZK million
2005
2004
Variable yield debt securities
Issued in CZK
–
103
Issued in other currencies
246
1,169
Total
246
1,272
10,965
7,350
Fixed income debt securities
Issued in CZK
6,612
4,975
Total
17,577
12,325
Total debt securities
17,823
13,597
2005
2004
1,383
1,273
Equity securities and other variable yield securities comprise:
CZK million
Shares and share certificates
Issued in CZK
Total
398
334
1,781
1,607
97
Debt securities were issued by:
CZK million
2005
2004
10,912
8,288
Debt securities issued by
State institutions in the Czech Republic
Foreign state institutions
1,793
–
Financial institutions in the Czech Republic
1,131
32
Foreign financial institutions
3,197
3,829
Other entities in the Czech Republic
20
311
770
1,137
17,823
13,597
Other foreign entities
Total
Equity securities and other variable yield securities held for trading were issued by the following issuers:
CZK million
2005
2004
1,706
1,600
69
7
Shares and share certificates issued by
Total
6
–
1,781
1,607
12. SECURITIES DESIGNATED UPON INITIAL RECOGNITION AS AT FAIR VALUE THROUGH PROFIT OR LOSS
CZK million
2005
2004
11,144
9,655
17
–
5,097
3,220
Debt securities
Listed
Unlisted
Equity securities and other variable yield securities
Listed
Unlisted
Total
680
680
16,938
13,555
Debt securities do not include Government treasury bills and treasury bills of the CNB which may be used for refinancing with the
CNB (2004: CZK 1,296 million – the amount does not reflect securities that were transferred to collateralise loans received under
repurchase transactions). In 2005, debt securities additionally include securitised securities of CZK 2,052 million (2004: CZK 757
million).
98
2004
Statements
Unlisted equity securities and other variable yield securities include equity investments and holdings that are not participating
interests with controlling or significant influence in the aggregate amount of CZK 680 million (2004: CZK 680 million).
CZK million
2005
2004
669
1,148
Issued in CZK
2,892
975
Total
3,561
2,123
Issued in CZK
21
1,317
7,579
6,215
Total
7,600
7,532
11,161
9,655
2005
2004
CZK million
Issued in CZK
967
1,216
4,810
2,684
Total
5,777
3,900
2005
2004
213
1,560
2,231
2,310
Debt securities were issued by the following issuers:
CZK million
Total
287
–
8,025
5,695
405
90
11,161
9,655
99
Equity securities and other variablve yield securities were issued by the following issuers:
CZK million
2005
2004
2,936
1,187
2,841
2,713
Total
5,777
3,900
2005
2004
13. POSITIVE FAIR VALUE OF FINANCIAL DERIVATIVE TRANSACTIONS
CZK million
Hedging
– Foreign currency
7
–
– Interest rate
328
207
Total hedging
335
207
Non-hedging
– Interest rate
– Other
4,997
4,521
12,398
10,685
118
–
Total non-hedging
17,513
15,206
Total positive fair value of financial derivative transactions
17,848
15,413
2005
2004
28,778
37,022
1,852
569
14. SECURITIES AVAILABLE FOR SALE
CZK million
Debt securities
Listed
Listed
Unlisted
Total
43
40
30,673
37,631
Debt securities include Government treasury bills and treasury bills of the CNB in the aggregate amount of CZK 3,282 million (2004:
CZK 12,543 million) and Government bonds of CZK 14,285 million (2004: CZK 7,244 million) which may be used for refinancing
with the CNB (the amounts shown above do not reflect securities that were transferred to collateralise loans received under repurchase
transactions).
Listed equity securities and other variable yield securities do not include shares issued by the parent company, Erste Bank (2004:
CZK 74 million).
100
2004
Statements
CZK million
2005
2004
Issued in CZK
2,369
648
3,675
3,202
Total
6,044
3,850
18,015
30,121
Issued in CZK
4,719
3,051
Total
22,734
33,172
28,778
37,022
2005
2004
340
196
CZK million
Issued in CZK
1,555
413
Total
1,895
609
2005
2004
CZK million
17,567
29,701
3,536
1,790
2,435
225
4,452
4,124
61
420
Total
727
762
28,778
37,022
101
Equity securities and other variable yield securities were issued by the following issuers:
CZK million
2005
2004
63
75
67
30
1,213
386
Total
552
118
1,895
609
15. ASSETS HELD FOR SALE
With effect from 1 January 2005, the Group adopted IFRS 5 and selected immovable assets that met criteria for classification as
assets held for sale as of that date (refer to Note 3i) in the aggregate carrying amount of CZK 78 million. Given the contemplated sale,
market values of these assets were determined and impairment recognised in the previous period and hence the carrying value as of 1
January 2005 represented the fair value and no other revaluation was required.
CZK million
Total
At 31 December 2004
–
Effect of the adoption of IFRS 5
78
At 1 January 2005
78
Additions to assets held for sale
331
Disposals of assets held for sale
(83)
At 31 December 2005
326
As of the date of the application of IFRS, that is, as of 1 January 2005, the net book value of assets held for sale was CZK 78 million.
All assets held for sale are presented in the ‘Other activities’ segment.
16. SECURITIES AND OTHER ASSETS HELD TO MATURITY
CZK million
2005
2004
124,610
123,418
–
1,296
Debt securities
Listed
Unlisted
Equity investments
Subsidiaries and associates excluded from consolidation
Total
102
385
523
124,995
125,237
2004
Statements
Listed debt securities include Government treasury bills and treasury bills of the CNB of CZK 15,952 million (2004: CZK 989 million) and Government bonds of CZK 55,680 million (2004: CZK 57,957 million) which may be used for refinancing with the CNB
(the amounts shown above do not reflect securities that were transferred to collateralise loans received under repurchase transactions).
The portfolio additionally comprises bonds issued by the parent company, Erste Bank at a cost of CZK 628 million (2004: CZK 5,623
million).
Debt securities include credit linked notes of CZK 628 million (2004: CZK 628 million).
Unconsolidated subsidiaries and associated companies are described in Note 5c.
CZK million
2005
2004
Variable yield debt securities issued in CZK
19,127
13,384
Fixed income debt securities issued in CZK
105,483
111,330
Total
124,610
124,714
2005
2004
82,287
79,186
CZK million
Total
8,352
8,036
32,855
34,982
1,116
1,950
–
560
124,610
124,714
103
17. FINANCIAL PLACEMENTS OF INSURANCE COMPANIES
Financial placements of insurance companies comprise the following types of assets:
CZK million
2005
2004
32
33
2,905
5,170
985
494
– Listed
731
434
– Unlisted
Total
254
60
3,290
5,664
6,321
6,433
Securities held to maturity
Real estate
Total
49
49
10,292
12,179
2005
2004
–
–
18. INVESTMENT PROPERTY
CZK million
At 1 January
Additions (fair value at the date of acquisition under business combinations)
Net gains from fair value revaluations
Deferred tax movement (refer to Note 29)
At 31 December
6,175
–
125
–
79
–
6,379
–
Rental income arising from investment property amounted to CZK 258 million (2004: CZK nil). Operating expenses on this investment property amounted to CZK 33 million (2004: CZK 0 million).
104
2004
Statements
19. INTANGIBLE FIXED ASSETS
CZK million
Goodwill
Software
Other
Total
28
1,986
5,101
7,115
–
663
1,767
2,430
Cost
1 January 2004
Additions
Disposals
–
(27)
(880)
(907)
31 December 2004
28
2,622
5,988
8,638
1 January 2005
28
2,622
5,988
8,638
Additions
–
530
1,492
2,022
Disposals
–
(409)
(473)
(882)
28
2,743
7,007
9,778
31 December 2005
Accumulated amortisation and provisions
1 January 2004
(17)
(1,433)
(1,645)
(3,095)
Additions (refer to Note 40)
–
(340)
(893)
(1,233)
Provision for impairment
–
–
30
30
Disposals
–
24
13
37
31 December 2004
(17)
(1,749)
(2,495)
(4,261)
1 January 2005
(17)
(1,749)
(2,495)
(4,261)
–
(441)
(1 082)
(1 523)
–
–
96
96
Disposals
–
367
5
372
(17)
(1 823)
(3 476)
5,316
31 December 2005
Net book value
31 December 2005
11
921
3,531
4,462
31 December 2004
11
873
3,493
4,377
The balances as of 31 December 2005 shown above include CZK 2,094 million (2004: CZK 1,962 million) in assets under construction.
In 2005, the Bank released a part of the provision recognised in the past in respect of an impairment of assets under construction
relating to the purchase of licences to operate an information system due to redundancy.
105
20. PROPERTY AND EQUIPMENT
CZK million
Land and buildings
Equipment, fixtures
and fittings
Total
29,315
Cost
1 January 2004
17,961
11,354
Additions
822
1,402
2,224
Disposals
(1,889)
(1,446)
(3,335)
31 December 2004
16,894
11,310
28,204
1 January 2005
16,894
11,310
28,204
Application of IFRS 5
Additions
(145)
(1)
(146)
540
1,995
2,535
Disposals
(1,216)
(1,035)
(2,251)
31 December 2005
16,073
12,269
28,342
(5,478)
(7,261)
(12,739)
(538)
(1,379)
(1,917)
564
–
564
Disposals
652
956
1,608
Accumulated depreciation and provisions
1 January 2004
31 December 2004
(4,800)
(7,684)
(12,484)
1 January 2005
(4,800)
(7,684)
(12,484)
67
1
68
(187)
(1,400)
(1,587)
(95)
(1)
(96)
54
490
544
(4,961)
(8,594)
(13,555)
31 December 2005
11,112
3,675
14,787
31 December 2004
12,094
3,626
15,720
Disposals
31 December 2005
Net book value
The balances as of 31 December 2005 shown above include CZK 642 million (2004: CZK 813 million) in assets under construction.
In 2005, the Group recognised asset impairment of CZK 96 million relating largely to real estate that is insufficiently used by the
Group for its activities (2004: CZK 213 million).
106
2004
Statements
21. OTHER ASSETS
CZK million
2005
2004
Accrued income
8,059
8,541
– Interest on loans and advances to financial institutions
230
257
– Interest on loans and advances to customers, including ČKA
698
512
– Coupons on bonds
3,703
4,168
– State support
3,411
3,503
Of which:
– Other
Deferred expenses
Deferred tax asset (refer to Note 29)
Various receivables
17
101
724
668
44
100
547
1,255
Other assets
1,179
694
Receivables from factoring transactions
3,330
3,360
1,110
440
Receivables from securities trading
Other assets from insurance services
Total
69
43
15,062
15,101
The receivable from state subsidy totalling CZK 3,411 million (2004: CZK 3,503 million) involves claims in respect of the participants of the building savings scheme offered by the Bank’s subsidiary, Stavební spořitelna České spořitelny, a. s. The state subsidy is
provided to the participants from the Finance Ministry of the Czech Republic (MF CR) based on the amount of customer deposits at
the year-end with a limit of CZK 4,500/CZK 3,000 (for contracts entered into subsequent to 1 January 2004) per participant (refer to
Note 23.).
22. AMOUNTS OWED TO FINANCIAL INSTITUTIONS
CZK million
Loro accounts
2005
2004
389
182
Other
34,509
32,723
Total
34,898
32,905
As of 31 December 2005, the Bank received from other financial institutions loans of CZK 15,171 million (2004: CZK 12,100
million) under repurchase transactions which were collateralised by securities amounting to CZK 14,917 million (2004: CZK 11,739
million).
107
23. AMOUNTS OWED TO CUSTOMERS
CZK million
2005
2004
Repayable on demand
275,625
247,688
Other deposits
205,931
197,083
Total
481,556
444,771
As of 31 December 2005, the Bank received from customers loans of CZK 727 million (2004: CZK 560 million) under repurchase
transactions which were collateralised by securities amounting to CZK 720 million (2004: CZK 554 million).
Other deposits include a payable of CZK 3,411 million (2003: CZK 3,503 million) arising from state subsidy claims in respect of
building savings programme participants (refer to Note 21).
Analysis of amounts owed to customers:
CZK million
Savings deposits
2005
2004
182,199
178,785
Other amounts owed to customers
– Public sector
34,869
25,615
– Corporate clients
68,303
60,977
180,500
166,976
– Retail clients
– Other
Total
15,685
12,418
481,556
444,771
2005
2004
24. NEGATIVE FAIR VALUE OF FINANCIAL DERIVATIVE TRANSACTIONS
CZK million
Hedging
3
–
– Interest rate
305
91
Total hedging
308
91
Non-hedging
– Interest rate
– Other
962
1,317
13,046
11,137
254
22
Total non-hedging
14,262
12,476
Total negative fair value of financial derivative transactions
14,570
12,567
108
2004
Statements
25. BONDS IN ISSUE
ISIN
Date of issue
Maturity
Interest rate
2005
CZK million
CZK million
2004
2,678
Mortgage bonds
CZ0002000201
November 2002
November 2007
5.80,%
2,585
Mortgage bonds
CZ0002000235
March 2003
March 2008
5.20,%
3,121
3,191
Mortgage bonds
CZ0002000276
August 2003
August 2008
4.50,%
2,604
2,678
Mortgage bonds
CZ0002000342
April 2004
April 2009
3.50,%
278
307
Mortgage bonds
CZ0002000409
August 2004
August 2009
3.60,%
476
438
Mortgage bonds
CZ0002000516
May 2005
August 2006
1.85,%
600
–
Mortgage bonds
CZ0002000524
May 2005
May 2010
4.50,%
1,893
–
Mortgage bonds
CZ0002000573
June 2005
June 2010
4.05,%
1,924
–
Mortgage bonds
CZ0002000623
October 2005
October 2015
4.75,%
5,560
–
Mortgage bonds
CZ0002000763
December 2005
December 2012
3m Pribor -0.2,%
1,999
–
Mortgage bonds
CZ0002000771
December 2005
December 2008
4.45,%
783
–
Bonds
CZ0003700759
February 2004
February 2008
1.00,% x)
114
102
Bonds
CZ0003700767
February 2004
February 2014
3.51,% x)
1,499
1,502
Bonds
CZ0003701013
May 2005
June 2008
– x)
242
–
Bonds
CZ0003701047
July 2005
July 2012
2.72,% xx)
714
–
Bonds
CZ0003701054
September 2005
September 2017
4.75,% x)
196
–
Bonds
CZ0003701062
October 2005
October 2013
5.00,% x)
–
–
Depository bills of exchange
14,694
8,753
Total
39,282
19,649
x) Bonds were issued with a combined yield.
xx) If the early repayments option is not exercised, the interest rate is increased by 3.55 percent.
Of the aggregate carrying value of the mortgage bonds, CZK 16,568 million (2004: CZK 8,447 million) was hedged against interest
rate risk through interest rate swaps linked to a market floating rate. In accordance with applicable accounting policies, these mortgage bonds are remeasured at fair value.
Bonds issues were placed with an embedded derivative. The ISIN CZ0003700767 and CZ0003701047 issues of bonds are remeasured
at fair value because they are hedged against interest rate risk and early repayment options are attached to the bonds. The ISIN
CZ0003701013 and CZ0003701054 issues were placed with a share index option which is recorded separately and is remeasured at
fair value.
109
26. TECHNICAL INSURANCE PROVISIONS
Charge for and use of provisions
CZK million
2005
Balance at 1 January
9,288
8,918
Charge for provisions
3,163
4,460
(1 826)
(1 738)
–
(2 352)
10,625
9,288
CZK million
2005
2004
Provision for legal disputes relating to credit transactions
2,089
2,021
Use of provisions
Release of provisions
Balance at 31 December
2004
27. PROVISIONS FOR LIABILITIES AND OTHER RESERVES
(a) Structure of provisions
Provision for off balance sheet credit risks
1
190
536
359
2,626
2,570
CZK million
2005
2004
2,570
2,435
716
1,109
Use of provisions
(65)
(152)
(595)
(822)
2,626
2,570
Other reserves
Total
(b) Charge for and use of provisions
(c) Provisions for other credit risks and off balance sheet credit exposures
Provisions for other credit risks and off balance sheet credit exposures are recorded to cover specific risks arising from pending legal
disputes relating to loan transactions and to cover losses that result from off balance sheet and other exposures.
110
2004
Statements
CZK million
2005
2004
2,211
1,953
441
832
Use of provisions
(62)
(27)
(500)
(547)
2,090
2,211
2005
2004
560
404
– Interest on amounts owed to financial institutions
36
48
– Interest on amounts owed customers
66
68
432
282
28. OTHER LIABILITIES
CZK million
Accrued expenses
Of which:
– Interest on bonds in issue
– Other
26
6
579
105
Short sales
7,362
5,535
Various creditors
1,704
1,111
Payables from factoring transactions
3,004
3,428
Deferred income
Payables from securities trading
1,433
441
Other payables
6,802
5,052
782
2,275
Income tax liability
Deferred income tax liability (refer to Note 29)
Total
1,112
678
23,338
19,029
29. DEFERRED INCOME TAXES
Deferred income tax is calculated from all temporary differences under the liability method using a principal tax rate of 24 percent
(2004: 26 percent), 5 percent for Penzijní fond České spořitelny, a. s. (2004: 5 percent) and 19 percent for companies based in
Slovakia (2004: 19 percent).
111
Deferred income tax assets (liabilities) are as follows:
CZK million
2005
2004
Balance at the beginning of the year
(578)
(280)
Movements arising from acquisitions and change in minority shareholders’ holding
(803)
–
Movement for the year – equity
154
6
Movement for the year – income/(expense)
159
(304)
(1 068)
(578)
Net balance at the end of the year
The impact of deferred tax liabilities on equity arises from changes in the fair value of securities available for sale and hedging derivatives. The deferred tax (charge)/credit in the profit and loss account comprises the following temporary differences:
CZK million
Tax losses carried forward
Provisions and reserves
Accelerated depreciation
2005
2004
4
(7)
(66)
(24)
48
(199)
Fair value of investment property (refer to Note 18)
(79)
–
Other temporary differences
252
(74)
Total (refer to Note 43)
159
(304)
(1)
31
2005
2004
Of which: impact of the change of rate
Deferred income tax assets and liabilities are attributable to the following items:
CZK million
Deferred tax assets
17
13
Non-tax deductible reserves and provisions
248
314
236
–
501
327
Deferred tax asset adjustment (net of liabilities)
(457)
(227)
Total deferred tax asset (refer to Note 21)
44
100
Deferred tax liabilities
Accelerated depreciation for tax purposes
(329)
(377)
Changes in fair value of securities available for sale and hedging derivatives (refer to Note 33)
(206)
(360)
Fair value of investment property
(866)
–
(168)
(168)
(1,569)
(905)
Deferred tax liability adjustment (net of assets)
457
227
Total deferred tax liability (refer to Note 28)
(1,112)
(678)
Net deferred tax asset (liability)
(1,068)
(578)
112
2004
Statements
30. SUBORDINATED DEBT
On 16 May 2005, the Bank issued subordinated debt totalling CZK 3,000 million with a maturity date of 16 May 2015 and an interest
rate of 6M PRIBOR plus 0.46 percent p.a. The book value is CZK 2,998 million, net of CZK 2 million in transaction costs, as of 31
December 2005. The debt was issued in the certificate form and placed on the free market of the Prague Stock Exchange. If the Bank
does not exercise its option for premature repayment of the debt after the elapse of five years, the interest rate shall increase to 6M
PRIBOR plus 1.4 percent p.a. Interest is payable semi-annually in arrears. The debt is unsecured and unconditional.
On 5 May 2005, the Czech National Bank issued a certificate confirming that this subordinated debt is compliant with all regulatory
requirements and may be included in the additional capital of the Group for the purposes of calculating the capital adequacy ratio.
31. MINORITY INTERESTS
CZK million
2005
2004
1,702
1,440
112
1,086
–
(664)
(969)
(119)
4
(41)
Minority interest in the current year’s profit
Acquisition of minority interest
Dividends paid to minority shareholders
Valuation gains or losses
Minority interests in the companies newly included in consolidation, increase in capital and foreign exchange
differences
–
–
849
1,702
Minority interest in the current year’s profit for 2004 was predominantly attributable to the sale of the non-life insurance business
of Pojišťovna České spořitelny, a. s. The acquisition of minority interest in 2004 represented the difference between the fair value of
assets and liabilities acquired from the minority shareholders of Stavební spořitelna České spořitelny, a. s.
32. SHARE CAPITAL
Authorised, called-up and fully paid share capital was as follows:
Ordinary shares of CZK 100 each
Priority shares of CZK 100 each
Total
Number
of shares
2005
CZK million
Number
of shares
CZK million
2004
140,788,787
14,079
140,788,787
14,079
11,211,213
1,121
11,211,213
1,121
152,000,000
15,200
152,000,000
15,200
Priority 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, priority shareholders have a right to the assets of the Bank before ordinary shareholders
but after other creditors. Priority shareholders have a right to purchase shares offered by the Bank when it increases its share capital
113
in the same proportion as the current holding. Priority registered shares can be issued only to municipalities and local governments in
the Czech Republic. The priority registered shares can be transferred to entities other than municipalities and local governments of the
Czech Republic only subject to the approval of the Board of Directors.
33. REVALUATION GAINS OR LOSSES
CZK million
Hedging derivatives
2005
2004
FX differences
2005
2004
2005
Gain on fair value changes
1,628
1,246
–
–
Deferred tax liability
(360)
(352)
–
–
–
–
–
–
1,268
894
–
–
(699)
382
–
–
151
(8)
3
–
FX differences
–
–
–
–
16
Cash flow hedge
–
–
(18)
–
929
1,628
–
–
–
Deferred tax (liability)/asset
(209)
(360)
3
–
–
FX differences
–
–
–
–
7
Cash flow hedge
–
–
(18)
–
720
1,268
(15)
–
Total
2004
2005
2004
–
–
1,628
1,246
–
–
(360)
(352)
(9)
2
(9)
2
(9)
2
1,259
896
–
–
(699)
382
–
–
154
(8)
(11)
16
(11)
–
(18)
–
–
929
1,628
–
(206)
(360)
(9)
7
(9)
–
–
(18)
–
7
(9)
712
1,259
At 1 January
FX differences
Total at 1 January
Changes during the year
Gain/(loss) on fair value changes
At 31 December
Total at 31 December
34. INTEREST INCOME AND SIMILAR INCOME
CZK million
Debt securities and other fixed income securities
2005
2004
2,508
2,522
15,093
13,224
6,731
7,450
Proceeds from shares and other variable yield securities
165
222
Rental income
360
110
24,857
23,528
Total
Rental income for the year ended 31 December 2005 includes rental proceeds of CZK 259 million arising from investment property.
114
2004
Statements
35. INTEREST EXPENSE AND SIMILAR EXPENSE
CZK million
Bonds in issue
Subordinated debt
Fair value of hedging derivatives
2005
2004
869
908
4,883
4,744
352
446
49
–
(16)
4
Other
1
10
Total
6,138
6,112
2005
2004
36. PROVISIONS FOR CREDIT RISKS
CZK million
Charge for the year
(4 206)
(3,430)
3,769
2,869
Net charge for provisions
(437)
(561)
(13)
(3)
Write-offs of loans not covered by provisions
Recoveries
Total
64
59
(386)
(505)
2005
2004
34 FEE AND COMMISSION INCOME
CZK million
Lending activities
1,495
1,763
System of payment
5,664
5,497
Securities transactions
808
606
Building savings activities
760
799
Foreign exchange transactions
Other financial activities
Total
42
42
342
273
9,111
8,980
115
38. FEE AND COMMISSION EXPENSE
CZK million
Lending activities
System of payment
2005
2004
9
47
299
275
30
8
Building savings activities
36
128
5
6
348
278
Total
727
742
2005
2004
39. NET PROFIT ON FINANCIAL OPERATIONS
CZK million
Realised and unrealised profit on securities held for trading
192
500
Derivative instruments
(279)
(520)
Foreign exchange trading
1,307
1,016
Other
137
193
Total
1,357
1,189
116
2004
Statements
40. GENERAL ADMINISTRATIVE EXPENSES
(a) Composition of general administrative expenses
CZK million
2005
2004
Wages and salaries
5,247
5,067
Social security costs
2,007
1,812
Staff costs
Other staff costs
89
155
Total staff costs
7,343
7,034
Data processing expenses
1,566
1,699
Building maintenance and rent
1,300
1,439
Costs of business transactions
963
980
Advertising and marketing
802
726
Advisory and legal services
465
329
Other administrative expenses
588
526
5,684
5,699
Amortisation of intangible assets (refer to Note 19)
1,523
1,233
Depreciation of property and equipment (refer to Notes 15 and 20)
1,845
1,917
Total depreciation
3,368
3,150
16,395
15,883
2005
2004
Salaries
180
156
Total
180
156
2005
2004
Total other administrative expenses
Depreciation
Total
(b) Board of Directors and Supervisory Board emoluments
CZK million
(c) Average number of employees and Board members
Board of Directors
8
7
Supervisory Board
12
12
11,406
11,805
Staff
117
With a view to fostering loyalty of the Bank’s key employees and attracting new key managers, the Supervisory Board of Erste Bank,
resolved, based upon authorisation given by the General Meeting of Shareholders dated 8 May 2001, to implement an Employee Erste
Bank Stock Ownership Programme (‘ESOP’) and a Management Erste Bank Stock Option Programme (‘MSOP’) within the Group.
All employees of the Bank and its subsidiary companies were entitled to subscribe for shares under the Employee Stock Ownership
Programme. Each employee was entitled to subscribe for a maximum of 200 shares (2004: 100 shares). The price of one share was
established on the basis of the average rate in April 2005 decreased by a 20 percent discount. The 20 percent discount is conditional
upon the shares being held for a period of one year. A total of 395 employees (2004: 150) participated in the programme and
subscribed for 50,291 shares (2004: 7,998). Management of the Bank and its subsidiary companies and selected key employees
were granted the fourth tranche of options for subscription of shares under the Management Erste Bank Stock Option Plan 2005. In
the year ended 31 December 2005, approximately 143,500 options (2004: 50,750) were granted to these employees. The following
tranche of the programme in 2006 will be approximately of the same size. These options entitle the holders to acquire Erste Bank’s
shares for the price of EUR 43 which was determined as the average price of shares ruling in April 2005 plus a 10 percent mark-up,
rounded to EUR 0.5 (for the options subscribed until 2004 the price of the share was EUR 66 on the basis of the average price ruling
in March 2002), within five years from the issuance of each tranche of options. 5,850 options (2004: 35,880 options) granted under
the first tranche in 2002, 10,540 options (2004: 31,060) granted under the second tranche in 2003, and 26,922 options granted under
the third tranche in 2004 were exercised in the year ended 31 December 2005.
The aggregate amount of the discount in respect of both programmes was CZK 12 million (2004: CZK 5 million) and was reported
within “General administrative expenses – other staff costs”.
41. NET INSURANCE INCOME
CZK million
2005
2004
Net earned premium
2,406
3,073
Costs of insurance claims
Change in technical provisions
Operating expenses
Other gains/(losses) on insurance transactions
Technical account result
Financial gains
Other income of the non-technical account
Total net insurance income
118
(914)
(684)
(1 138)
(1,997)
(432)
(422)
(71)
(13)
(149)
(43)
523
407
–
10
374
374
2004
Statements
42. OTHER OPERATING INCOME/(EXPENSES), NET
CZK million
Release of other reserves
2005
2004
94
295
Gain on the sale and revaluation of real estate
248
102
Income from other services
117
95
Received compensation for deficits and damage
58
87
Release of provisions against non-credit receivables
61
85
Income from statute-barred deposits
Other operating income
Total other operating income
44
62
244
240
866
966
Charges for other reserves
(275)
(276)
Contribution to the Deposit Insurance Fund
(382)
(731)
Write-off of assets under construction
(69)
–
Profit share of customers of Penzijní fond České spořitelny, a. s.
(535)
(387)
Loss on the sale and impairment of real estate
(104)
(111)
(83)
(140)
Deficits and damage, fines and penalties
Charge for provisions against non-credit receivables
(76)
(107)
Sponsorship contributions
(50)
(265)
Other operating charges
(229)
(203)
Other taxes
(37)
(49)
(1 840)
(2,269)
Income from the revaluation/sale of securities at fair value through profit or loss
180
462
Income from the sale of securities available for sale
953
330
Total other operating expense
Income from revaluation hedging derivatives
12
–
Gains/(losses) on the revaluation/sale of equity investments
86
(52)
257
(563)
CZK million
2005
2004
Current tax expense
3,223
3,646
Deferred tax income/(expense) (refer to Note 29)
(159)
304
3,064
3,950
Total other operating income/(expenses), net
43. INCOME TAX EXPENSE
Total
119
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rate of the home
country of the parent company as follows:
CZK million
Profit before tax
2005
2004
12,310
13,173
Tax calculated at a tax rate of 26 percent (2004: 28 percent)
3,201
3,688
Income not subject to tax
(430)
(1,110)
Expenses not deductible for tax purposes
605
1,107
Tax allowances and credits, including the utilisation of tax losses
(32)
(85)
Income tax as per the final tax returns for prior period
Subtotal
Movement in deferred taxation (refer to Note 29)
Income tax expense
Effective tax rate
(121)
46
3,223
3,646
(159)
304
3,064
3,950
27.47,%
30.00,%
Further information about deferred income tax is presented in Note 29.
44. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the end of the year as shown in the consolidated statements of cash flows are composed of the following
balances:
CZK million
Cash (refer to Note 6)
Nostro accounts with the CNB (refer to Note 6)
Government treasury bills with maturity of less than three months
Nostro accounts with financial institutions (refer to Note 7)
Loro accounts with financial institutions (refer to Note 22)
Total cash and cash equivalents
2005
2004
13,201
13,300
720
700
9,058
10,432
511
835
(389)
(182)
23,101
25,085
45. FINANCIAL INSTRUMENTS
A financial instrument is any contract that gives rise to the right to receive cash or another financial asset from another party (financial
asset) or the obligation to deliver cash or another financial asset to another party (financial liability).
Financial instruments may result in certain risks to the Group. The most significant risks include:
(a) Credit Risk
The Group takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due. ˝
120
2004
Statements
Credit Risk Management Methodology
In managing credit risk, the Group applies a unified methodology which is adopted on a Group-wide basis and sets out applicable procedures, roles and authorities. The Group credit risk management follows the strategic objectives arising from the parent company’s
lending policy. The lending policy includes:
• Prudent credit process guidelines, including procedures for the prevention of money laundering and fraudulent activities;
• General guidelines regulating the acceptability of client segments on the basis of their principal activities, geographical areas,
maximum maturity period, product and purpose of the loan;
• Principal framework of the rating system and of setting up and revising borrower rating;
• Basic principles underlying the system of limits and the structure of approval authorities; and
Collection of Key Risk Management Information
Throughout 2005, the Group placed great emphasis on enhancing the efficiency of the collection of data which is essential to the risk
management process. The Group replaced its existing data collection system with a more comprehensive solution involving a data
warehouse, while the responsibility for data processing has remained with the Risk Management Department. This solution is highly
flexible when developing analyses drawing on a unified, group-wide source of data. The collected data allows the Risk Management
Department to have detailed control over the Group’s individual exposures to all its clients. The quality of data significantly improved,
which provides a better basis for its utilisation during debt recovery procedures, valuation of receivables and calculation of losses.
Rating Tools
Rating is perceived as one of the key risk management tools. Assessing the borrower is an obligatory part of every loan approval process or when making major changes to lending terms. The assessment takes into account the borrower’s financial position, identified
weaknesses (such as management, competitiveness) for corporate clients, or social demographic indicators for retail clients. The Bank
uses a 13+R rating scale for all clients with the exception of retail clients-private individuals (8+R) where ‘R’ means client in default.
All information essential for assessing clients is collected and stored centrally. Revisions of the rating and identification of the
approval level are an integral part of such information. The information is processed by a statistical software. Regular reviews and
back-testing of statistical models are performed at least on a yearly basis.
For the purposes of making regular updates of the client rating, the Group has implemented behavioural scoring which is based on the
client’s account history and loan repayment ability with respect to all of its exposures to the Group. The rating based on behavioural
scoring reflects the risk attributable to the client as well as the receivable. The rating of retail clients also strengthened the Bank’s
position by allowing it to control its risk exposures during an accelerated lending process.
Modification of the rating tools technology applied in respect of corporate clients resulted in a more flexible environment in 2005
facilitating the introduction of scorecards and centralisation of data collection. Another upgrade of rating tools is planned for the
clients of the small and medium-sized business segment where behavioural scoring is scheduled to be implemented in early 2006.
Rating tools for municipalities also underwent changes, both on the technical level and by introducing scorecards. The new rating
instrument is linked to the public administration’s financial information system, which expands the availability of data for risk
management of all municipalities in the Czech Republic.
121
During 2005, the Bank tested a pilot operation of a newly developed rating tool for special loans. The testing particularly focused on
data collection and on customising the technological environment.˝
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 collateral. In setting the system of limits, the Group strives to protect its revenues and capital from risk concentration. Risk
concentration is measured as the capital required for the given portfolio.
Risk Parameters
Risks profiles used in the Group’s internal models include probability of failure, loan losses and credit conversion factors. Improvements made by the Group in 2005 primarily related to the quality of the input information referred to above and the development of
models for setting up risk parameters on the basis of the current portfolio structure. The Group also expanded statistical-method-based
calculation tools based on the historical data sampling method. A partial objective in this area is to obtain detailed information about
stress behaviour and potential sensitivity of the principal segments of the portfolio. In addition to the overall objective of updating the
estimation processes to the level matching the BASEL II concept, the Group creates an environment facilitating quantitative portfolio
management. At present, the Group refers to risk parameters when monitoring portfolio risks, measuring portfolio protection and
valuation of risks.
Provisions against Loan Losses
Beginning 1 January 2005, the Group has implemented a provisioning policy in accordance with IAS 39 Revised. The policy is based
on two components, namely individual and collective losses.
Individual Losses Component
Individual losses represent the losses arising from receivables impaired on an individual basis. Impairment of a receivable is identified
based on loss making events that can be ascertained individually. Impairment of non-retail receivables and retail receivables with
a value exceeding CZK 5 million is measured on an individual basis taking into account the present value of expected future cash
flows using the original effective interest rate of that receivable.
The level of impairment of retail receivables is determined using the provisioning matrix based on the classification of the receivable
and the segment it belongs to, where the classification represents the ascertained status of impairment or an event. Each individual
component of this matrix is derived from historical experience with defaulted receivables and the potential recoverability of similar
types of receivables.
All exposures are revalued on a monthly basis depending on whether a loss making event occurred.
Collective Losses Component
Collective losses reflect the aggregate impairment of assets which are not impaired individually. Aggregate impairment covers
collective losses arising from internal or external loss making events. Loss making events are measurable and identifiable in relation
to the current portfolio. The scope of impairment reflects the Group’s expert estimate as to the sensitivity of the public to loss making
events.
The breakdown on credit risk by industries is shown in Note 49.
122
2004
Statements
(b) Market Risk
The Group takes on exposure to market risks. Market risks arise from open positions in interest rate, currency, equity, credit and
commodity products, all of which are exposed to general and specific market movements. Market risks undertaken by the Group
principally relate to transactions on financial markets which are traded in both the trading and banking books, and interest rate risk
associated with assets and liabilities in the banking book. Trading book transactions in the capital, money and derivative markets can
be segmented as follows:
• Client quotations and client transactions, execution of client orders;
• Interbank market quotations; and
• Proprietary trading in the interbank market.
The Group enters into short-term transactions on the account of the trading book, that is, the Group opens positions with a view to
benefiting from short-term fluctuations in financial markets, purchases higher-interest bearing assets funded by the sale of lower-interest bearing assets with the objective of using the interest spread to generate profit, creates strategic positions, that is, positions opened
to benefit from significant movements in the prices of financial assets.
The Group conducts the following derivative transactions through the over-the-counter (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 floors;
• Commodity derivatives (for gold and oil); and
• Credit derivatives.
In the area of exchange-traded derivatives, the Group trades the following instruments:
• Bond futures;
• Commodity derivatives (gold and oil futures); and
• Options in respect of bond futures.
During the year ended 31 December 2005, at the clients’ request, the Group also traded with other less common currency options,
such as digital, barrier or windowed options. Some of these option contracts or options on various underlying stock baskets or stock
indices formed part of the on-balance sheet instruments as embedded derivatives.
Derivative transactions are also entered into to hedge against interest rate risk inherent in the banking book (interest rate swaps, FRA,
swaptions) and to refinance the gap between foreign currency assets and liabilities (FX swaps and cross currency swaps).
In addition to the calculation of sensitivities to individual risk factors, the Group applies the ‘value at risk’ methodology (‘VaR’)
to estimate the market risk of positions held and the maximum losses expected. The Board of Directors establishes a VaR limit as
the Group’s maximum exposure to market risk that may be accepted. Sub-limits placed on sensitivity values and VaR in respect of
individual trading desks enable the managing of the overall market risk profile. These limits are approved by the Financial Market and
Risk Management Committee, are monitored on a daily basis and exposures are reported.
123
The VaR method is complemented with ‘back testing’ which is designed to review the model for correctness. Back testing involves
comparing daily estimates of VaR to the hypothetical results of the portfolio on the assumption that the positions within the portfolio
remain unchanged for one trading day. Back testing results have, to date, confirmed the correctness of the setting of the VaR calculation model.
(c) Foreign Currency Risk
Foreign currency risk is the risk that the value of financial instruments 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 to monitoring limits, the Group uses the ‘value at risk’ concept for measuring its open positions taken in respect of all
currency instruments. The Group monitors special limits for foreign currency option contracts, such as limits for the delta equivalent
sensitivity to the exchange rate change in the form of the gamma equivalent, and limits for option contract value sensitivity to the
exchange rate volatility in the form of the vega equivalent. In addition, the Group monitors value sensitivity to the period to maturity
(theta) and interest rate sensitivity (rho, phi) which is measured, together with other interest rate instruments, in the form of the PVBP
(Present Value of a Basis Point). The Group’s net open foreign exchange rate position as of 31 December 2005 is shown in Note 47.
(d) 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 its interest rate risk through the monitoring of the repricing dates of the Group’s assets and liabilities and using models
which show the potential impact that changes in interest rates may have on the Group’s net interest income. Refer to Note 48.
In order to measure the interest rate risk exposure within financial markets transactions the Group uses the ‘PVBP gap’ defined as
a matrix of sensitivity factors to interest rates by currency for individual portfolios of interest rate products. These factors measure
the portfolio market value sensitivity with a parallel shift of the yield curve of the relevant currency within the predefined period
to maturity. The system of PVBP limits is set in respect of each interest rate product trading portfolio by currency. The limits are
compared to the value that represents the greater of the sum of positive PVBP values or the sum of negative PVBP values in absolute
terms for each period to maturity. By adopting this approach, the Group manages not only the risk attached to a parallel shift of the
yield curve, but also any possible ‘flip’ of the yield curve. With regard to foreign currency options, the PVBP limits also include the
Rho and Phi equivalents. In addition, the Bank monitors other special limits for interest rate option contracts, such as the gamma and
vega limits for interest rates and their volatility.
For monitoring and managing the banking book interest rate exposures, the Group uses a simulation model focused on monitoring
potential impacts of market interest rate movements on the Group’s net interest income. Simulations are performed over the period
of 36 months. A basic analysis focuses on the sensitivity of the Group’s net interest income to a one-off change(s) of market interest
rates (rate shock). In addition, the Group undertakes probability modelling of its net interest income (stochastic simulation) and the
traditional gap analysis. The analyses noted above are undertaken on a monthly basis and the results are discussed by the Assets and
Liabilities Committee (ALCO) which decides whether it is necessary to take measures in response to the Group’s interest rate risk
exposures.
(e) Capital Requirement in Respect of Market Risks
Since December 2003, the Bank has used its internal model approved by the Czech National Bank in November 2003 to calculate its
B capital requirements. The capital requirement in respect of market risks (foreign currency risk, general interest rate risk, general and
specific equity risk and risk associated with trading book option contracts) is determined using the Value at Risk method. The model
is based upon the calculation of Value at Risk with a 99 percent confidence level and a 10-day holding period using the historical
simulation method.
124
2004
Statements
(f) Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulties in raising funds to meet commitments associated with financial
instruments. The Group’s liquidity position is monitored and managed based on expected cash flows and adjusting the structure of
interbank deposits and placements accordingly and/or implementing other decisions aimed at adjusting the liquidity position of the
Group, for example, a decision to issue bonds. Refer to Note 50 for an analysis of the Group’s balance sheet by maturity as of 31
December 2005 and 2004.
(g) Operational Risk
In accordance with Regulation of the Czech National Bank No. 2 dated 3 February 2004, which sets out requirements in respect of the
review of banks’ internal control and management systems including the risk management system, the Group defines operational risk
as the risk of loss arising from the inappropriateness or failure of internal processes, human errors or failures of systems or the risk
of loss arising from external events, including loss due to the breach of or failure to fulfil legal regulations.With assistance from Erste
Bank Vienna, the Group put in place a standardised categorisation of operational risks, the objective being to utilise this classification
within the entire financial group. Since 2004, the Bank and its subsidiaries have joined the Erste Bank Group insurance programme.
The Group has cooperated with an external supplier in developing a software application to collect data about operational risk which
conforms to the data collection requirements set out in Basel II. The data is not only used with a view to quantifying operational risks
and monitoring trends in the development of these risks but also for the purpose of preventing recurrence of operational risks.
A tool of importance in mitigating losses arising from operational risks is the Group’s insurance programme put in place in 2002. This
insurance programme involves insurance of property damage as well as risks arising from banking activities and liability risks. Since
2004, the Bank and its subsidiaries have joined the Erste Bank Group insurance programme which expands insurance protection
specifically with regard to damage that may materially impact the Group’s profit or loss.
In addition to the risks noted above, the Group trades in derivative financial instruments which are discussed in greater detail in the
following note.
46. OFF BALANCE SHEET ITEMS AND DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Group becomes a party to various financial transactions that are not reflected on the balance
sheet and are referred to as off balance sheet financial instruments. The following represent notional amounts of these off balance
sheet financial instruments, unless stated otherwise.
(a) Contingent Liabilities
Legal Disputes
At the balance sheet date the Group was involved in various claims and legal proceedings of a nature considered normal to its business. The Czech legal environment is still evolving, legal disputes are costly and their outcome unpredictable. Many parts of the legislation 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 various claims and legal proceedings of a special nature. The Group also defends against various legal
actions relating to contractual disputes. 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 Group’s interests.
125
Whilst no assurance can be given with respect to the ultimate outcome of any such claim or litigation, the Group believes that the various
asserted claims and litigation in which it is involved will not materially affect its financial position, future operating results or cash flows.
Pursuant to the ruling of the Antimonopoly Office regarding a potential violation of the Economic Competition Protection Act
143/2001 Coll., whereby, inter alia, a penalty of CZK 94 million was imposed on Stavební spořitelna České spořitelny, a. s. (‘SSČS’),
SSČS recognised a provision for legal disputes to the same value. The above ruling of the Antimonopoly Office was revoked in 2005
and the case was returned for reconsideration and for a new ruling to be issued. On 2 December 2005, the Antimonopoly Office
issued a new ruling under which the imposed penalty was reduced to CZK 38.5 million. SSČS appealed the ruling within the statutory deadline. However, the appeal does not result in the grounds for maintaining the provision ceasing to exist. The balance of the
provision was reduced to CZK 38.5 million taking into account the right of the Chairman of the Antimonopoly Office to confirm the
imposed level of the fine.
Assets Pledged
Assets are pledged as collateral under repurchase agreements with other banks and customers in the amount of CZK 13,915 million
(2004: CZK 10,036 million). Mandatory reserve deposits are also held with the local central bank in accordance with statutory
requirements (refer to Note 6). These deposits are not available to finance the Group’s day to day operations.The Group has received
loans to finance investment property for which it has pledged real estate of CZK 1,303 million as collateral.
Commitments from Guarantees and Letters of Credit
The primary purpose of these instruments is to ensure that funds are available to the customer as required. Guarantees and standby
letters of credit, which represent irrevocable 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 represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters
of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to a loss in an amount equal to
the total unused commitments. However, the likely amount of the loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards.
Guarantees, irrevocable letters of credit and undrawn loan commitments are subject to similar credit risk monitoring and credit
policies as utilised in the extension of loans. Management of the Group believes that the market risk associated with guarantees,
irrevocable letters of credit and undrawn loans commitments is minimal.
In 2004, the Group recorded provisions for off balance sheet risks to cover potential losses that may be incurred in connection with
these off balance sheet transactions. As of 31 December 2005, the aggregate balance of these provisions was CZK 1 million (2004:
CZK 190 million). Refer to Note 27.
CZK million
2005
2004
Guarantees and letters of credit
17,791
12,623
Undrawn loan commitments
79,606
66,519
126
2004
Statements
(b) Derivatives
The Group maintains strict control limits on net open derivative positions, ie, the difference between purchase and sale contracts, by
both amount and term. At any one time the amount subject to credit risk is limited to the current fair value of instruments that are
favourable to the Group (ie, assets), which in relation to derivatives is only a small fraction of the contract or notional values used
to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with
customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit
risk exposures on these instruments, except where the Group requires deposits from counterparties.
All derivatives are stated at fair value on the balance sheet as of 31 December 2005 and 2004 (refer to Notes 13. and 24.).
(c) Foreign Currency Contracts
Foreign currency contracts are agreements to exchange specific amounts of currencies at a specified rate of exchange, at a spot date
(settlement occurs two days after the trade date) or at a forward date (settlement occurs more than two days after the trade date). The
notional amount of these contracts does not represent the actual market or credit risk associated with these contracts.
Foreign currency contracts are used by the Group for risk management and trading purposes.
Notional amounts
CZK million
2005
2004
Trading instruments
Commitments to purchase
47,285
52,471
Commitments to sell
47,321
52,235
(d) Interest rate swaps
Interest rate swap contracts obligate two parties to exchange one or more payments calculated by reference to fixed or periodically
reset rates of interest applied to a specific notional principal amount. Notional principal is the amount upon which interest rates
are applied to determine the payment streams under interest rate swaps. Such notional principal amounts are often used to express
the volume of these transactions but are not actually exchanged between the counterparties. The Group’s interest rate swaps were
principally transacted for propriety trading purposes, to hedge customer-oriented transactions or to hedge against interest rate risk.
The Group has applied hedge accounting in respect of the interest rate exposure arising from its own issue of mortgage bonds. The
mortgage bonds issued with a fixed interest rate were linked to a floating market rate through interest rate swaps.
127
At 31 December 2005
Notional amounts
Weighted average interest rate
CZK million
Receive
Pay
Hedging instruments :
Residual maturity
– less than 1 year
74
2,14%
4,45%
– 1 to 5 years
11 560
3,37%
2,04%
– over 5 years
4 000
3,21%
1,93%
15 634
3,32%
2,02%
160 320
2,63%
3,17%
– 1 to 5 years
233 751
2,67%
2,91%
Total
Trading instruments
Residual maturity:
– over 5 years
137 198
3,19%
3,41%
Total
531 269
2 ,79%
3,12%
At 31 December 2004
Notional amounts
CZK million
Receive
Pay
Hedging instruments
Residual maturity:
57
4.45%
5.12%
– 1 to 5 years
7,760
2.78%
3.52%
– over 5 years
1,500
2.71%
6.54%
Total
9,317
2.78%
4.01%
3.43%
Trading instruments
Residual maturity:
99,969
3.35%
– 1 to 5 years
245,054
3.62%
3.18%
– over 5 years
127,335
3.90%
3.51%
Total
472,358
3.64%
3.32%
(e) Option Contracts
Option contracts represent the formal reservation of the right to buy or sell an asset at the specified quantity, within a given time in the
future and at a certain price. The buyer of the option has the right, but not the obligation, to exercise the right to buy or sell an asset
and the seller has the obligation to sell or purchase the asset at the specified quantity and at the price defined in the option contract.
128
2004
Statements
2005
CZK million
2004
Notional amounts
Option contracts sold
interest rate
10,344
2,089
foreign currency
30,653
20,746
869
–
equity
Option contracts purchased
interest rate
10,344
213
foreign currency
30,288
19,963
869
–
equity
(f) Forward Rate Agreements
A forward rate agreement is an agreement to settle amounts at a specified future date based on the difference between an interest
rate index and an agreed upon fixed rate. Market risk arises from changes in the market value of contractual positions caused by
movements in market interest rates. In principle, the Group limits its exposure to market risk by entering into generally matching
or offsetting positions and by establishing and monitoring limits on unmatched positions. Credit risk is managed through approval
procedures that establish specific limits for individual counterparties. All of the Group’s forward rate agreements were entered into for
trading purposes.
Notional amounts
2005
2004
CZK
million
Weighted average rate
CZK
million
Weighted average rate
187,923
2.57
352,330
3.35%
23,000
2.87
22,750
3.79%
210,923
2.60
375,080
3.37%
187,923
2.53
352,330
3.29%
23,000
2.88
22,750
3.97%
210,923
2.57
375,080
3.34%
Residual maturity
Purchase
– 1 to 5 years
Total
Sale
– 1 to 5 years
Total
(g) Forward Contracts with Securities
Forward contracts with securities are agreements to purchase or sell the securities for a specific amount at a future date. The forward
contracts with securities are used by the Group for trading purposes.
129
CZK million
2005
2004
2
400
Commitments to sell
3
400
Notional amounts
Contracts with equities
(h) Cross Currency Swaps
Cross currency swaps are combinations of interest rate swaps and foreign currency contracts. As with interest rate swaps, the Group
agrees to make fixed versus floating interest payments at periodic dates over the life of the instrument. These payments are, however,
in different currencies, and are settled on a gross basis. Unlike interest rate swaps, the notional balances of the different currencies are
typically exchanged at the beginning and re-exchanged at the end of the contract period.
CZK million
2005
2004
Notional amounts
Trading instruments
94,514
41,865
Commitments to sell
90,572
39,050
(i) Other Derivatives
The Group entered into transactions resulting in the Group assuming risk on certain underlying debt securities denominated in
a foreign currency. As of 31 December 2005, the total notional amount of equity return swaps and credit derivatives was CZK
1,570 million (2004: CZK 400 million) and CZK 638 million (2004: CZK 1,338 million), respectively.
(j) Futures
Futures contracts represent the obligation to sell or purchase a financial instrument in the organised market at a certain price at
a certain agreed date in the future. The Group entered into futures contracts in respect of debt securities and equities for trading
purposes. As of 31 December 2005, the total notional amount of the futures transactions was CZK 4,083 million (2004: CZK 846 million).
130
2004
Statements
47. NET FOREIGN EXCHANGE POSITIONS
The net foreign exchange positions of the Group as of 31 December 2005 and 2004 were as follows:
At 31 December 2005
CZK million
CZK
EUR
USD
GBP
SKK
Other
Total
Assets
Cash and balances with the CNB
16,593
795
227
126
114
249
18,104
75,610
16,700
2,214
10
2,616
696
97,846
258,117
15,600
2,364
211
115
341
276,748
14,006
15,572
3,133
–
199
3,632
36,542
Positive fair value of financial derivative
transactions
16,640
875
229
–
–
104
17,848
20,724
7,020
2,075
–
–
854
30,673
Securities and other assets held to maturity
Other assets
124,659
218
–
–
118
–
124,995
9,702
167
348
16
–
59
10,292
38,913
1,063
648
11
342
39
41,016
574,964
58,010
11,238
374
3,504
5,974
654,064
Liabilities
25,558
1,391
6,077
1
107
1,764
34,898
461,917
12,447
3,578
365
1,068
2,181
481,556
transactions
13,160
1,132
175
–
–
103
14,570
Bonds in issue
38,193
556
523
–
10
–
39,282
Negative fair value of financial derivative
Other liabilities
37,554
1,209
709
13
50
52
39,587
576,382
16,735
11,062
379
1,235
4,100
609,893
(1,418)
41,275
176
(5)
2,269
1,874
44,171
(69,741)
(21,073)
(287)
(41)
1,412
1,561
(88,169)
Net foreign exchange position
– on balance sheet
Net foreign exchange position
– off balance sheet
The line ‘Loans and advances to customers’ includes amounts due from ČKA and provisions against loans and advances. The line
‘Other assets’ includes other assets, property and equipment and intangible fixed assets, assets held for sale and investment property.
The line ‘Other liabilities’ includes other liabilities, provisions, technical insurance provisions and subordinated debt.
131
At 31 December 2004
CZK million
CZK
EUR
USD
GBP
SKK
Other
Total
18,128
Assets
16,481
1,010
210
90
105
232
63,280
9,673
2,883
30
218
1,028
77,112
217,085
10,905
3,180
190
198
565
232,123
12,408
12,102
3,458
389
–
402
28,759
transactions
14,251
866
161
–
–
135
15,413
30,965
5,481
963
130
–
92
37,631
124,056
1,178
–
–
3
–
125,237
11,874
144
121
11
–
29
12,179
33,384
977
741
12
66
18
35,198
523,784
42,336
11,717
852
590
2,501
581,780
Other assets
Liabilities
25,424
1,046
4,695
139
226
1,375
32,905
430,332
8,894
3,717
339
836
653
444,771
transactions
11,027
1,220
195
5
–
120
12,567
Bonds in issue
17,280
1,090
1,279
–
–
–
19,649
Other liabilities
29,698
694
426
10
9
50
30,887
513,761
12,944
10,312
493
1,071
2,198
540,779
10,023
29,392
1,405
359
(481)
303
41,001
(72,676)
(19,373)
1,009
(41)
1,412
1,561
(88,108)
Net foreign exchange position – on balance
sheet
Net foreign exchange position – off balance
sheet
‘Other assets’ includes other assets, property and equipment and intangible fixed assets. The line ‘Other liabilities’ includes other
liabilities, provisions and technical insurance provisions.
48. INTEREST RATE RISK
(a) Interest rate repricing analysis
The following tables present the distribution of assets and liabilities according to the interest rate repricing dates. They include significant financial assets and liabilities in CZK, EUR and USD as of 31 December 2005 and 2004. Variable yield assets and liabilities
have been reported according to their next rate repricing date. Fixed income assets and liabilities have been reported according to their
remaining maturity.
132
2004
Statements
At 31 December 2005
CZK million
Demand and
less than
1 month
1 to 3 months
3 months
to 1 year
1 to
5 years
Over
5 years
Total
Selected assets
4,933
–
–
–
–
4,933
65,464
8,640
20,325
400
–
94,829
75,126
36,563
52,009
97,850
14,450
275,998
18,633
624
490
3,617
3,828
27,192
2,473
3,610
2,783
14,531
5,381
28,778
9,792
16,909
16,514
43,914
37,481
124,610
322
939
599
1,870
5,527
9,257
176,743
67,285
92,720
162,182
66,667
565,597
Selected liabilities
24,506
3,912
1,939
2,643
133
33,133
82,786
111,068
106,987
176,619
331
477,791
Bonds in issue
14,696
3,385
600
14,906
5,684
39,271
–
–
2,998
–
–
2,998
121,988
118,365
112,524
194,168
6,148
553,193
Current gap
54,755
(51,080)
(19,804)
(31,986)
60,519
12,404
Cumulative gap
54,755
3,675
(16,129)
(48,115)
12,404
Subordinated debt
133
At 31 December 2005
CZK million
Demand and
less than
1 month
1 to 3 months
3 months
to 1 year
1 to
5 years
Over
5 years
Total
Selected assets
4,401
–
–
–
–
4,401
55,074
6,071
12,510
2,193
–
75,848
54,877
47,346
41,297
84,757
10,246
238,523
13,785
883
1,564
2,752
3,477
22,461
4,191
3,861
8,371
6,169
14,300
36,892
3,064
18,248
19,914
42,017
41,470
124,713
2,399
43
2,047
1,690
6,000
12,179
137,791
76,452
85,703
139,578
75,493
515,017
23,358
3,700
3,601
731
–
31,390
85,991
93,009
100,348
162,806
786
442,940
Bonds in issue
7,700
1,596
859
9,444
50
19,649
117,049
98,305
104,808
172,981
836
493,979
Current gap
20,742
(21,853)
(19,105)
(33,403)
74,657
21,038
Cumulative gap
20,742
(1,111)
(20,216)
(53,619)
21,038
,
The line ‘Loans and advances to customers’ includes amounts due from ČKA.
In addition, the Bank enters into interest rate swaps to manage its interest rate risk exposure.
134
2004
Statements
(b) Effective yield information
The effective yields of significant financial assets and liabilities by major currencies of the banking segment as of 31 December 2005
and 2004 are as follows:
At 31 December 2005
Weighted average
interest rate
Weighted average
interest rate
Weighted average
interest rate
Weighted average
interest rate
CZK
EUR
USD
TOTAL
Selected assets
2.00,%
–
–
1.99,%
2.12,%
2.45,%
4.63,%
2.24,%
5.93,%
4.35,%
5.31,%
5.84,%
2.00,%
3.55,%
4.71,%
3.00,%
3.53,%
2.83,%
3.61,%
3.36,%
3.96,%
–
–
3.96,%
4.56,%
2.98,%
4.52,%
2.20,%
3.19,%
4.29,%
1.01,%
0.83,%
1.66,%
1.01,%
Bonds in issue
2.41,%
2.19,%
4.02,%
2.43,%
Subordinated debt
2.89,%
–
–
2.89,%
Weighted average
interest rate
Weighted average
interest rate
Weighted average
interest rate
Weighted average
interest rate
CZK
EUR
USD
TOTAL
0.73,%
At 31 December 2004
2.61,%
Selected assets
0.73,%
–
–
2.58,%
2.22,%
1.82,%
2.54,%
6.23,%
4.11,%
4.56,%
6.09,%
2.40,%
3.23,%
2.77,%
2.68,%
3.90,%
2.88,%
2.13,%
3.67,%
5.63,%
–
–
5.74,%
4.16,%
4.32,%
0.13,%
4.11,%
2.66,%
2.65,%
2.82,%
2.27,%
1.15,%
0.86,%
0.70,%
1.14,%
Bonds in issue
2.80,%
2.06,%
2.18,%
2.73,%
135
49. CONCENTRATIONS OF CREDIT RISK
The following table presents the distribution of the Group’s credit exposure by industry sector for loans and advances to customers
and financial institutions and debt securities:
CZK million
2005
2004
181,553
32,%
161,247
31,%
Individuals
125,417
22,%
93,457
18,%
22,417
4,%
18,675
4,%
4,324
1,%
4,915
1,%
139,594
24,%
152,566
30,%
Public sector
13,113
2,%
11,079
2,%
Construction
4,442
1,%
3,244
1,%
Hotels, public catering
2,128
0,%
1,683
0,%
Trading
Energy sector
State institutions including ČKA
Processing industry
30,260
5,%
25,155
5,%
Other
49,648
9,%
41,004
8,%
Total
572,896
For an analysis of the Group’s assets and liabilities by geographical concentration refer to Note 52b.
136
513,025
2004
Statements
50. MATURITY ANALYSIS
The table below analyses assets and liabilities of the Group into relevant maturity groupings as of 31 December 2005, based on
the remaining period at the balance sheet date to the contractual maturity date.
CZK million
Demand
and less
than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
Over 5
years
Not
specified
Total
Assets
13,921
–
–
–
–
4,183
18,104
66,530
5,735
20,482
5,099
–
–
97,846
17,639
14,160
77,214
116,065
58,342
(6,672)
276,748
78
662
1,269
14,831
12,145
7,558
36,542
transactions
Other assets
Total
–
–
–
–
–
17,848
17,848
900
970
2,862
15,693
8,353
1,895
30,673
5,424
5,062
15,425
61,218
37,481
385
124,995
242
299
343
2,131
6,243
1,034
10,292
4,427
2,696
6,480
50
147
27,216
41,016
109,161
29,584
123,748
215,087
122,711
53,773
654,064
Liabilities
24,023
2,227
2,461
2,384
3,803
–
34,898
308,413
60,283
42,953
69,574
332
–
481,556
transactions
Bonds in issue
Subordinated debt
Other liabilities
Total
–
–
–
–
–
14,570
14,570
14,425
251
600
14,110
9,897
–
39,282
–
–
–
–
2,998
–
2,998
5,590
1,688
3,582
2,804
2,392
20,533
36,589
353,854
63,046
49,596
88,872
19,422
35,103
609,893
Current gap
(244,693)
(33,462)
74,152
126,215
103,289
18,670
44,171
Cumulative gap
(244,693)
(278,155)
(204,003)
(77,788)
25,501
44,171
‘Other assets’ includes other assets, property and equipment and intangible fixed assets, assets held for sale and investment property.
The line ‘Other liabilities’ includes other liabilities, technical insurance provisions and provisions.
137
The table below analyses assets and liabilities of the Group as of 31 December 2004 according to the remaining period:
CZK million
Demand
and less
than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
Over 5
years
Total
Not
specified
Assets
14,000
–
–
–
–
4,128
37,164
22,907
12,115
4,926
–
–
77,112
3,243
27,034
62,561
104,009
42,442
(7,166)
232,123
,499
1,692
2,422
10,835
7,804
5,507
28,759
18,128
transactions
–
–
–
–
–
15,413
15,413
,70
5,585
8,500
8,676
14,191
609
37,631
–
10,750
17,808
54,488
41,668
523
125,237
3
2,276
1,616
2,040
5,686
558
12,179
6,107
1,991
5,311
1
–
21,788
35,198
61,086
72,235
110,333
184,975
111,791
41,360
581,780
12,578
10,423
4,072
4,470
1,362
–
32,905
247,688
78,453
44,934
72,908
788
–
444,771
Other assets
Total
Liabilities
,
transactions
Bonds in issue
Other liabilities
Total
–
–
–
–
–
12,567
12,567
6,618
1,018
968
9,469
1,576
–
19,649
3,974
1,571
805
3,698
1,704
19,135
30,887
270,858
91,465
50,779
90,545
5,430
31,702
540,779
41,001
Current gap
(209,772)
(19,230)
59,554
94,430
106,361
9,658
Cumulative gap
(209,772)
(229,002)
(169,448)
(75,018)
31,343
41,001
liabilities, technical insurance provisions and provisions.
51. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made based on relevant market data and information about the financial instruments. Because no readily
available market prices exist for a significant portion of the Group’s financial instruments, fair value estimates for these instruments
are based on judgements regarding current economic conditions, currency and interest rate characteristics and other factors.
Many of these estimates involve uncertainties and matters of significant judgement and cannot be determined with precision.
Therefore, the calculated fair value estimates cannot always be substantiated by comparison to market values and, in many cases,
may not be realised in the current sale of the financial instrument. Changes in underlying assumptions could significantly affect the
estimates.The following table summarises the carrying values and fair values of those financial assets and liabilities not presented on
the balance sheet at their fair value.
138
2004
Statements
CZK million
Carrying value
Estimated
fair value
Carrying
value
Estimated
fair value
2005
2005
2004
2004
Financial assets
97,846
97,793
77,112
77,181
Loans and advances to customers including ČKA
276,748
278,521
232,123
234,475
124,955
130,312
125,237
128,989
10,292
10,717
12,179
12,437
Financial liabilities
Bonds in issue
Subordinated debt
34,898
34,984
32,905
32,887
481,556
481,464
444,771
444,678
39,282
39,792
19,649
19,713
2,988
3,018
–
–
The fair value of current accounts is deemed to approximate their carrying amount. Given that term receivables generally reprice at
relatively short time periods, it is justifiable to regard their carrying amount as the estimated fair value.
Loans and advances to customers are carried net of provisions. The fair value is estimated as the present value of discounted future
cash flows and the applied discount factor is equal to the interest rates currently offered by the Bank.
The fair value of securities 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 similar credit risk characteristics, maturity or yield rate or, as and when appropriate, according to the recoverability of the net asset value of these securities.
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 no-interest
earning deposits, is equal to the amount payable on demand. The fair value of fixed income deposits and other liabilities with no stated
market value is estimated as the present 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 similar maturities. The fair value of products with no contractually stated
maturity (such as sight deposits, passbooks, overdraft facilities, building savings deposits) is considered equal to their carrying value.
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 estimated
as the present 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 similar remaining maturities.
Subordinated debt
Issued subordinated debt is traded on the free market of the Prague Stock Exchange. Its aggregated fair value is based on quoted
market prices.
139
52. SEGMENT REPORTING
(a) Industry segments
For management purposes, the Group is organised into the following major operating divisions:
• Retail banking (accepting deposits from the public, providing loans to retail clients, services related to credit and debit cards);
• Corporate banking (providing loans to corporate clients and municipalities, issuance of guarantees, opening of letters of credit);
• Investment banking (securities investments, proprietary trading and trading on behalf of the client with securities, foreign exchange
assets, entering into futures and options including foreign currency and interest rate transactions, financial brokerage, custodian
services, participation in issuance of stock, management, safe-keeping and administration of securities or other assets); and
• Other operations (leasing, insurance, management of investment and mutual funds, investment construction and advisory services).
2005
CZK million
Banking
Other
Retail
Corporate
Investment
activities
Eliminations
Total
20,587
3,021
2,741
5,612
568
200
197
72
(2,066)
29,895
21,155
3,221
2,938
5,684
(2,066)
30,932
7,980
2,196
2,262
4,940
(2,249)
Revenue
External revenue
Inter-segment revenue
Total segment revenue
1,037
PROFIT
Segment profit
Unallocated costs
15,129
(2,819)
Profit before tax
12,310
Income tax
(3,064)
Minority interest
(112)
Total profit
9,134
Other information
Asset acquisition
1,153
167
82
3,155
–
4,557
Write-offs and depreciation
1,931
40
72
1,324
–
3,367
238,008
107,100
260,852
60,568
(12,713)
653,815
Balance sheet
Assets
Segment assets
249
Unallocated assets
Total consolidated assets
654,064
Liabilities
Segment liabilities
Unallocated liabilities
Total consolidated liabilities
140
411,792
37,449
119,820
45,523
(11,827)
602,757
7,136
609,893
2004
Statements
2004
CZK million
Banking
Other
Eliminations
Total
28,511
Retail
Corporate
Investment
activities
19,217
2,701
2,375
4,218
–
568
91
109
69
(425)
412
19,785
2,792
2,484
4,287
(425)
28,923
6,876
1,479
1,808
5,696
(474)
15,384
Revenue
External revenue
Inter-segment revenue
PROFIT
Segment profit
Unallocated costs
(2,211)
Profit before tax
13,173
Income tax
(3,950)
Minority interest
(1,086)
Total profit
8,137
Other information
Asset acquisition
1,550
34
21
3,049
–
4,654
1,879
25
59
1,187
–
3,150
–
–
(594)
–
(594)
86,077
255,086
50,203
(4,065)
580,631
Impairment losses
Balance sheet
Assets
Segment assets
193,330
Unallocated assets
1,149
Total consolidated assets
581,780
Liabilities
Segment liabilities
Total consolidated liabilities
391,456
32,323
77,920
35,512
(3,609)
533,602
7,177
540,779
Total income is composed of ‘Net interest income’, ‘Net fee and commission income’, ‘Net profit on financial operations’, ‘Net
insurance income’, ‘Total other operating income’, ‘Income from the revaluation/sale of securities, derivatives and equity investments’
(refer to Note 42), and in 2004 also “Profit on the sale of the non-life business of Pojišťovna České spořitelny, a. s.”.
141
(b) Geographical segments
The Group operates predominantly within the Czech Republic and has no significant cross border operations.
The geographical concentration of assets and liabilities as of 31 December 2005 was as follows:
CZK million
Czech
Republic
EU
countries
Other European
countries
Other
Total
Assets
16,595
1,084
163
262
18,104
70,297
22,802
3,784
963
97,846
271,268
3,096
1,495
889
276,748
15,567
17,677
733
2,565
36,542
2,627
15,029
2
190
17,848
20,193
8,547
689
1,244
30,673
91,776
27,419
3,801
1,999
124,995
7,938
1,815
7
532
10,292
Other assets
39,454
1,393
99
70
41,016
Total assets
535,715
98,862
10,773
8,714
654,064
Positive fair value of financial derivative transactions
Liabilities
Negative fair value of financial derivative transactions
Bonds in issue
Subordinated debt
27,079
7,758
56
5
34,898
481,124
373
16
43
481,556
2,443
11,694
15
418
14,570
39,027
33
3
219
39,282
2,699
299
0
0
2,998
35,912
647
0
30
36,589
Total liabilities of the Bank
588,284
20,804
90
715
609,893
Net position
(52 569)
78,058
10,683
7,999
44,171
Other liabilities
‘Other assets’ includes other assets, property and equipment, intangible fixed assets, assets held for sale and investment property. The
line ‘Other liabilities’ includes other liabilities, technical insurance provisions and provisions.
142
2004
Statements
CZK million
Czech
Republic
EU
countries
Other European
countries
Other
Total
18,128
Assets
16,481
1,119
286
242
62,739
9,108
4,576
689
77,112
227,747
1,229
2,282
865
232,123
11,385
11,742
2,467
3,165
28,759
2,637
12,557
3
216
15,413
24,934
10,009
2,313
375
37,631
89,515
29,861
3,302
2,559
125,237
10,324
1,453
29
373
12,179
Other assets
33,874
1,043
209
72
35,198
Total assets
479,636
78,121
15,467
8,556
581,780
Liabilities
Bonds in issue
Other liabilities
25,697
6,074
906
228
32,905
441,667
747
2,008
349
444,771
1,915
10,082
30
540
12,567
19,528
121
–
–
19,649
30,765
91
20
11
30,887
519,572
17,115
2,964
1,128
540,779
Net position
(39,936)
61,006
12,503
7,428
41,001
liabilities, technical insurance provisions and provisions.
53. ASSETS UNDER ADMINISTRATION
The Group provides custody, trustee, investment management 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.
143
The Group administered CZK 124,056 million (2004: CZK 89,005 million) of assets as of 31 December 2005 representing certificate
securities and other assets received from customers into its custody for administration and safe-keeping split as follows:
CZK million
Customer securities in custody
Other assets in custody
Customer securities under administration
Customer securities for safe-keeping
Assets received for management
Total
2005
2004
16,342
10,041
–
6,486
85,757
52,874
2
–
21,955
19,604
124,056
89,005
The Bank also acts as a depositary for several mutual, investment and pension funds, whose assets amounted to CZK 90,376 million
as of 31 December 2005 (2004: CZK 74,674 million).
54. Related party transactions
Related parties involve connected entities or parties that have a special relation to the Bank.
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other
party in making financial or operational decisions. The Group is controlled by Erste Bank der österreichischen Sparkassen AG.
The parties that have a special relation to the Bank are considered to be members of the Bank’s statutory and supervisory bodies and
management, legal entities exercising control over the Bank (including entities with a qualified interest in these entities and management of these entities), persons closely related to the members of the Bank’s statutory and supervisory bodies, management, 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 Czech National Bank’s Banking Board,
and legal entities which the Bank controls.
Pursuant to the definitions outlined above, the category of the Group’s related parties principally comprises its unconsolidated subsidiary and associated undertakings, members of its Board of Directors and Supervisory Board, and other entities, namely Erste Bank and
its subsidiary and associated undertakings.
The Group has the following amounts due from/to Erste Bank as of 31 December 2005 and 2004. Other related party transactions
with other connected parties are not significant.
144
2004
Statements
CZK million
2005
2004
Assets
2,589
1,210
7,607
5,760
Other assets
Total assets of the Bank
–
74
628
5,623
21
94
10,845
12,761
Liabilities
2,313
3,583
4,909
4,608
Other liabilities
13
34
7,235
8,225
Undrawn loans
200
200
Issued guarantees
194
126
190,830
195,499
2005
2004
463
32
Off balance sheet
Notional value of the underlying assets of derivatives
CZK million
Income
Interest income
Fee and commission income
Total income
8
1
1,603
850
1
3
2,075
886
357
254
Expenses
Interest expense
Fee and commission expense
General administrative expenses
1
–
12
62
Other operating expenses
118
–
Total expenses
488
316
(a) Members of the Board of Directors and Supervisory Board
Loans and advances granted to members of the Board of Directors and Supervisory Board amounted to CZK 16 million (in nominal
values) as of 31 December 2005 (2004: CZK 4 million).
Members of the Board of Directors and Supervisory Board held no shares of the Bank. Under the Employee Stock Option Plan (refer
to Note 40), members of the Board of Directors subscribed for 4,200 shares (2004: 11,700 shares) of the parent company, Erste
Bank. Under the Management Stock Option Plan (refer to Note 40.), members of the Board of Directors hold 152,000 options (2004:
128,000 options) for subscription of shares of the parent company, Erste Bank.
145
(b) Related parties
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 arm’s length basis.
55. DIVIDENDS
Management of the Bank has proposed that total dividends of CZK 4,560 million be declared in respect of the profit for the year
ended 31 December 2005, which represents CZK 30 per both ordinary and priority share (2004: CZK 4,560 million, that is, CZK
30 per both ordinary and priority share). The declaration of dividends is subject to the approval of the Annual General Meeting.
Dividends paid to shareholders are subject to a withholding tax of 15 percent or a percentage set out in the relevant double tax treaty.
Dividends paid to shareholders that are tax residents of an EU member country and whose interest in a subsidiary’s share capital is no
less than 25 percent and that hold the entity’s shares for at least two years are not subject to a withholding tax.
56. POST BALANCE SHEET EVENTS
No significant events that would have a material impact on the consolidated financial statements for the year ended 31 December
2005 occurred subsequent to the balance sheet date.
146
Unconsolidated Financial Statements
Prepared in Accordance with International Financial Reporting
Standards as Adopted by the European Union for the Years Ended
31 December 2005 and 2004
148
Independent Auditors’ Report to the Shareholders of Česká spořitelna, a. s.
149
Unconsolidated Balance Sheets as of 31 December 2005 and 2004
150
Unconsolidated Profit and Loss Accounts for the Years Ended 31 December 2005 and 2004
151
Unconsolidated Statements of Changes in Shareholders’ Equity for the Years Ended
152
Unconsolidated Statements of Cash Flows for the Years Ended
154
Notes to the Unconsolidated Financial Statements
147
OfficeAddress:
Nile House
Karolinská 654/2
186 00 Prague 8
Czech Republic
Deloitte s. r. o.,
Registered address:
Týn 641/4
110 00 Prague 1
Czech Republic
Tel.: +420 246 042 500
Fax: +420 246 042 010
www.deloitte.cz
Id Nr.: 49620592
Tax Id. Nr.: CZ49620592
We have audited the accompanying unconsolidated financial statements of Česká spořitelna, a. s. (the “Bank”), which comprise the
and notes. These financial statements are the responsibility of the Bank’s Board of Directors. Our responsibility is to express an
We conducted our audit in accordance with the Act on Auditors and International Standards on Auditing and the related application
guidelines issued by the Chamber of Auditors of the Czech Republic. Those standards require that the auditor plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
financial position of the Bank as of 31 December 2005 and of the expenses, income and results of its operations for the year then
ended in accordance with International Financial Reporting Standards as adopted by the EU.
In Prague on 21 February 2006
Audit firm: :
Deloitte s.r.o.
Certificate No. 79
Represented by:
Statutory auditor:
Michal Petrman,
certificate no. 1105
Michal Petrman, statutory executive
Audit. Tax. Consulting. Financial Advisory.
148
Member of
Deloitte Touche Tohmatsu
Independent Auditors’ Report to the
Shareholders of Česká spořitelna, a. s.
Unconsolidated Balance Sheets
Unconsolidated Profit and Loss Accounts
for the Years Ended 31 December
2005 and 2004
Unconsolidated Balance Sheets
CZK million
Note
31 December 2005
31 December 2004
ASSETS
1. Cash and balances with the CNB
5
17,792
17,930
2. Loans and advances to financial institutions
6
80,049
60,602
3. Amounts due from Česká konsolidační agentura
7
15,653
25,843
4. Loans and advances to customers
8
244,607
188,589
5. Provisions for losses on loans and advances
9
(5,046)
(5,578)
6. Securities at fair value through profit or loss
(a) Securities held for trading
10
36,195
28,197
19,604
15,204
12,993
(b) Securities designated upon initial recognition as at fair value through profit or
11
16,591
7. Positive fair value of financial derivative transactions
loss
12
17,759
15,410
8. Securities available for sale
13
14,366
15,628
9. Assets held for sale
14
326
–
10. Securities held to maturity
15
84,441
98,463
4,606
11. Equity investments in subsidiary and associated undertakings
16
6,751
12. Intangible fixed assets
17
4,332
4,251
13. Property and equipment
18
13,697
14,650
14. Other assets
19
Total assets
5,858
5,747
536,780
474,338
LIABILITIES AND SHAREHOLDERS’ EQUITY
1. Amounts owed to financial institutions
20
28,547
25,148
2. Amounts owed to customers
21
387,269
362,867
3. Negative fair value of financial derivative transactions
22
14,558
12,567
4. Bonds in issue
23
41,270
20,699
5. Provisions for liabilities and other reserves
24
2,580
2,366
6. Other liabilities
25
17,616
13,643
7. Subordinated debt
8. Shareholders’ equity
Total liabilities and shareholders’ equity
27
2,998
–
28, 29
41,942
37,048
536,780
474,338
The accompanying notes are an integral part of these financial statements.
These financial statements were prepared by the Bank and approved by the Board of Directors on 21 February 2006.
John James Stack
Chairman of the Board and
Chief Executive Officer
Dušan Baran
1st Deputy Chief Executive Officer
149
CZK million
Note
Year ended
31 December 2005
Year ended
31 December 2004
1. Interest income and similar income
30
22,544
20,214
2. Interest expense and similar expense
31
(4,050)
(4,140)
18,493
16,074
Net interest income
3. Provisions for credit risks
32
(358)
(27)
18,135
16,047
8,295
4. Fee and commission income
33
8,657
5. Fee and commission expense
34
(616)
(534)
8,041
7,761
6. Net trading result
35
1,263
1,268
7. General administrative expenses
36
(15,405)
(14,944)
8. Other operating income/(expenses), net
37
9. Income tax expense
Net profit for the year attributable to the Bank’s shareholders
150
38
335
(555)
12,369
9,577
(2,609)
(2,800)
9,760
6,777
2005 and 2004
Unconsolidated Statements of Changes
in Shareholders’ Equity for the Years
Ended 31 December 2005 and 2004
Unconsolidated Statements of Cash Flows
2005 and 2004
Unconsolidated Statements of Changes
in Shareholders’ Equity for the Years
Ended 31 December 2005 and 2004
CZK million
At 1 January 2004 (as originally presented)
Retained
earnings
Valuation
gains or
losses
Statutory
reserve
fund
Share
premium
Share
capital
Total
17,547
–
964
2
15,200
33,713
Effect of the adoption of IAS 39
221
835
–
–
–
1,056
At 1 January 2004 (restated)
(refer to Note 3u)
17,768
835
964
2
15,200
34,769
Dividends
(4,560)
–
–
–
–
(4,560)
(364)
–
364
–
–
–
–
104
–
–
–
104
–
(42)
–
–
–
(42)
6,777
–
–
–
–
6,777
At 31 December 2004
19,621
897
1,328
2
15,200
37,048
At 1 January 2005
19,621
897
1,328
2
15,200
37,048
Dividends
(4,560)
–
–
–
–
(4,560)
(376)
–
376
–
–
–
–
(348)
–
–
–
(348)
–
42
–
–
–
42
9,760
24,445
–
591
–
1,704
–
2
–
15,200
9,760
41,942
At 31 December 2005
151
Unconsolidated Statements
of Cash Flows
CZK million
Adjustments for non-cash transactions
Creation/(release) of provisions for losses on loans, advances and other assets
Depreciation and amortisation of assets
Impairment of tangible and intangible fixed assets
Note
2005
2004
12,369
9,577
423
(71)
3,250
3,042
(24)
(594)
(337)
(859)
Creation/(release) of provisions against equity investments
(71)
300
Net gain on the sale of equity investments
(91)
–
Creation/(release) of other reserves
234
(47)
Unrealised profit on securities at fair value through profit or loss
Change in fair values of financial derivatives
(358)
(1,346)
Income from statute-barred savings books
(44)
(62)
Gain on the sale of tangible assets
(44)
(97)
Accrued interest, amortisation of discount and premium
621
295
15,928
10,138
Operating profit before changes in operating assets and liabilities
Cash flows from operating activities
(Increase)/decrease in operating assets
Minimum reserve deposits with the CNB
78
3,719
(19,721)
5,534
Loans and advances to customers, including Česká konsolidační agentura
(46,781)
(19,101)
(9,580)
10,098
Other assets
701
1,206
(512)
4,536
Increase/(decrease) in operating liabilities
Other liabilities
Net cash flow from operating activities before income tax
Income taxes paid
Net cash flow from operating activities
152
3,192
3,072
24,446
2,239
5,202
(5,029)
(27,047)
16,412
(3,786)
(3,288)
(30,833)
13,124
Unconsolidated Statements of Changes in
Shareholders’ Equity for the Years Ended 31
December 2005 and 2004
Unconsolidated Statements of Cash
Flows for the Years Ended 31 December
2005 and 2004
Notes to the Unconsolidated Financial
Statements
CZK million
Note
2005
2004
Net (increase)/decrease in securities held to maturity
11,931
(17,099)
Net costs related to equity investments
(1,983)
(1,725)
Purchase of tangible and intangible fixed assets
(4,510)
(4,030)
Cash flows from investing activities
Proceeds from the sale of tangible and intangible fixed assets
1,874
2,585
Net cash flow from investing activities
7,312
(20,269)
Dividends paid
(4,560)
(4,560)
Bonds in issue
20,835
3,807
Cash flows from financing activities
Receipt of subordinated debt
2,998
–
Net cash flow from financing activities
19,273
(753)
Net decrease in cash and cash equivalents
(4,248)
(7,898)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
18,282
14,034
26,180
18,282
39
153
Notes to the Unconsolidated
Financial Statements
PREPARED IN ACCORDANCE WITH INTERNATIONAL
FINANCIAL REPORTING STANDARDS AS ADOPTED
BY THE EUROPEAN UNION FOR THE YEARS ENDED
31 DECEMBER 2005 AND 2004
1. INTRODUCTION
Česká spořitelna, a. s. (henceforth 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 on the territory of the Czech Republic.
The principal activities of the Bank are as follows:
• Acceptance of deposits from the general public;
• Extension of credit;
• Investing in securities on its own account;
• Payments and clearing;
• Issuance of payment facilities, e.g. payment cards, traveller’s cheques;
• Issuance of guarantees;
• Opening of letters of credit;
• Collection services;
• Proprietary or client-oriented trading with foreign currency
assets, forward and option contracts, including foreign
currency and interest rate transactions, and transferable
securities;
• Management of clients’ securities on clients’ accounts and
provision of advisory services;
• Participation in the issuance of shares and provision of
related services;
• Safe-keeping and administration of securities or other
assets;
• Rental of safe-deposit boxes;
• Provision of business advisory services;
• Issuance of mortgage bonds under special legislation;
• Financial brokerage;
• Depositary activities;
• Foreign exchange services (foreign currency purchases);
• Provision of banking information; and
• Maintenance of a separate part of the Securities Centre’s
records.
154
The Bank is subject to the regulatory requirements of the
Czech National Bank (henceforth the “CNB”). These regulations include those pertaining to minimum capital adequacy
requirements, classification of loans and off balance sheet
commitments, credit risk connected with clients of the Bank,
liquidity, interest rate risk and foreign currency position.
2. BASIS OF PREPARATION
These statutory financial statements have been prepared in
Union. These standards and interpretations were previously
called International Accounting Standards (IAS). As of the date
of issuance of these unconsolidated financial statements, IFRS
as adopted by the European Union do not differ from IFRS.
All figures are in millions of Czech crowns (CZK million),
unless stated otherwise.
These financial statements have been prepared under the
historical cost convention as modified by the remeasurement
to fair value of available for sale securities, financial assets
and liabilities at fair value through profit or loss, all financial
derivatives and issued debt securities which are hedged against
interest rate risk.
The presentation of financial statements in conformity with
IFRS requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of
the financial statements and their reported amounts of revenues
and expenses during the reporting period (refer to Note 4).
Actual results could differ from those estimates.
Comparative information has been restated, where necessary,
on a basis consistent with the current year presentation.
These financial statements and notes thereto are unconsolidated and do not include the accounts and results of those
companies over which the Bank has control or significant
influence. The policies of accounting for equity investments
are disclosed in Note 3b.
2005 and 2004
Statements
The Bank also prepares consolidated financial statements in
Union which present the results of the Bank’s financial group.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation
of the financial statements are set out below:
(a) Loans and Advances, Other Off Balance Sheet
Credit Exposures and Provisions for Losses on Loans
and Advances
Loans and advances are stated at the amount of outstanding
principal and overdue interest and fees. All loans and advances
are recognised when cash is advanced to borrowers.
Provisions for losses on loans and advances are recorded when
there are reasonable doubts over the recoverability of the loan
balance. Provisions for losses on loans and advances represent
management’s assessment of potential losses in relation to
the Bank’s on and off balance sheet activities. Amounts are
set aside to cover losses on loans and advances that have been
specifically identified and for potential losses which may be
present based on portfolio performance. The level of provisions is established by comparing the carrying amount of the
loan and the present value of future expected cash flows using
the effective interest rate. The amount necessary to adjust the
provisions to their assessed levels, after write-offs, is charged
to the profit and loss account line “Provisions for credit risks.”
Additional details can be found in Note 40.
Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and the possibility of further recovery is considered to be remote. The loan is
written off against the related account “Provisions for credit
risks” in the profit and loss account. If the reason for provisioning is no longer deemed appropriate, the redundant provisioning charge is released into income. The relevant amount and
recoveries of loans and advances previously written off are
reflected in the profit and loss account through “Provisions for
credit risks.”
(b) Debt and Equity Securities
Securities held by the Bank are categorised into portfolios in
accordance with the Bank’s intent on the acquisition of the
securities and pursuant to the Bank’s security investment strategy. In accordance with the revised requirements of IAS 39 effective from 1 January 2005 the Bank reassessed its investment
strategy and allocation of securities into individual portfolios.
The Bank reallocated selected securities from the “Securities
available for sale” portfolio into the “Securities at fair value
through profit or loss” portfolio and from the “Securities held
to maturity” portfolio into the “Securities available for sale”
portfolio. The principal difference among the portfolios relates
to the approach to the measurement of securities and the
recognition of their fair values in the financial statements.
All securities held by the Bank are recognised using trade
date accounting and initially recorded at their cost including transaction costs (acquisition cost), the only exception
being securities at fair value through profit or loss which are
recognised at cost net of transaction costs.
Securities at Fair Value through Profit or Loss
The portfolio includes debt and equity securities held for
trading, that is, securities held by the Bank with the intention
of reselling them, thereby generating profits on price fluctuations in the short-term, and debt and equity securities that were
designated, upon initial recognition, as at fair value through
profit or loss. Securities at fair value through profit or loss are
recognised at cost at the acquisition date and subsequently
remeasured at fair value. Changes in the fair values of assets
held for trading are recognised in the profit and loss account as
“Net profit on financial operations”. Changes in the fair values
of securities not held for trading are reported as “Other operating income/(expenses), net” in the profit and loss account.
For debt and equity securities traded on the Prague Stock
Exchange (‘PSE’), fair values are derived from quoted prices.
The fair values of those securities not traded on the PSE are
estimated by the management of the Bank as the best estimation of the cash flow projection reflecting the set of economic
conditions that will exist over the remaining maturity of the
securities.
155
Securities Available for Sale
Securities available for sale are securities held by the Bank
for an indefinite period of time that are available for sale as
liquidity requirements arise or market conditions change.
Securities available for sale are carried at acquisition cost and
subsequently remeasured at fair value. Changes in the fair
values of available for sale securities are recognised in equity
as “Revaluation gains or losses”, with the exception of their
impairment and interest income and foreign exchange differences on debt securities. When realised, the relevant revaluation gains or losses are taken to the profit and loss account as
“Other operating income/(expenses), net”. Interest income on
coupons, amortisation of discounts or premiums, and dividends
are included in “Interest income and similar income”. Foreign
exchange differences are reported within “Net profit on
financial operations”.
Securities Held to Maturity
Securities held to maturity are financial assets with fixed
maturity and determinable payments that the Bank has the
positive intent and ability to hold to maturity.
Securities held to maturity are initially measured at acquisition
cost. Securities held to maturity are subsequently reported
at amortised cost using the effective interest rate, less any
provision for impairment. The amortisation of premiums and
discounts is included in “Interest income and similar income”.
A financial asset (as defined in IAS 39) is impaired if its carrying amount is greater than its estimated recoverable amount. The
amount of the impairment loss for assets carried at amortised
cost is calculated as the difference between the asset’s carrying
amount and the present value of the expected future cash flows
discounted at the financial instrument’s original effective interest
rate. When an impairment of assets is identified, the Bank
recognises provisions through the profit and loss account line
“Other operating income/(expenses), net.”
Equity Investments
Equity investments in subsidiary and associated undertakings
are recorded at acquisition cost including transaction costs less
provisions for any temporary diminution in value or write-offs
for any permanent diminution in value.
156
An investment in a subsidiary is one in which the Bank holds,
directly or indirectly, more than 50 percent of its share capital
or in which the Bank can exercise more than 50 percent of the
voting rights based on an agreement with another shareholder/
owner, or where the Bank can appoint or dismiss a majority of
the Board of Directors or Supervisory Board members.
An investment in an associate is one in which the Bank holds,
directly or indirectly, 20 percent to 50 percent of its share
capital or over which the Bank exercises significant influence
through representation on the entity’s statutory board, participation in the development of the entity’s policy, significant
transactions between the entity and the Bank, replacement of
the entity’s management by the Bank, and access to significant
technical information of the entity.
At the financial statement date or interim financial statement
date, the Bank assesses equity investments in subsidiary or
associated undertakings for impairment. An equity investment
is impaired if its carrying amount is greater than its recoverable
amount. The recoverable amount is the higher of an asset’s fair
value and its value in use determined as a sum of discounted
expected cash flows. Impairment of equity investments in
subsidiary or associated undertakings is accounted for through
the recognition of provisions.
Dividends from equity investments are recognised in the profit
and loss account within “Interest income and similar income”
in the period in which they are declared.
(c) Sale and Repurchase Agreements
Where debt or equity securities are sold under a concurrent
commitment to repurchase them at
a pre-determined price, they remain at fair value or amortised
cost (refer to Note 3b) within the relevant portfolio on the
balance sheet and the consideration received is recorded in
“Amounts owed to financial institutions” or “Amounts owed
to customers.” Conversely, debt or equity securities purchased
under a concurrent commitment to resell are not recognised
in the balance sheet and the consideration paid is recorded in
“Loans and advances to financial institutions” or “Loans and
advances to customers.” Interest is accrued evenly over the life
of the agreement.
2005 and 2004
Statements
Securities borrowed are not recognised in the financial statements, unless they are sold to third parties, in which case the
purchase and sale are recorded with the gain or loss included
in trading income. The obligation to return them is recorded
at fair value as a trading liability and presented in “Other
liabilities”.
Buildings and structures
20–50 years
Electronic machines and equipment
6–12 years
Tools and other equipment
4–12 years
Equipment, fixtures and fittings
Selected low value machines and equipment
Leasehold improvements
4–6 years
2 years
Period of the lease
(d) Intangible Fixed Assets
Intangible fixed assets include identifiable assets without
physical substance with an estimated useful life exceeding one
year and a cost greater than CZK 60,000. Costs associated with
acquiring software are treated as intangible fixed assets and are
amortised on a straight line basis through “General administrative expenses - amortisation of intangible assets” over an
estimated useful life not exceeding four years. Research and
development, valuable rights and other intangible assets with
the exception of goodwill disclosed above are also amortised
over an estimated useful life not exceeding four years. Costs
associated with the maintenance of intangible assets (software)
are expensed through “General administrative expenses - other
administrative expenses” as incurred whilst costs of technical
improvements, if they exceed CZK 40,000 per one asset for
the period and are completed, are capitalised and increase
the acquisition cost of the intangible fixed asset (software).
Intangible fixed assets are carried at cost less accumulated
amortisation and provisions and are amortised on a straight
line basis over their estimated useful lives.
(e) Property and Equipment
Property and equipment includes identifiable tangible assets
with physical substance and with an estimated useful life exceeding one year and a cost greater than CZK 13,000. Property
and equipment also includes selected low value tangible assets
with a cost between CZK 1,000 and CZK 12,999. Property
and equipment is stated at historical cost less accumulated
depreciation and provisions and is depreciated when ready for
use through the profit and loss account line “General administrative expenses - depreciation of property and equipment” on
a straight line basis over their estimated useful lives. Depreciation periods for individual categories of assets are as follows:
Land and works of art (irrespective of their cost) and assets
under construction are not depreciated. The gain and loss arising on the disposal of property and equipment is determined
based on its carrying value and is recognised in the profit and
loss account line “Other operating income/(expenses), net”
in the year of disposal. Property and equipment costing less
than CZK 13,000 that are not the selected low value fixed
assets, technical improvements costing less than CZK 40,000
and intangible fixed assets costing less than CZK 60,000 are
charged to the profit and loss account line “General administrative expenses” in the period of acquisition.
The depreciation period of selected buildings and structures
was extended from 30 years to 50 years to better reflect their
estimated useful lives.
(f) Assets Held for Sale
The category of ‘assets held for sale’ includes non-current
assets that are taken out of active use at the date on which
criteria for sale are met, that is, the sale is approved by an
authorised person, steps to locate a buyer have been initiated,
and a draft of a purchase contract and other documentation
is being prepared. At the same date, the assets held for sale
are remeasured at fair value and depreciation on such assets
ceases. Changes arising from the fair value remeasurement
of the assets are accounted for through the recognition of
an extraordinary write-off in the profit and loss account line
“Other operating income/(expenses), net.”
(g) Impairment of Assets
Where the carrying amount of an asset stated at net book value
or amortised cost is greater than its estimated recoverable
amount, it is written down immediately to its recoverable
amount. The recoverable amount is the greater of the following
amounts: the market value which can be recovered from the
sale of an asset under normal conditions, net of selling costs, or
157
the estimated future economic benefits arising from the use of
the asset.
treasury shares, the Bank recognises the difference between
their selling price and cost as share premium.
The largest components of the Bank’s assets are periodically
tested for impairment and temporary impairments are provisioned through the profit and loss account line “Other operating income/(expenses), net”. An increased carrying amount
arising from the reversal of a temporary impairment must not
exceed the carrying amount that would have been determined
(net of amortisation or accumulated amortisation) had no
impairment loss been recognised for the asset in prior years.
(k) Accrued Interest
Repairs are charged to the profit and loss account line “General
administrative expenses - other administrative expenses” in the
year in which the expenditure is incurred.
(h) Provisions for Guarantees and Other Off Balance
Sheet Credit Related Commitments
In the normal course of business, the Bank enters into credit
related commitments which are recorded in off balance sheet
accounts and primarily include guarantees, loan commitments
and undrawn loan facilities. Provisions are made for estimated
losses on these commitments on the same basis as set out at
Note 3 (a) in respect of on balance sheet loan exposures.
(i) Provisions
Provisions are recognised when the Bank has a present legal or
constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate
of the amount of the obligation can be made.
(j) Shareholders’ Equity
The statutory reserve fund comprises funds that the Bank is
required to retain according to current legislation. Use of the
statutory reserve fund is limited by legislation and the articles
of the Bank. The fund is not available for distribution to the
shareholders.
Where the Bank purchases its treasury shares or obtains rights
to purchase its treasury shares, the consideration paid including any attributable transaction costs net of income taxes, is
shown as a deduction from total shareholders’ equity. In selling
158
Interest receivable and payable accrued on outstanding loan
balances, debt securities, deposit products and bonds in issue
and subordinated debt is reported within “Other assets” and
“Other liabilities,” respectively.
(l) Foreign Currency
Transactions denominated in foreign currencies are recorded
in the local currency at official exchange rates as announced
by the CNB on the date of transaction. Assets and liabilities
denominated in foreign currencies are translated into the local
currency at the CNB exchange rate prevailing at the balance
sheet date. Realised and unrealised gains and losses on foreign
exchange are recognised in the profit and loss account in “Net
profit on financial operations”, with the exception of foreign
exchange rate differences on equity investments denominated
in foreign currencies which are reported at the historical
exchange rate, foreign exchange rate differences on equity
securities included in the available-for-sale portfolio which
are reported as a component of a change in the fair value and
foreign exchange rate differences on derivatives entered into
with a view to hedging currency risk associated with assets
or liabilities whose foreign exchange rate differences are not
(m) Interest Income and Interest Expense
Interest income and expense are recognised in the profit
and loss account lines “Interest income and similar income”
and “Interest expense and similar expense” when earned or
incurred, on an accruals basis. The Bank accounts for the
accruals of interest using the effective interest rate method.
Outstanding penalties, contractual sanctions and interest on
non-performing loans, which are those loans that have overdue
interest and/or principal, or for which management of the Bank
otherwise believes the contractual interest or principal due may
not be received, are only recognised on collection.
(n) Fees and Commissions
Fees and commissions are recognised in the profit and loss
account lines “Fee and commission income” and “Fee and
2005 and 2004
Statements
commission expense” on an accruals basis, with the exception
of fees that are included in the effective interest rate.
(o) Dividends
Dividends reduce retained earnings in the period in which they
are declared by the Annual General Meeting.
(p) Taxation
Tax on the profit or loss for the year comprises the current
year tax charge, adjusted for deferred taxation. Current tax
comprises the tax payable calculated on the basis of the taxable
income for the year, using the tax rate enacted by the balance
sheet date, and any adjustment of the tax payable for previous
years.
Deferred tax is provided using the balance sheet liability
method on all temporary differences between the carrying
amounts for financial reporting purposes and the amounts used
for taxation purposes. The principal temporary differences
arise from certain non-tax deductible reserves and provisions,
tax and accounting depreciation on tangible and intangible
fixed assets and revaluation of other assets.
The estimated value of tax losses expected to be available for
utilisation against future taxable income and tax deductible
temporary differences are offset against the deferred tax liability within the same legal tax unit to the extent that the legal
unit has a legally enforceable right to set off the recognised
amounts and intends either to settle on a net basis, or to realise
the asset and settle the liability simultaneously.
Deferred tax assets are recognised only to the extent that it is
probable that sufficient taxable profit will be available to allow
the asset to be recovered.
Deferred tax is calculated on the basis of the tax rates that are
expected to apply to the period when the asset is realised or the
liability is settled. The effect on deferred tax of any changes
in tax rates is charged to the profit and loss account, except to
the extent that it relates to items previously charged or credited
directly to equity.
(q) Financial Derivative Instruments
Financial derivatives include foreign currency and interest rate
swaps, currency forwards, forward rate agreements, foreign
currency and interest rate options (both purchased and sold),
futures and other derivative financial instruments. The Bank
uses various types of derivative instruments in both its trading
and hedging activities.
Financial derivative instruments entered into for trading or
hedging purposes are stated at fair value. Unrealised gains and
losses are reported as “Positive fair value of financial derivative
transactions” and “Negative fair value of financial derivative
transactions.” Realised and unrealised gains and losses are
recognised in the profit and loss account line “Net profit on
financial operations”, the only exception being unrealised gains
and losses on cash flow hedges which are recognised in equity.
Fair values of derivatives are based upon quoted market prices
or pricing models which take into account current market and
contractual prices of the underlying instruments, as well as the
time value and yield curve or volatility factors underlying the
positions.
Certain derivatives embedded in other financial instruments are
treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the
host contract is not carried at fair value with gains and losses
Certain derivative transactions, while providing effective
economic hedges under the Bank’s risk management positions,
do not qualify for hedge accounting under the specific rules
in IAS 39 and are therefore treated as derivatives held for
trading with fair value gains and losses reported in income or
expenses.
Hedging derivatives are defined as derivatives that comply with
the Bank’s risk management strategy, the hedging relationship
is formally documented and the hedge is effective, that is, at
inception and throughout the period, changes in the fair value
or cash flows of the hedged and hedging items are almost fully
offset and the results are within a range of 80 percent to 125
percent.
If the Bank uses a fair value hedge, the hedged item is remeasured at fair value and the gain or loss from the remeasurement
is recognised to expense or income as appropriate. The same
159
accounts of expense and income that reflect the gain or loss
from remeasuring the hedged item at fair value are also used
in accounting for changes in fair values of hedging derivatives
that are attributable to the hedged risk.
assets are determined after deducting related adjustments
that are reported as direct offsets in the Bank’s balance sheet.
Segment assets and liabilities do not include income tax items.
(t) Cash and Cash Equivalents
If the Bank uses a cash flow hedge, the gains or losses from
changes in fair values of hedging derivatives that are attributable to the hedged risk are retained in equity on the balance
sheet and are recognised to expense or income in the periods in
which the expense or income associated with the hedged items
are recognised.
(r) Transactions with Securities Undertaken on behalf
of Clients
Securities received by the Bank into custody, administration
or safe-keeping are typically recorded at market or nominal
values if the market value is not available and maintained off
balance sheet. “Other liabilities” include the Bank’s payables
to clients arising from cash received to purchase securities or
cash to be refunded to the client.
The Bank considers cash and deposits with the CNB, treasury
bills with a residual maturity of three months or less, nostro
accounts with financial institutions and loro accounts with
financial institutions to be cash equivalents. For the purposes of
determining cash and cash equivalents, the minimum reserve
deposit with the CNB is not included as a cash equivalent due
to restrictions on its availability.
(u) Changes in Accounting Policies for the Year Ended
31 December 2005
The Bank has reallocated securities among individual portfolios (IAS 39) and reassessed the classification of its assets as
operating and finance leases (IAS 17). The Bank has adopted
the treatments of accounting for non-current assets held for
sale as outlined in IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations.
(s) Segment Reporting
Segment information is based on two segment formats. The
primary format represents business segments - retail banking,
corporate banking, investment banking and other operations.
The secondary format represents the Bank’s geographical
markets – the Czech Republic, EU countries, other European
countries and other regions.
Segment results include revenue and expenses directly
attributable to a segment and the relevant portion of revenue
and expenses that can be allocated to a segment, whether from
external transactions or from transactions with other segments
of the Bank. Inter-segment transfer pricing is based on cost
plus an appropriate margin, as specified by the Bank’s policy.
Unallocated items mainly comprise administrative expenses.
Segment assets and liabilities comprise those operating assets
and liabilities that are directly attributable to the segment or
can be allocated to the segment on a reasonable basis. Segment
160
In accordance with the revised requirements of IAS 39 effective from 1 January 2005, the Bank has revised or adjusted
its accounting policies for securities available for sale; upon
initial recognition securities at fair value through profit or loss
are stated at cost, that is, net of transaction costs. Securities
acquired under initial public offerings are categorised into
individual portfolios according to the Bank’s strategy. Pursuant
to IAS 39, the stated changes were applied retrospectively, that
is, comparative amounts for the year ended 31 December 2004
were appropriately restated.
In accordance with the transitional provisions of IAS 39
(Revised), the Bank changed the original classification of
securities from the portfolios valid until 31 December 2004.
On 1 January 2005, the Bank reallocated selected securities
held in the held-to-maturity portfolio into the available-forsale portfolio and the original available-for-sale portfolio
(originally revalued through profit or loss) was split between
the new available-for-sale portfolio (revalued through retained
earnings) and the at-fair-value-through-profit-or-loss portfolio.
2005 and 2004
Statements
The Bank applied the above rules as of 1 January 2005 and changed retrospectively the structure of securities classified in portfolios
as follows:
Category
31 December
2003
CZK million
Category
1 January
2004
CZK million
Change
which:
44,659
4,887
39,772
–
4,887
4,887
At fair value through profit or loss, of
Held for Trading
39,772
Available for sale
12,673
Available for sale
17,439
4,766
91,777
83,591
(8,186)
145,689
1,467
Total
144,222
Total
As a result of these reallocations, the Bank remeasured the transferred securities at fair value and increased its shareholders’ equity
by CZK 1,467 million as of 1 January 2004. Net of the deferred tax of CZK 411 million, the net impact on the Bank’s equity as of 1
January 2004 is CZK 1,056 million.
Category
31 December
2003
CZK million
Category
1 January
2004
CZK million
Change
which:
28,197
12,993
15,204
–
12,993
12,993
At fair value through profit or loss, of
Held for Trading
Available for sale
15,204
15,628
(1,890)
112,926
17,518
Available for sale
103,069
(9,857)
Total
145,648
Total
146,894
1,246
As a result of these reallocations, the Bank remeasured the transferred securities at fair value and increased its shareholders’ equity by
CZK 1,246 million as of 1 January 2005. Net of the deferred tax of CZK 324 million, the opening balance of CZK 835 million and
the transfer of remeasurement from the profit and loss account to equity of CZK 17 million, including the impact of deferred taxation,
the net impact on the Bank’s equity as of 1 January 2005 is CZK 104 million.
Under IAS 39, the Bank also revised its policies for assessing loan receivables and receivables arising from securities for impairment.
161
The adoption of IFRS (including IAS 39 Revised) impacted retained earnings and equity as of 1 January 2005 when compared to the
amounts and balances reported in the annual financial statements prepared under Czech Accounting Standards (CAS) for the year
ended 31 December 2004 as follows:
CZK million
Equity under CAS as of 31 December 2004
Retained earnings
including the 2004
profit
Total equity
19,551
36,082
Release of provisions against equity investments in subsidiary and associated undertakings
100
100
Revaluation of less than 20 percent investments
(21)
(21)
Revaluation of property and equipment
2
2
IFRS reclassification of deferred taxation
5
5
Capital fund transfer
1
–
Social fund transfer
–
(41)
Adoption of IAS 39 Revised
Equity under IFRS as of 1 January 2005
(17)
921
19,621
37,048
(v) Changes in Accounting Policies arising from the Adoption of New IFRSs and Amendments to IASs effective
1 January 2006
At the date of authorisation of these financial statements, the following standards were in issue but not yet effective:
• IFRS 7 ‘Financial Instruments: Disclosures’ (effective 1 January 2007);
• Amendments to IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ (effective
1 January 2006);
• Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ in respect of cash flow hedge accounting (effective
1 January 2006);
• Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ and IFRS 4 ‘Insurance Contracts’ for financial
guarantee contracts (effective 1 January 2006); and
• Amendments to IAS 1 ‘Presentation of Financial Statements’ on capital disclosures (effective 1 January 2007).
The adoption of these standards in the future periods is not expected to have a material impact on the unconsolidated profit or equity.
4. SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES
(a) Impairment of Loans and Advances
The Bank regularly assesses its loan portfolio for possible impairment. In determining impairment losses the Bank assesses whether
there are observable data indicating that there is a measurable decrease in the estimated future cash flows from the portfolio although
the decrease cannot yet be identified with individual loans. Management of the Company uses estimates based on historical experience of losses on loans that have similar risk characteristics. The methods and assumptions adopted in estimating amounts and the
timing of future cash flows are regularly reviewed to reduce differences between the estimated and actual data.
(b) Debt Securities Held to Maturity
In categorising debt securities as held to maturity the Bank refers to the model of future cash flow developments such that the ability
162
2005 and 2004
Statements
to hold the debt securities is not jeopardised by the anticipated development in the structure of the Bank’s balance sheet. A sale of
a significant volume of the held-to-maturity debt securities before their maturity would have implications in terms of IAS 39 (the
requirement to reverse the entire portfolio held to maturity and the reallocation of the held-to-maturity securities into one of the
remaining portfolios). In terms of the Bank’s asset management policy, a purchase of a fixed-income debt security into the portfolio
of the held-to-maturity debt securities is primarily considered as a tool of the banking book interest rate risk management, the ability
to hold such a debt security to maturity is a pre-condition for using the debt security as a banking book interest rate risk management
tool.
(c) Permanent Impairment of Securities
Securities held by the Bank, the only exception being debt securities in the held-to-maturity portfolio, are regularly marked to market
and the marked-to-market revaluation is recognised in the profit and loss account (the trading portfolio and the at-fair-value-throughprofit-or-loss portfolio) or in the balance sheet (the available-for-sale portfolio) which reflects permanent impairment, if any, of the
securities (for instance, as a result of the bankruptcy of their issuer). If the Bank concludes that some of its securities held to maturity
suffered permanent impairment (for instance, a full redemption of the nominal value of a debt security cannot be anticipated with
a sufficient degree of certainty), the carrying amount of the security is written down and the incurred loss is taken to the profit and
loss account. The same treatment applies to securities available for sale, permanent impairment is reflected in the profit and loss
account instead of the balance sheet where current fluctuations in the market value of the security are recognised.
(d) Valuation of Instruments without Direct Quotations
Financial instruments without direct quotations in an active market are valued using the mark-to-model technique. The models are
regularly reviewed by a skilled employee of the Risk Management Department that is different from the preparer of the model. Each
model is calibrated for the most recent available market data. While the models are built only on available data, their use is subject to
certain assumptions and estimates (eg, for correlations, volatilities, etc.). Changes in the model assumptions may affect the reported
market value of the relevant financial instruments.
(e) 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 reports, the Bank assesses the developments in these cases, and the likelihood and
the amount of potential financial losses which are appropriately provided for. The Bank has decided to support the use of payment
cards for electronic payments by valuing these transactions through the allocation of points corresponding to the transaction amount.
These points can be retained and accumulated on clients’ personal accounts for up to three calendar years from their allocation
and subsequently exchanged for prizes or services of the Bank. Given that clients have not yet utilised a substantial amount of the
allocated points and the three-year period in respect of the points accumulated since the inception of the programme will expire in
2006, it is likely that a significant proportion of these points will be utilised in 2006 in exchange for prizes. The potential financial
impact associated with the exercising of the clients’ claims has been estimated and appropriately provided for.
163
5. CASH AND BALANCES WITH THE CNB
CZK million
Cash
Nostro accounts with the CNB
Minimum reserve deposit with the CNB
Total
2005
2004
13,188
13,268
720
700
3,884
3,962
17,792
17,930
Minimum reserve deposits represent mandatory deposits calculated in accordance with regulations promulgated by the CNB, and
whose withdrawal is restricted. The nostro balances represent balances with the CNB relating to settlement activities and were available for withdrawal at the year-end.
6. LOANS AND ADVANCES TO FINANCIAL INSTITUTIONS
CZK million
Nostro accounts
2005
2004
511
785
43,007
37,598
Placements with financial institutions
36,531
22,219
Total
80,049
60,602
As of 31 December 2005, the Bank provided certain financial institutions with loans of CZK 37,374 million (2004: CZK 33,029
million) under reverse repurchase transactions which were collateralised by securities amounting to CZK 37,237 million (2004: CZK
32,565 million).
7. AMOUNTS DUE FROM ČESKÁ KONSOLIDAČNÍ AGENTURA
With effect from 1 September 2001, Konsolidační banka Praha, s.p.ú. was transformed into Česká konsolidační agentura (‘ČKA’)
pursuant to Act 239/2001 Coll. This entity’s receivables have been included in the government sector and are guaranteed by the State
pursuant to the Act referred to above.
CZK million
Amounts due from Česká konsolidační agentura
2005
2004
15,653
25,843
As of 31 December 2005, the Bank had loans of CZK 14,900 million related to the loan portfolio restructuring effected by the State
with ČKA’s assistance (2004: CZK 18,600 million). These loans will fall due for repayment in the period from 2006 through 2008.
8. LOANS AND ADVANCES TO CUSTOMERS
The following table shows a breakdown of the loan balance by type of loan:
164
2005 and 2004
Statements
CZK million
2005
2004
Corporate loans
99,236
79,394
Mortgage loans
80,874
55,625
Retail loans
52,808
43,056
Public sector loans
11,689
10,514
244,607
188,589
2005
2004
Total
Industry Sector Analysis
The table below details the breakdown of loans and advances to customers by industry sector:
CZK million
Non-financial institutions
92,032
74,572
23,992
19,809
Government sector
13,884
12,287
Not-for-profit organisations
1,163
260
Households (self employed)
8,678
1,899
104,841
69,647
Resident individuals
Other
17
10,115
Total
244,607
188,589
As of 31 December 2005, the Bank provided certain customers with loans of CZK 1,014 million (2004:
CZK 541 million) under reverse repurchase transactions which were collateralised by securities amounting to CZK 1,362 million
(2004: CZK 526 million).
The gross exposures shown above include loans in the aggregate amount of CZK 3,653 million (2004: CZK 2,932 million) on which
interest is no longer accrued.
Analysis of Loans and Advances to Customers according to Credit Risk Assessment Policies
In applying the new loan impairment assessment policies the Bank allocates loans and advances to customers into the following
categories (balances as of 31 December 2005):
Individually
significant
loans
Individually
insignificant
loans
7,413
4,872
–
1,861
Unimpaired
120,210
110,251
Total
127,623
116,984
CZK million
165
9. PROVISIONS FOR LOSSES ON LOANS AND ADVANCES
(a) Creation and use of provisions for losses on loans and advances
CZK million
2005
2004
At 1 January
5,578
6,387
Net charge/(release) of provisions
Use of provisions for loans written off and assigned
FX differences from provisions in foreign currency
At 31 December
383
(87)
(906)
(702)
(9)
(20)
5,046
5,578
(b) Provisions for losses on loans and advances by category (balances as of 31 December 2005)
CZK million
Individually
Individually
significant
insignificant loans
Total
loans
2,342
2,504
–
200
200
2,342
2,704
5,046
2005
2004
17,823
13,597
Total
4,846
10. SECURITIES HELD FOR TRADING
CZK million
Listed equity securities and other variable yield securities
Total
1,781
1,607
19,604
15,204
Listed debt securities include Government treasury bills and treasury bills of the CNB in the aggregate amount of CZK 4 million
(2004: CZK 912 million) and Government bonds in the aggregate amount of CZK 9,858 million (2004: CZK 3,349 million) which
166
2005 and 2004
Statements
CZK million
2005
2004
Issued in CZK
–
103
246
1,169
Total
246
1,272
10,965
7,350
Issued in CZK
6,612
4,975
Total
17,577
12,325
17,823
13,597
2005
2004
1,383
1,273
CZK million
Issued in CZK
Total
398
334
1,781
1,607
2005
2004
10,912
8,288
Debt securities were issued by:
CZK million
1,793
–
1,131
32
3,197
3,829
Total
20
311
770
1,137
17,823
13,597
167
Equity securities and other variable yield securities held for trading were issued by the following issuers:
CZK million
2005
2004
1,706
1,600
69
7
Total
6
–
1,781
1,607
11. SECURITIES DESIGNATED UPON INITIAL RECOGNITION AS AT FAIR VALUE THROUGH PROFIT OR LOSS
CZK million
2005
2004
11,101
9,629
4,810
2,684
Debt securities
Listed
Listed
Unlisted
Total
680
680
16,591
12,993
Debt securities do not include Government treasury bills and treasury bills of the CNB which may be used for refinancing with the
CNB (2004: CZK 1,296 million – the amount does not reflect securities that were transferred to collateralise loans received under
repurchase transactions). In 2005, debt securities additionally include securitised securities of CZK 2,052 million (2004: CZK 757
million).
CZK million
2005
2004
647
1,148
Issued in CZK
2,875
970
Total
3,522
2,118
–
1,296
Issued in CZK
7,579
6,215
Total
7,579
7,511
11,101
9,629
168
2005 and 2004
Statements
CZK million
2005
2004
Issued in CZK
680
680
4,810
2,684
Total
5,490
3,364
2005
2004
213
1,560
2,221
2,310
CZK million
Total
287
–
7,975
5,681
405
78
11,101
9,629
2005
2004
CZK million
2,687
680
2,803
2,684
Total
5,490
3,364
2005
2004
4,997
4,521
12. POSITIVE FAIR VALUE OF FINANCIAL DERIVATIVE TRANSACTIONS
CZK million
Financial derivatives
– Interest rate hedging
– Interest rate non-hedging
– Other
Total
328
207
12,403
10,682
31
–
17,759
15,410
169
13. SECURITIES AVAILABLE FOR SALE
CZK million
2005
2004
14,323
15,588
Debt securities
Listed
Unlisted
Total
43
40
14,366
15,628
Debt securities include Government treasury bills in the aggregate amount of CZK 5,872 million (2004: CZK 7,244 million) which
CZK million
2005
2004
Issued in CZK
2,277
225
3,210
3,000
Total
5,487
3,225
Issued in CZK
6,030
9,313
2,806
3,050
Total
8,836
12,364
14,323
15,588
2005
2004
38
35
CZK million
Issued in CZK
Total
170
5
5
43
40
2005 and 2004
Statements
CZK million
2005
2004
5,872
9,313
1,623
1,790
2,435
225
3,666
3,499
Total
727
761
14,323
15,588
2005
2004
CZK million
CZK million
38
35
Total
5
5
43
40
171
14. ASSETS HELD FOR SALE
With effect from 1 January 2005, the Bank adopted IFRS 5 and selected immovable assets that met criteria for classification as assets
held for sale as of that date (refer to Note 3f) in the aggregate carrying amount of CZK 78 million. Given the contemplated sale,
market values of these assets were determined and impairment recognised in the previous period and hence the carrying value as of 1
January 2005 represented the fair value and no other revaluation was required.
Total
CZK million
Cost
At 31 December 2004
–
146
At 1 January 2005
146
Additions
589
Disposals
(157)
At 31 December 2005
578
Accumulated depreciation including impairment
At 31 December 2004
–
(68)
At 1 January 2005
(68)
Additions
(258)
Disposals
74
At 31 December 2005
(252)
Net book value
At 31 December 2005
326
At 31 December 2004
–
As of the date of the application of IFRS, that is, as of 1 January 2005, the net book value of assets held for sale was CZK 78 million.
Assets are reported as held for sale due to their redundancy.
All assets held for sale are presented in the ‘Other activities’ segment.
15. SECURITIES HELD TO MATURITY
CZK million
2005
2004
84,441
97,167
Debt securities
Listed
Unlisted
Total
172
–
1,296
84,441
98,463
2005 and 2004
Statements
Listed debt securities and other fixed income securities include Government treasury bills and treasury bills of the CNB of CZK 978
million (2004: CZK 989 million) and Government bonds of CZK 32,672 million (2004: CZK 31,892 million) which may be used
for refinancing with the CNB (the amounts shown above do not reflect securities that were transferred to collateralise loans received
under repurchase transactions).
The portfolio additionally comprises bonds issued by the parent company, Erste Bank at a cost of CZK 628 million (2004: CZK 5,623
million).
Debt securities include credit linked notes of CZK 628 million (2004: CZK 628 million).
CZK million
2005
2004
Issued in CZK
19,127
13,384
Total
19,127
13,384
Issued in CZK
65,314
85,079
Total
65,314
85,079
84,441
98,463
2005
2004
44,265
58,825
CZK million
Total
7,504
3,443
31,556
33,684
1,116
1,950
–
561
84,441
98,463
173
16. EQUITY INVESTMENTS IN SUBSIDIARY AND ASSOCIATED UNDERTAKINGS
Name of the company
Registered office
Principal activities
CBCB-Czech Banking Credit Bureau, a. s.
Na Příkopě 1096/21, Prague 1
Provision of software
První certifikační autorita, a. s.
Prague 9, Podvinný mlýn 2178/6
Digital signature certification services
České nemovitosti, a. s.
Prague 1, Revoluční 3
Real estate activities
SporDat, spol. s r.o.
Bratislava, Prievozská 14, Slovakia
Prague 1, Na Perštýně 1/342
Investment services
CEE Property Development Portfolio B.V.
Naritaweg 165 Amsterdam, Netherlands
Real estate investment
Consulting České spořitelny, a. s.
Prague 3, Vinohradská 1632/180
Consultancy
Coutts House, Le Truchot, St Peter Port, Guernsey, GY1 1WD
Investments and equity holdings
Arch. Makariou III, Nikosia, Cyprus
Investments in securities, issuance of loans
Czech and Slovak Property Fund B.V.
Fred Roeskerstraat 123, 1076EE, Amsterdam, Netherlands
Real estate investment
Postweg 11,6561 Groesbeek, Netherlands
Management and financing services
Associated undertakings
Subsidiary undertakings
Erste Corporate Finance, a. s. (formerly CDI
Corporate Advisory, a. s.)
Consultancy
Prague 8, Pobřežní 46
Factoring
Informatika České spořitelny, a. s.
Prague 7, Bubenská 1477/1
Data processing
Investment management
Prague 8, Střelničná 8/1680
Leasing
Prague 4, Poláčkova 1976/2
Pension insurance
Pojišťovna České spořitelny, a. s.
Pardubice, nám. Republiky 115
Insurance
Realitní společnost České spořitelny, a. s.
Real estate activities
Prague 8, Střelničná 8/1680
Leasing
Servis 1 – ČS, a. s.
Prague 4, Olbrachtova 1929/62
Construction savings bank
174
2005 and 2004
Statements
At 31 December 2005
Name of the company
Share capital
in CZK million/
TEUR, SKK
Currency
Ownership
percentage
Voting power
in %
Carrying amount
in CZK million
1
CZK
20.00,%
20.00,%
0.2
20
CZK
23.25,%
23.25,%
10
45
CZK
24.00,%
24.00,%
17
200
SKK
23.50,%
23.50,%
69
Total associated undertakings
96
160
CZK
51.00,%
51.00,%
82
20
EUR
20.00,%
20.00,%
2,344
1
CZK
100.00,%
100.00,%
5
6
EUR
99.98,%
100.00,%
174
22
EUR
100.00,%
100.00,%
578
20
EUR
20.00,%
20.00,%
312
19
EUR
84.25,%
84.25,%
122
Erste Corporate Finance, a. s.
6
CZK
50.17,%
50.17,%
3
84
CZK
100.00,%
100.00,%
57
10
CZK
100.00,%
100.00,%
10
70
CZK
100.00,%
100.00,%
77
300
CZK
100.00,%
100.00,%
75
100
CZK
100.00,%
100.00,%
241
1,117
CZK
55.25,%
55.25,%
1,363
4
CZK
100.00,%
100.00,%
4
sAutoleasing, a. s.
2
CZK
100.00,%
100.00,%
0
Servis 1 - ČS, a. s.
3
CZK
100.00,%
100.00,%
10
750
CZK
95.00,%
95.00,%
1,198
Total subsidiary undertakings
6,655
Total equity investments
6,751
The Bank presents its investments in real estate funds as equity investments in subsidiary undertakings. While the Bank holds 20
percent of the issued share capital of the funds and does not have a majority of voting rights and Board representation, 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 investment. The second shareholder bears minimal risks and receives minimal returns
from its investment in the funds.
During the year ended 31 December 2005, the portfolio of equity investments underwent the following changes:
• The investment in Hotelová společnost, s.r.o. was sold and the gain on the sale amounted to CZK 90 million;
175
• The Bank acquired 23.5 percent of the issued share capital of SporDat, spol. s.r.o. for CZK 69 million;
• On 31 October 2005, CDI Corporate Advisory, a. s. was renamed as Erste Corporate Finance, a. s.;
• Servis 1 – ČS, a. s. decreased its share capital from CZK 2,880 million to CZK 3 million by reducing the nominal value of its
shares. The reason for the share capital decrease was an equity surplus as the entity’s business activities reduced in size. The
amount equivalent to the share capital decrease was paid out to the entity’s shareholders; and
• By way of share premium payment, the Bank increased its equity investment in CEE Property Development Portfolio B.V., Czech
and Slovak Property Fund B.V., CS Investment Limited, CS Property Investment Limited and Czech TOP Venture Fund B.V. in
connection with the development of their business activities.
At 31 December 2004
Name of the company
Share capital
in CZK million/
TEUR,
Currency
Ownership
percentage
Voting power
in %
Carrying amount
in CZK million
1
CZK
20.00,%
20.00,%
0.2
20
CZK
23.25,%
23.25,%
10
45
CZK
24.00,%
24.00,%
18
Hotelová společnost, s.r.o.
0,2
CZK
100.00,%
50.00,%
0
2,880
CZK
10.42,%
20.83,%
300
Servis 1 - ČS, a. s.
Total associated undertakings
328
160
CZK
51.00,%
51.00,%
82
20
EUR
20.00,%
20.00,%
998
CDI Corporate Advisory, a. s.
6
CZK
50.17,%
50.17,%
3
1
CZK
100.00,%
100.00,%
5
4
EUR
99.97,%
100.00,%
115
2
EUR
100.00,%
100.00,%
0.2
20
EUR
20.00,%
20.00,%
7
19
EUR
84.25,%
84.25,%
116
84
CZK
100.00,%
100.00,%
57
10
CZK
100.00,%
100.00,%
10
70
CZK
100.00,%
100.00,%
77
300
CZK
100.00,%
100.00,%
0
100
CZK
100.00,%
100.00,%
241
1,117
CZK
55.25,%
55.25,%
1,363
4
CZK
100.00,%
100.00,%
4
2
CZK
100.00,%
100.00,%
2
750
CZK
95.00,%
95.00,%
1,198
Total subsidiary undertakings
4,278
Total equity investments
4,606
176
2005 and 2004
Statements
17. INTANGIBLE FIXED ASSETS
CZK million
Software
Other
Total
1 692
5 084
6 776
568
1 766
2 334
Cost
1 January 2004
Additions
Disposals
(12)
(864)
(876)
31 December 2004
2 248
5 986
8 234
1 January 2005
2 248
5 986
8 234
458
1 032
1 490
Additions
Disposals
(389)
(15)
(404)
31 December 2005
2 317
7 003
9 320
(1 208)
(1 631)
(2 839)
(291)
(892)
(1 183)
–
30
30
Disposals
9
–
9
(1 490)
(1 490)
(2 493)
(2 493)
(3 983)
(3 983)
(376)
(1 082)
(1 458)
–
96
96
352
5
357
(1 514)
(3 474)
(4 988)
31 December 2005
803
3 529
4 332
31 December 2004
758
3 493
4 251
Accumulated amortisation and provisions
1 January 2004
Additions
31 December 2004
1 January 2005
Additions
Disposals
31 December 2005
Net book value
The balances as of 31 December 2005 shown above include CZK 2,082 million (2004: CZK 1,954 million) in assets under
construction.
In 2005, the Bank released a part of the provision recognised in the past in respect of an impairment of assets under construction
relating to the purchase of licences to operate an information system due to redundancy.
177
18. PROPERTY AND EQUIPMENT
CZK million
Land
Equipment, fixtures
Total
28,242
Cost
1 January 2004
17,259
10,983
Additions
350
1,345
1,695
Disposals
(1,733)
(1,349)
(3,082)
31 December 2004
15,876
10,979
26,855
1 January 2005
15,876
10,979
26,855
(145)
(1)
(146)
536
1,895
2,431
Additions
Disposals
(747)
(1,477)
(2,224)
15,520
11,396
26,916
(5,371)
(7,000)
(12,371)
(529)
(1,330)
(1,859)
564
–
564
Disposals
595
866
1,461
31 December 2004
(4,741)
(7,464)
(12,205)
1 January 2005
(4,741)
67
(7,464)
1
(12,205)
68
(179)
(1,355)
(1,534)
(71)
(1)
(72)
52
472
524
(4,872)
(8,347)
(13,219)
31 December 2005
10,648
3,049
13,697
31 December 2004
11,135
3,515
14,650
31 December 2005
Accumulated depreciation and provisions
1 January 2004
Additions
Additions
Disposals
31 December 2005
Net book value
The balances as of 31 December 2005 shown above include CZK 637 million (2004: CZK 769 million) in assets under construction.
In 2005, the Bank recognised asset impairment of CZK 72 million relating largely to real estate that is insufficiently used by the Bank
for its activities (2004: CZK 213 million).
178
2005 and 2004
Statements
19. OTHER ASSETS
CZK million
2005
2004
Accrued income
3,601
3,972
Of which:
– Interest on loans and advances to financial institutions
111
133
– Interest on loans and advances to customers, including ČKA
669
483
2,818
3,350
– Coupons on bonds
– Other
Deferred expenses
3
6
621
626
Various receivables
1,636
1,149
Total
5,858
5,747
2005
2004
20. AMOUNTS OWED TO FINANCIAL INSTITUTIONS
CZK million
Loro accounts
389
182
Other
28,158
24,966
Total
28,547
25,148
As of 31 December 2005, the Bank received from other financial institutions loans of CZK 15,171 million (2004: CZK 12,100
million) under repurchase transactions which were collateralised by securities amounting to CZK 14,917 million (2004: CZK 11,739
million).
21. AMOUNTS OWED TO CUSTOMERS
CZK million
2005
2004
Repayable on demand
277,862
247,673
Other deposits
109,407
115,194
Total
387,269
362,867
As of 31 December 2005, the Bank received from customers loans of CZK 1,327 million (2004: CZK 560 million) under repurchase
transactions which were collateralised by securities amounting to CZK 1,316 million (2004: CZK 554 million).
179
Analysis of amounts owed to customers:
CZK million
Savings deposits
2005
2004
104,631
111,398
Other amounts owed to customers
– Public sector
34,869
25,615
– Corporate clients
70,687
62,470
– Retail clients
177,082
163,384
Total
387,269
362,867
2005
2004
957
1,317
– Interest rate hedging
305
91
13,046
11,137
22. NEGATIVE FAIR VALUE OF FINANCIAL DERIVATIVE TRANSACTIONS
CZK million
Financial derivatives
– Interest rate non-hedging
– Other
Total
180
250
22
14,558
12,567
2005 and 2004
Statements
23. BONDS IN ISSUE
ISIN
Date of issue
Maturity
Interest rate
2005
CZK million
CZK million
2004
Mortgage bonds
CZ0002000201
November 2002
November 2007
5.80,%
3,102
3,214
Mortgage bonds
CZ0002000235
March 2003
March 2008
5.20,%
3,121
3,191
Mortgage bonds
CZ0002000276
August 2003
August 2008
4.50,%
2,932
2,997
Mortgage bonds
CZ0002000342
April 2004
April 2009
3.50,%
278
307
Mortgage bonds
CZ0002000409
August 2004
August 2009
3.60,%
476
438
Mortgage bonds
CZ0002000516
May 2005
August 2006
1.85,%
600
–
Mortgage bonds
CZ0002000524
May 2005
May 2010
4.50,%
2,131
–
–
Mortgage bonds
CZ0002000573
June 2005
June 2010
4.05,%
2,133
Mortgage bonds
CZ0002000623
October 2005
October 2015
4.75,%
5,560
–
Mortgage bonds
CZ0002000763
December 2005
December 2012
3m Pribor – 0.2,%
1,999
–
Mortgage bonds
CZ0002000771
December 2005
December 2008
4.45,%
940
–
Bonds
CZ0003700759
February 2004
February 2008
1.00,% x)
306
297
Bonds
CZ0003700767
February 2004
February 2014
3.51,% x)
1,499
1,502
Bonds
CZ0003701013
May 2005
June 2008
– x)
242
–
Bonds
CZ0003701047
July 2005
July 2012
2.72,% xx)
763
–
Bonds
CZ0003701054
September 2005
September 2017
4.75,% x)
196
–
Bonds
CZ0003701062
October 2005
October 2013
5.00,% x)
237
–
Depository bills of exchange
14,755
8,753
Total
41,270
20,699
x) Bonds were issued with a combined yield.
xx) If the early repayments option is not exercised, the interest rate is increased by 3.55 percent.
Of the aggregate carrying value of the mortgage bonds, CZK 16,568 million (2004: CZK 8,447 million) was hedged against interest
rate risk through interest rate swaps linked to a market floating rate. In accordance with applicable accounting policies, these mortgage bonds are remeasured at fair value.
Bonds issues were placed with an embedded derivative. The ISIN CZ0003700767 and CZ0003701047 issues of bonds is remeasured
at fair value because they are hedged against interest rate risk and early repayment options are attached to the bonds. The ISIN
CZ0003701013 and CZ0003701054 issues were placed with a share index option which is recorded separately and is remeasured at
fair value.
181
24. PROVISIONS FOR LIABILITIES AND OTHER RESERVES
(a) Structure of provisions
CZK million
2005
2004
Provision for legal disputes relating to credit transactions
2,088
2,021
Provision for off balance sheet credit risks
–
85
492
260
2,580
2,366
CZK million
2005
2004
2,366
2,413
714
907
Use of provisions
(50)
(132)
Other reserves
Total
(b) Charge for and use of provisions
(450)
(822)
2,580
2,366
(c) Provisions for other credit risks and off balance sheet credit exposures
Provisions for other credit risks and off balance sheet credit exposures are recorded to cover specific risks arising from pending legal
disputes relating to loan transactions and to cover losses that result from off balance sheet and other exposures.
CZK million
2005
2004
2,106
1,953
441
727
Use of provisions
(47)
(27)
182
(412)
(547)
2,088
2,106
2005 and 2004
Statements
25. OTHER LIABILITIES
2005
2004
587
409
– Interest on amounts owed to financial institutions
27
44
– Interest on amounts owed customers
63
67
464
293
CZK million
Accrued expenses
Of which:
– Interest on bonds in issue
– Other
33
5
569
99
Short sales
7,362
5,537
Various creditors
1,411
910
968
441
Deferred income
Payables from securities trading
Other liabilities
5,845
4,345
Income tax liability
682
1,276
Deferred income tax liability (Note 26)
192
626
17,616
13,643
Total
Other liabilities predominantly include payables from payment transactions of CZK 2,039 million (2004: CZK 993 million) and
estimated payables of CZK 2,831 million (2004: CZK 2,170 million) largely comprising estimated payables for staff and management
bonuses, unbilled supplies and contributions to the Deposit Insurance Fund.
26. DEFERRED INCOME TAXES
Deferred income tax is calculated from all temporary differences under the liability method using a principal tax rate of 24 percent
(2004: 26 percent).
Deferred income tax assets (liabilities) are as follows:
CZK million
2005
2004
Balance at the beginning of the year
(626)
(343)
Movement for the year – equity
143
2
Movement for the year – income/(expense)
291
(285)
(192)
(626)
Net balance at the end of the year
The impact of deferred tax liabilities on equity arises from changes in the fair value of securities available for sale and hedging derivatives. The deferred tax (charge)/credit in the profit and loss account comprises the following temporary differences:
183
CZK million
2005
2004
Provisions and reserves
(1)
(89)
Accelerated depreciation
56
(224)
236
28
Total (Note 38)
291
(285)
1
23
2005
2004
Of which: impact of the change of rate
Deferred income tax assets and liabilities are attributable to the following items:
CZK million
Deferred tax assets
Non-tax deductible reserves and provisions
6
6
136
137
218
–
Total deferred tax asset
360
143
Deferred tax liabilities
Accelerated depreciation for tax purposes
(314)
(370)
Changes in fair value of securities available for sale and hedging derivatives
(181)
(324)
(57)
(75)
Total deferred tax liability
(552)
(769)
Net deferred tax asset (liability)
(192)
(626)
27. SUBORDINATED DEBT
On 16 May 2005, the Bank issued subordinated debt totalling CZK 3,000 million with a maturity date of
16 May 2015 and an interest rate of 6M PRIBOR plus 0.46 percent p.a. The book value is CZK 2,998 million, net of CZK 2 million
in transaction costs, as of 31 December 2005. The debt was issued in the certificate form and placed on the free market of the Prague
Stock Exchange. If the Bank does not exercise its option for premature repayment of the debt after the elapse of five years, the
interest rate shall increase to 6M PRIBOR plus 1.4 percent p.a. Interest is payable semi-annually in arrears. The debt is unsecured and
unconditional.
On 5 May 2005, the Czech National Bank issued a certificate confirming that this subordinated debt is compliant with all regulatory
requirements and may be included in the additional capital of the Bank for the purposes of calculating the capital adequacy ratio.
184
2005 and 2004
Statements
28. SHARE CAPITAL
Authorised, called-up and fully paid share capital was as follows:
2005
Ordinary shares of CZK 100 each
Priority shares of CZK 100 each
Total
2004
Number of shares
CZK million
Number of shares
CZK million
140,788,787
14,079
140,788,787
14,079
11,211,213
1,121
11,211,213
1,121
152,000,000
15,200
152,000,000
15,200
Priority 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, priority shareholders have a right to the assets of the Bank before ordinary shareholders
but after other creditors. Priority 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. Priority registered shares can be issued only to municipalities and local governments in
the Czech Republic. The priority registered shares can be transferred to entities other than municipalities and local governments of the
Czech Republic only subject to the approval of the Board of Directors.
29. REVALUATION GAINS OR LOSSES
CZK million
2005
Hedging derivatives
FX differences
Total
2004
2005
2004
2005
2004
2005
2004
At 1 January
1,263
1,160
–
–
–
–
1,263
1,160
Deferred tax liability
(324)
(325)
–
–
–
–
(324)
(325)
FX differences
–
–
–
–
(42)
–
(42)
–
939
835
–
–
(42)
–
897
835
(481)
103
–
–
–
–
(481)
103
140
1
3
–
–
–
143
1
FX differences
–
–
–
–
42
(42)
42
(42)
Cash flow hedge
–
–
(10)
–
(10)
–
782
1,263
–
–
–
–
782
1,263
(184)
(324)
3
–
–
–
(181)
(324)
FX differences
–
–
–
–
–
(42)
–
(42)
Cash flow hedge
–
–
(10)
–
–
–
(10)
–
598
939
(7)
–
–
(42)
591
897
Total at 1 January
Changes during the year
Gain/(loss) on fair value changes
At 31 December
Total at 31 December
185
30. INTEREST INCOME AND SIMILAR INCOME
CZK million
Debt securities and other fixed income securities
Proceeds from shares and other variable yield securities
Rental income
Total
2005
2004
2,151
2,200
13,656
11,935
4,855
5,476
-
127
1,770
352
112
124
22,544
20,214
2005
2004
31. INTEREST EXPENSE AND SIMILAR EXPENSE
CZK million
Bonds in issue
Subordinated debt
672
699
2,945
2,946
401
160
49
–
(17)
335
4,050
4,140
2005
2004
Charge for the year
(3,736)
(2,363)
3,328
2,281
Net (charge)/release of provisions
(408)
(82)
(13)
(4)
Total
32. PROVISIONS FOR CREDIT RISKS
CZK million
Write-offs of loans not covered by provisions
Recoveries
Total
186
63
59
(358)
(27)
2005 and 2004
Statements
33. FEE AND COMMISSION INCOME
2005
2004
CZK million
CZK million
Lending activities
1,400
1,694
System of payment
5,678
5,511
731
564
Insurance activities
161
117
Construction savings activities
416
171
Total
42
42
229
196
8,657
8,295
2005
2004
CZK million
CZK million
34. FEE AND COMMISSION EXPENSE
Lending activities
2
–
293
274
6
–
5
6
310
254
Total
616
534
2005
2004
CZK million
CZK million
System of payment
35. NET PROFIT ON FINANCIAL OPERATIONS
Realised and unrealised profit on securities held for trading
192
500
Derivative instruments
(369)
(520)
Foreign exchange trading
1,303
1,095
Other
137
193
Total
1,263
1,268
187
36. GENERAL ADMINISTRATIVE EXPENSES
(a) Composition of general administrative expenses
CZK million
2005
2004
Wages and salaries
4,909
4,704
Social security costs
1,647
1,571
Staff costs
Other staff costs
335
264
Total staff costs
6,891
6,539
Data processing expenses
1,608
1,736
Building maintenance and rent
1,281
1,414
Costs of business transactions
921
934
Advertising and marketing
647
566
Advisory and legal services
263
224
544
489
5,264
5,363
Total other administrative expenses
Depreciation
Amortisation of intangible assets (Note 17)
1,458
1,183
Depreciation of property and equipment (Note 14, 18)
1,792
1,859
Total depreciation, amortisation and impairment
Total
3,250
3,042
15,405
14,944
2005
2004
(b) Board of Directors and Supervisory Board emoluments
CZK million
Salaries
99
100
Total
99
100
2005
2004
(c) Average number of employees and Board members
Board of Directors
8
7
Supervisory Board
12
12
10,689
11,019
Staff
188
2005 and 2004
Statements
With a view to fostering loyalty of the Bank’s key employees and attracting new key managers, the Supervisory Board of Erste Bank,
resolved, based upon authorisation given by the General Meeting of Shareholders dated 8 May 2001, to implement an Employee Erste
Bank Stock Ownership Programme (‘ESOP’) and a Management Erste Bank Stock Option Programme (‘MSOP’) within the Bank.
All employees of the Bank were entitled to subscribe for shares under the Employee Stock Ownership Programme. Each employee
was entitled to subscribe for a maximum of 200 shares (2004: 100 shares). The price of one share was established on the basis of the
average rate in April 2005 decreased by a 20 percent discount. The 20 percent discount is conditional upon the shares being held for
a period of one year. A total of 364 employees (2004: 138) participated in the programme and subscribed for 47,087 shares (2004:
7,413).
Management of the Bank and selected key employees were granted the fourth tranche of options for subscription of shares under the
Management Erste Bank Stock Option Plan 2005. In the year ended
31 December 2005, approximately 101,950 options (2004: 50,750) were granted to these employees. The following tranche of the
programme in 2006 will be approximately of the same size. These options entitle the holders to acquire Erste Bank’s shares for the
price of EUR 43 which was determined as the average price of shares ruling in April 2005 plus a 10 percent mark-up, rounded to
EUR 0.5 (for the options subscribed until 2004 the price of the share was EUR 66 on the basis of the average price ruling in March
2002), within five years from the issuance of each tranche of options. 4,850 options (2004: 33,980 options) granted under the first
tranche in 2002, 10,040 options (2004: 27,960) granted under the second tranche in 2003, and 24,872 options granted under the third
tranche in 2004 were exercised in the year ended 31 December 2005.
The aggregate amount of the discount in respect of both programmes was CZK 12 million (2004: CZK 5 million) and was reported
within “General administrative expenses - other staff costs”.
189
37. OTHER OPERATING INCOME/(EXPENSES), NET
CZK million
2005
2004
Release of other reserves
39
275
Gain on the sale of real estate
44
97
100
127
Income from other services
Received compensation for deficits and damage
55
85
Release of provisions against non-credit receivables
61
85
Income from statute-barred deposits
Total other operating income
44
62
199
157
542
888
Charges for other reserves
(273)
(180)
Contribution to the Deposit Insurance Fund
(350)
(675)
Write-off of assets under construction
(69)
–
Loss on the sale and impairment of real estate
(82)
(111)
Deficits and damage, fines and penalties
(74)
(131)
Charge for provisions against non-credit receivables
(54)
(95)
Sponsorship contributions
(50)
(265)
Other operating charges
(89)
(146)
Other taxes
(22)
(43)
(1,063)
(1,646)
Income from the revaluation/sale of securities at fair value through profit or loss
166
488
Income from the sale of securities available for sale
516
15
Total other operating expense
Income from revaluation hedging derivatives
12
–
Expense of revaluation of equity investments
71
(300)
Gains on the sale of equity investments
Total other operating income/(expenses), net
91
–
335
(555)
2005
2004
(2,900)
(2,515)
38. INCOME TAX EXPENSE
CZK million
Current tax expense
Deferred tax income/(expense) (Note 26)
Total
190
291
(285)
(2,609)
(2,800)
2005 and 2004
Statements
The tax on the Bank’s profit before tax differs from the theoretical amount that would arise using the basic tax rate of the Czech
Republic as follows:
CZK million
Profit before tax
2005
2004
12,369
9,577
Tax calculated at a tax rate of 26 percent (2004: 28 percent)
3,216
2,681
Income not subject to tax
(745)
(904)
567
776
Expenses not deductible for tax purposes
Tax allowances and credits, including the utilisation of tax losses, tax recoveries and additional taxes for prior
Other differences
Subtotal
Movement in deferred taxation (Note 26)
Income tax expense
Effective tax rate
(127)
49
(11)
(87)
2,900
2,515
(291)
285
2,609
2,800
21.09,%
29.24,%
Further information about deferred income tax is presented in Note 26.
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 million
Cash (Note 5)
Nostro accounts with the CNB (Note 5)
Treasury bills with maturity of less than three months
Nostro accounts with financial institutions (Note 6)
Loro accounts with financial institutions (Note 20)
Total cash and cash equivalents
2005
2004
13,188
13,268
720
700
4
3,711
511
785
(389)
(182)
14,034
18,282
40. FINANCIAL INSTRUMENTS
A financial instrument is any contract that gives rise to the right to receive cash or another financial asset from another party (financial
asset) or the obligation to deliver cash or another financial asset to another party (financial liability).
Financial instruments may result in certain risks to the Bank. The most significant risks include:
Credit Risk
The Bank takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due.
191
Credit Risk Management Methodology
In managing credit risk, the Bank applies a unified methodology which is adopted on a Group-wide basis and sets out applicable
procedures, roles and authorities. The lending policy includes:
• Prudent credit process guidelines, including procedures for the prevention of money laundering and fraudulent activities;
• General guidelines regulating the acceptability of client segments on the basis of their principal activities, geographical areas,
maximum maturity period, product and purpose of the loan;
• Principal framework of the rating system and of setting up and revising borrower rating;
• Basic principles underlying the system of limits and the structure of approval authorities; and
Collection of Key Risk Management Information
Throughout 2005, the Bank placed great emphasis on enhancing the efficiency of the collection of data which is essential to the risk
management process. The Bank replaced its existing data collection system with a more comprehensive solution involving a data
warehouse, while the responsibility for data processing has remained with the Risk Management Department. This solution is highly
flexible when developing analyses drawing on a unified, group-wide source of data. The collected data allows the Risk Management
Department to have detailed control over the Bank’s individual exposures to all its clients. The quality of data significantly improved,
which provides a better basis for its utilisation during debt recovery procedures, valuation of receivables and calculation of losses.
Rating Tools
Rating is perceived as one of the key risk management tools. Assessing the borrower is an obligatory part of every loan approval process or when making major changes to lending terms. The assessment takes into account the borrower’s financial position, identified
weaknesses (such as management, competitiveness) for corporate clients, or social demographic indicators for retail clients. The Bank
uses a 13+R rating scale for all clients with the exception of retail clients-private individuals (8+R) where ‘R’ means client in default.
All information essential for assessing clients is collected and stored centrally. Revisions of the rating and identification of the
approval level are an integral part of such information. The information is processed by a statistical software. Regular reviews and
back-testing of statistical models are performed at least on a yearly basis.
For the purposes of making regular updates of the client rating, the Bank has implemented behavioural scoring which is based on the
client’s account history and loan repayment ability with respect to all of its exposures to the group. The rating based on behavioural
scoring reflects the risk attributable to the client as well as the receivable. The rating of retail clients also strengthened the Bank’s
position by allowing it to control its risk exposures during an accelerated lending process.
Modification of the rating tools technology applied in respect of corporate clients resulted in a more flexible environment in 2005
facilitating the introduction of scorecards and centralisation of data collection. Another upgrade of rating tools is planned for the
clients of the small and medium-sized business segment where behavioural scoring is scheduled to be implemented in early 2006.
Rating tools for municipalities also underwent changes, both on the technical level and by introducing scorecards. The new rating
instrument is linked to the public administration’s financial information system, which expands the availability of data for risk
management of all municipalities in the Czech Republic.
During 2005, the Bank tested a pilot operation of a newly developed rating tool for special loans. The testing particularly focused on
data collection and on customising the technological environment.
192
2005 and 2004
Statements
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 collateral. In setting the system of limits, the Bank strives to protect its revenues and capital from risk concentration. Risk
concentration is measured as the capital required for the given portfolio.
Risk Parameters
Risks profiles used in the Bank’s internal models include probability of failure, loan losses and credit conversion factors. Improvements made by the Bank in 2005 primarily related to the quality of the input information referred to above and the development of
models for setting up risk parameters on the basis of the current portfolio structure. The Bank also expanded statistical-method-based
calculation tools based on the historical data sampling method. A partial objective in this area is to obtain detailed information about
stress behaviour and potential sensitivity of the principal segments of the portfolio. In addition to the overall objective of updating the
estimation processes to the level matching the BASEL II concept, the Bank creates an environment facilitating quantitative portfolio
management. At present, the Bank refers to risk parameters when monitoring portfolio risks, measuring portfolio protection and
valuation of risks.
Provisions against Loan Losses
Beginning 1 January 2005, the Bank has implemented a provisioning policy in accordance with IAS 39 Revised. The policy is based
on two components, namely individual and collective losses.
Individual Losses Component
Individual losses represent the losses arising from receivables impaired on an individual basis. Impairment of a receivable is identified
based on loss making events that can be ascertained individually. Impairment of non-retail receivables and retail receivables with
a value exceeding CZK 5 million is measured on an individual basis taking into account the present value of expected future cash
flows using the original effective interest rate of that receivable.
The level of impairment of retail receivables is determined using the provisioning matrix based on the classification of the receivable
and the segment it belongs to, where the classification represents the ascertained status of impairment or an event. Each individual
component of this matrix is derived from historical experience with defaulted receivables and the potential recoverability of similar
types of receivables.
All exposures are revalued on a monthly basis depending on whether a loss making event occurred.
Collective Losses Component
Collective losses reflect the aggregate impairment of assets which are not impaired individually. Aggregate impairment covers collective losses arising from internal or external loss making events. Loss making events are measurable and identifiable in relation to the
current portfolio. The scope of impairment reflects the Bank’s expert estimate as to the sensitivity of the public to loss making events.
The breakdown on credit risk by industries is shown in Note 44.
Market Risk
The Bank takes on exposure to market risks. Market risks arise from open positions in interest rate, currency, equity and commodity
products, all of which are exposed to general and specific market movements. Market risks undertaken by the Bank principally relate
to transactions on financial markets which are traded in both the trading and banking books, and interest rate risk associated with
assets and liabilities in the banking book.
193
Trading book transactions in the capital, money and derivative markets can be segmented as follows:
• Client quotations and client transactions, execution of client orders;
• Interbank market quotations; and
• Proprietary trading in the interbank market.
The Bank enters into short-term transactions on the account of the trading book, that is, the Bank opens positions with a view to
benefiting from short-term fluctuations in financial markets, purchases higher-interest bearing assets funded by the sale of lower-interest bearing assets with the objective of using the interest spread to generate profit, creates strategic positions, that is, positions opened
to benefit from significant movements in the prices of financial assets.
The Bank conducts the following derivative transactions through the over-the-counter (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 floors;
• Commodity derivatives (for gold and oil); and
• Credit derivatives.
In the area of exchange-traded derivatives, the Bank trades the following instruments:
• Bond futures;
• Interest rate futures;
• Commodity derivatives (gold and oil futures); and
• Options in respect of bond futures.
During the year ended 31 December 2005, at the clients’ request, the Bank also traded with other less common currency options, such
as digital, barrier or windowed options. Some of these option contracts or options on various underlying stock baskets or stock indices
formed part of the on-balance sheet instruments as embedded derivatives.
Derivative transactions are also entered into to hedge against interest rate risk inherent in the banking book (interest rate swaps, FRA,
swaptions) and to refinance the gap between foreign currency assets and liabilities (FX swaps and cross currency swaps).
In addition to the calculation of sensitivities to individual risk factors, the Bank applies the ‘value at risk’ methodology (‘VaR’)
to estimate the market risk of positions held and the maximum losses expected. The Board of Directors establishes a VaR limit as
the Bank’s maximum exposure to market risk that may be accepted. Sub-limits placed on sensitivity values and VaR in respect of
individual trading desks enable the managing of the overall market risk profile. These limits are approved by the Financial Market and
Risk Management Committee, are monitored on a daily basis and exposures are reported.
The VaR method is complemented with ‘back testing’ which is designed to review the model for correctness. Back testing involves
comparing daily estimates of VaR to the hypothetical results of the portfolio on the assumption that the positions within the portfolio
remain unchanged for one trading day. Back testing results have, to date, confirmed the correctness of the setting of the VaR calculation model.
194
2005 and 2004
Statements
Foreign Currency Risk
Foreign currency risk is the risk that the value of financial instruments 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 to monitoring limits, the Bank uses the ‘value at risk’ concept for measuring its open positions taken in respect of all
currency instruments. The Bank monitors special limits for foreign currency option contracts, such as limits for the delta equivalent
sensitivity to the exchange rate change in the form of the gamma equivalent, and limits for option contract value sensitivity to the
exchange rate volatility in the form of the vega equivalent. In addition, the Bank monitors value sensitivity to the period to maturity
(theta) and interest rate sensitivity (rho, phi) which is measured, together with other interest rate instruments, in the form of the PVBP.
The Bank’s net open foreign exchange rate position as of 31 December 2005 is shown in Note 42.
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 Bank
manages its interest rate risk through the monitoring of the repricing dates of the Bank’s assets and liabilities and using models which
show the potential impact that changes in interest rates may have on the Bank’s net interest income. Refer to Note 43.
In order to measure the interest rate risk exposure within financial markets transactions the Bank uses the ‘PVBP gap’ (Present
Value of a Basis Point) defined as a matrix of sensitivity factors to interest rates by currency for individual portfolios of interest rate
products. These factors measure the portfolio market value sensitivity with a parallel shift of the yield curve of the relevant currency
within the predefined period to maturity. The system of PVBP limits is set in respect of each interest rate product trading portfolio by
currency. The limits are compared to the value that represents the greater of the sum of positive PVBP values or the sum of negative
PVBP values in absolute terms for each period to maturity. By adopting this approach, the Bank manages not only the risk attached
to a parallel shift of the yield curve, but also any possible ‘flip’ of the yield curve. With regard to foreign currency options, the PVBP
limits also include the Rho and Phi equivalents. In addition, the Bank monitors other special limits for interest rate option contracts,
such as the gamma and vega limits for interest rates and their volatility.
For monitoring and managing the banking book interest rate exposures, the Bank uses a simulation model focused on monitoring
potential impacts of market interest rate movements on the Bank’s net interest income. Simulations are performed over the period of
36 months. A basic analysis focuses on the sensitivity of the Bank’s net interest income to a one-off change(s) of market interest rates
(rate shock). In addition, the Bank undertakes probability modelling of its net interest income (stochastic simulation) and the traditional
gap analysis. The analyses noted above are undertaken on a monthly basis and the results are discussed by the Assets and Liabilities
Committee (ALCO) which decides whether it is necessary to take measures in response to the Bank’s interest rate risk exposures.
Capital Requirement in Respect of Market Risks
Since December 2003, the Bank has used its internal model approved by the Czech National Bank in November 2003 to calculate its
B capital requirements. The capital requirement in respect of market risks (foreign currency risk, general interest rate risk, general and
specific equity risk and risk associated with trading book option contracts) is determined using the Value at Risk method. The model
is based upon the calculation of Value at Risk with a 99 percent confidence level and a 10-day holding period using the historical
simulation method.
Liquidity Risk
Liquidity risk is the risk that the Bank will encounter difficulties in raising funds to meet commitments associated with financial instruments. The Bank’s liquidity position is monitored and managed based on expected cash flows and adjusting the structure of interbank deposits and placements accordingly and/or implementing other decisions aimed at adjusting the liquidity position of the Bank, for example,
a decision to issue bonds. Refer to Note 45 for an analysis of the Bank’s balance sheet by maturity as of 31 December 2005 and 2004.
195
In addition to the risks noted above, the Bank trades in derivative financial instruments which are discussed in greater detail in Note 41.
Operational Risk
In accordance with Regulation of the Czech National Bank No. 2 dated 3 February 2004, which sets out requirements in respect of the
review of banks’ internal control and management systems including the risk management system, the Bank defines operational risk
as the risk of loss arising from the inappropriateness or failure of internal processes, human errors or failures of systems or the risk of
loss arising from external events, including loss due to the breach of or failure to fulfil legal regulations.
With assistance from Erste Bank Vienna, the Bank put in place a standardised categorisation of operational risks. This classification
became a basis of the ‘Book of Risks’, developed in cooperation with the Risk Management and Internal Audit Departments. The
Book of Risks is a tool used to achieve unification of risk identification procedures on a group-wide level and unification of risk
categorisation in order to ensure consistency of risk monitoring and evaluation.
The Bank has cooperated with an external supplier in developing a software application to collect data about operational risk which
conforms to the data collection requirements set out in Basel II. The data is not only used with a view to quantifying operational risks
and monitoring trends in the development of these risks but also for the purpose of preventing recurrence of operational risks. In
addition to monitoring actual occurrence of operational risk, the Bank also pays attention to how the operational risk is perceived by
the Bank’s management. This expert risk analysis is assessed twice a year.
A tool of importance in mitigating losses arising from operational risks is the Bank’s insurance programme put in place in 2002. This
insurance programme involves insurance of property damage as well as risks arising from banking activities and liability risks. Since
2004, the Bank and its subsidiaries have joined the Erste Bank Group insurance programme which expands the Bank’s insurance
protection specifically with regard to damage that may materially impact its profit or loss.
41. OFF BALANCE SHEET ITEMS AND DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Bank becomes a party to various financial transactions that are not reflected on the balance sheet
and are referred to as off balance sheet financial instruments. The following represent notional amounts of these off balance sheet
financial instruments, unless stated otherwise.
(a) Contingent Liabilities
Legal Disputes
At the balance sheet date the Bank was involved in various claims and legal proceedings of a nature considered normal to its business.
The Czech legal environment is still evolving, legal disputes are costly and their outcome unpredictable. Many parts of the legislation
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 various claims and legal proceedings of a special nature. The Bank also defends against various legal actions
relating to contractual disputes. The Bank 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 Bank’s interests.
Whilst no assurance can be given with respect to the ultimate outcome of any such claim or litigation, the Bank believes that the
various asserted claims and litigation in which it is involved will not materially affect its financial position, future operating results or
cash flows.
196
2005 and 2004
Statements
Assets Pledged
Assets are pledged as collateral under repurchase agreements with other banks and customers in the amount of CZK 13,915 million
(2004: CZK 10,036 million). Mandatory reserve deposits are also held with the local central bank in accordance with statutory
requirements (refer to Note 5). These deposits are not available to finance the Bank’s day to day operations.
Commitments from Guarantees and Letters of Credit
The primary purpose of these instruments is to ensure that funds are available to the customer as required. Guarantees and standby
letters of credit, which represent irrevocable 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 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 represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters
of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to a loss in an amount equal to
the total unused commitments. However, the likely amount of the loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards.
Guarantees, irrevocable letters of credit and undrawn loan commitments are subject to similar credit risk monitoring and credit
policies as utilised in the extension of loans. Management of the Bank believes that the market risk associated with guarantees,
irrevocable letters of credit and undrawn loans commitments is minimal.
In 2004, 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 of 31 December 2005, the aggregate balance of these provisions was CZK 0 million (2004:
CZK 85 million). Refer to Note 24.
CZK million
2005
2004
Guarantees and letters of credit
16,737
12,623
Undrawn loan commitments
78,246
64,227
(b) Derivatives
The Bank maintains strict control limits on net open derivative positions, ie, the difference between purchase and sale contracts, by
both amount and term. At any one time the amount subject to credit risk is limited to the current fair value of instruments that are
favourable to the Bank (ie, assets), which in relation to derivatives is only a small fraction of the contract or notional values used
to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with
customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit
risk exposures on these instruments, except where the Bank requires deposits from counterparties.
All derivatives are stated at fair value on the balance sheet as of 31 December 2005 and 2004 (refer to Notes 12 and 22).
(c) Foreign Currency Contracts
Foreign currency contracts are agreements to exchange specific amounts of currencies at a specified rate of exchange, at a spot date
197
(settlement occurs two days after the trade date) or at a forward date (settlement occurs more than two days after the trade date). The
notional amount of these contracts does not represent the actual market or credit risk associated with these contracts.
Foreign currency contracts are used by the Bank for risk management and trading purposes.
Notional amounts
CZK million
2005
2004
Trading instruments
47,285
52,471
Commitments to sell
47,321
52,235
(d) Interest rate swaps
Interest rate swap contracts obligate two parties to exchange one or more payments calculated by reference to fixed or periodically
reset rates of interest applied to a specific notional principal amount. Notional principal is the amount upon which interest rates are
applied to determine the payment streams under interest rate swaps. Such notional principal amounts are often used to express the
volume of these transactions but are not actually exchanged between the counterparties. The Bank’s interest rate swaps were principally transacted for propriety trading purposes, to hedge customer-oriented transactions or to hedge against interest rate risk.
The Bank has applied hedge accounting in respect of the interest rate exposure arising from its own issue of mortgage bonds. The
mortgage bonds issued with a fixed interest rate were linked to a floating market rate through interest rate swaps.
At 31 December 2005
CZK million
Notional amounts
Receive
Pay
Hedging instruments
Residual maturity:
74
2.14
4.45
– over 5 years
11,560
4,000
3.37
3.21
2.04
1.93
Total
15,634
3.32
2.02
160,320
2.63
3.17
– 1 to 5 years
233,751
2.67
2.91
– 1 to 5 years
Trading instruments
Residual maturity:
– over 5 years
137,198
3.19
3.41
Total
531,269
2.79
3.12
198
2005 and 2004
Statements
At 31 December 2004
CZK milliont
Notional amounts
Receive
Pay
Hedging instruments
Residual maturity:
57
4.45,%
5.12,%
– over 5 years
7,760
1,500
2.78,%
2.71,%
3.52,%
6.54,%
Total
9,317
2.78,%
4.02,%
3.43,%
– 1 to 5 years
Trading instruments
Residual maturity:
99,969
3.35,%
– 1 to 5 years
245,054
3.62,%
3.18,%
– over 5 years
127,335
3.90,%
3.51,%
Total
472,358
3.64,%
3.32,%
(e) Option Contracts
Option contracts represent the formal reservation of the right to buy or sell an asset at the specified quantity, within a given time in the
future and at a certain price. The buyer of the option has the right, but not the obligation, to exercise the right to buy or sell an asset
and the seller has the obligation to sell or purchase the asset at the specified quantity and at the price defined in the option contract.
Notional amounts
2005
2004
CZK million
Option contracts sold
interest rate
10,344
2,089
foreign currency
30,653
20,746
869
–
equity
Option contracts purchased
interest rate
10,344
213
foreign currency
30,288
19,963
869
–
equity
(f) Forward Rate Agreements
A forward rate agreement is an agreement to settle amounts at a specified future date based on the difference between an interest
rate index and an agreed upon fixed rate. Market risk arises from changes in the market value of contractual positions caused by
movements in market interest rates. In principle, the Bank limits its exposure to market risk by entering into generally matching
or offsetting positions and by establishing and monitoring limits on unmatched positions. Credit risk is managed through approval
procedures that establish specific limits for individual counterparties. All of the Bank’s forward rate agreements were entered into for
trading purposes.
199
Notional amounts
2005
2004
CZK million
Weighted average
rate
CZK million
187,923
2.57,%
352,330
3.35,%
23,000
2.87,%
22,750
3.79,%
210,923
2.60,%
375,080
3.38,%
187,923
2.53,%
352,330
3.29,%
23,000
2.88,%
22,750
3.97,%
210,923
2.57,%
375,080
3.33,%
Weighted average
rate
Residual maturity:
Purchase
– less thank 1 year
– 1 to 5 years
Total
Sale
– 1 to 5 years
Total
(g) Forward Contracts with Securities
Forward contracts with securities are agreements to purchase or sell the securities for a specific amount at a future date. The forward
contracts with securities are used by the Bank for trading purposes.
Notional amounts
CZK million
2005
2004
2
400
Commitments to sell
3
400
Contracts with equities
(h) Cross Currency Swaps
Cross currency swaps are combinations of interest rate swaps and foreign currency contracts. As with interest rate swaps, the Bank
agrees to make fixed versus floating interest payments at periodic dates over the life of the instrument. These payments are, however,
in different currencies, and are settled on a gross basis. Unlike interest rate swaps, the notional balances of the different currencies are
typically exchanged at the beginning and re-exchanged at the end of the contract period.
Notional amounts
CZK million
2005
2004
Trading instruments
97,651
41,865
Commitments to sell
93,709
39,050
(i) Other Derivatives
The Bank entered into transactions resulting in the Bank assuming risk on certain underlying debt securities denominated in a foreign
currency. As of 31 December 2005, the total notional amount of equity return swaps and credit derivatives was CZK 1,570 million
(2004: CZK 400 million) and CZK 638 million (2004: CZK 1,338 million), respectively.
200
2005 and 2004
Statements
(j) Futures
Futures contracts represent the obligation to sell or purchase a financial instrument in the organised market at a certain price at
a certain agreed date in the future. The Bank entered into futures contracts in respect of debt securities and equities for trading
purposes. As of 31 December 2005, the total notional amount of the futures transactions was CZK 4,083 million (2004: CZK 846
million).
42. NET FOREIGN EXCHANGE POSITIONS
The net foreign exchange positions of the Bank as of 31 December 2005 and 2004 were as follows:
At 31 December 2005
CZK million
CZK
EUR
USD
GBP
SKK
Other
Total
Assets
16,311
764
227
126
114
250
17,792
58,203
16,675
2,213
10
2,255
693
80,049
236,997
15,494
2,097
211
74
341
255,214
13,677
15,556
3,133
–
198
3,631
36,195
transactions
16,618
875
162
–
–
104
17,759
8,345
5,137
884
–
–
–
14,366
84,441
–
–
–
–
–
84,441
undertakings
3,152
3,530
–
–
69
–
6,751
Other assets
23,378
628
150
6
12
39
24,213
461,122
58,659
8,866
353
2,722
5,058
536,780
Equity investments in subsidiary and associated
Liabilities
20,552
484
5,747
–
–
1,764
28,547
367,623
12,401
3,580
365
1,119
2,181
387,269
transactions
13,148
1,132
175
–
–
103
14,558
Bonds in issue
40,181
556
523
–
10
–
41,270
Other liabilities
22,060
791
271
9
11
52
23,194
463,564
15,364
10,296
374
1,140
4,100
494,838
(2,442)
43,295
(1,430)
(21)
1,582
958
41,942
(72,676)
(19,373)
918
(41)
1,412
1,561
(88,199)
sheet
sheet
liabilities, provisions and subordinated debt.
201
At 31 December 2004
CZK million
CZK
EUR
USD
GBP
SKK
Other
Total
Assets
16,325
968
210
90
105
232
17,930
46,844
9,619
2,874
31
208
1,026
60,602
194,221
10,688
3,180
190
10
565
208,854
11,850
12,097
3,458
389
–
403
28,197
transactions
14,252
867
156
–
–
135
15,410
9,572
5,188
738
130
–
–
15,628
98,463
–
–
–
–
–
98,463
undertakings
3,370
1,236
–
–
v
–
4,606
Other assets
23,958
536
124
10
2
18
24,648
418,855
41,199
10,740
840
325
2,379
474,338
Liabilities
18,533
813
4,288
139
–
1,375
25,148
348,150
9,022
3,863
342
835
655
362,867
transactions
11,027
1,220
195
5
–
120
12,567
Bonds in issue
18,330
1,090
1,279
–
–
–
20,699
Other liabilities
15,424
430
96
8
1
50
16,009
411,464
12,575
9,721
494
836
2,200
437,290
7,391
28,624
1,019
346
(511)
179
37,048
(72,676)
(19,373)
918
(41)
1,412
1,561
(88,199)
sheet
sheet
‘Other assets’ includes other assets, property and equipment, intangible fixed assets and assets held for sale. The line ‘Other liabilities’
includes other liabilities and provisions.
43. INTEREST RATE RISK
(a) Interest rate repricing analysis
The following tables present the distribution of assets and liabilities according to the interest rate repricing dates. They include significant financial assets and liabilities in CZK, EUR and USD as of 31 December 2005 and 2004. Variable yield assets and liabilities
have been reported according to their next rate repricing date. Fixed income assets and liabilities have been reported according to their
remaining maturity.
202
2005 and 2004
Statements
At 31 December 2005
CZK million
Demand and
less than
1 month
1 to 3
months
3 months to
1 year
1 to 5 years
Over 5 years
Total
Selected assets
4,604
–
–
–
–
4,604
57,726
6,740
12,625
–
–
77,091
74,676
35,666
46,839
85,412
11,995
254,588
10,349
1,833
624
490
3,574
3,828
1,574
2,812
1,102
8,836
–
14,324
5,041
11,950
6,369
31,606
29,476
84,442
145,454
57,792
67,425
129,428
45,299
445,398
22,688
3,746
45
304
–
26,783
78,556
70,037
85,726
149,284
–
383,603
Bonds in issue
14,696
3,385
600
16,597
5,982
41,260
115,940
77,168
86,371
166,185
5,982
451,646
Current gap
29,514
(19,376)
(18,946)
(36,757)
39,317
(6,248)
Cumulative gap
29,514
10,138
(8,808)
(45,565)
(6,248)
Demand and
less than
1 month
1 to 3
months
3 months to
1 year
1 to 5 years
Over 5 years
At 31 December 2004
CZK million
Total
Selected assets
4,236
–
–
–
–
4,236
47,164
4,471
7,609
93
–
59,337
49,318
45,945
37,133
72,690
8,581
213,667
22,435
13,785
871
1,564
2,738
3,477
1,545
1,550
–
3,051
9,313
15,459
3,065
16,996
19,914
26,969
31,519
98,463
119,113
69,833
66,220
105,541
52,890
413,597
20,430
1,901
1,147
155
–
23,633
80,330
66,561
79,071
135,073
–
361,035
Bonds in issue
7,700
1,596
860
10,494
50
20,700
108,460
70,058
81,078
145,722
50
405,368
8,229
Current gap
10,653
(225)
(14,858)
(40,181)
52,840
Cumulative gap
10,653
10,428
(4,430)
(44,611)
8,229
203
In addition, the Bank enters into interest rate swaps to manage its interest rate risk exposure.
(b) Effective yield information
The effective yields of significant financial assets and liabilities by major currencies of the banking segment as of 31 December 2005
and 2004 are as follows:
At 31 December 2005
Weighted average
interest rate
Weighted average
interest rate
Weighted average
interest rate
Weighted average
interest rate
CZK
EUR
USD
TOTAL
Selected assets
2.00,%
–
–
1.99,%
2.13,%
2.46,%
4.70,%
2.27,%
5.83,%
4.19,%
5.53,%
5.73,%
1.96,%
4.11,%
5.25,%
4.10,%
2.82%
2.77%
4.41%
2.90%
4.28,%
–
–
4.28,%
1.96,%
2.85,%
4.41,%
2.50,%
0.64,%
0.83,%
1.66,%
0.66,%
Bonds in issue
2.52,%
2.19,%
4.02,%
2.53,%
Weighted average
interest rate
Weighted average
interest rate
Weighted average
interest rate
Weighted average
interest rate
CZK
EUR
USD
TOTAL
At 31 December 2004
Selected assets
0.71,%
–
–
0.71,%
2.65,%
2.23,%
1.84,%
2.59,%
6.22,%
4.01,%
4.89,%
6.08,%
2.40,%
3.23,%
2.77,%
2.68,%
5.86,%
2.60,%
2.36,%
4.62,%
4.83,%
–
–
4.83,%
2.39,%
2.80,%
2.33,%
2.52,%
0.84,%
0.86,%
0.70,%
0.84,%
Bonds in issue
2.80,%
2.06,%
2.18,%
2.73,%
204
2005 and 2004
Statements
44. CONCENTRATIONS OF CREDIT RISK
The following table presents the distribution of the Bank’s credit exposure by industry sector for loans and advances to customers and
financial institutions and debt securities:
CZK million
2005
2004
161,840
35,%
130,719
32,%
Individuals
104,659
22,%
72,422
18,%
21,166
5,%
17,486
4,%
4,140
1,%
4,814
1,%
State institutions including ČKA
81,755
17,%
107,873
26,%
Public sector
13,109
3,%
11,074
3,%
Construction
4,256
1,%
3,059
1,%
Hotels, public catering
2,009
–
1,569
–
28,770
6,%
23,721
6,%
Other
46,294
10,%
39,574
10,%
Total
467,998
Trading
Energy sector
Processing industry
412,311
For an analysis of the Bank’s assets and liabilities by geographical concentration refer to Note 47b.
205
45. MATURITY ANALYSIS
The table below analyses assets and liabilities of the Bank into relevant maturity groupings as of
31 December 2005, based on the remaining period at the balance sheet date to the contractual maturity date.
CZK million
Demand
and less
than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
Over 5
years
Not
specified
Total
Assets
13,908
–
–
–
–
3,884
17,792
59,027
3,541
12,782
4,699
–
–
80,049
12,783
10,946
67,483
99,862
56,712
7,428
255,214
61
662
1,269
14,789
12,144
7,270
36,195
transactions
–
–
–
–
–
17,759
17,759
–
172
1,181
9,998
2,972
43
14,366
475
301
4,980
48,855
29,830
–
84,441
undertakings
–
–
–
–
–
6,751
6,751
Other assets
1,782
1,113
1,614
36
3
19,665
24,213
88,036
16,735
89,309
178,239
101,661
62,800
536,780
Total
Liabilities
24,259
738
45
497
3,008
–
28,547
304,558
18,777
21,693
42,240
1
–
387,269
14,655
–
600
15,772
10,243
–
41,270
transactions
–
–
–
–
–
14,558
14,558
Subordinated debt
–
–
–
–
2,998
–
2,998
3,565
776
2,426
2,697
2,374
8,358
20,196
Bonds in issue
Other liabilities
Total
347,037
20,291
24,764
61,206
18,624
22,916
494,838
Current gap
(259,001)
(3,556)
64,545
117,033
83,037
39,884
41,942
Cumulative gap
(259,001)
(262,557)
(198,012)
(80,979)
2,058
41,942
206
2005 and 2004
Statements
The table below analyses assets and liabilities of the Bank as of 31 December 2004 according to the remaining period:
CZK million
Demand
and less
than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
Over 5
years
Not
specified
Total
Assets
13,968
–
–
–
–
3,962
17,930
37,023
13,538
7,215
2,826
–
–
60,602
1,807
22,663
57,963
91,247
40,752
(5,578)
208,854
499
1,685
2,422
10,816
7,804
4,971
28,197
transactions
–
–
–
–
–
15,410
15,410
–
128
130
13,080
1,570
720
15,628
–
9,498
17,808
39,440
31,717
–
98,463
undertakings
–
–
–
–
–
4,606
4,606
Other assets
4,470
136
–
–
–
20,042
24,648
57,767
47,648
85,538
157,409
81,843
44,133
474,338
Total
Liabilities
11,968
9,932
1,114
772
1,362
–
25,148
247,673
46,747
23,269
45,175
3
–
362,867
–
–
–
–
–
12,567
12,567
Bonds in issue
6,618
1,018
968
10,520
1,575
–
20,699
Other liabilities
2,296
92
40
3,682
1,704
8,195
16,009
268,555
57,789
25,391
60,149
4,644
20,762
437,290
37,048
transactions
Total
Current gap
(210,788)
(10,141)
60,147
97,260
77,199
23,371
Cumulative gap
(210,788)
(220,929)
(160,782)
(63,522)
13,677
37,048
liabilities and provisions.
46. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made based on relevant market data and information about the financial instruments. Because no readily
available market prices exist for a significant portion of the Bank’s financial instruments, fair value estimates for these instruments are
based on judgements regarding current economic conditions, currency and interest rate characteristics and other factors.
Many of these estimates involve uncertainties and matters of significant judgement and cannot be determined with precision. Therefore, the calculated fair value estimates cannot always be substantiated by comparison to market values and, in many cases, may not
be realised in the current sale of the financial instrument. Changes in underlying assumptions could significantly affect the estimates.
207
The following table summarises the carrying values and fair values of those financial assets and liabilities not presented on the balance sheet at their fair value.
CZK million
2005
Carrying value
Estimated fair value
2004
Carrying value
Estimated fair value
Financial assets
Loans and advances to customers including ČKA
80,049
80,043
60,602
60,671
255,214
256,742
208,854
210,870
84,441
88,460
98,463
101,937
Financial liabilities
Bonds in issue
28,547
28,527
25,148
25,129
387,269
387,173
362,867
362,770
41,270
41,385
20,699
20,764
The fair value of current accounts is deemed to approximate their carrying amount. Given that term receivables generally reprice at
relatively short time periods, it is justifiable to regard their carrying amount as the estimated fair value.
Loans and advances to customers are carried net of provisions. The fair value is estimated as the present value of discounted future
cash flows and the applied discount factor is equal to the interest rates currently offered by the Bank.
The fair value of securities 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 similar credit risk characteristics, maturity or yield rate or, as and when appropriate, according to the recoverability of the net asset value of these securities.
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 no-interest
earning deposits, is equal to the amount payable on demand. The fair value of fixed income deposits and other liabilities with no
stated market value is estimated as the present 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 similar maturities. The fair value of products with no contractually
stated maturity (such as sight deposits, passbooks, overdraft facilities, construction savings deposits) is considered equal to their
carrying value.
208
2005 and 2004
Statements
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 estimated
as the present 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 similar remaining maturities.
47. SEGMENT REPORTING
(a) Industry segments
For management purposes, the Bank is organised into the following major operating divisions:
• Retail banking (accepting deposits from the public, providing loans to retail clients, services related to credit and debit cards);
• Commercial banking (providing loans to corporate clients and municipalities, issuance of guarantees, opening of letters of credit);
• Investment banking (securities investments, proprietary trading and trading on behalf of the client with securities, foreign exchange
assets, entering into futures and options including foreign currency and interest rate transactions, financial brokerage, custodian
services, participation in issuance of stock, management, safe-keeping and administration of securities or other assets); and
• Other operations.
2005
CZK million
Banking
Other
Retail
Commercial
Investment
activities
19,789
3,221
2,938
3,247
7,153
2,196
2,262
3,577
Total
Revenue
29,195
Profit
Segment profit
Unallocated costs
15,188
(2,819)
Profit before tax
12,369
Income tax
(2,609)
Total profit
9,760
Other information
Asset acquisition
1,100
167
82
2,572
3,921
1,853
40
72
1,284
3,249
72
72
14,732
536,531
Impairment losses
Balance sheet
Assets
Segment assets
153,847
107,100
260,852
Unallocated assets
249
Total assets
536,780
Liabilities
Segment liabilities
Total liabilities
330,433
37,449
119,820
487,702
7,136
494,838
209
2004
CZK million
Banking
Other
Retail
Commercial
Investment
activities
Total
18,575
2,792
2,484
2,643
26,494
6,382
1,479
1,808
2,119
11,788
Revenue
Profit
Segment profit
Unallocated costs
(2,211)
Profit before tax
9,577
Income tax
(2,800)
Total profit
6,777
Other information
Asset acquisition
1,449
34
21
2,524
4,029
1,809
25
59
1,149
3,042
(534)
(534)
12,469
473,189
Reversal of impairment losses
Balance sheet
Assets
Segment assets
119,557
86,077
255,086
Unallocated assets
1,149
Total assets
474,338
Liabilities
Segment liabilities
Total liabilities
319,871
32,323
77,920
430,114
7,176
437,290
Total income is composed of ‘Net interest income’, ‘Net fee and commission income’, ‘Net profit on financial operations’, ‘Total
other operating income’ and ‘Income from the revaluation/sale of securities, derivatives and equity investments’ (refer to Note 37).
210
2005 and 2004
Statements
(b) Geographical segments
The Bank operates predominantly within the Czech Republic and has no significant cross border operations.
CZK million
Czech Republic
EU
countries
Other European
countries
Other
Total
Assets
16,313
1,054
163
262
17,792
52,657
22,720
3,709
963
80,049
250,440
2,867
1,018
889
255,214
15,318
17,608
716
2,553
36,195
transactions
2,538
15,029
2
190
17,759
8,345
5,279
496
246
14,366
52,885
25,756
3,801
1,999
84,441
undertakings
3,152
3,599
–
–
6,751
Other assets
23,231
849
71
62
24,213
Total assets
424,879
94,761
9,976
7,164
536,780
Liabilities
22,279
6,207
56
5
28,547
385,689
1,522
15
43
387,269
transactions
2,431
11,694
15
418
14,558
Bonds in issue
41,015
33
3
219
41,270
Subordinated debt
2,699
299
–
–
2,998
19,510
656
–
30
20,196
Other liabilities
Total liabilities
473,623
20,411
89
715
494,838
Net position
(48,744)
74,350
9,887
6,449
41,942
211
CZK million
Czech Republic
EU
countries
Other European
countries
Other
Total
Assets
16,325
1,077
286
242
17,930
46,324
9,069
4,534
675
60,602
204,668
1,229
2,092
865
208,854
10,878
11,699
2,467
3,153
28,197
9,573
5,318
385
352
15,628
64,218
28,383
3,302
2,560
98,463
3,370
1,236
–
–
4,606
undertakings
transactions
2,634
12,557
3
216
15,410
Other assets
23,463
966
147
72
24,648
Total assets
381,453
71,534
13,216
8,135
474,338
Liabilities
Bonds in issue
18,186
6,074
660
228
25,148
359,763
20,578
747
121
2,008
–
349
–
362,867
20,699
1,915
10,082
30
540
12,567
15,914
71
13
11
16,009
transactions
Other liabilities
Total liabilities
416,356
17,095
2,711
1,128
437,290
Net position
(34,903)
54,439
10,505
7,007
37,048
liabilities and provisions.
48. ASSETS UNDER ADMINISTRATION
The Bank provides custody, trustee, investment management 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.
212
2005 and 2004
Statements
The Bank administered CZK 124,056 million (2004: CZK 89,005 million) of assets as of 31 December 2005 representing certificate
securities and other assets received from customers into its custody for administration and safe-keeping split as follows:
CZK million
Customer securities in custody
Other assets in custody
Customer securities under administration
Customer securities for safe-keeping
Assets received for management
Total
2005
2004
16,342
10,041
–
6,486
85,757
52,874
2
–
21,955
19,604
124,056
89,005
In addition to customer assets arising from the provision of investment services (refer to Note 50), the total balance includes bills of
exchange and other securities collateralising loans and other assets that do not relate to the provision of investment services.
The Bank also acts as a depositary for several mutual, investment and pension funds, whose assets amounted to CZK 90,376 million
as of 31 December 2005 (2004: CZK 74,674 million).
49. RELATED PARTY TRANSACTIONS
Related parties involve connected entities or parties that have a special relation to the Bank.
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other
party in making financial or operational decisions. The Bank is controlled by Erste Bank der österreichischen Sparkassen AG.
The parties that have a special relation to the Bank are considered to be members of the Bank’s statutory and supervisory bodies and
management, legal entities exercising control over the Bank (including entities with a qualified interest in these entities and management of these entities), persons closely related to the members of the Bank’s statutory and supervisory bodies, management, 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 Czech National Bank’s Banking Board,
and legal entities which the Bank controls.
Pursuant to the definitions outlined above, the category of the Bank’s related parties principally comprises its subsidiary and associated undertakings, members of its Board of Directors and Supervisory Board, and other entities, namely Erste Bank and its subsidiary
and associated undertakings.
213
The Bank has the following amounts due from/to related parties as of 31 December 2005 and 2004:
2005
Parent bank
Subsidiaries
Associates
CZK million
Members of
the Board of
Directors and
Supervisory
Board
Other related
parties
Assets
2,589
–
–
–
2,708
–
6,483
20
16
1,004
628
–
–
–
–
30
transactions
7,607
–
–
–
Other assets
21
236
20
–
12
Total assets
10,845
6,719
40
16
3,754
Liabilities
2,313
19
–
–
464
–
2,588
12
6
351
Bonds in issue
–
2,008
–
–
–
transactions
4,909
–
–
–
10
Other liabilities
13
104
25
–
172
Total liabilities
7,235
4,719
37
6
997
Off balance sheet
Undrawn loans
200
675
80
–
1,400
Issued guarantees
194
3,246
1
–
–
190,830
201
–
–
4,908
98
Notional value of the underlying asset of
derivatives
Income
Interest income
463
137
–
–
Dividends received
–
1,628
4
–
–
8
1,139
–
–
53
55
Total income
1,603
–
–
–
1
74
–
–
1
2,075
2,978
4
–
207
357
88
–
–
76
1
35
–
–
4
12
225
71
–
181
Expenses
Interest expense
118
–
–
–
–
Total expenses
488
348
71
–
261
214
2005 and 2004
Statements
2004
CZK million
Parent bank
Subsidiaries
Associates
Members of
the Board of
Directors and
Supervisory
Board
–
Other related
parties
Assets
1,210
–
–
–
374
152
717
5,623
–
–
–
–
5,760
–
–
–
18
94
146
–
–
2
12,687
520
152
–
1,029
292
transactions
Other assets
Total assets
Liabilities
3,583
209
–
–
256
–
1,658
–
2
368
Bonds in issue
–
1,050
294
–
–
transactions
Other liabilities
Total liabilities
4,608
–
–
–
41
34
46
–
–
155
8,225
2,963
294
2
820
Off balance sheet
Undrawn loans
200
515
–
–
1,730
Issued guarantees
126
2,326
3
–
–
195,499
175
–
–
3,771
80
Notional value of the underlying asset of
derivatives
Income
Interest income
32
31
15
–
Dividends received
–
165
7
–
–
1
628
–
–
21
850
(3)
15
–
27
3
74
–
–
–
886
895
37
–
128
254
57
7
–
129
–
–
–
–
1
46
187
–
–
201
300
244
7
–
331
Total income
Expenses
Interest expense
Subsidiaries include both direct and indirect investments with controlling influence, associates include both direct and indirect investments with significant influence.
215
(a) Members of the Board of Directors and Supervisory Board
Loans and advances granted to members of the Board of Directors and Supervisory Board amounted to CZK 16 million (in nominal
values) as of 31 December 2005 (2004: CZK 4 million).
Members of the Board of Directors and Supervisory Board held no shares of the Bank. Under the Employee Stock Option Plan (refer
to Note 36), members of the Board of Directors subscribed for 4,200 shares (2004: 11,700 shares) of the parent company, Erste
Bank. Under the Management Stock Option Plan (refer to Note 36), members of the Board of Directors hold 152,000 options (2004:
128,000 options) for subscription of shares of the parent company, Erste Bank.
(b) Related parties
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 arm’s length basis.
50. PAYABLES TO CLIENTS ARISING FROM THE PROVISION OF INVESTMENT SERVICES
Investment services involve receiving and providing instructions related to investment instruments, performing instructions relating
to investment instruments to a third party account, proprietary trading with investment instruments, management of customer assets
under a contractual arrangement with the client if these assets include an investment instrument, and investment instruments underwriting or placement.
Additional investment services involve administration and custody 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 rent of safe-deposit boxes.
In connection with the provision of these services, the Bank 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 85,611 million as of
31 December 2005 (2004: CZK 74,317 million).
51. DIVIDENDS
Management of the Bank has proposed that total dividends of CZK 4,560 million be declared in respect of the profit for the year
ended 31 December 2005, which represents CZK 30 per both ordinary and priority share (2004: CZK 4,560 million, that is, CZK
30 per both ordinary and priority share). The declaration of dividends is subject to the approval of the Annual General Meeting.
Dividends paid to shareholders are subject to a withholding tax of 15 percent or a percentage set out in the relevant double tax treaty.
Dividends paid to shareholders that are tax residents of an EU member country and whose interest in a subsidiary’s share capital is no
less than 25 percent and that hold the entity’s shares for at least two years are not subject to a withholding tax.
52. POST BALANCE SHEET EVENTS
No significant events that would have a material impact on the financial statements for the year ended 31 December 2005 occurred
subsequent to the balance sheet date.
216
Financial Section 2
Report on Relations
Between Related Parties
Report on Relations between
Related Parties
UNDER SECTION 66A (9) OF COMMERCIAL CODE
513/1991 COLL. FOR THE YEAR ENDED 31 DECEMBER
2005
Česká spořitelna, a. s., having its registered office address
at Olbrachtova 1929/62, 140 00 Prague 4, Corporate ID:
45244782, incorporated in the Register of Companies, Section
B, File 1171, maintained at the Municipal Court in Prague
(hereinafter “Česká spořitelna” or the “Company”), is part
of a business group (holding company) in which the following
relations between Česká spořitelna and controlling entities and
further between Česká spořitelna and entities controlled by the
same controlling entities (hereinafter the “related entities”)
exist.
This report on relations between the entities stated below was
prepared in accordance with Section 66a (9) of Commercial
Code 513/1991 Coll., as amended, for the year ended 31
December 2005 (hereinafter the “accounting period”). In the
accounting period, Česká spořitelna and the below mentioned
entities entered into the contracts stated below and adopted or
effected the following legal acts and other factual measures.
The Report on Relations for the year ended 31 December 2005
reports on material transactions and arrangements between
the related entities. Immaterial transactions and arrangements
under which Česká spořitelna received or provided financial
payments of less than CZK 5 million under non-banking transactions with related entities and which triggered no detriment
are not stated in this report.
217
A. CHART OF ENTITIES WHOSE RELATIONS ARE DESCRIBED
(The Erste Bank Group)
The Česká spořitelna Group
Die Erste Spar-Casse
Die Erste Spar-Casse
Erste Bank
Erste Bank
Česká spořitelna
Allgemeine Sparkasse
Česká spořitelna
Alpha Immorent
Areal CZ
brokerjet ČS
B. und S. Waldviertel Mitte
Beta Immorent
CEE Property Development
BGA Czech
BMG
Consulting ČS
Centrum Radlická
City Property
CS Property Investment
CPDP
Delta Immorent
Czech and Slovak Property
Dornbirner Sparkasse
ecetra CE Finance
Erste Corporate
Eltima Property
Epsilon Immorent
Factoring ČS
EB Befektetesi
Erste Bank Hungary
Informatika ČS
Erste Financial
Erste Reinsurance
Investiční společnost ČS
Erste Sec Polska
Erste-Sparinvest
Leasing ČS
Erste & Steiermärkische
Euro Projekt
Factoring SlSp
Gallery Myšák
Penzijní fond ČS
Immokor
Immorent Brno
Pojišťovna ČS
Immorent ČR
Immorent Chomutov
Realitní společnost ČS
Immorent Investment
Immorent Kladno
s Autoleasing
Immorent Komunální leasing
Immorent Prostějov
Servis 1
Immorent Rho
Inprox F-M
Stavební spořitelna ČS
Iota Immorent
Lambda Immorent
Leasing Property
Logcap ČR
Malá Štěpánská
Milou
OCI
Omega Immorent
Palác Karlín
Pankrácká obchodní
Proxima Immorent
Realia Consult
Rega Property
S-Morava leasing
Salzburger Sparkasse
Slovenská sporiteľňa
Smíchov Real
Spardat
Sparkasse Bregenz
Sparkasse Mühlviertel–West
SporDat
Theta Immorent
Tiroler Sparkasse
U Glaubiců
Vila Property
Vltava Property
Weinviertler Sparkasse
Zeta Immorent
218
Corfina Trade
Financial Section 2
Report on Relations
C. CONTROLLING ENTITIES
• Die Erste oesterreichische Spar-Casse Privatstiftung,
Am Graben 21, Vienna, Austria (“Die Erste Spar-Casse“)
Relation to the Company: indirectly controlling entity
• Erste Bank der oesterreichischen Sparkassen AG,
Am Graben 21, Vienna, Austria (“Erste Bank“)
Relation to the Company: directly controlling entity
D. OTHER RELATED ENTITIES
OTHER RELATED ENTITIES, The Erste Bank Group
• Allgemeine Sparkasse Oberösterreich Bankaktiengesellschaft, Promenade 11, Linz, Austria (“Allgemaine
Sparkasse“)
Relation to the Company: related entity
• Alpha Immorent s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Alpha Immorent“)
• Areal CZ spol. s r.o., Národní 973/41, Prague 1, Czech
Republic (“Areal CZ“)
• Bank und Sparkassen Aktiengesellschaft Waldviertel
Mitte, Hauptplatz 3, Zwettl, Austria (“B. und S. Waldviertel
Mitte“)
• CPDP 2003 s. r. o., Vodičkova 710/31, Prague 1, Czech
Republic (“CPDP“)
• Delta Immorent s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Delta Immorent“)
• Dornbirner Sparkasse Bank Aktiengesellschaft, Bahnhofstrasse 2, Dornbirn, Austria (“Dornbirner Sparkasse“)
• ecetra Central European e– Finance AG, Neutorgasse 2,
Vienna, Austria (“ecetra CE Finance“)
• Eltima Property Company s. r. o., Václavské náměstí
22/782, Prague 1, Czech Republic (“Eltima Property“)
• Epsilon Immorent s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Epsilon Immorent“)
• Erste Bank Befektetesi Alapkezelö Rt, Madách Imre ut.
13, Budapest, Hungary (“EB Befektetesi“)
• Erste Bank Hungary Rt, Hold utca 16, Budapest, Hungary
(“Erste Bank Hungary“)
• Beta Immorent s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Beta Immorent“)
• Erste Financial Products Ltd, 68 Cornhill, London,
United Kingdom (“Erste Financial“)
• BGA Czech s. r. o., Karlovo nám. 10, Prague 2, Czech
Republic (“BGA Czech“)
• Erste Reinsurance S.A., 45 rue des Scillas, Howald,
Luxembourg (“Erste Reinsurance“)
• BMG- Warenbeschaffungsmanagement GmbH, Grimmelshausengasse 1, Vienna, Austria (“BMG“)
• Erste Securities Polska S.A., ul. Królewska 16, Warsaw,
Poland (“Erste Sec Polska“)
• Centrum Radlická, a. s., Kubánské nám. 11/1391, Prague
10, Czech Republic (“Centrum Radlická“)
• Erste-Sparinvest Kapitalanlagegesellschaft m.b.H.,
Habsburgergasse 1, Vienna, Austria (“Erste-Sparinvest“)
• City Property s. r. o., Národní 973/41, Prague 1, Czech
Republic (“City Property“)
• Erste & Steiermärkische banka d.d., Rijeka, Varsavska
3-5, Zagreb, Croatia (“Erste & Steiermarkische“)
219
• Europäische Projektentwicklung a. s., Klatovská 6, Plzeň,
Czech Republic (“Euro Projekt“)
• Iota Immorent s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Iota Immorent“)
• Factoring Slovenskej sporiteľni a. s., Priemyselná 1,
Bratislava, Slovakia (“Factoring SlSp“)
• Lambda Immorent s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Lambda Immorent“)
• Gallery Myšák a. s., Vodičkova 710/31, Prague 1, Czech
Republic (“Gallery Myšák“)
• Leasing Property s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Leasing Property“)
• Immokor d.o.o., Zelinska 3, Zagreb, Croatia (“Immokor“)
• Logcap ČR s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Logcap ČR“)
• Immorent Brno Heršpická, s. r. o., Národní 973/41,
Prague 1, Czech Republic (“Immorent Brno“)
• Immorent ČR, s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Immorent ČR“)
• Immorent Chomutov, s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Immorent Chomutov“)
• Immorent Investment s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Immorent Investment“)
• Immorent Kladno, s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Immorent Kladno“)
• Immorent Komunální leasing s. r. o., Národní 973/41,
Prague 1, Czech Republic (“Immorent Komunální leasing“)
• Immorent Prostějov, s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Immorent Prostějov“)
• Immorent Rho, s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Immorent Rho“)
• Inprox Frýdek – Místek s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Inprox F-M“)
220
• Malá Štěpánská 17 s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Malá Štěpánská“)
• Milou s. r. o., Národní 973/41, Prague 1, Czech Republic
(“Milou“)
• ÖCI – Unternehmensbeteiligungs-gesellschaft.m.b.H.,
Am Graben 21, Vienna, Austria (“OCI“)
• Omega Immorent s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Omega Immorent“)
• Palác Karlín s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Palác Karlín“)
• Pankrácká obchodní, a. s., Na Pankráci 14, Prague 4,
Czech Republic (“Pankrácká obchodní“)
• Proxima Immorent, s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Proxima Immorent“)
• Realia Consult Praha s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Realia Consult“)
• Rega Property Invest s. r. o., Národní 973/41, Prague 1,
Czech Republic (“Rega Property“)
Financial Section 2
Report on Relations
• S – Morava leasing, a. s., Horní náměstí 18, Znojmo,
Czech Republic (“S – Morava leasing“)
• Vltava Property s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Vltava Property“)
• Salzburger Sparkasse Bank AG, Alter Markt 3, Salzburg,
Austria (“Salzburger Sparkasse“)
• Weinviertler Sparkasse AG, Hauptplatz 10, Hollabrunn,
Austria (“Weinviertler Sparkasse“)
• Slovenská sporiteľňa, a. s., Suché myto 4, Bratislava,
Slovakia (“Slovenská sporiteľňa“)
• Zeta Immorent s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Zeta Immorent“)
• Smíchov Real Estate s. r. o., Karlovo nám. 10/2097, Prague
2, Czech Republic (“Smíchov Real“)
OTHER RELATED ENTITIES, The Česká spořitelna Group
• Spardat Sparkassen – Datendiest Gesellschaft m.b.h.,
Geiselbergstrasse 21-25, Vienna, Austria (“Spardat“)
• Sparkasse Bregenz Bank AG, Rathausstrasse 29, Bregenz,
Austria (“Sparkasse Bregenz“)
• Sparkasse Mühlviertel – West Bank Aktiengesellschaft,
Stadtplatz 24, Rohrbach, Austria (“Sparkasse Mühlviertel–West“)
• SporDat, spol. s r.o., Prievozská 14, Bratislava, Slovakia
(“SporDat“)
• brokerjet České spořitelny, a. s., Na Perštýně 342/1,
Prague 1, Czech Republic (“brokerjet ČS“)
Relation to the Company: directly controlled entity
• CEE Property Development Portfolio B.V., Naritawes
165 Telestone 8, 1043 BW Amsterdam, Netherlands (“CEE
Property Development“)
• Consulting České spořitelny, a. s., Vinohradská 180/1632,
Prague 3, Czech Republic (“Consulting ČS“)
• CS Property Investment Limited, Arch. Makariou III,
2-4, Capital Center, 9th floor, P.C. 1505, Nikósia, Cyprus
(“CS Property Investment“)
• Theta Immorent s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Theta Immorent“)
• Czech and Slovak Property Fund B.V., Fred Roeskerstraat 123, 1076 EE Amsterdam, Netherlands (“Czech and
Slovak Property”)
• Tiroler Sparkasse Bankaktiengesellschaft Innsbruck,
Sparkassenplatz 1, Innsbruck, Austria (“Tiroler Sparkasse“)
• Erste Corporate Finance, a. s., Na Perštýně 1/342, Prague
1, Czech Republic (“Erste Corporate“)
• U Glaubiců spol. s r.o., Národní 973/41, Prague 1, Czech
Republic (“U Glaubiců“)
• Factoring České spořitelny, a. s., Pobřežní 46, Prague 8,
Czech Republic (“Factoring ČS“)
• Vila Property s. r. o., Národní 973/41, Prague 1, Czech
Republic (“Vila Property“)
• Informatika České spořitelny, a. s., Bubenská 1447/1 ,
Prague 7, Czech Republic (“Informatika ČS“)
221
• Investiční společnost České spořitelny, a. s., Na Perštýně
342/1, Prague 1, Czech Republic (“Investiční společnost ČS“)
• Leasing České spořitelny, a. s., Střelničná 8, Prague 8,
Czech Republic (“Leasing ČS“)
• Corfina Trade, s. r. o., Střelničná 8/1680, Prague 8, Czech
Republic (“Corfina Trade“)
Relation to the Company: indirectly controlled entity
• Penzijní fond České spořitelny, a. s., Poláčkova 1976/2,
Prague 4, Czech Republic (“Penzijní fond ČS“)
• Pojišťovna České spořitelny, a. s., nám. Republiky 115,
Pardubice, Czech Republic (“Pojišťovna ČS“)
• Realitní společnost České spořitelny, a. s., Vinohradská
180/1632 , Prague 3, Czech Republic (“Realitní společnost
ČS“)
• s Autoleasing, a. s., Střelničná 8, Prague 8, Czech Republic
(“s Autoleasing“)
• Servis 1 – ČS, a. s., Olbrachtova 1929/62, Prague 4, Czech
Republic (“Servis 1“)
• Stavební spořitelna České spořitelny, a. s., Vinohradská
180/1632, Prague 3, Czech Republic (“Stavební spořitelna
ČS“)
E. BANKING TRANSACTIONS WITH THE RELATED
ENTITIES
Česká spořitelna has identified banking relations with the
related entities listed in Section C and Section D and aggregated them into the following categories.
General Limits
Česká spořitelna has approved general limits in place for
transactions with the related entities in respect of current and
term deposits, loans, repurchase transactions, own securities,
222
letters of credit, and issued and received guarantees in the
aggregate amount of CZK 47,749 million. Under these limits,
the aggregate exposure to the related entities was CZK 30,884
million. Česká spořitelna incurred no detriment as a result of
these transactions in the accounting period.
Provided Loans, Deposits and Overdrafts
Česká spořitelna provided the related entities with funding
under contracts for the provision of loans, term placements,
maintenance of current accounts and overdraft loans under
standard business terms and conditions in the aggregate
amount of CZK 12,806 million. In parallel, Česká spořitelna
negotiated loan facilities and other loan commitments to the
related entities. The undrawn part of loan commitments from
loan facilities at the accounting period-end amounted to CZK
2,303 million. Česká spořitelna incurred no detriment as
a result of these transactions in the accounting period.
Syndicated Loans
In the prior accounting periods, Česká spořitelna participated
in syndicated loan agreements where the related entities acted
as sub-participants under standard business terms and conditions in the aggregate amount of CZK 6,000 million. Česká
spořitelna incurred no detriment as a result of these transactions in the accounting period.
Participation of the Related Entities in Provided Loans
In the prior accounting periods, Česká spořitelna entered into
contracts for the provision of loans to third parties in which
the related entities acted as sub-participants under standard
business terms and conditions. The total volume of the subparticipations of the related entities was CZK 6,387 million.
Česká spořitelna incurred no detriment as a result of these
transactions in the accounting period.
Provided Guarantees
Česká spořitelna provided the related entities with guarantees
under contracts for the provision of guarantees under standard
business terms and conditions. The aggregate amount of the
provided guarantees was CZK 3,441 million. Česká spořitelna
incurred no detriment as a result of these transactions in the
accounting period.
Received Guarantees and Pledges
Česká spořitelna received guarantees and pledges from
the related entities under contracts for the receipt of bank
Financial Section 2
Report on Relations
guarantees and pledges under standard business terms and
conditions, totalling CZK 1,317 million and CZK 979 million,
respectively. Česká spořitelna incurred no detriment as a result
of these transactions in the accounting period.
Current Accounts and Term Deposits
In the accounting period, Česká spořitelna provided the related
entities with monetary services related to the maintenance
of current accounts, term bank accounts and loro accounts
under contracts for opening and maintenance of accounts
under standard business terms and conditions. The aggregate
accounting period-end balances on current and term accounts
were CZK 5,751 million. Česká spořitelna incurred no detriment as a result of these contracts in the accounting period.
Confirmation of Letters of Credit
In the accounting period, Česká spořitelna confirmed letters
of credit of CZK 49 million to the related entities. These
transactions were made under standard business terms and
conditions and Česká spořitelna incurred no detriment from
these transactions.
Purchased Own Bonds and Similar Securities of the
Related Entities
Česká spořitelna holds own bonds and similar securities of the
related entities, which were acquired under standard market
conditions, in the aggregate amount of CZK 638 million.
Issued Own Bonds and Similar Securities of Česká
spořitelna
The related entities hold Česká spořitelna’s own bonds and
similar securities which they acquired under standard market
conditions, in the aggregate amount of CZK 2,031 million.
Fixed Term Contracts
In the accounting period, Česká spořitelna entered into fixed
term contracts with the related entities under standard market
conditions. At the accounting period-end, the nominal values
of receivables and payables arising from fixed term contracts
were CZK 195,940 million and CZK 193,508 million,
respectively. Česká spořitelna incurred no detriment as a result
of these transactions in the accounting period.
Transactions with Shares of the Related Entities
In the accounting period, Česká spořitelna purchased and
sold shares of the related entities, as part of the market maker
activities, under standard market conditions in the aggregate
turnover volume of CZK 12,639 million. Česká spořitelna
incurred no detriment as a result of these transactions in the
accounting period.
Loans Advanced to the Employees of the Česká
spořitelna Group
Česká spořitelna provides standard retail loans at the prime
interest rates to employees of the companies from within the
Česká spořitelna Group under loan contracts. Česká spořitelna
incurred no detriment as a result of these contracts in the
accounting period.
Interest Income and Expenses
In the accounting period, Česká spořitelna generated total
interest income of CZK 697 million from banking transactions
with the related entities under standard market or business
terms and conditions, and incurred total interest expenses of
CZK 521 million in respect of banking transactions with the
related entities. Česká spořitelna incurred no detriment as
a result of these transactions in the accounting period.
Non-Interest Income and Expenses
In the accounting period, Česká spořitelna generated total
non-interest income of CZK 2,740 million from banking
transactions with the related entities under standard market
or business terms and incurred total non-interest expenses of
CZK 60 million in respect of the banking transactions with the
related entities. Non-interest income and expenses predominantly include fees and commissions for asset management,
depositary services, sale of products of subsidiaries, subparticipation in loan transactions and insurance under lending
activities. Česká spořitelna incurred no detriment as a result of
these transactions in the accounting period.
F. NON-BANKING TRANSACTIONS WITH THE
RELATED ENTITIES
Česká spořitelna has identified the following material nonbanking relations with the related entities listed in Section
C and Section D.
223
Erste Bank der oesterreichischen Sparkassen AG
Name
Party to the
Contract
Contract
date
Effective
date
Subject matter of the contract
Amount
Erste Bank
2003
2003
Advisory services for various projects
million
Purchase of a 23.5% equity interest in
CZK 69
Detriment
incurred, if any
CZK 33
Master Agreement
Contract for the transfer of equity
interest
Erste Bank
2005
2005
Contract for the purchase of
securities
Erste Bank
2005
2005
SporDat spol. s r.o.
million
Purchase of a 85.9% equity interest in
CZK 9
Servis1 – ČS, a. s.
million
None
None
None
Preparation and coordination of
Contract for the payment of costs
Erste Bank
Legal title
2005
2005
a meeting with the Finance Ministry of
CZK 7
the Czech Republic
million
None
Amount
Detriment
incurred, if any
Counterparty
Payment
date
Subject matter
of the arrangement
Erste Bank
2005
Dividends for 2004
million
None
Counterparty
Payment
date
Subject matter
of the arrangement
Amount
Detriment
incurred, if any
CZK 12 million
None
Amount
Detriment
incurred, if any
CZK 4,468
Decision of the General Meeting
Legal title
The Employee Erste Bank der oesterreichischen
Sparkassen AG Stock Ownership Programme
(‘ESOP’) and the Management Erste Bank der
Payment of a 20% discount on the
oesterreichischen Sparkassen AG Stock Option
subscription for shares by employees
Programme (‘MSOP’)
Erste Bank
2005
who made use of the option
BMG-Warenbeschaffungsmanagement GmbH
Name
Party to the
Contract
Contract
date
Effective
date
Brief description of the peformance
(subject matter of the transaction)
BMG
2003
2004
SAP licence support
million
None
Party to the
Contract
Contract
date
Effective
date
Subject matter
of the contract
Amount
Detriment
incurred, if any
Master agreement
SAP-Erste Bank
CZK 18
Erste Reinsurance S.A.
Name
Erste Bank Operational Risk
Insurance Programme – Description
of the Loss Procedure
224
Cooperation within the insurance
Erste
Reinsurance
2005
2005
programme of the Erste Bank Group,
CZK 58
settlement of insurance claims
million
None
Financial Section 2
Report on Relations
ÖCI-Unternehmensbeteiligungs- gesellschaft.m.b.H.
Name
Party to the
Contract
Management Service Agreement;
Amendment 1
ÖCI
Contract
date
Effective
date
Subject matter
of the contract
Amount
2000
2004
Detriment
incurred, if any
2000
Provision of management and
CZK 106
2004
professional advisory services
million
None
Subject matter
of the contract
Amount
Detriment
incurred, if any
Provision of services for various
CZK 87
Spardat Sparkassen – Datendiest Gesellschaft m.b.h.
Name
Party to the
Contract
Contract
date
Effective
date
Spardat
2003
2003
Master Agreement
2005/7103/414
projects
million
Provision of services for various
CZK 19
None
Spardat
2005
2005
projects
million
None
Party to the
Contract
Contract
date
Effective
date
Subject matter
of the contract
Amount
Detriment
incurred, if any
SporDat
2003
2003
Services for various projects
Name
Master Agreement on Software
CZK 43
Development
million
None
CZK 71
Service Agreement
SporDat
2004
2004
SW servicing and support
million
None
Contract
date
Effective
date
Subject matter
of the contract
Amount
Detriment
incurred, if any
2004–
2004–
Advisory services and valuation
CZK 52
2005
2005
of assets
million
None
Contract
date
Effective
date
Subject matter
of the contract
Amount
Detriment
incurred, if any
Name
Party to the
Contract
Contracts for the provision of
advisory services
Consulting ČS
Erste Corporate Finance, a. s.
Name
Party to the
Contract
No financial
Contract for mediation and
cooperation
Erste
Corporate
2004
2004
Erste
Sub-supplier mandate contract
Corporate
2004
2004
Mediation of projects and
performan-
cooperation on projects
ce in 2005
Advisory activity with regard to the
CZK 33
sale of a business
million
None
None
225
Name
Party to the
Contract
Contracts for participation
Factoring ČS
Legal title
Contract
date
Effective
date
Subject matter
of the contract
Amount
Detriment
incurred, if any
2003–
2003–
2005
2005
Participation in business activities
million
None
Counterparty
Payment
date
Subject matter
of the arrangement
Amount
Detriment
incurred, if any
Factoring ČS
2005
Received dividends for 2004
million
None
Contract
date
Effective
date
Subject matter
of the contract
Amount
Detriment
incurred, if any
CZK 5
CZK 6
Name
Party to the
Contract
No
financial
Framework contract
for cooperation
Framework contract 2001
Informatika ČS
Informatika ČS
Seven implementation and
performance contracts
Informatika ČS
1998
1998
General definition of the terms and
amount
conditions underlying cooperation
stated
General definition of the terms
No
and conditions for services for
financial
the technical maintenance of
amount
2001
2001
information technologies
stated
2001 –
2001 –
Provision of IT maintenance
CZK 140
2005
2005
services
million
None
None
None
Purchase of information technology
based on tenders or for prices
recommended by the manufacturer
under standard business terms and
Orders
Informatika ČS
Two contracts for the lease of
non-residential premises
Informatika ČS
2005
2005
2001–
2001–
2005
2005
conditions
CZK 78
million
None
CZK 6
Lease of non-residential premises
million
Provision of outsourcing services
in respect of financial accounting,
controlling, asset management,
Contract for the provision of
outsourcing services
226
Informatika ČS
2005
2005
procurement, human resources and
CZK 5
corporate communication
million
None
Financial Section 2
Report on Relations
Name
Party to the
Contract
Contract
date
Effective
date
Subject matter
of the contract
Amount
General definition of the terms and
financial
conditions for jointly performed
amount
business activities
stated
Detriment
incurred, if any
No
Investiční
Basic contract for cooperation
společnost ČS
2000
2000
None
Purchase related to the delimitation
Investiční
HW and SW purchase contract
of marketing and IT staff from
CZK 5
2005
2005
million
None
Counterparty
Payment
date
Subject matter
of the arrangement
Amount
Detriment
incurred, if any
2005
million
None
Effective
date
Subject matter
of the lease
Amount
(Total sum of
Detriment
incurred, if any
společnost ČS
Legal title
CZK 426
Name
Party to the
Contract
Contract
date
instalments and
prepayments)
Lease contracts
2001–
2001–
Received leasing
CZK 34
Leasing ČS
2004
2008
of transportation equipment
million
2001
2001
Leasing ČS
2004
2004
Granting of the right to use a logo
million
None
Contract
date
Effective
date
Subject matter
of the contract
Amount
Detriment
incurred, if any
Contract for the granting of the right
to use a logo; Amendment 1
None
CZK 9
Name
Party to the
Contract
Contract for the lease of
non-residential premises and
Penzijní
Lease of an office building owned
CZK 9
provision of rent-related services
Three contracts for the lease of
fond ČS
2002
2002
by Penzijní fond ČS
Lease contracts for non-residential
million
Penzijní
2000–
2000–
premises and movable assets
CZK 5
movable assets
fond ČS
2005
2005
leased to Penzijní fond ČS
million
None
None
227
Name
Party to the
Contract
Contract
date
Effective
date
Agreement on providing access to
Česká spořitelna’s intranet
Pojišťovna ČS
2002
2002
Subject matter of the contract
Amount
Definition of rights and obligations
No
with respect to access to Česká
financial
spořitelna’s intranet for Pojišťovna’s
amount
employees
stated
Detriment
incurred, if any
None
No
Contract for the protection of
financial
confidential information No.
263/03
Pojišťovna ČS
2003
2003
Sharing of confidential information
amount
in respect of a set of regulations
stated
None
General definition of the conditions
Three business agency contracts
including amendments thereto
Česká
spořitelna
2004
2005
Data migration contract No.
259/03
Pojišťovna ČS
2003
2003
Contract for cooperation No.
45244782
Pojišťovna ČS
to use a logo;
Amendment 1
Legal title
Pojišťovna ČS
and terms for mediation of the sale
No
of non-life insurance and insurance
financial
by ČS’s employees and external
amount
agents
stated
No
in respect of the migration of
financial
Pojišťovna’s client data into Česká
amount
spořitelna’s client file
stated
Contract for cooperation with
CZK 21
2005
2005
respect to private life insurance
million
2002
2002
CZK 6
2004
2004
Counterparty
Payment
date
Subject matter
of the arrangement
Pojišťovna ČS
2005
None
None
None
million
None
Amount
Detriment
incurred, if any
CZK 1,196
228
million
None
Financial Section 2
Report on Relations
Name
Agreement on providing access to
Česká spořitelna’s intranet
Party to the
Contract
Contract
date
Effective
date
Realitní
společnost ČS
2003
2003
Subject matter
of the contract
Amount
No
with respect to access to Česká
financial
spořitelna’s intranet for Realitní
amount
společnost’s employees
stated
Detriment
incurred, if any
None
of parties to the contract
with respect to maintaining
Realitní
Confidentiality contract
společnost ČS
2004
confidentiality of information in
No
connection with insurance claim
financial
settlement
amount
2004
stated
None
No
Realitní
Confidentiality contract
společnost ČS
financial
with respect to maintaining
amount
2003
2003
confidentiality of information
stated
None
Contract
date
Effective
date
Description and amount of
performance
Amount
Detriment
incurred, if
Name
to use a logo; Amendment 1
Party to the
Contract
Stavební
2001
2001
spořitelna ČS
2004
2004
CZK 6
million
None
Three contracts for the lease of
provision of rent-related services
Stavební
2004
2004
Lease of an office building owned
CZK 6
spořitelna ČS
2005
2005
by Stavební spořitelna ČS
million
None
Data processing, printing of
materials, personalisation,
Stavební
Data processing contract
spořitelna ČS
2005
2005
preparation of mail and handing it
CZK 5
over to ČS for posting
million
None
Provision of outsourcing services
in respect of financial accounting,
controlling, asset management,
procurement, human resources,
Contract for the provision of
outsourcing services
Stavební
spořitelna ČS
2005
2005
company communication, IT
CZK 10
support service and sub-licence
million
None
229
G. OTHER LEGAL ACTS
In the accounting period, Česká spořitelna adopted or made no
other legal acts in the interest, or at the initiative, of the related
entities.
H. OTHER FACTUAL MEASURES
Česká spořitelna participates in the New Group Architecture
(NGA) projects within the Erste Bank Group. The programme
is designed to fully utilise the business potential of Central
European markets in all segments, to benefit from economies
of scale and cost synergies, to concentrate support activities
in the group, and to ensure transparency and comparability in
performance measurement. The NGA programme includes
business projects (Detail 2008, Group Large Corporates, Card
strategy), IT projects (New Development Unit- S IT Solutions,
Group IT Operations, Decentralised Computing, Core SAP),
Dušan Baran
and Deputy CEO
230
performance and risk management projects (Group Performance Model, Basel II) and service activities projects (Group
Procurement). In the IT area, the projects are expected to bring
about savings as a result of the merging of IT procurement,
standardisation of hardware and software within the group
and sharing operational and developmental activities. Česká
spořitelna incurred no detriment as a result of its participation
in the Group-wide projects referred to above.
I. CONCLUSION
Our review of the legal relations put in place between Česká
spořitelna and the related entities indicates that Česká
spořitelna incurred no detriment as a result of contractual
arrangements, other legal acts or other measures implemented,
made or adopted by Česká spořitelna during the year ended 31
December 2005 in the interest, or at the initiative, of individual
related entities.
Martin Škopek
Report on Relations Between Related Parties
Auditor’s Report to the Shareholders
of Česká spořitelna, a. s.
FIGURES ARE STATED UNDER INTERNATIONAL
FINANCIAL REPORTING STANDARDS (IFRS), UNLESS
INDICATED OTHERWISE.
STAVEBNÍ SPOŘITELNA ČESKÉ SPOŘITELNY, A. S.
Stavební spořitelna České spořitelny, a. s., having its registered
office address at Vinohradská 180, Prague 3, was incorporated
on 22 June 1994. Its principal business is the provision
of financial services under the Construction Savings and
Construction Savings State Support Act 96/1993 Coll. The
shareholder structure consists of Česká spořitelna, a. s., which
owns a 95 percent shareholding and the remaining 5 percent is
held by Bausparkasse der österreichischen Sparkassen AG. The
company’s issued share capital is CZK 750 million. Stavební
spořitelna offers its clients construction savings with state support and a statutory right to a loan from construction savings.
In 2005, Stavební spořitelna continued in fulfilling the mission
of “Funding Better Housing for Everyone”. In 2005, Stavební
spořitelna fully focused its activities on the development and
creation of products while the sale, following the merger of the
sales networks of Stavební spořitelna and Česká spořitelna in
late 2004, was fully provided by the parent bank. This strategy
leads to a more consistent differentiation of housing funding
product offerings – mortgage loans and loans advanced by
the company – for the benefit of and in accordance with the
client’s needs. Stavební spořitelna, as the only construction
savings company in the Czech Republic, increased clients’
awareness of lending products prior to loan issuance by
publishing an Information Sheet.
2005
In 2005, the company provided almost 32 thousand new loans
in the aggregate amount of CZK 7.0 billion. As of 31 December 2005, the company maintained more than 148 thousand
loan accounts and lent its clients almost CZK 19.5 billion for
housing improvements. The construction savings market saw
revival of the demand for deposit contracts in 2005. Stavební
spořitelna significantly participated in this development: it
entered into a total of 189 thousand new deposit transactions
with the target amount of CZK 31.2 billion, which represents
an increase of over 35 percent in the number of transactions
and 39 percent in the target amount volume as compared to the
previous year.
The profit of Stavební spořitelna was affected by its selected
strategic repositioning, reorganisation and continued process
of centralisation of support activities. The increase in net profit
to CZK 649 million in 2005 represents a year-on-year increase
of 88 percent, which was predominantly driven by the increase
in net interest income arising from growth of lending and the
reduction of administrative costs. In parallel, the cost/income
ratio markedly improved from 45.2 percent in 2004 to 36.5
percent in 2005. This implies that a recurring positive development is becoming a trend in the company’s performance.
The increase in the proportion of loans to deposits from 23.0
percent to 25.1 percent confirms the increasing interest of
clients in using construction savings to fund their housing
needs rather than only appreciating their finances.
In 2005, Stavební spořitelna substantially contributed to the
strengthening of the leading position of the Česká spořitelna
Financial Group in the Czech financial market. Its results are
a sufficient incentive for the successful continuation of this
development in 2006.
2004
2003
2002
2001
Share capital (CZK million)
750
750
750
750
750
Total assets (CZK billion)
84.3
73.7
61.6
47.5
34.2
Loans and advances to clients (CZK billion)
19.5
15.5
10.4
7.2
5.5
Client deposits (CZK billion)
77.6
67.4
56.0
42.1
29.3
Net profit (CZK million)
649
351
209
281
201
1.2
1.3
1.4
1.1
0.9
0
126
132
102
88
234
280
304
310
302
Number of clients (million)
Number of own points of sale
Average headcount
231
Contact address: Vinohradská 180, 130 11 Prague 3
Free info-line: 800 207 207
Telephone: 224 309 111
Fax: 224 309 112
Internet: www.burinka.cz
Email: burinka@csst.cz
POJIŠŤOVNA ČESKÉ SPOŘITELNY, A. S.
company’s universal profile changed and the company became
a specialised life-insurer offering primarily the following types
of insurance: capital life insurance, insurance with an investment fund, loan life insurance and accident insurance.
Pojišťovna České spořitelny, a. s. was formed on 1 October
1992 and has had its registered office at náměstí Republiky
115, Pardubice since September 2002. Česká spořitelna
acquired an equity interest in the company in 1995. The
company’s issued share capital is CZK 1,117 million and
Česká spořitelna’s share of the company’s share capital is
55.25 percent and the remaining 44.75 percent equity interest
is held by Sparkasse Versicherung AG, a subsidiary of Erste
Bank. Measured by the share capital balance, the company is
one of the best capitalised insurance companies in the Czech
market. The company has been licensed to undertake insurance
activities, reinsurance activities and relating activities.
The Company operated as a universal insurer and offered basic
types of life and non-life insurance. Following the resolution
of the shareholders in 2003 to fulfil the strategy of the Erste
Bank Group whereby insurance companies from within the
Group were to specialise in providing life insurance only,
as of 2 January 2004, the non-life insurance business of the
company was sold to Kooperativa, pojišťovna, a. s. At the date
on which the sale of the non-life business became effective, the
The year ended 31 December 2005 was a significant milestone
in the practical application of harmonisation amendments to
the Czech insurance legislation which were made to bring it
into line with the legislation effective in the European Union.
These changes had a significant impact on insurance sales
methods, insurance industry supervision and insurers’ obligations to their clients.
Premiums written in 2005 amounted to CZK 2,541 million,
which represents a year-on-year decline attributable primarily
to the decrease in the sale of ‘single sum premium’ insurance
and the sale of non-life insurance. The company generated
a net profit of CZK 175 million, technical reserves amounted
to CZK 10.7 billion and, compared to 2004, increased by CZK
1.4 billion. Following the resolution of the shareholders, the
parent company was paid the dividend for 2004 of CZK 1,195
million in 2005.
2005
2004
2003
2002
2001
1,117
1,117
1,117
1,117
1,117
12.2
13.7
11.4
8.0
4.5
Premiums written (CZK billion)
2.5
3.9
6,9
6.3
3.7
175
2,275
229
171
101
Number of insurance policies (thousand)
464
399
914
847
749
0
0
34
34
73
141
144
654
709
819
Average headcount
Contact address: Nám. Republiky 115, 530 02 Pardubice
Fax: 466 051 380
232
Internet: www.pojistovnacs.cz
Email: pojistovnacs@ pojistovnacs.cz
PENZIJNÍ FOND ČESKÉ SPOŘITELNY, A. S.
Penzijní fond České spořitelny, a. s. was formed on 24 August
1994. The company’s registered office is located at Poláčkova
1976/2, Prague 4. The company’s issued share capital amounts
to CZK 100 million. Česká spořitelna has been the company’s
sole shareholder since March 2001. The company is primarily
engaged in the provision of retirement benefit schemes under
Act 42/1994 Coll. on Retirement Benefit Schemes with State
Contribution.
In 2005, the company strengthened its position as one of
the three biggest pension funds in the Czech Republic. The
company saw a dynamic growth in the volume of funding on
clients’ personal accounts which amounted to over CZK 15.1
billion, a 26 percent increase year-on-year. The number of
clients increased by 17 percent against 2004 and amounted to
almost 480 thousand at the end of 2005.
The company reported a significant year-on-year increase in
profit. As of 31 December 2005, the net profit amounted to
CZK 630 million under Czech Accounting Standards (CAS),
which represents an increase of 54 percent compared to the
2005
previous year. The highest profit in the ten-year history of
Penzijní fond České spořitelny was generated as a result of the
positive development on financial markets and increased business dynamics. Another factor that positively impacted the level
of profit was the volume of financial assets under management
which grew by more than CZK 3 billion during the year.
The company’s business performance was notably driven by
the development of cooperation with employers. As part of
its corporate programme, the company entered into business
arrangements with more than 5,262 employers. The growth
of business dynamics was supported by a further extension of
the sales network covering all branches of Česká spořitelna
and its mobile sales network which also includes Kooperativa,
pojišťovna, a. s.
In financial assets management, the company followed the
stated strategic objective to achieve the greatest possible return
on clients’ assets whilst maintaining a low rate of financial
risk. The company invested funds principally in Czech, largely
Government, debt securities that carry a low risk of non-payment, debt securities of OECD countries, Government treasury
bills and to a lesser extent also equities.
2004
2003
2002
2001
100
100
100
100
100
16.5
12.9
9.7
7.4
5.2
Capital funds (CZK billion)*
15.1
12.0
9.2
6.9
5.0
Net profit (CZK million) under CAS**
630
408
243
238
170
Net profit (CZK million) under IFRS
630
644
220
430
68
Number of participants (thousand)
480
410
383
376
361
54
55
56
56
56
Average headcount
*This figure indicates the balance of funds in clients’ personal accounts.
** Under the Retirement Benefit Schemes Act the pension fund allocates no less than 85 percent of the profit made under CAS to its clients.
Contact address: Poláčkova 1976/2, 140 21 Prague 4
Telephone: 261 075 116-7
Fax: 261 075 189
Internet: www.pfcs.cz
Email: pfcs@pfcs.cz
233
INVESTIČNÍ SPOLEČNOST ČESKÉ SPOŘITELNY, A. S.
Investiční společnost České spořitelny, a. s. was incorporated
on 27 December 1991 as va wholly owned subsidiary of Česká
spořitelna. The company’s registered office is at Na Perštýně
342, Prague 1.
The year 2005 was another year of record sales of participation
certificates. Gross sales of the company’s funds amounted to
CZK 26 billion and with the aggregate repurchases of CZK 16
billion, the net sales exceeded CZK 10 billion. The company
has been maintaining the leading position on the local market of
mutual funds in the long-term. At the end of 2005, the company
managed 32 percent of the total assets in the Czech market,
regardless of a fast growing competition, predominantly from
cross-border funds.
The year-on-year increase in assets held by the company’s funds
amounted to almost CZK 13 billion and this dynamics moved
the level of managed assets to almost CZK 72 billion.
The highest relative increase of almost 200 percent was once
again seen in the equity funds segment which is being sought
by the clients more and more. This was also driven by the
development in equity markets as Central and specifically
Eastern Europe experienced appreciation of shares of tens of
percentage points. Share indexes in Russia (RTX) and Turkey
(ISE-100) increased by approximately 75 percent in 2005,
the Prague Stock Exchange index, PX-D, grew by 46 percent.
Japanese shares grew by 40 percent and the index of central
European shares rose by more 45 percent. By contrast, American
2005
indexes fell very short of expectations, the prices did not reflect
good results of the corporate sector and investors focused their
attention on other regions.
The assets held in mixed funds increased by 77 percent because
two new profile funds, Opatrný Mix FF and Konzervativní Mix
FF, which invest in participation certificates of other mutual
funds according to their investment focus, initiated their activities in June 2005.
The assets carried in bond funds grew by 26 percent. The Czech
economy did fairly well, inflationary developments enabled the
central bank to decrease key rates in the first half of 2005; in
the latter half of the year, inflation moderately accelerated. The
Czech National Bank responded by raising rates, the pressure on
the bond market increased which had to adjust its performance.
The lowest dynamics of the growth in assets was experienced by
the Sporoinvest money market fund (less than 12 percent).
The company’s financial ratios for the year ended 31 December
2005 were very positive. This was markedly driven by increased
sales of mutual funds and desired changes in their structure with
the resulting increase in the proportion of equity and bond funds.
During the year, the Company continued implementing organisational and structural changes which had a positive impact on
the reduction of administrative expenses. These factors were
reflected in the year-on-year increase in operating profit of 86
percent. The company generated an aggregate net profit of CZK
91 million for the year ended 31 December 2005, a year-on-year
increase of 7 percent.
2004
2003
2002
2001
70
70
70
70
70
Equity (CZK million)
261
597
510
406
817
Total assets (CZK million)
325
654
591
503
1,003
91
85
104
–8
38
71.6
58.9
48.3
40.1
24.7
24
32
32
58
73
Assets under management (CZK billion)
Average headcount
Contact address: Na Perštýně 342/1, 110 00 Prague 1
Fax: 222 180 135
234
Internet: www.iscs.cz
Email: iscs@iscs.cz
LEASING ČESKÉ SPOŘITELNY, A. S.
s Autoleasing, a. s., to which it also provides all servicing
activities.
Leasing České spořitelny, a. s. was formed on 1 January 1996.
With effect from December 1996, the company has been
wholly owned by Česká spořitelna. The company’s registered
office is located at Střelničná 8, Prague 8, and its share capital
balance is CZK 300 million. Leasing ČS discontinued active
business activities on its own account as of 30 September 2004
and since 1 October 2004 it has been engaged in executing
transactions exclusively on the account of its fellow subsidiary
Number of new transactions (CZK billion)
Net profit or loss (CZK million)
Number of new contracts
Average headcount
Leasing České spořitelny incurred a loss of CZK 2 million
for the year ended 31 December 2005. During 2005, the
company’s total assets decreased by 46 percent in connection
with the discontinuance of active business transactions, which
gives rise to a decrease in individual balance sheet and profit
and loss account captions. Leasing České spořitelny maintains
the charged provisions and reserves to cover all known risks
arising from the portfolio of concluded lease contracts.
2005
2004
2003
2002
2001
300
300
300
300
300
3.2
5.9
6.8
7.1
6.7
–
3.7
4.2
5.3
4.7
–2
–407
15
77
65
–
4,924
6,600
12,353
16,963
1
1
2
4
4
120
124
123
116
118
Contact address: Střelničná 8/1680, 182 21 Prague 8
Fax: 266 095 567
Internet: www.leasingcs.cz
S AUTOLEASING, A. S.
For the year ended 31 December 2005, s Autoleasing incurred
a loss of CZK 22 million primarily due to increased operating
expenses which are typically incurred in rolling out a new
leasing business. During 2005, the company executed new
transactions worth CZK 3,067 million, with the proportion
of transport equipment being 81 percent. During 2005, the
company’s total assets also substantially increased which is
a standard development in rolling out a new leasing business.
s Autoleasing maintains the charged provisions to cover all
known risks arising from the portfolio of concluded lease
contracts. With effect from 1 October 2005, all new transactions of the company’s fellow subsidiary, Leasing ČS, have
been conducted on s Autoleasing’s account.
s Autoleasing, a. s. was formed on 6 October 2003. Since
May 2004, the company has been wholly owned by Česká
spořitelna. The company’s registered office is located at
Střelničná 8, Prague 8. As of 1 October 2004, s Autoleasing
commenced active business activities on its own account.
The company has no employees; all services relating to
business and administrative activities are purchased from the
company’s fellow subsidiary, Leasing České spořitelny, a. s.,
under a mandate agreement and an agreement on the
provision of business administration services. In 2005,
s Autoleasing placed at the forefront of the Czech lease market in terms of newly leased assets. The company’s business
focuses primarily on finance leases of transport equipment
covering a wide range of commodities, primarily composed
of passenger and utility cars.
Contact address: Střelničná 8/1680, 182 21 Prague 8
Fax: 266 095 777
Internet: www.sautoleasing.cz
235
2005
Number of new transactions (CZK billion)
Net profit or loss (CZK million)
Number of new contracts
2004
2
2
2.9
0.2
3.1
0.2
–22
–13
4,380
237
1
1
Average headcount
–
–
FACTORING ČESKÉ SPOŘITELNY, A. S.
Factoring České spořitelny, a. s. was formed in November
1995. In 1997, the company was transformed into a joint stock
company and Česká spořitelna acquired a 10 percent equity
holding. On 20 June 2001, Česká spořitelna became the sole
shareholder of the company. The company’s registered office
address is Pobřežní 46, Prague 8. The company’s issued share
capital is CZK 84 million. The company’s focus is on domestic, export and import factoring, and debt management related
to a broad range of commodities which principally comprise
corporate clients operating in the consumer and food industry,
suppliers for wholesale networks, chemistry, metallurgy, etc.
The year ended 31 December 2005 brought about a slow-down
in the growth for factoring companies, and hence also for Factoring České spořitelny, when compared to the dynamic development in prior years. However, the Company managed to retain its
market share of more than 26 percent and once again placed first
in the market of factoring companies in the Czech Republic.
During 2005, a number of significant projects designed to
make organisational and managerial improvements inside the
2005
company were conducted and cooperation with the parent
company became more intensive. Following the successful
start of a subsidiary in Slovakia in 2003, the year 2005 was
focused on preparing for the formation of a subsidiary to serve
the Croatian market in cooperation with the Croation bank,
Erste & Steiermärkische Bank D.D.
Despite improvements being made in risk management, the
company was not able to avoid certain operational risk events
which had an impact on the level of its profit. The company
continues to diversify its portfolio and mitigates potential risks
under the reformulated risk management.
For the year ended 31 December 2005, Factoring generated
a net profit of CZK 9 million which constitute a year-on-year
decrease of 44 percent. The volume of contracts increased by 1
percent and amounted to CZK 21.6 billion.
Contact address: Pobřežní 46, 186 00 Prague 8
Fax: 246 003 319
Internet: www.factoringcs.cz
2004
2003
2002
2001
84
84
84
84
84
Equity (CZK million)
112
109
93
78
62
5.3
6.0
3.9
3.0
1.3
Contracted amounts (CZK billion)
Average headcount
236
9
16
15
17
18
21.6
21.4
15.8
9.7
5.0
31
31
31
28
23
REALITNÍ SPOLEČNOST ČESKÉ SPOŘITELNY, A. S.
Realitní společnost České spořitelny, a. s. with its registered
office at Vinohradská 180/1632, Prague 3 was incorporated on
4 December 2002. Its share capital is CZK 4 million. The sole
shareholder of the company is Česká spořitelna. The company
is primarily engaged in undertaking real estate activities
– mediation of sales and lease of residential and commercial
real estate and provision of related advisory services, specifically in order to expand and complement the comprehensive
services of the Česká spořitelna Financial Group in real estate
and advisory services in respect of the sale and lease of real
estate owned by the parent bank.
2005
Realitní společnost České spořitelny launched its business
activities in 2003 and extended its operations from Prague
to throughout the Czech Republic during 2004. In 2005, the
company focused on developing and stabilising the existing
business network and distribution channels. The company
provided real estate services to the clients of the Group as well
as to the public through its seven franchise partners, Česká
spořitelna’s 14 mortgage centres, and its own point of sale in
Prague. The year ended 31 December 2005 was a very successful year for Realitní společnost. The company generated
income from real estate activities totalling CZK 56 million and
a net profit of CZK 5 million. The principal objective of the
company for 2006 is the extension of services in residential
housing and expansion in the Croatian and Slovak markets.
2004
2003
2002
2001
4
4
4
4
–
68
38
20
4
–
Income from real estate activities (CZK million)
56
35
18
0
–
5
1
–1
0
–
25
23
15
0
–
Average headcount
The figures according to CAS
Contact address: Vinohradská 180, P.O.Box 114, 130 11
Prague 3
Fax: 224 309 702
Internet: www.rscs.cz
Email: rscs@rscs.cz
BROKERJET ČESKÉ SPOŘITELNY, A. S.
Brokerjet České spořitelny was formed on 17 September
2003 with its registered office at Na Perštýně 1, Prague 1. The
shareholder structure provides brokerjet České spořitelny with
a unique combination of a strong background and an extensive
sales network as the member of the Česká spořitelna Financial
Group; its further advantages are the top technologies and
several years’ experience of ecetra Internet Services.
Brokerjet České spořitelny, a. s. was established by Česká
spořitelna as a subsidiary (51 percent share) and by ecetra Internet Services AG (49 percent share). ecetra Internet Services
AG is a fully owned subsidiary of Erste Bank operating as one
of the most important internet securities traders in Austria.
2005
2004
2003
2002
2001
160
160
160
–
–
1,434
256
165
–
–
Volume of managed assets (CZK million)
4,106
438
7
–
–
5
–28
–13
–
–
12
8
7
–
–
Average headcount
237
Brokerjet České spořitelny entered the market of investment
service mediators in the Czech Republic with an aggressive
marketing campaign in early November 2003. During 2004,
the company focused primarily on two key areas: attracting
the highest possible number of new clients and connection
with the Prague Stock Exchange. The principal goal for 2005
involves the acquisition of new clients and consolidation of the
company’s share in the Internet securities traders market.
Fax: 224 995 992
Internet: www.brokerjet.cz
Email: help@brokerjet.cz
CONSULTING ČESKÉ SPOŘITELNY, A. S.
For the year ended 31 December 2005, the company generated
a net profit of almost CZK 4 million. Added value amounted,
on average per employee, to CZK 1.6 million and CZK 1.3
million in the years ended 31 December 2005 and 2004,
respectively. The company’s own output amounted to CZK 70
million with a year-on-year increase of 33 percent. The total
revenues from services amounted to CZK 86 million in 2005,
of which services to the Česká spořitelna Financial Group
represented 76 percent.
Consulting České spořitelny, a. s. was formed on 8 June 1995;
its current registered office address is at Vinohradská 180,
Prague 3. The company is wholly owned by Česká spořitelna
and is a medium-sized advisory business which is gradually
building its position in the Czech and Slovak markets by
offering specialised services to both businesses and other
entities from the private and public sectors. The company’s
activities focus on the provision of management advisory
services, information system and information technology
advisory services, financial and economic advisory services
and appraisals of movable and immovable assets. Since 1999,
the company has implemented an ISO 9001-compliant quality
management system.
2005
2004
2003
2002
2001
1
1
1
1
1
34
28
18
19
31
Average headcount
The company’s activities in 2006 will be predominantly
focused on stabilising the company’s position within the Česká
spořitelna and Erste Bank Groups with the objective of becoming the preferred advisor in selected areas.
4
3
1
0
4
35
30
27
28
31
The figures according to CAS
Contact address: Vinohradská 180, 130 00 Prague 3
Telephone: 224 309 740, 271 746 972
Fax: 271 746 975
Internet: www.consultingcs.cz
ERSTE CORPORATE FINANCE, A. S.
Česká spořitelna, Slovenská sporiteľna and CDI Erste Central
Europe Holding. Česká spořitelna holds 50.2 percent of
the company’s issued share capital. As of 31 October 2005,
the company’s name was changed from CDI Corporate
Advisory, a. s. to Erste Corporate Finance, a. s.
Erste Corporate Finance, a. s. was formed on 19 July 1995
and has its registered office at Na Perštýně 1/342, Prague 1.
The company’s share capital is CZK 6 million. The company
is a joint venture of three members of the Erste Bank Group:
238
Erste Corporate Finance provides its clients in the Czech and
Slovak Republics with professional investment banking and
financial advisory services, primarily in mergers and acquisitions, privatisation, MBO and IPO, valuation of companies or
their divisions, economic advisory, due diligence, investment
opportunity analysis, restructuring, etc.
The year ended 31 December 2005 was an extraordinary
successful year for Erste Corporate Finance as the company
2005
executed two very significant projects, namely the sale of state
shareholdings in Česká Telecom, a. s. and Vítkovice Steel, a. s.
The company’s organisational branch in Slovakia also
substantially contributed to the achievement of the positive
results. The company generated a net profit after tax of CZK
30 million under Czech Accounting Standards (CAS) for the
year ended 31 December 2005. Income from advisory services
amounted to CZK 102 million.
2004
2003
2002
2001
6
6
6
6
1
Equity under CAS (CZK million)
67
37
61
16
8
Net profit under CAS (CZK million)
30
8
47
8
2
Average headcount
13
12
10
7
7
Fax: 224 995 167
Internet: www.erste-cf.com
Email: katerina.zeithamlova@erste-cf.com
INFORMATIKA ČESKÉ SPOŘITELNY, A. S.
In the year ended 31 December 2005, Informatika České
spořitelny focused on providing warranty and post-warranty
services of IT equipment owned by the Group members,
installation and servicing of ATMs, support and servicing of
Flexpos and POS, and technical support in IT servicing in the
implementation of Česká spořitelna’s development projects as
required. The company streamlined its operations during 2005
to reduce the volume of purchased external services, optimise
its costs, and maintain its existing status as an authorised
business and service partner of HP and was re-awarded the
ISO 9001 – 2000 certificate.
Informatika České spořitelny, a. s. was formed on 11 December
1997 by Česká spořitelna as a wholly owned subsidiary with
the objective of providing Česká spořitelna and/or its subsidiaries with auxiliary banking services. The company is involved
in providing technical servicing and administration of information technologies and purchasing of goods for sale in the IT
area for Česká spořitelna and other members of the Group. The
company’s issued share capital is CZK 10 million.
2005
2004
2003
2002
2001
10
10
10
10
10
123
57
93
97
105
8
10
–3
0
7
Sales (CZK million)
281
247
390
520
443
Average headcount
98
101
371
362
360
239
OfficeAddress:
Nile House
Karolinská 654/2
186 00 Prague 8
Czech Republic
Deloitte s. r. o.,
Registered address:
Týn 641/4
110 00 Prague 1
Czech Republic
Tel.: +420 246 042 500
Fax: +420 246 042 010
www.deloitte.cz
Id Nr.: 49620592
Tax Id. Nr.: CZ49620592
Unconsolidated Financial Statements
Based upon our audit, we issued the following audit report dated 21 February 2006 on the unconsolidated financial statements which
are included in this annual report on pages 149 to 216:
„We have audited the accompanying unconsolidated financial statements of Česká spořitelna, a.s. („the Bank“), which comprise the
and notes. These financial statements are the responsibility of the Bank‘s Board of Directors. Our responsibility is to express an
We conducted our audit in accordance with the Act on Auditors and International Standards on Auditing and the related application
guidelines issued by the Chamber of Auditors of the Czech Republic. Those standards require that the auditor plan and perform the
audit to obtain reasonable assurance about whether the financial statements are fřee of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
financial position of the Bank as of 31 December 2005 and of the expenses, income and results of its operations for the year then
ended in accordance with International Financial Reporting Standards as adopted by the EU.“
Consolidated Financial Statements
Based upon our audit, we issued the following audit report dated 14 March 2006 on the Consolidated financial statements which are
included in this annual report on pages 75 to 146:
„We have audited the accompanying Consolidated financial statements of Česká spořitelna, a.s. (the „Bank“), which comprise the balance sheet as of 31 December 2005, and the related statement of income, changes in equity and cash flows for the year then ended and
notes. These financial statements are the responsibility of the Bank‘s Board of Directors. Our responsibility is to express an opinion
on the fmancial statements, taken as a whole, based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we pian and perform
the audit to obtain reasonable assurance about whether the financial statements are fřee of materiál misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
financial position of Česká spořitelna, a.s. as of 31 December 2005 and of the expenses, income and results of its operations for the
year then ended in accordance with International Financial Reporting Standards as adopted by the EU.“
240
Related Party Transactions Report
We have also reviewed the factual accuracy of the information included in the related party transactions report of Česká
spořitelna, a. s. for the year ended 31 December 2005 which is included in this annual report on pages 217 to 230. This related party
transactions report is the responsibility of the Bank‘s Board of Directors. Our responsibility is to express our view on the related party
transactions report based on our review.
We conducted our review in accordance with the International Standard on Review Engagements (ISRE) 2400 and the related
application guidelines issued by the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform
the review to obtain moderate assurance as to whether the related party transactions report is free of material factual misstatements.
A review is limited primarily to inquiries of Company personnel and analytical procedures and examination, on a test basis, of the
factual accuracy of information, and thus provides less assurance than an audit. We have not performed an audit of the related party
transactions report and, accordingly, we do not express an audit opinion.
Nothing has come to our attention based on our review that indicates that the information contained in the related party transactions
report of Česká spořitelna, a.s. for the year ended 31 December 2005 contains material factual misstatements.
Annual Report
We have also audited the annual report for consistency with the financial statements referred to above. This annual report is the
responsibility of the Bank‘s Board of Directors. Our responsibility is to express an opinion on the consistency of the annual report and
the financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing and the related application guidelines issued by the
Chamber of Auditors of the Czech Republic. Those standards require that the auditor pian and perform the audit to obtain reasonable
assurance about whether the information included in the annual report describing matters that are also presented in the financial
statements is, in all material respects, consistent with the relevant financial statements. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the information included in the annual report is consistent, in all material respects, with the financial statements
referred to above.
In Prague on 26 April 2006
Audit firm:
Deloitte s.r.o.
Certificate no. 79
Represented by:
Statutory auditor:
Michal Petrman, statutory executive
Michal Petrman, certifícate no. 1105
241
Česká spořitelna‘s Selected
Consolidated Financial Information
for the Three Months Ended 31 March 2006 under
International Financial Reporting Standards (unaudited)
million CZK
Interest income and similar income
31 March 2006
31 March 2005
6,963
6,396
–1,874
–1,976
Net interest income
5,089
4,420
Provisions for credit risks
–309
–55
4,780
4,365
2,376
2,325
–141
–140
2,235
2,185
Interest expense and similar expense
508
389
–4,142
–4,099
Net insurance income
70
55
Other operating expenses, net
–150
263
3,301
3,158
Income tax expense
–762
–827
2,539
2,331
Profit after taxes
Minority interests
Net profit for the period
–35
–23
2,504
2,308
Total assets
687,993
616,664
294,165
250,257
519,542
458,457
45,646
41,640
Shareholders‘ equity
242
Conclusions of the Annual
General Meeting of Shareholders
Held on 26 April 2006
At the Annual General Meeting of Česká spořitelna held
on 26 April 2006 in Prague, the shareholders, inter alia,
approved the Board of Directors’ Report on the Bank’s
Performance and Financial Position as of and for the year
ended 31 December 2005. The shareholders present at the
General Meeting were presented with the Supervisory Board’s
Report for the year ended 31 December 2005 and approved
the annual unconsolidated financial statements, consolidated
financial statements and proposal for profit allocation. The
distributable funds amounted to CZK 24,445 million, of
which CZK 488 million was allocated to the statutory reserve
fund, and CZK 4,560 million was allocated to the payment of
dividends, which amount to CZK 30 per share. The balance of
retained earnings is CZK 19,397 million. The shareholders reappointed Messrs Andreas Treichl, Reinhard Ortner, Bernhard
Spalt and Manfred Wimmer as members of Česká spořitelna’s
Supervisory Board.
243
Index
A
ATM 53, 64, 67, 72–74,
147–148, 240
Auditor cover flap, 2, 3, 5,
29–30, 39, 43, 68, 239
B
Basel II 43–44, 49–50, 52–53,
122, 125, 193, 196, 230
Board of Directors 3, 4, 5, 7–11,
13, 48, 50, 54, 61, 63–71, 74, 75,
81, 113, 114, 117, 123, 144, 145,
148, 149, 156, 185, 188, 194, 213,
216, 230, 240, 241, 243
Bonds issued 23, 54, 55, 57, 103,
127, 173, 198
Bonus program 2, 3, 29, 30,
45, 46
brokerjet České spořitelny 92,
174–176, 221, 237, 238
Business 24 2, 4, 35, 39, 43
Business clientele
C
Capital adequacy 20, 52, 53, 80,
113, 154, 184
Capital participations 70
Classified loans 22
Client deposits (amounts owed to
customers) 18, 20, 21, 28, 47,
52, 231
Construction savings 20, 21, 27,
28, 31, 174, 187, 208, 231
Consulting České spořitelny 10,
34, 174–176, 221, 225, 238
Corporate clients 3–5, 20, 21, 32,
34, 35, 43, 48, 49, 108, 121, 140,
180, 192, 209, 236
Corporate Governance 61, 63,
64, 67
Cost/Income Ratio 17, 47
Czech National Bank (CNB) 10,
16, 17, 43, 51, 53, 58, 60, 64, 66,
113, 124, 125, 144, 154, 184, 195,
196, 213, 234
D
Deposit Insurance Fund 19, 119,
183, 190
Dividends 15, 20, 65, 77, 79, 82,
86, 113, 146, 151, 153, 156, 159,
244
185, 214–216, 224, 226–228, 243
E
Erste Bank 2, 3, 8–14, 19, 27,
35–37, 40, 42–44, 51, 54, 61, 64,
66, 68, 100, 103, 118, 125, 144,
145, 173, 189, 196, 213, 216, 218,
219, 224, 230, 237, 238
Erste Corporate Finance 93,
174–176, 221, 225, 238, 239
Factoring České spořitelny10, 92,
174–176, 221, 226, 236
Fee and Commission Income cover flap, 17, 18, 47, 59, 76, 85,
115, 141, 145, 150, 156, 187, 210,
214, 215, 242
Financial Markets 9, 36–37, 47,
48, 50, 68, 70
G
cover flap, 20, 24,
H
Homebanking
M
Ministry of Finance of CR 107,
224
Mortgage certificates
Mortgage loans 2, 20–24, 31, 32,
46, 52, 94, 165, 231
N
F
Giro accounts
27, 28, 43
186, 201–208, 211–215, 242
Loans and Advances to Financial
Institutions 94, 164
35, 39
I
Independent professions 24, 26
Informatika České spořitelny 9,
92, 174–176, 221, 226, 239
Information technologies 59, 226
International Financial Reporting
Standards (IFRS) cover flap, 17,
80, 81, 90, 102, 106, 154, 155,
160, 162, 172, 178, 231, 233
Investiční společnost České spořitelny 10, 37, 38, 42, 174–176,
222, 227, 234
Kredit+ 29
L
Leasing České spořitelny 10, 19,
92, 174–176, 222, 227, 235
Liquidity ratio 52
Loands and Advances to Customers cover flap, 21, 22, 60, 75,
78, 83, 94–96, 107, 114, 131–139,
142, 143, 149, 152, 164, 165, 179,
Net interest margin cover flap
Net profit 118, 187
Non-interest income cover flap,
17, 223
O
Ombudsman 42
Operating expenses cover flap,
17–19, 43, 104, 118, 145, 214,
215, 242
Operating income cover flap, 17,
18, 59, 76, 82–84, 119, 141, 145,
150, 156, 157, 190, 210, 214, 215
Operating profit cover flap, 17,
78, 152
P
Penzijní fond České spořitelny 28, 31, 92, 11, 119,
174–176, 222, 227, 233
Pojišťovna České spořitelny 17,
18, 76, 82, 92, 113, 141, 174–176,
222, 228, 232
Private clientele 24–26, 28, 38
Public sector 20, 22, 24, 35, 36,
63, 94, 108, 136, 165, 180, 205,
238
87, 93, 110, 115, 120, 122–126,
150, 155, 159, 175, 182, 186, 191,
193, 195–197, 235, 236, 242
ROA cover flap, 17
ROE cover flap, 17, 47, 61
S
Savings books 20, 27, 78, 152
Secured funds 37
Securities cover flap, 6, 13,
17–20, 22, 23, 26, 36, 37, 47,
54, 60, 65–67, 75, 76, 80–83, 85,
88–90, 94, 95, 97–104, 107–108,
111–112, 114–116, 119, 129–145,
149, 152–158, 160–174, 179,
183–187, 190, 200–215, 219,
222–224, 233, 237–238
Securities exchange
Service quality 5, 42, 70
Servis 24 3, 4, 27, 30, 31, 35,
39, 43, 44
Share capital 20, 81, 93, 113,
146, 156, 175 176, 185, 216,
231 239
Shareholders´ equity 20, 75, 77,
85, 89, 149, 151, 158, 161, 242
Shares funds
SME 32, 33, 35, 36, 47
Stavební spořitelna České
spořitelny 27, 31, 92, 107, 113,
126, 174–176, 222, 229, 231
Strategy 9, 14, 33, 42, 43, 46–48,
51, 61, 68, 69, 82, 87, 88, 155,
159, 160, 216, 230–232
Student+ 3, 25, 29
Supervisory Board 5, 7, 9–15,
54, 61–68, 72, 81, 117, 118, 144,
145, 156, 188, 189, 213–216, 243
T
R
Rating cover flap, 2–4, 23, 24,
48, 49, 121, 122, 192, 193
Realitní společnost České spořitelny 174–176, 222, 229, 237
Reserves and provisions 87, 112,
159, 184
Retail Loans 3, 21, 52, 94, 165,
223
Retirement benefit scheme 4, 233
Risks 19, 44, 48–53, 68, 76, 82,
Tax 13, 15, 17, 19, 70 74, 76,
78, 83, 85–89, 104, 107, 111, 112,
114, 119, 120, 140, 141, 146, 148,
150, 152, 158, 159–161, 183–185,
190, 191, 209, 210, 216, 239, 242
The Golden Crown 3, 25, 27,
28, 30, 33
TOP Programs 33
Total assets cover flap, 20, 23, 47,
75, 131, 132, 142, 143, 145, 149,
209–212, 214, 215, 231–239, 242
Česká spořitelna, a. s.
Olbrachtova 1929/62, 140 00 Praha 4
IČ: 45244782
Telephon: 261 071 111
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 2004
Production: Omega Design, s. r. o.
Material for the Public
www.csas.cz
Annual Report 2005
ČESKÁ SPOŘITELNA

ČESKÁ SPOŘITELNA

Transcription

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