Annual Report

Transcription

Annual Report

C R N O G O R S K A
K O M E R C I J A L N A
B A N K A
Annual Report
CRNOGORSKA KOMERCIJALNA BANKA
C R N O G O R S K A
B A N K A
Table of Contents
04
Financial Indicators
Income Statement
Balance Sheet
07
Statement of the General Director
08
CKB Shareholders
09
CKB Management
11
CKB Organization
13
Montenegro, Small but World Market
17
CKB, Bank for All Times
18
CKB Brand
20
Information Technologies
- Safe Future for CKB
21
Human Resources,
the Greatest Strength of CKB
22
CKB Network
25
Independent Auditors’ Report
Income Statement
Year ended 31 December
Note
2004
Interest and similar income
1
14.187
8.338
Interest expense and similar charges
1
(7.574)
(4.385)
6.613
3.953
Net interest income
Fee and commission income
2
11.230
10.635
Fee and commission expense
2
(2.618)
(4.108)
8.612
6.527
(269)
(115)
23
-
-
204
Net fee and commission income
Net trading income
3
Gains less losses from investment securities
Other operating income
Operating expenses
4
(11.145)
(7.429)
Impairment losses on loans and advances
5
(530)
(1.250)
(11.921)
(8.590)
3.304
1.890
(279)
67
3.025
1.957
Profit before tax
Income tax (expense)/credit
Profit for the year
2005
6
Balance Sheet
As at 31 December
Note
2005
2004
ASSETS
Cash and balances with the Central Bank
7
43.672
14.030
Treasury bills
8
3.831
8.799
Loans and advances to banks
9
76.435
27.606
Loans and advances to customers
10
161.217
86.045
Available for sale securities
11
174
153
Financial asset at fair value through profit and loss
12
211
183
Property, plant and equipment
13
10.264
6.620
Intangible assets
14
3.700
2.194
Other assets
15
3.843
1.740
303.347
147.370
Total assets
LIABILITIES
Deposits from banks
16
13.202
16.543
Due to customers
17
248.124
102.730
Other borrowed funds
18
21.475
13.120
279
69
Current income tax liabilities
Deferred income tax liabilities
19
159
159
Provisions
23
273
168
Other liabilities
20
517
813
284.029
133.602
Total liabilities
SHAREHOLDERS’ EQUITY
Share capital
21
15.347
11.176
Other reserves
22
946
921
3.025
1.671
19.318
13.768
Retained earnings
Total shareholders’ equity
Statement of the General Director
My dear colleagues and clients,
Dear shareholders,
Crnogorska Komercijalna Banka had one more successful year. Today, CKB is a
banking name of Montenegro and one of the institutions that reflects, in the best
way, the success of the country and its economy. Europe, to a great extent already integrated, got one more market on its economic map which is interesting
and which is attracting foreign capital very much. Recognized economic chances
of Montenegro - tourism, agriculture, transport, strong and stable banking sector, are real road signs for powerful domestic and foreign investors who saw possibilities for the increase of their own capital in Montenegrin resources.
2005 is already behind us. It was full of experiences, always new and never sufficient for our team. One successful year during which we worked hard, during
which we created and acquired new space on the banking market of Montenegro.
All indicators are convincingly better than those in 2004. Balance sum is two
times higher and at the end of 2005 it amounted to EUR 303 million. Achieved
profit amounted to EUR 3,3 million, which is by 55% more than in the previous
year. Our efforts to continue to build very profitable CKB, consolidate huge
growth which has been there for a decade, ever since we established the bank,
cross the borders and limits of Montenegrin market are obvious. We are already
prepared to offer something that only we in CKB know – original banking product, in Montenegrin package and economically colored and ready to be placed
and tried on any other market in Europe and the world.
This was a golden decade of one bank and its team, filled with work, enthusiasm
and great results. One successful economic story, for some only professional
story. For us that are here from the very beginning, this was life, professional and
creative story.
It is my pleasure to tell you something which is very important for all of us
– CKB will have a new strategic partner in 2006 which, I am sure, will be ready
to invest further in Montenegrin economy and build CKB exactly in the way we
have done so far.
Thank you for taking part in changing and developing Crnogorska Komercijalna
Banka all these years together with us.
Milka Ljumovic, General Director
Podgorica, May 2006
CKB Crnogorska komercijalna banka CKB
CKB CKB CKB CKB CKB CKB CKB CKB
Oleg Obradovic
Telekom CG
President of the Management Board
C R N O G O R S K A
name
Martin Mainz
DEG
Member of the Management Board
B A N K A
%
FMO, The Netherlands
22,05
DEG, Germany
21,71
Vektra, Podgorica
15,83
Telekom Crne Gore, Podgorica
11,48
Monte Nova
Other domestic shareholders
9,26
19,67
Karlo De Waal
FMO
Member of the Management Board
* Mrs.Milka Ljumovic, General Director of CKB
and Mrs. Bose Tatar, Deputy General Director of CKB
are also members of the Management Board of Crnogorska
Komercijalna Banka
CKB Shareholders
CKB Management
Crnogorska komercijalna banka Crnogorska komercijalna banka Crnogorska komercijalna banka Crnogorska komercijalna banka Crnogorska
Bose Tatar
Milka Ljumovic
Deputy General Director
General Director
Aleksandra Popovic
Assistant General Director
Milka Ljumovic
General Director
tel. +381 (0) 81 404 256
fax. +381 (0) 81 235 757
ckb@cg.yu
Jelica Petricevic
Bose Tatar
Deputy General Director
tel. +381 (0) 81 404 256
fax. +381 (0) 81 235 757
ckb@cg.yu
Aleksandra Popovic
tel. +381 (0) 81 404 364
fax. +381 (0) 81 235 252
aleksandra.popovic@ckb.cg.yu
Jelica Petricevic
tel. +381 (0) 81 404 364
fax. +381 (0) 81 235 252
jelica.petricevic@ckb.cg.yu
10
Crnogorska komercijalna banka
CKB CKB CKB CKB CKB CKB CKB
Organization Structure
ASSEMBLY
Internal Audit
MANAGEMENT
BOARD
ALCO
Credit Committee
Supervisory
Committee
Credit Risk
Management Committee
GENERAL
DIRECTOR
Deputy General
Director
Customer Relations
Division
Product Distribution
Division
Assistants General
Director
Treasury Division
Support Division
Control Division
11
Crnogorska komercijalna banka Crnogorska komercijalna banka
C R N O G O R S K A
B A N K A
12
Montenegro, Small but World Market
Economically strong Montenegro is not a threat, it is small, but world market and
good partner to the investors, who guarantees free and safe investment – this was
the message of CKB’s team at the Euromoney Regional Finance and Investment
Conference in Dubrovnik, in October last year.
Montenegro, after almost one century, is back on the political map of Europe
and the world. The newest world state has never stopped being economically attractive. Europe is the leading world ,,producer’’ of states, but ,,more’’ does not
have to mean ,,worse’’, writes British Guardian immediately after Montenegrin
referendum on May 21st, 2006. The youngest state of the united Europe, but
the one with the longest history on the Balkans, in its economic policy for 2006,
committed itself to provide for the increase of living standard of its citizens together with adequate education, health and social system. The economic growth
should be based on private sector along with the decrease of regional disproportions and protection of the environment. Laws and processes should be adjusted to the European Union and World Trade Organization. Macro-economic
stability should be maintained and public spending decreased.
2005 was successful year for both, Montenegro and its citizens and institutions.
Major trends that marked this year were growth of economic activities, decrease of
inflation rate below 2%, but also a very dynamic growth of the financial market.
Inflation
GENERAL INDEX OF RETAIL PRICES
Year
Index Dec. 2005
/ Dec. 2004
Inflation Rate (%)
2001
128
28
2002
109.4
9.4
2003
106.7
6.7
2004
104.3
4.3
2005
101.8
1.8
Source: Republican Statistical Bureau
Actual inflation rate is lower than in the European Union. It is expected that in
2006, this indicator will be somewhat higher, however it will not exceed 3%.
Regarding the accession to the EU, 2005 was very important. Council of Ministers of the EU adopted positive Feasibility Study and in October the negotiations on the conclusion of the Stabilization and Association Agreement started.
Montenegro has already fulfilled almost all Mastrich criteria and it prepares itself
for the continuation of the negotiations in 2006.
The movements on the financial market during 2005 were very dynamic. The
amount of approved loans increased by 34%, deposits increased by 78%, citizens’ savings by 118% and banks’ assets increased by 55,8%. The process of
privatization of banks entered its final phase. Banking market is additionally
strengthened by several international banking partners - Societe General, NLB,
Hypo Alpe Adria. Interest rates are decreasing. It is expected that both nominal
and effective interest rates will continue to decrease in 2006 as well.
13
The economic growth in Montenegro, despite the decrease of industrial production in 2005, was sustained by the increase of real GDP of 4.1%. Significant
negative growth rates were realized in those economic branches where companies faced with old fashioned technologies, illiquidity, and surplus manpower
are dominant. Privatization and restructuring processes resulted in great number
of successfully privatized companies, hotels etc. which continue to fight on the
market, but not only on local ones - they create space for themselves out of
Montenegro as well.
Direct foreign investments reached the figure of EUR 382 million in 2005. This
fact shows that Montenegro, according to the level of direct foreign investment
per capita is on the third place in Europe, in the category of economies in transition, immediately after Checz Republic and Estonia. Nevertheless, the resource
that Montenegro still lacks is money to be used for investment regeneration.
Powerful foreign investors who are treated as domestic ones according to the
Montenegrin laws, announced their coming during 2006 and 2007, because of
which the modernization of Montenegro will for sure be efficient. That is the
process that has started but that will last for some time.
2005 was marked by extremely dynamic capital market. Turnover on stock exchanges tripled, and stock exchange indices recorded extremely high growth
rates. By adoption of the new Law on Securities, conditions are created for further development of the financial market, and especially capital market. Capital
market is expanding, number of different types of securities with which it is possible to trade is growing, Securities Commission and CDA have more reporting
obligations towards market participants, relevant legal regulations become more
transparent, etc.
Total external public debt of Montenegro at the end of 2005 amounted to EUR
513 million. According to this, Montenegro belongs to the group of countries
with low to moderate indebtedness.
Tourism is a branch that was developing most dynamically during 2005. Total
number of tourists increased by 16,6% compared to 2004 and number of foreign
tourists increased by 44,6%. The activities on the improvement of infrastructure,
accommodation facilities, extending the season duration, entering of renowned
hotel chains, are very intensive.
It is more than obvious that Montenegro is taking big steps forward and that in
the next few years it will actively work on finding its own place at the economic
scene of Europe, place for its tourist offer and creating of «Montenegro» brand.
The World’s Tourism and Traveling Council proclaimed Montenegro the fastest
growing tourist industry in the world with average growth rate of 9,9% for the
period 2006-2015. «One of the last secrets of Europe» is on the way to become
famous European tourist destination whose facilities along the coast have already
been included in the offers of international agencies. Montenegro is becoming recognizable port for yachts as well. Thus, this relatively small area on the
southeast of Europe becomes an important bridge for new businesses and new
challenges.
14
15
Crnogorska komercijalna banka Bank for All Times
Bank for All Times
Bank for All Times
C R N O G O R S K A
Bank for All Times
Bank for All Times
Bank for All Times
Bank for All Times
Bank for All Times
Bank for All Times
Bank for All Times
Bank for All Times
16
B A N K A
CKB, Bank for All Times
Not so long ago, less than one decade ago, a courageous team of people began, for
that time, a real banking adventure. 1997 will be also remembered as the year when
CKB, the first privately-owned bank in Montenegro, was founded. That was the year
when the Government of Montenegro and other institutions started to reform the
society and economy more energetically. Today, almost ten years later, CKB is a
proof that a different and economically much stronger Montenegro has grown. All
these years, CKB and its team followed all rises and oscillations of local economy
and gave significant contribution to the reforms that changed the country to a great
extent and brought it back to the more developed world – liberalized market and
open borders, to the world to which Montenegro belonged almost 20 years ago.
2005 is an obvious financial step forward compared to 2004. All important indicators recorded significant growth. Both balance sum and loan portfolio are two times
higher than in 2004. Balance sum of CKB amounted to EUR 303,3 million, and total
loan portfolio amounted to EUR 163 million. Total capital of the bank at the end
of 2005 amounted to EUR 19,32 million (40,3% more than in 2004), but this capital
is still very low if we take into consideration the fact that it represents the coverage
for bank’s credit and guarantee potential and it is not adequate for such big and complex volume of CKB’s transactions. With respect to attracting funds from foreign
sources, this capital also limits possible bigger long-term borrowings. Total profit
after tax in 2005 is higher by 54,5% compared to 2004 and it amounted to EUR
3,025 million. The amount of deposits at the end of 2005 of EUR 261 million is 2,2
times higher than in 2004. In the structure of income, fee income is prevailing and
it amounted to EUR 8,62 million, while interest income amounted to EUR 6,62 million. In the structure of expenses, operating expenses increased by 50% compared to
the previous year and their amount was EUR 11,1 million. Significant investments in
completing the branch network, implementation of new information technologies,
new employments, were major reasons for this increase.
In its Business Plan for the next 5 years, CKB planned to reduce the expenses gradually but significantly, and bring them to the acceptable economic level.
More than 30 business locations, presence at 130 postal units, around 1000 POS terminals and 40 ATMs, more than 140 000 clients and 180 000 of their accounts, 288
employees are the most important segments of CKB’s system at the end of 2005.
All these years, renowned shareholders, domestic and foreign, together with CKB’s
Management were significantly contributing to, assisting and creating different business ethics in CKB suited to the standards and best world’s banking practice. In that
way, CKB was growing into very serious financial institution, which complied not
only with the banking standards valid in Montenegro, but also with international ones
that were accepted in more developed banking systems. That was not an easy road
for CKB’s team, however 2005/2006 show that CKB was only becoming stronger
and more prepared for new challenges. It would not be immodest if we say that the
role of the Management was of crucial importance for bank’s development.
Bank’s vision has always been the vision of its team and its clients. CKB is the bank
that was also built and created for future generations of Montenegrin youth that
will live in European Montenegro and in some different economic standards. That
energy and link between the youth and their vision and more experienced staff who
have business wisdom and strategy must not be interrupted. And there is no process
or a new Management that could develop CKB if that energy and those bridges do
not exist in the future.
17
CKB Brand
Crnogorska Komercijalna Banka, “Your bank and your friend” and “We know
one another well” - are paradigms of the vision and strategy based on which
CKB has been developing as universal commercial bank. Different types of
loans, cards, savings products, CKB leasing, e-banking, the widest network of
POS terminals and ATMs in Montenegro, new and safe technologies, are the
most important but not the only parts of what is called CKB today in Montenegro. The bank and its team attracted Montenegrin citizens and companies making their lives more comfortable. Trust, safety, efficiency are synonyms for CKB
which is present in every Montenegrin house and in every Montenegrin family.
The bank is always step ahead because it recognizes and understands the requests of its market and offers only high-quality products by implementing new
technologies, new services, applying international standards in its work, always
connecting people and projects.
Having in mind banking experiences from all over the world, CKB creates its
own, recognizable business model. CKB team knows its competitors well, it does
not copy them, but it cooperates with them, always developing only its own
corporate identity. Doing so, CKB made partnerships with great number of respectable business people and made friends because, no doubt, CKB marked one
decade of economic life of Montenegro and became brand in it.
All these elements together influenced the creation of the bank’s marketing
strategy. There are two tracks of marketing activities - the first is focusing on
communication with clients, partners and public relations and the second one is
internal marketing and PR in all organizational units, and those are the factors
influencing bank’s position and profit.
The strength of CKB lies in its multi-media character. This rational project sublimated a lot of knowledge and gathered and connected different people and different professions. Apart from economists and lawyers, CKB today is a space for
linguists, professors of literature, political analysts, engineers, art historians, etc.
CKB is also a place where Montenegrin composers, movie directors, designers,
artists and others meet because they are all involved in creation and structuring
of marketing campaigns and visual identity of CKB. That synergy and interweaving of different creations and knowledge in CKB team, established new business
value and new banking concept.
CKB is a promoter and author of numerous initiatives in Montenegrin economy, but also a partner in the realization of a number of representative projects
in Montenegrin culture and sport. 2005 was marked by several important engagements of CKB, for example in culture – bookstore „Karver“ is already an
important place on the map of Montenegro and wider, presentation of young
Montenegrin artists at the Biennale in Venice, one of the most important exhibitions of contemporary world fine art, other representative exhibitions, important
scientific studies, journalism, belletristic literature, affirmation of Montenegrin
theatre etc. All projects of Montenegrin culture and sport where CKB was the
partner represent new connections and new markets for the bank. And new income in the future.
18
19
Information Technologies
- Safe Future for CKB
C R N O G O R S K A
B A N K A
In technological sense, CKB is the most advanced Montenegrin bank. During previous years, we had a clear vision where we wanted to go and in which way to achieve
that. We managed to ensure constant growth of CKB and in that process, by proper
selection of technologies, we made them our support and not our burden. Leaning
on global companies and local expert support of CKB team enabled CKB to realize
its policy „business on demand” and rationalize its expenses „pay as you grow”. It is
enough to mention that CKB’s partners are world famous agencies: IBM,HP, Thales, Wincor-Nixdorf, Hypercome, Ingenico, Veriphone, Cisco Systems,Oracle, ACI
Worldwide,Tieto-Enator, Sterling-Commerce, MasterCard, Visa etc.
Our infrastructure now provides for fast establishment of new products and its
simplicity and stability will enable the growth of linear performances of CKB’s system and introduction of new technologies in the future. The projects that include
certification for CHIP Acquiring for VISA international, introduction of Info service through Mobile operators, functioning of GPRS POS network through GSM
providers and realization of many other projects are about to be completed. Acquiring and issuing of Chip cards, MasterCard and VISA, acquiring of POS cards
at CKB’s terminals, providing services of in –house Processing centre to other
financial institutions, development of l „value added” services (payment of bills,
payments abroad, purchasing of vouchers etc.), through different distribution channels (e-banking, POS ATM) started.
Today, CKB’s IT system represents safe, secure and efficient solution which integrates the overall offer of the bank and allows the users to have complete control
over their business and funds management at any time and any location in the world.
Domestic know-how and the best world infrastructure enable CKB to connect projects and people and build different bridges in business.
20
Human Resources,
the Greatest Strength of CKB
CKB’s Management understands the requirements of modern business and on that
basis it develops and plans its own team. Development of human resources is one
of the primary tasks of CKB . The establishment of Human Resources Department
and its inclusion in the existing organizational scheme of the bank created a bridge
and positive mixture of interests of the employees and interests of the institution.
The concept and procedures of this department encourage active participation of
all employees in the creation of overall corporate culture and positive working atmosphere.
The Management is aware that personnel is no longer expected to have only narrow,
expert knowledge, but also creativity, high motivation and adequate conduct. That
is why Crnogorska Komercijalna Banka is characterized by democratic management
model and special care for employees. The goal of the Management is to build a team
of business people who are skilled, responsible and ready to meet clients’ needs.
Today, CKB team is a group of skilled, efficient, highly motivated and satisfied
individuals. Special attention was paid to the staff training because employees and
synergy among them are the greatest strength and the greatest competitive advantage of CKB at the banking market of Montenegro. As of 31/12/ CKB had 288
employees.
New challenges and plans of CKB, the leading bank on the Montenegrin banking
market, have not diminished the importance of already acquired banking knowledge,
technologies and established business relations. They are only the stimulus for going
on and bringing CKB team closer to its goal – “the entire world in CKB and CKB
all around the world’’. This team has to and should provide new, right solutions for
new time.
Business is the beginning and the end of our story. And beginning, again. There is no
such thing as small or big business. The only division that we recognize in business is
the division on those who are capable and those who are not, on those who can see
farther and more and those who are not ready to change neither themselves, nor the
society, nor their economies.
21
CKB Network
C R N O G O R S K A
22
B A N K A
ORGANIZATION UNITS OF CKB
address / contacts / phone
city
address
phone
Podgorica (Head Office)
Moskovska bb
081 / 404-232
Podgorica (counter Center) (x2)
Novaka Miloševa 6
081 / 210-425
Podgorica (counter Trg Vektre)
Rimski trg
081 / 235-454
Podgorica (counter University of Montenegro)
Džordža Vašingtona bb
081 / 206-110
Podgorica (counter Airport Golubovci)
Golubovci bb
081 / 621-640
Podgorica (counter KAP)
Dajbabe bb
081 / 644-263
Podgorica (counter Bus Station)
Mitra Bakića bb
081 / 625-840
Podgorica (Planeta Telekom)
Bul. Sv. Petra Cetinjskog 2
081 / 202-645
Bar
Maršala Tita 5
085 / 317-275
Berane
21. jula bb
087 / 231-700
Bijela
Bijela bb
088 / 671-072
Bijelo Polje
Živka Žižića 14
084 / 432-774
Bijelo Polje
Pošta Crne Gore
084 / 431-902
Budva
Mediteranska 7
086 / 451-075
Cetinje
V Proleterske 1
086 / 230-245
Danilovgrad
Baja Sekulića 22
081 / 812-028
Herceg Novi
Trg Nikole Đurkovića 11
088 / 322-666
Igalo
Šetalište Pet Danica 1
088 / 322-656
Kolašin
Trg boraca S6
081 / 865-622
Kotor
Trg od oružja
082 / 304-008
Mojkovac
Mališe Damjanovića bb
084 / 470-172
Nikšić
Njegoševa 23
083 / 212-872
Nikšić
Željezara Nikšić
083 / 201-064
Plav
Plav bb
087 / 255-095
Pljevlja
Velimira Jakića 2
089 / 300-060
Rožaje
Maršala Tita bb
087 / 274-548
Tivat
Palih boraca bb
082 / 675-319
Tivat
Aerodrom Tivat
082 / 675-261
Tuzi
Pošta Crne Gore
081 / 603-930
Ulcinj
Majke Tereze bb
085 / 413-187
Žabljak (in the pocess of opening)
Golubovci (in the pocess of opening)
23
C R N O G O R S K A
B A N K A
Sources:
Government Bureau for Public Relations
Macroeconomic Environment in Montenegro
(CBM Chief Economist’ Report)
PWC report
CKB press clipping
Preparation and translation: CKB team
Design: Ana Matic
Photo: Dusko Miljanic, Josif Ljumovic
Print: DPC Podgorica
24
Financial statements as of and for the year ended 31 December 2005 and Independent auditors’ report
Financial statements
as of and for the year ended
31 December 2005 and
Independent auditors’ report
CRNOGORSKA KOMERCIJALNA BANKA A.D. PODGORICA
Financial statements as of and for the year ended 31 December 2005
Contents
pages
Independent Auditors’ Report ________________________________________________ 1
Income statement __________________________________________________________ 2
Balance sheet _____________________________________________________________ 3
Statement of changes in shareholders’ equity ______________________________________ 4
Cash flow statement ________________________________________________________ 5
Accounting policies _____________________________________________________ 6-16
Financial risk management ________________________________________________ 17-24
Critical accounting estimates, and judgements in applying accounting policies ___________ 25
Notes to the Financial Statements
01 Net interest and similar income ____________________________________________ 26
02 Net fee and commission income ___________________________________________ 26
03 Net trading income _____________________________________________________ 26
04 Operating expenses _____________________________________________________ 27
05 Impairment losses on loans and advances ____________________________________ 27
06 Income tax expense ____________________________________________________ 27
07 Cash and balances with the Central Bank ____________________________________ 28
08 Treasury bills __________________________________________________________ 29
09 Loans and advances to banks ______________________________________________ 29
10 Loans and advances to customers __________________________________________ 30
11 Available for sale securities ________________________________________________ 31
12 Financial asset at fair value through profit and loss ______________________________ 31
13 Property, plant and equipment ____________________________________________ 32
14 Intangible assets _______________________________________________________ 33
15 Other assets ___________________________________________________________ 33
16 Deposits from banks ____________________________________________________ 34
17 Due to customers ______________________________________________________ 34
18 Other borrowed funds __________________________________________________ 35
19 Deferred income tax liabilities ____________________________________________ 36
20 Other liabilities ________________________________________________________ 37
21 Share capital __________________________________________________________ 37
22 Other reserves _________________________________________________________ 38
23 Contingent liabilities and commitments _____________________________________ 38
24 Cash and cash equivalents ________________________________________________ 38
25 Related party transactions ________________________________________________ 39
26 Post balance sheet events ________________________________________________ 40
(All amounts are in EUR thousands unless otherwise stated)
Income statement
Note
2004
1
14.187
8.338
1
(7.574)
(4.385)
6.613
3.953
Net interest income
Fee and commission income
2
11.230
10.635
Fee and commission expense
2
(2.618)
(4.108)
8.612
6.527
(269)
(115)
23
-
-
204
Net fee and commission income
Net trading income
3
Gains less losses from investment securities
Other operating income
Operating expenses
4
(11.145)
(7.429)
5
(530)
(1.250)
(11.921)
(8.590)
3.304
1.890
(279)
67
3.025
1.957
Profit before tax
Income tax (expense)/credit
Profit for the year
2005
6
* The notes on pages 6 to 40 are an integral part of these financial statements
Balance sheet
As at 31 December
Note
2005
2004
ASSETS
7
43.672
14.030
Treasury bills
8
3.831
8.799
9
76.435
27.606
10
161.217
86.045
11
174
153
Financial asset at fair value through profit and loss
12
211
183
13
10.264
6.620
Intangible assets
14
3.700
2.194
Other assets
15
3.843
1.740
303.347
147.370
Total assets
LIABILITIES
Deposits from banks
16
13.202
16.543
Due to customers
17
248.124
102.730
18
21.475
13.120
279
69
19
159
159
Provisions
23
273
168
Other liabilities
20
517
813
284.029
133.602
Total liabilities
SHAREHOLDERS’ EQUITY
Share capital
21
15.347
11.176
Other reserves
22
946
921
3.025
1.671
19.318
13.768
Retained earnings
Total shareholders’ equity
Financial statements on pages 2 to 40 were signed by:
Milka Ljumovic
General Director
Statement of changes in shareholders’ equity
Note
Previously reported balance at 1 January 2004
Other reserves
Retained
earnings
Total
9.991
921
1.673
12.585
-
-
(505)
(505)
9.991
921
1.168
12.080
Net profit
-
-
1.957
1.957
Total recognized income for 2004
-
-
1.957
1.957
Dividend payment
-
-
(269)
(269)
1.185
-
(1.185)
-
11.176
921
1.671
13.768
Change in available-for-sale investments
(Note 11)
-
25
-
25
Net gains not recognized in the income statement
-
25
-
25
Net profit
-
-
3.025
3.025
Total recognized income for 2005
-
25
3.025
3.050
Adjustment for deferred income tax
(Note 19)
Adjusted balance at 1 January 2004
Bonus issue 2003
At 31 December/1 January 2005
Bonus issue 2004
21
1.671
-
(1.671)
-
New issuance of shares
21
2.500
-
-
2.500
15.347
946
3.025
19.318
Balance at 31 December 2005
Share capital
Cash flow statement
Note
2005
2004
Interest received
12.698
7.761
Interest paid
(7.188)
(4.267)
8.198
11.267
(3.198)
(4.108)
-
176
(8.872)
(6.879)
Income taxes paid
(279)
(163)
Cash flows from operating profit before changes
in operating assets and liabilities
1.359
3.787
Net increase in obligatory reserve
(15.114)
(1.362)
Net increase in loans and advances to customers
(71.793)
(36.994)
Net increase in other assets
(2.103)
(96)
Net (decrease)/increase in deposits from banks
(3.341)
14.589
145.394
32.892
(86)
1.191
54.316
14.007
Purchase of property, plant and equipment
(4.302)
(1.891)
Purchase of intangible assets
(2.211)
(1.261)
Disposal/(purchase) of treasury bills
4.968
(5.249)
Net cash used in investing activities
(1.545)
(8.401)
Increase in other borrowed funds
8.355
3.769
Issue of ordinary shares
2.500
-
10.855
3.769
(269)
(115)
63.357
9.260
Cash flows from operating activities
Fee and commission received
Fee and commission paid
Other income
Cash payments to employees and suppliers
Changes in operating assets and liabilities
Net increase in due to customers
Net (decrease)/increase in other liabilities
Net cash from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net cash from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
24
33.864
24.604
Cash and cash equivalents at end of year
24
97.221
33.864
Accounting policies for the year ended 31 December 2005
Index to accounting policies
Page(s)
A.
General information
7
B.
Basis of preparation
7
C.
Functional and presentation currency
9
D.
Interest income and expenses10
E.
Fee and commission income10
F.
Financial assets10
G.
Offsetting financial instruments
H.
Intangible assets14
I.
Property, plant and equipment14
J.
Investments in associates
15
K.
Cash and cash equivalents
15
L.
Provisions
15
M.
Taxes
15
N.
Borrowings
15
O.
Share capital16
P.
Fiduciary activities
16
Q.
Comparatives
16
14
A. General information
Crnogorska Komercijalna Banka A.D., Podgorica (the “Bank”) was established as an independent bank and registered with the Commercial Court in Podgorica on 15 January 1997.
The majority of the Bank’s shares are owned by four main shareholders: Deutsche Investitions und Entwicklungs GmbH (“DEG”), Köln, Germany; Nederlandse Financierings Maatschappij voor Ontwikkelingsladen N.V.
(“FMO”), Hague, Netherlands; Vektra, Podgorica, and Telekom Crne Gore, Podgorica, with holdings of 22.05%,
21.71%, 15.83% and 11.47% of the Bank’s shares, respectively.
The Bank is licensed in the Republic of Montenegro to perform payment transfers, credit and deposit activities
in the country and abroad, and in accordance with the Republic of Montenegro law, is to operate on principles
of liquidity, security of placements and profitability.
On 31 December 2005, the Bank was comprised of its Head Office in Podgorica and twenty branches located in
different parts of the country.
These financial statements have been approved for issue by the Managing Board on 30 March 2006.
The principal accounting policies applied in the preparation of these financial statements are set out below. These
policies have been consistently applied to all the years presented, unless otherwise stated.
B. Basis of presentation
Crnogorska Komercijalna Banka A.D. (“the Bank”) prepared financial statements in accordance with International Financial Reporting Standards (IFRS). These financial statements have been prepared under the historical
cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and financial
liabilities held at fair value through profit or loss.
The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management’s best knowledge of current events and actions, actual results
may ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the financial statements are disclosed in the note.
Adoption of new and revised standards
In 2005 the Bank adopted the following IFRSs, which are relevant to its operations. The 2004 accounts have been
amended as required, in accordance with the relevant requirements.
B.
Basis of presentation (continued)
- IAS 1 (revised 2003) Presentation of Financial Statements
- IAS 8 (revised 2003) Accounting Policies, Changes in Accounting Estimates And Errors
- IAS 10 (revised 2003) Events after the Balance Sheet date
- IAS 16 (revised 2003) Property, Plant and Equipment
- IAS 17 (revised 2003) Leases
- IAS 21 (revised 2003) The effects of Changes in Foreign Exchange rate
- IAS 24 (revised 2003) Related Party Disclosures
- IAS 32 (revised 2003) Financial Instruments: Disclosure and Presentation
- IAS 39 (revised 2003) Financial Instruments: Recognition and measurement
- IAS 36 (revised 2004) Impairment of Assets
- IAS 38 (revised 2004) Intangible assets
The adoption of the revised IAS 1, 8, 10, 16, 17, 21, 24, 32 and 39 (all revised 2003) and IAS 36 and 38 (all revised
2004) resulted in certain additional disclosures, but did not result in material changes to the Bank’s accounting
policies and accounting treatment of transactions.
Standards, interpretations and amendments to published standards that are not yet effective
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Bank’s accounting periods beginning on or after 1 January 2006 or later periods but which the bank
has not early adopted.
IFRS 7, Financial Instruments: Disclosures, and a complementary Amendment to IAS 1, Presentation
of Financial Statements – Capital Disclosures (effective from 1 January 2007).
IFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments,
including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity
analysis to market risk. It replaces IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial
Institutions, and disclosure requirements in IAS 32, Financial Instruments: Disclosure and presentation. It is applicable to all entities that report under IFRS. The amendment to IAS 1 introduces disclosures about the level of
any entity’s capital and how it manages capital. The Bank will apply IFRS 7 and the amendment to IAS 1 from
annual periods beginning 1 January 2007.
IFRS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts (effective from 1 January 2006).
This amendment requires issued financial guarantees, other than those previously asserted by the entity to be
insurance contracts, to be initially recognized at their fair value, and subsequently measured at the higher of (a)
the unamortized balance of the related fees received and deferred, and (b) the expenditure required to settle the
commitment at the balance sheet date.
B.
Basis of presentation (continued)
Following, interpretations and amendments to published standards that are not yet effective are not expected to
have significant impact on the Bank:
-
IFRIC 4, Determining whether an Arrangement contains a Lease (effective from 1 January 2006).
-
IAS 39 (Amendment) – The Fair Value Option (effective from 1 January 2006).
-
IAS 39 (Amendment) – Financial Guarantee Contracts (effective from 1 January 2006).
-
IFRS 7 Financial Instruments: Disclosures and a complementary Amendment to IAS 1 Presentation of Financial Statements - Capital Disclosures (effective from 1 January 2007).
-
IAS 19 (Amendment) - Employee Benefits (effective from 1 January 2006);
-
IAS 21 (Amendment) - Net Investment in a Foreign Operation (effective from 1 January 2006);
-
IFRS 6, Exploration for and Evaluation of Mineral Resources (effective from 1 January 2006);
-
IFRS 1 (Amendment) - First-time Adoption of International Financial Reporting Standards and IFRS 6
(Amendment) - Exploration for and Evaluation of Mineral Resources (effective from 1 January 2006);
-
IIFRIC 5, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds (effective from 1 January 2006);
-
IFRIC 6, Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment (effective for periods beginning on or after 1 December 2005, that is from 1 January 2006).
-
IFRIC 7, Applying the Restatement Approach under IAS 29 (effective for periods beginning on or
after 1 March 2006, that is from 1 January 2007).
-
IFRIC 8, Scope of IFRS 2 (effective for periods beginning on or after 1 May 2006, that is from 1 January 2007).
-
IFRIC 9, IFRIC 9 Reassessment of Embedded Derivatives (effective for 1 June 2006)
C. Functional and presentation currency
(a)
Functional and presentation currency
Items included in the financial statements the Bank are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The financial statements are presented in
euros, which is the Bank’s functional and presentation currency.
(b)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
D. Interest income and expense
Interest income and expense are recognised in the income statement for all instruments measured at amortised
cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the
financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or
financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit
losses. The calculation includes all fees and points paid or received between parties to the contract that are an
integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment
loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose
of measuring the impairment loss.
E. Fee and commission income
Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan
commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and
recognised as an adjustment to the effective interest rate on the loan. Other service fees are recognised based on
the applicable service contracts, usually on a time-apportionate basis.
F. Financial assets
The Bank classifies its financial assets in the following categories: loans and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the classification of its investments at
initial recognition.
(a)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. They arise when the Bank provides money, goods or services directly to a debtor with no
intention of trading the receivable.
(b)
Held-to-maturity
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed
maturities that the Bank’s management has the positive intention and ability to hold to maturity. Were the Bank to
sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available for sale. Held-to-maturity investments relates to Treasury bills of the Republic of Montenegro
(Note 8).
10
F.
Financial assets (continued)
(c)
Available-for-sale
Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold
in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.
Purchases and sales of financial assets, held to maturity and available for sale are recognised on trade-date – the
date on which the Bank commits to purchase or sell the asset. Loans are recognised when cash is advanced to
the borrowers. Financial assets are initially recognised at fair value plus transaction costs for all financial assets
not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash
flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards
of ownership.
Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains and losses arising from
changes in the fair value of available-for-sale financial assets are recognised directly in equity, until the financial
asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity should
be recognised in profit or loss. However, interest calculated using the effective interest method is recognised in
the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement
when the entity’s right to receive payment is established.
The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Bank establishes fair value by using valuation techniques.
These include the use of recent arm’s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants.
(d)
Impairment of financial assets
(i)
Assets carried at amortised cost
The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group
of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses
are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on
the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the
attention of the Bank about the following loss events:
1
significant financial difficulty of the issuer or obligor;
2
a breach of contract, such as a default or delinquency in interest or principal payments;.
11
F. Financial assets (continued)
3
the Bank granting to the borrower, for economic or legal reasons relating to the borrower’s financial
difficulty, a concession that the lender would not otherwise consider;
4
it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
5
the disappearance of an active market for that financial asset because of financial difficulties; or
6
observable data indicating that there is a measurable decrease in the estimated future cash flows from a Bank of financial assets since the initial recognition of those assets, although the decrease cannot yet
be identified with the individual financial assets in the group, including:
- adverse changes in the payment status of borrowers in the group; or
- national or local economic conditions that correlate with defaults on the assets in the Bank.
The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are
individually significant, and individually or collectively for financial assets that are not individually significant. If
the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics
and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which
an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been
incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at
the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of
an allowance account and the amount of the loss is recognised in the income statement. If a loan has a variable
interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined
under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s
fair value using an observable market price.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects
the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not
foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar
credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of
such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms
of the assets being evaluated.
12
F.
Financial assets (continued)
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the
basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit
risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss
experience is based and to remove the effects of conditions in the historical period that do not exist currently.
Estimates of changes in future cash flows for group of assets should reflect and be directionally consistent with
changes in related observable data from period to period. The methodology and assumptions used for estimating
future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual
loss experience.
When a loan is uncollectable, it is written off against the related provision for loan impairment. Such loans are
written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan
impairment in the income statement. If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is
recognised in the income statement.
Statutory and other regulatory loan loss reserve requirements that exceed these amounts are dealt with in the
general banking reserve as an appropriation of retained earnings.
(ii)
Assets carried at fair value
The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group
of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or
prolonged decline in the fair value of the security below its cost is considered in determining whether the assets
are impaired. If any such evidence exists for available - for - sale financial assets, the cumulative loss – measured
as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial
asset previously recognised in profit or loss – is removed from equity and recognised in the income statement.
Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised
in profit or loss, the impairment loss is reversed through the income statement.
13
G. Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the
asset and settle the liability simultaneously.
H. Intangible assets
Computer software development costs
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use
the specific software.
Costs associated with maintaining computer software programmes are recognized as an expense as incurred.
Costs that are directly associated with identifiable and unique software products controlled by the Bank and will
probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Costs
include external software company development costs.
These costs are amortised on the basis of the expected useful lives over a period of five years.
I. Property, plant and equipment
Buildings comprise mainly branches and offices. All property, plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual
values over their estimated useful lives, as follows:
Buildings
Computers and related equipment
Furniture and equipment
50 years
3-5 years
5-7 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included
in the income statement. Repairs and renewals are charged to the income statement when the expenditure is
incurred.
14
J.
Investments in associates
Due to its immateriality, management elected not to consolidate its investment in Moneta, over which it
exercises effective control. In these separate financial statements associates are accounted for in accordance
with IAS 39, at fair value through profit or loss. Gains and losses arising from changes in the fair value of
the ‘financial assets at fair value through profit or loss’ category are included in the income statement in the
period in which they arise.
K.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 3
months maturity from the date of acquisition including: cash in hand, cash items in the course of collection,
balances with central bank other than obligatory reserve, treasury bills and amounts due from other banks.
L.
Provisions
Provisions are recognized when the Bank has a present legal or constructive obligation as a result of past
events, 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.
Taxes
Deferred income tax is provided in full, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income
tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance
sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled. The principal temporary differences arise from depreciation of property, plant
and equipment.
Deferred income tax assets are recognised where it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
Income tax payable on profits, based on the applicable tax law in each jurisdiction is recognized as an expense
in the period in which profits arise.
N.
Borrowings
Borrowings are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference
between proceeds net of transaction costs and the redemption value is recognised in the income statement
over the period of the borrowings using the effective interest method.
15
O. Share capital
Dividends on shares
Dividends on shares are recognized in equity in the period in which they are declared. Dividends for the year
which are declared after the balance sheet date are dealt with in the subsequent events note.
P. Fiduciary activities
Assets and income arising thereon together with related undertakings to return such assets to customers are excluded from these financial statements where the Bank acts in a fiduciary capacity such as nominee, trustee or agent.
Q. Comparatives
Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current
year. Due to its immateriality, management elected not to disclose reclassification in comparative figures.
16
Financial risk management
Page
a.
Credit risk
18
b.
Market risk
18
c.
Foreign exchange risk
19
d.
Cash flow and fair value interest rate risk
20
e.
Liquidity risk
22
f
Fair value of financial assets and liabilities
23
17
a. Credit risk
The Bank takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in
full when due. Impairment provisions are provided for losses that have been incurred at the balance sheet date.
Significant changes in the economy, or in the health of a particular industry segment that represents a concentration in the Bank’s portfolio, could result in losses that are different from those provided for at the balance sheet
date. Management therefore carefully manages its exposure to credit risk.
Exposure to credit risk is a risk of financial loss which may occur as a consequence of a counterparty being unable to fulfil its obligations towards the Bank. The Bank manages the credit risk it undertakes by placing limits in
relation to large loans, single borrowers and related persons. Such risks are monitored on a revolving basis and
subject to annual or more frequent reviews. All loans above the prescribed limit have to be approved by the Committee for Credit Risk Management.
As for sector concentration, although the limits are not prescribed, it is constantly monitored.
The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on and
off-balance sheet exposures. Actual exposures against limits are monitored regularly.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers
to meet interest and capital repayment obligations. Exposure to credit risk is also managed in part by obtaining
collateral and corporate and personal guarantees. Apart from this, all retail customers are obliged to receive their
salaries on current accounts with the Bank in order to reduce the credit risk.
Credit related commitments
The primary purpose of these instruments is to ensure that funds are available to a 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 authorizations 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 loss in an amount equal to the total unused commitments. However, the likely amount of loss is
less than the total unused commitments since most commitments to extend credit are contingent upon customers
maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because
longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
b. Market risk
The Bank takes on exposure to market risks. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. Limits for the exposure to market
risks are not internally prescribed, however the bank uses limits defined by the central Bank of Montenegro.
18
c. Foreign exchange risk
The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its
financial position and cash flows. The exposure to currency risk is regularly monitored by harmonizing them with
the limits prescribed by the Central Bank. The table below summarizes the Bank’s exposure to foreign currency
exchange rate risk at 31 December 2005. As of December 31st 2005, the Bank has balances in the following
currencies:
Other
currencies
USD
Total foreign
currencies
Local
currencies
(EUR)
Total
As of 31 December 2005
ASSETS
676
302
978
42.694
43.672
1.725
474
2.199
74.236
76.435
-
-
-
161.217
161.217
-
-
-
174
174
Treasury bills
-
-
-
3.831
3.831
Other assets
-
-
-
3.843
3.843
Financial asset at fair value through
profit and loss
-
-
-
211
211
-
-
-
10.264
10.264
Intangible assets
-
-
-
3.700
3.700
2.401
776
3.177
300.170
303.347
Deposits from banks
3.201
-
3.201
10.001
13.202
Due to customers
3.722
581
4.303
243.821
248.124
-
-
-
21.475
21.475
Other liabilities
-
-
-
517
517
-
-
-
279
279
Provisions
-
-
-
273
273
Deferred income taxes liabilities
-
-
-
159
159
6.923
581
7.504
276.525
284.029
(4.522)
195
(4.327)
23.645
19.318
Total assets
2.084
340
2.424
144.946
147.370
Total liabilities
5.860
323
6.183
127.419
133.602
(3.776)
17
(3.759)
17.527
13.768
TOTAL ASSETS
LIABILITIES
Total liabilities
Net balance sheet position
Net balance sheet position
19
d. Cash flow and fair value interest rate risk
Interest sensitivity of assets, liabilities and off balance sheet
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will
fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations
in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may
increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise.
The interest rates are based on market rates and the Bank regularly performs repricing.
The table below summarises the Bank’s exposure to interest rate risks. Included in the table are the Bank’s assets
and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.
Up to
30 days
From 1 to
6 months
From 6 to
12 months
More than
12 months
Noninterest
bearing
Total
ASSETS
12.677
-
-
-
30.995
43.672
70.880
-
-
2.000
3.555
76.435
19.914
33.842
40.855
63.298
3.308
161.217
-
-
-
-
174
174
2.447
1.384
-
-
-
3.831
Other assets
-
-
-
-
3.843
3.843
Financial asset at fair value through
profit and loss
-
-
-
-
211
211
-
-
-
-
10.264
10.264
Intangible assets
-
-
-
-
3.700
3.700
105.918
35.226
40.855
65.298
56.050
303.347
6.880
6.314
-
-
8
13.202
63.980
53.676
50.771
41.999
37.698
248.124
-
-
2.000
19.435
40
21.475
Other liabilities
-
-
-
-
517
517
-
-
-
-
279
279
Provisions
-
-
-
-
273
273
Deferred income taxes liabilities
-
-
-
-
159
159
70.860
59.990
52.771
61.434
38.974
284.029
Treasury bills
Total assets
LIABILITIES
Deposits from banks
Due to customers
Total liabilities
20
d. Cash flow and fair value interest rate risk (continued)
Up to
30 days
Interest sensitivity gap
From 1 to
6 months
From 6 to
12 months
More than
12 months
Noninterest
bearing
Total
35.058
(24.764)
(11.916)
3.864
17.076
19.318
Total Assets
41.493
13.515
39.778
34.977
17.607
147.370
Total Liabilities
28.642
12.149
43.069
36.389
13.353
133.602
Interest sensitivity gap
12.851
1.366
(3.291)
1.412
4.254
13.768
The table below summarises the effective interest rate by major currencies for monetary financial instruments not
carried at fair value through profit or loss:
%
EUR
CHF
USD
Cash and balances with central banks
0,52
-
-
Treasury bills
7,13
-
-
Due from other banks
2,33
-
-
10,67
-
-
Deposits from banks
2,41
-
3,03
Due to customers
6,85
5,19
6,02
5,02
-
-
Assets
21
e. Liquidity risk
The table below analyses assets and liabilities of the Bank into relevant maturity Bankings based on the remaining
period at balance sheet date to the contractual maturity date.
Maturities of assets and liabilities
Less than
1 month
From 1 to
3 months
From 3 to
12 months
Over 1 year
Total
ASSETS
43.672
-
-
-
43.672
74.435
-
-
2.000
76.435
23.233
33.842
40.855
63.287
161.217
-
-
-
174
174
Treasury bills
2.447
1.384
-
-
3.831
Other assets
3.843
-
-
-
3.843
Financial asset at fair value through profit
and loss
-
-
-
211
211
-
-
-
10.264
10.264
Intangible assets
-
-
-
3.700
3.700
147.630
35.226
40.855
79.636
303.347
6.888
6.314
-
-
13.202
126.168
43.676
45.771
32.509
248.124
40
-
2.000
19.435
21.475
Other liabilities
517
-
-
-
517
279
-
-
-
279
Provisions
-
-
-
273
273
-
-
-
159
159
133.892
49.990
47.771
52.376
284.029
13.738
(14.764)
(6.916)
27.260
19.318
Total assets
49.835
13.515
39.778
44.242
147.370
Total liabilities
29.165
23.015
43.069
38.353
133.602
Maturity mismatch
20.670
(9.500)
(3.291)
5.889
13.768
Total assets
LIABILITIES
Deposits from banks
Due to customers
Total liabilities
Maturity mismatch
22
e. Liquidity risk (continued)
The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Bank. It is unusual for banks ever to be completely matched since business
transacted is often of uncertain term and of different types. An unmatched position potentially enhances profitability, but also increases the risk of losses.
The maturities of assets and liabilities and the ability of the Bank to replace, at an acceptable cost, interest– bearing liabilities as they mature, are important factors in assessing the liquidity of the Bank and its exposure to
changes in interest rates and exchange rates.
Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the
amount of the commitment because the Bank does not generally expect the third party to draw funds under the
agreement. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.
f. Fair value of financial assets and liabilities
Fair value is the amount at which a financial instrument can be exchanged between the interested parties, if it
does not concern forced sale or liquidation, and the best proof of the fair value is market value. The Bank evaluated the fair value of financial instruments using the market information where available and adequate evaluation
methodologies. However, it is important to perform certain evaluations when interpreting market information in
order to determine the assessed fair value.
2005
Carrying value
Fair value
Financial assets
Available for sale securities and measured
at fair value
69.517
69.517
158.407
158.160
385
385
6.314
6.314
245.782
244.213
21.530
21.530
Financial liabilities
Due to other banks
Due to customers
(a)
Due from other banks includes inter-bank placements and items in the course of collection.
The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair
value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest
rates for placements with similar credit risk and remaining maturity.
23
f. Fair value of financial assets and liabilities (continued)
(b)
Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are
discounted at current market rates to determine fair value.
(c)
Fair value for available-for-sale is based on market prices. Where this information is not available, fair value has
been estimated using quoted market prices for securities with similar characteristics. The amount of the change
in fair value recognized in revaluation reserves during the period is EUR 25 thousand (2004: Nil)
(d)
Deposits and borrowings
The estimated fair value of deposits with no stated maturity, which includes non-interestbearing deposits, is the
amount repayable on demand.
The estimated fair value of fixed interest bearing deposits and other borrowings without quoted market price is
based on discounted cash flows using interest rates for new debts with similar remaining maturity.
(e)
Financial instruments measured at fair value in the financial statements
The total amount of the change in fair value estimated using a valuation technique that was recognised in profit
or loss during the period is EUR 23 thousand (2004: Nil).
24
Critical accounting estimates and judgements
in applying accounting policies
The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the
next financial year. Estimates and judgements are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the circumstances.
(a)
The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an
impairment loss should be recorded in the income statement, the Bank makes judgements as to whether there is
any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may
include observable data indicating that there has been an adverse change in the payment status of borrowers in
a Bank, or national or local economic conditions that correlate with defaults on assets in the Bank. Management
uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence
of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce
any differences between loss estimates and actual loss experience.
(b)
Impairment of available for-sale equity investments and investments in associates
The Bank determines that available-for-sale equity investments are impaired when there has been a significant or
prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires
judgement. Impairment may be appropriate when there is evidence of deterioration in the financial health of the
investee, industry and sector performance and operational and financing cash flows.
25
Notes to the financial statements as of and for the year ended 31 December 2005
Notes to the financial statements as of
and for the year ended 31 December 2005
1. Net interest and similar income
2005
2004
13.061
7.414
Placements to banks
676
421
Treasury bills
378
479
72
24
14.187
8.338
Deposits from customers
5.609
3.520
Deposits from banks
1.443
512
522
353
7.574
4.385
Obligatory reserve
Borrowed funds
Included within interest income is EUR 1,383 thousand (2004: EUR 2,782 thousand) with respect of interest
income accrued on impaired financial assets.
2. Net fee and commission income
2005
2004
Domestic payments fee and commission income
4.989
5.473
International payments fee and commission income
3.832
3.826
Credit card related fees and commissions
1.263
760
Fee income from issued guarantees and other contingent liabilities
850
401
Other
296
175
11.230
10.635
Domestic payments fee and commission expense
1.474
3.365
International payments fee and commission expense
1.144
743
2.618
4.108
3. Net trading income
Foreign exchange:
26
2005
2004
- translation gains less losses
(273)
(347)
- transaction gains less losses
4
232
(269)
(115)
4. Operating expenses
2005
2004
Staff costs
4.247
2.872
Administrative expenses
1.764
1.549
Depreciation and amortisation (Notes 13 and 14)
1.543
772
Operating lease rentals
294
277
Software and hardware costs
533
213
Vehicle maintenance costs
273
199
Professional services
304
342
Deposit insurance premium
580
-
1.289
914
318
291
11.145
7.429
Marketing, sponsorship and representation
Other
Salaries
Staff costs
Wages & salaries
2005
2004
2.795
1.354
Social Security
955
1.025
Other
497
493
4.247
2.872
5. Impairment losses on loans and advances
2005
Loans to customers (Note 10)
2004
954
3.861
(516)
(2.427)
Charge for the year for contingent liabilities (Note 23)
105
(173)
Release of provision for accrued interest and other assets (Note 15)
(13)
(11)
530
1.250
Reversal of provision on loans repaid (Note 10)
6. Income tax expense
2005
Current tax
Deferred tax
2004
(279)
(279)
-
346
(279)
67
27
6. Income tax expense (continued)
Further information on deferred tax on profit is given in Note 19.
2005
Profit before tax
2004
3,304
1,468
297
-
Tax calculated at a tax rate of 15%
-
15
-
274
138
150
(195)
(160)
25
-
265
279
14
-
279
279
Tax effect on accounting depreciation
Tax effect tax depreciation
Expenses not deductible for tax purposes
Income tax expense
Overpaid income tax for 2005
Current tax
A final income tax expense is calculated by applying a progressive rate onto the taxable income base reported
in the annual tax returns. The taxable income basis reported in the income tax returns includes the pre tax
income shown in the statutory statement of income, and adjustments for permanent differences, as defined
under the tax rules. Such adjustments mainly involve certain expenses which tax legislation does not take as
offsetting items in the calculation of the tax base and which were incurred during the year, in accordance with
tax regulations.
The current tax legislation does not allow any tax losses of the current period to be used to recover taxes paid
within a specific carry back period. However, any current year loss may be used to decrease taxable profits for
future periods, but only for a period of no longer than five years.
7. Cash and balances with the Central Bank
2005
Cash in hand
2004
12.550
5.096
Cash in the course of collection
258
112
Checks in the course of collection in foreign currencies
332
221
7.646
829
22.886
7.772
43.672
14.030
Balances with central banks other than obligatory reserve deposits
Obligatory reserve held with the Central Bank
According to the Central Bank of the Republic of Montenegro regulations, the Bank is required to maintain
an obligatory reserve account balance in the amount of 23 percent of the average balance of the average balance of its deposit-related liabilities, as calculated on a weekly basis. As of 31 December 2005, the obligatory
reserve is held in the amount of EUR 22,886 thousand on the account with the Central Bank. Obligatory
reserve deposits are not available for use in the Group’s day to day operations. As of 31 December 2005, the
Bank was in compliance with the above mentioned regulation.
The Central Bank pays interest on the obligatory reserve at the rate of 1% p.a. (2004: 1 % p.a.). Cash in hand
and the balances with the Central Bank other than obligatory reserve deposits are non-interest bearing.
28
8. Treasury bills
2005
2004
Treasury bills
- unrestricted
- restricted
-
5.598
3.831
3.201
3.831
8.799
Treasury bills are debt securities issued by the Central Bank of Montenegro on the behalf of the Ministry of
Finance of the Republic of Montenegro for a term of two months, three months and six months. The bills
bear interest in the form of discount based on the fixed interest rate risk agreed at the date of purchase.
Treasury bills in the amount of EUR 3,831 thousand (2004: EUR 3,201 thousand) represent a portion of
the obligatory reserve held with the Central Bank of the Republic of Montenegro. According to the Central
Bank of the Republic of Montenegro regulations, a bank may hold up to 25% of the obligatory reserve in
treasury bills.
Treasury bills in which the bank invested funds during 2005 bear an annual interest rate of 1 to 10,5 percent
with a declining tendency (2004: 9 – 10,5% p.a.)
9. Loans and advances to banks
2005
Accounts with domestic banks
2004
172
1.870
Accounts with foreign banks
10.225
8.086
Placements with other banks
66.038
17.650
76.435
27.606
Accounts with foreign banks represent the account balances with several European banks.
Placements with other banks represent deposits with Commerzbank AG Frankfurt of EUR 58,000 thousand
(2004: EUR 14,000 thousand), LHB International Handelsbank AG Frankfurt of EUR 6,000 thousand for
a term of one month (2004: EUR 1,650 thousand) and Commerzbank S.A. Luxembourg of EUR 2,000
thousand with maturity of more than 12 months (2004: EUR 2,000 thousand) representing collateral for
borrowed funds (Note 18).
All placements bear fixed rates in the range from 2-2.5% p.a. (2004: 2-2.2% p.a.).
29
10. Loans and advances to customers
2005
2004
Up to one year
- in EUR
99.942
49.068
63.287
39.200
163.229
88.268
(2.012)
(2.223)
161.217
86.045
Over 1 year
- in EUR
Gross loans and advances to customers
Less allowance for losses on loans and advances
Loans up to one year in Euro are primarily granted to local enterprises for purposes of promoting and supporting trading activities, industrial production, import financing, as well as for liquidity and other purposes.
These loans are usually granted for periods of from one month up to one year, at annual interest rates ranging
from 10 percent to 12 percent (2004: 10 – 12% p.a.).
The loans over 1 year include loans to small and medium-sized enterprises, which are primarily granted from
funds received from Kreditanstalt für Wiederaufbau (“KfW”), Frankfurt am Main (Note 18). These loans are
granted for the purpose of financing working capital and fixed asset purchases in the service, production,
trade and agricultural sectors. Maturities of the loans range are from twelve to sixty months, and bear an annual interest rate ranging from 8 to 15% p.a. (2004: 8 – 15% p.a.).
Allowance for losses on loans and advances
Movement in allowance for losses on loans and advances as follows:
2005
Balance at 1 January
2004
2.223
962
954
3.861
Reversal of provision on loans repaid (Note 5)
(516)
(2.427
Reversal of provision for loans written off
(649)
(173)
Balance at 31 December
2.012
2.223
Provision for loan impairment (Note 5)
The economic sector risk concentrations within the gross customer loan portfolio were as follows:
2005
2004
Manufacturing
16.623
3.100
Citizens
30.335
15.726
Trading
60.217
37.765
Transportation
14.655
3.321
Governmental institutions and municipal authorities
16.809
3.764
Other
24.590
24.592
163.229
88.268
Gross loans and advances to customers
The geographic sector risk concentration within the gross customer loan portfolio is exclusively limited to
the Republic of Montenegro.
30
11. Available for sale securities
2005
2004
Equity securities – at fair value:
– listed
– unlisted
126
115
48
38
174
153
2005
2004
The Bank holds the following investments:
Zetatrans AD
38
42
Lovćen osiguranje
34
9
Magrom
48
48
Depozitarna Agencija
38
38
Nova Berza
16
16
174
153
The movement in available for sale securities may be summarised as follows:
At 1 January 2005
153
Gains from changes in fair value
25
Losses from changes in fair value
(4)
At 31 December 2005
174
12. Financial asset at fair value through profit and loss
The position relates to the ownership of 35 % in Moneta AD, Podgorica, which has been accounted for at
fair value. Gains arising from changes in the fair value of the financial assets at fair value are included in the
income statement in the amount of EUR 27 thousand.
31
13. Property, plant and equipment
Equipment
and other assets
Buildings
Total
Cost
Balance at 1 January 2004
4.147
1.485
5.632
530
1.361
1.891
4.677
2.846
7.523
224
235
459
85
359
444
309
594
903
4.677
2.846
7.523
Additions
3.005
1.477
4.482
7.682
4.323
12.005
309
594
903
Depreciation
142
696
838
451
1.290
1.741
At 31 December 2005
7.231
3.033
10.264
At 31 December 2004
4.368
2.252
6.620
Additions
Accumulated depreciation
Depreciation
Cost
Accumulated depreciation
Net book value
32
14. Intangible assets
Software
Total
Cost
1.294
1.294
Additions during the year
1.261
1.261
2.555
2.555
33
33
Amortisation
328
328
361
361
2.555
2.555
Additions during the year
2.211
2.211
4.766
4.766
361
361
Amortisation
705
705
1.066
1.066
At 31 December 2005
3.700
3.700
At 31 December 2004
2.194
2.194
Accumulated amortisation
Cost
Accumulated amortisation
Net book value
The additions in the amount of EUR 2,211 thousand (2004: EUR 1,261 thousand) relate
to different software applications (standard and tailored software).
15. Other assets
2005
Accrued fees
2004
3.457
1.033
407
741
3.864
1.774
(21)
(34)
3.843
1.740
Other
Provisions
2005
Balance at 1 January
Release of provision (Note 5)
Balance at 31 December
2004
34
34
(13)
-
21
34
33
16. Deposits from banks
2005
2004
Demand deposits
- domestic banks
-
500
13.202
16.043
13.202
16.543
Short-term deposits
- foreign banks
The short term deposits from foreign banks include the deposits received from LHB International Handelsbank AG, Frankfurt in the amount of EUR 6,322 thousand (2004: EUR 2,450 thousand) and short term
credit facility with Commerzbank in the amount of EUR 6,880 thousand (2004: EUR 13,593 thousand).
The deposits received from LHB International Handelsbank AG, Frankfurt in the amount of EUR 6,000
thousand relate to deposits received from, for a period of one month, with an annual interest rate of 2.35%.
The deposit from LHB International Handelsbank AG, Frankfurt in the amount of EUR 314 thousand bears
interest rate of 3M Euribor+4,5 percent p.a. The remaining amount of EUR 8 thousand relates to the accrued interest as at 31 December 2005.
17. Due to customers
2005
2004
Demand deposits in Euro
- Enterprises
48.370
25.190
- Governmental institutions
16.667
2.771
- Citizens
32.152
12.390
1.260
961
11.506
7.457
1.023
-
92
-
591
484
-
-
217
-
- Enterprises
20.797
5.841
47.236
675
- Citizens
30.423
4.801
-
7
3.338
14.185
- Enterprises
586
-
- Citizens
732
2.699
- Other
604
-
- Foreign entities
- Other entities
Demand deposits in foreign currencies
- Enterprises
- Citizens
- Foreign entities
- Other entities
Short-term deposits in Euro
- Foreign entities
- Other entities
Short-term deposits in foreign currencies
34
17. Due to customers (continued)
2005
2004
Long-term deposits in Euro
- Enterprises
10.443
11.338
974
-
15.714
13.444
4.682
-
717
487
248.124
102.730
- Citizens
- Other
Long-term deposits in foreign currencies
- Citizens
Short-term deposits in Euro and foreign currencies are generally placed for periods of up to three months.
Deposits earn annual interest rates ranging from 2% to 8% (corporate deposits) and 12% (retail deposits).
18. Other borrowed funds
2005
Long-term domestic borrowings
2004
2.007
1.724
- Kreditanstalt fur Wiederaufbau (“KfW”), Frankfurt am Main
7.952
9.299
- Commerzbank International S.A., Luxembourg
2.000
2.000
- DEG and FMO
4.911
-
- European Fund for Southeast Europe, Luxembourg
4.605
-
-
97
21.475
13.120
Long-term foreign borrowings:
- LHB International Handelsbank AG, Frankfurt
The amount of EUR 2,007 thousand represents the long-term borrowings received from the Development Fund
of the Republic of Montenegro. These borrowings were granted for periods ranging from three to five years, and
have grace periods ranging from six months to one year, at annual interest rates ranging from 2.5% to 7.5%.
As of 31 December 2005, the Bank has borrowed funds from Kreditanstalt für Wiederaufbau (“KfW”), Frankfurt am Main for the purpose of financing small and mediumsized enterprises. These amounts have a maturity
up to 30 December 2010 with variable interest rate linked to EURIBOR increased a margin of 2% - 3% p.a.
The amount of EUR 2,000 thousand represents long-term borrowings received from Commerzbank International S.A., Luxembourg, with an original maturity date in 2004 which was extended to 17 September 2006 and
an annual interest rate of LIBOR + 0.70 percent.
The Bank agreed credit line with its shareholders Deutsche Investitions und Entwicklungsgesellschaft GmbH
(“DEG”), Köln and Nederlandse Financierings Maatschapij voor Ontwikkelingsladen N.V. (“FMO”), Hag in
the amount of EUR 10,000 thousand for the purposes of financing local small and medium enterprises. The
borrowings have a maturity up to 15 November 2010 and annual interest rate EURIBOR increased by a margin
that will be defined by the lenders. As of 31 December 2005, the Bank has withdrawn EUR 5,000 thousand.
The borrowings due to the European Fund for Southeast Europe, Luxembourg represent funds in the amount
of EUR 3,000 thousand borrowed at interest rate of EURIBOR + 3.5% p.a. and 5 years maturity. The remaining amount represents borrowings originated by KfW, which were sold to the European Fund for Southeast
Europe during 2005.
35
19. Deferred income tax liabilities
Deferred tax on assets and liabilities is determined based on temporary differences shown in the table below and
by application of tax rate of 9% in accordance with local legislation. In the previous period this rate was 20%.
Changes of deferred income tax liabilities:
2005
As of 1 January
Deferred tax liabilities –credit for 2004
As of 31 December
2004
159
505
-
(346)
159
159
2005
2004
Deferred income tax liabilities refer to the following items:
Accelerated tax depreciation
159
159
159
159
Expense/release of deferred income tax in income statement occurred based on the following temporary
difference:
31 December 2005
31 December 2004
Amount
Tax rate 9%
Amount
Tax rate 20%
Fixed assets and intangible assets
(1.762)
(159)
(1.761)
(159)
Total
(1.762)
(159)
(1.761)
(159)
Temporary differences
These financial statements include adjustments to equity as of 1 January 2004 due to adoption of new accounting rules and regulations for calculation of deferred tax resulting in the creation of a deferred tax liability of EUR 159 thousand for 2004 and EUR 505 thousand for 2003. In years before 2004 fixed assets
records were not sufficiently detailed and the corporate tax law did not recognize any difference between
taxable value of fixed assets and accounting value of fixed assets. The change in accounting policy has been
accounted for as an adjustment of the opening balance of retained earrings for the amount relating to the
periods prior to 2004.
36
20. Other liabilities
2005
Trade payables
Accruals
Indirect taxes and contributions
Cash withdrawals from Bank’s customers at other financial institutions
Other
2004
140
73
42
102
187
101
-
350
148
187
517
813
21. Share capital
31 December 2005
Amount
Share in %
(000 EUR)
31 December 2004
Amount
Share in %
(000 EUR)
Nederlandse Financierings Maatschapij voor
Ontwikkelingsladen N.V. (“FMO”), Hague
3.384
22,05
2.464
22,05
Deutsche Investitions und
Entwicklungsgesellschaft GmbH
(“DEG”), Köln
3.332
21,71
2.464
22,05
Vektra, Podgorica
2.430
15,83
2.114
18,91
Telekom Crne Gore, Podgorica
1.761
11,48
1.319
11,80
Other shareholders
4.440
28,93
2.815
25,19
15.347
100,00
11.176
100,00
The total authorised number of ordinary shares at year end was 30,017 (2004: 21,858 with a par value of EUR
511.29 per share (2004: EUR 511.29 per share). All issued shares are fully paid.
According to the decision of the shareholders’ assembly held on June 26th 2005, the retained earnings in the
amount of EUR 1,671 thousand were distributed to the shareholders in the form of shares (bonus issue).
All shares were issued at nominal value and are fully paid.
As prescribed by the requirements of the Central Bank of Montenegro, the Bank is required to maintain a
minimum capital adequacy ratio of 8%. As of 31 December 2005, the Bank’s capital ratio equals to 14.52%
(31 December 2004: 15.7%).
37
22. Other reserves
2005
General banking risks
Revaluation reserve – available-for-sale investments
Total reserves at 31 December 2005
2004
921
921
25
-
946
921
The general banking reserve represents transfers from retained earnings to meet qualifying capital requirements under relevant banking legislation. These reserves are not distributable.
The revaluation reserve is related to the gains in the fair value of the investment in the company Lovcen
Osiguranje (Note 11).
23. Contingent liabilities and commitments
The following table indicates the contractual amounts of the Bank’s off-balance sheet financial instruments based on which commitments may occur:
2005
Payment guarantees
2004
11,823
7,469
Performance guarantees
6,531
7,417
Commercial letters of credit
1,720
907
20,074
15,793
No forward foreign exchange commitments exist at the balance sheet dates.
The movements in provision for contingent liabilities are as follows:
2005
2004
Balance as of 1 January
168
341
Provision charged (Note 5)
105
(173)
Balance as of 31 December
273
168
24. Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances:
2005
2004
Cash and balances with the Central bank (Note 7)
20.786
6.258
Due from other banks (Note 9)
76.435
27.606
97.221
33.864
The obligatory reserve maintained with the Central Bank has not been taken into account as part of the cash and
cash equivalents..
38
25. Related party transactions
A number of banking transactions are entered into with related parties in the normal course of business.
These include mainly loans and deposits and foreign currency transactions.
The volumes of related party transactions, outstanding balances at the year end, and relating expense and
income for the year are as follows:
Directors and shareholders
Related companies
Type of related party
2005
2004
2005
2004
Loans
Loans outstanding at 1 January
63
5
2.003
716
Loans issued during the year
223
65
9.011
8.534
Loan repayments during the year
158
7
6.556
7.247
Loans outstanding at 31 December
128
63
4.458
2.003
During 2005, the company Ditta Montenegro lost its status of associated party due to the sale of its shares
in the Bank (loans outstanding as at 31 December 2004: EUR 22 thousand).
Interest income earned amounts to EUR 150 thousand (2004: EUR 287 thousand). The interest income
earned in this year related to the loans to companies amounts to EUR 145 thousand (2004: EUR 268 thousand), while loans to directors and shareholders amount to EUR 5 thousand (2004: EUR 10 thousand).
The impairment provision in respect of loans given to related parties amounts to EUR 30 thousand as at 31
December 2005 (2004: 89 thousand).
The loans issued to directors and shareholders during the year of EUR 223 thousand (2004: EUR 65 thousand) are repayable monthly with the maturity ranging from six months to five years and have interest rates
ranging from 6% - 12% p.a. (2004: from 6% - 14%).
Deposits
2005
Deposits at 1 January
2004
6.703
825
Deposits received during the year
142.950
87.375
Deposits repaid during the year
145.311
81.497
4.342
6.703
Deposits at 31 December
Interest expense on deposits amounts to EUR 325 thousand in 2005 (2004: EUR 303 thousand).
The fee income received in 2005 from transactions with related parties amounts to EUR 1,437 thousand
(2004: EUR 1.050 thousand).
Guarantees issued by the Bank to related parties amount to EUR 583 thousand as of 31 December 2005
(31 December 2004: EUR 908 thousand).
39
25. Related party transactions (continued)
Directors’ remuneration
In 2005 the remunerations paid to directors amounted to EUR 61 thousand (2004: EUR 191 thousand).
There were no related party transactions with the shareholders other than dividends on ordinary shares. The
shares are issued to existing shareholders through bonus issue.
26. Post balance sheet events
For the period up to and including the 28 March 2006, no post balance sheet events have occurred which have
any substantial impact on the financial statements for the year ending 31 December 2005.
40

Annual Report

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