contents - Intesa Sanpaolo Banka

Transcription

CONTENTS
2
INTRODUCTION BY THE GENERAL MANAGER
4
REPORT OF THE SUPERVISORY BOARD
6
OPERATING ENVIRONMENT
8
BODIES OF THE BANK
9
ORGANIZATION CHART
10
FINANCIAL INDICATORS
14
ASSETS
15
LENDING
17
SOURCES OF FUNDING
19
DOMESTIC AND INTERNATIONAL PAYMENTS
20
RETAIL OPERATIONS
21
CONTROL SYSTEMS
22
EMPLOYEES
23
BRANCH NETWORK
25
LIST OF CORRESPONDENT BANKS
27
REPORT OF INDEPENDENT AUDITORS
INTRODUCTION BY THE GENERAL MANAGER
Dear shareholders, business partners and clients,
Behind us is another successful business year, continuing a number of consecutive years of
growth and improvement at UPI Banka Sarajevo.
UPI Banka, with its quality competitively priced services, with
continuous adaptations to the needs of clients, and with the introduction of new products, has succeeded in becoming a competitive player in the fiercely competitive market in Bosnia and Herzegovina, where there are over 30 banks in business, and where good
business does not necessarily guarantee a company’s survival.
On this occasion I do not wish to enter in details of the macroeconomic picture of Bosnia and Herzegovina, because all of you
living and doing business in Bosnia and Herzegovina are very familiar with all of our problems. Reforms are under way, but not
at a desired pace; the privatization process is still not finished;
foreign investors are reluctant to invest under these conditions;
bureaucratic barriers are numerous; and financial indiscipline is a
discouragement to entrepreneurs and is endangering projects that
would, with a level playing field, have more chances to succeed.
There are some positive movements, but the business environment
in Bosnia and Herzegovina still does not provide equal conditions
for all.
Despite all of the factors limiting the ability to do business, the
management of the UPI Banka and its employees have succeeded
in creating and increasing profits, offering more attractive interest rates for borrowers and savers; territorially expanding and
modernizing business units and joining the international debit and
credit card network.
The profit after tax of the Bank for 2004 is KM 3.95 million and is
8% higher in comparison to 2003. UPI Banka total assets are KM 381.92 million (46% more
than in 2003), the loan portfolio is KM 187.64 million (23% more than in 2003), deposits are
KM 307.93 million (53% more than in 2003), total equity is KM 33.47 million (13% more than
in 2003), and the Bank has 191 employees. The business success reflects the fact that despite
an increase in the labour force (up by 13%), the Bank’s asset to employee ratio is KM 2 million
(KM 1.55 million in 2003), and profit to employee ratio is KM 20,691.
The increase in deposits and improvements in their term structure are factors creating the basis
for higher lending and ensuring increase in profits. For these reasons, the Bank offered more
attractive interest rates, especially for individuals, resulting in an increase of saving accounts
to KM 54.81 million at the end of 2004, which is 45% higher than it was in 2003.
The Bank was able to offer its clients more attractive interest rates, with average interest rate of
9.33% for corporate clients (9.90% in 2003), and 11.40% for retail and individual customers.
For UPI Banka, 2004 will be especially significant because of the number of newly opened
and modernized business units. It began with Sarajevo, and the opening of offices in the municipalities of Novo Sarajevo and Ilidza. Then, there was a move into bigger and more modern
premises in Tuzla and Gracanica. The end of year was marked with the opening of the first
branch of UPI Banka in Republika Srpska in Bijeljina, and an office in the heart of Sarajevo.
Investments in these premises totalled around two million KM.
UPI Banka holds a leadership position in issuing the first domestic non-cash “Bamcard” card,
and in 2004, the Bank joined an international card network and is the first bank in Bosnia and
Herzegovina to start issuing VISA Electron chip cards. This project is even more important
taking in account the fact that UPI Banka has achieved the status of principal with VISA International, with a processing centre located in “Bamcard” in Sarajevo.
UPI Banka has continued cooperation with its proven business partners (EBRD, KfW, IBF,
IGA, USAID, OPEC Fund, and Partners for Development) in providing financial support to
companies and individuals, as well as with local government at the level of cantons and municipalities, regional development organizations and other institutions. At the end of the year,
UPI Banka signed a contract with the newly established Administration for Indirect Taxation
of Bosnia and Herzegovina for the services of collection of public payments.
In the context of support to primary agricultural activities, UPI Banka has signed contracts
with Posavina and Tuzla Cantons, and Sarajevo Development Agency (SERDA), securing
attractive loans for farmers.
The lack of long-term and quality funding sources has influenced business results, which
would have been even better without such deficiencies. Despite this problem, the Bank has
managed to draw funds from different sources and extend loans to companies (73%) and to
retail clients (27%).
In 2004, there were 2.18 million internal payment transactions in the amount of KM 6.49 billion. A significant increase in the usage of electronic banking services was noted with 32% of
all of the transactions in the internal payment system done through electronic payment transactions. There were 15,122 international payment transactions in the amount of KM 409.70
million, representing an increase of 49% in comparison to 2003.
In 2004, UPI Banka has worked hard on building its image as the biggest bank with the majority of domestic equity, which besides creating profits, is attempting to support projects important for the community as a whole. Some of the projects pointing to such activities include
providing low interest housing loans for young intellectuals, financial support to National
Theatre in Sarajevo and to the SOS Children’s Village, as well as other similar actions.
All of these results would not be possible without the remarkable cooperation with the members of the Supervisory Board, shareholders, and business partners, whom on this occasion I
sincerely thank, with a promise that in the forthcoming year, the management of the Bank and
its employees will strive with maximum effort to make UPI Banka even stronger.
Mirsad Letic
General Manager
REPORT OF THE SUPERVISORY BOARD
TO SHAREHOLDERS OF UPI BANKA D.D. SARAJEVO
Given the stated financial results in 2004, the conclusion is that UPI Bank operated successfully during this reporting period.
The achieved results and operations
of the Bank are illustrated with
greater detail in the Annual Report,
financial statements and the opinion
of independent external auditors
KPMG B-H. Based on the aforementioned, the Board concluded
that the Management worked completely in accordance with law,
regulations and in the best interest
of the Bank, which is confirmed by
good financial results achieved with
strong efforts of staff and management of the Bank.
Permanent contacts, direct cooperation and regular reporting to
the Board and the Audit Board by
the Management, positively impacted operations and achieved
results, and enabled the Bank to maintain its position of the largest domestic owned bank in
Bosnia and Herzegovina.
As a result of activities taken by the Management, Internal Audit, the Audit Board and the
Board on adjustment of acts of the Bank with the Law on Banks in FBiH and regulations of
the Federal Banking Agency, new programs, policies, and procedures of the Bank have been
adopted and existing ones have been revised. During the reporting period, new organizational
solutions were implemented in the Bank, the IT and communication systems were improved,
and new products were introduced.
The Bank’s position in the market was also strengthened by expansion and modernization of
the branch network, especially opening of the Bijeljina branch office, the Bank’s first organizational unit in Republika Srpska. Increase in the number of organizational units and improvements in their equipment in accordance with modern trends, created preconditions for better
services of the Bank and its competitiveness in the banking market.
Among new products, especially important is the issue of VISA Electron chip card, which
provides maximum security in cash-free payments, and Bamcard credit cards without the requirement for guarantors.
In 2004 the Bank continued to develop e-banking services for corporate clients and conducted
preparations for implementation of e-banking for retail customers. The Bank also continued
to build on the fruitful relationship with international creditors (USAID, KfW, EBRD, and the
OPEC Fund for Development) and local institutions, including ministries in the Federation of
BiH and Republika Srpska, cantonal ministries, municipalities, and other authorities.
The Bank continued to service and finance agricultural manufacturers, and to that effect a
Micro Finance Department was established, which will be in change of placement of funds
provided by creditors such as the Federal Ministry of Agriculture, Water Management and
Forestry, the Federal Ministry of Displaced Persons and Refugees, the Federal Employment
Bureau, the Sarajevo Regional Development Agency (SERDA), PFD, Caritas Goražde, Stari
Grad Municipality, etc.
For the purpose of further development of the Bank’s corporate Banking, and upon request
of the Bank and the Board, the European Bank for Reconstruction and Development (EBRD)
made available a consultant to offer full advisory and technical assistance in training of loan
officers and improvement of lending and loan monitoring procedures.
In 2004, the Board held six meetings and reviewed issues related to operations and organization of the Bank. In addition, in 2004 the Federal Banking Agency conducted a comprehensive
examination of the Bank, of which the Board was continuously informed. Orders received
from the Federal Banking Agency were completely carried out, which was confirmed by the
Federal Banking Agency during their control of execution of those orders.
The Bank submitted regular sets of reports to the Federal Banking Agency and other relevant
bodies and institutions. The Board and the Management paid special attention to further development and increase of capital, in order to maintain positive trends of Bank’s operations.
The Audit Board held four meetings during the reporting period, in which, among other topics,
it reviewed Internal Audit reports about individual organizational parts of the Bank, control of
execution of Bank’s obligations relative to implementation of the Law on prevention of money
laundering, and a number of other activities conducted in the Bank.
By adopting the 2004 Internal Audit Report and the 2005 Internal Audit Plan, the Audit Board
concluded that, in carrying out of its duties, the Internal Audit had support of the Management
and the Board, as well as the Audit Board. The Audit Board also concluded that they have not
identified any reasons that might indicate that the Bank is unable to manage its internal control
systems and risks.
By adopting the 2004 Annual Report, with the report of independent external auditors, the
Annual Statement of the Bank, the 2004 Internal Audit Report, the Board concluded that the
Management, the Internal Audit and employees in general, paid due attention to legality of
their work and protection of shareholders’ interests.
Therefore, the Board recommends that, in the Shareholders’ Meeting, the shareholders
should:
• Adopt the 2004 Annual Report of the Bank, and the 2004 Annual Statement with distribution
of 2004 profit,
• Approve the work and confirm the vote of confidence to the Board, the General Manager,
and the Management,
• Approve the basics of the Bank’s 2005 operating plan.
Chairman of the Board
Nazif Branković
OPERATING ENVIRONMENT
The reform process in Bosnia and Herzegovina continued in 2004 and included important
steps, such as completion of privatization, balancing of government finance, creation of conditions for growth of foreign investments, improvement of business environment, export stimulation, and reduction of grey economy to a minimum.
In terms of public income and expenditures, during the reporting year there were numerous
discussions about the VAT rate, which is scheduled to be introduced in 2005. A number of
arguments were reviewed relative to the validity of VAT calculation system based on one or
more rates, and eventually a single 17% rate was recommended.
In order to create conditions for improvement of business environment and thereby more foreign investment, the Parliamentary Assembly of BiH passed a new Framework Law on Company Registration. This law requires that entity governments pass appropriate laws within 90
days to ensure that the company registration process is simplified.
Industrial production in FBiH in the third quarter of 2004 is 8.4% higher compared to the second quarter. In addition, the average industrial production growth rate in the third quarter was
2.7% and the average rate achieved during nine months of 2004 was 0.4%.
Industrial
production
Annualized, the growth rate in September 2004, compared to September 2003, was a significant 17.6%, and the average industrial production growth rate during nine months of 2004,
compared to the same period in 2003, increased by 13.6%.
Stability of prices is one of key elements of macroeconomic stability in BiH. Obviously, inflation is not an issue in BiH, even though there is an apparent growth of overall cash.
The retail price index indicates that there were no significant changes in BiH in terms of movements in the general price level.
Consequently, in the third quarter, compared to the second quarter, of 2004 there was a mild
decrease in the general price level of 0.7%.
One can say that inflation in BiH is significantly lower than in the Euro-zone, in which the
recorded annual inflation is 2.1%.
In September 2004, in FBiH, prices remained at the same level as in the previous month, and
average prices during nine months of 2004 reduced by 0.5% compared to the same period in
2003.
When comparing the price level during this period, one can say that in FBiH there is slight
deflation pressure reflected in the decrease of the overall price level of 0.8%. Such a movement
was caused by a 0.3% and 10.5% reduction in prices of industrial and agricultural products,
respectively, while the prices of services have increased by 0.6%.
Prices
Living expense index had a trend similar to the retail price index. The structure of the living
expense index shows that in September 2004, compared to September 2003, expenses for
goods in FBiH reduced by 1.9% and expenses for services in FBiH increased by 0.7%.
The average net salary in 2004 is 1.3% higher compared to 2003. Net salary in FBiH exceeds
the consumer basket by KM 106, 24.3%, and the average pension was KM 207.
Salaries and
employment
There is an obvious reduction in the number of unemployed and growth of employed population, which indicates a slow recovery of BiH economy.
Commercial banks in BiH are registered in accordance with entity banking laws and are supervised by entity banking agencies.
There are currently 35 banks operating in BiH, of which 25 in FBiH and 10 in the RS.
According to the Deposit Insurance Agency, 21 commercial banks are members of the deposit
insurance program.
Loans in September 2004 totaled KM 5.63 billion, which is a KM 314.4 million, 5.9%, increase compared to June 2004.
Activities of
commercial
banks
Looking at the maturity structure of total loans, in September, compared to June, there was an
increase in both long and short term loans, of KM 248.7 million (6.3%) and KM 65.7 million
(5.13%), respectively.
Average risk weighted interest rates of commercial banks for short and long term loans to nonfinancial private companies and associations continued to reduce also in the third quarter of
2004, and in 2004 they reached the lowest level to date.
Interest rates on short term loans at the end of third quarter 2004 were 9.99%, which is lower
than at the same time last year. Most short term loans to private owned companies, 52.2% of
total, were placed with rates ranging between 9% and 9.5%.
At the same time, interest rates on long term loans were 8.08%, which is also lower than at the
same time in 2003. Most long term loans to private owned companies, as many as 53.4% of
total, were made with rates ranging between 6.5% and 7%.
Interest rates
Payment
transactions
Average risk weighted interest rate for demand and savings term deposits in September were
0.85% and 3.82% respectively.
Interest rates on retail demand deposits have almost not changed during the last six months,
and interest rates on terms and retail savings deposits in September are higher by 19 basis
points compared to 2004.
In the third quarter of 2004, banks in BiH carried out 5.6 million transactions, which is a 6.6%
increase compared to the preceding quarter. It is interesting that the number of transactions
in the last two quarters in 2004 is 19.6% higher compared to the same quarters of 2003. Total
value of all transactions in the third quarter was KM 7.45 billion, 5.6% more than in the preceding quarter of 2004, and 16.2% more than in the same quarter of 2003.
BODIES OF THE BANK
Supervisory
Board
Audit Board
Management
Nazif Branković - Chairman, Director of Sarajevska Pivara d.d. Sarajevo,
Husein mr. Ahmović - Member, Klas d.d. Sarajevo,
Marija Brezovec - Member, Director of Economic and Finance Department in
Coning Inžinjering d.d. Varaždin,
Hajrudin Čengić - Member, Bosna Reosiguranje d.d. Sarajevo,
Roberto Marzanati - Member, Representative of the European Bank for
Reconstruction and Development (EBRD), London.
Enver Kazazić - Cairman, Deputy Director of Klas d.d. Sarajevo,
Sunita Ejubović - Member, Head of Finance of Grafopak d.d. Gračanica,
Mijo Grgić - Member, Director of Finance of JP Elektroprivreda BiH Sarajevo,
Šefik Handžić - Member, Director of Finance of Bosnalijek d.d. Sarajevo,
Sabaheta Imamović - Member, Certified Auditor of Vincent Tuzla.
Mirsad Letić - General Manager, Economist,
Hajrija Tanović - Deputy General Manager, Economist,
Branko Ekert - Executive Director of Human Resources and Support Services, Lawyer,
Zlata Mušić - Executive Director of Corporate Banking, Economist,
Alma Škapur - Executive Director of Treasury and Payments, Economist,
Ljubica Tankosić - Executive Director of Finance and Risk Management, Associate Economist,
Nedim Lulo - Executive Director of Retail Banking, Economist,
Lejla Neretljaković - Bank Secretary, Lawyer.
Mediha Ćatović - Chief Internal Auditor, Economist.
Internal Audit
ORGANIZATION CHART
MEMBERS OF THE MANAGEMENT
10
FINANCIAL INDICATORS
With its business policy and relations with clients, the Bank maintained a reputation of a
safe and stable bank, which is confirmed by achieved financial results and other indicators:
in KM 000
Structure
31 Dec 2004
31 Dec 2003
Index
Net assets
381,861
262,169
146
Liquid assets
183,970
101,395
181
Gross loans
187,639
152,237
123
Fixed assets
13,240
11,262
118
Investments
2,245
1,852
121
11,822
9,334
127
307,932
201,449
153
Borrowings
34,007
25,211
135
Total capital
33,474
29,584
113
Shareholders capital
22,900
22,900
100
Gross profit
3,952
3,650
108
Net profit
3,889
3,596
108
Income
27,095
23,210
117
Interest income
17,621
15,867
111
Fee income
6,139
5,803
106
Other income
3,335
1,540
217
23,143
19,560
118
5,299
4,532
117
11,217
9,763
115
6,627
5,265
126
From the Balance Sheet
Reserve for potential losses
Deposits
From the Income Statement
Expense
Interest expense
Non-interest expense
Provisions
11
Interest income grew by 11% compared to 2003, making 65% of total income of the Bank.
The structure of interest income includes:
• 46% interest income from short term corporate loans;
• 13% interest income from long term corporate loans;
• 28% interest income from retail clients (the dominant is interest income originating from card operations, making 13% of total interest income);
• 13% other interest income.
Taking into account the market developments, the Bank charged the following average interest
rates:
Interest
income
• 9.33% for corporate clients (9.90% in 2003, and 11.17% in 2002);
• 11.43% for retail clients (10.62% in 2003, and 11.88% in 2002).
Fee income increased by 6% compared to 2003, making 23% of total income.
This growth rate is due to the policy of reduced tariff, in accordance with market developments.
Fee income
Other
operating
income
Significant fee income is generated from domestic payment services, lending and guarantee
operations, and card operations fees.
The structure of other income includes write-off collections in the amount of KM 2.45 million,
141% more than in 2003, which is a result of comprehensive activities that the Bank has taken
to collect its receivables.
in KM 000
Structure
31 Dec 2004
%
of total
31 Dec 2003
%
of total
17,621
65%
15,867
68%
Fee income
6,139
23%
5,803
25%
Other income
3,335
12%
1,540
7%
Total income
27,095
100%
23,210
100%
Interest income
INCOME
STRUCTURE
12
30,000
25,000
20,000
15,000
10,000
5,000
INCOME IN
KM THOUSAND
0
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
30,000
25,000
20,000
15,000
10,000
5,000
expense in
km thousand
0
13
20%
15%
10%
5%
Return on
Equity (ROE)
and Return
on Assets
(ROA)
0%
2000
2001
2002
2003
ROE
7.21%
8.70%
7.81%
15.94%
ROA
0.94%
1.02%
0.80%
1.39%
2004
17.26%
1.03%
14
ASSETS
The balance sheet shows that loans make 49% of total assets, liquid assets make 48%, and
other assets make 3%. Important profitability indicators are assets per employee of KM 2 million (KM 1.55 million in 2003), loans per employee of KM 982 thousand (KM 901 thousand
in 2003), and deposits per employee of KM 1.61 million (KM 1.19 million in 2003).
400,000
300,000
200,000
100,000
ASSETS IN
KM THOUSAND
0
2000
2001
2002
2003
2004
Liquid assets totaled KM 183.97 million, of which KM 175.28 were interest bearing and KM
8.69 million were non interest bearing funds. Interest bearing funds, which make 95% of total
liquid assets, include liquid assets in the reserve account with the Central Bank of BiH and
funds in foreign accounts, and non-interest bearing funds make 4.7% of liquid assets and include cash in hand.
The liquidity ratio measured as cash equivalents to total assets was 48% (39% in 2003).
15
LENDING
The Bank’s loan portfolio was KM 187.64 million, 23% more than in 2003.
The corporate lending portfolio totaled KM 137.78 million, 73% of the Bank’s total loan portfolio.
The structure of corporate loans includes 75% short and 25% long term loans.
In 2004 the Bank approved a total of 813 loans totaling KM 137.15 million.
During the reporting period, the Bank managed 73 loans on behalf and for the account of other
parties, which totaled KM 8.76 million.
The Bank directed significant funding to agriculture and processing industries, which is supported by the fact that the Bank placed KM 82.71 million as loans and guarantees into these
industries, of which KM 4.88 million were lent to individual agricultural manufacturers - farmers.
During the reporting period, the Bank also signed a loan agreement with EBRD for € 5 million,
of which € 3.8 million are for lending to small and medium size enterprises and € 1.2 million
is for lending to retail clients.
A loan agreement was also signed with Kreditanstalt für Wiederaufbau for a credit line of € 1
million.
Corporate
lending
The Bank signed an agreement with the Sarajevo Regional Development Agency (SERDA)
for a credit line of KM 6 million, to be used for support to project in the primary agricultural
production and development of small and medium enterprises in this region.
The retail loan portfolio totaled KM 49.86 million, making 27% of the total loan portfolio of
the Bank.
Short term loans totaling KM 25.13 million, made 50% of the retail loan portfolio, of which
43% are credit card loans (Bamcard cards).
Long term loans totaling KM 24.73 million also made 50% of the retail loan portfolio, of
which KM 4.49 million were agriculture loans to farmers and KM 20.24 million retail loans
for housing, entrepreneurial and other purposes.
Retail lending
The loan portfolio grew by 36% compared to 2003, mostly due to increase of credit card
loans.
16
200,000
150,000
100,000
50,000
LOANS IN
KM THOUSAND
0
2000
2001
2002
2003
2004
17
SOURCES OF FUNDING
Deposits
In the liabilities structure, 81% are deposits, 9% are borrowings, 9% is capital, and 1% are
other liabilities. The ratio of loans to deposits was 61%, compared to 76% in 2003.
In the deposits structure, 60% are demand and 40% are term deposits.
350,000
300,000
250,000
200,000
150,000
100,000
50,000
DEPOSITS IN
KM THOUSAND
Borrowings
0
2000
2001
2002
2004
Bank’s borrowings in 2004 totaled KM 34.00 million, 35% more than in 2003, and included
credit lines of EBRD totaling KM 6.84 million, of KfW totaling KM 9.55 million, of USAID
totaling KM 3.49 million, of IBF totaling KM 5.66 million, of the OPEC Fond totaling KM
2.79 million, of PFD totaling KM 2.25 million, etc.
Shareholders
Shareholders with more
than 2% of
shareholding
capital
2003
31 Dec 2004 (%)
European Bank for Reconstruction & Development, London
19.9
Sarajevska pivara d.d. Sarajevo
15.7
Klas d.d. Sarajevo
11.6
Coning Inžinjering, Varaždin
4.1
Petar Vidović, Gradačac
3.9
Bosna Reosiguranje d.d. Sarajevo
3.6
Hypo Alpe Adria Bank d.d. Mostar
2.5
HIP 2000 d.o.o. Sarajevo
2.2
18
31 Dec 2004
31 Dec 2003
172,322
87,401
Retail demand deposits
12,401
8,581
Short term corporate deposits
19,130
49,345
Short term retail deposits
15,204
14,744
Other short term liabilities
4,241
3,558
223,298
163,629
Long term corporate deposits
61,667
27,019
Long term retail deposits
27,208
14,359
Long term loans
34,007
25,211
2,207
2,367
125,089
68,956
Shareholders capital
22,900
22,900
Reserve and retained earnings
10,574
6,684
Total capital
33,474
29,584
381,861
262,169
Short term sources
Corporate demand deposits
Total Short Term Sources
Long term sources
Subordinated debt
Total Long Term Sources
Capital
Structure
of funding
sources in KM
THOUSAND
Total liabilities and capital
19
DOMESTIC AND FOREIGN PAYMENTS
Through 3,562 transaction accounts, the Bank performed 2.18 million transactions totaling
KM 6.49 billion. E-banking services for domestic payment transactions are used by 240 corporate clients. E-banking payment transactions make 32% of total domestic payment debit
transactions.
It is important to stress that the Bank was selected to be one of the banks for collection of
public revenues for the BiH Indirect Taxation Administration.
There were 15,122 foreign payment transactions performed totaling KM 409.70 million,
(13,063 transactions totaling KM 274.13 million in 2003), which is a 49% increase compared
to 2003. This includes incoming payments (export operations) of KM 200.74 million and outgoing payments (import operations) of KM 208.96 million.
During the reporting period, the Bank issued 232 guarantees totaling KM 18.12 million (compared to 200 foreign guarantees totaling KM 22,56 million in 2003) and 22 letters of credit
totaling KM 4.56 million (20 letters of credit totaling KM 2.19 million in 2003).
20
RETAIL OPERATIONS
Retail savings totaled KM 54.81 million, 45% increase compared to KM 37.67 million in
2003.
The detailed structure was as follows:
• 23% were demand deposits 23% (23% as of 31 Dec 2003);
• 28% were short term deposits (39% as of 31 Dec 2003);
• 49% were long term deposits (38% as of 31 Dec 2003).
Savings have a positive trend and the total number of retail accounts opened in the Bank was
22,509.
In terms of card operations, the Bank issued 7,764 credit cards totaling KM 16.74 million,
7,329 debit cards, and 652 VISA Electron chip cards.
The Bank’s card acceptance network includes 412 POS terminals installed throughout the
merchant network, among which the most important in terms of number of transactions are
Mercator, VF Komerc, and Robot Commerce, and 12 ATMs.
60,000
50,000
40,000
30,000
20,000
10,000
SAVINGS IN
KM THOUSAND
0
2000
2001
2002
2003
2004
21
CONTROL SYSTEMS
During the reporting period, there were several external control teams working in the Bank,
including the external auditor KPMG BH d.o.o. Sarajevo, Federal Banking Agency, the Central Bank of BiH, the BiH Deposit Insurance Agency, EBRD, the FBiH Financial Police, the
FBiH Tax Administration, etc.
In addition to external control, the Bank conducts the mandatory internal control, which continuously monitored and evaluated efficiency of business operations of the Bank, accuracy
and adequacy of information systems in accordance with laws and regulations, and reporting
in accordance with the internal audit program.
22
EMPLOYEES
In 2004 the Bank employed 191 employees, 13% more than in 2003.
The qualification structure includes 83 university graduates, 13 associate degree graduates, 91
high school graduates, one skilled worker, and 3 employees with elementary school.
200
150
100
50
NUMBER
OF EMPLOYEES
0
2000
2001
2002
2003
2004
23
BRANCH NETWORK
24
BRANCH NETWORK
UPI Banka d.d. Sarajevo
Obala Kulina bana 9a
71000 Sarajevo
Tel.: +387 33 497 555
Fax: +387 33 497 589
E-mail: upibanka@bih.net.ba
www.upibanka.ba
HEAD OFFICE
BRANCHES
AGENCIES
UNITS
SWIFT: UPBKBA22
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25
LIST OF CORESPONDENTS
COUNTRY- BANK, PLACE
SWIFT CODE
CURRENCY/OUR
ACCOUNT NUMBER
BKAUATWW
RZBAATWW
EUR/126-155-664/01 978
EUR/55.062.830
GEBABEBB
EUR/291-1117152-03-978-0
ZABAHR2X
CBZGHR22
EUR/2690000235-978
EUR/56300-3003-8-709200
OKHBHUHB
EUR/10201006-10005635
UNCRITMM
ANTBIT2P
BAMNIT22
EUR/995 312
EUR/00400-01-027402154
EUR/0081219
COBADEFF
HYVEDEMM
LHBIDEFF
DRESDEFF
BOFADEFX
EUR/400 8768 558 00
EUR/69104720
EUR/0009867003
USD/0009867300
CHF/0009867 359
AUD/0009867334
JPY/0009867 367
GBP/0009867318
SEK/0009867326
CAD/0009867342
EUR/499/08081244/00/888
EUR/601917380012
NWBKGB2L
GBP/440/00/04598091
SKBASI2X
SBCESI2X
ABANSI2X
EUR/03770-1000003611
EUR/4500687-978
EUR/051001010004519
BOFAUS3N
USD/6550-8-75865
AUSTRIA
BANK AUSTRIA, Wien
RAIFFEISEN ZENTRALBANK OESTERREICH AG, Wien
BELGIUM
FORTIS BANQUE S.A./N.V., Bruxelles
(FORMERLY GENERALE DE BANQUE)
CROATIA
ZAGREBAČKA BANKA DD, Zagreb
CENTAR BANKA, Zagreb
HUNGARY
KERESKEDELMI ES HITELBANK RT. Budapest
ITALY
UNICREDITO ITALIANO SPA Milano
BANCA ANTONVENETA S.P.A. Padova
BANCA AGRICOLA MANTOVANA S.P.A. Mantova
GERMANY
COMMERZBANK AG FRANKFURT/M
HYPOVEREINSBANK AG MUNICH
LHB INTERNATIONAL HANDELS BANKEN AG FRANKFURT/M
DRESDNER BANK AG FRANKFURT A/M
BANK OF AMERICA N.A. FRANKFURT A/M
GREAT BRITAIN
NATIONAL WESTMINSTER BANK Plc London
SLOVENIA
SKB BANKA DD, Ljubljana
BANKA CELJE DD, Celje
ABANKA VIPA D.D. Ljubljana
USA
BANK OF AMERICA N.A. New York
26
27
UPI Banka dd
Annual report for the year
ended 31 December 2004
28
UPI Banka dd
Annual report for the year ended 31 December 2004
Statement of management’s responsibilities
The management of the Bank is required to prepare financial statements for each financial
year which give a true and fair view of the state of affairs of the Bank and of the results of the
Bank for that period. In preparing those financial statements, the management of the Bank is
required to:

select suitable accounting policies and then apply them consistently;

make judgements and estimates that are reasonable and prudent;

state whether applicable accounting standards have been followed; and

prepare the financial statements on a going concern basis unless it is inappropriate to
presume that the Bank will continue in business.
Management is responsible for maintaining proper accounting records, which disclose with
reasonable accuracy at any time the financial position of the Bank and to enable it to ensure
that the financial statements comply with the laws of Bosnia and Herzegovina. It has a
general responsibility for taking such steps as are reasonably open to it to safeguard the assets
of the Bank and to prevent and detect fraud and other irregularities.
4
29
Report of the independent auditor to the shareholders of UPI Banka
dd
We have audited the accompanying balance sheet of UPI Banka dd ("the Bank") as of 31
December 2004 and the related statements of income, changes in equity and cash flows for the
year then ended set out in pages 6 to 30. These financial statements are the responsibility of
the Bank’s management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements give a true and fair view of the financial position of the
Bank as of 31 December 2004, and of the results of its operations, changes in equity and cash
flows for the year then ended in accordance with International Financial Reporting Standards.
KPMG B-H doo za reviziju
Registered auditors
Fra Andjela Zvizdovica 1 A/VI
71000 Sarajevo
Bosnia and Herzegovina
25 February 2005
5
30
UPI Banka dd
Income statement
for the year ended 31 December 2004
Note
Interest income
Interest expense
4
5
Net interest income
Commission and fee income
Commission and fee expense
6
Net commission and fee income
2004
KM’000
2003
KM’000
18,885
(5,299)
17,244
(4,530)
13,586
12,714
4,347
(624)
4,018
(541)
3,723
3,477
Foreign exchange gains, net
7
556
475
Other operating income
8
691
283
18,556
16,949
(10,431)
(9,050)
8,125
7,899
(4,173)
(4,249)
3,952
3,650
(63)
(54)
3,889
3,596
Total income
Operating expenses
9
Profit before provisions
Impairment losses and provisions
10
Profit before tax
Taxation
Net profit for the year
11
The notes set out on pages 10 to 30 form part of these financial statements
6
31
UPI Banka dd
Balance sheet
As at 31 December 2004
Assets
Cash reserves
Obligatory reserve with the central bank
Debt securities
Placements with, and loans and advances to, other banks
Loans and advances to customers
Accrued interest and other assets
Equity securities
Tangible fixed assets
Intangible fixed assets
Note
2004
KM’000
2003
KM’000
12
13
14
15
16
17
18
19
20
75,507
32,862
1,266
78,906
174,625
3,500
2,059
12,530
606
71,707
11,803
1,339
20,142
141,454
2,967
1,377
10,612
768
381,861
262,169
307,931
36,143
3,054
1,259
201,449
27,578
2,412
1,145
348,387
232,584
22,900
10,574
22,900
6,685
33,474
29,585
381,861
262,169
Total assets
Liabilities and funds employed
Current accounts and deposits from customers
Borrowings
Accrued interest and other liabilities
Provisions for off-balance-sheet items
21
22
23
24
Total liabilities
Share capital and reserves
Share capital
Retained earnings and reserves
Total shareholders' funds
Total liabilities and funds employed
25
These financial statements were approved on 25 February 2005 and were signed by:
Mirsad Letic
General Manager
7
32
UPI Banka dd
Statement of changes in equity
Share capital
KM’000
Retained
earnings
and reserves
KM’000
KM’000
22,900
6,685
29,585
-
3,889
3,889
Balance at 31 December 2004
22,900
10,574
33,474
Balance at 1 January 2003
22,900
3,723
26,623
Dividends paid
-
(634)
(634)
Profit for the year
-
3,596
3,596
22,900
6,685
29,585
Profit for the year
Total
8
33
UPI Banka dd
Statement of cash flows
2004
KM’000
2003
KM’000
3,952
(81)
887
177
51
3,650
(934)
736
448
31
4,986
3,931
(33,171)
(6,451)
(518)
106,482
645
114
(38,908)
3,614
541
(267)
23,685
584
392
72,087
(6,428)
Sale/(purchase) of debt securities
Increase in investment in equity securities
Acquisition of tangible assets, net
73
(859)
(2,694)
(1,339)
(329)
(1,313)
Cash outflow from investing activities
(3,480)
(2,981)
Financing activities
Payment of dividend
Increase in borrowings
8,565
(634)
11,766
Cash inflow from financing activities
8,565
11,132
77,172
1,723
Cash flow from operating activities
Profit before tax
Tax paid
Depreciation and amortisation
Write off of and provisions for equity securities
Write off of fixed assets
Note
Cash flow from operating activities before changes in
operating assets and liabilities
(Increase)/decrease in placements with and loans to customers
(Increase)/decrease in placements with and loans to banks
(Increase)/decrease in accrued interest and other assets
Decrease in current accounts and deposits from banks
Increase in current accounts and deposits from customers
Increase in accrued interest and other liabilities
Increase in provisions for liabilities and charges
Net cash inflow/(outflow) from operating activities
Investing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
26
102,655
100,932
Cash and cash equivalents at the end of the year
26
179,827
102,655
9
34
UPI Banka dd
Notes to the financial statements
1
Accounting standards and conventions
The principal accounting policies adopted for the preparation of the financial statements are set out
below.
Preparation and presentation of financial statements
These financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and currently
applicable interpretations issued by the International Financial Reporting Interpretations Committee of
the IASB.
The financial statements are prepared on a fair value basis for financial assets and liabilities held for
trading, and available-for-sale assets, except those for which a reliable measure of fair value is not
available. Other financial assets and liabilities and non-financial assets and liabilities are stated at
amortised cost or historical cost.
The financial statements are presented in the currency of Bosnia and Herzegovina, the convertible mark
(“KM”), rounded to the nearest thousand. The Central Bank of Bosnia and Herzegovina has
implemented a currency board arrangement aligning KM to Euro at an exchange rate of Euro 1: KM
1.95583.
Disclosures
The financial statements have been stated in a format generally adopted and internationally recognised
by banks and in accordance with IAS 30, “Disclosures in the Financial Statements of Banks and Similar
Financial Institutions”.
2
Specific accounting policies
Interest income
Interest income and expense is recognised in the income statement as it accrues, taking into account the
effective yield of the asset or an applicable floating rate. Interest income and expense includes the
amortisation of any discount or premium or other differences between the initial carrying amount of an
interest bearing instrument and its amount at maturity calculated on an effective interest rate basis.
Interest income also includes loan origination fees.
Commission and fee income comprises mainly fees receivable from customers for payment transaction
services, guarantees, letters of credit, foreign currency transactions and other services provided by the
Bank. Fees are credited to income when the related service is performed.
10
35
UPI Banka dd
Notes (continued)
Foreign currency
Transactions in foreign currencies are translated into KM at the rate of exchange ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet
date are translated into KM at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income statement.
Financial instruments
Classification
Originated loans and receivables are loans and receivables created by the Bank providing money to a
debtor other than those created with the intention of short-term profit taking. Originated loans and
receivables comprise loans and advances to customers and other banks, other than purchased loans.
Available-for-sale assets are financial assets that are not held for trading purposes, originated by the
Bank or held to maturity. Available-for-sale instruments include debt and equity securities.
Recognition
Originated loans and receivables are recognised on the day they are transferred to the Bank.
The Bank recognises financial assets available for sale on the date it commits to purchase the assets.
From this date any gains and losses arising from changes in fair value of the assets are recognised in the
income statement.
Measurement
Financial instruments are measured initially at cost, including transaction costs.
Subsequent to initial recognition all available-for-sale assets are measured at fair value, except that any
instrument that does not have a quoted market price in an active market and whose fair value cannot
otherwise be reliably measured is stated at cost, including transaction costs, less impairment losses.
All non trading financial liabilities and originated loans are measured at amortised cost less impairment
losses. Amortised cost is calculated using the effective interest rate method. Premiums and discounts,
including initial transaction costs, are included in the carrying amount of the related instrument and
amortised based on the effective interest rate of the instrument.
Impairment of financial assets
Financial assets are reviewed at each balance sheet date to determine whether there is objective
evidence of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
The recoverable amount of originated loans is calculated as the present value of the expected future
cash flows, discounted at the instrument’s original effective interest rate. Short-term balances are not
discounted.
11
36
UPI Banka dd
Notes (continued)
Loans and advances are presented net of impairment provisions for uncollectibility. Specific
impairment provisions are made against the carrying amount of loans and advances that are identified as
being impaired based on regular reviews of outstanding balances to reduce these loans and advances to
their recoverable amounts. General impairment provisions are maintained to reduce the carrying
amount of portfolios of similar loans and advances to their estimated recoverable amounts at the
balance sheet date. The expected cash flows for portfolios of similar assets are estimated based on
previous experience and considering the credit rating of the underlying customers and late payments of
interest or penalties. Increases in the provision account are recognised in the income statement.
When a loan is known to be uncollectible, all the necessary legal procedures have been completed, and
the final loss has been determined, the loan is written off directly. If in a subsequent period the amount
of an impairment loss decreases and the decrease can be linked objectively to an event occurring after
the write down, the write down or provision is reversed through the income statement.
Derecognition
A financial asset is derecognised when the Bank loses control over the contractual rights that comprise
that asset. This occurs when the rights are realised, expire or are surrendered. A financial liability is
derecognised when it is extinguished.
Available-for-sale assets that are sold are derecognised and corresponding receivables from the buyer
for the payment are recognised as of the date the Bank commits to sell the assets.
Originated loans and receivables are derecognised on the day they are transferred by the Bank.
Specific instruments
Equity securities
Equity securities are classified as available-for-sale assets.
Debt securities
Debt securities are classified as held to maturity.
Loans and advances to banks and customers
Loans and advances originated by the Bank are classified as originated loans and receivables. Loans
and advances are presented net of impairment provisions to reflect the estimated recoverable amounts.
The amortisation of any discounts included within impairment provisions is included in interest income.
12
37
UPI Banka dd
Notes (continued)
Property, plant and equipment
All fixed assets are stated at historic cost, net of accumulated depreciation.
Depreciation is provided on all assets except land and assets in the course of construction on a straight
line basis so as to write off the cost of the assets over their estimated useful lives at the following annual
rates:
% per annum
20.00
10.00 –20.00
15.50
20.00
1.30
Computers and software
Furniture and equipment
Motor vehicles
Leasehold improvements
Buildings
Taxation
The Bank provides for taxation liabilities in accordance with law in the Federation of Bosnia and
Herzegovina.
Share capital is stated in KM at nominal value.
transferred to reserves.
Any profit for the year after appropriations is
Comparatives
Where necessary, comparative information has been reclassified to achieve consistency with current
financial year amounts and other disclosures. Such reclassification includes the disclosure of income
from loan origination fees within interest income (previously classified within commission and fee
income).
3
Incorporation
The Bank is a joint stock company incorporated in the Federation of Bosnia and Herzegovina.
4
Interest income
(a)
Analysis by source
Total interest income is derived from the following sources:
Companies
Individuals
Banks and other financial institutions
2004
KM’000
2003
KM’000
11,971
5,266
1,648
12,129
3,608
1,507
18,885
17,244
13
38
UPI Banka dd
Notes (continued)
(b)
Analysis by product
Interest income is analysed by banking products as follows:
Obligatory reserve with the Central Bank of Bosnia and Herzegovina
Other placements with, and loans and advances to banks
5
Interest expense
(a)
Analysis by recipient
Total interest payable is analysed by recipient as follows:
Companies
Individuals
Banks and other financial institutions
(b)
2003
KM’000
17,237
804
844
15,737
565
942
18,885
17,244
2004
KM’000
2003
KM’000
2,686
1,635
978
2,613
1,213
704
5,299
4,530
Analysis by product
Total interest payable is analysed by banking product as follows:
Current accounts and deposits
Borrowings
6
2004
KM’000
2004
KM’000
2003
KM’000
4,321
978
3,826
704
5,299
4,530
Fee income from processing of international payment transactions
Fee income from processing of domestic payment transactions
Fee income from credit cards activities
Fee income from guarantees and letters of credit
Fee income from foreign exchange transactions
Fee income from agency services
Other fee income
2004
KM’000
2003
KM’000
845
1,293
863
853
59
318
116
830
1,077
433
863
303
334
178
4,347
4,018
14
39
UPI Banka dd
Notes (continued)
7
Foreign exchange gains, net
Foreign exchange trading gain
Net foreign exchange loss from translation of monetary assets and
liabilities
8
2003
KM’000
600
623
(44)
(148)
556
475
2004
KM’000
2003
KM’000
21
40
505
125
70
90
123
691
283
Dividend income
Rental income
Gain on revaluation of available-for-sale equity securities
Other
9
2004
KM’000
Operating expenses
Marketing and representation costs
Salary costs
Other personnel costs
Rent
Depreciation
Amortisation
Consultancy fees
Savings deposit insurance and other insurance charges
Other expenses
2004
KM’000
2003
KM’000
592
5,133
739
224
725
162
773
288
1,795
281
4,684
673
109
624
112
455
342
1,770
10,431
9,050
Salary costs include KM 1,108 thousand (2003: KM 887 thousand) of defined pension contributions
paid into the State pension plan. The Bank had 191 employees at 31 December 2004 (2003: 169).
15
40
UPI Banka dd
Notes (continued)
10
The charge to the income statement in respect of impairment losses and provisions is analysed as
follows:
2004
KM’000
for loans and placements to banks
for loans to customers
for equity securities
for other balance sheet exposures
for off-balance-sheet exposures
11
2003
KM’000
4,725
(177)
(489)
114
102
4,411
360
(1,016)
392
4,173
4,249
2004
KM’000
2003
KM’000
Taxation
Accounting profit before tax
Disallowable items
Allowable items
3,952
841
(616)
3,650
523
(546)
Tax base
4,177
3,627
Income tax at 30% (2003: 30%)
1,253
1,088
Reduction of tax liability for reinvestment of profit
Reduction of tax liability for foreign shareholders
Income tax charge for the year
(940)
(250)
(816)
(218)
63
54
Tax is payable at the rate of 30% (2003: 30%) on adjusted operating profits for tax purposes.
12
Cash reserves
Cash in hand
Current accounts with other banks
Giro account
2004
KM’000
2003
KM’000
8,688
1,098
65,721
7,504
961
63,242
75,507
71,707
16
41
UPI Banka dd
Notes (continued)
13
Obligatory reserve with the Central bank
The obligatory reserve represents amounts required to be deposited with the Central Bank of Bosnia and
Herzegovina. Pursuant to the Law on the Central Bank of Bosnia and Herzegovina, the obligatory
reserve requirement represents 10% of average ten-day demand and time deposits and borrowed funds
irrespective of the currency in which they are held.
The obligatory reserve is maintained through the average balance on the reserve account with the
Central Bank.
14
Debt securities
Debt securities consist of corporate bills of exchange denominated in KM with maturities from 3
January 2005 to 1 July 2006, bearing interest at 8% per annum.
15
Placements with, and loans and advances to, other banks
2004
KM’000
Loans to banks
Placements with banks
Impairment allowance
2003
KM’000
2,026
76,982
(102)
2,026
18,218
(102)
78,906
20,142
17
42
UPI Banka dd
Notes (continued)
16
(a)
Analysis by product
2004
KM’000
2003
KM’000
Companies
- in KM
- in foreign currency
126,053
14,838
106,909
11,475
Total companies
140,891
118,384
Individuals
- in KM
45,819
4,618
32,096
4,893
Total individuals
50,437
36,989
Total loans before provisions
191,328
155,373
- specific
- general
(13,833)
(2,870)
(11,711)
(2,208)
Total loans after provisions
174,625
141,454
In KM loans are included loans in the amount of KM 37,243 thousand (2003: KM 62,706 thousand)
determined with reference to their EUR counter-value. Repayments of principal and interest are
determined in foreign currency and paid in the KM equivalent translated at the rate applicable on the
date of payment.
(b)
Movement in impairment allowance for loans to customers
2004
Total
KM’000
Specific
KM’000
General
KM’000
2003
Total
KM’000
Specific
KM’000
General
KM’000
As at 1 January
13,919
11,711
2,208
9,548
7,579
1,969
Net charge to income statement
Write off
4,725
(1,941)
4,063
(1,941)
4,411
(40)
4,172
(40)
As at 31 December
16,703
13,833
662
-
2,870
13,919
11,711
239
-
2,208
18
43
UPI Banka dd
Notes (continued)
(c)
Concentration of credit risk by industry
Commercial lending is concentrated on companies domiciled in Bosnia and Herzegovina.
The Bank’s gross loan portfolio, at 31 December 2004 and 2003, is analysed by industry in the table
below:
Agriculture, fishing
Mining
Construction
Wholesale and retail
Tourism, catering
Transportation, communications
Financial sector
Real estate
Public sector
Processing
Other
Total corporate lending
Total lending to individuals
Total lending
17
2004
KM’000
2003
KM’000
10,040
926
18,386
38,954
2,237
3,034
4,774
3,354
5,161
53,100
925
7,950
1,263
13,761
30,734
2,948
1,914
1,833
3,601
4,982
41,508
7,890
140,891
118,384
50,437
36,989
191,328
155,373
2004
KM’000
2003
KM’000
1,443
372
98
961
626
1,293
410
22
880
362
3,500
2,967
Accrued interest
Accrued fees
Prepayments
Prepaid tax
Other assets
19
44
UPI Banka dd
Notes (continued)
18
Equity securities
2004
KM’000
2003
KM’000
1,869
1,364
488
488
(298)
(475)
Listed and unlisted securities (available for sale)
Equity investment in associate companies
Bamcard doo, Sarajevo
2,059
1,377
Listed securities are quoted on the Sarajevo Stock Exchange. These securities are carried at fair value.
(a)
Movement in equity securities
Cost
As at 1 January
Additions
Sales
Write offs
Revaluation
As at 31 December
Impairment
As at 1 January
Impairment losses (Note 10)
As at 31 December
Net book value
At 31 December
2004
KM'000
2003
KM'000
1,852
505
1,611
341
(12)
(88)
2,357
1,852
-
475
(177)
115
360
298
475
2,059
1,377
20
45
UPI Banka dd
Notes (continued)
19
Tangible assets
Cost :
At 1 January
2004
Additions
Transfers
Disposals and
write offs
Land and
buildings
KM’000
Assets
Motor
Leasehold
under
vehicles improvements construction
KM’000
KM’000
KM’000
1,620
8
575
181
-
-
-
-
7,926
2,574
2,203
181
234
2,722
15,840
461
1,439
535
62
110
-
2,607
96
277
292
28
32
-
725
-
-
-
(13)
-
(22)
548
1,716
827
90
129
-
3,310
At 1 January
2004
7,474
705
1,085
119
118
1,111
10,612
At 31 December
2004
7,378
858
1,376
91
105
2,722
12,530
Depreciation:
At 1 January
2004
Charge for the
year
Disposals and
write offs
At 31 December
2004
(9)
(9)
228
25
23
(42)
1,111
2,639
(1,028)
Total
KM’000
2,144
430
At 31 December
2004
7,935
-
Furniture and
equipment
IT equipment
KM’000
KM’000
13,219
2,672
-
-
(51)
Net book value:
21
46
UPI Banka dd
Notes (continued)
20
Intangible assets
Cost:
At 1 January 2004
Additions
Transfers
Software
KM’000
Assets under
construction
KM’000
Total
KM’000
804
10
113
(10)
917
-
At 31 December 2004
814
103
917
Amortisation:
At 1 January 2004
Charge for the year
149
162
-
149
162
At 31 December 2004
311
-
311
At 1 January 2004
655
113
768
At 31 December 2004
503
103
606
2004
KM’000
2003
KM’000
135,856
35,091
72,633
14,768
58,927
21,869
74,390
1,977
251,743
163,768
10,029
3,747
5,217
3,362
10,980
31,432
4,692
24,410
56,188
37,681
307,931
201,449
Net book value:
21
Companies
Demand deposits
- in KM
Time deposits
- in KM
Individuals
Demand deposits
- in KM
Time deposits
- in KM
Total current accounts and deposits from customers
22
47
UPI Banka dd
Notes (continued)
22
Borrowings
2004
KM’000
2003
KM’000
21,155
719
12,469
-
7,969
6,300
12,156
2,953
36,143
27,578
2004
KM’000
2003
KM’000
543
474
492
151
1,394
509
595
625
156
527
3,054
2,412
Total
KM’000
Specific
KM’000
General
KM’000
1,145
491
654
114
(57)
171
1,259
434
825
Borrowings denominated in foreign currency
- foreign banks
- domestic banks
Borrowings denominated in KM
- foreign banks
- domestic banks
23
Accrued interest
Salaries payable
Creditors
Dividends payable
Other liabilities
24
Provisions for off balance sheet items
As at 1 January 2004
Net charge to income statement
As at 31 December 2004
23
48
UPI Banka dd
Notes (continued)
25
Share capital
Authorised and issued
Ordinary
shares
KM’000
22,900
22,900
Nominal value (KM)
100
Number of shares
229,000
Each registered ordinary share carries the right of one vote per share.
Shareholders who have been identified as having more than 5% in the share capital of the Bank at 31
December 2004 are the following: European Bank for Reconstruction and Development (19.99%);
Sarajevska pivara dd (15.73%) and Klas dd (11.55%).
26
Analysis of cash and cash equivalents as shown in the balance sheet
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following
balances with less than 30 days maturity:
Notes
Cash reserves
Obligatory reserve
Short term placements with banks maturing
within 30 days
2004
KM’000
2003
KM’000
Change
KM’000
12
13
75,507
32,862
71,707
11,803
3,800
21,059
30 (b)
71,458
19,145
52,313
179,827
102,655
77,172
24
49
UPI Banka dd
Notes (continued)
27
Commitments and contingencies
The aggregate amounts of outstanding guarantees, letters of credit and undrawn loan commitments at
the year end were:
2004
KM’000
2003
KM’000
4,906
11,666
6,072
12,527
16,572
18,599
8,966
4,553
7,480
1,716
13,519
9,196
Foreign currency letters of credit
3,345
441
Undrawn lending commitments
- in KM
18,438
12,992
51,874
41,228
Payment guarantees
- in KM
Performance guarantees
- in KM
Within payment guarantees is included KM 210 thousand (2003: KM 865 thousand) of payment
guarantees covered with cash collateral. Within performance guarantees is included KM 1,190
thousand (2003: KM 1,071 thousand) of performance guarantees covered with cash collateral. Within
letters of credit is included KM 1,773 thousand of letters of credit covered with cash collateral (2003:
KM 39 thousand).
28
Related party transactions
As at 31 December 2004 the Bank had exposure toward the following shareholders that own more than
5% of the Bank’s shares: Sarajevska pivara dd, Sarajevo KM 2,240 thousand (2003: KM 1,003
thousand) and Klas dd, Sarajevo KM 2,697 thousand (2003: KM 4,444 thousand). At the year end the
outstanding debt toward Sarajevska pivara dd was KM 147 thousand (2003: KM 705 thousand), Klas
dd, Sarajevo KM 2,478 thousand (2003: KM 2,506 thousand) and EBRD was KM 6,979 thousand
(2003: KM 6,772 thousand). As at 31 December 2004 the Bank had unused loan facility with EBRD in
the amount of KM 9,779 thousand (2003: KM 1,051).
25
50
UPI Banka dd
Notes (continued)
As at 31 December 2004 the Bank had total exposure in the amount of KM 9,176 thousand (2003: KM
3,946 thousand) toward the shareholders that own from 1% to 5% of the Bank’s shares. At the year end
the outstanding debt toward the shareholders that own from 1% to 5% of the Bank’s shares was KM
2,099 thousand (2003: KM 1,132 thousand).
As at 31 December 2004 the Bank had total exposure in the amount of KM 286 thousand (2003: KM
156 thousand) toward the Management Board members. At the year end the outstanding debt toward
the Management Board members was KM 631 thousand (2003: KM 562 thousand).
As at 31 December 2004 the Bank had total exposure in the amount of KM 91 thousand (2003: KM 113
thousand) toward the Supervisory Board members. At the year end the outstanding debt toward the
Supervisory Board members was KM 538 thousand (2003: KM 263 thousand).
29
Managed funds – agency business
The Bank manages certain assets on behalf of and for third parties. These assets are kept separately
from the Bank’s assets. For its services the Bank charges a fee from 1% to 2.5% per annum (2003:
0.75% to 2.5% per annum).
2004
KM’000
2003
KM’000
4,448
15,953
3,374
1,137
700
5,852
11,250
3,709
2,015
500
25,612
23,326
25,209
386
17
22,550
419
357
25,612
23,326
Liabilities
Investment Bank of Bosnia and Herzegovina
Companies
Investment Guarantee Agency
Managed on behalf and for the account of the City of Sarajevo
Managed on behalf and for the account of individuals
Assets
Loans to companies
Loans to individuals
Cash on clearing account
26
51
UPI Banka dd
Notes (continued)
30
Risk management
This note provides details of the Bank’s exposure to risk and describes the methods used by
management to control risk. The most important types of financial risk to which the Bank is exposed
are credit risk, liquidity risk and market risk. Market risk includes currency risk and interest rate risk.
a)
Credit risk
The Bank takes on exposure to credit risk which is the risk that a counterparty will be unable to pay
amounts in full when due. The Bank structures the levels of credit risk it undertakes by placing limits
on the amount of risk accepted in relation to one borrower, or groups of borrowers. Such risks are
monitored on a revolving basis and are subject to an annual or more frequent review.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential
borrowers to meet interest and capital repayment obligations and by changing these lending limits
where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate
and personal guarantees.
b)
Maturity analysis
The remaining contractual maturity of the Bank’s assets and liabilities as at 31 December 2004 is
presented in the table below.
Assets
Cash reserves
Obligatory reserves
Debt securities
Placements with, and loans and
advances to, other banks
Equity securities
Tangible assets
Intangible assets
Total assets
Current accounts and deposits from
customers
Borrowings
Provisions for off-balance-sheet items
Total liabilities and equity
Maturity gap
Up to 1
month
KM’000
1 to
3 months
KM’000
3 months
to 1 year
KM’000
1 to
5 years
KM’000
Over
5 years
KM’000
75,507
32,862
105
-
-
-
-
75,507
32,862
1,266
-
634
527
71,458
35,462
3,500
2,059
-
1,543
25,634
5,244
78,519
661
29,148
5,862
-
-
-
12,530
606
78,906
174,625
3,500
2,059
12,530
606
220,953
27,811
84,290
29,809
18,998
381,861
194,756
747
3,054
-
17,371
1,043
21,636
20,250
-
-
-
69,067
5,004
-
5,101
9,099
1,259
33,474
307,931
36,143
3,054
1,259
33,474
198,557
18,414
74,071
41,886
48,933
381,861
22,396
9,397
10,219
(12,077)
(29,935)
-
-
-
-
-
-
-
Total
KM’000
-
27
52
UPI Banka dd
Notes (continued)
c)
Market risk
Interest rate repricing, gap analysis and amounts subject to fixed interest rates
The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates
on its financial position and cash flows. Interest margins may increase as a result of such changes but
may reduce or create losses in the event that unexpected movements arise. The Management Board sets
limits on the level of mismatch of interest rate repricing that may be undertaken.
The following table illustrates the sensitivity of the Bank’s earnings to movements in interest rates.
Earnings will also be affected by the currency of the assets and liabilities.
Assets
Cash reserves
Obligatory reserves
Debt securities
Placements with, and loans
to other banks
Loans to customers
Accrued interest and other
assets
Equity securities
Tangible assets
Intangible assets
Total assets
Liabilities and funds
employed
Current accounts and
deposits from customers
Borrowings
liabilities
Provisions for off balance
sheet items
Interest rate gap
Non
interest
bearing
KM’000
Total
KM’000
Amounts
subject
to fixed
rates
KM’000
Up to 1
month
KM’000
1 to 3
months
KM’000
3 months
to 1
year
KM’000
66,819
32,862
105
-
527
-
-
634
-
-
-
8,688
-
75,507
32,862
1,266
66,819
32,862
1,266
70,830
34,087
473
7,161
1,994
111,321
17,099
4,957
5,609
-
78,906
174,625
73,297
34,543
-
-
-
-
-
-
3,500
2,059
12,530
606
3,500
2,059
12,530
606
-
204,703
8,268
113,842
17,099
4,957
32,992
381,861
208,787
192,563
10,062
15,558
14,872
67,762
7,366
17,216
2,794
3,058
-
11,774
1,049
307,931
36,143
73,299
15,363
-
-
-
-
-
3,054
3,054
-
-
-
-
-
-
1,259
33,474
1,259
33,474
-
202,625
30,430
75,128
20,010
3,058
50,610
381,861
88,662
(22,162)
38,714
(2,911)
-
120,125
2,078
1 to 5
year
KM’000
Over 5
years
KM’000
1,899
(17,618)
28
53
UPI Banka dd
Notes (continued)
Foreign exchange position
The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates
on its financial position and cash flows. The Management Board sets limits on the level of exposure by
currency and in total for both overnight and intra-day positions, which are monitored daily.
The Bank had the following foreign exchange positions as at 31 December 2004.
EURO
EURO
linked
Total
EURO
USD
Other FX
KM
Total
KM’000
KM’000
KM’000
KM’000
KM’000
KM’000
KM’000
3,283
-
-
3.283
-
394
-
621
-
71,209
32,862
1,266
75,507
32,862
1,266
72,269
16,997
-
37,243
-
72,269
54,240
-
4,713
702
-
-
1,924
156,926
3,500
2,059
12,530
606
78,906
174,625
3,500
2,059
12,530
606
92,549
37,243
129,792
5,809
621
282,882
381,861
86,827
21,155
-
86,827
21,155
4,969
719
346
-
215,789
14,269
307,931
36,143
456
-
456
226
-
2,372
3,054
-
-
-
-
-
1,259
33,474
1,259
33,474
108,438
-
108,438
5,914
346
267,163
381,861
Net foreign exchange position
(15,889)
275
15,719
-
Assets
Cash reserves
Obligatory reserve
Debt securities
Placements with, and loans and
advances to, other banks
Equity securities
Tangible assets
Intangible assets
Total assets
Current accounts and deposits
from customers
Borrowings
liabilities
Provision for off balance sheet
items
37,243
21,354
(105)
29
54
UPI Banka dd
Notes (continued)
31
Average balances and average effective interest rates
The table below summarises the average effective interest rate at year-end for monetary financial
instruments. These average effective interest rates reflect foreign currency structure and interest rates
as at 31 December 2004 and may not be representative at other times.
32
2004
KM’000
Average effective
interest rates
%
Cash reserves
Obligatory reserves
Debt securities
Placements with, and loans and advances to other banks
75,507
32,862
1,266
78,906
174,625
0.88
2.06
8.00
1.38
10.56
Borrowings
307,931
36,143
2.07
3.54
Fair values of financial assets and liabilities
Fair value represents the amount at which an asset could be exchanged or a liability settled on an arm’s
length basis. As verifiable market prices are not available for a significant portion of the Bank’s
financial assets and liabilities, fair values have been based on management assumptions. The
management of the Bank believes that the fair values of assets and liabilities are not significantly
different from book values.
30
55
UPI Banka dd
Financial statements prepared in the form prescribed by the
Federal Agency for the Banks of Bosnia and Herzegovina
These financial statements comprise the Income Statement for the year ended 31 December 2004 and
the Balance Sheet as at 31 December 2004 prepared in the form prescribed by the Decision on volume,
form and contents of programs and reports on economic and financial audit from 29 January 2003, the
Amended Decision from 19 December 2003.
31
56
UPI Banka dd
Income statement for the year ended 31 December 2004
Interest income and interest expense
Interest income and similar income
Interest bearing deposits with deposit institutions
Placements with other banks
Loans and leasing
Debt securities held until maturity
Equity securities
Receivables for payments made for off balance sheet exposure
Other interest income and similar income
Total interest income and similar income
2004
KM’000
2003
KM’000
818
15,881
924
942
14,925
-
17,623
15,867
Interest expense and similar expenses
Deposits
Borrowings from other banks
Borrowings – due
Borrowings
Subordinated debts and subordinated bonds
Other interest expense and similar expenses
4,321
978
-
3,826
704
2
Total interest expense and similar expenses
5,299
4,532
Net interest income and similar income
12,324
11,335
Operating income
Income from FX trade gains
Fee income from lending activities
Fee income from guarantees and letters of credit
Other fee income
Income from trading activities
247
1,189
1,429
3,144
3,463
958
1,548
1,510
2,028
1,299
Total operating income
9,472
7,343
Non interest expenses
Business expenses
General provision for balance sheet and off balance sheet exposures
Other expenses
6,627
1,787
5,265
1,809
Total business expenses
8,414
7,074
Operating expenses
Personnel costs
Depreciation and other business premises related expenses
Other operating expenses
5,798
1,958
1,674
5,258
1,802
894
Total operating expenses
9,430
7,954
Total non interest expenses
17,844
15,028
Profit before tax
Taxation
3,952
63
3,650
54
Net profit for the year
3,889
3,596
32
57
58
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