Erste&Steiermärkische Bank d.d.
2
Introduction.............................................................................................................................................................................................................................................................4
Management report................................................................................................................................................................................................................................................6
Report of the President of the Management Board.............................................................................................................................................................................................6
Management Board.............................................................................................................................................................................................................................................8
Business results of Erste&Steiermärkische Bank d.d. and its subsidiaries in 2022..........................................................................................................................................10
Non-financial report..............................................................................................................................................................................................................................................29
Corporate Governance Statement......................................................................................................................................................................................................................64
Financial Statements for the year ended 31 December 2022...........................................................................................................................................................................68
Responsibility for the Financial Statements.......................................................................................................................................................................................................69
Independent auditor’s report..............................................................................................................................................................................................................................70
I.Statement of Comprehensive Income for the Year ended 31 December 2022............................................................................................................................................80
II.Statement of Financial Position as at 31 December 2022............................................................................................................................................................................82
III.Statement of Changes in Equity...................................................................................................................................................................................................................83
IV.Statement of Cash Flow for the year ended 31 December 2022.................................................................................................................................................................85
V.Notes to the Financial Statements................................................................................................................................................................................................................86
General information...........................................................................................................................................................................................................................................86
Significant accounting policies...........................................................................................................................................................................................................................88
Basis of preparation......................................................................................................................................................................................................................................88
Accounting and measurement methods.......................................................................................................................................................................................................89
Significant accounting judgements, assumptions and estimates.................................................................................................................................................................90
Application of amended and new IFRS/IAS.................................................................................................................................................................................................90
PERFORMANCE / RETURN.............................................................................................................................................................................................................................92
1.Segment reporting................................................................................................................................................................................................................................92
2.Net interest income...............................................................................................................................................................................................................................95
3.Net fee and commission income...........................................................................................................................................................................................................97
4.Dividend income...................................................................................................................................................................................................................................98
5.Net trading and fair value result............................................................................................................................................................................................................98
6.Gains/losses from financial assets and liabilities measured at fair value through profit or loss, net....................................................................................................99
7.Rental income from investment properties & other operating leases...................................................................................................................................................99
8.General administrative expenses.........................................................................................................................................................................................................99
9.Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss ............................................................................100
10.Impairment result from financial instruments......................................................................................................................................................................................101
11.Other operating result.........................................................................................................................................................................................................................103
12.Taxes on income................................................................................................................................................................................................................................104
Financial instruments – Significant accounting policies...................................................................................................................................................................................107
Financial instruments held at amortised cost (AC)..........................................................................................................................................................................................115
13.Cash and cash balances....................................................................................................................................................................................................................115
14.Financial assets at amortised cost......................................................................................................................................................................................................116
15.Trade and other receivables...............................................................................................................................................................................................................119
16.Financial liabilities measured at amortised costs................................................................................................................................................................................120
Financial instruments at fair value...................................................................................................................................................................................................................123
Financial instruments at fair value through profit or loss.................................................................................................................................................................................123
17.Derivatives – held for trading..............................................................................................................................................................................................................124
18.Other financial assets held for trading................................................................................................................................................................................................124
19.Non-trading financial assets at fair value through profit or loss..........................................................................................................................................................125
Financial instruments at fair value through other comprehensive income.......................................................................................................................................................125
20.Financial assets at fair value through other comprehensive income- equity instruments...................................................................................................................126
21.Financial assets at fair value through other comprehensive income- debt instruments.....................................................................................................................126
Financial instruments – other disclosure matters............................................................................................................................................................................................129
22.Fair value of assets and liabilities.......................................................................................................................................................................................................129
23.Offsetting............................................................................................................................................................................................................................................139
24.Transfers of financial assets – repurchase transactions and securities lending.................................................................................................................................142
25.Asset pledged as collateral.................................................................................................................................................................................................................143
26.Securities............................................................................................................................................................................................................................................144
Risk management............................................................................................................................................................................................................................................145
27.Risk management...............................................................................................................................................................................................................................145
28.Credit risk review and monitoring.......................................................................................................................................................................................................152
29.Credit risk exposure............................................................................................................................................................................................................................155
30.Non-performing credit risk exposure and allowances for credit risks.................................................................................................................................................162
31.Measurement of expected credit loss.................................................................................................................................................................................................163
32.Development of credit loss allowances...............................................................................................................................................................................................166
3
Erste&Steiermärkische Bank d.d.
CONTENTS (continued)
35.Collaterals...........................................................................................................................................................................................................................................188
36.Market risk..........................................................................................................................................................................................................................................192
37.Liquidity risk........................................................................................................................................................................................................................................195
38.Operational risk...................................................................................................................................................................................................................................200
Non-current assets and other investments......................................................................................................................................................................................................201
39.Property, equipment and Investment properties.................................................................................................................................................................................203
40.Intangible assets.................................................................................................................................................................................................................................207
41.Other assets.......................................................................................................................................................................................................................................211
Leases.............................................................................................................................................................................................................................................................212
42.Group as a lessor...............................................................................................................................................................................................................................212
43.Group as a lessee...............................................................................................................................................................................................................................214
Accruals, provisions, contingent liabilities and legal proceedings...................................................................................................................................................................216
44.Other liabilities....................................................................................................................................................................................................................................216
45.Provisions...........................................................................................................................................................................................................................................216
46.Contingent liabilities............................................................................................................................................................................................................................220
Capital instruments, equity and reserves.........................................................................................................................................................................................................221
47.Total equity.........................................................................................................................................................................................................................................221
Scope of consolidation.....................................................................................................................................................................................................................................222
48.Investments in subsidiaries ................................................................................................................................................................................................................222
49.Investments in associates...................................................................................................................................................................................................................225
Other disclosure matters..................................................................................................................................................................................................................................226
50.Related-party transactions..................................................................................................................................................................................................................226
51. Share-based payments ......................................................................................................................................................................................................................228
52.Audit fees and tax consultancy fees...................................................................................................................................................................................................229
53.Assets held for sale and liabilities associated with assets held for sale.............................................................................................................................................230
54. Analysis of remaining maturities.........................................................................................................................................................................................................232
55. Events after balance sheet date.........................................................................................................................................................................................................234
56.Country-by-country reporting..............................................................................................................................................................................................................234
Own funds and capital requirements...............................................................................................................................................................................................................235
57.Own funds and capital requirements..................................................................................................................................................................................................235
Appendix 1 – Forms according to local requirements....................................................................................................................................................................................239
Appendix 2 – Differences between financial statements according to IFRS and local requirements........................................................................................................249
Management Report
Year ended 31 December 2022
4
This Annual report, issued to the shareholders of the Erste&Steiermärkische Bank d.d. , comprises the report of the President of the Management Board, Business results of Erste&Steiermärkische Bank d.d. and its subsidiaries, Non-financial Report, Corporate Governance Principles implementation statement, the audited financial statements together with an Independent auditor’s report and supplementary reports for the Croatian National Bank (CNB). The audited financial statements are presented for the Group and the Bank.
Croatian and English language version
This document comprises the Annual Report of Erste&Steiermärkische Bank d.d. for the year ended 31 December 2022 stated in English. This report is also published in Croatian language.
Legal status
The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as published by International Accounting Standards Board (IASB) and adopted in EU.
Abbreviations
Mangement Report
Year ended 31 December 2022
5
Erste&Steiermärkische Bank d.d.
Report of the President of the Management Board
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
6
The final preparation of the Croatia’s entry into the European monetary union was certainly one of the most important events in 2022. Joining the eurozone will lead to further integration of the Croatian economy into the European financial and economic flows, positively increasing its competitiveness and attractiveness to investors, which will ultimately ensure further intensification of the process of convergence. At the same time, the demanding criteria that Croatia had to fulfil as part of the euro adoption process will positively contribute to the achievement of the basic objective — a high-quality and long-term sustainable position of the Croatian economy based on solid foundations.
Changed market environment, interest rates on the rise
After a prolonged period of gradual decline in interest rates, a stabilization of this trend took place in 2022, influenced by inflationary developments, consequences of monetary policy stance and global geopolitical developments. On the other hand, the benefits of the Croatian integration into the monetary union, such as the practical elimination of currency risk, have to some extent mitigated the increase in interest rates in Croatia, compared to some other European countries (especially non-Euro ones). However, in the short term, the level of interest rates will depend dominantly on the moves of monetary policymakers in the segment of raising reference interest rates, in response to the current high inflation environment and the ensuing uncertainties associated with the war conflict in Ukraine.
Operating performance stability and higher net profit in 2022
We are satisfied with the results achieved during 2022 in all business segments, with special emphasis on the growth of total loans with a steady growth of deposits, the influx of new clients, continued leading CX position on the market and the increase in the number of users of digital solutions, George on-line banking and KEKS Pay applications. With further development of these digital solutions, we have reached one of our strategic goals: to be a leader in digital innovation, having further positioned our digital strategy as the trademark of Erste brand in Croatia.
According to an unconsolidated financial report, which includes the results of the Bank excluding subsidiaries, the net profit in 2022 amounted to HRK 977 million, which is 15.3% higher than HRK 847 million in 2021. Net profit growth is the result of a further reduction in risk costs and an improved operating result, supported primarily by growth in income from transaction operations in the post-COVID period and by positive trends in the trading segment. On the other hand, the total amount of net profit achieved in 2022 was influenced by the tax expense attributable to the addition income tax, amounting to HRK 91 million. Net interest income increased by 8.4%, from HRK 1,612 million in 2021 to HRK 1,747 million u 2022. At the same time, the net fee and commission income increased by 15.2%, from HRK 519 million in 2021 to HRK 598 million in 2022. Net trading and fair value result in 2022 reached HRK 309 million, 41.7% more than HRK 218 million in 2021.
The Bank’s total assets at the end of December 2022 were HRK 102.6 billion, or 23.9% more than at the end of 2021, when it amounted to HRK 82.8 billion. Total loans to customers as of 31 December 2022 amounted to HRK 53.6 billion, 17.3% more than HRK 45.7 billion at the end of 2021. Total deposits of the Bank's customers as of 31 December 2022 amounted to HRK 80.4 billion, which is 23.9% more than at the end of 2021, when they amounted to HRK 64.9 billion.
EBC Group’s net profit before minority interests amounted to HRK 1,172 million in 2022, 9.6% higher than HRK 1,069 million in 2021. ECB Group’s net interest income amounted to HRK 2,121 million, 5.9% higher compared to HRK 2,003 million in 2021. Net fee and commission income amounted to HRK 884 million, 9.3% more than HRK 809 million in 2021.
EBC Group’s total assets at the end of December 2022 amounted to HRK 112.9 billion, which is 22.3% more than at the end of 2021, when it amounted to HRK 92.3 billion. Total loans to customers as of 31 December 2022 amounted to HRK 58.1 billion, which is 16.2% more than HRK 50 billion at the end of 2021. Total deposits from EBC Group's customers as of 31 December 2022 amounted to HRK 84.2 billion, up 23.3% compared to the end of 2021, when they amounted to HRK 68.3 billion.
Mangement Report
Year ended 31 December 2022
7
Erste&Steiermärkische Bank d.d.
Downward trends of NPLs
In 2022, risk costs continued to decline, while the share of the Bank’s so-called NPLs was additionally reduced from 5.5% at the end of 2021 to 3.6% at the end of December 2022. With respect to private individuals, the NPL share reached 4.8% at the end of 2022, compared to 8.2% at the end of 2021. In the corporate segment (including sovereign exposure), the NPL share was 2.7% at the end of 2022, compared to 4.4% at the end of 2021. As a responsible business entity, the Bank will continue to monitor and manage its loan portfolio, in accordance with its business policies and applicable credit risk management standards, while respecting all regulatory rules and applying a balanced approach that takes into account the objective market situation and customer needs.
Being the part of Erste Group, one of the largest providers of financial services in Central and Eastern Europe, Erste Bank Croatia finds a sustainable business model as a ground pillar of its operations. We have identified nine fundamental Sustainable Development Goals to which we wanted to contribute: No poverty ((SDG 1), Good health and well-being (SDG 3), Quality education (SDG 4), Gender equality (SDG 5), Clean water and sanitation (SDG 6), Affordable and clean energy (SDG 7), Sustainable cities and communities (SDG 11), Responsible consumption and production (SDG 12) and Climate action (SDG 13). Apart from almost 20% percent market share in a renewable energy financing and other green incentives, it is to be highlighted that, in cooperation with Erste Group, we have launched our Financial Health tool, designed to support our corporate clients in reaching a healthier financial balance by giving them access to transparent and understandable information about their current financial situation. To sum it up, we have continued with our free-of-charge financial literacy program, School of Smart Finance, with more than 11.500 attendees in total so far.
Croatia can take an optimistic outlook of the future
Uncertainty caused by geopolitical developments, the war in Ukraine, supply chain issues and the high inflation level remain risk factors that threaten economic growth. However, the inflation rate can be expected to stabilise and decrease at mid-year. Also, Croatia’s Schengen entry should result in substantial benefits and additional integration of Croatia as a tourist destination into the EU market. Positive perspectives of Croatian tourism will provide extra growth opportunities for other sectors as well. I believe we may conclude that Croatia has additional potential in the ICT sector, and in the medium term, given Croatia’s geographic position and the abovementioned integration, in combination with infrastructure development, Croatia can build a stronger position in logistics as well.
Generally, speaking of priorities for 2023, after the above important integration steps, the focus should be on using the potentials of EU funds and their anticyclical capacity in an environment characterised by growth slowdown as efficiently as possible. Similarly, putting the available funds to good use is an important priority also in the context of generating opportunities for faster potential economic growth and creation of prerequisites for more sustainable income convergence, where an increased pace of structural reforms would be an asset. For this process to succeed, we must once again draw attention to the importance of implementing structural reforms. In this context, continual improvement of investment and legal certainty remains a fundamental prerequisite for long-term economic growth and for making use of potentials available to Croatia and us all. Caution should be exercised while introducing new taxes for the most successful companies that generate the highest added value and are a driver of the Croatian economy and a generator of new jobs.
With positive economic trends, stable public finances and potentials of the EU funds usage, and provided that the path of strengthening legal certainty for investors continues, Croatia can take an optimistic outlook of the future. The banking system will continue to strongly support the growth and development of the Croatian economy. This, of course, includes Erste Bank Croatia, which is proud of its results achieved in 2022, which have been completed by two valuable awards presented to us: Zlatna kuna (Golden Kuna) for the most successful Croatian bank, presented by the Croatian Chamber of Economy, and the Bank of the Year Award presented by distinguished The Banker magazine. Our objective will remain the same: to promote the prosperity of our employees, our clients, and the Croatian society in general.
Christoph Schoefboeck,
President of the Management Board
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
8
CHRISTOPH SCHOEFBOECK, President of the Board
Responsibilities: Human Resources Division, Legal Division until 31 July 2022, Marketing Division, Corporate Communication Office, Strategy and Project Management Division, Internal Audit Division, Management Office
From 1 August 2022 responsible for SME Division, Large Corporates Division, Corporates and Markets Business Development and Support Division, Financial Markets Division
BORISLAV CENTNER, Member of the Board
Responsibilities: SME Division, Large Corporates Division, Corporates and Markets Business Development and Support Division, Financial Markets Division
Member of the Board until 31 July 2022
MARTIN HORNIG, Member of the Board
Responsibilities: Processing Division, IT and Organization Division, Property and Service Management Department
ZDENKO MATAK, Member of the Board
Responsibilities: Retail Division, Retail Business Development Division, Direct Channels Division, Digital Banking Division
KREŠIMIR BARIĆ, Member of the Board
Responsibilities: Accounting and Controlling Division, Asset and Liability Management Division, Economic Research Division, Group Tax Office
HANNES FROTZBACHER, Member of the Board
Responsibilities: Risk Management Division, Credit Risk Management Division, Corporate Security Division, Non-financial Risk Division
From 1 August 2022 responsible for Legal Division
Management Board
Mangement Report
Year ended 31 December 2022
9
Erste&Steiermärkische Bank d.d.
Business results of Erste&Steiermärkische Bank d.d. and its subsidiaries in 2022
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
10
I.Retail segment
Retail loans and deposits
Total portfolio of the Bank's gross retail loans amounted to HRK 21.45 billion on 31 December 2022, which is increase of HRK 1.58 billion compared to previous year. The market share in retail loans, per Croatian National Bank, amounted to 14.16% as of 31 December 2022 which is increase of 38 basis points compared to 31 December 2021.
The retail deposit market continued its growth in 2022, reaching HRK 46.97 billion as of 31 December 2022, which represents increase of HRK 8.1 billion compared to previous year. Decrease of term deposits continued through 2022 with a trend of decreasing interest rates. Retail deposits reached market share of 16.07% as of 31 December 2022, which represents increase of 95 basis points in comparison to 31 December 2021.
Focus on clients in 2022
Service quality and client satisfaction, as the main strategic determinants of Erste Bank's business operations, have marked business operations in the past year, which is recognized by clients and contributed to growth of private individual’s client base to over 904,000 clients.
The biggest focus in 2022 was on the activities of adapting the entire business system, products and services and branch network of Erste Bank for the introduction of euro as official currency in the Republic of Croatia from 1 January 2023. These activities required additional costs and exceptional contribution of our employees. All preparatory activities were carried out in accordance with the planned deadlines and by entering 2023 Erste Bank successfully adapted all its operating systems to the new euro currency and supplied branch network with a sufficient amount of euro cash so that clients could continue to use our services undisturbed after the introduction of new official currency.
Changes in client behaviour and habits, development of new technologies and regulatory framework are continually demanding a change in the existing business model and role of individual distribution and communication channels, where branches are increasingly becoming centres of advisory and solving more complex client requirements, while clients are increasingly using digital services and self-service devices to perform transactions and solve simpler requests. Thus, activities of branch transformation continued throughout the year, which, in addition to a new visual identity, are also characterized by a new way of working focused on the employee advisory role and a unique customer experience. Total number of branches amounted to 114 at the end of 2022, and total number of self-service devices amounted to 703.
Mangement Report
Year ended 31 December 2022
11
Erste&Steiermärkische Bank d.d.
I.Retail segment (continued)
During 2022 activities to improve the offer of housing and cash loans continued and a large national campaign for the promotion of housing loans was organized in the first quarter, and in the last quarter of 2022 for the promotion of cash loans with emphasis on digital submission of applications. Also, Erste Bank actively took part in the tranche of APN financing program for the purchase of real estate or construction of houses, for which Government of the Republic of Croatia approved subsidies up to half of the installment or annuity. Cooperation with the best credit brokers for housing loans on the market has been started. All the mentioned activities had an impact on the strong growth of new disbursement of housing loans by as much as 86% and the growth of the market share to 12.60% on 31 December 2022, which is increase of 114 basis points compared to 31 December 2021.
Also, in 2022 special focus is placed on building the financial health of clients through various activities in the sales network and through direct communication with clients. Purpose of these activities is to build clients' awareness of the importance of knowing their personal financial situation from various aspects and the importance of planning their financial future. In the sales network are conducted regular monthly activities of proactively contacting clients to advise them on investment opportunities. Through targeted communication on digital channels (e-mail, George), we actively worked to raise awareness among clients about the importance of creating a financial reserve for situations of unforeseen expenses, as well as for securing financial resources for the future/retirement. Indicators of financial health were defined as a tool to help clients and sales network in analysing the client's current financial situation and determining goals for the future. A customer opinion survey is underway to assess the suitability and applicability of such financial health counselling tool. During 2023 is planned development of the mentioned indicators and their application in the advisory process.
Erste Bank places a significant focus on ecologically responsible business, so for several years we have been offering more favorable conditions for housing loans related to the purchase and construction of real estate with high energy efficiency, the purchase and installation of equipment for the use of renewable energy sources (e.g. solar panels) and the purchase and installation of equipment to maintain and improve energy efficiency (e.g. thermal insulation). Also, from 2022 banking cards we produce and distribute to clients are made of recycled plastic.
Innovations in Retail segment
With the long-term goal of ensuring financial prosperity for clients, and providing new and improved services, George’s intensive development and enhancement has continued despite very demanding Euro project.
At the beginning of the year migration of digital users to George was completed and old local digital services netBanking and mBanking have been shut down. Migrated users got used to the new George platform which led to the growth of customer’s satisfaction index from 81.0 to 89.5 and application store grades rising from 4.4 to 4.7 on average in 2022 compared to 2021.
In addition to intensive involvement in the EURO project, also new products were developed on George in 2022. We introduced end-to-end custody and brokerage account opening, gyro account opening and at the end of the year a’vista savings account opening as one of the initiatives for vulnerable clients and a prerequisite for saving goals and money automation. Thus, the range of products available completely digitally on the George application has been further expanded, in addition to already available products such as opening current accounts, cash loans, term deposits, credit cards and partner products such as travel and health insurance and purchase and sale of investment funds. We also refreshed George's web and mobile overviews and optimized some process flows of banks and partners’ product sales in George store. One of the highlights was introduction of assisted sales in branches so tellers can now assist customers and contract George store products directly through George faster, fully digital and completely paperless. Approximately 32% of products contracted through George were done by teller assistance. In partnership with VIG we added visibility of contracted insurance policies to George (health, car and property insurance).
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
12
I.Retail segment (continued)
The trend of strong growth for the KEKS Pay application continued in the fifth year of its presence on the market. A record-setting 87,000 new users in 2022, predominantly clients of other banks, brought the total number of users to 317,000. 71% of these users refer to the clients of other banks, while 29% of them are clients of Erste Bank. The fully digital prepaid KEKS Pay account opening with the associated Visa card continued in a stable trend.
The number of opened prepaid accounts thus exceeded 40,000 which further enhanced the launch of a new functionality during the second half of the year - KEKS Kasica, i.e. savings. Almost 4,500 additional electronic money accounts (savings KEKS Kasica accounts) were opened in a short period, with very positive reactions from users.
Thanks to the simplicity associated with KEKS Pay, all users were able to contract this product fully digitally and at the same time create prerequisites for establishing a long-term relationship and offering additional products. The innovative KEKS Pay režije service, in which during 2021 receiving digital bills and paying them without fees is possible throughout Croatia, has further expanded its scope and now offers more than 60 different issuers. At end of the year, in addition to more than 12,000 approved requests for digital bills, 65,000 of them had already been paid, with a clear growth trend from month to month.
Increased acquisition activities towards legal entities in the past period have also achieved excellent results, so that KEKS Pay, with payment at more than 350 integrated webshops, can be considered a mainstream ecommerce payment method in Croatia. Activities in other areas, such as retail (implementation of KEKS Pay payments at more than 2,000 Konzum outlets), HoReCa channels, ticketing (Eventim, Entrio, Ulaznice.hr), public transport (Jadrolinija) and the like will certainly help the positive trend to continue.
Digital banking in 2022
During 2022 Erste Bank recorded an increase in number of digital channel users, as well as transactions and revenues related to transactions. At the end of 2022 Bank counts 428,818 digital users of George application out of which 362,062 are active users, which presents increase of 17% in the number of active digital users compared to 2021. 97% of active digital users are mobile users.
Strong increase was recorded in digital transactions and they have grown by 16% in numbers and 46% in volume. During 2022 focus was on digital sales. Share of digital sales in 2022 is 27.9% which is increase of 5.1% in comparison to 2021.
Mangement Report
Year ended 31 December 2022
13
Erste&Steiermärkische Bank d.d.
I.Retail segment (continued)
Contact centre
Contact center has an important role in communication with clients, and this role is becoming greater with the development of new communication channels and digitalization of business activities. In 2022 clients contacted the Bank for 737,593 times through the Contact Centre, what is 3.65% less than in 2021. Contact center agents handled 572,893 contacts or 5.36% more than in previous year. Out of this number, 77% of the contacts were resolved by agents over the telephone calls (inbound and outbound contacts), while the rest regards to communication by email, webchat, Viber, What'sApp, Facebook and video identification. Significant increase compared to 2021 refers to written communication channels, especially to webchat (36%) and email (14%). Video identification, in addition to contracting accounts and loans through George and issuing Keksica (Keks prepaid card) through Keks Pay, became possible for updating of clients' personal data and contracting custody and savings accounts through George. Through outbound sales campaigns from the contact center 91,898 clients were reached in 2022, which is 8.5% more than in 2021.
To improve quality of business activities, at the end of 2022, the chatbot project was implemented and the capacities for providing contact center services were increased. By implementing a chatbot, communication with clients via the webchat channel was partially automated, which reduced the workload by approx. 50% and resulted in savings in agent resources. In order to ensure enough agent resources in 2022, new offices were equipped at locations in Zagreb and Šibenik, so that the contact center now provides service from a total of 3 cities.
As part of the contact center, from the end of 2021, a remote investment advisory service was implemented, provided by a team of specialized employees centrally, to clients in all locations, using video communication (from branches or via George application). In scope of remote advisory service during 2022 a total number of 545 specialized investment advisory video meetings and 5,780 contacts related to other Bank products through various communication channels were handled. Through those meetings and contacts, over 3,800 products were realized (mostly cash loans and investment products). Clients are satisfied with the services provided, what is confirmed by the results of the conducted customer experience surveys.
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
14
II.Corporate segment
Corporate loans and deposits
Total portfolio of the Bank's gross corporate loans recorded growth in 2022 and amounted to HRK 35.04 billion as of 31 December 2022, which is increase of HRK 5.8 billion compared to previous year. The market share in corporate loans, per Croatian National Bank, amounted to 21.69% as of 31 December 2022 which resulted with growth of 110 basis points compared to 31 December 2021.
The corporate deposit on 31 December 2022 amounted to HRK 33.45 billion, which represents increase of HRK 7.4 billion compared to previous year. Corporate deposits reached market share in the amount of 20.43% as of 31 December 2022, which represents increase of 170 basis points in comparison to previous year.
Focus on corporate clients in 2022
The business that includes all segments of business entities, was marked to the greatest extent by the preparations and implementation of changes in the extensive project of the transition to the euro. In addition to the internal process of adapting business processes and accompanying documentation, continuous support was provided to clients through education, professional support and advance cash supply in order to simplify the transition to the new local currency. On the other hand, the business of clients, where the consequences of the pandemic crisis were still felt, was additionally affected by the war in Ukraine. Through intensive cooperation with special financial institutions, efforts were made to mitigate the negative consequences of the same, through the offer of guarantee instruments with 50% - 90% coverage.
In accordance with the Bank's strategic guidelines, which have as their primary goal the long-term sustainable business of the client and generally socially responsible business, two key concepts were implemented this year - the Financial Health and compliance with ESG regulations. For the first time in the Croatian market, the concept of Financial Health provides clients with better understanding and transparency in the credit rating, while the implementation of ESG regulations lays additional foundations for a long-term sustainable economy. Continuing the focus on process optimization and automation, a number of projects were launched this year that will enable simpler and more modern access to the bank's products and services for business entities in the coming years.
Mangement Report
Year ended 31 December 2022
15
Erste&Steiermärkische Bank d.d.
II.Corporate segment (continued)
Initiatives and projects
The most significant project in 2022 was the migration project to the new domicile currency – the euro. The change affected all aspects of business and almost most business processes. In addition to preparing the internal system itself, it was also necessary to support the entire sales network in the transition period and clients who were preparing their business for the new currency. Intensive project activities included adaptation of the internal system and accompanying documentation, as well as timely education and information of clients. In addition, in order to prepare business entities for the 14-day period of dual circulation of the euro and kuna, the Bank carried out a process of pre-supplying its clients. The pre-supply process started in the last quarter of the year, and a total of 4,138 clients were included in the pre-supply.
In 2022, the Financial Health tool was implemented. This made Erste Bank the first bank on the Croatian banking market to offer its clients such a digital tool. Through the aforementioned tool, the bank's clients are enabled to see their credit rating in the Bank and key financial indicators, and it is available through NetBanking and mBanking. In addition to an insight into the current credit rating in the Bank, clients are also shown a comparison of their rating with other Bank clients from the same industry, the historical trend of the rating and a basic explanation of the indicators for rating calculation. Clients gave this approach extremely high marks in the segment of user experience and satisfaction.
In 2022, intensive cooperation with special financial institutions on guarantee instruments continued with the aim of mitigating the negative consequences of the COVID-19 pandemic and the crisis caused by the war in Ukraine, especially with the European Investment Fund (EIF), the Croatian Bank for Reconstruction and Development (HBOR) and HAMAG-BICRO.
Special emphasis this year was on EIF's guarantee instrument EGF (European Globalisation Adjustment Fund for Displaced Workers). During the year, the available amount of the EGF portfolio guarantee of EUR 350 million was used almost entirely, making Erste Bank one of the 5 financial institutions at the EU level with the highest utilization of this instrument. As a result of the increased demand for guarantee instruments, the process of contracting new instruments that will be available in the coming period has been started. The Bank is among the first 3 institutions at the EU level and the first in Croatia to contract 3 new guarantee instruments with the EIF as part of the Invest EU program to encourage investments in the areas of sustainability, innovation and digitalization and the cultural and creative sector, with a maximum guarantee volume of EUR 50 million.
The Bank also continued cooperation with HAMAG-BICRO and HBOR through the use of existing guarantee instruments, which remain open even in 2023. An agreement was signed with HBOR on a portfolio insurance policy for exporters affected by the crisis in Ukraine in the amount of EUR 20 million. As part of the National Recovery and Resilience Plan (NPOO), negotiations have begun with HBOR on a guarantee for medium capitalized (mid-cap) and large clients, and with HAMAG-BICRO on an interest subsidy with a guarantee for small and medium clients.
By signing contracts and using the aforementioned guarantee instruments, the Bank, in accordance with its strategic guidelines, provided continuous support to individual business sectors, especially those most affected by the pandemic and crisis in Ukraine. The result of this is that in 2022, about 60% more transactions were approved with guarantee instruments compared to 2021, which itself was a record for the use of guarantee instruments.
In order to ensure more favorable lending conditions for clients, new framework agreements were also signed with HBOR for investment loans in the total amount of EUR 50 million and NPOO interest subsidies for the private and public sector.
During 2022, the approval of binding and non-binding letters of intent for the financing of projects co-financed by EU grants was intensified, and in this context the Bank also actively participated in consultations with ministries that published tenders as part of the NPOO and consulting firms that helped clients with applications to and tenders.
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
16
II.Corporate segment (continued)
Digital banking in 2022
The number of business entities which use Erste NetBanking service in 2022 increased by 7.6% compared to the previous year. The number of business entities which use Erste mBanking service increased by 23.8%.
Mangement Report
Year ended 31 December 2022
17
Erste&Steiermärkische Bank d.d.
III.Macroeconomic indicators
Economic activity posted impressive rebound throughout 2021, with GDP expanding at 13.1% pace, thus showing full V-shape recovery. While obviously at more moderate pace, thus far 2022 is looking quite impressive as well. Year had a strong start with growth rates in high single-digits (1Q GDP 7.8% y/y; 2Q 8.7% y/y), supported by lively domestic demand and strong external demand backing (complemented with the normalizing tourism in pre-season). Going into 2H22, we saw expected deceleration (3Q GDP 5.2% y/y), mainly as private consumption footprint moderated and further tourism normalization had more limited potential amid higher base. Investments and exports demonstrated ongoing strong dynamics. On a FY scale, GDP expanded by 6.3% in 2022.
Current account, after maintaining positive developments in recent years, moved into neutral zone, mostly reflecting depleted tourism-related revenues. As economy recovered, especially tourism, CA position improved and reverted into solid green in 2021 – however, rising pressures on the imports side, both from real imports growth and inflation boosting nominal one, are pushing the balance back into mild negative area, as already seen in 3Q22 figures.
Following average inflation print of 2.6% in 2021, increasing energy and food pressures, coupled with supply-side bottlenecks, and the war in the Ukraine, sparked second-round effects and pushed the inflation on the upward trajectory in 2022. CPI moved deeper into the double-digit region, hitting highest level at 13.5% y/y in November, before marginally subsiding in December and wrapping up FY22 average at 10.8% mark. While the uncertainty remains high, the baseline suggests some easing on the supply side, as despite ongoing volatility, the energy/commodity side showed some normalization and supply-chain constraints are somewhat easing. On top demand side pressures should fade as economy moves towards stagnation.
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
18
III.Macroeconomic indicators (continued)
After one-off pandemic deviation from the fiscal consolidation course, Croatia returned within the Maastricht boundaries already in 2021, as the budget gap landed at 2.6% of GDP, thus outperforming both expectations and the official budgetary framework and allowing public debt to subside below 80% of GDP. 2022 fiscal outcome should bring further improvement as budget gap is expected closer to 1.5% of GDP mark. However, this year is projected to bring some loosening towards 2.5% of GDP, owing to weaker growth and support to the economy, however, still remaining in the comfortable zone. In addition, news on the rating side were favorable, with Fitch delivering one notch upgrade to ‘BBB+’, while S&P and Moody’s went for two notch upgrade - all 3 rating agencies set the outlook at stable. Croatia is now positioned deep within the investment grade region, with euro adoption boosting rating profile.
1 forecast
Source: CBS, CNB, Erste&Steiermärkische Bank d.d.
Mangement Report
Year ended 31 December 2022
19
Erste&Steiermärkische Bank d.d.
IV.Financial markets
Money market
The year 2022 was marked by the war in Ukraine and a strong rise in prices at the global level. Accordingly, most central banks (FED, ECB, SNB...) in the world reacted by raising interest rates in order to reduce inflationary pressures. With that, the era of cheap money came to an end and the world found itself on the brink of recession. Croatia ended the year by joining the Eurozone and the Schengen Area, which means that on January 1st, 2023. it entered the group of fully integrated European states. The excess liquidity in the banking sector at the end of the year amounted to HRK 119 billion, which is an increase by HRK 47.3 billion compared to the end of 2021 and was mostly caused by the reduction of banks' required reserves. In the domestic banking market, the CNB intervened twice in March by selling EUR 315 million, keeping the exchange rate stable after the escalation of the war in Ukraine. Interest for regular weekly repo operations was weak, only HRK 770 million at an interest rate of 0.05%.
Deposits with maturities ranging from one day to 3 months were traded on the interbank market, where the average HRK rate was between 0% and 0.36%.
Yields on treasury bills of the Ministry of Finance have increased compared to 2021. Yield on the 91-day kuna bill is 0.08%, on the 182-day bill 0.10%, and on the 364-day bill 0.20%. The yield on the 364-day Euro FX Treasury bill rose by 15 basis points and was issued at 0.10%. The yield on the 364-day foreign currency treasury bill increased by 10 basis points and was issued at -0.05% in the middle of the year. Aggregated total debt through auctions of treasury bills decreased by HRK 3.67 billion.
FX market
During the first quarter of 2022, the pressures on the depreciation of the kuna against the euro increased, mainly due to the growth of geopolitical uncertainty. The euro strengthened against the kuna from 7.52 to 7.57. In order to alleviate the weakening of the domestic currency as part of the policy of maintaining exchange rate stability, the CNB intervened on the foreign exchange market on three occasions in March by selling foreign currency to commercial banks in the total amount of EUR 385 million, of which one intervention was outside the auction.
At the auctions, were sold EUR 171 million at 7.5625 and EUR 144 million at 7.5671. With the beginning of the tourist season, slight appreciation pressures on the domestic currency began. Thus, the exchange rate of the kuna against the euro at the end of August was 7.50 EUR/HRK. The Council of the European Union on 12th July adopted the Decision on the adoption by Croatia of the euro on 1st January 2023 determining a fixed conversion rate between the euro and the kuna at: 7.53450 kuna per 1 euro. The easing of appreciation pressures during the summer months of this year was contributed by occasional increased corporate demand for foreign currency, particularly expressed in the energy sector due to more expensive raw materials and energy sources. In addition, participation in the European exchange rate mechanism and the expected introduction of the euro further anchored market expectations, so there was no need for CNB interventions on the foreign exchange market. The end of the year brought a slight depreciation of the local currency to the exchange rate of 7.55, so that the euro and kuna would meet at the end of the year at a value of 7.5345.
Capital market
In 2022, a slightly increased dynamics of corporate bond issues was notable. However, despite some new Issuers, Republic of Croatia remained the most active one in terms of volumes.
2022 was relatively active year in terms of Government financing through bonds on the domestic market. Three bonds were issued in total amount of EUR 2.2 billion. The Republic of Croatia has entered the domestic bond market twice with the aim of refinancing maturing domestic bonds. In February, a new 8-year bond of EUR 1 billion was issued, while in July a 4-year bond in amount of EUR 400 million, and 10-year bond in amount of EUR 800 million.
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
20
IV.Financial markets (continued)
The Bank participated as one of the Joint Lead Managers in the above mentioned Government bond issues.In the segment of corporate issues, the Bank participated as a Joint Lead Manager on the first corporate domestic bond issue of Agro Invest Group in the total nominal amount of HRK 170 million with the fixed annual interest rate of 3.50%, and with amortizing principal repayment and final maturity in 2029.
The Bank also participated in July as a Sole Lead Manager on the first Sustainability-Linked Bond of Meritus ulaganja d.d. on the Croatian market, which once again confirmed its status as one of the leaders of new trends on the domestic capital market. The bond related to sustainable business was issued in amount of EUR 40 million, with fixed annual interest rate of 4.25% and with bullet principal repayment in July 2027.
The Bank is continuously ranked among the leading arrangers of debt securities in the Republic of Croatia, in 2022 with 21.55% of market share (according to Bloomberg), thereby confirming its strategic orientation to support the development of capital markets improving primary market environment.
In the respect of bond issuance on the international market, within Group Markets division matrix organizational structure for origination business for Serbian, North Macedonian and Montenegrin issuers, the Bank has successfully participated in the 10-year Eurobond transaction of Republic of Croatia in the total nominal amount of EUR 1.25 billion.
Debt securities market
The past year was very challenging for all participants in the debt securities market. Central banks around the world were forced to initiate a restrictive monetary policy to tame inflation, which exceeded the expectations of all investors, as well as the heads of central banks themselves. Accordingly, the yield of the ten-year bond of the Republic of Croatia ranged from 2.60% to 4.70%.
The rise in reference interest rates forced investors to change their strategy, so we witnessed a more conservative bond investment policy and significantly changed expectations about the terminal range of reference interest rates. Given that several favorable political decisions were made in favour of the Republic of Croatia, primarily entry into the Eurozone and the Schengen area, investors used every increase in yield to acquire additional amounts of Croatian debt. The spread in yield between ten-year bonds of the Republic of Croatia and the Federal Republic of Germany during 2022 was between 135 and 250 basis points, but a significant compression in yields occurred during the last two months of 2022.
Although the turnover of Croatian bonds was not at an enviable level during 2022, we expect that the liquidity situation could improve during 2023, because by joining the Eurozone, Croatia will become more interesting to a wider range of professional investors, as well as retail clients.
Equity markets
The year 2022 on the Croatian capital market began in a positive tone until the start of the Russian aggression against Ukraine in mid-February. The negative sentiment that affected all global capital markets without exception lasted on the Zagreb Stock Exchange with rare positive days until the end of the year. The Crobex stock index ended the year in the minus of 4.78% (plus 19.27% in 2021). Compared to the stock indices from the region and the world, this represents a minimal drop, but compared to the maximum levels from the beginning of the year, the minus is more significant. The last trading day in 2022 Crobex ended at 1,979.88 points (2,079 at the end of 2021).
Mangement Report
Year ended 31 December 2022
21
Erste&Steiermärkische Bank d.d.
IV.Financial markets (continued)
Stock turnover on the Zagreb Stock Exchange amounted to HRK 5.51 billion, which is almost 18% more than the previous year. At first, this information may create the illusion of more active trading and increased liquidity. Unfortunately, the increase in turnover is solely the result of several significant block transactions with the shares which are or will be soon delisted from the regulated market.
Despite an extremely challenging year, ESB successfully maintained its 2nd position and achieved an increase in market share from 14.1% to 15.14%. Overall, looking at the volumes, companies such as Hrvatski Telekom, Valamar Riviera, Podravka, Adris, Atlantska plovidba and Atlantic Grupa continue to dominate among the more liquid shares, with a few surprises such as
HPB and a new name from last year SPAN. Among the block transactions, the largest turnover was achieved by the shares of Hrvatski Telekom, Tankerska Next Generation and Sunce Hoteli.
Considering the negative sentiment this year, there were no new share issues, takeovers, and attractive capital increases, and as a positive example we can single out the launch of the first domestic ESG bond by Meritus Ulaganja in which the ECB played a significant role.
If we look at the stock indices in the region, they fared significantly worse than Crobex. Thus, the Slovenian SBITOP ended the year in the minus of 16.89% (plus 40% in 2021), the Romanian BET minus 10.70% (+33% in 2021), the Austrian ATX minus 19.03% (+39% in 2021), while the German DAX ended 2021 with minus 12.35% (+16% in 2021).
Custody groups
The year 2022 was marked by the software development for the custodial business in order to increase process automation and business efficiency. The foundations laid in the previous year resulted in a 46% increase in the number of securities settlement transactions, which is why the development of the IT system proved to be an excellent decision.
Continuous efforts to develop the range of products and services and coordinated action of numerous organizational units of the Bank have led to a significant increase in interest in investment services mainly of clients from the retail segment, which has resulted in a significant growth in the number of clients.
The last quarter of 2022 was largely marked by the preparation of the system for migration from HRK to EUR, in which significant resources were invested, thanks to which the transition went smoothly and within the expected deadlines and smooth operation was enabled with the first working day of 2023.
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
22
V.Risk management
Risk management is a set of procedures and methods established for identifying, measuring, assessing, controlling and monitoring of risk, including reporting of risks to which the credit institution is or might be exposed to in its operations. The Bank is obliged to regularly measure and assess the risks identified in its business. Methods of measuring and assessing the risks must include appropriate quantitative and/or qualitative measurement methods and risk assessment that will enable the observation of changes in Bank's risk profile, including the emergence of new risks.
The most significant risks that affect Bank's business operations are credit, market, operational and liquidity risk.
Credit risk is the risk of potential loss due to a debtor's non-payment of obligations towards the Bank, and it arises from possibility that the Bank identifies, measures, follows up on, controls, i.e., actively manages the credit risk as one of the most important risks and determines the existence of appropriate capital level for covering of such risks. Risks related to credit risk are currency induced credit risk, residual risk, sovereign risk, dilution risk and concentration risk.
Market risks represent the risk of loss in open position stemming from change in the movements of the market prices, including changes in the interest rates, exchange currencies and prices of securities. In this sense, market risk include: (i) interest rate risk both in trading and banking book, (ii) currency risk and (iii) equity investment risk.
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, and includes legal risk.
Legal risk means the risk from claim or proceeding due to non-compliance with the legal and legislative provisions of national or international origin or from contractual arrangements or internal rules and/or ethical conduct deriving from national or international norms and practices or statutory responsibilities. It also includes the exposure to newly enacted laws as well as to changes in interpretations of existing laws. Legal proceedings should be considered to be any legal settlements, either judicial, or out of court, such as arbitration, or claims' negotiations. Operational risk definition excludes strategic and reputational risk.
The Bank assesses the reputational risk for assessment purposes due to the strong links with the operational risk (e.g., most of operational risk events have strong impact in terms of reputation).
Liquidity risk is a risk of loss stemming from an existing or expected inability of credit institution to settle its monetary obligations upon maturity. Liquidity risk arises from maturity mismatch between assets and liabilities.
Except above mentioned risks the Bank also manages all other risks that could affect their business operations such as: systemic risk, regulatory risk, business environment risk etc.
Mangement Report
Year ended 31 December 2022
23
Erste&Steiermärkische Bank d.d.
VI.Erste Bank AD Podgorica
In year 2022 which was dynamic, intense and full of challenges, Erste Bank AD Podgorica made a pre-tax profit of EUR 13.44 million which is 76% more compared to the previous year. Profit after tax is EUR 11.59 million with a ROE of 11.3%, and a ROA 1.7%.
In December 2022, the acquisition and merger of S-leasing d.o.o. was successfully completed. Erste Bank AD Podgorica became the first bank on the Montenegrin market to offer leasing to clients.
Total operating income was achieved in the amount of EUR 32 million, which is 11% higher compared to 2021.
Net interest income was in the amount of EUR 24.57 million and by 5% higher compared to the previous reporting period mostly due growth of the securities portfolio and changes in the structure of deposits. Net interest margin increased from 4.55% at the end of 2021, to 4.62% at the end of 2022.
Net fee and commission income amounted to EUR 6.55 million and increased by 29% compared to the end of 2021. Erste Bank AD Podgorica recorded growth of volume and number of transactions in payment and card business with an increase in the share of net income from fees and commissions in operating income from 17.64% at the end of 2021 to 20.44% at the end of 2022.
Risk costs was positive in amount of EUR 0.74 million and the biggest impact was release of provisions of corporate clients. Credit risk cost for balance exposures amounted 0.16% and was positive significantly lower compared to the end of 2021, when it was negative and amounted 0.97%. NPL coverage was 107.1% at the end of 2022, which is an increase compared to the end of 2021 when it was 94%. NPL at the end of 2022 amounted to EUR 26.7 million which is a decrease of EUR 5.5 million compared to 2021. Main driver of decrease is the write-off in retail segment and the decrease of corporate default clients exposure.
Operating expenses were recorded in the amount of EUR 19.01 million and compared to the previous year they were increased by 12% under the influence of inflation, regulatory costs, growth and development of the bank and especially from the influence of perex increase. In 2022, Erste Bank AD Podgorica paid special attention to the financial health of employees. As part of the WeShare program, employees who met the conditions for participation received 16 shares of Erste Group Bank AG. In the conditions of inflation, with the aim of additional improvement Erste Bank AD Podgorica made decision to correct the salaries of employees. This influenced the increase of the Cost/Income ratio to the level of 59.34%, while at the end of 2021 it was 58.86%.
At the end of the year 2022 total assets amounted to EUR 752 million, which compared to 2021 was an increase of 12%. Net loans to customers amounted to EUR 456.4 million and were by 7.1% (EUR 30.4 million) higher compared to end of 2021, of which EUR 250.7 million related to retail lending and EUR 205.7 million related to corporate loans. Total customer deposits increased by EUR 52.4 million in 2022 and amounted to EUR 511 million at the end of the year, of which retail deposits amounted for EUR 231.3 million, and corporate deposits for EUR 279.7 million.
Disbursement of EUR 74.15 million was realized in Retail sector in 2022 through more than 9 thousand loan applications, which is EUR 21.1 million more disbursement than the previous year (39.76%), or 1.7 thousand loan applications (22.15%). Retail loan portfolio increased by EUR 14.57 million (5.82%), and at the end of 2022 an amounted to EUR 264.90 million. Cash loans had the largest share in total retail loans (61.87%), followed by housing loans (33.24%). As for the market share of total retail loans, there was a slight decrease and it amounted to 16.43% at the end of November 2022.
The number of total clients in retail sector amounted to 117.8 thousand, or 2.84% more compared to the end of the previous year. Research on the quality of service provided by Erste Bank AD Podgorica customers shows that a better result was achieved compared to earlier research, quality index increased from 9.40 to 9.54.
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
24
VI.Erste Bank AD Podgorica (continued)
The total portfolio of retail deposits increased by EUR 28.38 million (13.98%) during the previous year. Demand deposits recorded significant growth and increased to EUR 179.9 million (29.53%), which indicates customer confidence towards Erste Bank AD Podgorica. Due to the special treatment of retail clients from Russia and Belarus, there was a 9.70% drop in deposits of non-resident clients and they amounted to EUR 42.51 million.
In retail resident deposits, Erste Bank AD Podgorica strengthened its market position with a share growth of 10.69% at the end of November 2022.
In the core Corporate segment which is related to financing of private companies, for the first 11 months of 2022 was an increase in market share by 125 basis points, from 11.91% to 13.15% as a result of Erste Bank AD Podgorica portfolio growth of 18.49% compared to market growth of 7.26%. The total corporate loans market share decreased from 13.10% to 12.71% due to the fact that 43% of the market growth refers to the segment of non-resident companies in whose financing Erste Bank AD Podgorica does not participate.
The growth of corporate clients deposits in the period December 2021 - November 2022 was 16.5%. In the structure of deposits of corporate sector, 90% are demand deposits. Market share of total corporate deposits decreased by 142 basis points from 10.94% to 9.52%.
During 2022, the number of clients of public companies and leading retailers increased in the Corporate sector, which contributed to the growth of non-interest income of 17.41% in 2022.
At the end of 2022, S-leasing was merged with the Erste Bank AD Podgorica within the Corporate sector, which created the preconditions for further growth of this segment given the larger client base that the Erste Bank AD Podgorica has.
Through numerous projects in the past year in the corporate sector, progress has been made in the direction of automation and digitalization of processes, client acquisition, improvement of the credit process, monitoring delays, etc. This will help improve the growth and efficiency in the coming year.
The achieved result of Erste Bank AD Podgorica can be considered significant bearing in mind that it was achieved in a year of specific circumstances and under the burden of political and geopolitical uncertainty. Attention was focused on preserving the client base and improving the quality of service. Erste Bank AD Podgorica operates through a network of 17 branches throughout Montenegro and serves more than 122 thousand clients at the end of 2022.
Mangement Report
Year ended 31 December 2022
25
Erste&Steiermärkische Bank d.d.
VII. Erste Card Club d.o.o.
Erste Card Club Group as of 31 December 2022 achieved net profit of HRK 150.7 million (Erste Card Club Group consisted of: Erste Card Club d.o.o. (hereinafter ECC) and Erste Card d.o.o., (hereinafter EC SLO), however in June 2022, 100% EC Slo business shares were sold). Recorded increase of HRK 19.4 million compared to 2021 is a result of realized income from EC Slo sale, lower risk provisions and growth in turnover made by credit cards due to consumption increase and strong touristic season. ROE was 11.1%, which represents an increase of 4.2 basis points, while ROA was 6.0%, which represents an increase of 26.5 basis points compared to 2021.
Net interest income totals HRK 109.5 million with a decrease of 21.4% compared to 2021, mainly due to EC Slo sale, regulatory changes related to interest rates and decrease of income from cash advance. Positive impacts come from optimisation on interest expenses. Net commission income totals HRK 231.2 million representing a decrease of 6.6% compared to 2021 due to EC Slo sale, however on ECC standalone level, an increase has been achieved regarding the increased turnover made by credit cards, mostly due to strong growth of acquiring volume in the amount of 33%. Merchant service commissions are continuously under market pressure. Net trading result amounted to HRK 1.7 million in 2022, while HRK 2.4 million in 2021.
General administrative expenses amounted to HRK 232.6 million in 2022 with a decrease of 8.3% in comparison to 2021 due to EC Slo sale, which reflected in the reduction of personnel expenses by 19.6%. Other administrative expenses are higher by 0.8% when compared to 2021 as a result of higher EURO project costs. Also, the costs of the reward program and cost related to the renewal of cards are higher. Depreciation costs are lower by 21.4% or HRK 5.9 million.
Other operating result in 2022 amounts to HRK 31.4 million, which mostly refers to EC Slo sales income.
Risk cost in 2022 ended up positive with release of HRK 46.4 million, as well as in 2021 with an amount of HRK 14.1 million. The latter is a result of portfolio sale and lower new NPL inflow. Nonperforming loans coverage ratio is increased when compared to previous year to 134.0%, while 114.9% in 2021.
Total ECC consolidated assets amounted to HRK 2,301 million as of 31 December 2022. Loans and advances to customers gross recorded a decrease of 2.5% compared to 2021 as a result of decreased revolving portfolio in favour of debit cards on the market and secondly, EC Slo shares sale.
Total liabilities at the same time declined compared to 2021 due to loan repayment to Erste Bank AG Vienna. Total equity amounts to HRK 1,412 million with an increase of 8.5% compared to the 2021 due to included achieved net profit. In 2022 there was a dividend pay-out in the amount of HRK 39.4 million.
General information
Performance in 2022 was marked by the adjustment of the entire business to the introduction of the euro. With the aim of ensuring simplicity and greater transparency, regular customer briefings have already begun as of August, i.e. customers have been regularly informed on dual price display of all fees, parameters of consumer lending (amount of loans, instalments or annuities), amounts on cost notices, as well as services available in the ECC mobile app. A new version of the mobile app has also become available to users, offering the possibility of converting all amounts from HRK into EUR and vice versa.
Based on the decision of the Management Board of Erste&Steiermärkische Bank d.d., Olja Brkljačić, Head of the Accounting and Controlling Division and Ivan Morović, Head of the Membership Sales Division, both from Erste Card Club, were appointed procurators. They took up the post on July 1st 2022, when the term of office of the member of the Management Board Jurgen de Ruijter ended. Their appointment aims to support Management Board member Anita Markota Štriga, who became the director of the company on July 1st 2022, in developing and ensuring the business continuity of the company.
Management Report
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
26
VII. Erste Card Club d.o.o. (continued)
General information (continued)
In order to expand the offer for small retailers, entrepreneurs and craftsmen, a free ECC SoftPOS application was introduced for facilitating contactless card payments on Android phones. The app supports PIN-on-glass technology, which facilitates all types of contactless payments (Diners Club, Visa, Mastercard), including charge and instalment payments that require PIN authorisation. To enable small retailers to digitalise their business as easily as possible and thereby improve it, the ECC joined the “Digital Croatia” initiative launched by Visa.
To further confirm the focus on the environmentally sustainable business, the process of issuing cards on recycled or eco plastics for all credit cards brands in portfolio (Diners, Visa, Mastercard) has been initiated. In addition, in cooperation with AKD, the delivery of cards on paper and all other supporting materials (leaflets, brochures, envelopes etc.) certified by the FSC standard has begun. This label guarantees responsible forest management (tree planting, care and maintenance) in order to replace any wood harvested for paper production purposes.
In June, the sale of subsidiary Erste Card d.o.o. was concluded with Banka Sparkasse d.d. from Ljubljana, which in Slovenia has the right to operate with Diners Club cards. The purchase agreement was signed in October 2021, and with this transfer of ownership to the Sparkasse, Erste Card remains a part of the international Erste Group. Moreover, in 2022 Diners Club BH d.o.o. business shares were sold to the Sparkasse bank d.d. BH. Diners club credit cards’ performances in Slovenia and Bosnia and Herzegovina still continues under a sub-franchise agreement with Erste Card Club.
Due to the long-standing excellence of the Diners Club franchise business on the Croatian market, Erste Card Club was awarded the Franchise Brand Leader Award 2021 in the category of the longest-lasting franchise. This is the first and only award in the Croatian and regional market, which is awarded for franchising and its founders are Poslovni FM radio, Croatian Franchise Association FIP and Brending Akademija (Branding Academy).
Credit cards
ECC total number of credit cards as of 31 December 2022 amounted to 378,754 with net decrease of 3.4% compared to previous year as a result of regular activities regarding AML portfolio management and client identification. In 2022, total sales were achieved in the amount of 35,034 new credit cards, which is 6.7% higher than in 2021 year. 53% of new credit cards came through the digital sales channel by ECC mobile app (EMA) or GEORGE application.
Company’s credit card market share as of September 30th 2022 amounted to 22.80% (YE 2021: 22.79%). The total number of ECC clients as of December 31st 2022 amounts to 300,560 which represents a decrease of 0.7% compared to year 2021. The total number of ECC mobile application users amounts to 190,691 which is an increase of 27,163 users or 16.6% compared to year 2021. Continuous activities related to increasing the number of credit cards are focused on motivating existing as well as digital onboarding of new clients using EMA – ECC mobile app.
Total ECC issuing volume in 2022 increased by 6.6% YoY and amounts to HRK 7,487 million, with market share of 24.41% (decrease of 77 bps compared to 3Q2021). In the volume structure, the highest growth was recorded in charge transactions, and then the instalments volume, while cash advance was lower compared to year 2021, influenced by market trends in debit cards volume with a still significant share of cash payment transactions.
Total ECC acquiring volume increased by 33.0% YoY with market share of 16.51% (increase of 109 bps compared to 3Q2021). Higher volumes were mostly influenced by strong growth of Visa and Mastercard volumes due to a good touristic season and the growth in consumption. Total number of ECC transactions in 2022 exceeded 84 million with an increase of 25.7% compared to 2021.
Total number of ECC's EFT POS devices amounts to 20,787 as of December 31st 2021. Market share of EFT POS network increased to 21.66% as of September 30th 2022 (41 bps increase compared to year end 2021).
Mangement Report
Year ended 31 December 2022
27
Erste&Steiermärkische Bank d.d.
VIII.Erste&Steiermärkische S-Leasing d.o.o.
Erste&Steiermärkische S-Leasing d.o.o. (Erste Leasing) net loss in 2022 is amounted to HRK 8.2 million. Main reason are the increased provisions for legal issues. Return on equity (ROE) was -1.8%, which represents an decrease of 11 basis points, and return on assets (ROA) was -0.3%, which represents an decrease of 1.6 basis points compared to 2021.
Net interest income amounted to HRK 80 million, achieving a growth of 4.28% compared to 2021. Interest income represents the most significant share to the Company's result and refers to interest from finance lease, which amounted to HRK 108.5 million and are higher by 8.35% compared to 2021. Interest expenses increase by 21.7% to HRK 28.4 million in 2022.
Income from operating lease amounted to HRK 58.3 million and is lower by 10.5% compared to 2021 due to the decrease of operating lease in the portfolio.
The net trading result refers to FX revaluation of balance sheet, which amounted to HRK -18.3 million in 2022.
General and administrative expenses amounted to HRK 92.2 million and were lower by 0.8% compared to 2021 due to decrease of depreciation expenses as a consequence of decrease of operating lease portfolio.
In 2022, the Company's risk cost amounted to HRK 18 million, while 2021 year was still affected by the financial situation related to COVID-19 pandemic, and risk cost amounted to HRK 7 million of loss. NPL decreased by 6.1% to amount of HRK 75.3 million with NPL coverage of 70.9% (91.9% in 2021).
Erste Leasing concluded 5,368 new leasing contracts in 2022 with total value of HRK 1,210.7 million, with a market share of 15% as at 30 September 2022 according to the latest published data of the Croatian Financial Services Supervisory Agency (HANFA).
Total assets of Erste Leasing as of 31 December 2022 amounted to HRK 3,216 million, which represents an increase of 13% compared to 2021.Net finance lease receivables and other receivables slightly increased compared to last year and amount to HRK 2,899 million with a share of 90% in total assets.
Tangible assets amounted to HRK 219.7 million with a share of 6.8% in total assets and mainly relate to assets under operating lease. A decrease of 6.8% compared to 2021 has been recorded due to a lower finance volume in operating lease.
Total liabilities to credit institutions and customers as of 31 December 2022 amounted to HRK 2,670 million with a share of 83% of total liabilities and are on last year level. Other financial liabilities and other liabilities, which relate to received deposits and advances from customers for operating lease, follow the declining trend of operating lease in the portfolio.
Total equity amounted to HRK 415.5 million in 2022, is lower by 3% compared to 2021.
Erste&Steiermärkische Bank d.d.
28
Non-financial Report
Non-financial Report
Year ended 31 December 2022
29
Erste&Steiermärkische Bank d.d.
One of the fundamental guiding principles in the business of both Erste Group and Erste Bank Croatia (EBC) is the Statement of Purpose, which rests on seven pillars. Expanding and ensuring prosperity, accessibility, independence and innovation, profitability, financial literacy, focus on people, and serving civil society are six out of the seven pillars, and largely cover the aspects of sustainable business that EBC aims to achieve. What makes Erste Group different is the last, seventh pillar of entire Erste Group’s business, i.e. the so-called third question. Before every decision, the questions “Is this profitable?” and “Is this legal?” are asked, but the question that makes the difference, both for EBC and for anyone affected by Erste, is “Is this right?” This is the question that drives EBC to develop its services and products to the highest potential, thus making the greatest contribution to the individual and society as a whole.
Through corporate social responsibility, the Bank supports and promotes the development of different social segments through a wide range of activities, aimed at the wellbeing of its clients and the much wider social community in which it lives and operates, through supporting numerous charity and educational institutions, as well as culture and sport institutions across Croatia. In the process, the Bank always takes into account the specific regional characteristics and local social needs. Corporate social responsibility activities are transparently reported through various channels as well as through non-financial report which the Bank has been including in it's Annual Report for years in various forms.
Erste Bank Croatia's vision is to be the best bank in Croatia that takes care of the security of its clients and offers highest quality products and services, taking account of the wellbeing of its employees, shareholders and the community. The aim of non-financial report is to better inform all interested parties about this vision and everything EBC does in order to achieve it. Through the segments of business, social and environmental responsibility EBC strives to fulfil its mission, i.e. motivate and support its clients, employees, shareholders and the community in working together to achieve prosperity.
EBC’s efforts in this area are accompanied by a commitment to transparent and open communication with the media as mediators between the Bank and the general public. In recent years, these efforts were reflected in the advertising campaign “Believe in Yourself”, through which EBC aims to promote positive social and economic values, integration, inclusion and fellowship of all individuals in the society, regardless of age, gender, ethnicity, religious or political affiliation, sexual orientation or marital status.
Implementation of the obligation of non-financial report
As already stated, Directive 2014/95/EU, which entered into the Croatian legislation at the end of 2016, stipulates the obligation of non-financial report for all companies with more than 500 employees. In this respect, the non-financial report of Erste Bank Croatia was issued as part of the Annual Report.
ECB’s non-financial report has been prepared in accordance with the Global Reporting Initiative (GRI standard: core option) Guidelines. As a minimum, the report covers the business, social and environmental responsibility of EBC.
Sustainable development goals
The Sustainable Development Goals are also known as the Global Goals and were adopted by the United Nations in 2015. There are 17 in total, and by fulfilling these goals, the society is expected to achieve a more sustainable living and a better life for every individual, as well as peace and prosperity for all. Prosperity for the society and every individual is one of EBC’s goals, which it is trying to achieve through its business operations.
In general, Erste Bank Croatia, as well as Erste Group, supports all 17 Sustainable Development Goals. But taking into account its type of business and its impact on society, EBC can significantly contribute by working on and achieving 9 goals through strategic initiatives, by redirecting financial flows and adjusting its operating model:
1. No poverty (SDG 1)
2. Good health and well-being (SDG 3)
3. Quality education (SDG 4)
4. Gender equality (SDG 5)
5. Clean water and sanitation (SDG 6)
6. Affordable and clean energy (SDG 7)
7. Sustainable cities and communities (SDG 11)
8. Responsible consumption and production (SDG 12)
9. Climate action (SDG 13)
Erste&Steiermärkische Bank d.d.
30
Analysis of material topics
The analysis of material topics is the first step to drafting a non-financial report. It provides the organisation with a better insight into the topics that its stakeholders consider relevant and influential. Through talks with some of Erste’s stakeholders, the Bank identified several important topics that will be addressed in this non-financial report. In order to make the information as clear as possible, the report is structured in such a way that each of the topics is classified under a specific segment of the interested public, i.e. stakeholders. The following groups have been identified as EBC’s stakeholders: clients, employees, investors, society, environment, and suppliers.
Some of the topics, such as Anti-Corruption and Financial Literacy, are relevant to more than one interested groups of the public, but for better organisation of the report, they were included in one section.
In Table 1, Erste Bank Croatia has divided the topics it considers materially relevant to its stakeholders, that is, to the interested public.
Clients
Responsibility in business (SDG 1, 12)
Responsibility in conducting business, especially in relations with clients, represents a fundamental tenet of EBC’s business operations which is reflected in offering special products and services aimed at different groups of clients in response to their current and future needs and life situations. Additionally, incentives for small entrepreneurs and incentives for innovation are necessary, and with its socially responsible banking programme, Erste banka strives to enable as many people as possible to access the Bank's financial resources and services. Similarly, EBC has established and applies the fundamental principles, policies and guidelines related to preventing corruption, managing conflicts of interest and resolving reported irregularities and protecting whistleblowers (whistleblowing programme).
Client satisfaction (SDG 4, 6, 7, 11)
EBC is strongly focused on customer experience and strives to be a leading bank in terms of consumer protection and outstanding customer experience. Its strategic goal is to provide excellent, simple, accurate, transparent and timely service. In order to achieve this, in doing business with clients the Bank applies the highest standards, and great attention is paid to the greatest possible transparency. A wide range of products and services adapted to the different life situations of individual clients also serves the purpose of achieving the greatest possible client satisfaction.
Right to personal data protection
The protection of personal data is a fundamental right of every citizen, and in the banking sector it is of extreme importance. Erste Bank Croatia is continuously working to improve its IT systems and educate its employees to ensure the highest standards of personal data protection. In order to protect the IT system from security threats, the Bank continuously works on upholding and improving compliance with the PCI/DSS standard and compliance with the requirements of the Erste Group as well as guidelines for managing IT systems issued by the national regulatory body.
Employees
Diversity and equality (SDG 4, 5)
Gender equality is a global issue that prevents peaceful and stable development and progress of humanity. EBC is investing extensive and systematic efforts to combat gender or any other inequality in the workplace, and for this reason it adopted the Diversity Charter, in which it undertook to implement the diversity and non-discrimination policy in the workplace and business environment. Apart from that, other regulations have been adopted with the aim of combatting inequality.
Training and skill development (SDG 4)
Continuous development of employees is one of EBC’s key principles. Upgrading professional knowledge, acquiring new competencies in line with the trends and the market, and continuous personal development are the basic assumptions for the career path of all employees.
Non-financial Report
Year ended 31 December 2022
31
Erste&Steiermärkische Bank d.d.
Employee work-life balance and health (SDG 3, 5)
The health and well-being of everyone, but primarily its employees, is one of the sustainable development goals identified by EBC as extremely important, especially considering the current circumstances. This sustainable development goal is the cornerstone for meeting all other goals. In this respect, EBC provides numerous benefits for its employees, from free annual physical examinations to organised sports activities. EBC systematically monitors market trends and developments and works to improve its business practices.
Society
Social banking (SDG 1, 11)
Income inequality, geographical inequality, gender inequality, unfair distribution of resources by age – the subject of inequality is reflected in all aspects of life. For EBC, this sustainable development goal can be achieved through social banking, which provides equal opportunities and accessibility of funding through inclusion and offering business opportunities to different social groups. Additionally, increasing financial literacy, which allows everyone to have the same starting point in the knowledge of finance, is one way for laying good foundations for achieving progress towards this goal.
Financial literacy (SDG 4, 11)
Acquiring good education is one of the fundamental rights of every individual, and knowledge is one of the main drivers that pushes society forward. In 2018, the Bank saw a need for increasing financial literacy in the society and launched the programme of free workshops and video training sessions called the School of Smart Finance. By the end of 2022, more than 11,000 participants attended the workshops online and in person.
Social responsibility (SDG 11)
Through its sponsorship and donation activities, EBC is involved and actively supports various initiatives and projects that contribute to the development and improvement of the society as a whole, both locally and throughout the Republic of Croatia. In addtion, Erste Bank Croatia endeavours to nurture a two-way communication with the local community and achieve as much transparency as possible.
Environment
Efficient managing of environmental impacts (SDG 6, 7, 12, 13)
Climate change is no longer a projection set in the future but has become a reality in which humanity lives and the consequences of which it has to deal with. More and more companies are realizing their capabilities in managing climate change and responding to the climate crisis, which is why an increasing number of them are introducing more sustainable and environmentally friendly business practices. In the field of ecology and environment, Erste Bank Croatia strives towards highest quality business processes that reduce environmental impact, which is achieved through strategic planning by establishing policies that prescribe relevant standards, but also through day-to-day operations, such as the furbishing of branch offices.
The bank is also trying to encourage its customers to adhere to high environmental standards, and it also expects its suppliers to implement best quality business processes that reduce impact on the environment.
Suppliers
Responsibility in selecting suppliers (SDG 6, 7, 12, 13)
Erste Group, including Erste Bank Croatia, sees its suppliers as partners in developing the sustainability of its operations. When selecting suppliers, the Bank takes into account sustainability and corporate social responsibility, and chooses companies that do business in line with international standards that include social and environmental impacts.
Erste&Steiermärkische Bank d.d.
32
Table 1: Analysis of material topics
TOPICS OF MATERIAL ANALYSIS
TOPICS OF MATERIAL ANALYSIS ACCORDING TO GRI STANDARDS
CHAPTER IN NON-FINANCIAL REPORT
Clients
Responsibility in operationsClient satisfaction Right to personal data protection
Anti-corruption (GRI 205-3)Client satisfaction (additional material topic)
Anti-corruption and tax transparencyProducts and servicesClient experience and contact centre, Right to personal data protection
Employees
Diversity and equalityTrainings and development of competencesEmployee work-life balance and health
Diversity and equality (401-3, 405-1)Trainings and education (GRI 404-1)Occupational health and safety (GRI 403-1, 403-3, 403-5), Flexibility in workplace
Diversity and equality and prevention of discriminationTrainings and educationSafety, Employee work-life balance and health
Society
Social bankingFinancial literacySocial responsibility
Anti-corruption (GRI 205-3)Financial literacy programme (additional material topic)
Dialogue with the local communitySchool of Smart Finance Sponsorships and donations, humanitarian campaigns
Investors
Economic results
Environment
Effective management of environmental impacts
Emissions (GRI 305-5)
Emissions Waste management
Suppliers
Responsibility in selecting suppliers
Responsible selection of suppliers (GRI 308-2)
Suppliers’ responsibility
Non-financial Report
Year ended 31 December 2022
33
Erste&Steiermärkische Bank d.d.
Clients
Anti-corruption
In order to achieve its vision and mission as well as business goals, Erste Bank Croatia strives towards a high-quality and continuous implementation of the highest ethical standards in corporate management and individual employee behaviour.
Within this framework, EBC has established and implements the fundamental principles of socially responsible business as well as policies and guidelines regulating the prevention of corruption, the management of the conflict of interest and the system for handling reported irregularities and whistleblower protection (whistleblowing programme). The Bank’s Code of Conduct regulates the basic rules of corporate behaviour of the Bank's employees with the aim of preserving and further developing the reputation of the banking business and the Bank in the society, promoting the idea of professionalism, responsibility and transparency of operations.
The Conflict of Interest and Anti-corruption Policy set out the minimum standards for combating corruption and bribery and standards for managing general types of conflicts of interest. In its operations, Erste Bank Croatia applies the highest ethical standards of corporate governance and individual behaviour. The Bank enters new business areas only if the business is fully in compliance with the positive regulations and is based on integrity and highest ethical standards. The Policy covers principles for managing general and specific conflicts of interest, types of conflicts of interest, general and specific principles for combating corruption and bribery and rules for managing conflict of interest. The Bank works on raising awareness and educating its employees on recognising situations in which a conflict of interest might arise, and on the measures, principles and actions that need to be implemented in everyday business with the aim of preventing and managing conflict of interest. The working environment must be free from any inappropriate influence or behaviour.
Erste Bank Croatia has zero tolerance for any form of corruption and bribery in relation to its employees, Management Board, clients and business partners. Corruption and bribery should also be considered a particular type of conflict of interest in the operations of Erste Bank Croatia and an inappropriate behaviour that leads to violation of law. Based on the Code of Conduct and the Statement of Purpose, Erste Bank Croatia has committed to applying strict and binding rules to combat corruption and bribery and to manage conflicts of interest, which it is aiming to achieve through the principles and rules of the Conflict of Interest and Anti-corruption Policy.
The Bank does not tolerate behaviours that go against the current rules and regulations, Bank’s legal acts and ethical principles. Based on the Whistleblowing programme as a part of the Whistleblowing Policy, all persons employed in the Bank, regardless of the legal basis of their work for the Bank, are urged to promptly provide information about any behaviour of other employees, clients or third parties that is not in compliance with the valid rules, regulations, Bank’s legal acts or ethical principles. The Policy sets out the basic principles, the internal procedure for reporting irregularities, and provides for an efficient protection of people who report irregularities, that is, whistleblowers. The Policy is obligatory for all persons employed at Erste Bank Croatia, regardless of the legal basis of their work for the Bank, and applies to everyone in the working environment.
EBC continuously educates its employees with the aim of raising awareness of the importance of managing conflict of interest and preventing corruption, as well as acting in accordance with ethical standards. Furthermore, through training, the Bank tries to encourage employees to report irregularities such as fraudulent actions, violations of procedures and the Bank's legal acts.
In 2022 Bank employees were receiving regular training on topics related to conflict of interest, combating corruption and the principles of the Bank’s Code of Conduct. A total of 2,659 employees were trained on combating corruption and conflict of interest, 182 employees were trained on the topic of combating corruption, while 2,420 employees were trained on the topic of conflict of interest.
Tax transparency
Erste Bank Croatia has always been dedicated to tax compliance as well as the observance and consistent implementation of tax regulations. Since it is dedicated to corporate social responsibility, the Bank takes great care to pay all its dues for the public needs of the country it operates in and to pay a fair tax amount, i.e. the amount the Bank is obligated to pay under tax regulations. The EBC Group Tax Office for Croatia was established in March 2017 in order to ensure this.
Erste&Steiermärkische Bank d.d.
34
Tax transparency (continued)
The activities of the Office include ensuring tax compliance of Erste Bank Croatia and its subsidiaries in Croatia as a whole, coordination of tax policies of affiliate companies and cooperation with tax authorities. The aim of the Office is to provide good and efficient tax risk management for EBC Group, in response to new tax regulations, which include EU directives and local regulations.
In addition to tax compliance, another important task of the Group Tax Office is to support its colleagues in the Bank and subsidiaries to optimise tax requirements related to their everyday operations. The purpose of the Group Tax Office is to support business lines of the Bank and incorporate existing tax know-how and expertise into every segment of the Bank’s operations. The Tax Office closely collaborates with other organisational units in the Bank.
The Tax Code of the Bank was adopted and approved by the Management Board early in 2017, regulating the position of the Bank towards tax issues and tax risks. The document is publicly available on the website of the Bank and its purpose is to establish tax principles to be followed by all employees, as well as to raise awareness on the importance of taxes in the Bank and the entire EBC Group. The Tax Office continually organises trainings and workshops for its employees for this purpose.
Products and services
Responsibility in business operations, especially when it comes to how clients are treated, represents a fundamental characteristic of EBC’s business operations which is reflected in offering special products and services aimed at different groups of clients in response to their current and future needs and living circumstances. Business with clients is in line with the sustainable development goals set by the Bank, and care for the environment, society and processes is part of our daily operations. In this respect, Erste Bank Croatia is looking to provide products and services that foster environmental sustainability and reduce CO2 emissions, offer financial services to vulnerable groups of clients. It is also striving to be a partner in changing the financial habits, while improving internal processes toward greater efficiency. Also, the Bank's goal is to actively support sustainable projects.
In 2022 the Bank initiated the process of establishing cooperation with businesses offering sustainable products and services, while adjusting the housing “EKO” loans available to residents, for purchasing, building or upgrading homes with the energy rating of A+, A and B. Such loans can be used to improve energy efficiency (by installing equipment for using renewable energy sources, interventions on property helping reduce energy consumption or installing thermal insulation in residential buildings). In 2022, almost EUR 160 million of EKO housing loans was arranged, which exceeded the goal set for last year. In addition, special offers and benefits in cooperation with home furnishing companies are provided for all clients interested in housing EKO loans without a mortgage. Also, a bond was agreed with the International Finance Corporation, used to finance EKO housing loans from 2021 to 2024.
In 2022 the Bank also initiated the process of defining the decarbonisation objectives and adjusting the guidelines accordingly for financing sustainable and green projects.
Last year, Erste Bank Croatia introduced debit cards made of recycled material, aiming to replace all existing cards by the end of 2026.
In addition to our internal processes, we are also trying to reduce use of paper in our business with clients, so we introduced digital account statements and various notifications, while enabling digital activation of products such as loans and savings.
Through the Bank's operation it is strived to take care of vulnerable groups of clients, offering them special tailored products, such as loans with specific terms and lower banking fees for pensioners. The Bank offers a special savings product for children called Medo Štedo, which aims to facilitate the first contact between children and the Bank and promote the habit of saving money by offering favourable interest rates and a customised rewards programme. There is also a special programme for young clients - a special current account intended for children and teenagers, including a debit card, which makes it easier for parents to teach them about financial responsibility without having to pay an additional account administration fee.
Non-financial Report
Year ended 31 December 2022
35
Erste&Steiermärkische Bank d.d.
Products and services (continued)
In 2022, the Bank continued to actively participate in subsidised residential construction programmes (POS) and subsidized housing loans programmes for the purchase or construction of real estate in cooperation with the Croatian Real Estate Agency (APN).
Changes in client behaviour and habits, technology and the regulatory framework continuously require adjustment of the existing business model and the role of individual distribution and communication channels. Branch offices are increasingly becoming centres for consulting and resolving more complex client requests, while clients are increasingly using digital services and self-service devices to perform transactions and resolve simpler requests. In 2022, activities in the branch transformation project continued, which in addition to a new visual identity, is characterised by a new way of working focused on the advisory role of employees and a unique user experience for clients.
In line with the strategic benchmarks of the Bank whose primary objective is to provide for a sustainable operation of clients in the long run and socially sustainable operation in general, two key concepts have been implemented this year – Financial Health and harmonisation with the ESG regulation. For the first time in the Croatian market, the Financial Health concept enables clients to achieve better understanding and transparency in the credit rating, while the implementation of the ESG regulation lays an additional foundation for a long-term sustainable economy.
The main objectives of the Bank in the ESG segment are to support its clients in monitoring and reducing their carbon footprint and generally in their transformation toward more sustainable business and funding of green, sustainable projects. To achieve these objectives, in 2022 we launched ESG training for our employees, initiated the process of defining a clear service model involving ESG for corporate clients, and processes of implementing and defining the guidelines and methodologies for green funding. Additional emphasis was placed on reaching the target 'green' volume (GIR), which was set at EUR 105 million in 2022 and was significantly exceeded.
As in previous years, the Bank continued implementing existing and securing new financial instruments by signing agreements with domestic and international financial institutions (HAMAG BICRO, HBOR, EIF, EIB, EBRD). Financial instruments come in the form of credit lines, guarantees and guarantee schemes, and are available to micro, small and medium-sized companies with the aim of facilitating access to financing to entrepreneurs.
In 2022 we continued with intensive cooperation with special financial institutions on guarantee instruments with the aim to mitigate the negative consequences of COVID-19 and the crisis caused by the war in Ukraine, especially with the European Investment Fund (EIF), the Croatian Bank for Reconstruction and Development (HBOR) and HAMAG-BICRO.
Late last year, the Bank signed a EUR 50 million guarantee agreement with the European Investment Fund (part of the European Investment Bank Group – EIB), as part of the InvestEU Fund to support the sustainability, innovation and digitisation of small businesses in Croatia and the development of the cultural and creative sectors. Since its arrival in Croatia, the EIF has signed more than 40 agreements with local commercial banks, thus supporting some 5,000 businesses and helping preserve 70,000 jobs. Thanks to a wide range of coverage, InvestEU will help Croatian SMEs and mid-caps to introduce more sustainable technologies and operational practices that are less harmful to the climate. EIF funding also supports innovation and digital transformation by improving access to funding for research and technology-oriented businesses. It will also contribute to the development of the cultural and creative sectors, the creation of new business ecosystems and their adaptation to current market challenges.
The Bank also continued its partnership with HAMAG-BICRO and HBOR through the use of existing guarantee instruments, which remain open in 2023. An agreement was signed with the HBOR on a portfolio insurance policy for exporters affected by the Ukraine crisis, worth EUR 20 million. As part of the National Recovery and Resilience Plan (NRRP), negotiations were opened with the HBOR on a guarantee for mid-caps and large clients, along with the talks with the HAMAG-BICRO on interest rate subsidy with a guarantee for SMEs.
By signing the contracts and using these guarantee instruments, the Bank provided continuous support to individual entrepreneurial sectors, and those most affected by the pandemic in particular, in line with its strategic guidelines. As a result, around 60% more transactions were granted with guarantee facilities in 2022 versus 2021, which was already a record-high year in the use of guarantee facilities.
Erste&Steiermärkische Bank d.d.
36
Products and services (continued)
In order to ensure more favourable lending terms for our clients, we also signed new framework agreements with the HBOR for investment loans worth EUR 50 million, as well as NRRP interest subsidies for private and public sectors.
In 2022 we intensified the granting of binding and non-binding letters of intent for funding projects co-funded by the EU. In this context, the Bank also actively participated in consultations with the ministries that published tenders within the NRRP and with the consulting firms that assisted clients in applying to these tenders.
The Bank operates in accordance with Responsible Business Principles which aim to ensure adherence to rules relating to funding, i.e. the provision of services in the areas of energy, defence, arms industry and other sensitive industries. Although the Bank does not focus on financing such industries, acting in line with principles ensures that business activities in these industries are conducted in a manner that is responsible towards clients and society in general.
Over the past two years, Erste Asset Management, a member of the ESB Group in Croatia, has offered several investment funds on the market based on investments related to ESG principles. It is currently the fastest growing segment of investment funds in the EU, and past experiences show great interest from clients in investing in this type of funds.
Digitalisation
The Bank is continuously working to digitise its operations and provide new and improved opportunities to clients.
The KEKS Pay app, which was offered to users by EBC at the end of 2018, registered more than 317,000 users at the end of last year. The app is intended for everyone, regardless of their bank of choice, so 71% of users are clients of other banks, while the remaining 29% have an account with Erste Bank Croatia. The KEKS Pay app initially started providing the service of sending and receiving money between friends, but it developed a number of new services since then, including the purchase of mobile phone vouchers and payment of tolls and parking, making donations, paying in web shops and stores that support KEKS Pay, among others. The latest innovation - receiving and paying digital utility bills has been used by an increasing number of users each month. Last year, intensive work was done to expand the scope of this functionality, so now it is offered by more than 60 different companies and local self-government units. In the second half of 2022, another new feature was added - called KEKS Kasica, or savings feature that proved quite popular among users.
After its introduction in 2020, the pan-European digital platform George continued to develop over the years, providing new, innovative features to its clients. Apart from bringing a better mobile and online banking user experience, George also represents a platform for innovation, so new features are being added and with each new update the platform becomes smarter, more advanced and intelligent. In addition to the already available products, such as opening of current accounts, cash loans, term deposits, credit cards and other, during 2022, developing new products in George was in focus. Clients were offered such services as opening brokerage and custodial accounts or gyro accounts and savings-related products. One of the most important new features that helps increase the speed of arranging new services, contributes to digitisation of services and reduces the use of printing paper is so-called “assisted sale at branch offices", where tellers in branch offices can arrange products for clients through George. in 2022, the app also saw certain adjustments in its interface and the conversion to the new currency. By the end of 2022, George had more than 362,000 active users per month.
Continuous upgrading of EBC’s websites, which in 2022 also followed the needs of clients with all the necessary information should be mentioned too.
Erste Bank Croatia places great attention on client experience and aims to be a leading bank in terms of consumer protection and excellent customer experience. Providing excellent, simple, accurate, transparent and timely service has been set as a strategic objective. In order to achieve this, the Bank operates beyond the framework of what is legally prescribed and, for example, EBC enables the transparent and simple submission and resolution of complaints, with more than 70% of complaints solved within three working days.
Non-financial Report
Year ended 31 December 2022
37
Erste&Steiermärkische Bank d.d.
Client experience and contact centre (continued)
Therefore, the client experience is managed systematically and continuously, through a process defined in five steps:
_By listening to the client’s voice
_By implementing service quality standard
_By educating employees
_By measuring client’s experience, and
_By identifying areas for improvement and defining an action plan of improvement.
The purpose of measuring client experience is understand their expectations and make sure they are satisfied with the service provided. We are measuring how much clients are satisfied with our services, products and processes, as well as the knowledge, expertise, procedures and conduct of employees towards the clients. The measuring results provide specific feedback and the opportunity to improve a client’s experience in all contact points with the Bank.
The sources of clients’ opinions come from several sides and from several perspectives. There is: mystery shopping, which determines whether employees behave and act in accordance with the pre-defined standards and procedures; client satisfaction surveys, which examine client’s satisfaction with the provided service or contracted product (the sample is more than 40,000 respondents per year), and clients’ complaints, which are collected and analysed on a monthly and quarterly basis in various categories.
All these measurements are carried out continuously, the results are regularly analysed and reported to the executives, and action plans for the improvements are made. At the bank level, the Committee on Service Quality and Client Experience also operates and its permanent members are the Management Board and directors of the second line of management from those sectors that directly communicate with clients, as well as other sectors that have a significant indirect impact on clients' experience. The Committee meets four times a year and determines the objectives of client experience, monitors the level of customer experience and decides on the priorities for improvement.
There are several basic goals which relate to the client experience, and which are aimed to be secured in the coming period. Further development of services and the possibility of contracting products on digital channels, improvement of the efficiency in processes in order to provide customers with a service in the shortest possible time, and continued transformation of the network in a way that puts the client in focus are just some of them.
Changes in client expectations, behaviour and habits, the technological revolution and regulatory frameworks inevitably require a redesign of the current business model and the role of branch offices as distribution channels for products and services of the Bank and its partners, which is why the network has gradually transformed. The bank network transformation project has been ongoing since 2018, and according to the service model, 16 branches of the Bank have been refurbished so far, with some of the branches redesigned for the first time according to the Branch Evolution concept, which is an upgrade of the service model for branch redesign. Other business premises of Erste Bank Croatia have also been reconstructed, and the plan is to continue redesigning branch offices according to the new concept.
EBC is available to clients through multiple channels in order to facilitate access to information and provide clients with the right to issue a complaint at any given time. In addition to standard communication channels (phone, e-mail, chat, video call), the EBC Contact Centre can also be contacted via WhatsApp and Viber, while the EBC digital clients are provided with video identification services.
EBC’s long-term focus on excellent client experience in all contact points with the Bank has also been recognised by clients, as is shown in the CXI (Customer Experience Index) results, according to which EBC has been ranked first in the market for years with a significant advantage over other banks. Such a result proves that Erste Bank Croatia has been communicating with its clients successfully, timely and transparently in the uncertain situations we have encountered over the past few years.
Erste&Steiermärkische Bank d.d.
38
Right to personal data protection
Personal data protection is basic right of every citizen. The principles and rules regulating personal data protection ensure the protection of private lives and other human rights and fundamental freedoms when collecting, processing and using personal information. It is guaranteed to every individual regardless of nationality, residence, ethnicity, skin colour, gender, language, religion, political or other affiliation, national or social background, health, income status, birth, education, social position or other characteristics.
a) GDPR (General Data Protection Regulation)
Application of the General Data Protection Regulation has brought new definitions and clearer obligations with regard to data protection and the right of every citizen to security and privacy. More specifically, the regulation added value to EBC in terms of its ability to get closer to its clients through transparent operations, using the GDPR legal framework as an additional opportunity and motive to raise the level of security of the entire security system. The GDPR introduced new definitions, described existing concepts in more detail, strengthened the rights of natural persons and one of the objectives was to raise information security to the highest level in the area of accessing and managing personal data. In relation to the processing of individuals' personal data, EBC is continuously working on improving relevant business processes. The Bank achieves a high level of personal data protection and ensures that clients, employees and contractors can excercise their rights in accordance with positive legal regulations by following best practices and industry standards of information and communication infrastructure management, transparent communication and other technical and organizational protection measures.
b) PCI/DSS (Payment Card Industry Data Security Standard) certificate
To protect the IT system from various security threats, the Bank continuously works on upholding and improving compliance with the PCI DSS standard and the requirements of the international Erste Group as well as guidelines for managing IT systems issued by the national regulatory body.
In 2022, EBC again successfully completed the PCI DSS re-certification, thus confirming the Bank's compliance with this complex international payment card security standard. The compliance, as well as the review of the PCI DSS scope, are extremely demanding and involve continuous collaboration between technical, business and security teams on compliance with the standard's requirements.
Non-financial Report
Year ended 31 December 2022
39
Erste&Steiermärkische Bank d.d.
Employees
EBC's goal is to be the best bank in Croatia that cares about the security of its clients and provides products and services of the highest quality while taking care of the well-being of its employees, shareholders and the community. Caring for employees is one of the cornerstones of EBC's culture, and is demonstrated through various activities that the Bank undertakes to ensure that all employees are in a comfortable and high-quality working environment, characterised by mutual respect and consideration.
At EBC the individual is appreciated. This goes for the Bank's thousands of clients but also its employees. Excellence is possible only when employees with personality, talent and experience are gathered. For that reason, EBC strives to ensure that its employees work in a motivating working environment by providing career-related benefits, with emphasis on meaningful and purposeful work, opportunities for intellectual advancement and for acquiring new knowledge and skills, good and healthy interpersonal relationships, economic security and stability, and ultimately better care for one's own health. Additionally, special attention is given to gender equality and reduction of inequality, ensuring quality working conditions and social dialogue, preventing human rights violations and discrimination, and striving for maximum transparency and dialogue with the local community.
Diversity and gender equality and prevention of discrimination
EBC has a total of 2609 employees1, of whom 1899 are women, while 710 are men. Among the Bank's workforce, employees aged 30 to 50 predominate.
Table 2: Employee structure
< 30 YEARS OF AGE
30-50 YEARS OF AGE
>50 YEARS OF AGE
women
men
number
%
number
%
number
%
1,899
710
326
12%
1,925
74%
358
14%
Women account for 73% of employees while the remaining 27% are men. Regarding women in managerial positions, throughout 2022 their share remained at a similar level as in the previous year. At top management levels, which include the Supervisory Board and Management Board, women account for 17% while at the level of the Management Board and B-1 level, women account for 36% of managers. At the B-1 level, women account for 43% of management while in middle and lower management positions, they account for 64%. The Bank's goal is to maintain the positive trend from the past few years going forward, and continue promoting women leaders so that the percentage of women leaders are stable, growing over time.
The average age of the Bank's employees is 39.8 years, while the average age of employees in management positions is slightly higher at 45.4 years.
Table 3: Structure of managing bodies
women
men
29%
71%
MANAGEMENT BOARD
women
men
<30
30-50
50>
0%
100%
0%
20%
80%
B-1
women
men
43%
57%
B-2, B-3, B-4
64%
36%
Total Top mgmt, Supervisory board, Mgmt. board
17%
83%
Total Top mgmt
36%
64%
1 The expressed figure is the total number of active employees, regardless of whether they work full-time or part-time.
Erste&Steiermärkische Bank d.d.
40
Diversity and gender equality and prevention of discrimination (continued)
The Code of Ethics regulates the prevention of discrimination, while the Rules of Procedure and Collective Agreement describe the reporting procedure and the steps that must be undertaken by persons authorised to resolve complaints. Through a special decision, the Management Board appointed members of the Legal Affairs and Human Resources teams as persons responsible for resolving complaints related to the protection of dignity and protection against discrimination within EBC.
Special attention is paid to preventing discrimination in the recruitment and selection process – EBC's job postings are open to all interested candidates whose competencies and experience meet the requirements of the workplace, regardless of gender, age, nationality and similar. Managers participate in individual or group counselling in an effort to raise awareness about unconscious bias so they could make quality and impartial decisions regarding the selection of candidates, and the prohibition of discrimination is also a key element in the Employment Policy.
EBC strives to create an environment that supports diversity, respect and appreciation of others, whether they are employees, contractors or clients of the Bank. The principles of diversity and inclusion that the Bank is committed to are defined in the Diversity and Inclusion Policy, available in Croatian and English. This document is regularly updated, and it describes the principles of an inclusive culture for both clients and employees. In 2021, the Policy was significantly revised in cooperation with Diversity Management at the level of the international Erste Group, and the Erste Group Statement on Diversity was added, which applies to the entire international group. At the level of the international Erste Group, Diversity Management is organized as a 'Group Function' and is located within Erste Holding, as part of the Group People & Culture sector.
Long-term goals concerning the demographic profile of top managers have been set at the level of the entire Erste Group, and they are defined for a period of five years and monitored in two steps. When it comes to the proportion of women among top managers (Management Board and B-1 level) in EBC, the goals are: 34% by 2023 and 41% by 2025. Data from 2021 showed that women accounted for 33% of top managers, thus the first goal was almost achieved; in 2022, the proportion of women leaders increased to 36%, thus the goal for 2023 was exceeded. The promotion of women to top management positions is supported by the new successor development process for B-1 positions which was implemented in 2022. Diversity, especially in relation to gender, was one of the key criteria in the process of nominating and selecting successors, so the pool of potential leaders consists of slightly more than 60% women. In this way, EBC wants to contribute to the inclusion of women in top management positions and to breaking the 'glass ceiling'.
In addition to the goals defined in coordination with Erste Group, the Bank also monitors locally defined goals concerning the demographic profile of senior management at the level of the Supervisory Board and the Management Board. At this level these goals are: women accounting for 23% of top managers by 2023 and 31% by 2025. At the end of 2022, this number was 17%, which means that in the next year the Bank will need to appoint one more female leader in these positions in order to achieve the goal.
In addition to supporting women managers, the focus is also on ensuring equal opportunities for advancement and development of employees from different age groups, especially those at either end of the curve (under 30 or over 50 years old), and encouraging successful cooperation in multi-generational teams. Thus, special attention is given to ensuring that lifelong learning is always part of development initiatives and that employees aged 50+ are equally involved in all training activities. In order to facilitate functioning in multigenerational teams, workshops for employees are organized on this topic.
In mid-2020, management began regular reporting on the basic parameters of diversity in the Bank. Data on gender and age distribution among different groups of employees are now part of the monthly employee report compiled for directors. In this way, diversity is monitored through numbers, while at the same time management's awareness of the importance of diversity management is strengthened. In 2021, the report was redesigned and is now easily accessible to management through the internal intranet platform.
EBC responds to a variety of initiatives, panels and lectures on diversity and actively promotes it at all professional conventions outside the bank.
In the past few years, EBC launched and is implementing a number of initiatives and activities under the slogan #različitoplavi, which aim to support diversity in the organization. The main sponsor of these initiatives is the Chairman of the Bank's Management Board, Christoph Shoefboeck, who is sometimes actively involved in some of the activities himself.
Non-financial Report
Year ended 31 December 2022
41
Erste&Steiermärkische Bank d.d.
Diversity and gender equality and prevention of discrimination (continued)
Throughout the year, educational workshops on the topic of stereotypes, prejudices and unconscious bias are regularly held, adapted to different groups of employees and held in different settings (online, in person, through webinars...)
The bank is also continuously investing efforts in raising awareness about the importance of diversity by using internal communication channels, primarily intranet. Special attention is paid to including diversity as an important topic in the onboarding process. In order to raise awareness of the importance of gender equality, all materials, instructions, and guidelines for new employees are written in the feminine gender, and an explanation is provided as to why this is the case and why diversity is important in EBC. Additionally, the Bank is continuously working on providing benefits that support diverse groups of employees and contribute to work-life balance.
When advertising available job positions, in addition to the usuall "ž" and "m" denoting female and male gender respectively, in late 2021 the Bank also introduced a gender-neutral designation - "d" for other. In that way, the Bank wanted to send a message about the importance of respecting diversity not just internally but also externally to the public, thus contributing to breaking stereotypes in our social environment.
During 2022 the Bank redesigned the way it communicates with potential employees, through all contact channels: including the career section of the Bank's website, content on various job websites and listings for open positions. Messages related to appreciating diversity are an important part of the new communcation content. Thus, the Bank now uses photos which show people of different genders and ages or people with disabilities, and the text of job advertisements contains a note about diversity as an integral element of the Erste culture.
With the aim of breaking stereotypes, for several years EBC has been encouraging the fathers among its employees to use parental leave by sending a motivational e-mail describing the benefits of participating in taking care of a child and instructions on how to exercise this right. The initiative has had visible positive effects since it was launched - in 2022, around 50% of fathers employed by EBC opted to go on parental leave, while some data indicates that this number is just 7% in Croatia as a whole. Since autumn of 2022, legislation regulating the so-called father's leave is in force, making it mandatory for employers to allow every father to take 10 to 15 days leave. For EBC, implementing this initiative is not a challenge, as the Bank already encourages male employees to actively take on the parental role.
In order to make it even easier for employees to balance their parental role and private life with work obligations, the bank supports flexible work models and working from home when the work organization allows it. These options, although they are also used by men, primarily provide support to women employees due to the still traditional role of women in society, which makes them more involved in taking care of children, family, housework, etc.
Modelled after an event that took place the year prior, in October 2022 the Bank organized a half-day online event on financial literacy and financial health for all employees, and particularly women as more a vulnerable group when it comes to such topics. The event was again organised with the joint participation of local diversity managers from all Erste Group member countries. This year the joint part of the event featured an interesting lecture by financial activist Jacki Zehner who advocates for the equality of women and girls in relation to financial literacy and managing finances, and who calls herself a financial feminist. The local part of the event consisted of a panel discussion on financial resilience, which featured Bank's experts from various fields: macroeconomics, sales and psychology. The entire event garnered a large audience, around 150 employees of EBC Group joined in the online activities and provided very positive feedback about the content.
As part of promoting diversity, in 2022 the Bank participated in a project of providing work training to persons with disability, in cooperation with the Centre for Professional Rehabilitation in Zagreb. The pilot project was successfully implemented, during which a young person with cerebral palsy underwent mentoring with the aim of acquiring new work knowledge and skills, as well as learning to socialize and cope in new situations. In order to ensure that the project is successful, the entire team, which was joined by the person with the disability, first attended a workshop on accepting diversity. After the completion of the mentoring and successful integration into the team, the project ended in the best possible way – the person with the disability became an employee of the bank.
No cases of discrimination were recorded in 2022.
Erste&Steiermärkische Bank d.d.
42
Diversity Charter
The Diversity Charter is a document drafted individually by each country, and the text of the Charter is signed by business and other organisations, thus undertaking to implement diversity and non-discrimination policies in their workplaces and business environment. The project started in 2018, and EBC is one of the signatories of the Charter, with the aim of emphasizing diversity in creating a stimulating work environment.
The Croatian Business Council for Sustainable Development is an organisation promoting the implementation of CSR in Croatia, and the Charter serves as a contribution to social development and the promotion of equal opportunities for all social groups. EBC is an active member of the network of experts in this field at the European Union level.
In addition to that, EBC is a member of the Alliance for Gender Equality, an initiative that brings together companies that advocate for increasing the number of women in management and other positions, equal pay for equal work and equal opportunities for advancement. Every year, the Bank's representatives attend the Alliance's Forum marking the International Women's Day and participate in discussions on relevant issues related to the equality of women.
In the past few years, EBC has been participating in the European project Diversity@Work, coordinated in Croatia by the Diversity Charter. The project includes around 80 organisations from ten EU countries, and its aim is to test tools for promoting diversity in organisations, adapt them to practice and ultimately enable organisations to apply the tools to their needs. In 2022, the Charter organized an online training course entitled "Diversity in the Workplace" in which around ten of the Bank's employees participated, attending several online training modules.
Code of Ethics
The Code of Conduct regulates the basic rules of business behaviour of the Bank's employees for the purpose of preserving and further developing the reputation of banking in society, promoting the idea of professionalism, responsibility and transparency of business. The Code of Conduct is a reference point for all procedures and behaviours and serves as a link in policy documents that regulate the behaviour of employees when performing activities. Similarly, the Code imposes the need for responsible behaviour, with respect for others and sustainability in all aspects of business, which protects the Bank's good reputation and fosters trust in the institution.
By adopting the Code of Conduct, the Bank wishes to ensure a certain standard of quality and business sustainability through the prism of its employees and corporate culture. Abiding by the Code is also a continuous process of development which does not have an expiration date or period of application and is mandatory for all employees. It is available in Croatian and English.
New employees learn about the guidelines from the Code of Conduct through workshops via MS Teams (sales network) and an e-learning training course. Since the Bank introduced a new LMS system at the end of 2021, the e-learning course has been redesigned and is now available to employees on their official mobile devices as well.
The Code of Conduct was updated in 2022, and the e-learning training course that was mandatory for all employees of the Bank was updated alongside it. By the end of the year, more than 2,400 employees, which represents more than 92% of total employees, attended the course and successfully passed the test.
Internal service quality
The process of internal service quality management is one of the ways to establish cooperation between different units of EBC and EBC Group. Through this process, employees have an opportunity to provide open and constructive feedback about cooperation with various organizational units and at the same time they can request feedback on their work, based on which they can improve the ways in which they cooperate with others.
This process also establishes criteria that internal services must meet, in the form of guidelines and standards, but also in the form of key performance indicators (KPI) for the second management line, which are defined based on results of internal research. The internal quality KPIs extend to lower hierarchy levels, as objectives describing certain activities that need to be undertaken in order to improve cooperation with others.
The systematic and continuous work on internal quality is important primarily so the Bank could ensure excellent services for external clients, and also to strengthen corporate culture based on community and teamwork.
Non-financial Report
Year ended 31 December 2022
43
Erste&Steiermärkische Bank d.d.
Vezica
In the past few years, the “Vezica” (“Connection”) programme was established in the last few years as an additional recruitment channel, to attract new, high-quality IT employees using the network of existing employees. Together with the IT sector and organizations, certain IT positions were singled out, of which the Bank is in shortage, and existing employees are rewarded if they proactively recommend a candidate who becomes an employee at the Bank. In this way, it is ensured that existing employees become promoters of EBC, while also ensuring the selection of candidates who might not have applied through a standard job ad.
Continued and quality cooperation with employee representatives (Workers' Council and Trade Unions)
The Bank continually invests efforts in maintaining good cooperation with employee representatives so that this open communication channel could also contribute to the growth and development of corporate culture, the organisation as a whole, and all its employees. This is achieved through regular monthly meetings, an open-door policy, and quarterly meetings with the Management Board and the Workers’ Council. In 2022, the meetings were organized quarterly. The collective agreement was concluded in 2006 and since then it has been renewed successfully and in the spirit of mutual cooperation and good will upon each expiry.
In addition to this, Erste Bank Croatia also actively encourages knowledge sharing between organizational units, sectors and employees. Work-training meetings are regularly organized with all organizational units as an opportunity to share information, attend various workshops etc. Work-training meetings are organized within one organizational unit or several related units and are a part of the Bank corporate culture, with the purpose of advancing the collective knowledge and awareness of employees within different organizational units. Sharing knowledge improves and develops already established processes, but also establishes new ones, with the vision of improving the level of shared direction in operations and corporate culture. In 2022, the Bank went back to organizing the work-training meetings the old way, in person, which contributed to better connections between employees and a sense of community.
Blue elephant
This is a corporate culture platform that was launched with the purpose of actively managing ECB’s corporate culture. It is a common denominator for all activities, values, and behaviours through which corporate culture is defined and supported. The name and identity of the Blue Elephant are manifested through a shared and systematic description of all activities of the Bank, the values, behaviours, and characteristics that define and support corporate culture and its development.
The concept, vision and mission of Blue Elephant are defined through the following segments of corporate business and employee involvement: recruitment, collaboration, impact and development management, consequence management and innovation.
Blue Elephant activities and all related communication are based on the principles established by the Statement of Purpose, a strategic document of the international Erste Group, which gives priority to promoting and ensuring prosperity, serving the civil society and people, as well as prioritizing correct procedures over profitability.
Prompted by the changes in the way of working, communication and cooperation caused by the pandemic, in mid-2020 the Bank launched the initiative #radimpametno (#worksmart) – a platform aimed at enabling smarter and better work and focus on the real values that are important for both employees and clients of EBC. The idea behind the name of the initiative was to encourage reviewing, adapting and changing everything that is not in accordance with common sense, and which relates to the future of work.
The initiative is conceived as a platform through which a future organisation of work is created, with a focus on the adaptation of culture, processes and infrastructure used in work in EBC. During 2021, a series of activities were carried out focused on these aspects, and the first phase of the project was completed at the end of the year.
Erste&Steiermärkische Bank d.d.
44
#radimpametno (continued)
#radimpametno activities are divided into three areas and significant achievements have been achieved in each of them:
▪Infrastructure
-complete technical requirements for #radimpametno mode ensured for all bank employees:1,200 mobile devices and 700 laptops distributed, mobile data plans improved, headphones distributed to everyone, network and Wi-Fi infrastructure improved
-tools created for employees to facilitate successful use of technical equipment
-MS Teams implemented as a collaborative tool with instructions and training provided to all employees
-adaptation and renovation of business premises completed in Bjelovar and initiated in Zagreb
-rental of additional business premises abolished and significant savings were achieved
▪Culture
-flexible work models introduced where possible, primarily the remote work model according to the “3:2 or 2:3” system
-guidelines for “smart” meetings and communication via e-mail defined and implemented
-“Development Friday” promoted – Friday as a day without meetings, dedicated to personal and team development
-Erste Flexi Leader and Erste Flexi Employee model defined and promoted and development activities organised in support of these models
-new LMS system implemented supporting #radimpametno values – modern, easy to navigate, accessible via mobile devices
-key company processes, recruitment and onboarding, redesigned in accordance with #radimpametno principles
-#radimpametno principles defined as development goal for all employees in 2021
-entire organisation encouraged to reflect and redefine critical processes in the context of #radimpametno principles
In 2022 the project continued, and it included several important activities:
▪Infrastructure
-after mobile devices and laptops were provided to employees, all unnecessary landlines were cancelled
-through further refurbishment of office space, desk-sharing was introduced in a part of the organization
▪Culture
-flexible work models continue to be supported where possible, and a new work-from-home work model, involving monthly scheduling of work-from-home days, was introduced for IT and Digital part of the organisation
-based on the Erste Flexi Leader model, the Bank launched the process of planning successors for top management positions, future leaders were identified, and a development programme for them started at the end of the year
▪Processes
-the so-called Erste PUNKT was introduced with the aim of increasing efficiency, a central point for internal services related to office work
Trainings and education
Continuous employee development is one of EBC’s key principles. Upgrading professional knowledge, acquiring new competencies in line with the trends and the market, and constant personal development are the basic assumptions for the career path of all employees.
As in the previous year, online activities (webinars, online workshops, e-learning materials) accounted for a significant part of training activities, but the amount of "live" training sessions and workshops has been increasing and in 2022 they accounted for 35% of all training activities. In 2022, the emphasis was on development programmes for managers – for that group of employees, the number of training hours increased compared to the previous year.
Non-financial Report
Year ended 31 December 2022
45
Erste&Steiermärkische Bank d.d.
Trainings and education (continued)
Table 4: Number of hours and average number of hours of training at EBC
Development needs are determined using the Training Needs Analysis (TNA) which analyses strategic competence needs, the existing level of knowledge in the organisation, as well as competence trends for a particular business area in the coming period.
According to the TNA results, educational activities are created and organised and the optimal form of training is defined — webinar, online workshops, e-learning, coaching, mentorship, internal knowledge transfer, in-house rotations, project work, etc.
The main focus of development activities is divided into:
a)Expertise — functional-specific professional training — professional seminars and workshops, certifications, conferences, etc.
b)Personal development — training organised to develop personal competences such as presentation and communication skills, negotiation, conflict management and others.
An important part of development activities relates to leadership skills for managers — including motivation and team management, situational leadership, empathetic leadership, using leadership models and tools, and instructions for managing virtual and remote teams that has gained great importance over the past two years. In 2022, several development programs for managers were implemented that were adapted to the specific challenges in certain business areas (processing, retail sales, sales in the corporate segment, IT).
Another category of personal development that culminated during the pandemic is the protection of employees' mental health and coping with uncertainty. Employees were offered content related to the challenges of working from home, work-life balance during lockdowns imposed due to the pandemic, coping with stressful events and psychological empowerment. The topics concerning both mental and physical health continued to be very important in 2022, which can clearly be seen from the kind of training that employees were most interested in. Webinars that had more than 200 employees participating in them were: "How to prevent stress," "School of good posture," and "Integrative approach to health." Training was available to employees in the form of video materials and written content on the intranet, webinars and online workshops and e-learning courses.
All employees are offered the opportunity to sign up for a certain number of training courses at their own initiative, regardless of the type of work they do or their job position. They are offered a number of open training content in the form of shorter webinars or online workshops, which they can register for in accordance with their individual needs and interests.
One important training channel is Erste Guru, a local online learning system that provides access to various training topics in the form of videos, presentations, etc. Erste Guru is also a place where employees receive all mandatory, regulatory training — such as training on current product offers, sales skills, GDPR, competition rules, cyber security topics, etc. In this way, the reach of development activities in the organization is also greatly accelerated and expanded. Through 2022, training related to leadership skills, as well as training focused on mental and physical health, was in particular demand.
Last year, development activities covered 95% of the training needs defined through TNA. A significant part of these activities was organized and held by the Bank's internal trainers from business organizational units or by Human Resources employees, which shows that the internal knowledge base and the potential of internal trainers are still being used very intensively.
The average number of training days per active employee stood at 4.75 in 2022.
Table 5: Average number of training days per active employee
Erste&Steiermärkische Bank d.d.
46
Employee programmes
Due to business line needs, various tailor-made programmes for specific groups of employees continued in 2022:
_Erste Start – a modular programme for the development of leadership skills and soft skills for newly appointed managers,
_Erste Forward – a modular programme for upgrading and refreshing leadership and soft skills for managers
_HR Refresh – a programme for line managers on practical examples and solutions related to operational staff management (labour legal issues, managing working time, performance management, etc.)
_UP - programme for the development of managerial and sales skills in the corporate banking sectors
_Retail Leadership Academy – programme for the development of managerial skills in the retail banking sectors
_Processing Leadership Academy - programme for the development of managerial skills in the Processing sector
_How to Survive the Euro Year – support programme for IT managers
_Henry programme – development of business and soft skills in the corporate banking support sector
_E-Leadership Academy – program for the highest level of line managers for the development of modern leadership skills and adoption of new trends and strategic competences
_ROAD programme – development activities for successors to B-1 positions
_Tips & Tricks – online programme for line managers with tips related to most important leadership areas (feedback, stress management, taking responsibility, etc.) tailored to meet the needs of individual organisational units
_Specific targeted programmes for individual organisational segments, depending on identified development needs
Erste Bank Croatia employees also have the possibility to attend various specialized training courses organized by the owner, Erste Holding. These training courses meet the needs for specialized training which is needed but not available on the market or the number of experts is too low to organize an in-house program. In 2022 the following were implemented:
1.Mastering Leadership Programme
2.Group Graduate Programme (GGP) 2022
3.Sales Training Programme
4.Project Risk Management Workshop
5.Power BI (storytelling)
6.License-to-lend
7.ALM - Fundamentals
8.ALM - Expert
9.Tagetik Webinar
10.Ethics Global Code
11.FLiP Capital Market Tour
A special emphasis is also placed on identifying and developing talents, i.e. employees who show a lot of potential. International programmes are organised for them at the level of Erste Holding, as well as at the local level.
Development programmes are organised in cooperation with local and international educational institutions and experts, but largely also via internal transfer of knowledge, through internal trainers and educators.
In recent years, EBC has been putting emphasis on employee wellbeing, and all activities and initiatives are grouped under the name Well.being.
The goal of Well.being is to develop a culture in which employees take care of themselves and each other. It is in line with the purpose and priorities of the international Erste Group and forms the basis of common value – for the employer, for the employee and for the wider society.
Existing activities and initiatives are merged, structured and improved, and new ones are introduced, in line with employee interests.
Non-financial Report
Year ended 31 December 2022
47
Erste&Steiermärkische Bank d.d.
Employee work-life balance and health (continued)
The elements of wellbeing cover five interrelated areas that impact each other:
1.a work environment culture that encourages employees to look after their health is fostered;
2.on the other hand, financial benefits are that which enables economic security for employees and their families;
3.meaningful and purposeful work is an important tool for career development;
4.personal intellectual progress is ensured through opportunities to acquire new knowledge and skills;
5.good quality interpersonal relationships are an important part of the social aspect of private and business life.
In different life situations, the importance of certain elements changes, and it is necessary that all elements are represented and that there is a balance between them. EBC pays special attention to the needs of different groups of employees and creates occasional initiatives precisely for them, thus integrating the care for one another into daily operations.
For EBC employees, this means being in good health, enjoying security for themselves and their family, feeling a sense of fulfilment and satisfaction, a sense of growth and development through work and fun.
In 2022, the platform Zdrava glava (Healthy Head) also became available to employees. This platform arose from a need for psychosocial support, which has continuously been provided to employees since 2020. The initial idea behind the psychosocial corner in 2020 was to facilitate adaptation to working from home, dealing with the long-term situation of the pandemic and the consequences of devastating earthquakes, by talking to the expert team and reading articles published on the intranet about current topics. In this way, employees were encouraged to be proactive in taking care of their psychological health. Launching the Erste phone line for psychological support, supported by in-house experts, turned out to be very useful after the earthquakes that struck Zagreb area and Sisak-Moslavina County.
Today the Zdrava glava platform is a logical result of employer's concern and employees' interest in the topic of mental health. The platform's fundamental goals are: break taboos and destigmatize the topic of mental health, talk about it more clearly and loudly, foster a culture in which it is okay to say that we are not okay, and connect physical and mental health, which together form an inseparable whole.
The Zdrava glava platform deals with a wide range of topics and is present on several internal communication channels available to all employees. In addition to the active work of the in-house psychosocial support team, which is available to employees via e-mail, telephone and anonymous questionnaires, specially designed workshops and webinars led by top experts are also organized. Furthermore, the Erste Guru online learning platform offers educational materials in the form of videos, expert articles, quizzes and quick help tips. The topics covered are vital and of great importance for the business and private environment: stress and burnout, depression, gratitude, empathy and many others.
Content offered by Zdrava glava plaform has responded well to employee's needs, which is reflected in the large number of employees that have participated in webinars and training sessions. On average more than 150 employees participate in webinars on mental health topics.
Alongside caring about their physical and mental health, in 2022 EBC also focused on the financial health of its employees. The international Erste Group launched WeShare, a program for distributing shares to employees, in which all Erste Group subsidiaries could participate, including EBC and its subsidiaries in Croatia. In addition to the distribution of shares, employees were also given the opportunity to further invest in Erste Group shares at their own choice and capabilities, and received additional shares as a return for the purchase. It is planned to continue the program in the coming years.
In addition to this program, midway through the year the Bank undertook another move with the aim of strengthening the financial health of employees, adjusting their salaries in order to reduce the impact of inflation on employees' financial resilience. At the end of 2022, the bank decided to take advantage of the legal increase of the maximum amount of tax-free income and thus provide additional financial support to employees.
Erste&Steiermärkische Bank d.d.
48
Employee work-life balance and health (continued)
To achieve Well.being goals, EBC have the following benefits at their disposal.
_training and development programmes focused on professional growth and development, and additionally lectures and workshops that are not closely related to business topics;
_internal job openings available to all;
_annual awards depending on the results achieved, bonuses (Easter, Christmas bonus, recourse, Christmas gift for a child, jubilee awards in accordance with years of work spent in the Erste Group, solidarity allowance for e.g. birth or adoption of a child, death in the family...), reimbursement for meal expenses, reimbursement for travel expenses, payments to a closed voluntary pension fund;
_flexible working hours where the work process allows such organisation of working hours (flexible working hours, shorter Friday, different work start and end schedules, possibility of part-time work);
_private health insurance policy at a polyclinic with free annual physical examination, with a cheaper price for indicated examinations, voluntary health insurance policy at the employer's expense, 24-hour accident insurance, preventive flu vaccination at the employer’s expense; Covid-19 vaccinations organised in the largest cities and Bank locations;
_Multisport – a co-financed membership fee for using various activities in sports facilities throughout Croatia, participation in sporting events (banking games, humanitarian races, football league, etc.);
_paid leaves to perform a physical examination, blood donation, relocation, birth of a child, the first day of school and kindergarten, wedding, for educational purposes, corporate volunteering, participation in cultural, sports and other activities organised by the employer, etc.;
_unpaid leave in other life situations which require more time devoted to private obligations and solidarity;
_cheaper products of the Bank and subsidiaries and additional benefits in terms of cheaper prices of services and products provided through a wide and stable network of external partners in several categories (e.g. culture, sport, health, beauty, entertainment, travel, education...);
_various initiatives that provide entertainment for employees and their children during their workday, such as marking Ugly Christmas Sweater Day by wearing Christmas sweaters on a given day in December, or organising appropriate activities for children (art competitions, collecting Christmas gifts for children living in homes without parental care).
All health benefits are available equally to all employees.
Table 6: Total number and rate of new employees during the reporting period
MEN
< 30 YEARS OF AGE
30-50 YEARS OF AGE
>50 YEARS OF AGE
number
%
number
%
number
%
number
%
number
%
164
67%
79
33%
120
49%
118
49%
5
2%
Table 7: Total number and rate of employee fluctuation during the reporting period
MEN
< 30 YEARS OF AGE
30-50 YEARS OF AGE
>50 YEARS OF AGE
number
%
number
%
number
%
number
%
number
%
131
7%
51
8%
41
13%
115
6%
26
7%
Table 8: Rates of return to work and retention for employees who have used the right to maternity leave
Non-financial Report
Year ended 31 December 2022
49
Erste&Steiermärkische Bank d.d.
Safety
In order to ensure the integrity of its business processes and thus to protect the personal data of its employees, clients and associates, EBC is making continuous efforts to raise the level of security - a key area for the regular operation of the Bank. Raising awareness and educating EBC employees is one of the key foundations for successful and continuous operations. All employees are required to attend safety training on an annual basis, and special attention is also paid to new employees who are required to pass a set of initial trainings, which include the topics of security.
Safety at work is an important part of the Bank’s daily operations, and over the past few years, due to Covid-19, monitoring the development of the disease and producing adequate guidelines, this segment has become extremely important.
Occupational safety as a system prescribes a range of organisation measures in work processes with the aim of protecting employees from injuries, work-related illnesses as well as securing their ability to work throughout their careers. In implementing occupational safety, EBC uses basic, special and approved rules, and the primary legal framework is set through the Occupational Health and Safety Act. Employees within the Bank are trained in different segments. They receive theoretical and practical training, depending on the type of training required. Since the employer is responsible for all persons employed, each new recruit will be assigned a mentor before safe working practice training. The purpose of the training is to inform workers of all the facts and circumstances which affect or are likely to affect their safety and health (relating to the organisation of work, risks, safe work procedures, etc.), to clarify and train workers for the practical application of the occupational safety measures they are required to apply during work, in accordance with the Risk Assessment. Safe working practice training is conducted in accordance with all applicable regulations of the Republic of Croatia. Upon completion of the training process, a document is issued as evidence of qualification, a uniform “ZOS form” — Record of evaluation of a workers’ ability to apply safe working practices.
The occupational safety system includes the development of a Risk Assessment, which includes all risks related to tasks in all job positions at the Bank. After analysing the type and level of risk intensity, the resulting plan of measures provides proposals for the application of basic and specific occupational safety rules, i.e. the application of the principles of occupational safety (elimination or risk mitigation, de-risking of workforce, ring-fencing employees from risk and vice versa, use of personal protective equipment) and implementation deadlines, persons responsible and control methods in the implementation of established occupational safety measures.
Occupational safety also covers fire protection training and insistence on evacuation in case of emergency. In addition, by maintaining facilities based on SLA (Service Level Agreement within the maintenance agreement) and the legal obligations, direct attention is paid to employees’ health through regular cleaning of ventilation ducts, air conditioners, office cleaning and disinfection, DDD measures (disinfection, disinsectisation, deratisation) and other preventative space maintenance. The field of occupational safety also includes occupational medicine, which provides employees with pre-employment medical examinations and pre-employment, periodic and extraordinary medical examinations and control check-ups for jobs with special working conditions, in accordance with the applicable occupational safety regulations, at the employer’s expense.
EBC has delegated three occupational safety experts whose task is to provide professional assistance to the employer and its representatives, employees and workers’ representatives in charge of occupational safety for the implementation and improvement of occupational safety. In addition, the occupational safety expert participates in the risk assessment process, performs internal supervision over the application of occupational safety rules, encourages and advises the employer and his representatives to remedy occupational safety deficiencies identified by supervision, and also performs a number of other tasks related to the coordination and management of training of workers related to safe working practices.
Salaries
EBC‘s salaries and benefits policy is guided by the principles of transparency (information about all pay grades is publicly available to all employees), the market and the safety and stability of employees and their families. Compliance with these principles is one of the cornerstones of decision making when it comes to salaries and benefits. More information has been available on EBC’s website since last year, which also greatly contributes to the transparency of the salaries and benefit policy. Also, as noted above, during 2019, the Erste standard of benefits was defined, which EBC undertook to follow during both good and difficult times.
Erste&Steiermärkische Bank d.d.
50
Society
Social banking
EBC sees entrepreneurship as a positive model for addressing social issues or situations. From the Bank’s perspective, supporting a sustainable entrepreneurial project instead of a one-off sponsorship and donation can be a long-term solution. Erste’s social banking initiative encourages the financial inclusion of start-up entrepreneurs, non-profit organisations and social entrepreneurs, offering them access to financial products, financial consulting and ongoing mentorship tailored to their needs. So far, more than EUR 11.9 million have been allocated for this purpose with more than 525 clients supported.
In 2022, EBC provided EUR 1.4 million to support start-up entrepreneurs, a special group of clients, persons who are self-employed, i.e. start-up entrepreneurs who have started their own business, craft or family farm in the last two years. This programme encourages self-employment and the development of entrepreneurship, and, in addition to funding, supports the design and realisation of a business idea by implementing free online education on relevant entrepreneurial topics and providing consultation services. In 2022, 257 business plans were drawn up, 7842 users participated in the e-learning programme and a total of 1047 hours of consultations took place.
In addition to supporting start-ups, EBC is also implementing a programme to support and finance non-profit organisations and social entrepreneurs that were supported with EUR 1.6 million in 2022. In addition, 300 participants participated in various programmes and 3142 hours of consultations were provided.
In 2022, Erste Bank Croatia, in cooperation with its partners ACT Group, Panda Communications and Erste Foundation, started implementing the ‘Leave a Good Trace’ programme. It is a programme that aims to improve financial resilience through the improvement of fundraising capacity. The idea was born from the long-term experience of inclusive banking that the bank implements with start-up entrepreneurs and non-profit organizations, support in transferring ideas ‘from theory to reality’ and understanding the administrative burden and the involvement of the non-profit sector in the race for EU funds. It consists of two parts - educational and mentoring, through which all participants are provided with individual support for the development of a social business canvas, fundraising strategy, storytelling along with instructions for adapting digital channels as a prerequisite for the successful implementation of a fundraising campaign. A total of 41 associations applied for the programme.
School of Smart Finance
For more than 20 years, EBC has been working in Croatia to improve its processes, products and services, all in order to respond to the clients’ wishes and needs in the best possible way. Also, due to the fact that knowledge is a driver of the society and social changes, Erste Bank Croatia as a financial institution has a responsibility in the field of financial literacy development at every age.
Five years ago, the Bank launched a pilot project entitled the School of Smart Finance, which includes free educational workshops on personal finance management and interactive video training. It was motivated by a survey showing that 87% of citizens recognise the importance of financial literacy.
Due to the Covid-19 pandemic, the workshops for all interested citizens, businesses and educational institutions were adapted to the online channel, through MS Teams. Since such a workshop format was very well accepted, online workshops continued in 2022, when we also started organising them in bank branches, in several Croatian cities (Rijeka, Split, Osijek and Zagreb). In order to bring the financial literacy programme closer to as many young people as possible, the Bank held more than 40 workshops in primary and secondary school and universities, with nearly 1,000 participants. Overall, more than 90 workshops with 2,200 participants were held in 2022. Since the School programme was first introduced in 2019, it has had more than 11,000 participants.
Because of the importance of this programme, especially for children and youths, in 2023 the Bank is planning to focus more on organising workshops in primary and secondary schools, as well as universities and student organisations.
Non-financial Report
Year ended 31 December 2022
51
Erste&Steiermärkische Bank d.d.
Other
In addition to the comprehensive project of the School of Smart Finance, it is worth mentioning some of the other initiatives of EBC and its employees in the field of increasing financial literacy.
This is especially emphasised on Savings Day, which is marked in the Bank by the arrival of kindergarten and elementary school children to the branch offices, where they have the opportunity to talk with cashiers, advisers and personal bankers and ask anything they want to know. EBC’s savings mascot Medo Štedo is especially interesting to children and also plays a large role in promoting financial literacy.
Also, EBC has supported and participated in the traditional celebration of World and European Money Week for many years.
Employees of EBC are happy to respond to the invitations to participate in other workshops, lectures and events organised to increase financial literacy.
Due to the specific circumstances, and depending on the epidemiological situation and recommendations, some of these activities took place in-person, while some were held online.
Social responsibility
EBC endeavours to nurture a two-way communication with the local community and achieve as much transparency as possible.
This is also fostered through partnerships with numerous associations, faculties, exhibitions and presentations at fairs, conferences and conventions throughout Croatia. In 2022, the following was successfully implemented:
_Participation in the Career Week organised by the Faculty of Organisation and Informatics in Varaždin (employer exhibition booth, presentation to students, lecture from IT experts given to the students of the Faculty)
_Participation in the Career Day organized by the Faculty of Science in Zagreb (exhibition booth, presentation to students, providing information about opportunities for placement)
_Several guest lectures for students given by IT experts at the Bjelovar University of Applied Sciences (exhibition booth at the conference organized by the University – B:IT.con) and at the Faculty of Organisation and Informatics in Varaždin
_Career Day at the University of Rijeka (exhibition booth, presentation to students)
_Career Day at the Polytechnic of Rijeka (exhibition booth)
_Participation in the RIT Career Day as part of a panel discussion
A total of 33 students completed their placements at Erste Bank Croatia in 2022, which the students carry out to fulfil their university course requirements or gain basic knowledge of the business area that interests them.
With its student programmes, EBC joined the Youth Initiative back in 2018. Youth Initiative was launched by the Croatian Employers’ Association and the European Bank for Reconstruction and Development with the aim of helping young people enter the labour market, and EBC wants to contribute to increasing young people's opportunities for acquiring good first work experiences and for potential further employment.
Also worth noting are non-profit organisations which participated or continue to participate in programmes for novice entrepreneurs which the EBC facilitates. The Bank supports their work not only financially, but also in various other ways, such as by hiring them for marketing purposes, promoting their activities on the bank's communication channels, etc.
Erste&Steiermärkische Bank d.d.
52
Scholarships
As in previous years, in 2022 students could apply for the “Best of South East” scholarship programme, launched by Steiermärkische Bank and Sparkassen AG (Sparkasse Bank) in cooperation with the University of Graz. It is aimed at graduates and students with very good grades and pronounced characteristics like dedication, developed communication skills as well as analytical and practical economic thinking. The programme comprises of a one-year internship at Sparkasse Bank or another Styria-based company for graduates and one year of studying at the University of Graz for students.
In 2022 the Bank again participated in the “Step into Life” campaign by granting scholarships to children without adequate parental care to enable them to attend university. Along with the Rotary Club Zagreb Kaptol, EBC is the largest individual sponsor.
In the fall of 2019, the ECB introduced the practice of providing scholarships for high school and university students with disabilities within the framework of hiring persons with disabilities within the quota. This practice was continued in the last, fourth consecutive school year (2021/2022) when 20 high school and university students received regular monthly scholarship. In addition to this, cooperation agreements on the purchase of marketing materials have been concluded with two protective workshops which mostly hire persons with disabilities. In autumn 2022, contracts on scholarships for pupils and students with disabilities were signed with a total of 17 students for the school year 2022/2023.
Sponsorships and donations
Through its sponsorship and donation activities, EBC is involved and actively supports various initiatives and projects that contribute to the development and improvement of the society as a whole, both locally and throughout the Republic of Croatia. Aware of the needs of the community, as a socially responsible enterprise, EBC continued to support numerous cultural, scientific, health, educational, sports and humanitarian projects during 2022.
Nearly EUR 2.1 million was allocated through the sponsorship and donation programme in 2022. The Bank supported around 600 projects and institutions of a humanitarian and educational nature, as well as clubs, associations, institutions and projects of sports and cultural and artistic nature, through sponsorship or donation.
Through sponsorships, in 2022 EBC supported the DA2 festival of documentary film, Ulysses Theatre, Austrian Culture Forum – exhibition entitled "Body and Territory: Art and Borders in Contemporary Austria" at the Museum of Contemporary Art, Cinema Cinema children's film fesitval, Youth Salon at the Croatian Association of Artists and Zlatan Vehabović's exhibition at the Museum of Arts and Crafts. The Bank also supported the International Festival of Small Scenes, Ballet Ensemble of the Ivan pl. Zajc National Theatre in Rijeka as well as the Rijeka Carnival and the Little Prince exhibition held in Rijeka; Špancirfest festival, Varaždin National Theatre, Varaždin Baroque Evenings, BOK festival in Bjelovar, DOKUart festival of documentary film which, in addition to its regular programme, encourages children and young people from all over Croatia to create their own documentaries, and the Christmas outdoor jazz concert in Bjelovar. Support was also provided to Samobor Carnival, Samobor music festival, International Children's Festival in Šibenik and the Croatian Home in Split.
Erste Bank Croatia also supports numerous conferences held across Croatia; in 2022, these included the Sustainable Development Conference, Entrepreneurial Mindset conference held in Lauba, Good Wind Days in Dubrovnik, Support the Sustainable, Better Education, Better Croatia…
Sponsorships and donations (continued)
EBC has also supported a number of other cultural events which contribute to the promotion of local customs and culture, as well as tourism, such as the traditional Alka Tournament in Sinj, International Lace Festival in Pag, Lubenice Music Festival in Cres, Matulji Evenings in Matulji, Kastav Cultural Summer in Kastav, and many other traditional events specific to a certain region or city in Croatia.
Through the creative platform Urbanka powered by Erste, various international exhibitions were supported, projects such as the Grafiti na gradele, an international festival bringing together world-known graffiti artists, Crtani romani šou, a comic book festival, DA2 film festival dedicated to design, art and architecture, Gallery Rally as an interactive cultural event that connects ten galleries in Zagreb and actively includes visitors in their tour.
Non-financial Report
Year ended 31 December 2022
53
Erste&Steiermärkische Bank d.d.
Sponsorships and donations (continued)
The 18th consecutive competition for young artists – Erste Fragments – was held in 2022. More than 100 applications from young artists were received, works of art were purchased and exhibited in EBC's business premises and branch offices across Croatia. In addition, scholarships were awarded to the best young artists. Erste fragmenti exhibition was held in autumn last year at the Lauba People and Art House.
When it comes to supporting the social community through donations and sponsorships, the Bank supported the Nazorova Children's Home and the SOS Children's Village for orphaned children. Donations were made to the Special Orthopaedics Hospital in Biograd na moru, Bjelovar General Hospital, Zadar General Hospital, Zadar County Health Centre, Croatian Association for Paediatric Surgery in Klaićeva, and the Croatian Thyroid Disease Association.
As part of a broader strategy that promotes, among other things, the integration, inclusiveness and fellowship of all individuals in society, EBC supported the activities of the Zagreb Pride organisation.
Knowledge is one of the drivers of creation, progress and growth. Therefore, through donations and sponsorships the Banks aims to include as many initiatives, organisations and events that concern educational activities. For that purpose, EBC is also collaborating with various schools, for example, Student Union faculties at the University of Rijeka, Academy of Dramatic Art and the Academy of Fine Arts in Zagreb, Rijeka Faculty of Economics, Faculty of Electrical Engineering and Computing and Faculty of Science at the University of Zagreb, and Centre for Student Support and Career Development at the Faculty of Organisation and Informatics Varaždin.
Alongside the above, EBC promotes the importance of sports projects and sponsorships that emphasise the importance of promoting sports, and especially promoting awareness of the importance of physical activity in children. Two major projects that are focused on this goal are the Erste Blue League and Erste Handball League which were merged into the children sports platform named Erste First League in 2020.
Erste Blue League is a project intended for Croatian primary school students enrolled in grades 1 to 6 and is designed to help children develop an athletic spirit and to encourage them to get involved in sports. The 10th competitive season was held last year, in which a total of 4138 children participated, which is a new record for this competition. The 60 Minutes GO campaign included renowned athletes, coaches, teachers and institutions with the aim of contributing to and raising equal opportunities and conditions for doing the daily sixty minutes of physical activity for interested children. Competitions were held in nine cities (Rijeka, Zagreb, Osijek, Makarska, Zadar, Pula, Knin, Vukovar and Čakovec, with the final taking place in Zagreb).
The Erste Handball League is a unique children’s handball league intended for primary school students enrolled in grades 2 to 7. This league aims to show that everyone needs physical activity to grow up healthy and happy, while giving children the opportunity to participate in competitions, socialize and have fun. World-renowned handball players Ivano Balić and Petar Metličić and their handball club are involved in the organization of the League. They are role models to all competitors of the league and represent additional motivation for the children and clubs to take part in the competition. In the fifth season of the Erste Handball League, competitions were held in ten cities (Rijeka, Rovinj, Split, Zadar, Šibenik, Dubrovnik, Labin, Poreč, Umag and Pula, and the final in Split), and a total of 4720 children participated in it.
Through sports sponsorships, EBC traditionally supports the Croatian Table Tennis Association, the Erste Beach Volleyball Club from Zagreb, Primorje Rijeka Water Polo Club, Croatian Football Club in Rijeka, Croatian Olympic Committee, the traditional Fiumanka sailing regatta in Kvarner in which more than 200 sailboats participate, Biograd Boat Show, the largest boat fair in Croatia, Velika Gorica Football Club and a number of other regional sport clubs to promote different types of sports and sports activities among the young generations of athletes. EBC also supported the Terry FOX Charity Run which was held in 2022 in its original form. The funds were donated to the Croatian League Against Cancer and Solidarna association.
It is also worth nothing initiatives launched by different sectors of the Bank and employees themselves. Since 2013, the Bank has been running the HOPE donation fund, whose mission is to collect employee donations with the aim of helping orphaned children, living in children’s homes across Croatia. Participation in this initiative, as well as the size of donations, is entirely voluntary and can consist of a one-time donation or regular monthly payments made through a open payment order. The initial idea was to collect small monthly donations from a larger number of employees in order to help children's homes to procure equipment and other necessities that children need.
Erste&Steiermärkische Bank d.d.
54
Sponsorships and donations (continued)
There is also the AZIL initiative, a cashiers' solidarity fund, i.e., a special purpose, voluntary fund for covering cashiers' shortages and financial damages suffered by clients as a result of cashiers' mistakes when working with clients. All employees may join the fund, regardless of their job position, but it benefits only the employees in positions that include working at the cash register, vault and cash centre. The membership fee is HRK 15 a month for cashiers and is collected from members' salaries, while other members that join the fund in solidarity donate any amount they want, which they specify in the membership application created specifically for this purpose.
Last year, EBC once again supported and actively participated in the project of the Erste Group titled Kontakt. The Art Collection of Erste Group and ERSTE Foundation. The collection was founded in 2004 and includes more than many works of art made from different countries, focusing on Eastern, South-Eastern and Central Europe.
Humanitarian campaigns
Erste challenge
For the fifth consecutive year, in the campaign that lasted from January to December 2022, EBC Group employees in Croatia undertook to reach a mileage target by engaging in a sport or recreational activity with the aim of securing a charity donation. The target was set at 120,000 kilometres and the final mileage reached was above the target, therefore the bank donated a total of HRK 20,000 to the association Down Syndrome Centre Pula.
Corporate volunteering – “Pay It Forward”
Corporate volunteering is more than a one-off campaign at the Bank level and has been organised for years. It is a process of volunteering and providing help by setting aside employees’ time to help others. With the aim of further encouraging employees, for the fourth consecutive year all interested employees were offered the possibility to volunteer during working hours. They can use one working day per year for this purpose, during working hours, as individuals or in a group.
Through various projects throughout the year, employees helped and worked together to do good. This may have included socialising with elderly or sick retirement home users, improving homes for children, caring for the poor and the homeless, cleaning the environment, etc.
In 2022, volunteer work was carried out in the following institutions and organisations: Business Skills Academy, Friends shelter in Čakovec, Lug Centre for Upbringing and Education, Australian Football Association in Croatia, and Noah's Ark. A total of 22 volunteering days were carried out.
Volunteering was carried out in such a way that employees were informed about different volunteering options via intranet or they themselves found such opportunities. Additionally, sometimes Human Resources provides assistance with organizing it by proposing a volunteering location and helping with everything required for volunteering to take place.
Since 2015, EBC has been a signatory of the Charter Recognising Competences Acquired by Volunteering, and since 2019 the Bank has been a signatory of the Employee Volunteering Charter. The best acknowledgement of the efforts and engagement of Erste volunteers are the many thanks they received from various institutions and associations in 2022.
Happy Hour
Employees of the Bank, as well as other subsidiaries, regularly organise annual campaigns of selling cakes and other sweet or savoury products, which they made themselves, to raise funds that they donate to associations or individuals in difficult life circumstances. After a two-year break, Happy Hour was once again held this year, in Zagreb and in Rijeka. Collected donations were divided into three sums and donated to three organisations. Happy Hour was also held at Erste Card Club, which sent its donation to the Vladimir Nazor Centre for Providing Community Services.
Non-financial Report
Year ended 31 December 2022
55
Erste&Steiermärkische Bank d.d.
Environment
In the last few years, the subject of environmental protection has become increasingly important for the sustainable development and viability of companies and people. As climate change has started to affect almost every country on every continent and change the way people live and work, the battle for environmental protection has become a global preoccupation. The importance of these topics is reflected in numerous summits, agreements and initiatives of the world’s leading powers which aim to find the best possible solutions through joint efforts. The last such conference was held in Egypt in late 2022 where it was confirmed that efforts made so far will be increased, and all globally involved parties were invited to gradually reduce the production of energy from coal with unabated emissions and abolish inefficient fossil fuel subsidies as well as strengthen efforts to mobilize funds to support climate action. The goal of a global commitment to mobilize USD 100 billion annually by 2025 to help developing countries face the effects of climate change was also adopted.
By deciding to finance environmentally neutral companies and pursue “green” and sustainable projects, banks and other financial institutions have an indirect impact on the environment and its conservation. Additionally, in its internal processes, EBC strives to employ environmentally friendly solutions of the highest quality, thus, for example when renovating branches and when communicating with customers, the aim is to achieve the highest possible environmental standards. The immediate impact on the environment has been determined through energy consumption and paper consumption.
Erste Bank Croatia has an established Environmental Policy, which defines environmental objectives that aim to contribute to reducing energy and water consumption and minimising environmental pollution, thereby contributing to the community in which the bank operates. Some of the goals EBC is committed to are:
_Protection of natural resources through their responsible use, systematic increase of energy efficiency and compliance with all applicable legal regulations
_Use of recycled paper and continuous reduction of waste paper
_Introduction of a waste sorting system and promotion of responsible waste management among employees
_Reduction of harmful emissions through the selection and use of electricity from renewable energy sources
To achieve its goals, EBC has implemented an environmental management system that complies with the requirements of ISO 14001:2015. The Environmental Management System according to the ISO 14001 standard was extended (recertified) at the end of 2020 and integrated with the Energy Management System according to the ISO 50001 standard, which will allow more advanced monitoring of electricity consumption and its rational use in the coming years, which should ultimately result in certain savings. The next recertification is planned for 2023.
The active involvement of our employees is crucial for achieving these goals. In this regard, EBC conducts training of all employees on rational energy and paper consumption, and proper waste separation, as well as systematic training on the ISO 14001:2015 standard, with all its elements and goals. Since early 2020, training on environmental protection and rational use of energy is mandatory for all new employees, and all employees underwent this training in 2022.
As in the previous years, the yearly external audit was performed by a licenced certification company in 2022 to ascertain that the Environmental Management System functions in accordance with the international standard ISO 14001: 2015. The Bank has completed all necessary activities to extend the ISO 14001:2015 certificate for another year. Some of EBC’s subsidiaries (Erste Card Club, Erste Leasing and Erste Bank A.D. Podgorica) did the same.
EBC has set Strategic Environmental Objectives for the period from 2022 to the end of 2024. Compared to the reference year 2019, they are:
_Maintain electricity consumption at +/- 3% (2019: 10.98 GWh, 2,489 FTE)
_Maintain heat consumption at +/- 3% (2019: 4.09 GWh)
_Reduce CO2 emission 0-3% (2019: 2,251 tCo2/ FTE)
Erste&Steiermärkische Bank d.d.
56
Managing environmental impacts (continued)
Based on the Strategic Objectives, the Operational Objectives for next year were also defined.
_implement internal educational campaigns on environmental protection, electricity and thermal energy savings for new employees
_further installation of UV protective foils on the premises
_production of 64,000 kWh (± 5 %) of green energy from photovoltaic cells installed on the office building in Zagreb
Energy
Energy is needed for everyday life, both for individuals and the entire economy. In that process, energy needs to be transferred from the initial location to the end-user, which of course causes pollution. Monitoring electricity consumption allows for better management of this segment of sustainable business. Erste Bank Croatia has several initiatives in the area of electricity savings.
When designing branch offices and other business premises, the Bank takes into account all aspects of environmentally friendly and sustainable business, uses software and technical solutions to optimise energy consumption, regularly maintains equipment to increase its durability and reduce waste, uses energy-saving light bulbs and energy-saving LED panels for advertisements, etc.
EBC wants to encourage its clients to think about energy efficiency and, consequently, to act in that direction. Thus, the Bank has designed and offered several products for the purpose of financing energy efficiency, the so-called eco loans, both for citizens and companies, which encourage the use of ecological forms of energy, the use of renewable energy sources, energy efficiency, etc., thus further promoting the development of sustainability and energy efficiency in society.
As part of Erste Group, EBC is committed to providing financial services in the energy sector because it believes that electricity supply is a key element for economic and social development, especially when it comes to Central and Eastern Europe. At the same time, in this area there is a need for reasonable management of environmental and social impacts, and better management of environmental risks. This is precisely why guidelines have been set in Erste Group's corporate financing segment with the aim of implementing the principles of sustainability and regulating Erste Group's participation in this industry.
In 2022, the instalation of sun protection foils continued. Apart from providing much better working conditions for employees in summer, they also reduce the electricity consumption of air conditioning. Last year, foils were installed on glazed surfaces in branch offices – two in Split and in branches in Koprivnica and Našice.
The Bank constantly controls and works to reduce energy consumption, and in order for this to be done as efficiently as possible, all employees and users of the premises need to be trained, which was carried out throughout the year. Employee training on the rational use of energy became mandatory for all new employees as of 2020. The trainings brought results, so the consumption of thermal energy was reduced by almost 20% compared to the reference year 2019, while the consumption of electricity was reduced by almost 5%.
After the coronavirus pandemic in the past two years brought a drop in energy consumption in fuel consumption for official vehicles, fuel consumption increased after the end of the pandemic, which was expected.
Significant progress in the use of renewable energy sources was made in June 2021, when photovoltaic cells were installed on the roof of the Erste office building in Zagreb. The goal was to produce 64,000 kWh of green energy, but the power plant exceeded the goal and in 2022 more than 75,500 kWh of electricity was produced. In 2023, it is planned to start producing electricity in Bjelovar and to expand the power plant in Lučićeva in Zagreb.
Emissions
In 2021, EBC continued to use 100% renewable electricity, which means that, in addition to maintaining low CO2 emission levels, EBC contributed to, i.e., participated in the implementation of national energy efficiency projects through the ZelEN fund.
Non-financial Report
Year ended 31 December 2022
57
Erste&Steiermärkische Bank d.d.
Emissions (continued)
At Erste Group-level, CO2 emissions are monitored in all member states and are calculated using data on energy consumption and consumption of photocopier paper. EBC continues to record a constant decline in CO2 emissions:
Table 9: CO2 emission
In 2021, EBC procured and put into service five electric cars, and due to undeveloped EV-charging infrastructure in Croatia, the Bank developed its own charging network by installing fast and slow charging stations near office buildings in Zagreb, Rijeka and Bjelovar. A total of 10 charging stations have been installed during last two years and there are plans to install three more in 2023.
Waste separation and reduction of unselected municipal waste
It has been identified that paper consumption accounts for the largest proportion of waste generated by the Bank. For that reason, the Bank uses environmentally-friendly, recycled printing paper across all its operations in Croatia, and intends to continue doing so in the future too. In addition, due to environmental reasons, as well as ease of use, the Bank’s clients are encouraged to do business online as much as possible. For that reason, clients can submit applications for the Bank’s products digitally, and in the bank's branch offices General Terms and Conditions are available i on tablets instead of on paper. Posters in the branches have largely been replaced by digital displays wherever possible. Instead of the classic notices sent by mail to clients' homes, EBC strives to send emails to clients as much as possible, and individual campaigns for switching from paper monthly statements to electronic ones are often carried out. Also, centrally operated digital filing folders are used, thus saving paper.
The Bank constantly controls and works to reduce the consumption of photocopier paper across all its segments, and training courses have been organised for this purpose. Already in 2019, the reduction in consumption was significant (23%), and in 2020, it was even more pronounced, amounting to nearly 40%. This decline continued in 2021, but it should be noted that the coronavirus pandemic and specific working conditions also had a major impact on reducing paper consumptions. This can be seen in the fact that in 2022 the average number of used reams of photocopier paper per employee increased to 13.45.
Table 10: Consumption of photocopier paper
In order to reduce the negative impact on the environment in the future and further reduce the amount of unseparated municipal waste, in late 2018 the Bank replaced paper hand towels in sanitary facilities with linen towels. As part of this initiative, employee training was organised. By using linen towels, EBC reduced the amount of unseparated municipal waste by 70-90% every year compared to previous years when paper hand towels were used. However, with the emergence of the coronavirus pandemic in 2020, the use of paper towels (mainly for disinfecting work surfaces) increased again, and this trend continued in 2021. However, as pandemic restrictions were being loosened, with the majority of them being lifted in 2022, the procurement and distribution of paper hand towels was stopped as well.
In addition, in 2018 the Bank installed containers for separate disposal of waste in all office buildings and branch offices across Croatia, establishing waste disposal procedures and organizing training for employees on this subject. In addition to separate disposal of paper, plastic, metal and glass, special containers for disposing of waste batteries were set up in office buildings in Zagreb, Rijeka and Bjelovar. Considering that there are no data available at the level of the Republic of Croatia on the amount of individual types of disposed waste, only special categories of disposed waste are registered. Data shows that in 2022 the Bank disposed of: 3.76 tonnes of bulk waste and nearly 40 tonnes of electronic waste.
Erste&Steiermärkische Bank d.d.
58
Other activities
A few years ago, prompted by employees, the Bank launched the praiseworthy “Project for PET”, which continued being implemented last year as well. As part of the project, the Bank organized the collection of plastic packaging waste in Erste business centres in Zagreb and Bjelovar, which is carried out in cooperation with the Association for the Promotion of Inclusion. Bank employees collect plastic soda bottles, which the users of the association take to be recycled, and the funds raised thusly are used to co-finance their needs.
By organising the collection of plastic packaging, EBC helps the community in which it operates in two ways: aside from recycling large quantities of plastic bottles, which is in itself an environmentally beneficial act, the Bank supports the entrepreneurial activities of a socially disadvantaged group – people with intellectual disabilities who are otherwise hard to employ. Additionally, the Bank contributes to the reduction of waste PET water bottles across its entire network by introducing a device for the production of drinking water obtained from the water supply network by reverse osmosis. The drinking water available to employees in this way is not in plastic packaging. Additionally, by providing more glass cups in kitchenettes, the Banks aims to reduce the use of disposable plastic water cups, at least as far as its employees are concerned.
Additionally, in the office buildings in Zagreb, Rijeka and Bjelovar, Erste Bank Croatia organised an ecological and charity project of collecting plastic caps from PET bottles for the purpose of raising funds for the Association of Leukaemia and Lymphoma Patients of the Republic of Croatia. This type of campaign is carried out by Erste Card Club.
When designing branch offices in accordance with the new service model concept which, in addition to the mode of operation also includes EBC's visual identity, green walls made of living plants are standardly installed, which have proved to contribute significantly to creating a pleasant work environment for our employees and their coexistence with nature. In addition to the administrative building in Zagreb, so far green walls have been installed in office branches in Pula, Makarska and Zagreb (in Masarykova Street and Dubrovnik Avenue), Zadar, Šibenik, Vinkovci, Viškovo, Buzet, one branch office in Split, on Rab island and two branch offices in Zagreb. In addition, indoor plants contribute to a natural increase of humidity in heated spaces during winter, thus reducing the need to use energy for artificial humidification.
The Bank is also a member of the non-governmental organisation Croatia Green Building Council and actively participates in discussions and projects concerning green construction projects, discussions on new trends in this field, etc.
EU Taxonomy related disclosures
The Taxonomy Regulation is a regulation that establishes a classification system that helps determine whether an economic activity is environmentally sustainable, while sustainable economic activity is defined as contributing to one or more of the six defined environmental objectives - climate change mitigation, climate change adaptation, sustainable use and water protection and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems. In addition, the EU Taxonomy Regulation requires that none of the above environmental objectives be significantly damaged and implemented in accordance with minimum safeguards (according to the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, International Organization (ILO) for Fundamental Principles and Rights at Work and the International Charter of Human Rights).
From 2022, institutions participating in the financial markets are obliged to publish information related to the first two goals, whereby taxonomically acceptable economic activities are more closely defined by Commission Delegated Regulation (EU) 2021/2139 for the first two goals. The criteria for the other environmental targets are still being worked out. For the financial year 2022, for financial institutions, the simplification provisions from Delegated Regulation (EU) 2021/2178 (Article 10, paragraph 3) continue to apply, which states that it is necessary to publish part of the exposure to taxonomically acceptable and taxonomically unacceptable economic activities in total assets, share of exposure to states, central banks and supranational issuers in total assets, share of derivatives in total assets, share of exposure to companies that do not prepare non-financial reports, share of trading portfolio in total assets and share of short-term interbank loans in total assets.
In order to comply with the requirements of the new regulation, Erste Bank Croatia used information from the portfolio screening conducted by the international Erste Group for all members of the Group.
Taxonomy-eligible and non-eligible activities are defined according to the European Industrial Classification System (NACE), which serves as a basis for defining economic activities in taxonomy.
Non-financial Report
Year ended 31 December 2022
59
Erste&Steiermärkische Bank d.d.
EU Taxonomy related disclosures (continued)
The exposures set out in item 1 include the following categories of financial assets, including loans and advances, debt securities, equity investments and repossessed collateral: (a) financial assets at amortized cost, (b) financial assets at fair value through other comprehensive income in other comprehensive income, (c) investments in subsidiaries, (d) joint ventures and associates, (e) financial assets designated at fair value through profit or loss and non-trading financial assets mandatorily at fair value throught profit or loss (f) real estate collaterals obtained by credit institutions by taking possession in exchange for the debt cancellation.
Only contractual partners that are themselves subject to the EU Non-Financial Reporting Directive (NFRD) are to be included in the disclosure of taxonomy-eligible assets. Essentially, there are listed companies that meet certain size criteria and have more than 500 employees on average per year, as well as banks and insurance companies with more than 500 employees. Private households and local authorities are not subject to comparable size criteria. With regard to the assets described in points 2 to 6, the legislator does not provide for the disclosure of the taxonomy-capable or non-taxonomy-capable portion. The regulatory scope of consolidation in accordance with Regulation (EU) No. 575/2013 applies to all disclosures.
The key figures determined by ERSTE Group are based on the total balance sheet as the denominator. Foreclosed properties as collateral were added to the total balance sheet.
According to the interpretation in the Frequently Asked Questions (FAQ) published by the European Commission in December 2021, the disclosure of taxonomically acceptable exposures must be based on actual information provided by a financial or non-financial entity. For the calculation of taxonomically acceptable assets, only financing from the field of commercial real estate financing, private mortgage financing, renewable energy sources and corporate financing with a clearly defined ecologically sustainable financing purpose was used.
The proportion of taxonomically eligible assets fell to just over 16% in the 2022 financial year compared to the previous year, with the main reason for this decline being changes in the calculation method.
Table 11: EU Taxonomy Disclosures
2021
2022
Mandatory taxonomy-related disclosures
Central governments, central banks, supranational issuers and derivates/ Total assets
44.70%
49.02%
SME's and NFCs not subject to NFRD disclosure obligations/ Total assets
16.80%
15.77%
Trading portfolio/ Total assets
0.20%
0.18%
On-demand interbank loans/ Total assets
0.50%
0.60%
Taxonomy - eligible activities/ Total assets*
25.10%
16.60%
Taxonomy non - eligible activities/ Total assets*
45.70%
83.40%
*compared to previous year denominator has been changed from GAR assets to total assets
Voluntary taxonomy-related disclosures
Estimated green assets/ Total GAR assets
3.00%
6.62%
Erste&Steiermärkische Bank d.d.
60
Suppliers
Suppliers’ responsibility
Erste Group sees its suppliers as partners in developing the sustainability of its operations. When selecting suppliers, Erste Group takes into account sustainability and corporate social responsibility, and chooses companies that do business in line with international standards that include social and environmental impacts.
Erste Group Procurement (EGP) is Erste Group’s company specialised in procurement. Its main objective is to ensure a transparent and fair procurement and supply and such contracts. Meeting the needs of Erste Group for national and foreign goods and services, delivered in time and in accordance with quality requirements, under the best possible conditions, is the key element.
The suppliers of Erste Group are required to meet the stipulated standards in the fields of business ethics, environmental protection and human rights.
In the fulfilment of the contractual obligations, Erste Group expects the following from the suppliers of materials, equipment and services chosen as partners: respect of national and local laws and regulations, the fulfilment of all legal obligations regarding the health and safety of their employees and contractors, strict compliance with environmental regulations, compliance with and application of the fundamental principles of corporate social responsibility, protection of basic human and workers’ rights, environmental protection, the promotion of health and safety, and decisive fight against corruption.
These principles are also expressed in the Supplier Code of Conduct, which is publicly available on the Erste Group Procurement website.
Erste Group Procurement carries the “CIPS Corporate Ethics Mark”. This certificate is provided by the Chartered Institute of Procurement and Supply (CIPS). This certificate is issued to companies that have been dedicated to high standards of ethics and have proven that their employees are trained and do business in line with them. Employees are fully certified with respect to ethical conduct while 95% of suppliers, chosen by EGP, have undergone ethical audit in accordance with EG standards.
In the process of selecting suppliers at a strategic and operational level, sustainability is also taken into consideration. Along with an initial assessment, suppliers’ operations are regularly reviewed, covering the most important or most vulnerable suppliers. The audit questionnaire refers to areas such as the existence of an environmental management system, participation in the Carbon Disclosure Project (CDS), the existence of a written environmental policy, methods of measuring CO2 emissions, the existence of environmental targets, information on fines and penalties for violations of environmental regulations and description of the suppliers’ supply chain.
In the case of the procurement of goods, the audit questionnaire is supplemented with questions on potentially hazardous chemicals, product recycling possibilities, end-of-life recovery, and Energy Star or similar standards.
Erste Group, including Erste Bank Croatia, is pleased to point out that no actual or potential negative environmental impacts have been detected in the supply chain of Erste Group and no contract with a supplier has been terminated as a result of significant actual or potential negative environmental impact.
When selecting suppliers, Erste Group also addresses social aspects, and the questionnaire covers questions such as child labour, elimination of all forms of forced labour, elimination of discrimination in the employment process, freedom of association and the right to collective negotiation, reasonable working hours and fair compensation, health care, work safety, job restructuring, salary, appropriate working conditions, and other important social criteria in the supply chain.
Erste Group also encourages social responsibility through the selection of suppliers and the type of goods and services it uses, including promotional marketing materials. Among other things, Erste Group often chooses products that have an ecological certificate or are the final product of a socially responsible project involving marginalised groups of the society.
Non-financial Report
Year ended 31 December 2022
61
Erste&Steiermärkische Bank d.d.
GRI Content Index
GRI Standard Title
Disclosure Number
Disclosure Title
Reference to Annual Report 2022
Comment/Reason for ommission
GRI 102 General Disclosures 2016
1. Organisational profile
GRI 102
General Disclosures
102-1
Name of the organisation
4
Erste&Steiermärkische Bank d.d.
GRI 102
General Disclosures
102-2
Activities, brand, products, and services
86
Annual report: General information
GRI 102
General Disclosures
102-3
Location of headquarters
86
Rijeka, Jadranski trg 3a, Republic of Croatia
GRI 102
General Disclosures
102-4
Location of operations
86
General information
GRI 102
General Disclosures
102-5
Ownership
86
General information
GRI 102
General Disclosures
102-6
Markets served
86
General information
GRI 102
General Disclosures
102-8
Information on employees
39
Non-financial report: Employees
GRI 102
General Disclosures
102-9
Suppliers
60
Non-financial report: Suppliers
GRI 102
General Disclosures
102-10
Changes in the supply chain
60
No significant changes
GRI 102
General Disclosures
102-11
Precautionary principles
29
Non-financial report: Code of Conduct of the ESB Group; Statement of Purpose
GRI 102
General Disclosures
102-12
External initiatives
33, 55
Non-financial report: Customers, Environment
GRI 102
General Disclosures
102-13
Membership of associations
n.a.
Croatian Banking Association, Croatian Chamber of Economy
2. Strategy
GRI 102
General Disclosures
102-14
Report of the Chairman of the Management Board
6
Report of the Chairman of the Management Board
GRI 102
General Disclosures
102-15
Key impacts, risks and opportunities
32
Non-financial report: Materiality analysis
3. Ethics and integrity
GRI 102
General Disclosures
102-16
Values, principles, standards, and norms of behaviour
39
Non-financial report: Employees
4. Governance
GRI 102
General Disclosures
102-18
Governance structure
66
General information: Supervisory Board, Management Board
5. Stakeholders
GRI 102
General Disclosures
102-40
List of stakeholders
32
Non-financiral report: Materiality analysis
GRI 102
General Disclosures
102-41
Collective bargaining agreements
39
Non-financial report: Employees
GRI 102
General Disclosures
102-42
Identifying stakeholders
32
Non-financial report: Materiality analysis
GRI 102
General Disclosures
102-43
Approach to stakeholder engagement
32 at seq.
Non-financial report: Materiality analysis
GRI 102
General Disclosures
102-44
Key topics and concerns
32
Non-financial report: Materiality analysis
6. Reporting practice
GRI 102
General Disclosures
102-46
Defining report content
29
Non-financial report: Materiality analysis
GRI 102
General Disclosures
102-47
List of material topics
32
Non-financial report: Materiality analysis
GRI 102
General Disclosures
102-49
Changes in reporting
32
No changes were made.
GRI 102
General Disclosures
102-50
Reporting period
4
From 1.1.2022. to 31.12.2022.
GRI 102
General Disclosures
102-51
Date of most recent report
n.a.
Annual report for the year ending on 31.12.2021.
GRI 102
General Disclosures
102-52
Reporting cycle
4
Annual
GRI 102
General Disclosures
102-54
Claims of reporting in accordance with GRI standards
29
EBC’s non-financial report was prepared in accordance with the requirements of the Global Reporting Initiative (GRI standard: core option)
GRI 102
General Disclosures
102-55
GRI content index
61
Non-financial report
Erste&Steiermärkische Bank d.d.
62
GRI Content Index (continued)
GRI Standard Title
Disclosure Number
Disclosure Title
Reference to Annual Report 2022
Comment/Reason for ommission
GRI 103 Management Approach 2016
GRI 103
Management Approach
103-1
Explanation of the material topics
30
Non-financial report: Materiality analysis
Material and additional topics
Material topic: Anti-corruption (GRI 205 Anti-corruption 2016)
GRI 205
Anti-corruption
205-3
Confirmed incidents of corruption
33
Non-financial report: Anti-corruption There were no confirmed incidents of corruption in 2022
Material topic: Emissions (GRI 305 Emissions 2016)
GRI 305
Emissions
305-5
Reduction of emissions
56, 47
Non-financial report: Emissions
Material topic: Responsible criteria in the supply chain (GRI 308 Negative environmental impacts in the supply chain and actions taken 2016)
GRI 308
Negative impact on the environment by the suppliers
308-2
Negative impact on the environment by the suppliers
60
Non-financial report: Suppliers
Material topic: Health and work-life balance (GRI 401 Employment 2016)
GRI 401
Employees
401-1
New employees
48
Non-financial report: Employees New employees: 243; Fluctuaction: 182
GRI 401
Employees
401-3
Parental leave
48
Non-financial report: Employees
Material topic: Health and work-life balance (GRI 403 Occupational health and safety 2018)
GRI 403
Occupational health and safety
403-1
Occupational health and safety management system
49
Non-financial report: Employees
GRI 403
Occupational health and safety
403-3
Occupational health services
49
Non-financial report: Employees
GRI 403
Occupational health and safety
403-5
Prevention and mitigation of occupational
49
Non-financial report: Employees
GRI 403
Occupational health and safety
403-7
Worker training on occupational health and safety impacts directly linked by business relationships
49
Non-financial report: Employees
Material topic: Training and education (GRI 404 Training and education 2016)
GRI 404
Training and education
404-1
Number of hours of training
45
Non-financial report: Emloyees
Material topic: Diversity and equality (GRI 405 Diverity and Equal Opportunity 2016)
GRI 405
Diversity of managerial bodies and employees
405-1
Structure of managerial bodies and employees
39
Non-financial report: Employees
Material topic: Diversity and equality (GRI 406 Non-discrimination 2016)
GRI 406
Anti-discrimination
406-1
Total number of incidents of discrimination
n.a.
Non-financial report: Employees There were no incidents recorded during 2022
Material topic: Customer satisfaction
Information on customer satisfaction
36, 37
Non-financial report: Clients
Material topic: Financial literacy
Information on activities implemented in the area of raising financial literacy
50-54
Non-financial report: Society
Corporate Governance Statement
Year ended 31 December 2022
63
Erste&Steiermärkische Bank d.d.
Corporate Governance Statement
Corporate Governance Statement
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
64
Corporate Governance Statement
The Bank pays special attention to corporate governance as the most significant determinant of its operations, which gives an impetus to the Management Board, the managers and the Supervisory Board in achieving interests and protecting both its shareholders and the Bank as a whole.
In order to establish high standards and achieve good rate governance, transparency in operations as the basis for the protection of shareholders, investors and other holders of interest, as well as to take care of employees and to support sustainable development and environment protection, the Bank applies Corporate Governance Principles (hereinafter: the Principles) to its business, adopted by the Management Board and the Supervisory Board of the Bank. The Principles are based on positive regulations of the Republic of Croatia and they ensure strategic governance of the Bank, efficient supervision over management and responsibilities of the Management Board and the Supervisory Board towards the Bank, its employees, clients and other interested parties; the Principles are published on the Bank's official website.
In its operations the Bank particularly complies with the following corporate governance principles:
_Transparency in operations;
_Protection of shareholders' rights;
_Clearly defined authorizations and responsibilities of the Bank’s bodies;
_Cooperation between the Management Board and the Supervisory Board, transparent relationships among all the Bank's bodies, employees, shareholders, Bank's clients and the public as a whole;
_Efficient internal control system.
The Bank has ensured the integrity of the accounting system and financial reporting, adequate internal control systems, risk management system and the reliability of the information system covering all the major Bank's activities. In addition, the Bank hired an external auditor and has applied previous, current and subsequent financial supervision of the financial reporting and decision making process.
The accounting system, based on the International Accounting Standards and the International Financial Reporting Standards prescribed by the Accounting Policies of the Bank, is regulated by the Accounting Rules that define rights, obligations and responsibilities of all the participants, including the obligation of ongoing monitoring, while the functioning of the other systems is governed by special standard regulations.
The Bank's internal control system includes efficient direct monitoring through integrated procedures and processes set for monitoring the efficiency of the Bank's operations, reliability of financial reports and compliance with the laws and by-laws, as well as through fair business practice. The Bank's internal control system is established through parallel operating of three mutually independent functions: (a) risk control function, (b) compliance monitoring function, and (c) internal audit function.
In subsidiaries of the Bank in which is necessary due to the activities performed by the company, size, importance and regulatory framework, the compliance function, risk control function and internal audit division is also established.
The main features of the Bank’s and subsidiaries’ internal control system are reflected in independent bearers of control functions responsible for the identification, assessment and risk management, including Risk control and Compliance function, while Internal Audit Division overseas the overall operations of the Bank and the Group to assess the adequacy of the established system of internal controls.
Corporate Governance Statement
Year ended 31 December 2022
65
Erste&Steiermärkische Bank d.d.
Code of Conduct of the Bank regulates the basic rules of business conduct of employees of the Bank in order to preserve and further expand the reputation of the banking sector and the Bank in society by promoting the idea of professionalism, responsibility and transparency of business activities.
Furthermore, the Bank has adopted Diversity policy in the year 2017. In accordance with Group principles, this policy outlines framework and guidelines and provides general principles and direction on integrating diversity management into corporate culture and business
The main risk regarding the financial reporting relates to errors or deliberate actions (frauds) that lead to a distortion of the Bank's true and fair view of the Bank's financial position and performance. This is the case whenever the data provided in the financial statements are essentially inconsistent or inaccurate and may individually or in aggregate influence the decision making by the users of the financial statements. Such a decision may incur serious damage, such as financial loss, the imposition of sanctions by the banking supervisor or reputational harm.
Complex requirements for the recognition and measurement of financial instruments, in particular fair value estimates for which reliable market values are not available, estimates for the recognition of value adjustments and provisions, as well as the difficult business environment, present a risk of significant financial reporting errors.
The Bank's share capital, fully subscribed, amounts to HRK 1,698,417,500.00 and is divided into 16,984,175 ordinary shares issued in dematerialized form, registered with the Central Depositary and Clearing Company under »RIBA-R-A« mark.
The nominal value of each share amounts to HRK 100.00 and entitles the holder to one vote at the Bank's General Meeting.
In order to improve the Bank’s coordination and simplify the shareholder structure, indirect shareholders of the Bank, companies Erste Group Bank AG and Steiermärkische Bank und Sparkassen AG have decided to become direct shareholders, by taking over the Bank's shares from the company ESB Holding GmbH in the same percentage in which they had shares in the capital of stated company.
In accordance with the aforementioned, until December 30, 2015, all shares of the Bank held the company ESB Holding GmbH, and as of December 30, 2015, all shares of the Bank hold companies Erste Group Bank AG (59.02%) and Steiermärkische Bank und Sparkassen AG (40.98%).
General Meeting decides on all matters as required by relevant regulations and the Articles of Association of the Bank. General Meeting shall be called by the Management Board or by the Supervisory Board not less than once a year and when the interests of the Bank require it. The Bank's General Meeting decides on amendments to the Articles of Association by the majority of votes representing at least three quarters of the equity capital represented at the General Meeting.
On May 20, 2022 the Bank held its regular General Meeting at which a Decision on Profit Distribution for the year 2021 was made. Net profit for year 2021 amounts HRK 847,307,177.50 and amount of 322,326,328.25 was distributed in the retained earnings, while the amount of HRK 524,980,849.25 was ditributed as the dividend to the Bank's shareholders.
The dividend is determined in amount of 30.91 % of the nominal share value, which makes HRK 30.91 per share.
The payment of dividend to the shareholders Erste Group Bank AG and Steiermärkische Bank und Sparkassen AG was effectuated as of May 27, 2022.
Corporate Governance Statement
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
66
In addition, the decisions on granting discharge to the Management Board and Supervisory Board members were made.
Besides regular General Meeting in 2022, the Bank held two extraordinary General Meetings as well.
At extraordinary General Meeting held on June 30, 2022, Decision on the amendments of the Articles of Association of the Bank, Decision on suitability assessment of the members for the Supervisory Board and Decision on amendments of the Suitability policy were made. Also, PricewaterhouseCoopers d.o.o. was appointed as the Bank’s auditor for 2022.
At extraordinary General Meeting held on November 30, 2022 Decision on suitability of the candidate for the member of the Supervisory Board, Decision on election of the Supervisory Board’s members and Decision on remuneration for the member of the Supervisory Board were made.
The members of the Management Board represent the Bank and operate the Bank’s business on its own responsibility according to the Companies Act, the Credit Institutions Act and internal acts of the Bank. On July 31, 2022, the mandate of one member of the Management Board expired, hence the Management Board as of August 1, 2022 has 5 (five) members. One member of the Management Board is appointed as the president of the Board. The Management Board conducts its activities and adopts its decisions and resolutions at the Meetings. The organization, operation and decision making of the Management Board are regulated by the Rules of Procedure of the Management Board.
Members of the Management Board are:
_Christoph Schoefboeck, President of the Management Board,
_Martin Hornig, Member of the Management Board,
_Zdenko Matak, Member of the Management Board,
_Krešimir Barić, Member of the Management Board
_Hannes Frotzbacher, Member of the Management Board.
The Supervisory Board shall supervise the management of the Bank. The Supervisory Board has seven (7) members. The members of the Supervisory Board are elected by the General Meeting.
Members of the Supervisory Board are:
_Willibald Cernko, President of the Supervisory Board,
_Georg Bucher, Deputy President of the Supervisory Board,
_Ingo Bleier, Member of the Supervisory Board,
_Judit Ágnes Havasi, Member of the Supervisory Board,
_Walburga Seidl, Member of the Supervisory Board,
_Nikolai Leo de Arnoldi, Member of the Supervisory Board,
_Roland Klimesch, Member of the Supervisory Board.
Corporate Governance Statement
Year ended 31 December 2022
67
Erste&Steiermärkische Bank d.d.
The Supervisory Board conducts its activities at the Meetings. Summoning and holding meetings and process of making decisions and authorizations are prescribed by the Rules of procedure of the Supervisory Board. Supervisory Board has five (5) committees as follows: Audit Committee, Credit Committee, Remuneration Committee, Nomination Committee and Risk Committee which are established with the aim of making competent and independent judgements on all issues placed in their jurisdiction by the Bank's internal acts and the relevant regulations. Committee members are appointed from the members of the Supervisory Board.
Audit Committee:
_Georg Bucher, President
_Judit Ágnes Havasi, Member
_Roland Klimesch, Member
Remuneration Committee:
_Judit Ágnes Havasi, President
_Willibald Cernko, Member
_Georg Bucher, Member
_Judit Ágnes Havasi, President
_Willibald Cernko, Member
_Georg Bucher, Member
_Roland Klimesch, Member
_Walburga Seidl, Member
Credit Committee:
_Willibald Cernko, President
_Nikolai Leo de Arnoldi, Member
_Walburga Seidl, Member
_Roland Klimesch, Member
Risk Committee:
_Nikolai Leo de Arnoldi, President
_Walburga Seidl, Member
_Willibald Cernko, Member
Erste&Steiermärkische Bank d.d.
68
Financial Statements for the year ended 31 December 2022
69
Erste&Steiermärkische Bank d.d.
Responsibility for the Financial Statements
Pursuant to the Croatian Accounting Law, the Management Board is responsible for ensuring that separate and consolidated financial statements are prepared for each financial year in accordance with International Financial Reporting Standards (IFRS) as published by International Accounting Standards Board (IASB) and adopted in the EU, which give a true and fair view of the financial position, results of operations and cash flow of Erste&Steiermärkische Bank d.d. together with its subsidiaries and associates (the Group) for that period as well as of Erste&Steiermärkische Bank d.d. (the Bank), separately.
In preparing those financial statements, the responsibilities of the Management Board include ensuring that:
_suitable accounting policies are selected and then applied consistently;
_judgments and estimates are reasonable and prudent;
_applicable accounting standards are followed, subject to any material departures disclosed and explained in the financial statements; and
_the financial statements are prepared on the going concern basis, unless it is inappropriate to presume that the Group and the Bank will continue in business.
The Management Board is responsible for keeping proper accounting records, which discloses with reasonable accuracy at any time the financial position of the Group and the Bank and must also ensure that the financial statements comply with the Croatian Accounting Law. The Management Board is also responsible for safeguarding the assets of the Group and the Bank and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Moreover, in accordance with the Accounting Law, the Management Board is obliged to prepare an Annual Report comprising the financial statements, the Management Report and the Corporate Governance Statement. The Management Report and the Corporate Governance Statement were prepared in line with the requirements of Articles 21, 22 and 24 of the Accounting Law. Also, the Management Board is responsible for the submission of its Annual report, which includes annual separate and consolidated financial statements, to the Supervisory Board for acceptance. If the Supervisory Board approves the Annual report it is deemed confirmed by the Management Board and Supervisory Board.
In accordance with Commission Delegated Regulation (EU) 2018/815 of 17 December 2018 supplementing Directive 2004/109/ EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of the single electronic reporting format ("ESEF Regulation"), the Management Board is obliged to prepare and publish separate and consolidated Annual Report in XHTML format and to mark the annual financial statements prepared in accordance with IFRS in XHTML format using XBRL codes to meet Article 462 requirements of the Capital Market Act.
After making enquiries, the Management Board has a reasonable expectation that the Group and the Bank have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Management Board continues to adopt the going concern basis in preparing the financial statements.
_____________________________________________
Christoph SchoefboeckKrešimir Barić
PresidentMember
_____________________________________________
Martin HornigZdenko Matak
MemberMember
____________________
Member
Erste&Steiermärkische Bank d.d.
Jadranski trg 3a
51 000 Rijeka24 March 2023
Republic of Croatia
70
71
72
73
74
75
76
77
78
79
Financial Statements
for the year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
80
I.Statement of Comprehensive Income for the Year ended 31 December 2022 1,612 1,747 1,766 1,859 55 76 519 598 713 860 11 47 218 309 6 - - 4 3 - 1 248 197 70 1,032 1,295 847 977
GROUP
BANK
Notes
2021
2022
2021
2022
Net interest income
2
2,003
2,121
Interest income
2,107
2,175
Other similar income
155
184
Interest expense
(204)
(170)
(157 )
(121 )
Other similar expenses
(55)
(68)
(52 )
(67 )
Net fee and commission income
3
809
884
Fee and commission income
1,068
1,199
Fee and commission expenses
(259)
(315)
(194 )
(262 )
Dividend income
4
1
-
Net trading and fair value result
5
221
298
Gains/losses from financial instruments measured at fair value through profit or loss
6
4
(12)
(13 )
Net result from equity method investments
9
8
Rental income from investment properties & other operating leases
7
66
59
Personnel expenses
8
(779)
(860)
(581 )
(670 )
Other administrative expenses
8
(611)
(699)
(457 )
(550 )
Depreciation and amortisation
8
(250)
(246)
(143 )
(154 )
Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
9
-
1
Impairment result from financial instruments
10
(167)
318
(144 )
Other operating result
11
(9)
(329)
(13 )
(271 )
Other operating income
201
78
Other operating expenses
(210)
(407)
(210 )
(341 )
Pre-tax result for the period
1,297
1,543
Income tax
12
(228)
(371)
(185 )
(318 )
Net result for the period
1,069
1,172
Net result attributable to non-controlling interests
19
(4)
-
-
Net result attributable to owners of the parent
1,050
1,176
-
-
Earnings per share
For the purposes of calculating earnings per share, earnings are calculated as the net profit for the period attributable to ordinary shareholders after deducting preference dividends, if any. A reconciliation of the profit after tax attributable to ordinary shareholders is provided below.
Financial Statements
for the year ended 31 December 2022
81
Erste&Steiermärkische Bank d.d.
I.Statement of Comprehensive Income for the Year ended 31 December 2022 (continued) 847 977 - 1 7 - - - - 6 1 - 9 - - - - - - 24 171 24 171 - - 742 199
Statement of Other Comprehensive Income
GROUP
BANK
2021
2022
2021
2022
Net result for the period
1,069
1,172
Other comprehensive income
Items that may not be reclassified to profit or loss
Remeasurement of net liability of defined pension plans
-
1
Fair value reserve of equity instruments
9
-
Own credit risk reserve
-
-
Income taxes relating to items that may not be reclassified
(1)
-
(1 )
Total
8
1
Items that may be reclassified to profit or loss
Fair value reserve of debt instruments
(153)
(994)
(135 )
(950 )
Gain/(loss) during the period
(162)
(981)
(144 )
(937 )
Reclassification adjustments
-
(1)
(1 )
Credit loss allowances
9
(12)
(12 )
Currency translation
(2)
2
Gain/(loss) during the period
(2)
2
Reclassification adjustments
-
-
Income taxes relating to items that may be reclassified
26
178
Gain/(loss) during the period
26
178
Reclassification adjustments
-
-
Total
(129)
(814)
(111 )
(779 )
Total other comprehensive income
(121)
(813)
(105 )
(778 )
Total comprehensive income
948
359
Total comprehensive income attributable to non-controlling interests
19
(4)
-
-
Total comprehensive income attributable to owners of the parent
929
363
-
-
Financial Statements
for the year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
82
II. Statement of Financial Position as at 31 December 2022 13,518 24,632 145 197 70 193 75 4 70 58 10 19 60 39 11,448 8,787 6 1,723 4 4 11,444 8,783 54,719 65,877 - 2,748 4,674 9,721 4,322 2,598 45,723 53,558 - - 792 802 - - 135 112 805 680 38 38 - - 132 338 3 - 692 879 251 177 82,748 102,577 56 175 56 175 72,378 92,010 3,242 7,657 64,927 80,413 4,010 3,646 199 294 100 93 384 582 74 230 - - - - 438 495 73,430 93,585 1,698 1,698 1,886 1,886 5,592 6,043 142 9,318 8,992 - - 9,318 8,992 82,748 102,577
GROUP
BANK
Notes
31 December 2021
31 December 2022
31 December 2021
31 December 2022
Assets
Cash and cash balances
13
14,530
25,982
Financial assets – held for trading
145
197
Derivatives
17
70
193
Other financial assets held for trading
18
75
4
Non-trading financial assets at fair value through profit or loss
75
60
Equity instruments
19
10
21
Debt securities
19
65
39
Financial assets at fair value through other comprehensive income
11,947
9,167
Pledged as collateral
24
6
1,723
Equity instruments
20
4
4
Debt securities
21
11,943
9,163
Financial assets at amortised cost
59,328
71,049
Pledged as collateral
24
-
2,748
Debt securities
14
4,935
10,024
Loans and advances to banks
14
4,406
2,890
Loans and advances to customers
14
49,987
58,135
Finance lease receivables
42
2,546
3,018
Property and equipment
39
1,179
1,166
Investment properties
39
3
9
Intangible assets
40
327
171
Investments in subsidiaries
48
-
-
Investments in associates
49
62
65
Current tax assets
12
-
7
Deferred tax assets
12
207
404
Assets held for sale
53
336
4
Trade and other receivables
15
1,270
1,297
Other assets
41
324
271
Total assets
92,279
112,867
Liabilities and equity
Financial liabilities – held for trading
56
175
Derivatives
17
56
175
Financial liabilities measured at amortised cost
79,559
99,949
Deposits from banks
16
6,533
11,217
Deposits from customers
16
68,268
84,198
Debt securities issued
16
4,010
3,646
Other financial liabilities
16
748
888
Lease liabilities
42
99
91
Provisions
45
409
674
Current tax liabilities
12
92
251
Deferred tax liabilities
12
2
-
Liabilities associated with assets held for sale
53
261
-
Other liabilities
44
631
718
Total liabilities
81,109
101,858
Subscribed capital
1,698
1,698
Capital reserves and share premium
1,886
1,886
Retained earnings
7,231
7,887
Other reserves
139
(673)
(635 )
Equity attributable to owners of the parent
10,954
10,798
Equity attributable to non-controlling interests
48
216
211
Total equity
47
11,170
11,009
Total liabilities and equity
92,279
112,867
Financial Statements
for the year ended 31 December 2022
83
Erste&Steiermärkische Bank d.d.
III. Statement of Changes in Equity
GROUP
Subscribed capital
Capital reserves and share premium
Retained earnings
Fair value reserve
Currency translation reserve
Remea-surement of defined benefit plans
Income tax
Equity at-tributable to owners of the parent
Equity at-tributable to non-controlling interests
Total equity
As of 1 January 2022
1,698
1,886
7,231
171
(1)
-
(31)
10,954
216
11,170
Dividends paid
-
-
(525)
-
-
-
-
(525)
(1)
(526)
Reclassification from other comprehensive income to retained earnings
-
-
(1)
1
-
-
-
-
-
-
Other changes (Note: Scope of consolidation)
-
-
6
-
-
-
-
6
-
6
Total comprehensive income
-
-
1,176
(994)
2
1
178
363
(4)
359
Net result for the period
-
-
1,176
-
-
-
-
1,176
(4)
1,172
Other comprehensive income
-
-
-
(994)
2
1
178
(813)
-
(813)
Change from remeasurement of defined benefit plans
-
-
-
-
-
1
-
1
-
1
Change in fair value reserve
-
-
-
(994)
-
-
178
(816)
-
(816)
Change in currency translation reserve
-
-
-
-
2
-
-
2
-
2
As of 31 December 2022
1,698
1,886
7,887
(822)
1
1
147
10,798
211
11,009
As of 1 January 2021
1,698
1,886
6,231
452
1
-
(82)
10,186
198
10,384
Dividends paid
-
-
(161)
-
-
-
-
(161)
(1)
(162)
Reclassification from other comprehensive income to retained earnings
-
-
111
(137)
-
-
26
-
-
-
Total comprehensive income
-
-
1,050
(144)
(2)
-
25
929
19
948
Net result for the period
-
-
1,050
-
-
-
-
1,050
19
1,069
Other comprehensive income
-
-
-
(144)
(2)
-
25
(121)
-
(121)
Change from remeasurement of defined benefit plans
-
-
-
-
-
-
-
-
-
-
Change in fair value reserve
-
-
-
(144)
-
-
25
(119)
-
(119)
Change in currency translation reserve
-
-
-
-
(2)
-
-
(2)
-
(2)
As of 31 December 2021
1,698
1,886
7,231
171
(1)
-
(31)
10,954
216
11,170
Financial Statements
for the year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
84
III. Statement of Changes in Equity (continued) 1,698 1,886 5,592 171 - 2 9,318 - 9,318 - - - - - - - - - 1 - - - - - - - - - - - - - - - - - - 977 - 1 171 199 - 199 - - 977 - - - - 977 - 977 - - - - 1 171 - - - - - - 1 - 1 - 1 - - - - - 171 - 1,698 1,886 6,043 - 3 140 8,992 - 8,992 1,698 1,886 4,811 418 - 2 8,737 - 8,737 - - - - - - - - - 95 - - 24 - - - - - - - - - - - - - - - 847 - - 23 742 - 742 - - 847 - - - - 847 - 847 - - - - - 23 - - - - - - - - - - - - - - - - 23 - 1,698 1,886 5,592 171 - 2 9,318 - 9,318
BANK
Subscribed capital
Capital reserves and share premium
Retained earnings
Fair value reserve
Currency translation reserve
Remea-surement of defined benefit plans
Income tax
Equity at-tributable to owners of the parent
Equity at-tributable to non-controlling interests
Total equity
As of 1 January 2022
(31 )
Dividends paid
(525 )
(525 )
(525 )
Reclassification from other comprehensive income to retained earnings
(1 )
Other changes
Total comprehensive income
(950 )
Net result for the period
Other comprehensive income
(950 )
(778 )
(778 )
Change from remeasurement of defined benefit plans
Change in fair value reserve
(950 )
(779 )
(779 )
As of 31 December 2022
(778 )
-
As of 1 January 2021
(78 )
Dividends paid
(161 )
(161 )
(161 )
Reclassification from other comprehensive income to retained earnings
(119 )
Other changes (Note: Scope of consolidation)
Total comprehensive income
(128 )
Net result for the period
Other comprehensive income
(128 )
(105 )
(105 )
Change from remeasurement of defined benefit plans
Change in fair value reserve
(128 )
(105 )
(105 )
As of 31 December 2021
(31 )
Financial Statements
for the year ended 31 December 2022
85
Erste&Steiermärkische Bank d.d.
IV. Statement of Cash Flow for the year ended 31 December 2022 847 977 192 278 106 807 184 318 6 7 71 142 4 8 1,711 1,724 - - 13 4,415 7,673 15,486 3,333 37 95 6,027 11,793 1 - 3 11 - - - - - - - - 38 - - - 7,742 13,518 6,027 11,793 13,518 24,632 1,650 1,561 1,879 1,902 11 47
GROUP
BANK
2021
2022
2021
2022
Net result for the period
1,069
1,172
Non-cash adjustments for items in net profit/loss for the year
Depreciation, amortisation, impairment and reversal of impairment, revaluation of assets
299
372
Net allocation of credit loss allowances and other provisions
95
(110)
Gains/(losses) from the sale of assets
3
-
(3 )
(5 )
Income tax expense/(income)
228
370
Other adjustments
7
(23)
Changes in assets and liabilities from operating activities after adjustment for non-cash components
Financial assets – held for trading
(31)
71
(31 )
Non-trading financial assets at fair value through profit or loss
Equity instruments
159
2
Debt securities
87
13
(27 )
Financial assets at fair value through other comprehensive income: debt securities
(948)
1,786
(1,005 )
Financial assets at amortised cost
Debt securities
(2,572)
(5,088)
(2,495 )
(5,048 )
Loans and advances to banks
(163)
1,516
(150 )
Loans and advances to customers
(661)
(7,640)
(611 )
(8,483 )
Finance lease receivables
(91)
(328)
Derivatives
(2)
(4)
(2 )
(4 )
Other assets from operating activities
25
(195)
(128 )
Financial liabilities measured at amortised cost
Deposits from banks
(2,373)
4,543
(1,967 )
Deposits from customers
8,140
15,930
Debt securities issued
3,333
(365)
(365 )
Other financial liabilities
43
140
Other liabilities from operating activities
(232)
(58)
(215 )
(75 )
Cash flow from operating activities
6,415
12,104
Proceeds from disposal
Financial assets at fair value through other comprehensive income: equity instruments
1
-
Property and equipment, intangible assets and investment properties
39
46
Acquisition of
Financial assets at fair value through other comprehensive income: equity instruments
-
-
Property and equipment, intangible assets and investment properties
(212)
(233)
(112 )
(137 )
Merger of subsidiary (net of cash and cash equivalents acquired) (Note: Scope of consolidation)
-
34
Investments in associates
-
-
Disposal of subsidiaries
-
68
Investment in subsidiaries
-
(15)
Cash flow from investing activities
(172)
(100)
(70 )
(126 )
Dividends paid to equity holders of the parent
(161)
(525)
(161 )
(525 )
Dividends paid to non-controlling interests
(1)
(2)
Lease liabilities
(19)
(25)
(20 )
(28 )
Cash flow from financing activities
(181)
(552)
(181 )
(553 )
Cash and cash equivalents at beginning of period
8,468
14,530
Cash flow from operating activities
6,415
12,104
Cash flow from investing activities
(172)
(100)
(70 )
(126 )
Cash flow from financing activities
(181)
(552)
(181 )
(553 )
Cash and cash equivalents at end of period1)
14,530
25,982
Cash flows related to taxes, interest and dividends (included in cash flow from operating activities)
1,919
1,713
Payments for income tax
(32)
(239)
(18 )
(197 )
Interest received
2,224
2,224
Dividends received
1
2
Interest paid
(274)
(274)
(222 )
(191 )
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
86
HISTORY AND INCORPORATION
Erste&Steiermärkische Bank d.d. (the Bank) was established in 1954 and was entered into the Court Register as a joint stock company on 24 January 1990. The Bank’s registered head office is at Jadranski trg 3a, Rijeka , the Republic of Croatia .
The Bank is a holding company for the Erste Bank Croatia Group (the Group) which has operations in the Republic of Croatia , Republic of Montenegro and in Republic of Slovenia until disposal of subsidiary in 2022.
Direct parent and ultimate controlling entity of Erste&Steiermärkische Bank d.d. is Erste Group Bank AG .
These financial statements comprise both the separate financial statements of the Bank and the consolidated financial statements of the Group.
PRINCIPAL ACTIVITIES OF THE BANK
The Bank is licensed to conduct commercial banking activities in the Republic of Croatia . The Bank’s main operations are as follows:
_accepting deposits from the clients and deposits placement,
_granting loans, issuing guarantees and letters of credit to the individuals, companies, public and other clients,
_treasury operations in the interbank market,
_trust management and investment banking services,
_performing domestic and international payments,
SUPERVISORY BOARD
President
Georg Bucher
Deputy President
Ingo Bleier
Member
Roland Klimesch
Member
Judit Ágnes Havasi
Member
Walburga Seidl
Member
Nikolai Leo de Arnoldi
Member
MANAGEMENT BOARD
The Bank is represented jointly by two members of the Management Board or by one member of the Management Board together with the procurator.
Notes to the financial statements
Year ended 31 December 2022
87
Erste&Steiermärkische Bank d.d.
PROCURATORS:
The Bank at the moment does not have procurators.
The Bank's share capital, fully subscribed, amounts to HRK 1,698,417,500.00 and is divided into 16,984,175 ordinary shares. All shares of the Bank hold companies Erste Group Bank AG (10,023,326 shares or 59.02%) and Steiermärkische Bank und Sparkassen AG (6,960,849 shares or 40.98%).
DEFINITION OF THE CONSOLIDATED GROUP
The Bank is a parent company of the banking group (the Group) which includes the following subsidiaries and associates:
Note
Ownership interest
Principal activity
Registered office
Erste Nekretnine d.o.o.
48
100%
Real estate business
Ivana Lučića 2A, Zagreb
Erste Bank AD Podgorica, Montenegro
48
100%
Credit institution
Arsenija Boljevića 2A, Podgorica, Montenegro
Erste Card Club d.o.o.
48
100%
Financial intermediation and services
Ulica Frana Folnegovića 6, Zagreb
Erste Card d.o.o. Slovenia (until June 2022)
48
100%
Financial intermediation and services
Dunajska cesta 129, Ljubljana, Slovenia
Erste&Steiermärkische S-Leasing d.o.o.
48
50%
Financial and operating leasing
Zelinska 3, Zagreb
Izbor Nekretnina d.o.o.
48
100%
Real estate management and lease
Ivana Lučića 2A, Zagreb
Erste Group IT HR d.o.o.
48
80%
IT engineering
Jurja Haulika 19/A, Bjelovar
Name of associate
Erste d.o.o.
49
45.86%
Management company for obligatory and voluntary pension fund
Ivana Lučića 2A, Zagreb
Disposal group held for sale in 2021 and disposal in 2022
In October 2021 Erste Card Club d.o.o. signed an agreement for the sale of Erste Card d.o.o., Slovenia to bank Sparkasse Bank d.d., Slovenia. As the sale was not completed by the of end 2021, and subsidiary was presented as disposal group held for sale for the financial year 2021, sale was finalized during June 2022. Information for disposal group held for sale and sale disclosed in Note 53 Assets held for sale and liabilities associated with assets held for sale.
Acquisition and merger in 2022
During the last quarter, Erste Bank AD Podgorica, Montenegro acquired and merged S leasing d.o.o. Podgorica, Montenegro. Information is dislosed in note Scope of consolidation.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
88
BASIS OF PREPARATION
The financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB) and adopted by the European Union (EU).
In accordance with the applicable measurement models prescribed or permitted under IFRS, the consolidated financial statements have been prepared on a cost basis, except for financial assets measured at fair value through other comprehensive income and financial assets and liabilities measured at fair value through profit or loss.
The financial statements are prepared on an accrual basis of accounting, under the going concern assumption.
Except for regulatory restrictions on capital distributions stemming from the EU-wide capital requirements regulations applicable to all credit institutions based in the EU, the Group does not have any other significant restrictions on its ability to access or use the assets and settle the liabilities of the Group. Also, the owners of non-controlling interests in Group subsidiaries do not have rights that can restrict the Group’s ability to access or use the assets and settle the liabilities of the Group.
Except as otherwise indicated, the amounts in the financial statements are stated in millions of local currency – Croatian Kuna (HRK) which is the Bank functional and the Bank and Group presentation currency.
The preparation of financial statements in compliance with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported income, expenses and other comprehensive income for the reporting period. These estimates are based on the information available at the statement of financial position date and actual amounts may differ from those estimates.
The Bank maintains its books of accounts in accordance with the regulations of the statutory accounting requirements for banks in Croatia.
The accompanying financial statements are based on the accounting records of the Bank and its subsidiaries.
Notes to the financial statements
Year ended 31 December 2022
89
Erste&Steiermärkische Bank d.d.
Foreign currency translation
i.Transactions and balances in foreign currency
Transactions in foreign currencies are initially recorded in kuna at the functional currency exchange rate effective as of the date of the transaction.
Subsequently, monetary items denominated in foreign currencies are translated at the functional currency exchange rates as of the statement of financial position date. Non-monetary assets and liabilities denominated in foreign currencies and measured at fair value are translated into the functional currency using the exchange rate at the date when the fair value is measured, thus the exchange differences are part of the fair value gains or losses. Non-monetary assets and liabilities denominated in foreign currencies and measured at historical cost are translated using the exchange rates as of the dates of the initial transactions and they do not give rise to exchange differences.
Exchange differences arising on translation into functional currency, are recognised in the statement of profit or loss for the period, under the line item ‘Net trading and fair value result’ except for exchange differences arising on translation of financial assets denominated in foreign currencies and measured at fair value through other comprehensive income and translation of foreign operations as explained below.
For debt instruments that represent monetary items and are measured at fair value through other comprehensive income, foreign currency translation differences are recognized in the statement of profit or loss, if related to the amortised cost components of the instrument, and in other comprehensive income, if related to fair value components of the instrument.
For non-monetary items that are measured at fair value through other comprehensive income, exchange differences are recognised in other comprehensive income. Conversely, exchange differences are recognised in the statement of profit or loss if a non-monetary item is measured at fair value through profit or loss.
ii.Translation of the statements of Group companies
The assets and liabilities of foreign operations (foreign subsidiaries) are translated into kuna, the Group’s presentation currency, at the rate of exchange as of the statement of financial position date (closing rate). Their consolidated statement of profit or loss and consolidated statement of comprehensive income are translated at the average exchange rate of the respective reporting period calculated on the basis of daily rates. Goodwill, intangible assets recognised on acquisition of foreign subsidiaries and fair value adjustments to the carrying amounts of assets and liabilities are treated as asset and liabilities of the foreign subsidiaries and are translated at the closing rate. Exchange differences arising on translation are recognised in other comprehensive income under the line item ‘Currency translation reserve’ of the statement of comprehensive income. On disposal of a foreign subsidiary, the cumulative amount of translation differences recognised in other comprehensive income is recognised in the statement of profit or loss under the line item ’Other operating result’.
The principal rates of exchange set forth by the Croatian National Bank and used in the preparation of the Group and the Bank’s statement of financial position at the reporting dates were as follows:
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
90
Significant accounting judgements, assumptions and estimates
The consolidated financial statements contain amounts that have been determined on the basis of judgements and by the use of estimates and assumptions. The estimates and assumptions used are based on historical experience and other factors, such as planning as well as expectations and forecasts of future events that are currently deemed to be reasonable. The estimates and underlying assumptions are regularly evaluated. As a consequence of the uncertainty associated with these assumptions and estimates, actual results could in future periods lead to adjustments in the carrying amounts of the related assets or liabilities.
The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed in:
_Impairment of financial instruments (Chapter Financial instruments – Significant accounting policies, Chapter Risk management)
_Control of subsidiaries (Note 48 Subsidiaries)
_Sundry provisions (Note 45 Provisions)
Application of amended and new IFRS/IAS
The accounting policies adopted are consistent with those used in the previous financial year except for standards and interpretations that became effective for financial years beginning on or after 1 January 2022. As regards new standards and interpretations and their amendments, only those that are relevant for the business of the Group are listed below.
Effective standards and interpretations
The following amendments of standards have become mandatory for the financial year 2022, and have been endorsed by the EU:
Annual Improvements to IFRSs 2018-2020 Cycle (amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41)
Application of the above mentioned amendments in 2022 did not have a significant impact on the Group’s financial statements.
Standards and interpretations not yet effective
The standards, amendments and interpretations shown below were issued by the IASB but are not yet effective.
IFRS 17: Insurance contracts
Amendments to IAS 1: Disclosure of Accounting Policies
Amendments to IAS 8: Definition of Accounting Estimates
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction
IFRS 17: Insurance contracts. IFRS 17 was issued in May 2017 and is effective for annual periods beginning on or after 1 January 2023. IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity's financial position, financial performance and cash flows. Application of IFRS 17is not expected to have a significant impact on Group’s financial statements.
Amendments to IAS 1: Disclosure of Accounting policies. The amendments to IAS 1 were issued In February 2021 and are effective for annual periods beginning on or after 1 January 2023. The amendments specify that an entity is required to disclose its material accounting policy information. A guidance was added to explain how an entity can identify material accounting policy information and to give examples of when accounting policy information is likely to be material. Application of these amendments is not expected to have a significant impact on the Group’s financial statements. However, revisions in the disclosures of the accounting policies may be required.
Notes to the financial statements
Year ended 31 December 2022
91
Erste&Steiermärkische Bank d.d.
Application of amended and new IFRS/IAS (continued)
Amendments to IAS 1: Classification of liabilities as current or non-current. The amendments to IAS 1 were issued on 23 January 2020 and effective for annual periods beginning on or after 1 January 2023. These amendments clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Liabilities are non-current if the entity has a substantive right, at the end of the reporting period, to defer settlement for at least twelve months. The guidance no longer requires such a right to be unconditional. Management’s expectations whether they will subsequently exercise the right to defer settlement do not affect classification of liabilities. A liability is classified as current if a condition is breached at or before the reporting date even if a waiver of that condition is obtained from the lender after the end of the reporting period. Conversely, a loan is classified as non-current if a loan covenant is breached only after the reporting date. In addition, the amendments include clarifying the classification requirements for debt a company might settle by converting it into equity. ‘Settlement’ is defined as the extinguishment of a liability with cash, other resources embodying economic benefits or an entity’s own equity instruments. There is an exception for convertible instruments that might be converted into equity, but only for those instruments where the conversion option is classified as an equity instrument as a separate component of a compound financial instrument. Application of these amendments is not expected to have a significant impact on the Group’s financial statements.
Amendments to IAS 8: Definition of Accounting Estimates. The amendments to IAS 8 were issued In February 2021 and are effective for annual periods beginning on or after 1 January 2023. The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. Application of these amendments is not expected to have a significant impact on the Group’s financial statements.
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction. The amendments to IAS 12 were issued In March 2021 and are effective for annual periods beginning on or after 1 January 2023. The amendments specify that the initial recognition exemption stipulated in IAS 12.15(b) and IAS12.24 does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition. Application of these amendments is not expected to have a significant impact on the Group’s financial statements.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
92
PERFORMANCE / RETURN
1.Segment reporting
The Group segment reporting comprises four operating segments reflecting Group management structure.
Retail segment comprises the business with private individuals, micros and free professionals within the responsibility of account managers in the retail network. This business is operated by the local banks in cooperation with their subsidiaries such as leasing and asset management companies with a focus on simple products ranging from mortgage and consumer loans, investment products, current accounts, savings products to credit cards and cross selling products such as leasing, insurance and building society products.
Corporates segment comprises business done with corporate customers of different turnover size (small and medium-sized enterprises and Large Corporate customers) as well as commercial real estate and public sector business. Small and medium-sized enterprises (SME) are clients which are under the responsibility of the local corporate commercial center network, mainly consisting of companies with-in defined annual turnover thresholds. Large Corporates (LC) are clients/client groups with specific annual turnover thresholds (lying above SME thresholds) which are operating on domestic market but also on core markets/extended core markets of Erste Group. Commercial Real Estate (CRE) covers for example investors in real estate for the purpose of generating income from the rental of individual properties or portfolios of properties, developers of individual properties or portfolios of properties for the purpose of generating capital gains through sale. Public Sector consists of three sets of customers: public sector, public corporations and non-profit sector. In addition, the majority of municipalities are also segmented as Public Sector clients.
Asset Liability Management (ALM) and Local Corporate Center (LCC) segment includes all asset/liability management functions, local corporate center which comprise all non-core banking business activities such as internal service providers and reconciliation items to local entity results as well as free capital segment (defined as the difference of the total average IFRS equity and the average economical equity allocated to the segments).
.
Group Markets segment comprises trading and markets services as well as customer business with financial institutions. It includes all activities related to the trading books of Erste Group, including the execution of trade, market making and short-term liquidity management. In addition, it comprises business connected with servicing financial institutions as clients including custody, depository services, commercial business (loans, cash management, trade & export finance).
Notes to the financial statements
Year ended 31 December 2022
93
Erste&Steiermärkische Bank d.d.
1.Segment reporting (continued)
Retail
Corporates
Group Markets
ALM & LCC
GROUP
in HRK million
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
Net interest income
1,303
1,288
772
777
3
18
(75)
38
2,003
2,121
Net fee and commission income
517
549
263
296
33
43
(4)
(4)
809
884
Dividend income
-
-
-
-
-
-
1
-
1
-
Net trading and fair value result
104
121
71
99
59
89
(13)
(11)
221
298
Gains/losses from financial instruments at FVPL
-
-
7
(12)
-
-
(3)
-
4
(12)
Net result from equity method investments
9
8
-
-
-
-
-
-
9
8
Rental income from investment properties & other operating leases
24
20
38
37
3
3
1
(1)
66
59
General administrative expenses
(1,180)
(1,305)
(398)
(438)
(42)
(53)
(20)
(9)
(1,640)
(1,805)
Gains/losses from derecognition of financial assets at AC
-
-
-
-
-
-
-
-
-
-
Impairment result from financial instruments
(106)
48
(72)
267
9
-
2
3
(167)
318
Other operating result
(3)
(5)
122
(8)
(1)
(1)
(127)
(315)
(9)
(329)
Pre-tax result for the period
668
724
803
1,018
64
99
(238)
(298)
1,297
1,543
Income tax
(114)
(167)
(143)
(243)
(12)
(24)
41
63
(228)
(371)
Net result for the period
554
557
660
775
52
75
(197)
(235)
1,069
1,172
Net result attributable to non-controlling interests
-
-
19
(4)
-
-
-
-
19
(4)
Net result attributable to owners of the parent
554
557
641
779
52
75
(197)
(235)
1,050
1,176
Operating income
1,957
1,986
1,151
1,197
98
153
(93)
22
3,113
3,358
Operating expenses
(1,180)
(1,305)
(398)
(438)
(42)
(53)
(20)
(9)
(1,640)
(1,805)
Risk-weighted assets (credit risk, eop)
13,726
13,859
22,633
25,973
673
158
16,800
5,763
53,832
45,753
Average allocated capital
2,085
2,145
2,841
3,112
76
93
3,059
3,932
8,061
9,282
Cost/income ratio
60%
66%
35%
37%
43%
35%
(22)%
41%
53%
54%
Return on allocated capital
27%
26%
23%
25%
68%
81%
(6)%
(6)%
13%
13%
Total assets (eop)
26,892
28,726
30,657
36,989
535
682
34,195
46,470
92,279
112,867
Total liabilities excluding equity (eop)
43,610
52,887
21,613
26,818
1,406
2,427
14,480
19,726
81,109
101,858
Impairments
(107)
48
(72)
267
9
(1)
(84)
(126)
(254)
188
Net impairment loss on financial assets AC/FVOCI and finance lease receivables
(97)
82
78
446
9
-
3
4
(7)
532
Net impairment loss on commitments and guarantees given
(10)
(34)
(150)
(179)
-
(1)
-
-
(160)
(214)
Net impairment on investments in subsidiaries, joint ventures and associates
-
-
-
-
-
-
-
-
-
-
Impairment of goodwill
-
-
-
-
-
-
(48)
(125)
(48)
(125)
Net impairment on other non-financial assets
-
-
-
-
-
-
(39)
(5)
(39)
(5)
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
94
1.Segment reporting (continued)
Measurement
The profit and loss statement of the segment report is based on the measures to the Group management board for the purpose of allocating resources to the segments and assessing their performance. Management reporting as well as the segment report for Group, is based on IFRS. Accounting standards and methods as well as measurements used in segment reporting are the same as for the consolidated statement of accounting.
Capital consumption per segment is regularly reviewed by the management of Group to assess the performance of the segments. The average allocated equity is determined by the credit risk, market risk, operational risk and business strategic risk. According to the regular internal reporting to the Group management board, total assets and total liabilities as well as risk weighted assets and allocated equity are disclosed per segment. For measuring and assessing the profitability of segments, the Group also uses the return on allocated equity defined as a net result for the period before minorities in relation to the average allocated equity of the respective segment. In addition, the cost/income ratio is calculated for each segment as operating expenses (general administrative expenses) in relation to operating income (total of net interest income, net fee and commission income, dividend income, net trading and fair value result, net result from equity method investments, rental income from investment properties and other lease).
Interest revenues are not reported separately from interest expenses for each reportable segment. Those measures are reported on the net basis within the position ‘Net interest income’ as interest revenues and interest expenses are neither included into the measure of segment profit or loss reviewed by the chief operating decision maker nor otherwise regularly provided to the chief operating decision maker. Chief operating decision maker relies solely on net interest income to assess the performance of the segments and make decisions about resources to be allocated to the segments. ‘Net fee and commission income’ and ‘Other operating result’ are reported on a net basis according to the regular reporting to the chief operating decision maker.
The Group is not disclosing information about revenue from external customers for Group’s products and services (or groups of similar products and services), based on IFRS 8.32, as the information is not available and the cost of to develop it would be excessive.
The Group doesn’t have a single external customer whose revenues from transactions amount to 10% or more of the Group’s revenues.
Return on asset ratio (ROA) in the Group was 1.15% on 31 December 2022 (2021: 1.17%) and in the Bank 1.05% (2021: 1.06%).
Return on equity ratio (ROE) in the Group was 10.8% on 31 December 2022 (2021: 9.8%) and in the Bank 10.7% (2021: 9.3%).
Notes to the financial statements
Year ended 31 December 2022
95
Erste&Steiermärkische Bank d.d.
2. Net interest income
Net interest income is broken down into line items of interest income, other similar income, interest expenses and other similar expenses. The distinguishing factor is whether the EIR method is applied for recognition of interest income or expense in accordance with IFRS 9.
‘Interest income’ relates to interest revenue from financial assets measured at amortised cost and at fair value through other comprehensive income. It is calculated using the EIR method as discussed in chapter ‘Financial instruments - Significant accounting policies’, part ‘Measurement methods for financial instruments’.
‘Other similar income’ captures interest-like sources of income resulting from non-derivative financial assets measured at fair value through profit or loss, held-for-trading derivatives, finance lease receivables and negative interest on financial liabilities.
‘Interest expenses’ relates to interest expense from financial liabilities measured at amortised cost calculated using effective interest rate as discussed in chapter ‘Financial instruments - significant accounting policies’, part ‘Measurement methods for financial instruments’ .
‘Other similar expenses’ capture interest-like sources of expense resulting from non-derivative financial liabilities measured at fair value through profit or loss, held-for-trading derivatives, negative interest on financial assets, lease liabilities and net defined liabilities (net interest cost on severance payment, pension and jubilee obligations) under IAS 19.
As regards types of financial instruments, interest income and other similar income include interest income on loans and advances to banks and customers, on cash balances, on debt securities in all measurement categories of financial assets, on trade and other receivables and on finance lease receivables. Interest expenses and other similar expenses include interest paid on deposits from customers, deposits from banks, debt securities issued, interest paid on lease liabilities and other financial liabilities in all measurement categories of financial liabilities. Net interest income also includes interest on derivative financial instruments.
Interest income also includes modification gains and losses recognised on financial assets in Stage 1. Further, the unamortised balance of the origination fees/transaction costs upon derecognition of assets in Stage 1 and 2 considered in the effective interest rate is presented as interest income at the derecognition date.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
96
2.Net interest income (continued)
GROUP
BANK
in HRK million
2021
2022
2021
2022
Interest income
Financial assets at AC
1,957
2,042
1,636
1,743
Financial assets at FVOCI
150
133
130
116
Other similar income
Non-trading financial assets at fair value through profit or loss
1
1
1
1
Financial assets – held for trading
47
65
46
65
Other assets
100
108
-
-
Interest income from negative interest rates
7
10
8
10
Interest and other similar income
2,262
2,359
1,821
1,935
Interest expenses
Financial liabilities measured at amortised cost
(204)
(170)
(157)
(121)
Other similar expense
Financial liabilities – held for trading
(43)
(60)
(43)
(60)
Other liabilities
(2)
(2)
(2)
(2)
Interest expense from negative interest rates
(10)
(6)
(7)
(5)
Interest and other similar expense
(259)
(238)
(209)
(188)
Net interest income
2,003
2,121
1,612
1,747
An amount of HRK 45 million for the Group and HRK 38 million for the Bank (2021: HRK 61 million for the Group and HRK 53 million for the Bank ) relating to impaired financial assets is included in interest income. In addition for 2022, modification losses of financial instruments allocated to Stage 1 in the amount of HRK 0.7 million for the Group and less than 0.1 million for the Bank (2021: HRK 0.3 milion for the Group and less than 0.1 million for the Bank) is reported in line item ‘Interest income - Financial assets at AC’.
Notes to the financial statements
Year ended 31 December 2022
97
Erste&Steiermärkische Bank d.d.
3.Net fee and commission income
Group earns fee and commission income from a diverse range of services that it provides to its customers.
Fee and commission income is accounted for in accordance with IFRS 15.
Group recognises revenue when it transfers control over a service to a customer. Fee and commission income is measured based on the consideration specified in the contract with a customer. The determination of the timing and amount of income recognition follows the five-step model of IFRS 15.
Revenue recognition policies
Services such as commitment fees, premiums received for guarantees and other fees from lending business, commission income from asset management, custody and other management and advisory fees as well as fees from insurance brokerage, building society brokerage and foreign exchange transactions. Payment services partly include fees for services satisfied over a period of time like periodic card fees.
Revenue is recognised over time as the services are provided.
Transaction services such as arranging the acquisition and sale of shares or other securities on behalf of customers or foreign exchange transactions, as well as commission income earned from services such as the sale of collective investments and insurance products. Payment services partly include transaction-based fees like withdrawal fees.
Revenue related to transactions is recognised at the point in time when the transaction takes place.
A contract with a customer that results in the recognition of a financial instrument in the Group’s financial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Group first applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual.
Fees and commission income that are integral to the effective interest rate of a financial instrument are in the scope of IFRS 9 and are included in the net interest income.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
98
3.Net fee and commission income
GROUP
BANK
in HRK million
2021
2022
2021
2022
Income
Expenses
Income
Expenses
Income
Expenses
Income
Expenses
Securities
11
(2)
18
(2)
11
(2)
18
(2)
Own issues
6
-
8
-
6
-
8
-
Transfer orders
5
-
10
-
5
-
10
-
Securities Other
-
(2)
-
(2)
-
(2)
-
(2)
Asset management
24
(1)
22
(1)
24
(1)
22
(1)
Custody
11
(2)
13
(4)
9
(2)
12
(4)
Payment services
891
(226)
1,000
(280)
574
(181)
704
(245)
Card business
528
(186)
573
(239)
227
(151)
298
(211)
Other
363
(40)
427
(41)
347
(30)
406
(34)
Customer resources distributed but not managed
35
(1)
41
(1)
34
(1)
38
(1)
Collective investment
-
(1)
-
(1)
-
(1)
-
(1)
Insurance products
29
-
34
-
28
-
32
-
Building society brokerage
5
-
4
-
5
-
4
-
Foreign exchange transactions
1
-
2
-
1
-
2
-
Other
-
-
1
-
-
-
-
-
Lending business
75
(8)
77
(8)
53
(7)
58
(8)
Loan commitments given, Loan commitments received
24
(7)
19
(8)
7
(6)
8
(8)
Guarantees given, guarantees received
43
(1)
49
-
43
(1)
47
-
Other lending business
8
-
9
-
3
-
3
-
Other
21
(19)
28
(19)
8
-
8
(1)
Total fee and commission income and expenses
1,068
(259)
1,199
(315)
713
(194)
860
(262)
Net fee and commission income
809
-
884
-
519
-
598
-
The fee and commission income and expense, which are presented in this table, are not an integral part of the effective interest rate.
Fees relating to financial assets and financial liabilities not measured at FVTPL for 2022 amount HRK 1,046 million for the Group and HRK 723 million for the Bank in income (2021: HRK 926 million for the Group and HRK 591 million for the Bank) and HRK 301 million for the Group and HRK 247 milion for the Bank in expense (2021: HRK 247 million for the Group and HRK 183 million for the Bank).
4.Dividend income
Dividend income is recognised when the right to receive the payment is established.
This line item includes dividend from shares and other equity investments in all measurement categories.
Results arising from trading activities include all gains and losses from changes in fair value (clean price) on financial assets and financial liabilities classified as held for trading, including all derivatives not designated as hedging instruments. In addition, ‘Net trading result’ includes foreign exchange gains and losses on monetary assets and liabilities.
The accounting policy for recognition of foreign exchange gains and losses is described in the chapter Significant accounting policies, b) Accounting and measurement methods, i. Foreign currency translations, ii. Transactions and balances in foreign currency.
Notes to the financial statements
Year ended 31 December 2022
99
Erste&Steiermärkische Bank d.d.
GROUP
BANK
in HRK million
2021
2022
2021
2022
Net trading result
Securities and derivatives trading
1
6
1
6
Foreign exchange transactions
220
292
217
303
Net trading and fair value result
221
298
218
309
The amounts of the fair value changes that are attributable to changes in own credit risk can be found in the Chapter Risk management.
6.Gains/losses from financial assets and liabilities measured at fair value through profit or loss, net
Changes in fair value (clean price) of non-trading financial assets at fair value through profit or loss, including gains and losses on derecognition, are reported under this line item.
7.Rental income from investment properties & other operating leases
Rental income from investment properties and other operating leases is recognised on a straight-line basis over the lease term.
GROUP
BANK
in HRK million
2021
2022
2021
2022
Investment properties
-
1
-
-
Other operating leases
66
58
4
3
Rental income from investment properties & other operating leases
66
59
4
3
More detailed information about assets under operating lease is provided in Note 39 Property, equipment and Investment property.
Personnel expenses
Personnel expenses include wages and salaries, bonuses, statutory and voluntary social security contributions. They also include service cost for severance payments, pension and jubilee obligations and remeasurements of jubilee obligations. Other personnel expenses include remuneration of management and employees related to IFRS 2 Employee share program. More detailed information is provided in Note 51 Share based payment.
Other administrative expenses
Other administrative expenses include information technology expenses, expenses for office space, office operating expenses, advertising and marketing, expenditures for legal and other consultants.
Depreciation and amortisation
This line item comprises depreciation of property and equipment, depreciation of investment property, depreciation of right of use assets and amortisation of intangible assets.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
100
GROUP
BANK
in HRK million
2021
2022
2021
2022
Personnel expenses
(779)
(860)
(581)
(670)
Wages and salaries
(669)
(741)
(498)
(575)
Compulsory social security
(100)
(98)
(75)
(77)
Long-term employee provisions
(2)
(1)
(2)
(2)
Other personnel expenses
(8)
(20)
(6)
(16)
Other administrative expenses
(611)
(699)
(457)
(550)
Deposit insurance contribution
(14)
(57)
(5)
(45)
IT expenses
(228)
(247)
(221)
(251)
Expenses for office space
(85)
(90)
(69)
(75)
Office operating expenses
(128)
(147)
(60)
(75)
Advertising/marketing
(79)
(81)
(50)
(49)
Legal and consulting costs
(65)
(60)
(43)
(43)
Sundry administrative expenses
(12)
(17)
(9)
(12)
Depreciation and amortisation
(250)
(246)
(143)
(154)
Software and other intangible assets
(70)
(74)
(39)
(47)
Owner occupied real estate
(40)
(39)
(32)
(33)
Movable other property
(52)
(47)
-
-
Investment Properties
-
-
-
-
Office furniture and equipment and sundry property and equipment
(88)
(86)
(72)
(74)
General administrative expenses
(1,640)
(1,805)
(1,181)
(1,374)
The Group does not have pension arrangements separate from the State pension system of Croatia. This system requires that current contributions by the employer are calculated as a percentage of current gross salary payments; these expenses are charged to the statement of profit or loss in the period in which the related compensation is earned by the employee. In 2022 expense amount for pension contributions was HRK 112 million for the Group (2021: HRK 111 million) and HRK 94 million for the Bank (2021: HRK 81 million).
More detailed information about depreciation and amortisation is provided in Note 39 and Note 40.
9.Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
This line item includes derecognition gains or losses on financial assets measured at fair value through other comprehensive income, financial liabilities measured at amortised cost and other financial instruments not measured at fair value through profit or loss, such as finance lease receivables or financial guarantees.
However, if such gains/losses relate to financial assets in Stage 3 they are reported under the line ‘Impairment result from financial instruments’.
Notes to the financial statements
Year ended 31 December 2022
101
Erste&Steiermärkische Bank d.d.
Net impairment losses on financial instruments comprise impairment losses and reversals of impairment on all financial instruments to which the IFRS 9 expected credit loss model applies. The impairment result also includes direct write-offs and recoveries on written-off financial assets. Modification gains and losses recognised on financial assets in Stage 2, Stage 3 and POCI assets are also included in this line item.
GROUP
BANK
in HRK million
2021
2022
2021
2022
Financial assets at FVOCI
(9)
13
(8)
12
Financial assets at AC
8
501
31
450
Net allocation to credit loss allowances
(72)
392
(29)
367
Direct write-offs
(9)
(4)
(2)
(1)
Recoveries recorded directly to the income statement
90
113
63
84
Modification gains or losses
(1)
-
(1)
-
Finance lease receivables
(6)
18
-
-
Net allocation to credit loss allowances
(6)
18
-
-
Net allocation of credit loss allowances for loan commitments and financial guarantees given
(160)
(214)
(167)
(214)
Impairment result from financial instruments
(167)
318
(144)
248
Credit loss allowances
GROUP
in HRK million
Impairment result of financial instruments
Other changes through profit or loss
Changes not affecting profit or loss
Total
Credit loss allowances Jan 22
(3,453)
Net allocation to credit loss allowances
181
181
Increase due to passage of time (unwinding correction)
(16)
(16)
Derecognition due to sales
41
41
Write-offs
466
466
Changes in scope of consolidation
(5)
(5)
Foreign exchange differences
(1)
(1)
Other
(8)
(8)
Credit loss allowances Dec 22
(2,795)
Impairment gain/(loss) from POCI without CLA
28
Direct write-offs
(4)
Recoveries recorded directly to the income statement
113
Modification gains or losses
-
Impairment result from financial instruments
318
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
102
Reconciliation of the annual movement in credit loss allowances against the impairment result from financial instruments for the year (continued)
Credit loss allowances
GROUP
in HRK million
Impairment result of financial instruments
Other changes through profit or loss
Changes not affecting profit or loss
Total
Credit loss allowances Jan 21
(3,661)
Net allocation to credit loss allowances
(318)
(318)
Increase due to passage of time (unwinding correction)
(21)
(21)
Derecognition due to sales
-
-
Write-offs
530
530
Changes in scope of consolidation
-
-
Foreign exchange differences
1
1
Other
16
16
Credit loss allowances Dec 21
(3,453)
Impairment gain/(loss) from POCI without CLA
71
Direct write-offs
(9)
Recoveries recorded directly to the income statement
90
Modification gains or losses
(1)
Impairment result from financial instruments
(167)
Credit loss allowances
BANK
in HRK million
Impairment result of financial instruments
Other changes through profit or loss
Changes not affecting profit or loss
Total
Credit loss allowances Jan 22
(2,924)
Net allocation to credit loss allowances
137
137
Increase due to passage of time (unwinding correction)
(8)
(8)
Derecognition due to sales
1
1
Write-offs
428
428
Changes in scope of consolidation
-
-
Foreign exchange differences
-
-
Other
(7)
(7)
Credit loss allowances Dec 22
(2,373)
Impairment gain/(loss) from POCI without CLA
28
Direct write-offs
(1)
Recoveries recorded directly to the income statement
84
Modification gains or losses
-
Impairment result from financial instruments
248
Credit loss allowances
BANK
in HRK million
Impairment result of financial instruments
Other changes through profit or loss
Changes not affecting profit or loss
Total
Credit loss allowances Jan 21
(3,125)
Net allocation to credit loss allowances
(274)
(274)
Increase due to passage of time (unwinding correction)
(13)
(13)
Derecognition due to sales
-
-
Write-offs
486
486
Changes in scope of consolidation
-
-
Foreign exchange differences
-
-
Other
2
2
Credit loss allowances Dec 21
(2,924)
Impairment gain/(loss) from POCI without CLA
70
Direct write-offs
(2)
Recoveries recorded directly to the income statement
63
Modification gains or losses
(1)
Impairment result from financial instruments
(144)
Notes to the financial statements
Year ended 31 December 2022
103
Erste&Steiermärkische Bank d.d.
The other operating result reflects all other income and expenses not directly attributable to the Bank’s and the Group’s ordinary activities.
In particular this includes impairment losses or any reversal of impairment losses as well as results on the sale of property and equipment, investment property and intangible assets. Any impairment losses on goodwill are also included in this line item.
In addition, other operating result encompasses the following: expenses for other taxes and certain regulatory charges, income from the release of and expenses for allocations to provisions, impairment losses (and their reversal if any) as well as selling gains and losses on equity investments accounted for using the equity method and gains or losses from derecognition of subsidiaries.
GROUP
BANK
in HRK million
2021
2022
2021
2022
Other operating expenses
(210)
(407)
(210)
(341)
Allocation to other provisions
(101)
(243)
(100)
(178)
Other taxes
(2)
(2)
(1)
(1)
Recovery and resolution fund contributions
(26)
(35)
(26)
(34)
Impairment of goodwill
(48)
(125)
-
-
Impairment of investment in subsidiaries
-
-
(48)
(125)
Result from properties/movables/other intangible assets other than goodwill
(33)
(2)
(35)
(3)
Other operating income
201
78
197
70
Release of other provisions
184
53
182
53
Result from other operating expenses/income
17
25
15
17
Other operating result
(9)
(329)
(13)
(271)
In Result of properties / movable’s / other intangible assets other than goodwill, the impairment losses of property, plant and equipment, investment property, intangible asset and foreclosed assets are included.
More detailed information about impairment of foreclosed asset is provided in Note 41 Other assets.
In the line ‘Recovery and resolution fund contributions’ contributions to the national resolution funds payable in 2022 in the amount of HRK 35 million for the Group and HRK 34 million the Bank (2021: HRK 26 million) are disclosed. The contributions are based on the European Recovery and Resolution Directive, which, inter alia, establishes a financing mechanism for the resolution of credit institutions. According to these regulations, until 31 December 2024 the available financial means to resolution funds shall reach at least 1% of the amount of covered deposits of all the credit institutions authorized within the European Union. As a consequence, banks are required to contribute annually to a resolution fund
Impairment of goodwill and Impairment of investment in subsidiaries
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
104
12.Income tax
Income tax comprises of current and deferred tax.
Current tax
Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those enacted by the statement of financial position date.
Deferred tax
Deferred tax is recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts as of the balance sheet date. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, including deductible temporary differences arising from impairment in investments in subsidiaries and associates and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carry forward of unused tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as at balance sheet date and are expected to apply when the temporary differences are reversed. For the subsidiaries, the local tax environments are considered.
Deferred tax relating to items recognised in other comprehensive income is recognised in other comprehensive income and not in the statement of profit or loss.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right to offset exists and the deferred taxes relate to the same taxation authority.
Income tax are made up of current income taxes calculated in each of the Group companies based on the results reported for tax purposes, corrections to income tax for previous years, if any, and the change in deferred taxes.
GROUP
BANK
in HRK million
2021
2022
2021
2022
Current tax expense / income
(196)
(393)
(164)
(353)
Current period
(196)
(393)
(164)
(353)
Deferred tax expense / income
(32)
22
(21)
35
Current period
(32)
22
(21)
35
Total
(228)
(371)
(185)
(318)
The following table reconciles the income taxes reported in the statement of profit or loss to the pre-tax profit/loss multiplied by the nominal Croatian tax rate of 18% (2021: 18%).
GROUP
BANK
in HRK million
2021
2022
2021
2022
Pre-tax profit
1,297
1,543
1,032
1,295
Income tax expense for the financial year at the domestic statutory tax rate
(232)
(277)
(186)
(233)
Impact of different foreign tax rates
4
-
-
-
Impact of tax-exempt earnings of investments and other tax-exempt income
2
4
2
9
Tax increases due to non-deductible expenses, additional business tax and similar elements
(2)
(7)
(1)
(3)
Tax income/(expense) attributable to other effects
-
(91)
-
(91)
Total
(228)
(371)
(185)
(318)
Effective tax rate
18%
24%
18%
25%
Notes to the financial statements
Year ended 31 December 2022
105
Erste&Steiermärkische Bank d.d.
12.Income tax (continued)
In December 2022 the Government introduced the Law on Additional income tax (so-called windfall tax) recognised under the line Tax expense attributable to other effects. The Additional income tax is applicable only for one tax period, namely for the year 2022, to all companies regardless of the type of performed business activity with revenues in excess of HRK 300 million in 2022. The basis for calculating Additional income tax is the positive difference between the taxable profit for 2022 and the average taxable profit in periods 2018-2021 increased by 20%. The tax rate is 33% and the due tax should be paid until end of April 2023. Tax expense attributable to the Additional income tax for the Bank in 2022 amounts to HRK 91 million.
Major components of deferred tax assets and deferred tax liabilities
GROUP
Tax assets
Tax liabilities
Net variance 2022
in HRK million
As of Dec 2022
As of Dec 2021
As of Dec 2022
As of Dec 2021
Total
Through profit or loss
Through other equity
Through other comprehensive income
Temporary differences related to the following items:
Trading Assets / Liabilities and Designation at fair value through Profit or Loss
32
10
-
-
22
22
-
-
Financial assets at fair value through other comprehensive income
147
-
-
(31)
178
-
-
178
Financial assets at amortised cost & trade & other receivables
38
52
-
-
(14)
(14)
-
-
Property and equipment (useful life in tax law different)
-
-
(3)
(5)
2
2
-
-
Impairment of investments in subsidiaries
122
98
-
-
24
24
-
-
Long-term employee provisions (tax valuation different)
1
1
-
-
-
-
-
-
Other provisions (tax valuation different)
9
3
-
-
6
6
-
-
Tax loss carry-forward
-
-
-
-
-
-
-
-
Other
58
76
-
-
(18)
(18)
-
-
Effect of netting according IAS 12.71
(3)
(33)
3
33
-
-
-
-
Total deferred taxes
404
207
-
(2)
200
22
-
178
Current taxes
7
-
(251)
(92)
(393)
(393)
-
-
Total taxes
411
207
(251)
(94)
(193)
(371)
-
178
GROUP
Tax assets
Tax liabilities
Net variance 2021
in HRK million
As of Dec 2021
As of Dec 2020
As of Dec 2021
As of Dec 2020
Total
Through profit or loss
Through other equity
Through other comprehensive income
Temporary differences related to the following items:
Trading Assets / Liabilities and Designation at fair value through Profit or Loss
10
19
-
-
(9)
(9)
-
-
Financial assets at fair value through other comprehensive income
-
-
(31)
(78)
47
-
22
25
Financial assets at amortised cost & trade & other receivables
52
60
-
-
(8)
(8)
-
-
Property and equipment (useful life in tax law different)
-
-
(5)
(1)
-
-
-
-
Impairment of investments in subsidiaries
98
86
-
-
12
12
-
-
Long-term employee provisions (tax valuation different)
1
1
-
-
-
-
-
-
Other provisions (tax valuation different)
3
3
-
-
-
-
-
-
Tax loss carry-forward
-
26
-
-
(26)
(26)
-
-
Other
76
77
-
-
(1)
(1)
-
-
Effect of netting according IAS 12.71
(33)
(75)
33
75
-
-
-
-
Total deferred taxes
207
197
(2)
(4)
15
(32)
22
25
Current taxes
-
123
(92)
(6)
(196)
(196)
-
-
Total taxes
207
320
(94)
(10)
(181)
(228)
22
25
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
106
BANK
Tax assets
Tax liabilities
Net variance 2022
in HRK million
As of Dec 2022
As of Dec 2021
As of Dec 2022
As of Dec 2021
Total
Through profit or loss
Through other equity
Through other comprehensive income
Temporary differences related to the following items:
Trading Assets / Liabilities and Designation at fair value through Profit or Loss
32
10
-
-
22
22
-
-
Financial assets at fair value through other comprehensive income
140
-
-
(31)
171
-
-
171
Financial assets at amortised cost & trade & other receivables
13
13
-
-
-
-
-
-
Impairment of investments in subsidiaries
115
90
-
-
25
25
-
-
Long-term employee provisions (tax valuation different)
1
1
-
-
-
-
-
-
Other provisions (tax valuation different)
1
1
-
-
-
-
-
-
Tax loss carry-forward
-
-
-
-
-
-
-
-
Other
36
48
-
-
(12)
(12)
-
-
Effect of netting according IAS 12.71
-
(31)
-
31
-
-
-
-
Total deferred taxes
338
132
-
-
206
35
-
171
Current taxes
-
-
(230)
(74)
(353)
(353)
-
-
Total taxes
338
132
(230)
(74)
(147)
(318)
-
171
BANK
Tax assets
Tax liabilities
Net variance 2021
in HRK million
As of Dec 2021
As of Dec 2020
As of Dec 2021
As of Dec 2020
Total
Through profit or loss
Through other equity
Through other comprehensive income
Temporary differences related to the following items:
Trading Assets / Liabilities and Designation at fair value through Profit or Loss
10
19
-
-
(9)
(9)
-
-
Financial assets at fair value through other comprehensive income
-
-
(31)
(75)
44
-
21
23
Financial assets at amortised cost & trade & other receivables
13
14
-
-
(1)
(1)
-
-
Impairment of investments in subsidiaries
90
77
-
-
13
13
-
-
Long-term employee provisions (tax valuation different)
1
1
-
-
-
-
-
-
Other provisions (tax valuation different)
1
1
-
-
-
-
-
-
Tax loss carry-forward
-
26
-
-
(26)
(26)
-
-
Other
48
46
-
-
2
2
-
-
Effect of netting according IAS 12.71
(31)
(75)
31
75
-
-
-
-
Total deferred taxes
132
110
-
-
23
(21)
21
23
Current taxes
-
112
(74)
-
(164)
(164)
-
-
Total taxes
132
222
(74)
-
(141)
(185)
21
23
Notes to the financial statements
Year ended 31 December 2022
107
Erste&Steiermärkische Bank d.d.
Accounting and measurement methods for financial instruments
A financial instrument is any contract giving rise to a financial asset of one party and a financial liability or equity instrument of another party.
In accordance with IFRS 9, all financial assets and liabilities – which also include derivative financial instruments – have to be recognised on the statement of financial position and measured in accordance with their assigned categories.
Measurement of financial assets and financial liabilities is subject to two primary measurement methods: at amortised cost and fair value.
i.Amortised cost and effective interest rate
Amortised cost of the financial asset is the amount at which a financial asset or a financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. Gross carrying amount of the financial asset is the amortised cost of the financial asset before adjustment for loss allowances.
The effective interest method is a method of calculating the amortised cost of the 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 gross carrying amount of the financial asset or net carrying amount of financial liability. The effective interest rate is calculated on initial recognition of an instrument. For floating rate financial instruments, periodic reestimation of cash flows to reflect movements in market rates of interest, alters the effective interest rate.
When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but shall not consider expected credit losses. The calculation includes origination fees that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts to the par amount.
The effective interest rate is used for recognition of interest income. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for:
1)Purchased or originated credit-impaired financial assets (POCI). For POCI financial assets, the credit-adjusted effective interest rate is applied to the amortised cost of the financial asset from initial recognition (see part ‘Impairment of financial instruments’). The credit-adjusted interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial asset to the amortised cost of the financial asset that is purchased or originated credit-impaired financial asset. When calculating the credit-adjusted effective interest rate, the Group estimates the expected cash flows by considering expected credit losses as well.
2)Financial assets that are not purchased or originated credit-impaired but subsequently have become credit-impaired. For credit-impaired financial assets, the Group applies the effective interest rate to the amortised cost of the financial asset in subsequent reporting periods as long as the asset remains credit-impaired (see part ‘Impairment of financial instruments’).
ii.Fair value
Fair value is defined as the price that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Details on valuation techniques applied for fair value measurement and on the fair value hierarchy are disclosed in Note 22Fair value of financial instruments.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
108
i.Initial recognition
Financial instruments are initially recognised when the Group becomes a party to the contractual provisions of the instrument.
Regular way (spot) purchases and sales of financial assets are recognized at the settlement date (settlement date accounting), which is the date when the asset is delivered. Settlement date accounting refers to the recognition of an asset on the day it is received by the Group; and the derecognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the Group. Even when the settlement date method is used, for financial assets measured at fair value the change in FV is accounted for in respect of trade dates. The trade date is the date that the Group commits itself to purchase or sell an asset. Effect of fair value changes is recognized in profit or loss for financial assets measured at fair value through profit or loss or in other comprehensive income for financial assets measured at fair value through other comprehensive income.
ii.Initial measurement
Financial instruments are measured initially at their fair value including transaction costs that are directly attributable to the acquisition of financial instruments. In case of financial instruments at fair value through profit or loss, however, transaction costs are recognised directly in profit or loss. In most cases, the fair value at initial recognition equals the transaction price, i.e., the price transferred to originate or acquire a financial asset, or the price received to issue or incur a financial liability.
Classification and subsequent measurement of financial assets
In accordance with IFRS 9, the classification and subsequent measurement of financial assets depends on the following two criteria:
i.The business model for managing the financial assets – the assessment is focused on whether the financial asset is part of a portfolio in which the assets are held in order to collect contractual cash flows, to both collect the contractual cash flows and sell the assets or they are held in other business model.
ii.The cash flow characteristics of the financial assets – the assessment is focused on whether the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (‘SPPI’) on the principal amount outstanding. For further details refer to part ‘Characteristics of contractual cash flows (SPPI test)’ in this chapter.
Business models for managing the financial assets
The business model is determined at a level which reflects how groups of financial assets are managed together to achieve a particular business objective. The assessment is focused on whether the assets are held in order to collect contractual cash flows, to both collect contractual cash flows and sell financial assets or sell financial assets.
Business model is determined by the key management personnel and it does not depend on management’s intentions for an individual instrument. Accordingly, this condition is not an instrument-by-instrument approach to classification and it is determined on a higher level of aggregation.
Furthermore, business model can be observed by the way an entity is managed and information is provided to its management. The main criteria for performing the assessment stated in this paragraph can be grouped as follows:
_How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity’s key management personnel;
_The risks that affect the performance of the business model (and the financial assets held within that business model) and in particular, the way in which those risks are managed; and
_How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected).
Notes to the financial statements
Year ended 31 December 2022
109
Erste&Steiermärkische Bank d.d.
Classification and subsequent measurement of financial assets (continued)
The Group, based on the assessment performed in accordance with the IFRS 9 requirements, defined its business models:
1)Business model ‘hold to collect’ for entire loan portfolio (client business), for which hold-to-collect assessment of the sales within hold to collect contractual cash flows business model is performed on a yearly basis. From the Group’s point of view, sales due to increases in credit risk, sales close to assets’ maturity, infrequent sales triggered by a non-recurring event (such as changes in regulatory or tax environment, major internal reorganisation or a business combination, severe liquidity crisis, etc.) are considered as not contradicting the hold to collect contractual cash flows business model.
Other cases of sales carried out in the ‘hold to collect’ business model are assessed retrospectively, and if they exceed certain quantitative thresholds, where the carrying amount of the sold assets held within the hold to collect portfolio measured at amortised cost is:
> 1% of the moving average carrying amount of the portfolio in the respective period over last 3 months,
> 3% of the moving average carrying amount of the portfolio in the respective period over last 12 months or
> 5% of the moving average carrying amount of the portfolio in the respective period over last 36 months), OR
it is considered necessary with regard to new managements expectations that the threshold in the prospective assessment could be breached, the Group performs a prospective test.
If the outcome is that the carrying amount of assets expected to be sold over the expected life of the current business model portfolio, for reasons other than the cases above, exceeds 10% of the carrying amount of the portfolio, any new acquisitions or originations of assets would be classified in a different business model.
2)Business models ‘hold to collect’, ‘hold and sell’ and other business models for securities (non-client business).
For sales of securities held under business model “hold to collect” a hold-to-collect assessment is performed as explained above for the loan portfolio.
In accordance with IFRS 9 there are three business models defined:
_Business model ‘Hold to collect’: The primary objective of this business model is to hold the financial asset in order to collect the contractual cash flows arising from it.
_Business model ‘Hold and Sell’: The primary objective of this business model is that the financial asset is held in order to generate cash flows through both, collecting contractual cash flows and selling the financial asset.
_Other business model (Trading and FVTPL portfolio): This model includes all financial assets that are not held within a business model whose objective is to hold assets in order to collect contractual cash flows or within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets. The objective of this model is maximising the cash flows by selling the financial assets. Typical example of such model is the ‘held for trading’ classification category.
Characteristics of contractual cash flows (SPPI test)
As required by IFRS 9, the Group performs the assessment of whether the contractual cash flows of financial assets give rise, on specific dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI test).
The Group, based on this assessment, and taking into account the business model under which the financial asset is managed, determines the classification and measurement category of financial assets.
The SPPI assessment is an instrument-by-instrument assessment meaning the cash flow characteristics of the financial asset shall be assessed on a contractual level.
Generally, contractual cash flows that are solely payments of principal and interest (‘SPPI’) on the principal amount outstanding are consistent with a basic lending arrangement. In the basic lending arrangement, consideration for the time value of money and credit risk are typically the most significant elements of interest. Interest can also include following basic elements:
Interest = Consideration for time value of money + Credit Spread + Admin costs + Compensation for any ‘other basic lending risks’ + Reasonable profit margin.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
110
If the contractual terms include characteristics that are not the basic elements of interest and therefore introduce exposure to risks or volatility in the contractual cash flows that are unrelated to basic lending arrangement, then financial asset fails the
SPPI test. For financial assets not passing the SPPI test, measurement at amortised cost or at fair value through other comprehensive income is not possible and the assets must be measured at fair value through profit or loss.
Furthermore, the significance of any ‘modifications’ to the time value of money element of interest (e.g. mismatch between interest rate reset frequency and tenor of the interest rate, or non-standard base rate, etc.) shall be assessed by applying the ‘benchmark test’.
The purpose of the benchmark test is to determine whether the modified time value of money element could result in contractual (undiscounted) cash flows which are significantly different from the (undiscounted) benchmark cash flows (benchmark deal). Apart from the interest mismatch features, the terms of this benchmark deal correspond to the asset in the test. If the difference is material, the financial asset does not meet the SPPI condition. Hence, the fair value through profit or loss measurement applies.
To make this determination, the Group must consider the effect of the modified time value of money element in each reporting period and cumulatively over the life of the financial instrument.
Application of the business model and SPPI test criteria leads to classification of financial assets into the following measurement categories described in the respective note:
1)Financial assets at amortised cost (AC)
2)Financial assets at fair value through other comprehensive income (FVOCI)
3)Financial assets at fair value through profit or loss (FVPL)
Classification and subsequent measurement of financial liabilities
Financial liabilities are classified as measured at amortised cost, except for:
_Financial liabilities at fair value through profit or loss
_Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition
_Financial guarantee contracts
_Commitments to provide a loan at a below-market interest rate
_Contingent consideration recognised by an acquirer in a business combination to which IFRS 3 applies.
Impairment of financial instruments under IFRS 9
Expected credit loss model is more forward-looking impairment model, meaning a credit event (or impairment ‘trigger’) no longer has to occur before credit losses are recognised. Therefore, the measurement of expected credit losses is performed at origination/purchase of a financial instrument and credit losses are recognised at its initial recognition. Main characteristic of the model is that all reasonable and supportable information that is available to the Group considering past due information, current conditions and forward-looking information are used for expected credit loss measurement. This model applies to all financial instruments that are subject to impairment, regardless of the type of the instrument or its measurement category.
The following financial instruments are included within the scope of IFRS 9 impairment requirements:
_Financial assets measured at amortised cost
_Financial assets measured at fair value through other comprehensive income (except equity instruments)
_Other debt instruments in the scope of IFRS 9 impairment requirements (finance/operating lease receivables, trade and other receivables, contract assets)
_Loan commitments given
_Financial guarantees contracts to which IFRS 9 applies
Notes to the financial statements
Year ended 31 December 2022
111
Erste&Steiermärkische Bank d.d.
Impairment of financial instruments under IFRS 9 (continued)
12-month expected credit loss is the portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date.
Lifetime expected credit loss is defined as the expected credit losses that result from all possible default events over the expected life of a financial instrument.
For financial instruments in scope of IFRS 9 impairment requirements, the Group always recognises (at a minimum) the loss allowance in the amount of 12-month expected credit loss in profit or loss. Loss allowance in the amount of the lifetime expected losses is recognised on instruments for which there is a significant increase in credit risk since initial recognition or on credit impaired financial instruments.
Loss allowance is the way the expected credit losses are reflected in accounting:
_as the allowance for expected credit losses on financial assets measured at amortised cost, lease receivables or contract assets, booked on a separate account decreasing the carrying amount of the asset, included in the net carrying amount of the financial assets on the statement of financial position;
_as the accumulated impairment amount for financial assets measured at fair value through other comprehensive income recognized against other comprehensive income (not decreasing the carrying amount of the asset), reported under the line item ‘Fair value reserve’; or
_as the provision (liability) for loan commitments and financial guarantees given, reported under the line item ‘Provisions’ in the statement of financial position.
In the statement of profit or loss, impairment losses and their reversals (gains) on all types of financial instruments are reported under the line item ‘Impairment result from financial instruments’.
When a financial asset subsequently becomes credit-impaired financial asset, the interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset in subsequent reporting periods as long as the asset is credit-impaired. From balance sheet perspective, interest is accrued based on the financial assets’ gross carrying amount. The difference between the interest accrued on the assets and the interest income recognised is reflected through the allowance account (without impacting the impairment loss).
For financial assets that are credit-impaired at initial recognition (POCI financial assets) lifetime expected credit losses are initially reflected in the credit-adjusted effective interest rate. Subsequently, only adverse changes in lifetime expected credit losses after the initial recognition are recognised as loss allowance, whilst favourable changes are recognised as impairment gains increasing the gross carrying amount of the POCI financial assets. No impairment stages are distinguished for the POCI financial assets.
As previously mentioned, financial guarantees and loan commitments fall under the scope of IFRS 9 impairment model. For loan commitments and financial guarantees, the date that the Group becomes a party to the irrevocable commitment is the date of initial recognition for impairment purposes. Provisions for expected credit losses are not reversed when recognising the financial asset resulting from the loan commitment. Instead, the amount previously recognised as provision is transferred to the loss allowance, with only the difference up to the newly calculated loss allowance for resulting financial asset recognised in profit or loss as allocation or release of allowance (except for POCI).
Stages of credit quality of financial instruments
The three-stage approach for impairment of financial instruments, based on whether there has been a significant deterioration in the credit risk of the financial asset is defined. The stage of the financial instrument determines the amount of expected credit loss to be recognised as well as the amount of interest revenue recognised for the period:
Stage 1
_credit risk for the financial instrument has not increased significantly since initial recognition
_the loss allowance (or provision): at an amount equal to 12-month expected credit loss
_interest revenue: recognised based on the gross carrying amount of the financial asset
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
112
Stage 2
_credit risk for the financial instrument has significantly increased since initial recognition
_the loss allowance (provision): at an amount equal to lifetime expected credit loss
_interest revenue: recognised based on the gross carrying amount of the financial asset
Stage 3
_financial instrument is identified as credit-impaired
_the loss allowance (provision): at an amount equal to lifetime expected credit loss
_interest revenue: recognised based on the net carrying amount (amortised cost) of the financial asset
Measurement of expected credit losses reflects cash flows expected from collateral and those financial guarantees held by Group which are considered as integral to the contractual terms of financial assets whose risk is guaranteed. Group considers as integral those guarantees which are entered into at or close to the inception of the guaranteed financial assets. If the bank has in a loan contract an option to require provision of a guarantee, it is also considered as integral. Premiums paid for integral financial guarantees and other credit enhancements are considered in the EIR of the related financial assets.
Financial guarantees which are not considered integral are recognised as reimbursement assets under ‘Other assets’ in the balance sheet. In the statement of profit or loss they reduce the impairment loss incurred on guaranteed financial assets under ‘Impairment result from financial instruments’. A precondition for this treatment is that it must be virtually certain that the guarantee would reimburse the bank for the loss. Premiums paid for non-integral financial guarantees are presented in the statement of income under the line item ‘Fee and commission expense’ under ‘Net fee and commission income’.
Derecognition of financial instruments including treatment of contractual modifications
(i) Derecognition of financial assets
A financial asset (or, where applicable, part of a financial asset or part of a group of similar financial assets) is derecognised when:
_the contractual rights to receive cash flows from the asset have expired; or
_the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement and either:
_it has transferred substantially all risks and rewards connected with ownership of the asset; or
_has neither transferred nor retained substantially all risks and rewards connected with ownership of the asset but has transferred control of the asset.
The difference between the carrying amount of the derecognised asset and the consideration received is reported in the statement of profit or loss under the line item ‘Gains/losses from derecognition of financial assets measured at amortised cost’ or, for financial assets at fair value through other comprehensive income, under the line item ‘Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss’.
For financial assets measured at fair value through profit or loss, the derecognition gains or losses are reported together with the measurement result under the line item ‘Net trading result’ or ‘Gains/losses from financial instruments measured at fair value through profit or loss’.
(ii) Derecognition criteria with respect to contractual modifications of financial assets
In the normal course of running its lending business and in agreement with the respective debtors, the Group may renegotiate or otherwise modify some terms or conditions of the underlying contracts. This can involve either market-driven commercial renegotiations or contractual changes aimed at alleviating or preventing borrower’s financial difficulty.
Notes to the financial statements
Year ended 31 December 2022
113
Erste&Steiermärkische Bank d.d.
Derecognition of financial instruments including treatment of contractual modifications (continued)
The Group has developed a set of derecognition criteria that reflect modifications which are (either quantitatively or qualitatively) substantial enough, to satisfy the derecognition trigger:
_The modification results in a change of the contractual counterparty
_The modification results in one (or more) preceding contractual agreement(s) being changed in any of the following manners: currency change, the modification involves the introduction or removal of one or more contractual clauses which would trigger different IFRS 9 classification/measurement of a new instrument, the modification results in adjustment of the maturity/due dates of the repayment schedule, the modification results in changing amounts and/or due dates of the contractually due cash flows, and the arising modification loss/gain exceeds 10% of asset’s gross carrying amount outstanding at the current modification date.
_The modification results from a commercial renegotiation of a performing non-forborne lending agreement and is initiated by a customer seeking for better terms and conditions as alternative to re-financing or early termination (prepayment).
As already mentioned, contractual modifications leading to derecognition of the related original asset result in the initial recognition of a new financial asset. For loans measured at amortised cost, the unamortised balance of the origination fees/transaction costs considered in the effective interest rate is presented in the line item ‘Interest income’ under ‘Net interest income’ at the derecognition date. The release of the credit loss allowance attached to the original asset at the date of that significant modification as well as the credit loss allowance recognised for the new asset are presented in the line item ‘Impairment result from financial instruments’.
If the debtor is in default or the significant modification leads to the default, new asset is treated as POCI. The difference between the carrying amount of the derecognised asset and initial fair value of the new POCI asset is reported in the statement of profit or loss in the line item ‘Impairment result from financial instruments’.
Modifications of contractual cash flows not leading to derecognition of financial asset represent all contractual changes which affect amount and/or repayment schedule of the remaining contractual cash flows but do not lead to derecognition.
For debt instruments assets not measured at FVPL that are subject to a change in underlying cash flows due to contractual modifications that do not result in derecognition, the Group is obliged to recalculate the gross carrying amount of the financial asset and recognise a modification gain or loss in profit or loss. The gross carrying amount of the financial asset is recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset’s original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets):
_Modification loss: if the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset’s original effective interest rate is lower than the gross carrying amount of the financial asset before the modification
_Modification gain: if the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset’s original effective interest rate is higher than the gross carrying amount of the financial asset before the modification.
In the statement of profit or loss, the modification gain or loss is presented in the line item ‘Interest income’ under ‘Net interest income’ if the modification relates to financial assets in Stage 1. For financial assets in Stage 2 and 3 and POCI financial assets, the modification gain or loss is presented in the line item ‘Impairment result from financial instruments’.
(iii) Write-off
If there are no reasonable expectations of recovery, the Group will write-off the gross carrying amount of the financial assets. The written-off amount can be either full write-off or partial write-off.
A write-off constitutes a derecognition event and it is recognized as an offset between the loss allowance booked for the respective financial asset and its gross carrying amount.
The Group has specified criteria for writing off the unrecoverable balances in its loan business:
Write-off can result from forbearance measures whereby the Group contractually waives part of the existing balance in order to help the customers overcome financial difficulties and thus improve the prospects of recovering the remaining loan balance.
Write-offs of the unrecoverable exposure parts can be triggered by enforcement activities such as filing or termination of legal proceedings (bankruptcy, liquidation, court case).
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
114
Other write-off triggers may result from decisions about no enforcement due to worthlessness of the claim/collateral or generally from assessment that the receivable is economically lost or, the non-recoverability and the timing and amounts of write-off crystallise during the collection process when it becomes evident that the amount due cannot be collected, e.g. due to ongoing bankruptcy proceedings. For more information on Forbearance please refer to Note 34 Restructuring, renegotiation and forbearance.
(iv) Derecognition of financial liabilities
A financial liability (or part of a financial liability) is derecognised, when and only when it is extinguished, when the obligation specified in the contract is discharged or cancelled or expired.
In the statement of profit or loss, the difference between the carrying amount of the derecognised financial liability and the consideration paid is presented in the line item ‘Other gains/losses from financial instruments not measured at fair value through profit or loss‘, ‘Gains/losses from financial instruments measured at fair value through profit or loss’ and ‘Net trading result’ depending on the measurement category of the derecognised financial liability.
Significant accounting judgements, assumptions and estimates
Impairment of financial instruments
The expected credit loss impairment model is inherently based on judgement since it requires assessment of significant increase in credit risk and measurement of expected credit losses without providing detailed guidance. In respect of significant increase in credit risk, the Group has determined specific assessment rules consisting of qualitative information and quantitative thresholds. Another area of complexity relates to establishing groups of similar assets when credit risk deterioration has to be assessed on a collective basis before specific information is available at individual instrument level. Measurement of expected credit losses involves complex models relying on historical statistics of probabilities of default and loss rates in case of defaults, individual estimates of credit-adjusted cash flows and probabilities of various scenarios including forward-looking information. In addition, the life of the instruments has to be modelled in respect of behavioural life of revolving credit facilities.
Detailed disclosures are provided in chapter Risk management. For further information on the definition of default refer to Note 31 Measurement of expected credit loss.
Notes to the financial statements
Year ended 31 December 2022
115
Erste&Steiermärkische Bank d.d.
Non derivative financial assets are measured at amortised cost if both of the following conditions are met:
_The financial asset is held within a business model whose objective is to collect contractual cash flows; and
_The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets measured at amortised cost include debt securities and loans and advances that do meet the conditions stated above as well as trade receivables and other receivables and cash and cash balances. On the statement of financial position, they are presented under the line item ‘Financial assets at amortised cost’, ‘Trade and other receivables’ and ‘Cash and cash balances’.
Gains and losses, resulting from subsequent measurement of financial assets measured at amortised cost, are recognised as follows:
_Interest income is recognised in profit or loss, by using effective interest rate method, and presented in the line item ‘Interest income’ under ‘Net interest income’ in the statement of profit or loss
_Allowances for expected credit loss (gains and losses) are recognised in profit or loss, and presented in the line item ‘Impairment result from financial instruments’ in the statement of profit or loss
_Gains and losses resulting from foreign currency exchange differences are recognised in profit or loss and presented in the line item ‘Net trading and fair value result’ in the statement of profit or loss.
Realised gains or losses from derecognition of the assets are recognised in profit or loss for the period and presented in the line item ‘Gains/losses from derecognition of financial assets measured at amortised cost’.
Financial assets at amortised cost constitute the largest measurement category in the Group, which includes the loan business to customers, interbank lending business, deposits with central bank, trade and other receivables, investment in debt securities.
For description of financial liabilities measured at amortised cost refer to Note 16.
13.Cash and cash balances
GROUP
BANK
in HRK million
2021
2022
2021
2022
Cash on hand
3,052
3,135
2,831
2,792
Cash balances at central banks
11,036
22,177
10,577
21,661
Other demand deposits
442
670
110
179
Cash and cash balances
14,530
25,982
13,518
24,632
For the Statement of Cash flow for the year ended 31 December 2022, cash and cash equivialents at the end of period 2022 and 2021 for the Group and for the Bank are equal to cash and cash balance
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
116
The line item ‘Financial assets at amortised cost’ is further broken down into ‘Debt securities’, ‘Loans and advances to banks’ and ‘Loans and advances to customers’. For details regarding the development of credit loss allowances please refer to Note 32.
Debt securities
Investments in debt securities measured at amortised cost may be acquired with different business objectives (such as fulfilling internal/external liquidity risk requirements and efficient placement of the structural liquidity surplus, strategic positions decided by the board of directors, initiation and fostering of client relationships, substitution of loan business or other yield generating activities). Their common attribute is that significant and frequent sales of such securities are not expected. For a description of what sales are considered as compliant with the hold to collect contractual cash flows business model, see paragraph ‘Initial recognition and measurement’ in chapter ‘Financial instruments - Significant accounting policies’.
The analysis of the gross carrying amount (GCA) and of related credit loss allowances (CLA) of Group’s and Bank’s debt securities per impairment buckets as of 31 December 2022 and 31 December 2021 is provided in the table below.
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
2022
General governments
9,953
-
-
9,953
(5)
-
-
(5)
9,948
Credit institutions
76
76
-
-
-
-
76
Total
10,029
-
-
10,029
(5)
-
-
(5)
10,024
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
2021
General governments
4,940
-
-
4,940
(5)
-
-
(5)
4,935
Total
4,940
-
-
4,940
(5)
-
-
(5)
4,935
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
2022
General governments
9,647
-
-
9,647
(2)
-
-
(2)
9,645
Credit institutions
76
76
-
-
-
-
76
Total
9,723
-
-
9,723
(2)
-
-
(2)
9,721
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
2021
General governments
4,676
-
-
4,676
(2)
-
-
(2)
4,674
Total
4,676
-
-
4,676
(2)
-
-
(2)
4,674
Notes to the financial statements
Year ended 31 December 2022
117
Erste&Steiermärkische Bank d.d.
14.Financial assets at amortised cost (continued)The fair value of financial assets at amortized cost for the Group and the Bank is approximately HRK 631.9 million lower than their value as at 31 December 2022 (2021: HRK 20.2 million higher) .
Debt securities (continued)
Listed bonds issued by the Republic of Croatia, Republic of Slovenia, Republic of Slovakia, Republic of Poland and United States of America are fixed income debt securities denominated in HRK, EUR and USD. These bonds have maturities from 2023 to 2035 and bear coupon interest from 0.000% to 6.000% p.a.
Loans and advances to banks
The analysis of the gross carrying amount (GCA) and of related credit loss allowance (CLA) of Group’s and Bank’s loans and advances to banks per impairment buckets as of 31 December 2022 and 31 December 2021 is provided in the table below:
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
2022
Central banks
2,450
-
-
2,450
(2)
-
-
(2)
2,448
Credit institutions
443
-
-
443
(1)
-
-
(1)
442
Total
2,893
-
-
2,893
(3)
-
-
(3)
2,890
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
2021
Central banks
3,879
-
-
3,879
(3)
-
-
(3)
3,876
Credit institutions
531
-
-
531
(1)
-
-
(1)
530
Total
4,410
-
-
4,410
(4)
-
-
(4)
4,406
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
2022
Central banks
2,356
-
-
2,356
(1)
-
-
(1)
2,355
Credit institutions
244
-
-
244
(1)
-
-
(1)
243
Total
2,600
-
-
2,600
(2)
-
-
(2)
2,598
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
2021
Central banks
3,794
-
-
3,794
(2)
-
-
(2)
3,792
Credit institutions
531
-
-
531
(1)
-
-
(1)
530
Total
4,325
-
-
4,325
(3)
-
-
(3)
4,322
For information about development of credit loss allowances refer to Note 32 Development of credit loss allowances, part ‘Financial instruments held at amortised cost’: table ‘Movement in credit loss allowances – loans and advances to banks’.
There are no purchased or originated credit-impaired (POCI) AC loans and advances to banks at 31 December 2022 and 31 December 2021.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
118
14.Financial assets at amortised cost (continued)
Loans and advances to customers
The analysis of the gross carrying amount (GCA) and of related credit loss allowances (CLA) of loans and advances to customers per impairment buckets as of 31 December 2022 and 31 December 2021 is provided in the table below:
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2022
General governments
10,562
295
-
-
10,857
(11)
(12)
-
-
(23)
10,834
Other financial corporations
17
1
-
-
18
-
-
-
-
-
18
Non-financial corporations
16,357
7,418
781
209
24,765
(93)
(459)
(517)
(99)
(1,168)
23,597
Households
18,158
5,433
1,174
9
24,774
(77)
(228)
(782)
(1)
(1,088)
23,686
Total
45,094
13,147
1,955
218
60,414
(181)
(699)
(1,299)
(100)
(2,279)
58,135
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2021
General governments
8,749
723
-
-
9,472
(12)
(15)
-
-
(27)
9,445
Other financial corporations
24
3
9
-
36
(1)
-
(9)
-
(10)
26
Non-financial corporations
13,812
5,149
1,126
200
20,287
(128)
(555)
(782)
(108)
(1,573)
18,714
Households
18,707
2,886
1,530
10
23,133
(100)
(181)
(1,048)
(2)
(1,331)
21,802
Total
41,292
8,761
2,665
210
52,928
(241)
(751)
(1,839)
(110)
(2,941)
49,987
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2022
General governments
10,241
295
-
-
10,536
(8)
(12)
-
-
(20)
10,516
Other financial corporations
87
1
-
-
88
-
-
-
-
-
88
Non-financial corporations
15,639
6,980
684
209
23,512
(85)
(422)
(457)
(99)
(1,063)
22,449
Households
15,491
4,889
1,027
9
21,416
(39)
(197)
(674)
(1)
(911)
20,505
Total
41,458
12,165
1,711
218
55,552
(132)
(631)
(1,131)
(100)
(1,994)
53,558
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2021
General governments
8,405
723
-
-
9,128
(9)
(15)
-
-
(24)
9,104
Other financial corporations
142
3
-
-
145
(1)
-
-
-
(1)
144
Non-financial corporations
13,205
4,809
1,004
200
19,218
(121)
(512)
(717)
(108)
(1,458)
17,760
Households
15,912
2,579
1,328
10
19,829
(57)
(156)
(899)
(2)
(1,114)
18,715
Total
37,664
8,114
2,332
210
48,320
(188)
(683)
(1,616)
(110)
(2,597)
45,723
For information about development of credit loss allowances refer to Note 32 Development of credit loss allowances, part ‘Financial instruments held at amortised cost’: table ‘Movement in credit loss allowances – loans and advances to customers’.
Notes to the financial statements
Year ended 31 December 2022
119
Erste&Steiermärkische Bank d.d.
15.Trade and other receivables
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2022
General governments
129
1
-
-
130
(1)
-
-
-
(1)
129
Credit institutions
86
3
-
-
89
-
-
-
-
-
89
Other financial corporations
30
3
-
-
33
-
-
-
-
-
33
Non-financial corporations
565
136
46
1
748
(6)
(2)
(42)
(1)
(51)
697
Households
329
27
66
-
422
(14)
(2)
(57)
-
(73)
349
Total
1,139
170
112
1
1,422
(21)
(4)
(99)
(1)
(125)
1,297
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2021
General governments
251
82
-
-
333
(3)
(1)
-
-
(4)
329
Credit institutions
78
1
-
-
79
-
-
-
-
-
79
Other financial corporations
21
2
-
-
23
-
-
-
-
-
23
Non-financial corporations
437
34
83
1
555
(6)
(2)
(71)
-
(79)
476
Households
339
29
101
-
469
(16)
(3)
(87)
-
(106)
363
Total
1,126
148
184
1
1,459
(25)
(6)
(158)
-
(189)
1,270
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2022
General governments
129
1
-
-
130
(1)
-
-
-
(1)
129
Credit institutions
82
3
-
-
85
-
-
-
-
-
85
Other financial corporations
23
1
-
-
24
-
-
-
-
-
24
Non-financial corporations
508
126
25
1
660
(4)
(2)
(23)
(1)
(30)
630
Households
3
7
22
-
32
-
-
(21)
-
(21)
11
Total
745
138
47
1
931
(5)
(2)
(44)
(1)
(52)
879
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2021
General governments
117
82
-
-
199
(2)
(1)
-
-
(3)
196
Credit institutions
74
1
-
-
75
-
-
-
-
-
75
Other financial corporations
18
2
-
-
20
-
-
-
-
-
20
Non-financial corporations
358
31
50
1
440
(4)
(2)
(44)
-
(50)
390
Households
3
7
29
-
39
-
(1)
(27)
-
(28)
11
Total
570
123
79
1
773
(6)
(4)
(71)
-
(81)
692
Trade and other receivables consist of factoring receivables, card business receivables and other receivables
For information about development of credit loss allowances refer to Note 32 Development of credit loss allowances, part ‘Financial instruments held at amortised cost’: table ‘Movement in credit loss allowances – trade and other receivables’
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
120
16. Financial liabilities measured at amortised costs
For presentation in the statement of financial position, the line item ‘Financial liabilities measured at amortised cost’ is used. The line item is further broken down to ‘Deposits from banks’, ‘Deposits from customers’, ‘Debt securities issued’ and ‘Other financial liabilities’.
Interest expense is calculated by using effective interest rate method and presented in the line item ‘Interest expenses’ under ‘Net interest income’ in the statement of profit or loss.
Gains and losses from derecognition of financial liabilities are recognised in profit or loss for the period and presented in the line item ‘Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss’.
Deposits from banks
GROUP
BANK
in HRK million
2021
2022
2021
2022
Overnight deposits
172
213
172
224
Term deposits
6,129
6,235
2,838
2,664
Subordinated loan
226
226
226
226
Repurchase agreements
6
4,543
6
4,543
Deposits from banks
6,533
11,217
3,242
7,657
As at 31 December 2022, term deposits from banks include funding from related parties in amount HRK 4,344 million for the Group and HRK 1,062 million for the Bank (2021: HRK 4,166 million for the Group and HRK 1,059 million for the Bank) and supranational funding of HRK 1,505 million for the Group and HRK 1,023 million for the Bank (2021: HRK 1,800 million for the Group and HRK 1,349 million for the Bank).
As at 31 December 2022, the average maturity of the Group's debt from related parties is 4.2 years and the interest rate range is 0.74%-5.74% (2021: average maturity is 4.5 years and the interest rate range is 0.26% -2.11%.) The Bank's loans from related parties mature in 2025 and their interest rate is 1.36% plus 3-month EURIBOR.
As of December 31, 2022, the Bank's Repurchase agreements from related parties amount to HRK 1,246 million, which mature on January 2, 2023, and whose interest rate is 2.10%.
As at 31 December 2022, the subordinated loan received from related parties amounts HRK 226 million for the Group and the Bank (2021: HRK 226 million for the Group and the Bank). Subordinated loan is payable in 2024 and it's interest rate is 2.11% plus 3-month EURIBOR.
Subordinated loans (Tier 2) are included in capital instruments as regulated by the respective Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013. Impact on own funds ratio from Tier 2 instruments in 2022 is +0.17% (2021: +0.24%).
Subordinated loans, according to a contractual agreement, are only to be satisfied after the claims of other non-subordinated creditors in the case of liquidation or bankruptcy.
The Group and the Bank have not had any defaults of principal or interest or other breaches with respect to their subordinated liabilities during the year 2022 and 2021.
Notes to the financial statements
Year ended 31 December 2022
121
Erste&Steiermärkische Bank d.d.
16.Financial liabilities measured at amortised costs (continued)
Deposits from customers
As at 31 December 2022, Deposits from customers include Group’s funding from HBOR in amount HRK 1,225 million and Bank’s funding from HBOR in amount HRK 1,189 million (2021: HRK 1,225 million for the Group and for the Bank).
GROUP
BANK
in HRK million
2021
2022
2021
2022
Overnight deposits
49,186
65,750
46,925
63,009
Savings deposits
3,582
5,823
3,582
5,823
Other financial corporations
-
-
-
-
Non-financial corporations
501
513
501
513
Households
3,081
5,310
3,081
5,310
Non-savings deposits
45,604
59,927
43,343
57,186
General governments
3,322
3,857
3,190
3,644
Other financial corporations
1,442
1,416
1,285
1,460
Non-financial corporations
17,335
23,545
16,402
22,322
Households
23,505
31,109
22,466
29,760
Term deposits
19,082
18,448
18,002
17,404
Deposits with agreed maturity
18,751
17,982
17,671
16,939
Savings deposits
16,554
16,073
16,071
15,658
Other financial corporations
1,192
2,013
1,187
1,991
Non-financial corporations
1,673
2,065
1,673
2,065
Households
13,689
11,995
13,211
11,602
Non-savings deposits
2,197
1,909
1,600
1,281
General governments
1,669
1,413
1,600
1,281
Other financial corporations
264
253
-
-
Non-financial corporations
256
243
-
-
Households
8
-
-
-
Deposits redeemable at notice
331
466
331
465
General governments
10
8
10
8
Other financial corporations
28
1
28
1
Non-financial corporations
183
162
183
162
Households
110
295
110
294
Repurchase agreements
-
-
-
-
General governments
-
-
-
-
Non-financial corporations
-
-
-
-
Deposits from customers
68,268
84,198
64,927
80,413
General governments
5,001
5,278
4,800
4,933
Other financial corporations
2,926
3,683
2,500
3,452
Non-financial corporations
19,948
26,528
18,759
25,062
Households
40,393
48,709
38,868
46,966
Other financial liabilities
748
888
199
294
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
122
Other financial libilities
Other financial libilities consist of card transactions liabilities, accounts payables (foreign and domestic suppliers) and other financial liabilities.
The Bank issues bonds on the domestic and international capital markets in order to meet the Minimum Requirement for own funds and Eligible Liabilities (MREL). The Bank intends to continue issuing on the capital market, which will strengthen the Bank's independence in the financing structure. During 2022, no bond issue was required.
GROUP
BANK
in HRK million
2021
2022
2021
2022
Debt securities issued
4,010
3,646
4,010
3,646
Bonds
4,010
3,646
4,010
3,646
Debt securities issued
4,010
3,646
4,010
3,646
The analysis of the Debt securities issued as of 31 December 2022 and 31 December 2021 is provided in the table below:
Notes to the financial statements
Year ended 31 December 2022
123
Erste&Steiermärkische Bank d.d.
The fair value through profit or loss measurement category to financial assets is a residual measurement category. This measurement category relates to financial assets that are part of residual business models, i.e. they are neither held in ‘hold to collect’ business model nor held in ‘hold to collect and sell’ business model. These financial assets are generally expected to be sold before their maturity or they are managed, and their performance is evaluated on a fair value basis. Such business models are typical of assets that are held for trading, assets whose value is expected to be primarily realised through sales.
Additionally, financial assets whose contractual cash flows are not considered as SPPI compliant are automatically measured at fair value through profit or loss.
In the statement of financial position, debt instruments measured at fair value through profit or loss are presented as ‘Financial assets held for trading’, sub-items ‘Other financial assets held for trading’ and ‘Non-trading financial assets at fair value through profit or loss’ (sub-items ‘Debt securities’, ‘Loans and advances to banks’ and ‘Loans and advances to customers’).
Non-trading financial assets measured at fair value through profit or loss consists of financial assets mandatorily measured at fair value presented as ‘Financial assets mandatorily at fair value through profit or loss’, sub-item ‘Debt securities’, disclosed in Note 19. Financial assets are mandatorily measured at fair value through profit or loss either because their contractual cash flows are not SPPI compliant, or they are held as part of residual business models that are other than held for trading.
Investments in equity instruments that are held for trading (i.e. financial assets held by the trading function of the Bank) are measured at fair value through profit or loss. They are included in the balance sheet under the line item ‘Financial assets held for trading’, sub-item ‘Other financial assets held for trading’. Investments in equity instruments that are not held for trading are also measured at fair value through profit or loss (unless they are designated at FVOCI). They are presented in the balance sheet under the line item ‘Non-trading financial assets at fair value through profit or loss’, sub-item ‘Equity instruments’, sub-category ‘mandatorily at fair value through profit or loss’ in Note 19
For recognition of gains and losses resulting from subsequent measurement of financial assets measured at fair value through profit or loss, the following applies:
_Changes in fair value (gains and losses) are recognised in profit or loss, and presented in the line item ‘Net trading and fair value result’ for financial assets held for trading and in the line item ‘Gains/losses from financial instruments measured at fair value through profit or loss’ in case of non-trading financial assets at fair value through profit or loss
_Interest income is recognised in profit or loss, by using effective interest rate method, without taking into account any up-front fees or costs directly attributed to the financial assets, and reported in the line item ‘Other similar income’ under ‘Net interest income’ in the statement of profit or loss
_Dividend income is recognised in profit or loss, and reported in the line item ‘Dividend income’ in the statement of profit or loss
_Gains and losses resulting from foreign currency exchange differences are recognised in profit or loss and presented in the line item ‘Net trading and fair value result’.
Upon derecognition, gains and losses are recognised in profit or loss, and presented in the line item ‘Net trading result’ for financial assets held for trading and in the line item ‘Gains/losses from financial instruments measured at fair value through profit or loss’ in case of non-trading financial assets at fair value through profit or loss.
Financial liabilities measured at fair value through profit or loss
Financial liabilities at fair value through profit or loss consist of financial liabilities held for trading. On the balance sheet, financial liabilities held for trading are reported under the line ‘Financial liabilities held for trading’, sub items ‘Derivatives’ and ‘Other financial liabilities held for trading’.
For recognition of gains and losses resulting from subsequent measurement of financial liabilities measured at fair value through profit or loss, the following applies:
_Interest expense is reported in the line item ‘Other similar expenses’ under ‘Net interest income’ in the statement of profit or loss
_Changes in fair value (gains and losses) are recognised in profit or loss, and are reported, for financial liabilities held for trading in the line item ‘Net trading result’ in the statement of profit or loss
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
124
A derivative is a financial instrument or other contract with all three of the following characteristics:
_its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (sometimes called the ‘underlying’);
_it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and
_it is settled at a future date.
Derivative financial instruments are used by the Group to manage exposures to interest rates, foreign currencies and other market price risks. Derivatives used by the Group include mainly interest rate swaps, futures, options, forward rate agreements, and cross currency swaps.
Derivative financial instruments are carried at fair value (dirty price) on the balance sheet, classified as financial instruments held for trading. They are reported in the line ‘Derivatives’ under the heading ‘Financial assets/Financial liabilities held for trading’.
GROUP
2021
2022
in HRK million
Notional value
Positive fair value
Negative fair value
Notional value
Positive fair value
Negative fair value
Derivatives held in the trading book
8,524
67
56
3,995
190
172
Interest rate
1,628
30
20
1,947
172
155
Foreign exchange
6,896
37
36
2,048
18
17
Derivatives held in the banking book
601
3
-
1,349
3
3
Foreign exchange
601
3
-
1,349
3
3
Total
9,125
70
56
5,344
193
175
BANK
2021
2022
in HRK million
Notional value
Positive fair value
Negative fair value
Notional value
Positive fair value
Negative fair value
Derivatives held in the trading book
8,524
67
56
3,995
190
172
Interest rate
1,628
30
20
1,947
172
155
Foreign exchange
6,896
37
36
2,048
18
17
Derivatives held in the banking book
601
3
-
1,349
3
3
Foreign exchange
601
3
-
1,349
3
3
Total
9,125
70
56
5,344
193
175
18.Other financial assets held for trading
GROUP
BANK
in HRK million
2021
2022
2021
2022
Debt securities
75
4
75
4
General governments
75
4
75
4
Other financial assets held for trading
75
4
75
4
Financial assets and liabilities held for trading are measured at fair value based on quoted prices. In circumstances where quoted market prices are not readily available, the fair value of those securities is estimated using the present value of future cash flows.
As of 31 December 2021, financial assets held for trading are treasury bills issued by the Croatian Ministry of Finance with maturity in 2022, and with interest rate of 0.000%. As of 31 December 2022, financial assets held for trading are Bonds of Republic of Austria with maturity in 2023, and with interest rate of 0.000%.
Notes to the financial statements
Year ended 31 December 2022
125
Erste&Steiermärkische Bank d.d.
Financial assets mandatorily at FVPL
Non derivative financial assets are measured at fair value through other comprehensive income if both of the following conditions are met:
_The financial asset is held within a business model whose objective is achieved by both, collecting contractual cash flows and selling financial assets; and
_The contractual terms of financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets measured at fair value through other comprehensive income include debt instruments and equity instruments for which the Group has elected, at initial recognition, the fair value through other comprehensive income measurement.
The common attribute for investments in debt instruments at fair value through other comprehensive income is that an active yield optimisation via sales is integral to achieving the objectives. The sales are carried out in order to optimise the liquidity position or to realise the fair value gains or losses. As a result, the business objectives are achieved through both collecting contractual cash flows and sales of the securities. On the balance sheet, they are included as ‘Debt securities’ under the line ‘Financial asset at fair value through other comprehensive income’.
For certain investments in equity instruments that are not held for trading, the Group makes use of the option to measure them at fair value through other comprehensive income. This election is applied to strategic, significant banking business relationship investments. On the balance sheet, they are included as ‘Equity instruments’ under the line ‘Financial asset at fair value through other comprehensive income’.
For recognition of gains and losses, resulting from subsequent measurement of financial assets measured at fair value through other comprehensive income, different rules apply depending on whether the financial instrument is debt or equity instrument:
Equity instruments
_Changes in fair value (gains and losses) are recognised in other comprehensive income, and reported under the line ‘Fair value reserve of equity instruments’ of the statement of comprehensive income
_Dividend income is recognised in profit or loss (unless the dividend clearly represents a recovery of part of the cost of investment), and reported under the line ‘Dividend income’ of the statement of profit or loss
_Gains and losses resulting from foreign currency exchange differences are recognised in other comprehensive income and reported under the line ‘Fair value reserve of equity instruments’.
The accumulated fair value change recognised in other comprehensive income is never reclassified to profit or loss. However, upon derecognition of the investments in equity instruments, the amount accumulated in other comprehensive income is transferred to retained earnings.
Debt instruments
_Changes in fair value (gains and losses) are recognised in other comprehensive income, and reported under the line ‘Fair value reserve of debt instruments’ in the statement of comprehensive income
_Interest income is recognised in profit or loss, by using effective interest rate method, and reported in the line item ‘Interest income’ under ‘Net interest income’ in the statement of profit or loss
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
126
_Allowances for expected credit loss (gains and losses) are recognised in profit or loss against the accumulated impairment amount in other comprehensive income, and reported under the line ‘Impairment result from financial instruments’ in the statement of profit or loss
_Gains and losses resulting from foreign currency exchange differences are recognised, in accordance with the requirements of IAS 21, in profit or loss if they relate to the amortised cost part of the asset, reported under the line ‘Net trading result and fair value result’ and in other comprehensive income if they relate to other foreign currency exchange differences (fair value related), reported under the line ‘Fair value reserve of debt instruments’
Upon derecognition, gains and losses previously recognised in other comprehensive income are reclassified to profit or loss and reported under the line ‘Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss’.
The usage of the FVOCI option for equity instruments is subject to a separate approval process at Group level. Fair Value through Other Comprehensive Income (FVTOCI) is applied for investments which are not held for trading and in which the Group has a strategic interest. Strategic interest is evidenced by significant business and distribution ties between the Group investor entity and the investee entity and those other non-trading equity investments in non-consolidated entities that are acquired on a non-voluntary basis for example as a result of a regulatory debt-to-equity swap or as a result of an equity conversion of defaulted debt.
The carrying amount of equity instruments at FVOCI (fair value through other comprehensive income) as at 31 December 2022 amounts to HRK 4 million for the Group and for the Bank (2021: HRK 4 million for the Group and for the Bank).
During year 2022, the derecognition of such instruments had no influence on the carrying amount as its fair value was nil and was triggered by closure of an entity. The cumulative fair value loss that was transferred from accumulated other comprehensive income into retained earnings upon such derecognition amounted to HRK 1 million (2021: HRK 111 million gain for the Group and HRK 95 million gain for the Bank).
21.Financial assets at fair value through other comprehensive income- debt instruments
The analysis of gross carrying amounts (GCA) and of related credit loss allowances (CLA) of Group’s debt securities at FVOCI per impairment buckets as of 31 December 2022 is provided below:
Notes to the financial statements
Year ended 31 December 2022
127
Erste&Steiermärkische Bank d.d.
21.Financial assets at fair value through other comprehensive income- debt instruments (continued)
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Amortised cost
Accumulated OCI changes
Fair value
2022
General governments
7,524
1,313
-
8,837
(5)
(33)
-
(38)
8,799
(799)
8,000
Credit institutions
572
-
-
572
(16)
-
-
(16)
556
(13)
543
Non-financial corporations
189
455
-
644
-
(14)
-
(14)
630
(10)
620
Total
8,285
1,768
-
10,053
(21)
(47)
-
(68)
9,985
(822)
9,163
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Amortised cost
Accumulated OCI changes
Fair value
2021
General governments
9,879
691
-
10,570
(7)
(32)
-
(39)
10,531
123
10,654
Credit institutions
749
-
-
749
(18)
-
-
(18)
731
23
754
Non-financial corporations
258
276
-
534
(3)
(21)
-
(24)
510
25
535
Total
10,886
967
-
11,853
(28)
(53)
-
(81)
11,772
171
11,943
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Amortised cost
Accumulated OCI changes
Fair value
2022
General governments
7,097
1,313
-
8,410
(2)
(33)
-
(35)
8,375
(755)
7,620
Credit institutions
572
-
-
572
(16)
-
-
(16)
556
(13)
543
Non-financial corporations
189
455
-
644
-
(14)
-
(14)
630
(10)
620
Total
7,858
1,768
-
9,626
(18)
(47)
-
(65)
9,561
(778)
8,783
BANK
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Amortised cost
Accumulated OCI changes
Fair value
2021
General governments
9,375
691
-
10,066
(4)
(32)
-
(36)
10,030
124
10,154
Credit institutions
750
-
-
750
(18)
-
-
(18)
732
23
755
Non-financial corporations
258
276
-
534
(3)
(21)
-
(24)
510
25
535
Total
10,383
967
-
11,350
(25)
(53)
-
(78)
11,272
172
11,444
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
128
The gross carrying amount of debt instruments at FVOCI equals the amortised cost before deducting any credit loss allowances.
In accordance with IFRS9, for debt instruments classified into this category, other comprehensive income combines the effects of credit loss allowances booked in other comprehensive income and fair value accounting through other comprehensive income.
For information about development of credit loss allowances refer to Note 32 Development of credit loss allowances, part ‘Financial assets at fair value through other comprehensive income – debt instruments’: table ‘Movement in credit loss allowances – debt instrument financial assets’
There are no purchased or originated credit impaired (POCI) debt securities at FVOCI as of 31 December 2022 and 31 December 2021.
Debt securities include bonds issued by the Republic of Croatia and other government and corporate bonds.
Bonds of the Republic of Croatia are HRK, EUR and USD denominated fixed income debt securities listed at stock exchanges. These bonds have maturities from 2023 to 2033 and bear coupon interest from 0.250% to 6.000% p.a.
Bonds of Republic of Poland are fixed income debt securities denominated in USD and EUR and listed on stock exchanges. These bonds have maturity from 2023 to 2029 and bear coupon interest from 0.875% to 5.250% p.a. Bonds of Montenegro are fixed income debt securities denominated in EUR and listed on stock exchanges. These bonds have maturity from 2025 to 2029 and bear coupon interest from 2.550% to 3.375% p.a. Bonds of Republic of Slovakia are fixed income debt securities denominated in USD and EUR and listed on stock exchanges. These bonds have maturities from 2023 to 2036 and bear coupon interest from 0.000% to 3.375% p.a. Bonds of Republic of Slovenia are fixed income debt securities denominated in EUR and listed on stock exchanges. These bonds have maturities from 2031 to 2035 and bear coupon interest from 0.125% to 1.500% p.a. Bond of Republic of Latvia is a fixed income debt security denominated in EUR and listed on stock exchanges. That bond has the maturity in 2030 and bears coupon interest of 0.250% p.a. Bond of Republic of Ireland is a fixed income debt security denominated in EUR and listed on stock exchanges. That bond has the maturity in 2035 and bears coupon interest of 0.400% p.a. Bonds of United States of America are fixed income debt securities denominated in USD and listed on stock exchanges. These bonds have maturities from 2028 to 2031 and bear coupon interest from 0.750% to 3.125% p.a.
Also, in financial assets at fair value through other comprehensive income are bonds issued by European investment Bank with maturity from 2024 to 2025 and with coupon interest from 0.625% to 3.250% p.a., bond issued by EBRD denominated in USD with maturity in 2023 and bears coupon interest of 2.750% p.a.. bond issued by IBRD denominated in USD with maturity in 2024 and bears coupon interest of 1.500% p.a. and also bonds issued by KfW Bank denominated in USD with maturities from 2024 to 2025 and with coupon interest from 1.375% to 2.000% p.a.
Notes to the financial statements
Year ended 31 December 2022
129
Erste&Steiermärkische Bank d.d.
Fair values of financial instruments
The measurement of fair value at the Group is based primarily on external sources of data (stock market prices or broker quotes in highly liquid market segments). Financial instruments for which fair value is determined on the basis of quoted market prices are mainly listed securities and derivatives as well as liquid Over-The-Counter (OTC) bonds.
Where the fair values of financial assets and financial liabilities recorded on the balance sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data is not available judgement is required to establish fair values. Disclosures on valuation models, the fair value hierarchy and fair values of financial instruments can be found subsequently.
All financial instruments are measured at fair value on recurring basis.
Financial instruments measured at fair value in the statement of financial position
Description of the valuation models and inputs
The Group uses valuation models which have been tested internally and for which the valuation parameters (such as interest rates, exchange rates, volatilities and credit spreads) have been determined independently. In case of the negative interest environment the Group uses models which are able to deal sufficiently with the presented market conditions. Consequently, such negative interest rates do not restrict the valuation models.
Debt securities
For plain vanilla (fixed and floating) debt securities the fair value is calculated by discounting the future cash-flows using a discounting curve depending on the interest rate for the respective issuance currency and a spread adjustment. The spread adjustment is usually derived from the credit spread curve of the issuer. If no issuer curve is available, the spread is derived from a proxy instrument and adjusted for differences in the risk profile of the instruments. If no close proxy is available, the spread adjustment is estimated using other information, including estimation of the credit spread based on internal ratings and PDs or management judgment. For more complex debt securities (e.g. including option like features such as callable, cap/floor, index-linked) the fair value is determined using combinations of discounted cash-flow models and more sophisticated modelling techniques including methods described for OTC-derivatives.
Equity instruments
Non-trading equity instruments which have quoted market prices in an active market are valued by using the quoted market price. For other investments in non-trading equity instruments the fair value is determined by standard valuation models using also unobservable input parameters. These models include the adjusted net asset value method, the simplified income ap-proach, the dividend discount model and the comparable company multiple method.
The adjusted net asset method requires an investor to measure the fair value of the individual assets and liabilities recognized in an investee’s statement of financial position as well as the fair value of any unrecognized assets and liabilities at the measurement date. The resulting fair values of the recognized and unrecognized assets and liabilities should therefore represent the fair value of the investee’s equity.
The dividend discount model assumes that the price of equity instruments issued by an entity equals the present value of all its expected future dividends in perpetuity. Similar to the dividend discount model, the simplified income approach estimates the fair value based on the future income. However, it can be used also when only one year planned income is available. The simplified income approach and the dividend discount model discount future income and dividends using the cost of equity. The cost of equity is dependent on the risk-free rate, the market risk premium, the levered beta and the country risk premium. The levered beta is derived from the industry classification which is published and maintained by Damodaran.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
130
22.Fair value of assets and liabilities (continued)
In some cases, techniques for non-trading equity instruments may also include comparable company multiple methods. These are valuation techniques that use prices and other relevant information generated by market transactions involving comparable company peers of an investee to derive a valuation multiple from which the indicated fair value of the investee’s equity or enterprise value can be inferred.
OTC-derivative financial instruments
Derivative instruments traded in liquid markets are valued by standard valuation models.
The Group values derivatives at mid-market levels. To reflect the potential bid-ask-spread of the relevant positions an adjustment based on market liquidity is performed. The adjustment parameters depend on product type, currency, maturity and notional size. Parameters are reviewed on a regular basis or in case of significant market moves. Netting is not applied when determining the bid-ask-spread adjustments.
Credit value adjustments (CVA) for counterparty risk and debt value adjustments (DVA) for the own default credit risk are applied to OTC derivatives. For the CVA the adjustment is driven by the expected positive exposure of all derivatives and the credit quality of the counterparty. DVA is driven by the expected negative exposure and the Bank’s credit quality. The bank has implemented an approach, where the modelling of the expected exposure is based on option replication strategies. This modelling approach is considered for the most relevant portfolios and products. The methodology for the remaining entities and products is determined by market value plus add-on considerations. The probability of default of counterparties which are not traded in an active market is determined from internal PDs mapped to a basket of liquid titles being present in the central European market. Thereby market based valuation concepts have been incorporated. Counterparties with liquid bond markets are valued by the respective single-name market based PD derived from the prices. The Bank’s probability of default has been derived from the buy-back levels of the Bank’s issuances.
According to the described methodology the amount of cumulative CVA-adjustment was HRK 394 thousand as at 31 December 2022 (2021: HRK 2 million) and the total amount of DVA-adjustment amount was HRK 8 million as at 31 December 2022 (2021: HRK 1 million).
Validation and control
The responsibility for valuation of a position measured at fair value is independent from trading units. Additionally, the Group has implemented an independent validation function in order to ensure separation between units responsible for model development, fair value determination and validation. The target of independent model validation is to evaluate model risks arising from the models’ theoretical foundation, the appropriateness of input data (market data) and model calibration.
Fair value hierarchy
Financial assets and financial liabilities measured at fair value are categorized under the three levels of the IFRS fair value hierarchy.
Level 1 of the fair value hierarchy
The fair value of financial instruments assigned to Level 1 of the fair value hierarchy is determined based on quoted prices in active markets for identical financial assets and liabilities. More particular, the evaluated fair value can qualify as a Level 1 if transactions occur with sufficient frequency, volume and pricing consistency on an ongoing basis.
Level 1 measurement includes shares, government bonds as well as other bonds and funds, which are traded in highly liquid and active markets.
Notes to the financial statements
Year ended 31 December 2022
131
Erste&Steiermärkische Bank d.d.
22. Fair value of assets and liabilities (continued)
Level 2 of the fair value hierarchy
In case a market quote is used for valuation but due to restricted liquidity the market does not qualify as active (derived from available market liquidity indicators) the instrument is classified as Level 2. If no market prices are available, the fair value is measured by using valuation models which are based on observable market data. If all significant inputs in the valuation model are observable the instrument is classified as Level 2 of the fair value hierarchy. For Level 2 valuations typically yield curves, credit spreads and implied volatilities are used as observable market parameters.
Level 2 measurement includes OTC derivatives, less liquid shares, bonds, funds and own issues.
Level 3 of the fair value hierarchy
In some cases, the fair value can be determined neither on the basis of sufficiently frequent quoted market prices nor on the basis of valuation models that rely entirely on observable market data. In these cases, individual valuation parameters not observable in the market are estimated on the basis of reasonable assumptions. If any unobservable input in the valuation model is significant or the price quote used is updated infrequently the instrument is classified as Level 3 of the fair value hierarchy. For Level 3 valuations , typically credit spreads are used as unobservable parameters. Furthermore, internally calculated cost of equity and adjustments made on the equity (in the adjusted net asset value method) are unobservable parameters for the valuation of non-trading equity instruments.
Level 3 measurement includes shares, participations and funds not quoted in an active market, illiquid bonds.
The allocation of positions to levels and any changes between the levels are reflected at the end of the reporting period.
A reclassification from Level 1 into Level 2 or Level 3 and vice versa will be performed if the financial instruments no longer meet the criteria described above for the respective level.
The table below shows the classification of financial instruments carried at fair value with respect to levels of fair value hierarchy.
GROUP
2021
2022
in HRK million
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Financial assets HFT
-
145
-
145
4
193
-
197
Derivatives
-
70
-
70
-
193
-
193
Other financial assets HFT
-
75
-
75
4
-
-
4
Non-trading financial assets – FVPL
27
-
48
75
30
-
30
60
Equity instruments
-
-
10
10
13
-
8
21
Debt securities
27
-
38
65
17
-
22
39
Financial assets – FVOCI
10,876
695
376
11,947
6,827
2,252
88
9,167
Equity instruments
-
-
4
4
-
2
2
4
Debt securities
10,876
695
372
11,943
6,827
2,250
86
9,163
Total assets
10,903
840
424
12,167
6,861
2,445
118
9,424
Liabilities
Financial liabilities HFT
-
56
-
56
-
175
-
175
Derivatives
-
56
-
56
-
175
-
175
Total liabilities
-
56
-
56
-
175
-
175
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
132
22.Fair value of assets and liabilities (continued)
BANK
2021
2022
in HRK million
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Financial assets HFT
-
145
-
145
4
193
-
197
Derivatives
-
70
-
70
-
193
-
193
Other financial assets HFT
-
75
-
75
4
-
-
4
Non-trading financial assets – FVPL
22
-
48
70
30
-
28
58
Equity instruments
-
-
10
10
13
-
6
19
Debt securities
22
-
38
60
17
-
22
39
Financial assets – FVOCI
10,454
695
299
11,448
6,519
2,252
16
8,787
Equity instruments
-
-
4
4
-
2
2
4
Debt securities
10,454
695
295
11,444
6,519
2,250
14
8,783
Total assets
10,476
840
347
11,663
6,553
2,445
44
9,042
Liabilities
Financial liabilities HFT
-
56
-
56
-
175
-
175
Derivatives
-
56
-
56
-
175
-
175
Total liabilities
-
56
-
56
-
175
-
175
Valuation process for financial instruments categorised as Level 3
The valuation of financial instruments categorised as Level 3 involves one or more significant inputs that are not directly observable on the market. Additional price verification steps need to be done. These may include reviewing relevant historical data and benchmarking to similar transactions, among others. This involves estimation and expert judgment. Further details regarding input parameters used and the results of the sensitivity analysis are disclosed in the sub-chapter Unobservable inputs and sensitivity analysis for Level 3 measurements below.
Transfer of Level 1 and Level 2
These tables show the transfer of Level 1 and Level 2 of financial instruments measured at fair value in the statement of financial position.
GROUP
2021
2022
In HRK million
Transfer to Level 1
Transfer to Level 2
Transfer to Level 1
Transfer to Level 2
Securities
Transfer from Level 1
-
202
-
1,534
Transfer from Level 2
355
-
-
-
Transfer from Level 3
-
14
-
266
Purchases/sales/expiries
667
(102)
27
234
Total year-to-date change
820
(241)
(1,506)
2,034
Notes to the financial statements
Year ended 31 December 2022
133
Erste&Steiermärkische Bank d.d.
22. Fair value of assets and liabilities (continued)
Movements in Level 3 of financial instruments carried at fair value
The following tables show the development of fair value of financial instruments for which valuation models are based on non-observable inputs:
GROUP
in HRK million
As of
Gain/(loss) in P&L
Gain/(loss) in OCI
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
Settle-ments
Currency translation
As of
Jan 2022
Dec 2022
Assets
Non-trading financial assets – FVPL
48
(6)
-
14
(13)
-
(13)
-
-
30
Equity instruments
10
(3)
-
14
-
-
(13)
-
-
8
Debt securities
38
(3)
-
-
(13)
-
-
-
-
22
Financial assets – FVOCI
376
7
(12)
-
(16)
-
(268)
-
1
88
Equity instruments
4
-
-
-
-
-
(2)
-
-
2
Debt securities
372
7
(12)
-
(16)
-
(266)
-
1
86
Total assets
424
1
(12)
14
(29)
-
(281)
-
1
118
GROUP
in HRK million
As of
Gain/(loss) in P&L
Gain/(loss) in OCI
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
Settle-ments
Currency translation
As of
Jan 2021
Dec 2021
Assets
Non-trading financial assets – FVPL
35
7
-
6
-
-
-
-
-
48
Equity instruments
10
(1)
-
1
-
-
-
-
-
10
Debt securities
25
8
-
5
-
-
-
-
-
38
Financial assets – FVOCI
263
(3)
6
-
(133)
268
(14)
(12)
1
376
Equity instruments
128
-
7
-
(133)
2
-
-
-
4
Debt securities
135
(3)
(1)
-
-
266
(14)
(12)
1
372
Total assets
298
4
6
6
(133)
268
(14)
(12)
1
424
BANK
in HRK million
As of
Gain/(loss) in P&L
Gain/(loss) in OCI
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
Settle-ments
Merger
As of
Jan 2022
Dec 2022
Assets
Non-trading financial assets – FVPL
48
(7)
-
13
(13)
-
(13)
-
-
28
Equity instruments
10
(4)
-
13
-
-
(13)
-
-
6
Debt securities
38
(3)
-
-
(13)
-
-
-
-
22
Financial assets – FVOCI
299
7
(6)
-
(16)
(268)
-
-
-
16
Equity instruments
4
-
-
-
-
(2)
-
-
-
2
Debt securities
295
7
(6)
-
(16)
(266)
-
-
-
14
Total assets
347
-
(6)
13
(29)
(268)
(13)
-
-
44
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
134
22. Fair value of assets and liabilities (continued)
BANK
in HRK million
As of
Gain/(loss) in P&L
Gain/(loss) in OCI
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
Settle-ments
Merger
As of
Jan 2021
Dec 2021
Assets
Non-trading financial assets – FVPL
35
7
-
6
-
-
-
-
-
48
Equity instruments
10
(1)
-
1
-
-
-
-
-
10
Debt securities
25
8
-
5
-
-
-
-
-
38
Financial assets – FVOCI
168
(3)
9
-
(117)
268
(14)
(12)
-
299
Equity instruments
111
-
8
-
(117)
2
-
-
-
4
Debt securities
57
(3)
1
-
-
266
(14)
(12)
-
295
Total assets
203
4
9
6
(117)
268
(14)
(12)
-
347
In case the fair value of a financial asset is retrieved from input parameters which are not observable in the market, those parameters can be retrieved from a range of alternative parameters. For the preparation of the Statement of Financial Position the parameters were chosen to reflect the market situation at the reporting date.
The range of unobservable valuation parameters used in level 3 measurements is shown in the following table:
Type of instrument
Fair value
Valuation technique
Significant unobservable inputs
Range of unobservable inputs (weighted average)
31 December 2022
GROUP
Financial assets at fair value through other comprehensive income
Bonds and commercial papers
84
Discounted cash flow
Credit spread
1.76% - 6.46%(3.63)
Financial assets at FVPL
Funds
5
Net Asset Value
Equity
Depending on accounting equity of investment.
Financial assets at FVOCI / at FVPL
Non-trading equity instruments (participations)
4
Dividend Discount Model
Beta relevered
Industry: Insurance (General) 1.09
Country risk premium
Croatia 2.13%, Resulting cost of equity based on above input: 11.52%
2
Market comparable companies
EV / SALES, EV / EBITDA, P/B, P/S
Depending on industry classification according to Bloomberg Industry classification standard.
1
Valution mix: DCF model, market comparable companies, P/B vs ROE
Beta relevered, Country risk premium
Beta relevered: 1.1, Country risk premium: Croatia 2.3Serbia 2.7Slovenia 0.8BiH 4.3Other 4.2
31 December 2021
GROUP
Financial assets at fair value through other comprehensive income
Bonds and commercial papers
103
Discounted cash flow
Credit spread
3.56% - 6.62%(4.40%)
Financial assets at FVOCI / at FVPL
Non-trading equity instruments (participations)
6
Dividend Discount Model
Beta relevered
Industry: Insurance (General) 1.07
Country risk premium
Croatia 2.21%, Resulting cost of equity based on above input: 10.85%
5
Market comparable companies
EV / SALES, EV / EBITDA, EV / EBIT, P/E, P/B, (P/S)
Depending on industry classification according to Bloomberg Industry classification standard.
Notes to the financial statements
Year ended 31 December 2022
135
Erste&Steiermärkische Bank d.d.
22.Fair value of assets and liabilities (continued)
31 December 2022
BANK
Financial assets at fair value through other comprehensive income
Bonds and commercial papers
14
Discounted cash flow
Credit spread
6.46%
Financial assets at FVPL
Funds
5
Net Asset Value
Equity
Depending on accounting equity of investment.
Financial assets at FVOCI / at FVPL
Non-trading equity instruments (participations)
4
Dividend Discount Model
Beta relevered
Industry: Insurance (General) 1.09
Country risk premium
Croatia 2.13%, Resulting cost of equity based on above input: 11.52%
2
Market comparable companies
EV / SALES, EV / EBITDA, P/B, P/S
Depending on industry classification according to Bloomberg Industry classification standard.
1
Valution mix: DCF model, market comparable companies, P/B vs ROE
Beta relevered, Country risk premium
Beta relevered: 1.1, Country risk premium: Croatia 2.3Serbia 2.7Slovenia 0.8BiH 4.3Other 4.2
31 December 2021
BANK
Financial assets at fair value through other comprehensive income
Bonds and commercial papers
28
Discounted cash flow
Credit spread
6.62%(6.62%)
Financial assets at FVOCI / at FVPL
Non-trading equity instruments (participations)
6
Dividend Discount Model
Beta relevered
Industry: Insurance (General) 1.07
Country risk premium
Croatia 2.21%, Resulting cost of equity based on above input: 10.85%
5
Market comparable companies
EV / SALES, EV / EBITDA, EV / EBIT, P/E, P/B, P/S
Depending on industry classification according to Bloomberg Industry classification standard.
For the remaining financial instruments in the amount of HRK 11 milion for the Group and for the Bank (2021: HRK 283 million for the Group and for the Bank) measured at fair value in Level 3, fair value is retrieved from observable input.
In estimating sensitivity impacts, mainly changes in credit spreads for bonds were considered. The ranges of reasonably possible alternatives of the unobservable inputs were considered in the sensitivity analysis for debt securities range of credit spreads between +100 basis points and - 75 basis points. Effect in other comprehensive income for positive fair value change is HRK 1.35 million and for negative HRK 1.80 million.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
136
22.Fair value of assets and liabilities (continued)
The following table shows fair values and fair value hierarchy of financial instruments not measured at fair value for the year end 2022 and 2021.
GROUP
2022
Carrying amount
Fair value
Quoted market prices in active markets Level 1
Marked to model based on observable market data Level 2
Marked to model based on non-observable inputs Level 3
in HRK million
ASSETS
Financial assets at AC
71,049
66,021
6,278
2,758
56,985
Loans and advances to banks
2,890
2,686
-
-
2,686
Loans and advances to customers
58,135
54,299
-
-
54,299
Debt securities
10,024
9,036
6,278
2,758
-
Finance lease receivables
3,018
2,819
-
-
2,819
Trade and other receivables
1,297
1,213
-
-
1,213
LIABILITIES
Financial liabilities measured at amortised costs
99,949
99,487
3,025
340
96,122
Deposits from banks
11,217
11,061
-
-
11,061
Deposits from customers
84,198
83,877
-
-
83,877
Debt securities issued
3,646
3,665
3,025
340
300
Other financial liabilities
888
884
-
-
884
FINANCIAL GUARANTEES AND COMMITMENTS
Financial guarantees
-
50
-
-
50
Irrevocable commitments
-
91
-
-
91
GROUP
2021
Carrying amount
Fair value
Quoted market prices in active markets Level 1
Marked to model based on observable market data Level 2
Marked to model based on non-observable inputs Level 3
in HRK million
ASSETS
Financial assets at AC
59,328
60,042
4,955
-
55,087
Loans and advances to banks
4,406
4,436
-
-
4,436
Loans and advances to customers
49,987
50,651
-
-
50,651
Debt securities
4,935
4,955
4,955
-
-
Finance lease receivables
2,546
2,579
-
-
2,579
Trade and other receivables
1,270
1,286
-
-
1,286
LIABILITIES
Financial liabilities measured at amortised costs
79,559
79,169
3,018
-
76,151
Deposits from banks
6,533
6,559
-
-
6,559
Deposits from customers
68,268
67,833
-
-
67,833
Debt securities issued
4,010
4,034
3,018
-
1,016
Other financial liabilities
748
743
-
-
743
FINANCIAL GUARANTEES AND COMMITMENTS
Financial guarantees
-
(37)
-
-
(37)
Irrevocable commitments
-
15
-
-
15
Notes to the financial statements
Year ended 31 December 2022
137
Erste&Steiermärkische Bank d.d.
22.Fair value of assets and liabilities (continued)
Financial instruments not measured at fair value (continued)
BANK
2022
Carrying amount
Fair value
Quoted market prices in active markets Level 1
Marked to model based on observable market data Level 2
Marked to model based on non-observable inputs Level 3
in HRK million
ASSETS
Financial assets at AC
65,877
61,226
6,029
2,758
52,439
Loans and advances to banks
2,598
2,415
-
-
2,415
Loans and advances to customers
53,558
50,024
-
-
50,024
Debt securities
9,721
8,787
6,029
2,758
-
Trade and other receivables
879
821
-
-
821
LIABILITIES
Financial liabilities measured at amortised costs
92,010
91,615
3,025
340
88,250
Deposits from banks
7,657
7,551
-
-
7,551
Deposits from customers
80,413
80,106
-
-
80,106
Debt securities issued
3,646
3,665
3,025
340
300
Other financial liabilities
294
293
-
-
293
FINANCIAL GUARANTEES AND COMMITMENTS
Financial guarantees
-
46
-
-
46
Irrevocable commitments
-
77
-
-
77
BANK
2021
Carrying amount
Fair value
Quoted market prices in active markets Level 1
Marked to model based on observable market data Level 2
Marked to model based on non-observable inputs Level 3
in HRK million
ASSETS
Financial assets at AC
54,719
55,380
4,698
-
50,682
Loans and advances to banks
4,322
4,352
-
-
4,352
Loans and advances to customers
45,723
46,330
-
-
46,330
Debt securities
4,674
4,698
4,698
-
-
Trade and other receivables
692
701
-
-
701
LIABILITIES
Financial liabilities measured at amortised costs
72,378
72,000
3,018
-
68,982
Deposits from banks
3,242
3,255
-
-
3,255
Deposits from customers
64,927
64,513
-
-
64,513
Debt securities issued
4,010
4,034
3,018
-
1,016
Other financial liabilities
199
198
-
-
198
FINANCIAL GUARANTEES AND COMMITMENTS
Financial guarantees
-
(33)
-
-
(33)
Irrevocable commitments
-
10
-
-
10
Carrying amount for Financial guarantees and Irrevocable commitments represents amount of fee recognized in Statement of financial position which is represented under Trade and other receivables.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
138
22.Fair value of assets and liabilities (continued)
The fair value of loans to and receivables from customers and credit institutions has been calculated by discounting future cash flows while taking into consideration interest and credit spread effects. The interest rate impact is based on the movements of market rates, while credit spread changes are derived from PDs and LGDs used for internal risk calculations. For the calculation of fair value loans and receivables were grouped into homogeneous portfolios based on rating method, rating grade, maturity and the country where they were granted.
The fair values of debt securities at amortised cost are either taken directly from the market or they are determined by directly observable input parameters (i.e. yield curves).
The fair value of deposits and other liabilities, measured at amortised cost, is estimated by taking into account the current interest rate environment, as well as the own credit spread. For liabilities without contractual maturities (e.g. demand deposits), the carrying amount represents the minimum of their fair value.
The fair value of issued securities and subordinated liabilities measured at amortised cost is based on market prices or on observable market parameters, if these are available. For issued securities where fair value cannot be retrieved from quoted market prices, fair value is calculated by discounting the future cash flows. The applied discount rate is based on the interest rates at which instruments with comparable characteristics could have been issued at the balance sheet date. Moreover, optionality is taken into account when calculating the fair value.
The fair value of off-balance sheet liabilities (i.e. financial guarantees and unused loan commitments) is estimated using the regulatory credit conversion factors. The resulting loan equivalents are treated like other on-balance sheet assets.
Notes to the financial statements
Year ended 31 December 2022
139
Erste&Steiermärkische Bank d.d.
Financial assets and financial liabilities are offset and the net amount is reported on the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on net basis only when permitted under IFRS or for gain and losses arising from group of similar transactions such as in the Group's trading activity.
Financial assets subject to offsetting and potential offsetting agreements in 2022
GROUP
Potential effects of netting agreements not qualifying for statement of financial position offsetting
in HRK million
Gross amounts in statement of financial position
Amounts set off against financial liabilities
Net amounts in statement of financial position
Financial instruments
Cash collateral received
Non-cash financial collateral received
Net amount after potential offsetting
Derivatives
193
-
193
(4)
-
-
189
Reverse repurchase agreements
57
-
57
-
-
(57)
-
Total
250
-
250
(4)
-
(57)
189
Financial liabilities subject to offsetting and potential offsetting agreements in 2022
GROUP
Potential effects of netting agreements not qualifying for statement of financial position offsetting
in HRK million
Gross amounts in statement of financial position
Amounts set off against financial assets
Net amounts in statement of financial position
Financial instruments
Cash collateral pledged
Non-cash financial collateral pledged
Net amount after potential offsetting
Derivatives
175
-
175
(4)
(5)
-
166
Repurchase agreements
4,543
-
4,543
-
-
(4,427)
116
Total
4,718
-
4,718
(4)
(5)
(4,427)
282
Financial assets subject to offsetting and potential offsetting agreements in 2022
BANK
Potential effects of netting agreements not qualifying for statement of financial position offsetting
in HRK million
Gross amounts in statement of financial position
Amounts set off against financial liabilities
Net amounts in statement of financial position
Financial instruments
Cash collateral received
Non-cash financial collateral received
Net amount after potential offsetting
Derivatives
193
-
193
(4)
-
-
189
Reverse repurchase agreements
57
-
57
-
-
(57)
-
Total
250
-
250
(4)
-
(57)
189
Financial liabilities subject to offsetting and potential offsetting agreements in 2022
BANK
Potential effects of netting agreements not qualifying for statement of financial position offsetting
in HRK million
Gross amounts in statement of financial position
Amounts set off against financial assets
Net amounts in statement of financial position
Financial instruments
Cash collateral pledged
Non-cash financial collateral pledged
Net amount after potential offsetting
Derivatives
175
-
175
(4)
(5)
-
166
Repurchase agreements
4,543
-
4,543
-
-
(4,427)
116
Total
4,718
-
4,718
(4)
(5)
(4,427)
282
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
140
Financial assets subject to offsetting and potential offsetting agreements in 2021
GROUP
Potential effects of netting agreements not qualifying for statement of financial position offsetting
in HRK million
Gross amounts in statement of financial position
Amounts set off against financial liabilities
Net amounts in statement of financial position
Financial instruments
Cash collateral received
Non-cash financial collateral received
Net amount after potential offsetting
Derivatives
70
-
70
(29)
-
-
41
Reverse repurchase agreements
412
-
412
-
-
(406)
6
Total
482
-
482
(29)
-
(406)
47
Financial liabilities subject to offsetting and potential offsetting agreements in 2021
GROUP
Potential effects of netting agreements not qualifying for statement of financial position offsetting
in HRK million
Gross amounts in statement of financial position
Amounts set off against financial assets
Net amounts in statement of financial position
Financial instruments
Cash collateral pledged
Non-cash financial collateral pledged
Net amount after potential offsetting
Derivatives
56
-
56
(29)
(15)
-
12
Repurchase agreements
6
-
6
-
-
(6)
-
Total
62
-
62
(29)
(15)
(6)
12
Financial assets subject to offsetting and potential offsetting agreements in 2021
BANK
Potential effects of netting agreements not qualifying for statement of financial position offsetting
in HRK million
Gross amounts in statement of financial position
Amounts set off against financial liabilities
Net amounts in statement of financial position
Financial instruments
Cash collateral received
Non-cash financial collateral received
Net amount after potential offsetting
Derivatives
70
-
70
(29)
-
-
41
Reverse repurchase agreements
412
-
412
-
-
(406)
6
Total
482
-
482
(29)
-
(406)
47
Financial liabilities subject to offsetting and potential offsetting agreements in 2021
BANK
Potential effects of netting agreements not qualifying for statement of financial position offsetting
in HRK million
Gross amounts in statement of financial position
Amounts set off against financial assets
Net amounts in statement of financial position
Financial instruments
Cash collateral pledged
Non-cash financial collateral pledged
Net amount after potential offsetting
Derivatives
56
-
56
(29)
(15)
-
12
Repurchase agreements
6
-
6
-
-
(6)
-
Total
62
-
62
(29)
(15)
(6)
12
Notes to the financial statements
Year ended 31 December 2022
141
Erste&Steiermärkische Bank d.d.
23.Offsetting of financial instruments (continued)
The Bank uses repurchase agreements and master netting agreements as a means of reducing credit risk of derivative and financing transactions. They qualify as potential offsetting agreements. Master netting agreements are relevant for counterparties with multiple derivative contracts. They provide for the net settlement of all the contracts in the event of default of any counterparty. For derivatives transactions the values of assets and liabilities which would be set off as a result of master netting agreements are presented in the column ‘Financial instruments’.
Repurchase agreements are primarily financing transactions. They are structured as a sale and subsequent repurchase of securities at a preagreed price and time. This ensures that the securities remain in hands of lender as collateral in case the borrower defaults on fulfilling any of its obligations. Offsetting effects resulting from repurchase agreements are presented in the column ‘Non-cash financial collateral received/pledged’ respectively. Collateral is presented at fair value of the transferred securities. However, if fair value of collateral exceeds the carrying amount of the receivable/liability from the repo transaction the value is capped at the level of the carrying amount. Remaining position may be secured by cash collateral. Cash and non-cash financial collateral involved in these transactions is restricted from using it by the transferor during the time of the pledge.
For further details regarding repurchase and reverse repurchase transactions refer to Note 24 Transfers of financial assets – repurchase transactions and securities lending.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
142
Repurchase and reverse repurchase agreements
A repurchase agreement is characterized by a sale and an obligation or right to repurchase the asset whereas the repurchase price has already been agreed at the time of contract conclusion.
Securities sold under an agreement to repurchase them at a specified future date are not derecognised from the balance sheet as the Group retains substantially all the risks and rewards of ownership.
The measurement category of financial asset transferred under the repurchase agreement does not change. The asset is presented separately under the original balance sheet item in the ‘thereof pledged as collateral’ lines.
The corresponding cash received is recognised on the balance sheet with a corresponding obligation to return it, under the line item ‘Financial liabilities measured at amortised cost’, sub-items ‘Deposits from banks’ or ‘Deposits from customers’ reflecting the transaction’s economic substance as a loan to the Group.
The difference between the sale and repurchase prices is accrued over the life of the agreement and recognised as interest expense in profit or loss, reported in the line item ‘Interest expenses’ under ‘Net interest income’ in the statement of profit or loss.
Any income (coupon or dividend payment) on the underlying security received by the buyer during the period of the repo transaction is passed on to the Group.
Conversely, securities purchased under agreements to resell them at a specified future date (reverse repurchase agreement) are not recognised on the balance sheet. The consideration paid is recognised on the balance sheet under the line item ‘Financial assets at amortised cost’, sub-items ‘Loans and advances to banks’ and ‘Loans and advances to customers’ reflecting the transaction’s economic substance as a loan by the Group. The difference between the purchase and resale price is accrued over the life of the agreement and recognised as interest income, reported in the statement of profit or loss in the line item ‘Interest income’ under ‘Net interest income’.
GROUP
in HRK million
Carrying amount of transferred assets
Carrying amount of associated liabilities
Carrying amount of transferred assets
Carrying amount of associated liabilities
2021
2022
Repurchase agreements
Financial assets at AC
-
-
2,748
2,709
Financial assets at FVOCI
6
6
1,723
1,834
Total – repurchase agreements
6
6
4,471
4,543
BANK
in HRK million
Carrying amount of transferred assets
Carrying amount of associated liabilities
Carrying amount of transferred assets
Carrying amount of associated liabilities
2021
2022
Repurchase agreements
Financial assets at AC
-
-
2,748
2,709
Financial assets at FVOCI
6
6
1,723
1,834
Total – repurchase agreements
6
6
4,471
4,543
The transferred financial instruments consist of bonds.
Notes to the financial statements
Year ended 31 December 2022
143
Erste&Steiermärkische Bank d.d.
The following table shows the fair values of the transferred assets and associated liabilities that have recourse only on the transferred assets. In the Group and the Bank, these assets and liabilities relate to repo transactions.
BANK
in HRK million
Fair value of transferred assets
Fair value of associated liabilities
Net position
Fair value of transferred assets
Fair value of associated liabilities
Net position
2021
2022
Financial assets at AC
-
-
-
2,748
2,709
39
Financial assets at FVOCI
6
6
-
1,723
1,834
(111)
Total
6
6
0
4,471
4,543
25.Financial assets pledged as collateral
The following financial assets were pledged as collaterals:
GROUP
BANK
in HRK million
2021
2022
2021
2022
Financial assets at amortised cost
1,722
4,094
1,722
4,094
of which debt securities
36
2,784
36
2,784
Financial assets at FVOCI
6
1,723
6
1,723
Total
1,728
5,817
1,728
5,817
The financial assets pledged as collateral consist of bonds and loans.
Collaterals were pledged as a result of repo transactions and collateralised deposits.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
144
GROUP
Financial assets
Financial assets
At AC
Trading assets
Mandato-rily at FVPL
At FVOCI
Total
At AC
Trading assets
Mandato-rily at FVPL
At FVOCI
Total
in HRK million
2021
2022
Bonds and other interest-bearing securities
4,935
75
65
11,943
17,018
10,024
4
39
9,163
19,230
Listed
4,935
75
19
11,903
16,932
10,024
4
10
9,139
19,177
Unlisted
-
-
46
40
86
-
-
29
24
53
Equity-related securities
-
-
10
4
14
-
-
21
4
25
Listed
-
-
-
-
-
-
-
-
2
2
Unlisted
-
-
10
4
14
-
-
21
2
23
Equity holdings
-
-
-
-
-
-
-
-
-
-
Total
4,935
75
75
11,947
17,032
10,024
4
60
9,167
19,255
BANK
Financial assets
Financial assets
At AC
Trading assets
Mandato-rily at FVPL
At FVOCI
Total
At AC
Trading assets
Mandato-rily at FVPL
At FVOCI
Total
in HRK million
2021
2022
Bonds and other interest-bearing securities
4,674
75
60
11,444
16,253
9,721
4
39
8,783
18,547
Listed
4,674
75
14
11,404
16,167
9,721
4
10
8,759
18,494
Unlisted
-
-
46
40
86
-
-
29
24
53
Equity-related securities
-
-
10
4
14
-
-
19
4
23
Listed
-
-
-
-
-
-
-
-
2
2
Unlisted
-
-
10
4
14
-
-
19
2
21
Equity holdings
-
-
-
-
-
-
-
-
-
-
Total
4,674
75
70
11,448
16,267
9,721
4
58
8,787
18,570
Investment funds units are reported within bonds and other interest bearing securities.
Notes to the financial statements
Year ended 31 December 2022
145
Erste&Steiermärkische Bank d.d.
Risk management
27.Risk management
Risk policy and strategy
It is a core function of every bank to take risks in a conscious and selective manner and to manage such risks professionally. The Group’s proactive risk policy and strategy aims at achieving balanced risk and return in order to generate a sustainable and adequate return on equity.
The Group uses a risk management and control system that is proactive and tailored to its business and risk profile. It is based on a clear risk strategy that is consistent with the Group’s business strategy and focused on early identification and management of risks and trends. In addition to meeting the internal goal of effective and efficient risk management, the Bank’s risk management and control systems have been developed to fulfil external and, in particular, regulatory requirements.
Given the Bank’s business strategy, the key risks for the Bank are credit risk, market risk, liquidity risk, and operational risk. The Bank also focuses on managing macroeconomic risks as well as concentrations within and across risk types. In addition, the Bank’s control and risk management framework takes into account a range of other significant risks faced by the banking Group. The Bank always seeks to enhance and complement existing methods and processes, in all areas of risk management.
Risk management organisation
Risk monitoring and control is achieved through a clear organisational structure with defined roles and responsibilities, delegated authorities and risk limits.
The following chart presents an overview of the Bank’s risk management, risk governance and responsibilities.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
146
27.Risk management (continued)
Risk management organization (continued)
Overview of risk management structure
The Management Board, and in particular the Bank’s Chief Risk Officer (CRO), must perform its oversight function within the Bank’s risk management structure. Risk control and management functions within the Bank are performed based on the business and risk appetite approved by the Management Board. The CRO is responsible for the implementation of and adherence to the risk control and risk management strategies across all risk types and business lines.
The Management Board and in particular, the CRO ensure the availability of appropriate infrastructure and staff as well as methods, standards and processes to that effect. The actual identification, measurement, assessment, approval, monitoring, steering and limit setting for the relevant risks are performed at the operating entity level within the Bank.
The Management Board is supported by several divisions established to perform operating risk control functions and exercise strategic risk management responsibilities.
The following risk management functions report directly to the CRO:
_Credit Risk Management Division
_Risk Management Division
_Non-Financial Risk Division
_Corporate Security Division.
Corporate Credit Risk Management Department
The Corporate Risk Management Department within the Credit Risk Management Division implements credit risk management and monitors the balance of credit portfolios of clients that are categorized as belonging to the SME Division, Large Corporate Division, and according to the responsibilities set out in the relevant acts.
The Department analyses credit applications and based on them, issues opinion on the credit risk from the risk perspective. It analyses the projects and evaluates its eligibility for financing from the risk perspective. It also performs an analysis of the Bank's/Groups overall exposure to the client/group of connected customers, monitors early warning signals and controls early collection.
According to financial statements the Department prepares financial rating of a client as one of the components of final rating grade of a client.
Retail Credit Risk Management Department
Retail Risk Management Department within the Credit Risk Management Division manages credit risk and monitors the credit portfolio balance of clients from the Retail Sector. The Department analyses requests for credits and issues an opinion on them from the risk perspective. It performs an analysis of the projects and evaluates its eligibility for financing from the risk perspective. It also performs an analysis of the Bank's overall exposure to the client.
The Department follows Group standards within its scope, coordinates and creates local policies and procedures and monitors their fulfilment. The Department is responsible for organization of early collection process for retail clients as well as review of portfolio quality, in accordance with relevant acts.
Credit Risk Monitoring Department
Credit risk monitoring Department within the Credit Risk Management Division maintains and improves the credit process and its tools and applications for approving and monitoring of credit applications and as well as monitoring of overall exposure on product, client or portfolio level. The Department is responsible for defining rules for approval of credit exposure, approval and deviation analysis, approval competences, covenant monitoring, also maintenance and improvement of early warning signals system, set up and monitoring of limit utilization, system and rules for onboarding procedure of group of connected clients, early and late collection system.
Notes to the financial statements
Year ended 31 December 2022
147
Erste&Steiermärkische Bank d.d.
27.Risk management (continued)
Risk management organization (continued)
The Department follows Group and regulatory standards within its scope of credit risk in corporate, retail and workout processes, initiates, coordinates and creates local policies and procedures and monitors their fulfilment in Bank and its subsidiaries. Also, the Department analyses portfolio and creates reports primarily for internal purposes..
Corporate Workout Department and Retail Work-out Department
Corporate Workout Department and Retail Work-out Department within the Credit Risk Management Division, which follow the business lines in the sales sectors, are in charge of managing and collection of non performing exposure by means of a continuous and systematic development of solutions to eliminate and reduce risks in dealing with work-out clients. They define appropriate collection strategies toward cliens or selected portfolios through distress restructurings or late collection process including litigation, pre-bancruptcy and bankruptcy proceedings, debt sale, debt settlements, write-offs or collection through repossessed asset. In line with expected collection and given methodology are responsible for Stage 3 provision calculation.
Risk Strategy and Reporting Department
The Risk Strategy and Reporting Department within the Risk Management Division takes part in the process of planning the activities of the Group and the Bank from the risk management point of view. It monitors the execution of risk management-related planned and strategically determined goals and plans, both of the Group and the Bank.
The Department monitors risk-related regulatory changes and group standards, initiates, coordinates and creates policies and other procedure, and monitors their fulfilment, all within its scope of activities prescribed by other acts. Also performs the analysis of the structure and quality of portfolios, and prepares reports on the structure and quality of portfolios. It proposes guidelines for the optimization of accepted risks, in order to improve certain asset classes, rating and collateral.
The Department also executes and creates reports related to credit risk with the prescribed dynamics, in compliance with legal regulations and standards of the Group and the Bank.
The Risk Strategy and Reporting Department, together with other departments and Bank organizational units, actively participates in the process of managing data quality and evaluating the adequacy of internal control systems.
Furthermore, the Department adopts policies and procedures that define collateral acceptability and valuation standards and oversee their implementation.
Quantitative Research Department
Quantitative Research Department (QRD) within the Risk Management Division is responsible for implementation of Basel standards, regulatory requirements and guidelines, as well as Erste Group standards with respect to internal rating-based approach for calculation of capital requirements for credit risk and enterprise-wide risk management.
QRD introduces, coordinates the development and participates in development, implementation and monitoring of different types of quantitative models as well as calculation of credit risk parameters which are used for measurement, segmentation and management of credit risks in line with best practice and group standards as well as implementation in the Bank’s processes (including constant enhancement of business processes connected with above mentioned calculations). This includes IRB models and IFRS9 methodology. QRD is responsible for efficiency of implemented models and performs calibration and participates in calibration of models in line with Erste Group principles and participates in validation of the same in collaboration with Erste Group. QRD also reports about the parameters and models and performs modelling of macroeconomic impact on risk models and Bank business as a whole.
QRD strives to achieve holistic approach in managing risks through enterprise-wide risk management. By defining risk strategy and Risk Appetite Statement which includes all risk departments, a framework for responsible and prudent risk taking is ensured. Enterprise-wide risk management encompasses Internal Capital Adequacy Assessment Process (ICAAP) which includes the identification of risks to which the Bank/EBC Group is exposed or might be exposed in the future and the assessment of economic capital adequacy. Identification of risks is performed through risk materiality assessment, concentration risk analysis and stress testing. Material risks are managed through calculation of regulatory and internal capital requirements and through the limit and control systems. QRD calculates the economic capital adequacy on a quarterly basis, i.e. coverage of internal capital requirements, for relevant risks, with internal capital. In addition, through enterprise-wide risk management QRD plans and manages the risk weighted assets, and participates in determination of price for different products using Expected Risk Margin (ERM) and cost of capital, participates in the process of profitability modelling, business model development and risk cost planning.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
148
27.Risk management (continued)
Risk management organization (continued)
Quantitative Research Department (continued)
QRD is also responsible for the creation of the Recovery and Resolution Plan of EBC Group and participates in capital management within its field of responsibility.
Market and Liquidity Risk Management Department
Market and Liquidity Risk Management Department within the Risk Management Division, within the scope of its authority, performs all tasks necessary for market and liquidity risk management in compliance with the rulebooks and procedures related to its scope of authority.
It performs the analysis of the complex market situation, identifies and measures both market and liquidity risks and their parameters. Apart from the above-mentioned activities, the Department is also in charge of the implementation of the Basel II guidelines; it establishes measures for the reduction of risks within the scope of its authority and participates in the process of approving new products of the Financial Markets and Investment Banking Division. It also collaborates with other organizational units with the purpose of improving the quality of market and liquidity risk management.
Operational Risk Management Group
In operational risk management area, Operational Risk Management Group within Non-Financial Risk Division aims to control all organizational units and business processes within the Bank, having in mind that operational risk is characteristic to all activities, processes, products and Bank’s systems based on defined Bank’s risk profile, particularities of business environment and regulatory requests. It collaborates with other organizational units with the purpose of improvement the quality of managing operational risk.
Corporate Security Division
Corporate Security Division is in charge of conducting of tasks related to the security, adequate managing of information system and risk of information system, managing of continuity of operations and crisis management according to Group standards and local policies and standards.
The main objectives of the Division are development and implementation of a security of information system architecture, determination of security objectives in accordance with the Bank's information system strategy, information security policy management, standards, guidelines and other internal acts with a view to achieving and maintaining a satisfactory level of security.
The Division also continuously improves the corporate security incident management system as well as the implementation of new methodologies, tools and technologies to meet all the regulatory requirements and security standards required for the Bank's smoothly managed business. Division also in charge of reports on state of Bank security which are sent to the Management Board and the Supervisory Board.
Furthermore, the Division's objectives are security education and awareness raising of the Bank's employees. In addition, it takes care of the legality of processing personal data in the sense of respecting the General Data Protection Regulation and other regulations related to personal data processing and warns of the necessity of applying regulations on the protection of personal data in cases of actions that may have an impact on privacy and data protection.
Group-wide risk management
Overview
Enterprise wide Risk Management (ERM) includes as its fundamental component the Internal Capital Adequacy Assessment Process (ICAAP) as required under Pillar 2 of the Basel framework and regulatory guides (e.g. ECB Guide to ICAAP).
The ERM framework is designed to support the bank’s management in managing the risk portfolios as well as coverage potential (internal capital) to assure adequate capital reflecting the nature and magnitude of the Bank’s/EBC Group’s risk profile. ERM is tailored to the business and risk profile of the Bank, and reflects the strategic goal of protecting shareholders and senior debt holders while ensuring sustainability of the Bank/EBC Group.
Notes to the financial statements
Year ended 31 December 2022
149
Erste&Steiermärkische Bank d.d.
27.Risk management (continued)
Group-wide risk management (continued)
ERM is a modular and comprehensive management and steering system as well as an essential part of the overall steering and management instruments. The ERM components necessary to ensure all aspects, in particular to fulfill regulatory requirements and to provide an effective internal steering tool, can be clustered as follows:
_Risk appetite statement (RAS), limits and risk strategy;
_Portfolio and risk analysis through Risk materiality assessment (RMA), Concentration risk management and Stress testing;
_Risk-bearing capacity calculation (RCC);
_Capital allocation and performance management;
_Planning of key risk indicators;
_Recovery and resolution planning.
In addition, ERM department participates in the Capital Management Team with a purpose to maintain the appropriate quantity and quality of capital to support planned operations, while at the same time ensuring that regulatory requirements as well as investors’ and stakeholders expectations are fully met. Capital is managed to maintain financial strength, absorb losses so as to withstand adverse economic conditions, allow for growth opportunities and meet risk management and business objectives.
In addition to the ICAAP’s ultimate goal of assuring capital adequacy and sustainability at all times, the ERM components serve to support the Bank’s/EBC Group’s management in pursuing its strategy.
Risk Appetite Statement (RAS)
Risk appetite defines the maximum level of risk EBC Group is willing to accept in pursuing its business goals. The overall approach includes a risk appetite statement, risk limits, and the roles and responsibilities of those overseeing the implementation and monitoring of the risk appetite framework. Limit framework (i.e. risk appetite framework) of EBC Group includes risk limits set in Risk Appetite Statement and Risk Strategy, industry limits and maximum lending limits.
The EBC Group Risk Appetite Statement (RAS) represents a strategic statement that expresses the maximum level of risk that the EBC Group is willing to accept in order to deliver its business objectives. The Group RAS acts as a binding constraint to EBC Group’s business activities within its overall risk appetite via triggers and limits approved by the management board and the risk committee of supervisory board and acknowledged by the supervisory board. It is integrated and embedded into EBC Group’s structural processes; including business and risk strategy, budgeting process, capital and liquidity planning, recovery plan, stress testing and remuneration framework. The EBC Group RAS consists of a set of core risk metrics (capital, liquidity, risk/earnings) providing quantitative direction for overall risk-return steering and qualitative statements in the form of key risk principles that are part of the guidelines for managing risks.
The key objective of the EBC Group RAS is to:
_ensure that EBC Group has sufficient resources to support its business at any given point in time and absorb stress events;
_sets the boundary for the EBC Group’ risk target setting;
_support the group’s financial strength and the robustness of its systems and controls.
Portfolio and risk analytics
EBC Group uses dedicated infrastructure, systems and processes to actively identify, measure, control, report and manage risks within its portfolio. Portfolio and risk analytics processes are designed to quantify, qualify and discuss risks in order to raise awareness to management in a timely manner.
The risk materiality assessment (RMA) determines the materiality of risk types and consequently the risk profile across the Bank and its entities. RMA is an annual process with the purpose of systematically identifying new and assessing all existing risks for EBC Group. Senior management may require to perform RMA on ad hoc basis in addition, in order to address changing operating environment or emerging risks (e.g. interim RMA performed in H1-22 due to Russia-Ukraine conflict). As such, the RMA is an integral part of the ICAAP and serves as a steering tool for senior management.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
150
27.Risk management (continued)
Group-wide risk management (continued)
Insights generated by the assessment are used to improve risk management practices and further mitigate risks within the Group. The assessment also serves as input for the design and definition of the Group’s risk strategy and Risk Appetite Statement. Key outputs and recommendations of the RMA are considered in the scenario design and selection of the comprehensive and reverse stress tests.
Stress testing
Modelling sensitivities of the ECB group’s assets, liabilities and profit or loss provide management steering information and help to optimise EBC Group’s risk-return profile. Stress tests help to factor in severe but plausible scenarios providing further robustness to measurement, steering and management. Risk modelling and stress testing are vital forward-looking elements of the ICAAP. Finally, sensitivities and stress scenarios are considered within the group’s planning process.
EBC Group’s most complex stress testing activities are scenario stress tests that take a comprehensive account of the impact of various economic scenarios, including second-round effects on all risk types (credit, market, liquidity and operational) and effects on the associated volumes of assets and liabilities as well as on profit and loss sensitivities. In addition to the standard scenario-driven stress testing exercises, reverse stress tests are performed to identify a scenario or a combination of scenarios in which viability of the current business model can be questioned.
EBC Group has developed specific tools to translate macroeconomic variables (e.g. GDP or unemployment rate) into risk parameters in order to support the stress testing process.
Risk-bearing Capacity Calculation
The Risk-bearing Capacity Calculation (RCC) describes the methodology of Pillar 2 capital adequacy calculation. In contrast to the normative (regulatory) view of Pillar 1, referring to the Group’s ability to fulfil all of its capital-related regulatory and supervisory requirements and demands, the Risk-bearing Capacity Calculation (RCC) is based on an economic view of Pillar 1+ approach, assuming continuation of Erste Group as expected by the ECB Guide to ICAAP and determines whether the bank has sufficient capital for covering all (regulatory and economic) risks it is exposed to. Economic and normative perspectives at Erste Group are set in a way to mutually inform each other and are integrated into all material business steering activities and decisions. In addition, with applied Pillar 1+ approach the Group increases efficiency and ensures comparability with the Pillar 1 calculation. Based on the results of the RMA, the economic capital is considered for relevant risk types as approved by the management board. The economic capital requirement is then compared to internally available capital (coverage potential) to cover the Group’s risks in Pillar 2. Both economic capital and coverage potential are computed on the CRR scope of consolidation of Erste Group as ultimate parent entity based on IFRS accounting standards.
In addition to Pillar 1 risk types (credit, market and operational risks), in the context of Pillar II, other risk types are also considered within the required economic capital through internal models (e.g. interest rate risk in the banking book, FX induced credit risk for retail, business risk) or via stress test (e.g. residual risk, macroeconomic risk etc.).
The management board and supervisory board (including risk committee of supervisory board) are briefed quarterly on the results of the ICAAP capital adequacy through the Group Risk Report and the Risk Dashboard. The former includes risk profile developments, available capital (coverage potential), consideration of potential losses in stress situations, the degree of the risk limit utilisation and the overall status of capital adequacy. The latter outlines risk profile development in relation to risk appetite.
Risk planning and forecasting
EBC Group Risk Planning framework is essential for the capital allocation and overall financial planning processes and supports the adequate reflection of risks within the strategy, steering and management processes of the group.
Notes to the financial statements
Year ended 31 December 2022
151
Erste&Steiermärkische Bank d.d.
27.Risk management (continued)
Group-wide risk management (continued)
Key risk indicators covered by the Risk Planning framework include indicators that provide an overview of incurred or potential risks, with respect to both portfolio and economic environment developments. Indicators include RWA (and related indicators), port-folio quality indicators (impairments, NPL/NPE and relevant performance indicators etc.), as well as indicators required by the regulatory authorities under the responsibility of the Risk division.
Planning activities are performed in close cooperation with all stakeholders in the group´s overall process and follow a clear governance structure to ensure sound risk planning process.
Risk parameters and rating models
Internal specialist teams develop and continuously improve internal rating models and risk parameters in cooperation with risk managers. All Pillar 1 and 2, as well as IFRS9 models are subject of an annual review of their estimates, considering the inclusion of most recent data in the estimation of risk parameters, as well as a regular cycle of full model review. Model development follows an internal group-wide methodological standard and utilises relevant data covering the respective market. In this way, Erste Group ensures the availability of rating models with the best possible prediction and discriminatory ability across its core regions.
The IRB parameters update for Privates segment, in line with the new PD methodology, was performed in November 2022. In Q4 also regular update of IFRS9 parameters has been performed. The new rating models for corporate-SME clients and Group Corporate and Group Large Corporates were approved by the regulator during 2022 and are valid from January 2023.
Risk-weighted asset management
As risk weighted assets determine the actual regulatory capital requirement of the Bank/EBC Group and influence the capital ratio as a key performance indicator, particular emphasis is devoted to meeting targeted levels of RWA. Insights from monthly RWA analyses are used to improve the calculation infrastructure, the quality of input parameters and data, as well as the most efficient application of the Basel framework. The Bank has established a process of tracking, planning and defining target levels
of RWA. The Bank’s Management Board is regularly informed on the levels of RWA and adherence to the limits set within the Risk Appetite Statement (RAS).
Capital allocation
An important task integral to the risk planning process is the allocation of capital to EBC entities, business lines and segments. This is done via close cooperation between local Enterprise-wide Risk Management, Group Risk Management and Controlling. All insight from the ICAAP and controlling processes is used to allocate capital with a view to risk-return considerations.
Leverage ratio
The leverage ratio represents the relationship between core capital (Tier 1) and leverage exposure according to Article 429 CRR. Essentially, the leverage exposure represents the sum of unweighted on and off balance sheet positions considering valuation and risk adjustments as defined within the CRR. Management Board is informed on the level of leverage ratio for the Bank and EBC Group and on the adherence to defined limits and targets within the Risk Appetite Statement on a quarterly basis.
Recovery plan
In compliance with Act on the Resolution of Credit Institutions and Investment Firms, EBC Group Recovery Plan is submitted to Joint Supervisory Team (JST) as an annex to Erste Group Recovery Plan. The EBC Group Recovery Plan is regularly assessed by ECB and CNB. The EBC Group Recovery Plan identifies potential options for the replenishment of capital and liquidity resources of the bank in order to cope with a range of severe scenarios including both idiosyncratic and market-wide stress. The Recovery Framework is mainly reconciled with the Risk Appetite Framework across indicators and indicator thresholds, ensuring comprehensive enterprise-wide risk management. It is relevant to demonstrate that in a severe stress, which is close to a failing or likely to fail situation, there is sufficient recovery capacity available in order to be able to recover back into the recovery green zone. The recovery governance described in the plan ensures timely identification and proper management of a recovery situation of EBC Group. Furthermore, the assessment of the Group Recovery Plan and the assessment of the overall recovery capacity are part of the Supervisory Review and Evaluation Process (SREP) assessment.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
152
27.Risk management (continued)
Group-wide risk management (continued)
Resolution plan and MREL
The Bank collaborates with the resolution authorities in the drawing up of resolution plans based on Act on the Resolution of Credit Institutions and Investment Firms and EU Regulation No 806/2014 establishing the Single Resolution Mechanism (SRM Regulation).
The legislative framework allows for a multiple-point-of-entry (MPE) or a single-point-of-entry (SPE) resolution strategy. The Resolution Authorities formed a joint decision in the resolution college for Erste Group which defines the MPE approach forming six separate resolution groups with Erste Group’s core CEE subsidiaries and Austria, but with SPE approaches within a country. This results in having resolution groups in AT, CZ, HR, HU, RO and SK. Under the MPE strategy, Erste Group has more than one Resolution Entity Level which is the entry point for resolution. The resolution plans (including resolution strategy and MREL decisions) are regularly updated by the Resolution Authorities and subject to Joint Decision formed in a resolution college by Resolution College Members.
The Bank Recovery and Resolution Directive (BRRD) introduced the Minimum Requirement for own funds and Eligible Liabilities (MREL). MREL notifications are provided by the national resolution authorities on the level of resolution groups and relevant individual subsidiaries of resolution entities, reflecting the resolution strategy, based on the MREL joint decision taken by the resolution college. MREL requirements are expressed as a percentage of the total risk exposure amount (TREA) as well as leverage ratio exposure (LRE).
In May 2022, Erste Group received the Joint Decision determining the minimum requirement for own funds and eligible liabilities for the resolution group in Croatia. The requirement is set including binding intermediate requirements as of 1 January 2022 and binding final requirements as of 1 January 2024. Information on MREL targets have been published on the Banks’ website based on the legal notification released by the Croatian National Bank. MREL metric is integrated into the RAS and Recovery Framework of Erste Group.
Definition and overview
Credit risk arises in the Bank’s traditional lending and investment businesses. It involves both credit losses incurred as a result of borrowers’ default (Stage 3) and expected credit losses (ECL) of non-defaulted borrowers calculated as 12-months ECL (Stage 1) or calculated as lifetime expected credit losses (Stage 2).
Operative credit decisions are made by the responsible credit risk management units.
With the goal of good risk management, all data relevant to credit risk management, performance management and determination of risk-weighted assets and the regulatory capital requirement are regularly input into central database used for credit risk management, while quality of data is regularly controlled.
Therefore, departments within Risk Management regularly use this database for credit risk reporting thereby providing centralised analysis and application of ratios according to unified methods and segmentation across the Bank and Group as a whole. The credit risk reporting comprises regular reports on credit portfolio for external and internal recipients and permits continuous monitoring of credit risk developments, thus enabling management to take control measures. In-house recipients of these reports include, above all, the Supervisory and Management Board as well as risk managers, business unit directors and internal audit staff.
Notes to the financial statements
Year ended 31 December 2022
153
Erste&Steiermärkische Bank d.d.
28. Credit risk review and monitoring (continued)
Internal rating system
Overview
The Bank has in place business and risk strategies, as well as policies for lending and credit approval processes that are reviewed and adjusted regularly, at minimum on a yearly basis. They cover the entire lending business, taking into account the nature, scope and risk level of the transactions and the counterparties involved. Credit approval is also based on the creditworthiness of the customer, the type of credit, collateral, covenant package and other risk mitigation factors involved.
The assessment of counterparty default risk within the Bank is based on the customer’s Probability of Default (PD). For each credit exposure and lending decision, the Bank assigns an internal rating, which is a unique measure of the counterparty default risk. The internal rating of each customer is updated at least on an annual basis (annual rating review). Ratings of customers in weaker rating classes are reviewed with higher frequency.
Besides setting of the capital requirements, the main purpose of the internal ratings is to support the decision-making for lending and for the terms of credit facilities. However, internal ratings also determine the level of decision-making authority within the Bank and the monitoring procedures for existing exposures. At a quantitative level, internal ratings drive the level of required risk pricing and risk allowances.
As mentioned before, internal ratings are the key element of the RWA calculation which is also used in the assessment of economic capital requirement according to Pillar 2 (ICAAP). PD values reflect the 12-month probability of default based on long-term average default rates. The Bank assigns margins of conservatism to the calculated PD depending on the granularity of portfolios and relevant data history. Calibration of PD values is validated annually in line with all the rating methods validations.
Internal ratings take into account all available essential information for the assessment of counterparty default risk. For non-retail borrowers, internal ratings take into account the financial strength of the counterparty, the possibility of external support and other company information. For retail clients, internal ratings are based mainly on behavioural and application scoring, but they also utilise demographic and financial information. Rating ceiling rules on credit quality are applied based on membership in a group of economically related entities and country of main economic activity.
All scorecards, both retail and non-retail, are regularly validated by the central validation unit based on Group-wide standard methodology. Validations are conducted using statistical techniques and the results of this validation process are reported to the management and regulatory bodies. The Bank complies with all Erste Group standards with respect to model development and maintenance process. All new models and modifications of existing models in the Group (rating models and risk parameters), as well as methodology standards, are reviewed by the respective organizational unit of Erste Holding which ensures Group-wide integrity and consistency of models and methodologies. Models are approved by Local Model Committee.
Credit risk classification
The classification of credit assets into risk grades is based on the Bank’s internal ratings. The Bank uses two internal risk scales for risk classification: for customers that have not defaulted, a risk scale of 8 risk grades (for private individuals) and 13 risk grades (for all other segments) is used. Defaulted customers are classified into a separate risk grade.
For the purpose of external reporting, internal rating grades of the Bank are grouped into the following four risk categories:
Low risk: customers with well-established and rather long-standing relationships with the Bank and the Group or large internationally recognised customers. Clients with strong and good financial position and no foreseeable financial difficulties. Retail clients having long relationships with the Bank, or clients with a wide product pool use. No late payments currently or in the most recent 12 months. New business is generally done with clients in this risk category.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
154
28. Credit risk review and monitoring (continued)
Management attention: customers that may have overdue payments or defaults in their credit history or may encounter debt repayment difficulties in the medium-term. Retail clients with limited savings or probable payment problems in the past triggering early collection reminders.
Substandard: customers which are vulnerable to negative financial and economic developments.
Non-performing: customers who meet one or more of the default criteria according to Article 178 of Regulation (EU) No 575/2013 and Croatian National Bank bylaws, which are precisely defined by the Bank’s internal documentation: full repayment unlikely, more than 90 days past due on a material exposure, restructuring resulting in a loss to the lender, realisation of a loan loss or initiation of bankruptcy proceedings. For purposes of analysing non-performing positions, the Bank applies the customer view for all customer segments, including Retail clients; if a customer defaults on one deal then the entire customer’s performing transactions are classified as non-performing.
In the Bank, default status triggers the credit-impairment and the Stage 3 classification under IFRS9 (with more details in subsection Impairment of financial instruments under IFRS 9). Default is recognized when:
_the obligor is past due 90 consecutive days with any material credit obligation to the institution, the parent undertaking or any of its subsidiaries in full; and/or
_the obligor is considered unlikely to pay its credit obligation to the institution, the parent undertaking or any of its subsidiaries in full, in full without realisation of the collateral.
Credit monitoring
In order to manage credit risk timely, regular analysis of client’s risks which includes current rating status, repayment ability, revision of collaterals and compliance with the contracted terms, repayment and other clauses through re-approvals is performed.
The Bank’s goal is to timely recognize any decrease in the quality of credit portfolio which may have material losses for the Bank. The Bank through a re-approval process analyses a complete status of the debtor. The meaning of regular re-approval of credit exposures is an active follow-up on client and portfolio quality and it represents an additional measure of optimisation of credit risk exposure of the Bank.
The Bank performs evaluation of creditworthiness based on all information on client, also taking into consideration prior credit relationships between the Bank and the client.
Early detection of increased risk level
The Bank applies methods of early detection of increased credit risk level in order to make collection more successful even in the case of decrease in credit worthiness and decrease in the quality of credit portfolio. An increased level of credit risk on the level of respective client and portfolio is detected by following all relevant information and foreseen change of variables in the future period which primarily includes client’s prior behaviour in obligations repayment and following market information. Therefore, increased level of credit risk is on the level of the Bank timely detected by following:
_Market conditions,
_Rating changes,
_Delays
_Monitoring of market conditions also involves monitoring of all macroeconomic variables as well as their evaluation in upcoming period.
Notes to the financial statements
Year ended 31 December 2022
155
Erste&Steiermärkische Bank d.d.
Credit risk exposure relates to the sum of the following balance sheet items:
_Other demand deposits to credit institutions;
_Debt instruments held for trading;
_Non-trading debt instruments at fair value through profit or loss (FVPL);
_Debt instruments at fair value through other comprehensive income (FVOCI);
_Debt instruments at amortised cost (AC),
_Trade and other receivables (for disclosure purposes in the tabular summaries below, any contract assets are also included in this category);
_Debt instruments held for sale in disposal groups;
_Finance lease receivables;
_Positive fair value of derivatives;
_Off-balance sheet credit risks (primarily financial guarantees and undrawn irrevocable credit commitments).
The credit risk exposure equates the gross carrying amount (or nominal value in the case of off-balance sheet positions) excluding:
_account loan loss allowances;
_provisions for guarantees;
_any collateral held (including risk transfer to guarantors);
_netting effects;
_other credit enhancements;
_credit risk mitigating transactions.
The following tables show the reconciliation between the gross carrying amount and the net carrying amount of the separate components of the Group’s and the Bank’s credit risk exposure as at 31 December 2022 and 31 December 2021.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
156
29. Credit risk exposure (continued)
Reconciliation between the gross carrying amount and the net carrying amount of the credit risk exposure components
GROUP
BANK
in HRK million
Credit risk exposure
Credit loss allowances
FV adjustments
Net carrying amount
Credit risk exposure
Credit loss allowances
FV adjustments
Net carrying amount
2022
Other demand deposits to credit institutions
670
-
-
670
179
-
-
179
Debt instruments held for trading
197
-
-
197
197
-
-
197
Non-trading debt instruments at FVPL
39
-
-
39
39
-
-
39
Debt securities
39
-
-
39
39
-
-
39
Debt instruments at FVOCI
10,053
(68)
(822)
9,163
9,626
(65)
(778)
8,783
Debt securities
10,053
(68)
(822)
9,163
9,626
(65)
(778)
8,783
Debt instruments at AC
73,336
(2,287)
-
71,049
67,875
(1,998)
-
65,877
Debt securities
10,029
(5)
-
10,024
9,723
(2)
-
9,721
Loans and advances to banks
2,893
(3)
-
2,890
2,600
(2)
-
2,598
Loans and advances to customers
60,414
(2,279)
-
58,135
55,552
(1,994)
-
53,558
Trade and other receivables
1,422
(125)
-
1,297
931
(52)
-
879
Finance lease receivables
3,063
(45)
-
3,018
-
-
-
-
Off balance-sheet exposures
17,920
(258)
-
-
15,968
(248)
-
-
Financial guarantees
5,518
(89)
-
-
5,080
(85)
-
-
Loan commitments
12,402
(169)
-
-
10,888
(163)
-
-
Other commitments
-
-
-
-
-
-
-
-
Total
106,700
(2,783)
(822)
85,433
94,815
(2,363)
(778)
75,954
GROUP
BANK
in HRK million
Credit risk exposure
Credit loss allowances
FV adjustments
Net carrying amount
Credit risk exposure
Credit loss allowances
FV adjustments
Net carrying amount
2021
Other demand deposits to credit institutions
442
-
-
442
110
-
-
110
Debt instruments held for trading
145
-
-
145
145
-
-
145
Non-trading debt instruments at FVPL
65
-
-
65
60
-
-
60
Debt securities
65
-
-
65
60
-
-
60
Debt instruments at FVOCI
11,853
(81)
90
11,943
11,350
(78)
94
11,444
Debt securities
11,853
(81)
90
11,943
11,350
(78)
94
11,444
Debt instruments at AC
62,278
(2,950)
-
59,328
57,321
(2,602)
-
54,719
Debt securities
4,940
(5)
-
4,935
4,676
(2)
-
4,674
Loans and advances to banks
4,410
(4)
-
4,406
4,325
(3)
-
4,322
Loans and advances to customers
52,928
(2,941)
-
49,987
48,320
(2,597)
-
45,723
Trade and other receivables
1,459
(189)
-
1,270
773
(81)
-
692
Finance lease receivables
2,604
(58)
-
2,546
-
-
-
-
Off balance-sheet exposures
11,095
(168)
-
11,095
9,297
(160)
-
9,297
Financial guarantees
4,933
(81)
-
-
4,413
(79)
-
-
Loan commitments
6,162
(87)
-
-
4,884
(81)
-
-
Other commitments
-
-
-
-
-
-
-
-
Total
89,941
(3,446)
90
86,834
79,056
(2,921)
94
76,467
Breakdown of credit risk exposure
On the next pages the credit risk volume is categorized in the following way:
_exposure class and financial instrument;
_industry and IFRS 9 treatment;
_region and risk category;
_business segment and risk category.
Notes to the financial statements
Year ended 31 December 2022
157
Erste&Steiermärkische Bank d.d.
29. Credit risk exposure (continued)
Subsequently credit risk exposure is categorized by geographical segment and risk category and geographical segment and IFRS 9 treatment.
After that credit risk is categorized in the following way:
_non-performing credit risk exposure by business segment and credit loss allowances;
_credit risk exposure, forbearance exposure, and credit loss allowances;
_financial instrument and collateral;
_credit risk exposure neither past due nor credit impaired by financial instrument and risk category;
_credit risk exposure past due and not impaired by financial instrument and collateralisation.
Credit risk exposure by industry and IFRS 9 treatment
GROUP
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Credit risk exposure (AC and FVOCI)
Not subject to IFRS 9 impairment
Total
2022
Natural Resources & Commodities
2,070
1,022
112
3
3,207
57
3,264
Energy
38
5,287
9
1
5,335
520
5,855
Construction and building materials
3,628
1,215
201
41
5,085
1,258
6,343
Automotive
814
160
24
-
998
75
1,073
Cyclical Consumer Products
2,827
520
125
5
3,477
379
3,856
Non-Cyclical Consumer Products
2,054
171
132
15
2,372
337
2,709
Machinery
800
141
12
12
965
322
1,287
Transportation
5,378
502
72
8
5,960
35
5,995
TMT; Telecommunications, Media, Technology and Paper & Packaging
1,291
109
7
-
1,407
202
1,609
Healthcare & Services
2,109
187
65
1
2,362
322
2,684
Hotels, Gaming & Leisure Industry
4,253
2,060
194
71
6,578
85
6,663
Real Estate
5,163
487
76
57
5,783
29
5,812
Public Sector
27,550
2,283
-
-
29,833
4
29,837
Financial Institutions
2,843
8
1
-
2,852
265
3,117
Private Households
19,907
5,530
1,154
5
26,596
-
26,596
Total
80,725
19,682
2,184
219
102,810
3,890
106,700
GROUP
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Credit risk exposure (AC and FVOCI)
Not subject to IFRS 9 impairment
Total
2021
Natural Resources & Commodities
3,330
210
140
2
3,682
-
3,682
Energy
2,206
98
12
-
2,316
7
2,323
Construction and building materials
3,322
311
233
44
3,910
-
3,910
Automotive
641
76
22
-
739
-
739
Cyclical Consumer Products
2,288
265
147
5
2,705
-
2,705
Non-Cyclical Consumer Products
1,971
320
206
27
2,524
-
2,524
Machinery
685
17
22
-
724
2
726
Transportation
5,349
490
121
8
5,968
-
5,968
TMT; Telecommunications, Media, Technology and Paper & Packaging
1,123
55
31
-
1,209
-
1,209
Healthcare & Services
1,368
416
86
3
1,873
-
1,873
Hotels, Gaming & Leisure Industry
2,371
3,781
275
59
6,486
2
6,488
Real Estate
2,744
282
128
58
3,212
3
3,215
Public Sector
24,569
2,185
-
-
26,754
75
26,829
Financial Institutions
2,915
7
2
-
2,924
121
3,045
Private Households
20,167
2,944
1,529
5
24,645
-
24,645
Other
60
-
-
-
60
-
60
Total
75,109
11,457
2,954
211
89,731
210
89,941
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
158
29. Credit risk exposure (continued)
Credit risk exposure by industry and IFRS 9 treatment (continued)
BANK
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Credit risk exposure (AC and FVOCI)
Not subject to IFRS 9 impairment
Total
2022
Natural Resources & Commodities
1,944
989
106
3
3,042
57
3,099
Energy
-
5,156
8
1
5,165
517
5,682
Construction and building materials
3,090
906
185
41
4,222
1,185
5,407
Automotive
619
119
20
-
758
73
831
Cyclical Consumer Products
2,048
365
99
5
2,517
344
2,861
Non-Cyclical Consumer Products
1,695
107
123
15
1,940
316
2,256
Machinery
750
123
12
12
897
316
1,213
Transportation
4,795
394
47
8
5,244
26
5,270
TMT; Telecommunications, Media, Technology and Paper & Packaging
1,041
79
7
-
1,127
156
1,283
Healthcare & Services
1,697
142
35
1
1,875
302
2,177
Hotels, Gaming & Leisure Industry
4,100
1,790
123
71
6,084
73
6,157
Real Estate
5,019
415
69
57
5,560
27
5,587
Public Sector
26,380
2,276
-
-
28,656
4
28,660
Financial Institutions
2,207
6
1
-
2,214
305
2,519
Private Households
15,904
4,939
965
5
21,813
-
21,813
Total
71,289
17,806
1,800
219
91,114
3,701
94,815
BANK
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Credit risk exposure (AC and FVOCI)
Not subject to IFRS 9 impairment
Total
2021
Natural Resources & Commodities
3,209
195
133
2
3,539
-
3,539
Energy
2,049
80
12
-
2,141
7
2,148
Construction and building materials
2,747
184
218
44
3,193
-
3,193
Automotive
501
43
18
-
562
-
562
Cyclical Consumer Products
1,376
188
99
5
1,668
-
1,668
Non-Cyclical Consumer Products
1,639
259
194
27
2,119
-
2,119
Machinery
642
6
22
-
670
2
672
Transportation
4,926
301
73
8
5,308
-
5,308
TMT; Telecommunications, Media, Technology and Paper & Packaging
915
38
31
-
984
-
984
Healthcare & Services
997
345
49
3
1,394
-
1,394
Hotels, Gaming & Leisure Industry
2,256
3,463
212
59
5,990
2
5,992
Real Estate
2,691
202
121
58
3,072
3
3,075
Public Sector
23,406
2,184
-
-
25,590
75
25,665
Financial Institutions
2,603
6
2
-
2,611
116
2,727
Private Households
16,093
2,597
1,255
5
19,950
-
19,950
Other
60
-
-
-
60
-
60
Total
66,110
10,091
2,439
211
78,851
205
79,056
Notes to the financial statements
Year ended 31 December 2022
159
Erste&Steiermärkische Bank d.d.
29. Credit risk exposure (continued)
Credit risk exposure by region and risk category
The following table presents the credit risk exposure of the Group and the Bank divided by region and risk category as at 31 December 2022 and 31 December 2021.
GROUP
in HRK million
Low risk
Management attention
Substandard
Non-performing
Credit risk exposure
2022
Erste Group markets
87,686
4,569
570
2,148
94,973
Austria
799
8
-
-
807
Croatia
85,213
4,557
570
2,146
92,486
Serbia
4
3
-
2
9
Slovakia
1,654
-
-
-
1,654
Czech Republic
3
-
-
-
3
Hungary
13
1
-
-
14
Other EU countries
3,931
23
7
3
3,964
Other industrialised countries
1,161
13
-
5
1,179
Emerging markets
3,705
2,516
135
228
6,584
South Eastern Europe/CIS
3,473
2,515
135
228
6,351
Asia
223
-
-
-
223
Latin America
2
-
-
-
2
Middle East/Africa
7
1
-
-
8
Total
96,483
7,121
712
2,384
106,700
2021
Erste Group markets
70,707
5,127
884
2,872
79,590
Austria
548
3
-
1
552
Croatia
68,721
5,121
884
2,870
77,596
Serbia
6
3
-
1
10
Slovakia
1,413
-
-
-
1,413
Czech Republic
15
-
-
-
15
Hungary
4
-
-
-
4
Other EU countries
3,884
16
17
2
3,919
Other industrialised countries
517
3
-
5
525
Emerging markets
2,886
2,544
206
271
5,907
Southeastern Europe/CIS
2,780
2,540
206
271
5,797
Asia
102
1
-
-
103
Latin America
-
-
-
-
-
Middle East/Africa
4
3
-
-
7
Total
77,994
7,690
1,107
3,150
89,941
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
160
29. Credit risk exposure (continued)
Credit risk exposure by region and risk category (continued)
BANK
in HRK million
Low risk
Management attention
Substandard
Non-performing
Credit risk exposure
2022
Erste Group markets
83,128
3,400
326
1,968
88,822
Austria
562
8
-
1
571
Croatia
80,892
3,390
326
1,966
86,574
Serbia
4
1
-
1
6
Slovakia
1,654
-
-
-
1,654
Czech Republic
3
-
-
-
3
Hungary
13
1
-
-
14
Other EU countries
3,732
19
7
2
3,760
Other industrialised countries
1,147
11
-
5
1,163
Emerging markets
576
471
1
22
1,070
South Eastern Europe/CIS
450
471
1
22
944
Asia
117
-
-
-
117
Latin America
2
-
-
-
2
Middle East/Africa
7
-
-
-
7
Total
88,583
3,901
334
1,997
94,815
2021
Erste Group markets
66,730
3,808
593
2,603
73,734
Austria
419
3
-
1
423
Croatia
64,874
3,805
593
2,601
71,873
Serbia
5
-
-
1
6
Slovakia
1,413
-
-
-
1,413
Czech Republic
15
-
-
-
15
Hungary
4
-
-
-
4
Other EU countries
3,745
13
18
2
3,778
Other industrialised countries
513
2
-
5
520
Emerging markets
498
500
-
26
1,024
Southeastern Europe/CIS
493
498
-
26
1,017
Asia
1
-
-
-
1
Latin America
-
-
-
-
-
Middle East/Africa
4
2
-
-
6
Total
71,486
4,323
611
2,636
79,056
Notes to the financial statements
Year ended 31 December 2022
161
Erste&Steiermärkische Bank d.d.
29. Credit risk exposure (continued)
Credit risk exposure by business segment and risk category
The reporting segment of the Group and the Bank is based on the matrix organization by business segment and risk category. The following tables show the credit risk exposure of the Group and the Bank broken down by reporting segments and risk category as at 31 December 2022 and 31 December 2021.
Credit risk exposure by business segment and risk category
GROUP
in HRK million
Low risk
Management attention
Substandard
Non-performing
Credit risk exposure
2022
Retail
23,382
4,175
508
1,292
29,357
Small and Medium Enterprises
21,492
996
105
791
23,384
Large Corporates
13,468
377
78
158
14,081
Public sector
11,008
350
-
3
11,361
Commercial Real Estate
3,968
1
21
132
4,122
Group Market Trading
152
-
-
-
152
Group Market Financial Institutions
1,281
20
-
-
1,301
Asset/Liability Management
21,497
1,200
-
-
22,697
Other
235
2
-
8
245
Total
96,483
7,121
712
2,384
106,700
2021
Retail
20,455
4,281
591
1,698
27,025
Small and Medium Enterprises
16,207
1,353
282
1,049
18,891
Large Corporates
8,550
9
232
147
8,938
Public sector
9,703
519
-
4
10,226
Commercial Real Estate
1,870
349
2
234
2,455
Group Market Trading
248
15
-
-
263
Group Market Financial Institutions
1,056
7
-
-
1,063
Asset/Liability Management
19,610
1,155
-
-
20,765
Other
295
2
-
18
315
Total
77,994
7,690
1,107
3,150
89,941
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
162
29. Credit risk exposure (continued)
Credit risk exposure by business segment and risk category (continued)
BANK
in HRK million
Low risk
Management attention
Substandard
Non-performing
Credit risk exposure
2022
Retail
19,625
2,556
237
1,051
23,469
Small and Medium Enterprises
19,210
758
68
705
20,741
Large Corporates
12,571
72
8
99
12,750
Public sector
10,928
29
-
2
10,959
Commercial Real Estate
3,959
-
21
132
4,112
Group Market Trading
152
-
-
-
152
Group Market Financial Institutions
1,272
18
-
-
1,290
Asset/Liability Management
20,682
466
-
-
21,148
Other
184
2
-
8
194
Total
88,583
3,901
334
1,997
94,815
2021
Retail
17,195
2,567
274
1,373
21,409
Small and Medium Enterprises
13,712
875
103
873
15,563
Large Corporates
8,508
7
232
147
8,894
Public sector
9,478
40
-
4
9,522
Commercial Real Estate
1,868
348
2
229
2,447
Group Market Trading
248
15
-
-
263
Group Market Financial Institutions
1,047
5
-
-
1,052
Asset/Liability Management
19,279
464
-
-
19,743
Other
151
2
-
10
163
Total
71,486
4,323
611
2,636
79,056
The amount written off during 2022, which is still subject to enforcement activity, totals HRK 305 million for the Group and HRK 293 million for the Bank (2021: HRK 381 million for the Group and for the Bank).
30. Non-performing credit risk exposure and allowances for credit risks
In the 12 months period ended on 31 December 2022, the non-performing credit risk exposure in the Bank decreased by HRK 639 million from HRK 2.6 billion as at 31 December 2021 to HRK 2.0 billion as at 31 December 2022. During the same period, the non-performing credit risk exposure in the Group decreased by HRK 766 million, from HRK 3.2 billion as at 31 December 2021 to HRK 2.8 billion as at 31 December 2022.
Credit risk allowances were decreased by HRK 558 million in the Bank, from HRK 2.9 billion as at 31 December 2021 to HRK 2.4 billion as at 31 December 2022. The decrease of credit risk allowances in the Group was HRK 662 million from HRK 3.4 billion as at 31 December 2021 to HRK 2.8 billion as at 31 December 2022.
Coverage of the non-performing credit risk exposure by credit risk allowances in the Group increased from 109.4% up to 116.8% and in the Bank from 110.8% na 118.3%, which is under the influence of higher decrease of non-performing exposure relative to the decrease of credit loss allowances. Share of non-performing credit risk exposure in total credit risk exposure in the Group amounted to 2.2% (2021: 3.5%) and 2.1% in the Bank (2021: 3.3%).
Notes to the financial statements
Year ended 31 December 2022
163
Erste&Steiermärkische Bank d.d.
31. Measurement of expected credit loss
The general principles and standards for credit risk allowances within the Bank follow the Erste Group’s procedures, international standards and are described in internal policies.
The calculation of credit loss allowances is done on a monthly basis, on exposure/asset level, in the currency of the exposure. To calculate the loss allowance, Bank applies an expected credit loss (ECL) model based on a three stages approach that either leads to a 12-months ECL or to a Lifetime ECL.
The stage approach means that if the financial asset is not recognised as purchased or originated credit-impaired financial asset (POCI), i.e. financial asset which is credit-impaired at initial recognition, then depending on the impairment status and the assessment of the increase of credit risk, the financial asset is assigned into one of the following stages:
Classification into stages and definition of credit -impared financial instruments
Stage 1
It includes:
a) Financial assets at initial recognition, except:
i) POCI assets
ii) Assets the initial (on-balance) recognition of which is triggered by first usage of a binding loan commitment given to a counterparty for which a significant credit deterioration occurred since sign-up (initial recognition) of that loan commitment, but which is not in default at the time of such first usage
b) Financial assets which fulfil the low credit risk conditions;
c) Financial assets without significant increase in credit risk since initial recognition irrespective of their credit quality
In stage 1 the credit risk loss allowances are calculated as 12-months ECL.
Stage 2
It includes financial assets with a significant increase in credit risk, but not credit-impaired at the reporting date, including initially recognized assets described under 1) a) ii) above.
In stage 2 the credit risk loss allowances are calculated as lifetime ECL.
Stage 3
It includes financial assets which are credit-impaired at the reporting date. In principle, financial instrument becomes credit-impaired when customer meets one or more of the default criteria according to Article 178 of Regulation (EU) No 575/2013 and Croatian National Bank bylaws, more precisely defined in Internal rating system part.
In stage 3 the credit loss allowances are calculated as lifetime ECL.
POCI
POCI includes financial instruments that were credit-impaired at initial recognition, irrespective of whether they are still credit-impaired at the reporting date. Expected credit losses against POCI exposures are always calculated on a lifetime basis and are reflected in the credit-adjusted effective interest rate at initial recognition.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
164
31. Measurement of expected credit loss (continued)
Quantitative criteria for significant increase in credit risk (SICR) indicators include adverse changes in annualized lifetime probability of default and in lifetime probability of default with significance being assessed by reference to a mix of relative and absolute change thresholds. The bank has established thresholds for significant increases in credit risk based on both a percentage (relative) and absolute change in PD compared to initial recognition. SICR occurs for a particular financial instrument, when both the relative and the absolute thresholds are breached.
The relative measure is calculated as a ratio between current annualised LT PD and annualised LT PD value on initial recognition, considering remaining maturity of the instrument.
Relative thresholds for SICR assessment
Threshold interval (x times)
in EUR million
Min
Max
2022
Erste&Steiermärkische Bank d.d.
1.13
3.13
Total
1.13
3.13
2021
Erste&Steiermärkische Bank d.d.
1.13
3.13
Total
1.13
3.13
There are certain portfolios where SICR quantitative criteria are assessed based on the ratings rather than PDs. Predefined rating notches’ downgrade leads to SICR recognition. These rules are applied primarily to leasing and factoring business receivables.
The absolute threshold refers to difference of LT PD on initial recognition and current LT PD. In the Bank it is set to a maximum of 50 bps and serves as a back-stop for migrations between the best ratings (LT PDs considered for remaining maturity). In such cases, relative thresholds may be breached, however overall LT PD is very low, and therefore SICR is not triggered.
For migration back to Stage 1 there are no additional cure periods established for quantitative criteria other than those already established in general credit risk practice (e.g. for rating improvement).
Qualitative criteria
Qualitative SICR indicators include forbearance-type flags (identification of regulatory forbearance), work-out transfer flags (when the account starts being monitored by the work-out department), information from the early-warning system (if it is not sufficiently considered in the rating) and fraud indicators. The assignment of some of the qualitative indicators inherently relies on experienced credit risk judgment being exercised adequately and in a timely manner. The related group-wide and entity-level credit risk controlling policies and procedures (adapted as necessary in the light of transition to IFRS 9) ensure the necessary governance framework. These indicators are used internally for identification of insolvency or increased probability that a borrower will enter bankruptcy and there is increased risk of default in the foreseeable future.
Besides the qualitative indicators defined on a client level, the assessment of a significant increase in credit risk is performed on a portfolio level if the increase in credit risk on individual instruments or at a client level is available only with a certain time lag or is observable exclusively on a portfolio level. We have introduced additional portfolio level SICR assessment criteria due to the war in Ukraine (implemented in 2022) and related economic impacts. Similarly, from 2020 till Q3-2022 portoflio assessment due to the Covid-19 was established.
For migration back to Stage 1 there is additional cure period for the portfolio which is being classified as Stage 2 due to the early-warning signal and it lasts 180 days.
Notes to the financial statements
Year ended 31 December 2022
165
Erste&Steiermärkische Bank d.d.
31. Measurement of expected credit loss (continued)
Backstop
A backstop is applied and the financial instruments are considered to have experienced a SICR if the borrower is more than 30 days past due on contractual payments.
Low credit risk exemption
The ‘low credit risk exemption’ allowed by IFRS 9 for ‘investment grade’ assets or other assets deemed ‘low risk’ (and resulting in 12 months expected credit losses being calculated irrespective of SICR quantitative measures) has been implemented with limitations in the Group. Thus, the potential activation of this exemption is limited to particular types of debt instruments and counterparty categories, and only if supported by sufficient ‘low risk’ evidence. On this basis, the ‘low risk exemption’ is expected to occasionally apply to some debt security exposures and only exceptionally to loans. The Bank doesn't use ‘low risk exemption’ criteria for measuring a significant increase in credit risk.
Measuring ECL – explanation of inputs and measurement
Credit loss allowances are calculated individually or collectively.
The individual calculation approach is applied in case of exposures to significant defaulted customers in Stage 3 or POCI. It consists in the individual assessment of the difference between the gross carrying amount and the present value of the expected cash flows, which are estimated by workout or risk managers. The discounting of the cash flows is based on the effective interest rate (POCI: credit-adjusted effective interest rate).
A defaulted customer is classified as individually significant if the total on- and off-balance exposure exceeds a predefined materiality limit. Otherwise, the customer is considered insignificant and a rule-based (collective) approach is used for the calculation of the related credit loss allowance as the product of gross carrying amount and LGD, where the LGD depends on characteristics such as time in default.
For exposures to non-defaulted customers (i.e. in Stage 1 and Stage 2), collective allowances are calculated according to a rule-based approach irrespective of the significance of the customer. The calculation of collective allowances requires grouping the related exposures into homogenous clusters on the basis of shared risk characteristics. The grouping criteria may differ based on the customer segment (retail, corporate) and include product type, collateral type, repayment type, loan to value band and credit rating band.
The calculation of credit loss allowances is done on a monthly basis on a single exposure level and in the domestic currency. To compute the collective credit loss allowance, the Bank applies an expected credit loss (ECL) model based on a three-stage approach that leads to either a 12-month ECL or to a lifetime ECL. ECL is the discounted product of exposure at default (EAD) that also includes a credit conversion factor in the case of off-balance sheet exposures, probability of default (PD) and loss given default (LGD), defined as follows:
_PD represents the likelihood of a borrower defaulting on its financial obligation (per definition of default below), either over next 12 months (1Y PD) for Stage 1 exposures or over the remaining lifetime (LT PD) for Stage 2 and 3 and POCI exposures.
_EAD is based on the amounts the Bank expects to be owed at the time of default, over next 12 months (1Y EAD) for Stage 1 exposures, or over the remaining lifetime (LT EAD) for Stage 2 and 3 and POCI exposures. The estimation includes current balance, expected repayments and expected drawings up to the current contractual limit by the time of default.
_LGD represents the Bank’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type and seniority of claim and availability of collateral or other credit support. LGD is expressed as a percentage loss per unit exposure at the time of default (EAD).
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
166
31. Measurement of expected credit loss (continued)
Lifetime parameters
The LT PD is developed through observation of historical defaults from initial recognition through the lifetime of the loans. It is assumed to be same across all assets in the same portfolio and rating band.
The 1Y and LT EADs are determined based on the expected payment profiles, which vary by product type. The LT EAD calculation utilizes repayment schedule or repayment type (annuity, linear, bullet). In case of undrawn commitments, credit conversion factor is estimated for reflecting the expected credit exposure in the EAD.
LGD is estimated as a life-time curve for any point in time, based on the historical loss observations.
The risk parameters used in the ECL calculation take into account available information at the reporting date about past events, current conditions and forecasts on future economic trends. Generally, the risk parameters applied in the calculation of collective allowances differ from the risk parameters compliant to capital requirement regulations, calculated on a through-the-cycle basis if the characteristics of the respective portfolio in combination with IFRS standards necessitate this.
The following tables give an overview over the development of credit loss allowances per balance sheet line item.
In column ‘Additions’ increases of CLA due to the initial recognition of financial instruments during the current reporting period are disclosed. Releases of CLA following the derecognition of the related financial instruments are reported in column ‘Derecognitions’.
In column ‘Transfers between stages’ CLA net changes due to changes in credit risk that triggered re-assignments of the related financial instruments from Stage 1 (at 1 January 2022 or initial recognition date) to Stages 2 or 3 at 31 December 2022 or vice-versa are reported. The effects of transfers from Stage 1 to Stages 2 or 3 on the related CLAs are adverse and presented in lines attributable to Stages 2 or 3. The effects of transfers from Stages 2 or 3 to Stage 1 on the related CLAs are favourable and presented in line ‘Stage 1’.
The P&L-neutral effect from cross-stage transferring of the related CLA amounts recognised prior to stage re-assignments are presented above in column ‘Changes in credit risk’.
Any other changes in credit risk which do not trigger a transfer between Stage 1 and Stage 2 or 3 or vice-versa are disclosed in column ‘Changes in credit risk’.
Notes to the financial statements
Year ended 31 December 2022
167
Erste&Steiermärkische Bank d.d.
32. Development of credit loss allowances (continued)
Movement in credit loss allowances – debt securities (continued)
GROUP
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2021
Dec 2021
Stage 1
(2)
(2)
2
-
(3)
-
(5)
Stage 2
-
-
-
-
-
-
-
Stage 3
-
-
-
-
-
-
-
Total
(2)
(2)
2
-
(3)
-
(5)
BANK
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2022
Dec 2022
Stage 1
(2)
(2)
-
-
2
-
(2)
Stage 2
-
-
-
-
-
-
-
Stage 3
-
-
-
-
-
-
-
Total
(2)
(2)
-
-
2
-
(2)
BANK
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2021
Dec 2021
Stage 1
(1)
-
-
-
(1)
-
(2)
Stage 2
-
-
-
-
-
-
-
Stage 3
-
-
-
-
-
-
-
Total
(1)
-
-
-
(1)
-
(2)
The year-end total GCAs of AC debt securities that were initially recognized (purchased) during the year 2022 and not sold by 31 December 2022 amounts to HRK 4,453 million for the Group and HRK 4,416 million for the Bank (2021: HRK 2,728 million for the Group and HRK 2,464 million for the Bank). Increase of carrying amount of AC debt securities is mostly result of purchased bonds issued by the Republic of Croatia in amount of HRK 3,303 million.
The GCA of AC debt securities that were held at 1 January 2022 and derecognized (matured) during the year 2022 amounts to HRK 151 million for the Group and for the Bank (2021: HRK 183 million for the Group and nil for the Bank), of which changes in GCA that contributed to changes in credit loss allowances are result of sales made during the reporting period in the amount of HRK 151 million for the Group and for the Bank (2021: nil for the Group and for the Bank).
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
168
32. Development of credit loss allowances (continued)
Movement in credit loss allowances – loans and advances to banks (continued)
GROUP
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2021
Dec 2021
Stage 1
(10)
(1)
8
-
(1)
-
(4)
Stage 2
-
-
-
-
-
-
-
Stage 3
-
-
-
-
-
-
-
Total
(10)
(1)
8
-
(1)
-
(4)
BANK
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2022
Dec 2022
Stage 1
(3)
(12)
12
-
1
-
(2)
Stage 2
-
-
-
-
-
-
-
Stage 3
-
-
-
-
-
-
-
Total
(3)
(12)
12
-
1
-
(2)
BANK
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2021
Dec 2021
Stage 1
(10)
(1)
8
-
-
-
(3)
Stage 2
-
-
-
-
-
-
-
Stage 3
-
-
-
-
-
-
-
Total
(10)
(1)
8
-
-
-
(3)
The year-end total GCA of AC loans and advances to banks that were initially recognized during the year 2022 and not fully de-recognized by 31 December 2022 amounts to HRK 2,802 million for the Group and HRK 2,748 million for the Bank (2021: HRK 1,111 million for the Group and for the Bank).
The GCA of AC loans and advances to banks that were held at 1 January 2022 and fully derecognized (matured) during the year 2022 amounts to HRK 4,508 million and for the Group and HRK 4,454 million for the Bank (2021: HRK 764 million for the Group and for the Bank).
Notes to the financial statements
Year ended 31 December 2022
169
Erste&Steiermärkische Bank d.d.
32. Development of credit loss allowances (continued)
GROUP
in HRK million
As of
Additions
Derecogni-tions
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2022
Dec 2022
Stage 1
(241)
(92)
40
162
(49)
-
-
(1)
(181)
General governments
(12)
(6)
1
-
8
-
-
(2)
(11)
Other financial corporations
(1)
(8)
9
-
-
-
-
-
-
Non-financial corporations
(128)
(53)
20
122
(55)
-
-
1
(93)
Households
(100)
(25)
10
40
(2)
-
-
-
(77)
Stage 2
(751)
(172)
107
(239)
358
-
-
(2)
(699)
General governments
(15)
(1)
7
(1)
(1)
-
-
(1)
(12)
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(555)
(120)
84
(135)
267
-
-
-
(459)
Households
(181)
(51)
16
(103)
92
-
-
(1)
(228)
Stage 3
(1,839)
-
263
(5)
(139)
2
423
(4)
(1,299)
General governments
-
-
-
-
-
-
-
-
-
Other financial corporations
(9)
-
2
-
-
-
7
-
-
Non-financial corporations
(782)
-
159
(1)
(15)
1
122
(1)
(517)
Households
(1,048)
-
102
(4)
(124)
1
294
(3)
(782)
POCI
(110)
-
2
-
3
-
5
-
(100)
General governments
-
-
-
-
-
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(108)
-
2
-
2
-
5
-
(99)
Households
(2)
-
-
-
1
-
-
-
(1)
Total
(2,941)
(264)
412
(82)
173
2
428
(7)
(2,279)
GROUP
in HRK million
As of
Additions
Derecogni-tions
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2021
Dec 2021
Stage 1
(280)
(91)
33
45
51
-
-
1
(241)
General governments
(14)
(2)
1
1
2
-
-
-
(12)
Other financial corporations
(5)
(1)
1
-
4
-
-
-
(1)
Non-financial corporations
(140)
(61)
22
23
28
-
-
-
(128)
Households
(121)
(27)
9
21
17
-
-
1
(100)
Stage 2
(552)
(136)
67
(190)
59
-
-
1
(751)
General governments
(3)
(3)
3
(7)
(5)
-
-
-
(15)
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(405)
(117)
49
(80)
(3)
-
-
1
(555)
Households
(144)
(16)
15
(103)
67
-
-
-
(181)
Stage 3
(2,244)
(55)
239
(8)
(268)
11
484
2
(1,839)
General governments
(1)
-
-
-
1
-
-
-
-
Other financial corporations
-
-
-
-
(9)
-
-
-
(9)
Non-financial corporations
(1,016)
(33)
143
-
(100)
10
212
2
(782)
Households
(1,227)
(22)
96
(8)
(160)
1
272
-
(1,048)
POCI
(71)
-
11
-
(55)
-
5
-
(110)
General governments
-
-
-
-
-
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(70)
-
11
-
(54)
-
5
-
(108)
Households
(1)
-
-
-
(1)
-
-
-
(2)
Total
(3,147)
(282)
350
(153)
(213)
11
489
4
(2,941)
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
170
32. Development of credit loss allowances (continued)
Movement in credit loss allowances – loans and advances to customers (continued)
BANK
in HRK million
As of
Additions
Derecogni-tions
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2022
Dec 2022
Stage 1
(188)
(83)
34
156
(50)
-
-
(1)
(132)
General governments
(9)
(5)
1
-
7
-
-
(2)
(8)
Other financial corporations
(1)
(8)
9
-
-
-
-
-
-
Non-financial corporations
(121)
(49)
18
122
(56)
-
-
1
(85)
Households
(57)
(21)
6
34
(1)
-
-
-
(39)
Stage 2
(683)
(171)
102
(219)
341
-
-
(1)
(631)
General governments
(15)
(1)
7
(1)
(1)
-
-
(1)
(12)
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(512)
(119)
83
(130)
256
-
-
-
(422)
Households
(156)
(51)
12
(88)
86
-
-
-
(197)
Stage 3
(1,616)
-
206
(2)
(106)
1
389
(3)
(1,131)
General governments
-
-
-
-
-
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(717)
-
143
-
-
-
118
(1)
(457)
Households
(899)
-
63
(2)
(106)
1
271
(2)
(674)
POCI
(110)
-
2
-
3
-
5
-
(100)
General governments
-
-
-
-
-
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(108)
-
2
-
2
-
5
-
(99)
Households
(2)
-
-
-
1
-
-
-
(1)
Total
(2,597)
(254)
344
(65)
188
1
394
(5)
(1,994)
BANK
in HRK million
As of
Additions
Derecogni-tions
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2021
Dec 2021
Stage 1
(223)
(85)
29
38
53
-
-
-
(188)
General governments
(11)
(2)
1
-
3
-
-
-
(9)
Other financial corporations
(4)
(1)
1
-
3
-
-
-
(1)
Non-financial corporations
(133)
(57)
20
23
26
-
-
-
(121)
Households
(75)
(25)
7
15
21
-
-
-
(57)
Stage 2
(485)
(135)
59
(178)
55
-
-
1
(683)
General governments
(2)
(3)
3
(7)
(6)
-
-
-
(15)
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(365)
(116)
44
(78)
2
-
-
1
(512)
Households
(118)
(16)
12
(93)
59
-
-
-
(156)
Stage 3
(2,044)
(50)
206
(4)
(188)
1
461
2
(1,616)
General governments
(1)
-
-
-
1
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(964)
(28)
137
-
(68)
-
204
2
(717)
Households
(1,079)
(22)
69
(4)
(121)
1
257
-
(899)
POCI
(71)
-
11
-
(55)
-
5
-
(110)
General governments
-
-
-
-
-
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
-
Non-financial corporations
(70)
-
11
-
(54)
-
5
-
(108)
Households
(1)
-
-
-
(1)
-
-
-
(2)
Total
(2,823)
(270)
305
(144)
(135)
1
466
3
(2,597)
Notes to the financial statements
Year ended 31 December 2022
171
Erste&Steiermärkische Bank d.d.
32. Development of credit loss allowances (continued)
Movement in credit loss allowances – loans and advances to customers (continued)
The column ‘Changes in credit risk’ also captures the passage-of-time adverse effect (‘unwinding correction’) over the lifetime expected cash shortfalls of AC loans and advances to customers that were assigned to Stage 3 for any period throughout the year, as well as of any POCI loans and advances to customers. This adverse effect amounted to HRK 16 million for the Group and HRK 8 million for the Bank (2021: HRK 21 million for the Group and HRK 13 million for the Bank) cumulatively for the year 2022, which also reflects the unrecognised interest income out of the related AC loans and advances to customers throughout the year.
The column ‘Insignificant modifications (net)’ reflects the effect on CLA arising from contractual modifications of loans and advances to customers at AC which do not trigger their full derecognition. The use of CLA triggered by full or partial write-offs of AC loans and advances to customers is reported in column ‘Write-offs’.
One significant driver of the CLA movements for the year has been the transfer of the related instruments across different impairment stages. The year-end GCA of AC loans and advances to customers that were assigned at 31 December 2022 to a different stage compared to 1 January 2022 (or to the initial recognition date, if originated during the year) are summarized below:
GROUP
Transfers between Stage 1 and Stage 2
Transfers between Stage 2 and Stage 3
Transfers between Stage 1 and Stage 3
POCI
in HRK million
To Stage 2 from Stage 1
To Stage 1 from Stage 2
To Stage 3 from Stage 2
To Stage 2 from Stage 3
To Stage 3 from Stage 1
To Stage 1 from Stage 3
To Defaulted from Non-Defaulted
To Non-Defaulted from Defaulted
2022
General governments
63
8
-
-
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
Non-financial corporations
4,324
1,827
94
66
81
-
-
33
Households
3,194
854
141
80
82
15
-
4
Total
7,581
2,689
235
146
163
15
-
37
GROUP
Transfers between Stage 1 and Stage 2
Transfers between Stage 2 and Stage 3
Transfers between Stage 1 and Stage 3
POCI
in HRK million
To Stage 2 from Stage 1
To Stage 1 from Stage 2
To Stage 3 from Stage 2
To Stage 2 from Stage 3
To Stage 3 from Stage 1
To Stage 1 from Stage 3
To Defaulted from Non-Defaulted
To Non-Defaulted from Defaulted
2021
General governments
505
50
-
-
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
Non-financial corporations
1,478
693
142
10
43
-
-
1
Households
1,597
401
155
102
176
34
-
-
Total
3,580
1,144
297
112
219
34
-
1
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
172
32. Development of credit loss allowances (continued)
Movement in credit loss allowances – loans and advances to customers (continued)
BANK
Transfers between Stage 1 and Stage 2
Transfers between Stage 2 and Stage 3
Transfers between Stage 1 and Stage 3
POCI
in HRK million
To Stage 2 from Stage 1
To Stage 1 from Stage 2
To Stage 3 from Stage 2
To Stage 2 from Stage 3
To Stage 3 from Stage 1
To Stage 1 from Stage 3
To Defaulted from Non-Defaulted
To Non-Defaulted from Defaulted
2022
General governments
63
8
-
-
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
Non-financial corporations
4,161
1,815
93
63
78
-
-
33
Households
2,789
723
122
76
60
6
-
4
Total
7,013
2,546
215
139
138
6
-
37
BANK
Transfers between Stage 1 and Stage 2
Transfers between Stage 2 and Stage 3
Transfers between Stage 1 and Stage 3
POCI
in HRK million
To Stage 2 from Stage 1
To Stage 1 from Stage 2
To Stage 3 from Stage 2
To Stage 2 from Stage 3
To Stage 3 from Stage 1
To Stage 1 from Stage 3
To Defaulted from Non-Defaulted
To Non-Defaulted from Defaulted
2021
General governments
505
36
-
-
-
-
-
-
Other financial corporations
-
-
-
-
-
-
-
-
Non-financial corporations
1,389
671
104
8
41
-
-
1
Households
1,443
312
126
97
140
21
-
-
Total
3,337
1,019
230
105
181
21
-
1
The year-end total GCA of the AC loans and advances to customers that were initially recognized during the year 2022 and not fully de-recognized by 31 December 2022 amounts to HRK 20,405 million for the Group and HRK 19,436 million for the Bank (2021: to HRK 13,729 million for the Group and HRK 13,016 million for the Bank), of which changes in GCA that contributed to changes in credit loss allowances are result of significant contractual modification in the amount of HRK 2,124 million for the Group and for the Bank (2021: HRK 2,360 million for the Group and for the Bank) and purchases made during the reporting period in the amount of HRK 263 million for the Group and for the Bank ( 2021: HRK 317 million for the Group and for the Bank).
The GCA of the AC loans and advances to customers that were held at 1 January 2022 and fully derecognized (mainly due to matured) during the year 2022 amounts to HRK 9,545 million for the Group and HRK 9,214 million for the Bank (2021: HRK 7,094 million for the Group and HRK 6,711 million for the Bank), of which changes in GCA that contributed to changes in credit loss allowances are result of significant contractual modification in the amount of HRK 1,474 million for the Group and for the Bank (2021: HRK 1,742 million for the Group and for the Bank) and sales made during the reporting period in the amount of HRK 19 million for the Group and for the Bank ( 2021: HRK 1 million for the Group and for the Bank).
The undiscounted amount of the lifetime expected credit losses considered in the initial measurement of the AC loans and advances to customers initially recognized and identified as POCI during the year 2022 amounted to HRK 11 million for the Group and for the Bank (2021: HRK 55 million for the Group and for the Bank).
Notes to the financial statements
Year ended 31 December 2022
173
Erste&Steiermärkische Bank d.d.
32. Development of credit loss allowances (continued)
GROUP
in HRK million
As of
Additions
Derecogni-tions
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2022
Dec 2022
Stage 1
(25)
(14)
16
-
2
-
-
-
(21)
Stage 2
(6)
(2)
5
(1)
-
-
-
-
(4)
Stage 3
(158)
(2)
54
(1)
(22)
-
38
(8)
(99)
POCI
-
-
-
-
(1)
-
-
-
(1)
Total
(189)
(18)
75
(2)
(21)
-
38
(8)
(125)
GROUP
in HRK million
As of
Additions
Derecogni-tions
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2021
Dec 2021
Stage 1
(24)
(12)
10
1
-
-
-
-
(25)
Stage 2
(5)
-
3
(2)
(2)
-
-
-
(6)
Stage 3
(195)
(4)
31
(5)
(34)
-
41
8
(158)
POCI
-
-
-
-
-
-
-
-
-
Total
(224)
(16)
44
(6)
(36)
-
41
8
(189)
BANK
in HRK million
As of
Additions
Derecogni-tions
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2022
Dec 2022
Stage 1
(6)
(14)
12
-
3
-
-
-
(5)
Stage 2
(4)
(2)
4
-
-
-
-
-
(2)
Stage 3
(71)
(2)
6
-
(11)
-
34
-
(44)
POCI
-
-
-
-
(1)
-
-
-
(1)
Total
(81)
(18)
22
-
(9)
-
34
-
(52)
BANK
in HRK million
As of
Additions
Derecogni-tions
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2021
Dec 2021
Stage 1
(8)
(9)
7
-
4
-
-
-
(6)
Stage 2
(1)
(1)
-
(1)
(1)
-
-
-
(4)
Stage 3
(79)
(2)
4
-
(14)
-
20
-
(71)
POCI
-
-
-
-
-
-
-
-
-
Total
(88)
(12)
11
(1)
(11)
-
20
-
(81)
The year-end total GCA of the trade and other receivables that were initially recognized during the year 2022 and not fully de-recognized by 31 December 2022 amounts to HRK 702 million for the Group and HRK 695 million for the Bank (2021: HRK 713 million for the Group and HRK 585 million for the Bank), of which changes in GCA that contributed to changes in credit loss allowances are result of purchases made during the reporting period in the amount of HRK 684 million for the Group and for the Bank ( 2021: HRK 564 million for the Group and for the Bank).
The GCA of the trade and other receivables that were held on 1 January 2022 and fully de-recognized (matured) during the year 2022 amounts to HRK 610 million for the Group and HRK 497 million for the Bank (2021: HRK 450 million for the Group and HRK 417 million for the Bank), of which changes in GCA that contributed to changes in credit loss allowances are result of write-offs made during the reporting period in the amount of HRK 14 million for the Group and HRK 13 million for the Bank ( 2021: HRK 13 million for the Group and for the Bank).
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
174
32. Development of credit loss allowances (continued)
GROUP
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2022
Dec 2022
Stage 1
(28)
(1)
2
-
7
(1)
(21)
Stage 2
(53)
-
-
(11)
17
-
(47)
Stage 3
-
-
-
-
-
-
-
Total
(81)
(1)
2
(11)
24
(1)
(68)
GROUP
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2021
Dec 2021
Stage 1
(40)
(1)
1
2
12
(2)
(28)
Stage 2
(31)
-
2
(17)
(7)
-
(53)
Stage 3
-
-
-
-
-
-
-
Total
(71)
(1)
3
(15)
5
(2)
(81)
BANK
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2022
Dec 2022
Stage 1
(25)
(1)
2
-
7
(1)
(18)
Stage 2
(53)
-
-
(11)
17
-
(47)
Stage 3
-
-
-
-
-
-
-
Total
(78)
(1)
2
(11)
24
(1)
(65)
BANK
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2021
Dec 2021
Stage 1
(37)
(1)
1
2
12
(2)
(25)
Stage 2
(31)
-
2
(17)
(7)
-
(53)
Stage 3
-
-
-
-
-
-
-
Total
(68)
(1)
3
(15)
5
(2)
(78)
One significant driver of the above presented CLA movements for the year has been the transfer of the related instruments across different stages. The year-end GCAs of FVOCI debt securities that were assigned at 31 December 2022 to a different stage compared to 1 January 2022 (or to the initial recognition date, if purchased during the year) are summarized in the table below:
Transfers between Stage 1 and Stage 2 – debt instrument financial assets
Notes to the financial statements
Year ended 31 December 2022
175
Erste&Steiermärkische Bank d.d.
32. Development of credit loss allowances (continued)
Movement in credit loss allowances – debt instrument financial assets (continued)
The year-end GCA of the debt securities at FVOCI that were initialy recognized during year 2022 and not fully derecognized by 31 December 2022 amounts to 249 million for the Group and for the Bank (2021: HRK 2,082 million for the Group and for the Bank).
The GCA of the debt securities at FVOCI that were held at 1 January 2022 and fully derecognized during the year 2022 amounts to HRK 2,047 million for the Group and for the Bank (2021: HRK 1,370 million for the Group and HRK 1,332 million for the Bank), of which changes in GCA that contributed to changes in credit loss allowances are result of sales made during the reporting period in the amount of HRK 1,084 million for the Group and for the Bank ( 2021: nil for the Group and for the Bank).
Finance lease receivables:
GROUP
in HRK million
As of
Additions
Charge-offs
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2022
Dec 2022
Stage 1
(9)
-
2
5
(4)
-
-
(1)
(7)
Stage 2
(24)
-
9
(9)
5
-
-
-
(19)
Stage 3
(25)
-
9
-
-
-
-
(3)
(19)
POCI
-
-
-
-
-
-
-
-
-
Total
(58)
-
20
(4)
1
-
-
(4)
(45)
GROUP
in HRK million
As of
Additions
Charge-offs
Transfers between stages
Changes in credit risk
Insignificant modifications
Write-offs
Other
As of
Jan 2021
Dec 2021
Stage 1
(5)
(6)
1
3
(2)
-
-
-
(9)
Stage 2
(18)
-
1
(6)
(1)
-
-
-
(24)
Stage 3
(29)
-
6
-
(2)
-
-
-
(25)
POCI
-
-
-
-
-
-
-
-
-
Total
(52)
(6)
8
(3)
(5)
-
-
-
(58)
The use of CLA triggered by full or partial write-offs of finance lease receivables is reported in column ‘Write-offs’.
One significant driver of the CLA movements for the year has been the transfer of the related instruments across impairment stages. The year-end GCA of finance lease receivables that were assigned at 31 December 2022 to a different stage compared to 1 January 2022 (or to the initial recognition date, if originated during the year) are summarized below:
GROUP
in HRK million
2021
2022
Transfers between Stage 1 and Stage 2
249
481
To Stage 2 from Stage 1
142
302
To Stage 1 from Stage 2
107
179
Transfers between Stage 2 and Stage 3
25
4
To Stage 3 from Stage 2
19
3
To Stage 2 from Stage 3
6
1
Transfers between Stage 1 and Stage 3
6
3
To Stage 3 from Stage 1
5
3
To Stage 1 from Stage 3
1
0
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
176
32. Development of credit loss allowances (continued)
Movement in credit loss allowances – finance lease receivables (continued)
The year-end total GCA of the finance lease receivables that were initially recognised during the reporting period and not fully de-recognised by 31 December 2022 amounts to HRK 129 million for the Group and nil for the Bank (2021: HRK 910 million for the Group and nil for the Bank).
The GCA of the finance lease receivables that were held at 1 January 2022 and fully derecognised during the year 2022 amounts to HRK 1,440 million for the Group and HRK nil for the Bank (2021: HRK 994 million for the Group and nil for the Bank).
Movement in credit loss allowances – loan commitments and financial guarantees
GROUP
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2022
Dec 2022
Stage 1
94
95
(37)
(17)
(94)
1
42
Stage 2
55
-
(31)
92
73
-
189
Defaulted
19
-
(16)
2
19
3
27
Total
168
95
(84)
77
(2)
4
258
GROUP
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2021
Dec 2021
Stage 1
69
82
(17)
(9)
(30)
(1)
94
Stage 2
39
-
(7)
25
(2)
-
55
Defaulted
42
-
(15)
1
(6)
(3)
19
Total
150
82
(39)
17
(38)
(4)
168
BANK
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2022
Dec 2022
Stage 1
88
90
(35)
(17)
(90)
-
36
Stage 2
54
-
(31)
92
71
-
186
Defaulted
16
-
(13)
-
22
1
26
Total
158
90
(79)
75
3
1
248
BANK
in HRK million
As of
Additions
Derecognitions
Transfers between stages
Changes in credit risk
Other
As of
Jan 2021
Dec 2021
Stage 1
60
79
(16)
(8)
(27)
-
88
Stage 2
36
-
(6)
24
-
-
54
Defaulted
35
-
(14)
-
(5)
-
16
Total
131
79
(36)
16
(32)
-
158
One significant driver of the CLA movements for the year has been the transfer of the related instruments across different stages. The year-end notional amounts of loan commitments and financial guarantees that were assigned at 31 December 2022 to a different stage compared to 1 January 2022 (or to the initial recognition date, if originated during the year) are summarized below:
Notes to the financial statements
Year ended 31 December 2022
177
Erste&Steiermärkische Bank d.d.
32. Development of credit loss allowances (continued)
Movement in credit loss allowances – loan commitments and financial guarantees (continued)
Transfers between stages – loan commitments and financial guarantees
GROUP
BANK
in HRK million
2021
2022
2021
2022
Transfers between Stage 1 and Stage 2
621
2,197
456
1,996
To Stage 2 from Stage 1
337
1,937
228
1,797
To Stage 1 from Stage 2
284
260
228
199
Transfers between Stage 2 and Stage 3
25
16
25
14
To Stage 3 from Stage 2
3
15
2
14
To Stage 2 from Stage 3
66
1
64
0
Transfers between Stage 1 and Stage 3
211
15
201
11
To Stage 3 from Stage 1
3
12
0
11
To Stage 1 from Stage 3
208
3
201
0
The year-end nominal amounts of unused off-balance commitments and financial guarantees that were initially recognised during the year 2022 and not fully derecognised by 31 December 2022 amounts to HRK 7,786 million for the Group and HRK 7,316 million for the Bank (2021: HRK 5,380 million for the Group and HRK 5,005 million for the Bank), of which changes in GCA that contributed to changes in credit loss allowancse are result of significant contractual modification in the amount of HRK 144 million for the Group and for the Bank (2021: HRK 155 million for the Group and for the Bank) and purchases made during the reporting period in the amount of HRK 5 million for the Group and for the Bank ( 2021: HRK 35 million for the Group and for the Bank).
The nominal amounts of unused off-balance commitments or financial guarantees that were held at 1 January 2022 and fully de-recognised during the year 2022 amounts to HRK 3,206 million for the Group and HRK 2,793 million for the Bank (2021: HRK 2,429 million for the Group and HRK 2,110 million for the Bank), of which changes in GCA that contributed to changes in credit loss allowances are result of significant contractual modification in the amount of HRK 116 million for the Group and for the Bank (2021: HRK 103 million for the Group and for the Bank).
33. Scenarios used in forward looking information and COVID-19 Effect
Overview on scenarios used in forward-looking information
Incorporation of forward-looking information
Parameters are determined to reflect the risk as a ‘point-in-time’ measure and with consideration of forward-looking information (‘FLI’). This results in using a baseline forecast and a several alternative scenarios for selected macroeconomic variables. The alternative scenarios are derived, together with their probabilities of occurrence, as a deviation from baseline forecasts. The baseline forecasts are, with a few exceptions, internally determined by Erste Group’s research department. Given multiple scenarios, the ‘neutral’ PDs (and also LGDs, with a few exceptions) are adjusted through macro models which link relevant macroeconomic variables with risk drivers. Same macro-shift models as for external and internal stress test are employed. Forward looking information is incorporated for first three years of ECL measurement. Measurement of the remaining lifetime returns back to through the cycle observations in the year four immediately.
Thus, the unbiased, probability weighted ECL considering FLI is derived with the weights representing the occurrence probabilities of each macroeconomic scenario. Typical macroeconomic variables may include real gross domestic product, unemployment rate, inflation rate, production index as well as market interest rates. The selection of variables also depends on the availability of reliable forecasts for the given local market. Nevertheless, main indication of the estimated economic development can be predicted through GDP development. In addition, economic effects of the war in Ukraine led to increases of the inflation and/or the interest rates. Macro-shift models were adjusted to reflect expected effects of those into credit risk parameters. In the table below we are disclosing expected development of inflation in Croatia. Disclosures are based on the relevancy in the macro-shift model.
EBC group reviewed the FLI in the fourth quarter of 2022 according to the disclosed forecasts for baseline, downside and upside scenarios. EBC group decided to keep 40% probability of occurrence assigned to baseline forecast due tothe unstable development of the geo-political situation – war in Ukraine.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
178
33. Scenarios used in forward looking information and COVID-19 Effect (continued)
In December 2021, the specific situation of the Covid-19 pandemic was addressed in FLI via the lagging of the macroeconomic variables in credit risk parameters, i.e. variables of 2020 and 2021 were included as additional predictors for future values of credit risk parameters. Considering the improvement of the situation (it is expected that new variants, including omicron, are more contagious, but with lower hospitalisation rate), the Bank decided to update FLI based on the forecasts for years 2023-2025, i.e., no lagging is applied; however macro-variables’ historical development was adjusted for the Covid-19 period (2020-2021) in order to reflect compensatory effect of the state support measures.
Baseline, upside and downside scenarios of GDP development
Scenario
Probability weight
2022
2023
2024
2025
2022
Erste&Steiermärkische Bank d.d.
Upside
1%
5.5
3.2
4.7
6.1
Baseline
40%
5.5
1.0
2.5
2.5
Downside
59%
5.5
(3.9)
(1.0)
0.4
2021
2022
2023
2024
2021
Erste&Steiermärkische Bank d.d.
Upside
1%
(8.0)
12.4
10.8
9.9
Baseline
40%
(8.0)
8.7
4.8
4.5
Downside
59%
(8.0)
(1.0)
(1.2)
1.0
Scenario
Probability weight
2022
2023
2024
2025
2022
Erste&Steiermärkische Bank d.d.
Upside
1%
10.5
5.5
2.2
1.7
Baseline
40%
10.5
6.5
3.0
3.0
Downside
59%
10.5
8.8
2.7
3.4
2021
2022
2023
2024
2021
Erste&Steiermärkische Bank d.d.
Upside
1%
2.6
3.1
4.0
3.3
Baseline
40%
2.6
2.5
2.6
1.5
Downside
59%
2.6
1.1
1.1
0.6
In order to reflect on the higher volatility of macro-economic variables estimates and significantly higher downward risk of macro-economic recovery due to current developments of the war in Ukraine we have introduced a conservative downside scenario with relatively high probability of occurrence as shown in the GDP overview table above.
EBC group recognizes additional challenges caused by the ESG (environmental, social and governance) risks. We are in the process of analyses how to incorporate these risks into ECL measurement. In the Risk Materiality Assessment, climate and environment-related risks are overall assessed as medium and therefore classified as material with stable outlook. We have not included additional overlays for ESG risks for year-end 2021. However, due to our considerate approach to the current situation we believe that ECL represents the best estimate of the expected credit losses as of 31 December 2022.
Collective assessment
As of December 2022, in addition to standard SICR assessment, EBC group applied stage overlays rules, i.e. transfer into Stage 2 based on pre-defined portfolio characteristics, due to the uncertainty caused by the war in Ukraine and the energy crisis. This approach was aligned with Erste Group and business lines and approved by the respective governance bodies. Until fourth quarter of 2022, EBC group had in place overlays addressing Covid-19 as well. Improved pandemic situation over 2022 enabled discontinuation of Covid-19 related overlays.
Notes to the financial statements
Year ended 31 December 2022
179
Erste&Steiermärkische Bank d.d.
33. Scenarios used in forward looking information and COVID-19 Effect (continued)
Covid-19 Effect
The Covid-19 pandemic caused high uncertainty in the global economy and on the global markets. Social distancing rules and lockdown restrictions imposed by governments led to economic slow-down and a significant drop of revenues across industries. Unprecedented state aid packages (e.g. state guarantees, bridge financing, the state temporarily paying workers’ salaries to avoid redundancies, and moratoria programs) were introduced in Croatia to support citizens and companies. While such measures mitigate the negative economic effects, they complicate a timely reflection of a potential deterioration of the loan portfolios.
The European Banking Authority (EBA) has issued Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis in 2020., and accordingly to that, the Croatian Government applied non-legislative moratorium. During 2020. certain measures were introduced to mitigate the effects of the special circumstances caused by the coronavirus epidemic like introduction of the Stand-still arrangement, loans for liquidity and working capital with a repayment period of up to three years; moratoria on credit liabilities, and which continued to be implemented in 2021. As of 31 December 2022, there were no active measures subject to EBA-compliant moratoria on the Bank and the Group level.
Since March 2020, risk management and business divisions run a joint initiative aiming to reflect on changed economic environment, provid-ing a harmonised guidance and focused industry approach within Erste Group. E.g. in the course of the Covid-19 crisis, industries and sub-industries were categorised into critical, high, medium or low risk according to the expected impacts from Covid-19 based on a combination of research material, feedback collected from client meetings and single name analyses.
The categorizations were regularly reviewed on a 12-month rolling forecast basis to take current developments into account. The last review was done in October 2022 and led to discontinuation of this industries’ classification due to the overall stabilization of the Covid-19 situation and its effects. Additionally, new considerations related to economic downturn induced by the war in Ukraine would be overlapping with the potential economic effects of the Covid-19. It is not feasible to distinguish them under current situation.
War in Ukraine
The Ukraine-Russia war, intensified challenges for both risk and business divisions: a rally in energy prices on the one hand and disruptions in supply chains on the other hand. The first ones had implications on various industries, mainly those with energy intensive production processes, but also impacting segments with high fuel cost shares. Issues with supply chains are managed by affected clients with diverse measures aiming to safeguard the business activity and liquidity (amongst others: active working capital management, targeted stocking-up, output adaptation, renegotiations with off takers etc.), in some cases also by ensuring backup/liquidity financing. Developments as mentioned above are reflected in the regular updates of the industry strategies.
In June 2022, EBC group implemented rules for stage overlays due to the war in Ukraine (UA war overlays) as a combination of industries with correlation to economic downturn (cyclical industries) and one-year IFRS PD. These rules were defined on top of existing criteria mentioned in the section ‘Qualitative criteria’ (Stage 2 identification based on the early warning signal and negative information about geopolitical risk in March 2022).
In addition to cyclical industries, from September 2022 EBC Group has introduced additional Energy stage overlay due to the current distortions in the energy market with implications on gas/energy availability and price. Two-folds effects were identified. Effects of gas rationing/shortage on clients either due to energy intensive production processes or relying on gas as a primary input in their business processes. Vulnerability is driven by gas dependency, (limited) substitution possibilities and implications of a substitution on financials, hedging and price mechanisms. Within the industry Natural Resources and Commodities, Metals and Chemical subindustries were identified as being most affected. All companies belonging to the Energy sector as the whole industry can potentially be affected by the massive shortages and distortions in the current energy market: price volatility, margin calls, price caps, adverse weather environment for hydro power, fixed off-take contracts (putting off-takers at risk when stopped and / or limiting producers of renewable energy profiting from the higher prices), exceptional taxes, etc. All customers belonging to these industries / sub-industries were migrated to Stage 2. Exemptions to these migrations are allowed based on the individual review and documentation.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
180
33. Scenarios used in forward looking information and COVID-19 Effect (continued)
Furthermore, since the previous mentioned overlys are applicable mainly for Corporate portfolio, to cover future uncertainties related to the higher inflation in Privates portfolio, the additional overlay for Privates portfolio was defined in November 2022. Therefore, Privetes clients with DSTI (Debt service to income) indicator greater than 50% and rating valid on relevant report date B2 or worse are classified as stage 2.
The table below shows volumes for the cyclical industries category and energy dependent (sub)industries.
Credit risk exposure and credit loss allowances by industry and IFRS9 treatment – cyclical industries
BANK
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Credit risk exposure (AC and FVOCI)
Not subject to IFRS 9 impairment
Total
Credit loss allowances
2022
Natural Resources & Commodities
1,945
989
106
3
3,043
-
3,043
(116)
of which cyclical
-
148
-
-
148
-
148
(7)
Energy
-
5,156
8
1
5,165
-
5,165
(212)
Construction and building materials
3,087
906
185
41
4,219
-
4,219
(252)
of which cyclical
-
894
-
5
899
-
899
(58)
Automotive
619
119
20
-
758
-
758
(27)
of which cyclical
-
113
-
-
113
-
113
(7)
Cyclical Consumer Products
2,051
364
99
5
2,519
-
2,519
(99)
Non-Cyclical Consumer Products
1,695
107
123
15
1,940
-
1,940
(110)
Machinery
750
123
12
12
897
-
897
(16)
of which cyclical
-
123
-
-
123
-
123
(6)
Transportation
4,795
394
47
8
5,244
-
5,244
(79)
of which cyclical
-
367
-
-
367
-
367
(32)
TMT and paper & packaging
1,064
79
7
-
1,150
-
1,150
(19)
of which cyclical
-
40
-
40
-
40
(3)
Healthcare & Services
1,699
142
35
2
1,878
-
1,878
(45)
of which cyclical
-
91
-
91
-
91
(10)
Hotels, Gaming & Leisure Industry
4,100
1,790
123
71
6,084
-
6,084
(252)
of which cyclical
-
1,401
4
1,405
-
1,405
(123)
Real Estate
5,018
415
69
57
5,559
-
5,559
(140)
of which cyclical
-
367
-
21
388
-
388
(34)
Public Sector
26,378
2,487
-
-
28,865
4
28,869
(135)
Financial Institutions
23,527
147
1
-
23,675
231
23,906
(31)
Private Households
15,906
4,936
965
5
21,812
-
21,812
(840)
Other
-
-
-
-
-
-
-
-
Total
92,634
18,154
1,800
220
112,808
235
113,043
(2,373)
of which cyclical (including Cyclical Consumer Products)
2,051
3,908
99
35
6,093
-
6,093
(379)
2021
Agriculture and forestry
1,186
99
87
-
1,372
-
1,372
(85)
Mining
41
9
-
-
50
-
50
(1)
Manufacturing
4,237
353
330
44
4,964
3
4,967
(330)
Energy and water supply
2,055
80
12
-
2,147
7
2,154
(48)
Construction
2,184
223
167
4
2,578
-
2,578
(203)
Trade
3,278
302
190
27
3,797
-
3,797
(218)
Transport and communication
5,292
321
84
8
5,705
-
5,705
(120)
Hotels and restaurants
1,187
3,174
192
59
4,612
2
4,614
(505)
Financial and insurance services
16,926
60
2
-
16,988
115
17,103
(31)
Real estate and housing
2,132
91
47
58
2,328
3
2,331
(86)
Services
929
366
58
6
1,359
-
1,359
(82)
Public administration
19,595
2,178
-
-
21,773
75
21,848
(131)
Education, health and art
1,323
281
10
-
1,614
-
1,614
(40)
Households
16,093
2,597
1,255
5
19,950
-
19,950
(1,032)
Other
179
12
5
-
196
-
196
(12)
Total
76,637
10,146
2,439
211
89,433
205
89,638
(2,924)
Notes to the financial statements
Year ended 31 December 2022
181
Erste&Steiermärkische Bank d.d.
33. Scenarios used in forward looking information and COVID-19 Effect (continued)
Effect on Expected Credit Loss
As described above, an increase of the ECL might result from a re-assessment of the credit risk parameters and a migration to worse stages either via significant increase in credit risk (SICR) or a default.
The discontinuation of Covid-19 related overlays in fourth quarter of 2022 led to the zero additional transfers into Stage 2 (HRK 3,303 million in 2021) and ECL allocation (HRK 243 million in 2021) due to Covid-19.
Exposure in Stage 2 due to the application of the rules for Ukraine war overlays stood at for cyclical industries HRK 3,327 million in 2022 and HRK 5,780 million for energy overlays in 2022, with additional ECL allocated in the amount of HRK 157 million for cyclical industries and HRK 164 million for energy overlays.
We have re-assessed credit risk parameters based on the new macro-scenarios FLI overlay. We will continue monitoring of the macro and macro-prediction development in order to reflect up-to-date information in our credit risk parameters. GDP scenarios and weights are shown in the table Baseline, upside and downside scenarios of GDP development.
Scenario simulation presents sensitivity analyses taking into consideration only changes due to the different values of PDs, if baseline, up-side or downside FLI scenarios had 100% weight. Sensitivities of these scenarios are calculated in comparison to current production - weighted scenarios FLI shifted - PDs (weights and scenarios are disclosed in the ‘“Incorporation of forward-looking information’” section above). Both staging and resulting ECL were simulated with the scenario PDs.
The incorporation of 100% baseline scenario instead of the currently applied probability weighted scenario, would lead to a decrease of Stage 2 exposure by HRK 11 million (2021: HRK 246 million), resulting in an ECL drop by HRK 24 million (2021: HRK 245 million).
The downside scenario would lead to additional HRK 16 million of exposure migration to Stage 2 in comparison with probability weighted FLI (2021: HRK 309 million), resulting in ECL increase of HRK 16 million (2021: HRK 178 million).
For the ECL change a positive sign (+) equals a release while a negative sign (-) equals an allocation. Values presented as sensitivities are results of internal simulations.
Forward looking information (FLI) and stage overlays due to the Energy crisis
Impact on credit risk exposure
BANK
Current status - parameters (FLI shifted)
Simulations - difference to FLI shifts effect
Stage 1
Stage 2
Total
Stage 2 affected by
Upside scenario
Baseline scenario
Downside scenario
in HRK million
Covid-19 overlays
Energy overlays
FLI shifts
2022
Erste&Steiermärkische Bank d.d.
92,634
18,154
110,788
-
5,780
90
22
11
(16)
2021
Erste&Steiermärkische Bank d.d.
76,637
10,146
86,783
3,305
-
223
307
246
(309)
Impact on credit loss allowances
BANK
Current status - parameters (FLI shifted)
Simulations - difference to FLI shifts effect
Stage 1
Stage 2
Total
out of which:
Upside scenario
Baseline scenario
Downside scenario
in HRK million
Effect of Covid-19 overlays
Effect of Energy overlays
Effect of FLI shifts
2022
Erste&Steiermärkische Bank d.d.
(205)
(867)
(1,072)
-
163
226
47
24
(16)
2021
Erste&Steiermärkische Bank d.d.
(317)
(794)
(1,111)
243
-
217
281
245
(178)
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
182
33. Scenarios used in forward looking information and COVID-19 Effect (continued)
Impact on credit risk exposure by industry
BANK
Current status - parameters (FLI shifted)
Effect of Energy overlays
Point in time parameters (before FLI shift)
in HRK million
Stage 1
Stage 2
Stage 1
Stage 2
Stage 1
Stage 2
2022
Natural Resources & Commodities
1,945
989
2,669
265
1,955
979
of which cyclical
-
148
-
148
-
148
Energy
-
5,156
5,056
100
-
5,156
Construction and building materials
3,087
906
3,087
906
3,091
903
of which cyclical
-
894
-
894
-
894
Automotive
619
119
619
119
620
118
of which cyclical
-
113
-
113
-
113
Cyclical Consumer Products
2,051
364
2,051
364
2,052
363
Non-Cyclical Consumer Products
1,695
107
1,695
107
1,704
98
Machinery
750
123
750
123
750
123
of which cyclical
-
123
-
123
-
123
Transportation
4,795
394
4,795
394
4,803
386
of which cyclical
-
367
-
367
-
367
TMT and paper & packaging
1,064
79
1,064
79
1,086
57
of which cyclical
-
40
-
40
-
40
Healthcare & Services
1,699
142
1,699
142
1,708
132
of which cyclical
-
91
-
91
-
91
Hotels, Gaming & Leisure Industry
4,100
1,790
4,100
1,790
4,100
1,790
of which cyclical
-
1,401
-
1,401
-
1,401
Real Estate
5,018
415
5,018
415
5,019
414
of which cyclical
-
367
-
367
-
367
Public Sector
26,378
2,487
26,378
2,487
26,378
2,487
Financial Institutions
23,527
147
23,527
147
23,527
147
Private Households
15,906
4,936
15,906
4,936
15,932
4,911
Other
-
-
-
-
-
-
Total
92,634
18,154
98,414
12,374
92,725
18,064
2021
Agriculture and forestry
1,186
99
1,248
37
1,205
80
Mining
41
9
41
9
42
8
Manufacturing
4,237
353
4,320
270
4,287
304
Energy and water supply
2,055
80
2,056
79
2,056
79
Construction
2,184
223
2,188
218
2,224
183
Trade
3,278
302
3,400
180
3,328
252
Transport and communication
5,292
321
5,440
174
5,324
290
Hotels and restaurants
1,187
3,174
3,481
879
1,188
3,173
Financial and insurance services
16,926
60
16,859
60
16,859
60
Real estate and housing
2,132
91
2,208
15
2,134
89
Services
929
366
1,194
101
938
357
Public administration
19,595
2,178
19,600
2,174
19,595
2,178
Education, health and art
1,323
281
1,557
46
1,329
275
Households
16,093
2,597
16,103
2,587
16,105
2,586
Other
179
12
179
12
178
12
Total
76,637
10,146
79,874
6,841
76,792
9,926
Notes to the financial statements
Year ended 31 December 2022
183
Erste&Steiermärkische Bank d.d.
33. Scenarios used in forward looking information and COVID-19 Effect (continued)
Impact on credit loss allowances by industry
BANK
Current status - parameters (FLI shifted)
Effect of Energy overlays
Point in time parameters (before FLI shift)
in HRK million
Stage 1
Stage 2
Stage 1
Stage 2
Stage 1
Stage 2
2022
Natural Resources & Commodities
(15)
(32)
(20)
(16)
(10)
(22)
of which cyclical
-
(7)
-
(7)
-
(4)
Energy
-
(204)
(35)
(16)
-
(167)
Construction and building materials
(15)
(59)
(15)
(59)
(10)
(40)
of which cyclical
-
(58)
-
(58)
-
(39)
Automotive
(3)
(7)
(3)
(7)
(2)
(5)
of which cyclical
-
(7)
-
(7)
-
(5)
Cyclical Consumer Products
(9)
(20)
(9)
(20)
(6)
(13)
Non-Cyclical Consumer Products
(14)
(6)
(14)
(6)
(9)
(3)
Machinery
(3)
(6)
(3)
(6)
(2)
(4)
of which cyclical
-
(6)
-
(6)
-
(4)
Transportation
(14)
(33)
(14)
(34)
(10)
(24)
of which cyclical
-
(32)
-
(32)
-
(23)
TMT and paper & packaging
(9)
(5)
(9)
(5)
(7)
(3)
of which cyclical
-
(3)
-
(3)
-
(2)
Healthcare & Services
(12)
(13)
(12)
(13)
(8)
(9)
of which cyclical
-
(10)
-
(10)
-
(8)
Hotels, Gaming & Leisure Industry
(15)
(148)
(15)
(148)
(11)
(123)
of which cyclical
-
(123)
-
(123)
-
(98)
Real Estate
(21)
(35)
(21)
(35)
(19)
(24)
of which cyclical
-
(34)
-
(34)
-
(23)
Public Sector
(9)
(126)
(9)
(126)
(9)
(103)
Financial Institutions
(30)
-
(30)
-
(23)
-
Private Households
(36)
(173)
(36)
(173)
(30)
(150)
Other
-
-
-
-
-
-
Total
(205)
(867)
(245)
(664)
(156)
(690)
2021
Agriculture and forestry
(12)
(6)
(13)
(4)
(7)
(3)
Mining
(1)
(1)
-
-
-
-
Manufacturing
(44)
(30)
(47)
(23)
(26)
(20)
Energy and water supply
(26)
(13)
(26)
(13)
(17)
(11)
Construction
(24)
(24)
(24)
(24)
(15)
(18)
Trade
(46)
(21)
(50)
(13)
(28)
(13)
Transport and communication
(36)
(29)
(40)
(17)
(23)
(19)
Hotels and restaurants
(4)
(359)
(57)
(109)
(3)
(308)
Financial and insurance services
(29)
-
(29)
-
(21)
-
Real estate and housing
(13)
(6)
(14)
(2)
(10)
(6)
Services
(6)
(28)
(12)
(11)
(3)
(20)
Public administration
(11)
(121)
(11)
(121)
(10)
(113)
Education, health and art
(14)
(22)
(20)
(3)
(8)
(16)
Private households
(45)
(133)
(45)
(133)
(45)
(126)
Other
(6)
(1)
(6)
(1)
(4)
(1)
Total
(317)
(794)
(394)
(474)
(220)
(674)
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
184
33. Scenarios used in forward looking information and COVID-19 Effect (continued)
Impact of different scenarios on credit risk exposure by industry
BANK
Probability of default
Point in time (before FLI shift)
Upside scenario
Baseline scenario
Downside scenario
in HRK million
Stage 1
Stage 2
Stage 1
Stage 2
Stage 1
Stage 2
Stage 1
Stage 2
2022
Natural Resources & Commodities
9
(9)
5
(5)
3
(3)
(4)
4
of which cyclical
-
-
-
-
-
-
-
-
Energy
-
-
-
-
-
-
-
-
Construction and building materials
3
(3)
1
(1)
-
-
-
-
of which cyclical
-
-
-
-
-
-
-
-
Automotive
1
(1)
-
-
-
-
-
-
of which cyclical
-
-
-
-
-
-
-
-
Cyclical Consumer Products
1
(1)
-
-
-
-
(1)
1
Non-Cyclical Consumer Products
9
(9)
3
(3)
2
(2)
(2)
2
Machinery
-
-
-
-
-
-
-
-
of which cyclical
-
-
-
-
-
-
-
-
Transportation
8
(8)
-
-
-
-
-
-
of which cyclical
-
-
-
-
-
-
-
-
TMT and paper & packaging
22
(22)
-
-
-
-
(1)
1
of which cyclical
-
-
-
-
-
-
-
-
Healthcare & Services
10
(10)
2
(2)
1
(1)
(1)
1
of which cyclical
-
-
-
-
-
-
-
-
Hotels, Gaming & Leisure Industry
-
-
-
-
-
-
(1)
1
of which cyclical
-
-
-
-
-
-
-
-
Real Estate
1
(1)
-
-
-
-
-
-
of which cyclical
-
-
-
-
-
-
-
-
Public Sector
-
-
-
-
-
-
-
-
Financial Institutions
-
-
-
-
-
-
-
-
Private Households
26
(26)
11
(11)
5
(5)
(6)
6
Other
-
-
-
-
-
-
-
-
Total
90
(90)
22
(22)
11
(11)
(16)
16
2021
Agriculture and forestry
19
(19)
11
(11)
13
(13)
(9)
9
Mining
-
-
-
-
-
-
-
-
Manufacturing
49
(49)
51
(51)
49
(49)
(105)
105
Energy and water supply
-
-
-
-
-
-
-
-
Construction
40
(40)
43
(43)
41
(41)
(40)
40
Trade
51
(51)
53
(53)
49
(49)
(51)
51
Transport and communication
32
(32)
69
(69)
30
(30)
(22)
22
Hotels and restaurants
1
(1)
1
(1)
1
(1)
(2)
2
Financial and insurance services
-
-
-
-
-
-
-
-
Real estate and housing
2
(2)
2
(2)
2
(2)
(3)
3
Services
9
(9)
8
(8)
8
(8)
(17)
17
Public administration
-
-
-
-
-
-
-
-
Education, health and art
6
(6)
5
(5)
5
(5)
(4)
4
Households
11
(11)
63
(63)
47
(47)
(55)
55
Other
1
(1)
1
(1)
1
(1)
(1)
1
Total
221
(221)
307
(307)
246
(246)
(309)
309
Notes to the financial statements
Year ended 31 December 2022
185
Erste&Steiermärkische Bank d.d.
33. Scenarios used in forward looking information and COVID-19 Effect (continued)
Impact of different scenarios on credit loss allowances by industry
BANK
Point in time- (before FLI shift)
Upside scenario
Baseline scenario
Downside scenario
in HRK million
Stage 1
Stage 2
Stage 1
Stage 2
Stage 1
Stage 2
Stage 1
Stage 2
2022
Natural Resources & Commodities
6
10
-
2
-
1
-
(1)
of which cyclical
-
3
-
1
-
-
-
-
Energy
-
37
-
9
-
5
-
(3)
Construction and building materials
6
20
-
4
-
2
-
(2)
of which cyclical
-
19
-
4
-
2
-
(2)
Automotive
1
3
-
1
-
-
-
-
of which cyclical
-
2
-
1
-
-
-
-
Cyclical Consumer Products
3
7
-
2
-
1
-
(1)
Non-Cyclical Consumer Products
5
3
-
1
-
-
-
-
Machinery
1
2
-
-
-
-
-
-
of which cyclical
-
2
-
-
-
-
-
-
Transportation
4
10
-
2
-
1
-
(1)
of which cyclical
-
9
-
2
-
1
-
(1)
TMT and paper & packaging
3
2
-
-
-
-
-
-
of which cyclical
-
1
-
-
-
-
-
-
Healthcare & Services
4
3
-
1
-
1
-
-
of which cyclical
-
2
-
1
-
-
-
-
Hotels, Gaming & Leisure Industry
5
25
-
6
-
3
-
(2)
of which cyclical
-
25
-
6
-
3
-
(2)
Real Estate
1
11
-
3
-
1
-
(1)
of which cyclical
-
10
-
3
-
1
-
(1)
Public Sector
-
23
-
5
-
3
-
(2)
Financial Institutions
7
-
1
-
-
-
-
-
Private Households
6
23
1
9
1
5
-
(3)
Other
-
-
-
-
-
-
-
-
Total
52
179
2
45
1
23
-
(16)
2021
Agriculture and forestry
5
4
4.00
3
4.00
3
(2.00)
(2)
Mining
-
-
-
-
-
-
-
-
Manufacturing
18
11
20
13
18
11
(8.00)
(20)
Energy and water supply
9
2
10.00
3
9.00
2
(6.00)
(1.00)
Construction
9
7
9
7
9
7
(5.00)
(6.00)
Trade
19
8
21.00
9
19.00
8
(11)
(9)
Transport and communication
13
11
14.00
13
13.00
11
(9.00)
(8)
Hotels and restaurants
1
50
1.00
61
1.00
51
(1.00)
(34)
Financial and insurance services
7
-
9.00
-
8.00
-
(5.00)
-
Real estate and housing
3
1
3.00
1
3.00
1
(2.00)
(1.00)
Services
3
8
3.00
9
3.00
8
(1.00)
(6)
Public administration
-
8
-
10
-
9
-
(6.00)
Education, health and art
5
6
6.00
7
6.00
6
(4.00)
(4.00)
Households
-
7
12
30
9
24
(6)
(19)
Other
2
-
3.00
-
2.00
-
(2.00)
-
Total
94
123
115
166
104
141
(62)
(116)
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
186
34. Restructuring, renegotiation and forbearance
Restructuring means contractual modification of any of the customer’s loan repayment conditions including tenor, interest rate, fees, principle amount due or a combination thereof. Restructuring can be business restructuring (in retail) and commercial renegotiation (in corporate) or forbearance in line with EBA requirements in both segments.
Business restructuring and renegotiation
Restructuring as business restructuring in the retail segment or as commercial renegotiation in the corporate segment is a potential and effective customer retention tool involving repricing or the offering of an additional loan or both in order to maintain the Bank’s valuable, good clientele.
Forbearance
In case the restructuring entails a concession towards a customer facing or about to face financial difficulties in meeting their contractual financial commitments, the restructuring is considered forbearance.
Forborne exposure is assessed at loan contract level and means only the exposure to which forbearance measures have been extended and excludes any other exposure the customer may have, as long as no forbearance was extended to these.
Concession means that any of the following conditions are met:
_Modification/refinancing of the contract would not have been granted, had the customer not been in financial difficulty,
_There is a difference in favour of the customer between the modified/refinanced and the previous terms of the contract,
_The modified/refinanced contract includes more favourable terms than other customers with similar risk profile could have obtained from the Bank.
Forbearance can be initiated by the Bank or by the customer (on account of loss of employment, illness etc.).
Forbearance measures are divided and reported as:
_Performing forbearance (incl. performing forbearance under probation that was upgraded from non-performing forbearance)
_Non-performing forbearance.
In the table below, comparison of forbearance and credit risk exposure and allowances is given for the Bank and the Group for 31 December 2022 and 31 December 2021.
Credit risk exposure, forbearance exposure and credit loss allowances
GROUP
in HRK million
Loans and receivables
Debt securities
Loan commitments
Other positions
Total
2022
Gross exposure
67,792
20,121
12,402
6,385
106,700
thereof gross forborne exposure
1,626
-
7
-
1,633
Performing exposure
65,478
20,121
12,373
6,344
104,316
thereof performing forborne exposure
974
-
5
-
979
Credit loss allowances for performing exposure
(934)
(73)
(168)
(63)
(1,238)
thereof credit loss allowances for performing forborne exposure
(100)
-
-
-
(100)
Non-performing exposure
2,314
-
29
41
2,384
thereof non-performing forborne exposure
652
-
2
-
654
Credit loss allowances for non-performing exposure
(1,518)
-
(1)
(26)
(1,545)
thereof credit loss allowances for non-performing forborne exposure
(317)
-
-
-
(317)
Notes to the financial statements
Year ended 31 December 2022
187
Erste&Steiermärkische Bank d.d.
34. Restructuring, renegotiation and forbearance (continued)
Credit risk exposure, forbearance exposure and credit loss allowances (continued)
GROUP
in HRK million
Loans and receivables
Debt securities
Loan commitments
Other positions
Total
2021
Gross exposure
61,401
16,858
6,163
5,519
89,941
thereof gross forborne exposure
1,327
-
10
-
1,337
Performing exposure
58,291
16,858
6,146
5,497
86,792
thereof performing forborne exposure
533
-
6
-
539
Credit loss allowances for performing exposure
(1,061)
(86)
(83)
(66)
(1,296)
thereof credit loss allowances for performing forborne exposure
(39)
-
(1)
-
(40)
Non-performing exposure
3,110
-
17
22
3,149
thereof non-performing forborne exposure
794
-
4
-
798
Credit loss allowances for non-performing exposure
(2,131)
-
(5)
(14)
(2,150)
thereof credit loss allowances for non-performing forborne exposure
(442)
-
(1)
-
(443)
BANK
in HRK million
Loans and receivables
Debt securities
Loan commitments
Other positions
Total
2022
Gross exposure
59,083
19,388
10,888
5,456
94,815
thereof gross forborne exposure
1,473
-
6
-
1,479
Performing exposure
57,145
19,388
10,868
5,417
92,818
thereof performing forborne exposure
923
-
4
-
927
Credit loss allowances for performing exposure
(772)
(67)
(162)
(60)
(1,061)
thereof credit loss allowances for performing forborne exposure
(96)
-
-
-
(96)
Non-performing exposure
1,938
-
20
39
1,997
thereof non-performing forborne exposure
550
-
2
-
552
Credit loss allowances for non-performing exposure
(1,276)
-
(1)
(25)
(1,302)
thereof credit loss allowances for non-performing forborne exposure
(283)
-
-
-
(283)
BANK
in HRK million
Loans and receivables
Debt securities
Loan commitments
Other positions
Total
2021
Gross exposure
53,418
16,086
4,885
4,667
79,056
thereof gross forborne exposure
1,169
-
10
-
1,179
Performing exposure
50,811
16,086
4,877
4,646
76,420
thereof performing forborne exposure
455
-
6
-
461
Credit loss allowances for performing exposure
(883)
(80)
(76)
(66)
(1,105)
thereof credit loss allowances for performing forborne exposure
(32)
-
(1)
-
(33)
Non-performing exposure
2,607
-
8
21
2,636
thereof non-performing forborne exposure
714
-
4
-
718
Credit loss allowances for non-performing exposure
(1,798)
-
(1)
(17)
(1,816)
thereof credit loss allowances for non-performing forborne exposure
(410)
-
(1)
-
(411)
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
188
34. Restructuring, renegotiation and forbearance (continued)
Impact of non-significant contractual modifications of debt instruments AC assigned to Stage 2 and 3
GROUP
2021
2022
in HRK million
Amortised cost before the modification
Net Modification gains/ losses
Amortised cost before the modification
Net Modification gains/ losses
Loans and advances
General governments
4
-
1
-
Non-financial corporations
85
-
23
-
Households
148
-
58
-
Total
237
-
82
-
BANK
2021
2022
in HRK million
Amortised cost before the modification
Net Modification gains/ losses
Amortised cost before the modification
Net Modification gains/ losses
Loans and advances
General governments
4
-
1
-
Non-financial corporations
51
-
23
-
Households
134
-
56
-
Total
189
-
80
-
As at 31 December 2022, the total GCA of debt instruments measured at AC, which were impacted by non-significant contractual modifications during the year 2022 amounted to HRK 82 million for the Group and HRK 80 million for the Bank (2021: HRK 237 million for the Group and HRK189 million for the Bank).
The impact of contractual modifications (net modification losses) in the profit or loss of the year 2022 amounted loss in the amount of HRK 113 thousand for the Group and profit in the amount of HRK 331 thousand for the Bank (2021: HRK 715 thousand for the Group and HRK 830 thousand for the Bank).
35. Collaterals
Recognition of collateral
The Collateral Management unit is integrated in the Risk Management Division. The Collateral Management Policy defines, among other topics, uniform valuation standards for credit collateral across the entire Bank. It ensures that the credit risk decision processes are standardised with respect to accepted collateral values.
All collateral types acceptable within the Bank are defined by internal acts. The valuation and revaluation of collateral is done according to the principles defined in the Collateral Management Policy broken down by collateral type in accordance with the individual supervisory requirements.
Main types of credit collateral
Mostly, the following types of credit collateral are accepted:
_Real estate: residential and commercial real estate
_Financial collateral: securities portfolios, cash deposits and life insurance policies
_Guarantees: given by sovereigns, public sector entities and financial institutes. All guarantors must have a minimum credit quality, in accordance with regulatory requirements.
Notes to the financial statements
Year ended 31 December 2022
189
Erste&Steiermärkische Bank d.d.
35. Collaterals (continued)
The Bank also accepts other collaterals such as movables, balance sheet netting, investment fund shares in accordance with European (EU) and local regulations.
Collateral valuation and management
Collateral valuation is based on current market prices while taking into account an amount that can be recovered within a reasonable period.
When calculating collateral coverage, the amount of coverage is adjusted through corrective factors, depending on the collateral type. Coverage by collateral disclosed in the financial statements is capped to the amount of relevant exposure.
Real estate valuation may only be performed by qualified valuators who are independent of the credit decision process. The valuation is to be made according to international, European or national standards. Internal guidelines define criteria of qualification and requirements of independence for the selection of valuators. A valuator may only perform two sequential valuations of the same asset, any further valuation has to result in the rotation of the valuator.
Impact of the energy efficiency, ESG data, i.e. information on energy efficiency of the collateral assets are systematically collected and stored in the relevant systems for documentation and reporting purposes.
The methods and discounts used for valuations are based on empirical data representing past experience of the Collection and Workout department and on the collected data on loss recovery from realising collateral. The valuation methods are adjusted regularly – at least once a year.
The revaluation of collateral is done periodically and is automated as far as possible. In the case of external data sources, the appropriate interfaces are used. The maximum periods for the revaluation of individual collateral assets are predefined. Apart from periodic revaluations, collateral is assessed when information becomes available that indicates a decrease in the value of the collateral for exceptional reasons.
The Bank performs regular annual concentration risk assessment which comprises an overview of credit risk mitigation techniques, but also a market risk overview from a perspective of received collaterals.
Repossession of Collaterals is highly selective and restrictive, while the assets repossessed made available for sale right away. In general, the Bank does not occupy repossessed properties for its own business use. Commercial assets slightly prevail over the Residential assets within the repossessed assets portfolio. The portfolio has been strongly reduced within the last years, as of 31 December 2022, the carrying value of the repossessed assets portfolio amounted to HRK 113 million.
Treasury collateral
The department Market an Liquidity Risk Management is responsible for treasury collateral framework. The Treasury Collateral Management Policy defines, among other things, uniform valuation standards for treasury collateral in the Bank. Under the framework of treasury collateral, netting agreements (international framework agreements for derivatives of the International Swap and Derivatives Association (ISDA), local framework agreements, framework agreements for securities lending and repurchase deals) as well as collateral agreements (e.g. ISDA Credit Support Annex) are used for reducing the credit risk from derivatives.
Netting agreements make it possible to net all amounts due or payable for each individual transaction under a framework agreement in the case of a credit default, with the result that only the net receivables vis-à-vis the business partner are of relevance for credit risk. Within the scope of these collateral agreements, the portfolio with the respective counterparty is revalued periodically, usually daily, and in case of insufficient coverage additional collateral is requested. The policy restrictions on collateral types ensure that collateral received predominantly consists of cash or securities of investment grade quality. In the case of securities used as collateral, an additional valuation discount (haircut) depending on credit quality and residual maturity is applied.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
190
35. Collaterals (continued)
Credit risk exposure by financial instrument and collateral
GROUP
Collateralised by
in HRK million
Total credit risk exposure
Collateral total
Guarantees
Real estate
Other
Credit risk exposure net of collateral
Neither past due nor credit impaired
Past due but not credit impaired
Credit impaired
2022
Other demand deposits to credit institutions
670
-
-
-
-
670
209
461
-
Debt instruments held for trading
197
-
-
-
-
197
-
-
-
Non-trading debt instruments at FVPL
39
-
-
-
-
39
-
-
-
Debt instruments at FVOCI
10,053
-
-
-
-
10,053
10,053
-
-
Debt instruments at AC
73,336
28,837
7,008
19,375
2,454
44,499
69,710
1,493
2,133
Debt securities
10,029
-
-
-
-
10,029
10,029
-
-
Loans and advances to banks
2,893
143
-
-
143
2,750
2,893
-
-
and risk category
60,414
28,694
7,008
19,375
2,311
31,720
56,788
1,493
2,133
Trade and other receivables
1,422
96
-
5
91
1,326
1,199
110
113
Finance lease receivables
3,063
2,493
31
-
2,462
570
2,372
623
68
Off balance-sheet exposures
17,920
1,912
5
1,055
852
16,008
13,632
585
49
Total
106,700
33,338
7,044
20,435
5,859
73,362
97,175
3,272
2,363
GROUP
Collateralised by
in HRK million
Total credit risk exposure
Collateral total
Guarantees
Real estate
Other
Credit risk exposure net of collateral
Neither past due nor credit impaired
Past due but not credit impaired
Credit impaired
2021
Other demand deposits to credit institutions
442
-
-
-
-
442
112
330
-
Debt instruments held for trading
145
-
-
-
-
145
-
-
-
Non-trading debt instruments at FVPL
65
-
-
-
-
65
-
-
-
Debt instruments at FVOCI
11,853
-
-
-
-
11,853
11,853
-
-
Debt instruments at AC
62,278
23,945
4,881
16,153
2,911
38,333
58,081
1,336
2,861
Debt securities
4,940
-
-
-
-
4,940
4,940
-
-
Loans and advances to banks
4,410
382
-
-
382
4,028
4,410
-
-
Loans and advances to customers
52,928
23,563
4,881
16,153
2,529
29,365
48,731
1,336
2,861
Trade and other receivables
1,459
80
-
6
74
1,379
1,139
135
185
Finance lease receivables
2,604
2,160
1
-
2,159
444
1,944
595
65
Off balance-sheet exposures
11,095
1,548
2
921
625
9,547
11,006
49
40
Total
89,941
27,733
4,884
17,080
5,769
62,208
84,135
2,445
3,151
Notes to the financial statements
Year ended 31 December 2022
191
Erste&Steiermärkische Bank d.d.
35. Collaterals (continued)
Credit risk exposure by financial instrument and collateral (continued)
BANK
Collateralised by
in HRK million
Total credit risk exposure
Collateral total
Guarantees
Real estate
Other
Credit risk exposure net of collateral
Neither past due nor credit impaired
Past due but not credit impaired
Credit impaired
2022
Other demand deposits to credit institutions
179
-
-
-
-
179
16
163
-
Debt instruments held for trading
197
-
-
-
-
197
-
-
-
Non-trading debt instruments at FVPL
39
-
-
-
-
39
-
-
-
Debt instruments at FVOCI
9,626
-
-
-
-
9,626
9,626
-
-
Debt instruments at AC
67,875
26,855
6,913
17,560
2,382
41,020
64,821
1,164
1,890
Debt securities
9,723
-
-
-
-
9,723
9,723
-
-
Loans and advances to banks
2,600
143
-
-
143
2,457
2,600
-
-
Loans and advances to customers
55,552
26,712
6,913
17,560
2,239
28,840
52,498
1,164
1,890
Trade and other receivables
931
95
-
5
90
836
868
15
48
Off balance-sheet exposures
15,968
1,742
5
960
777
14,226
11,894
567
41
Total
94,815
28,692
6,918
18,525
3,249
66,123
87,225
1,909
1,979
BANK
Collateralised by
in HRK million
Total credit risk exposure
Collateral total
Guarantees
Real estate
Other
Credit risk exposure net of collateral
Neither past due nor credit impaired
Past due but not credit impaired
Credit impaired
2021
Other demand deposits to credit institutions
110
-
-
-
-
110
32
78
-
Debt instruments held for trading
145
-
-
-
-
145
-
-
-
Non-trading debt instruments at FVPL
60
-
-
-
-
60
-
-
-
Debt instruments at FVOCI
11,350
-
-
-
-
11,350
11,350
-
-
Debt instruments at AC
57,321
22,192
4,767
14,591
2,834
35,129
53,855
938
2,528
Debt securities
4,676
-
-
-
-
4,676
4,676
-
-
Loans and advances to banks
4,325
382
-
-
382
3,943
4,325
-
-
Loans and advances to customers
48,320
21,810
4,767
14,591
2,452
26,510
44,854
938
2,528
Trade and other receivables
773
78
-
6
72
695
667
27
79
Off balance-sheet exposures
9,297
1,388
2
789
597
7,909
9,223
45
29
Total
79,056
23,658
4,769
15,386
3,503
55,398
75,127
1,088
2,636
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
192
36. Market risk
Definition and overview
Market risk is the risk of loss that may arise due to adverse changes in market prices and to the parameters derived therefrom. Market risk is divided into interest rate risk, currency risk and equity risk. This concerns both trading and banking book positions.
Methods and instruments employed
Potential losses that may arise from market movements are assessed using the Value at Risk (VaR). The calculation is done according to the method of historic simulation with a one-sided confidence level of 99%, a holding period of one day and a simulation period of two years. The VaR describes what level of losses may be expected as a maximum at a defined probability – the confidence level – within a certain holding period of the positions under normal market conditions.
Back-testing is used to constantly monitor the validity of the statistical methods. This process is conducted with a one-day delay to monitor if the model projections regarding losses have actually materialised. At a confidence level of 99%, the actual loss on a single day should exceed the VaR statistically only two to three times a year (1% of around 250 workdays).
This shows one of the limits of the VaR approach: on the one hand, the confidence level is limited to 99%, and on the other hand, the model takes into account only those market scenarios observed in each case within the simulation period of two years and calculates the VaR for the current position of the Bank on this basis. In order to investigate any extreme market situations beyond this, stress tests are conducted at the Bank. These events include mainly market movements of low probability.
The stress tests are carried out according to several methods: stressed VaR (SVaR) is derived from the normal VaR calculation. But instead of simulating only over the two most recent years, an analysis of a much longer period is carried out in order to identify a one-year period that constitutes a relevant period of stress for the current portfolio mix. According to the legal framework, that one-year period is used to calculate a VaR with a 99% confidence level. This enables the Bank on the one hand to hold sufficient own funds available for the trading book also in periods of elevated market volatility, while on the other hand also enabling it to incorporate these resulting effects in the management of trading positions.
Standard scenarios are calculated in which the individual market factors are exposed to extreme movements. Such scenarios are calculated at the Bank for interest rates, stock prices, exchange rates and volatilities. Historic scenarios are a modification of the concept of standard scenarios. In this case, risk factor movements after certain events such as 9/11 or the Lehman bankruptcy form the basis of the stress calculation. In order to calculate historical probabilistic scenarios, the most significant risk factors for the current portfolio are determined and their most adverse movement during the last years is applied. For the probabilistic scenarios shifts of important market factors are determined for various quantiles of their distributions, and these values are then used to calculate stress results. These analyses are made available to the Management Board and the Supervisory Board within the scope of the monthly market risk reports.
For the local capital requirements, the Bank and the Group are using the standardized model.
Methods and instruments of risk mitigation
The Bank manages market risks in the trading book by setting several layers of limits. The overall limit based on VaR for the trading book is decided by the Management Board while taking into account the risk-bearing capacity and projected earnings. A further breakdown is done by the Management Board and Market Risk Committee based on a proposal from the Market Risk Management unit.
Notes to the financial statements
Year ended 31 December 2022
193
Erste&Steiermärkische Bank d.d.
36. Market risk (continued)
To all market risk activities of the trading book are assigned risk limits that are statistically consistent in their entirety with the VaR overall limit. The VaR limit is assigned in a top-down procedure to the individual trading units. This is done up to the level of the individual trading groups or departments. Additionally, in a bottom-up procedure, sensitivity limits are assigned to even smaller units all the way down to the individual traders. These are then aggregated upwards and applied as a second limit layer to the VaR limits. The consistency between the two limit approaches is verified regularly.
Limit compliance is verified at two levels: by the Market and Liquidity Risk Management Department in the Bank and by the Trading Book Risk Group. The monitoring of the limits is done within the course of the trading day based on sensitivities.
The VaR is calculated daily and is available and reported to the individual trading units as well as to the superior management levels all the way up to the Management Board.
Certain banking book positions are subjected to a daily VaR analysis. The total VaR is determined in the same manner as the VaR for the trading book.
Analysis of market risk
Value at Risk of banking book and trading book
The following tables show the VaR amounts as at 31 December 2022 and 31 December 2021 respectively at the 99% confidence level using equally weighted market data and with a holding period of one day:
Total
Interest
Currency
Shares
Volatility
Position held in non-Trading Book
20,520
20,479
591
1
368
Fair Value Through Other Comprehensive Income
29,621
29,629
44
-
4
Amortised Cost
-
-
-
-
-
Held for Trading
47
47
-
1
-
Total
Interest
Currency
Shares
Volatility
Position held in non-Trading Book
49,387
49,563
240
1
959
Fair Value Through Other Comprehensive Income
31,647
31,630
72
-
28
Amortised Cost
33,569
33,524
1
-
-
Held for Trading
56
55
-
-
-
Interest rate risk of banking book
Interest rate risk is the risk of an adverse change in both the earnings and economic value of financial instruments caused by a movement in market interest rates. This type of risk arises when mismatches exist between assets and liabilities, including derivatives, in respect of their maturities or of the timing of interest rate adjustments.
In order to identify interest rate risk, all interest bearing financial instruments, including off-balance are used to calculate the impact of certain interest rate scenarios on their economic value and their earnings. Limits and thresholds are implemented for both aspects of the IRRBB, the change in economic value as well as the change in earnings. Positions without contractually defined maturity or repricing structures, such as demand deposits or overdrafts are modelled accordingly, for positions where the customer has the right to prepay his debt prepayment models are applied. Interest rate risk calculations are done in accordance with EBA (EBA/GL/2018/02) guidelines.
Exchange rate risk
The Bank is exposed to several types of risks related to exchange rates. These concern risks from open foreign exchange positions and others.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
194
36. Market risk (continued)
Risk from open currency positions is the risk related to exchange rates that derives from the mismatch between assets and liabilities, or from currency-related financial derivatives. These risks might originate from customer-related operations or proprietary trading and are monitored and managed on a daily basis. Foreign currency exposure is subject to regulatory and internal limits. The internal limits are approved by the Management Board and the Market Risk Committee.
The following table shows the largest open exchange rate positions of the Bank as of 31 December 2022 and the corresponding open positions of these currencies as of 31 December 2021.
2021
2022
Euro (EUR)
(60,313)
432,193
US Dollar (USD)
(3,918)
(31,776)
Swiss Franc (CHF)
947
989
Denar (MKD)
(587)
(598)
Australian Dollar (AUD)
220
559
Other ccy
(1,294)
(549)
Danish Krone (DKK)
218
507
Norwegian Krone (NOK)
993
495
Canadian Dollar (CAD)
475
483
Bank manages open FX risk positions according to its strategy and the aim is not to have significant exposures to FX risk. In cases of open FX position, above 2% of regulatory capital, Bank calculates capital charge for FX risk.
Credit spread risk
Credit spread risk is the risk of an adverse movement in the fair value of financial instruments caused by a change in the creditworthiness of an issuer perceived by the market. EBC Group is exposed to credit spread risk with respect to its securities portfolio in the banking book.
Quantifying the credit spread risk of the securities in the banking book is based on a historical simulation. The maximum (hypothetical) drawdown that can be attributed to credit related risk factors over one-year horizon is calculated. It is based on credit spread sensitivities (CR01) and the risk factors used are mainly asset swap spreads for sovereigns and iTRAXX CDS indices for financials and corporates. The resulting amount is used as part of the ICAAP calculations to determine the capital consumption of the banking book portfolio.
Notes to the financial statements
Year ended 31 December 2022
195
Erste&Steiermärkische Bank d.d.
37. Liquidity risk
Definition and overview
The liquidity risk in the Bank is defined in line with the principles set out by the Basel Committee on Banking Supervision as well as the Regulation (EU) No 575/2013 (CRR) amended by the Regulation (EU) No 2019/876 (CRR 2), Commission Delegated Regulation (EU) 2022/786 amending Commission Delegated Regulation (EU) 2015/61 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Couniland the Decision on governance arrangements by Croatian National Bank. Accordingly, a distinction is made between market liquidity risk, which is the risk that the Bank cannot easily offset or close a position at the market price because of inadequate market depth or market disruption, and funding liquidity risk, which is the risk that the Bank will not be able to meet efficiently both expected and unexpected current and future cash flow and collateral needs without affecting either daily operations or the financial condition.
Funding liquidity risk is further divided into insolvency risk and structural liquidity risk. The former is the short-term risk that current or future payment obligations cannot be met in full and on time in an economically justified manner, while structural liquidity risk is the long-term risk of losses due to a change in the Bank’s own refinancing cost or spread.
The Bank continues its ongoing project activities to improve the framework for liquidity risk reporting. Current projects are aimed at continuously improving the internal stress testing methodology and the data quality used in the risk measurement.
Liquidity strategy
In 2022, the growth trend of deposits from previous years continued. A record growth in client deposits was recorded, and they remained the Bank's primary source of financing. On the asset side, the volume of loans also recorded significant growth, but below the level of deposit growth. The aforementioned developments, along with regulatory changes due to entry into the eurozone on January 1, 2023, generated a significant accumulation of liquidity excess. The largest part of liquidity excess was recorded in the position of growth of deposits with the central bank, while the remaining amount was invested in highly liquid government bonds.
In 2022, the Bank had no new bonds issuances, both on the domestic and international markets. At the end of November 2022, a bond with a volume of EUR 50 million, issued in 2017 on the local market, was repaid at its regular maturity. The Bank's liquidity excess was also used to repay EUR 44 million of long-term financing from supranational institutions at regular maturity.
Liquidity ratios
The Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) have been implemented as ratios relevant for regulatory purposes, in line with the Commission Delegated Regulation (EU) 2022/786 amending Commission Delegated Regulation (EU) 2015/61 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Counil (LCR DA) and Regulation (EU) No 575/2013 (CRR) amended by the Regulation (EU) No 2019/876 (CRR 2). The LCR represents a ratio of highly liquid assets on the one hand and net cash outflows over a 30 day time horizon on the other. The minimum ratio has been set at 100%. As of June 2021 the NSFR became binding minimum requirement according to the CRR IIand represents a ratio of available stable funding on the one hand and required stable funding on the other, within a 12 month time horizon
Methods and instruments used for measurement of liquidity risk
The short-term insolvency risk is monitored by calculating the survival period in total and for major currencies. This analysis determines the maximum period during which the entity can survive a set of defined scenarios, including a severe combined market and idiosyncratic crisis while relying on its pool of liquid assets. The monitored worst-case scenario simulates very limited money market and capital market access and at the same time significant client deposit outflow. Furthermore, the simulation assumes increased drawdown on guarantees and loan commitments dependent on the type of the customer, as well as the potential outflows from collateralised derivative transactions by estimating the effect from collateral outflow in the case of adverse market movements.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
196
37. Liquidity risk (continued)
As far back as 2011, the Bank's liquidity risk control has been based on the new Basel III liquidity risk measures, especially Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). Internally, the ratios are monitored on the Bank and Group of credit instituons level and are part of the Risk Apetite Statement (RAS) targeting to be well above the regulatory requirements and are reported to the Operational Liquidity Committee (OLC) as well as to the management board during the Asset and Liability Committee (ALCO). From 1 January 2017, Liquidity Coverage Ratio (LCR) is monitored daily. At the end of 2022, both LCR and NSFR for the Bank were above 100%.
Additionally, the traditional liquidity gaps (depicting the going concern maturity mismatches) of the Bank are reported and monitored regularly, as part of the Structural liquidity ratio (STRL). Funding concentration risk is continuously analysed in respect to counterparties. The Bank's fund transfer pricing (FTP) system has also proven to be an efficient tool for structural liquidity risk management.
Methods and instruments of liquidity risk mitigation
General standards of liquidity risk controlling and management (standards, limits and analysis) have been defined and are continuously reviewed and improved by the Bank.
The short-term liquidity risk is managed by limits resulting from the survival period model and by internal LCR targets. Limit breaches are reported to the Asset Liability Committee (ALCO). Another important instrument for managing the liquidity risk within the Bank is the FTP system. As the process of planning funding needs provides important data for liquidity management, a detailed overview of funding needs is prepared for the planning horizon.
The Comprehensive Contingency Plan ensures the necessary coordination of all parties involved in the liquidity management process in case of crisis and is reviewed on a regular basis.
Analysis of liquidity risk
Liquidity coverage ratio
The Bank uses the regulatory liquidity coverage ratio according to the LCR DA for internal monitoring and steering of the liquidity position as well. To keep the LCR DA above both limits, the regulatory limit and the internal limit, the Bank monitors daily its short-term liquidity inflows and outflows as well as its available counterbalancing capacity.
Structural liquidity
The long-term liquidity position is monitored using structural funding gaps ensuring an appropriate balance between assets and liabilities in the medium and long term time horizons avoiding excessive maturities transformation and consequently increased pressure on the short-term liquidity position.
The following table shows the ratio between all long-term maturing liabilities and all long-term maturing assets as of 31 December 2022 and 31 December 2021 which is calculated reverse cumulatively per time bucket. Ratio is based on contractual or modelled run-off cash flows and has a comprehensive coverage of on- and off- balance sheet components.
Notes to the financial statements
Year ended 31 December 2022
197
Erste&Steiermärkische Bank d.d.
37. Liquidity risk (continued)
Counterbalancing capacity
The Bank regularly monitors its counterbalancing capacity, which consists of cash, excess minimum reserve at the Central Banks as well as unencumbered Central Bank eligible assets and other liquid securities, including changes from repos and reverse repos. These assets can be mobilised in the short term to offset potential cash outflows in a crisis situation. The term structure of the Bank's counterbalancing capacity as of 2022 year end and 2021 year end are shown in the tables below:
Term structure of counterbalancing capacity 2022
Cash, excess reserve
23,571
-
-
-
-
Liquid assets
14,310
-
(186)
(50)
(2,069)
Counterbalancing capacity
37,881
-
(186)
(50)
(2,069)
Term structure of counterbalancing capacity 2021
Cash, excess reserve
8,842
-
-
-
-
Liquid assets
12,589
(8)
(1,037)
(429)
(281)
Counterbalancing capacity
21,431
(8)
(1,037)
(429)
(281)
The figures above show the total amount of potential liquidity available for the Bank in a going concern situation, taking into account the applicable central bank haircuts.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
198
37. Liquidity risk (continued)
Contractual Undiscounted Cash Flows from Financial liabilities
Maturities of contractual undiscounted cash flows from financial liabilities as at 31 December 2022 and 31 December 2021 respectively, were as follows:
GROUP
in HRK million
Carrying amounts
Contractual cash flows
< 1 month
1‑12 months
1‑5 years
> 5 years
Non-derivative liabilities
100,040
100,416
76,020
12,710
7,591
4,095
Deposits by banks
10,991
11,090
5,396
1,552
3,908
234
Customer deposits
84,198
84,217
69,716
10,840
3,041
620
Debt securities in issue
3,646
3,884
12
302
350
3,220
Subordinated liabilities
226
246
-
-
246
-
Finance lease liabilities
91
90
10
14
45
21
Other financial liabilities
888
889
886
2
1
-
Derivative liabilities
175
176
(2)
11
29
138
Derivatives liabilities with netted Cash Flows
-
165
-
1
26
138
Derivatives liabilities with gross Cash Flow (net)
-
11
(2)
10
3
-
Outflows
-
2,196
1,145
817
234
-
Inflows
-
(2,185)
(1,147)
(807)
(231)
-
Contingent liabilities
-
14,265
14,265
-
-
-
Financial guarantees
-
5,518
5,518
-
-
-
Irrevocable commitments
-
8,747
8,747
-
-
-
Total
100,215
114,857
90,283
12,721
7,620
4,233
GROUP
in HRK million
Carrying amounts
Contractual cash flows
< 1 month
1‑12 months
1‑5 years
> 5 years
Non-derivative liabilities
79,658
80,059
53,636
11,989
9,780
4,654
Deposits by banks
6,307
6,362
748
1,437
3,570
607
Customer deposits
68,268
68,305
52,122
10,156
5,238
789
Debt securities in issue
4,010
4,284
13
380
661
3,230
Subordinated liabilities
226
260
-
-
260
-
Finance lease liabilities
99
99
10
12
49
28
Other financial liabilities
748
749
743
4
2
-
Derivative liabilities
56
59
5
32
4
18
Derivatives liabilities with netted Cash Flows
-
20
-
-
2
18
Derivatives liabilities with gross Cash Flow (net)
-
39
5
32
2
-
Outflows
-
3,732
1,662
1,830
240
-
Inflows
-
(3,693)
(1,657)
(1,798)
(238)
-
Contingent liabilities
-
12,363
12,363
-
-
-
Financial guarantees
-
4,933
4,933
-
-
-
Irrevocable commitments
-
7,430
7,430
-
-
-
Total
79,714
92,481
66,004
12,021
9,784
4,672
Notes to the financial statements
Year ended 31 December 2022
199
Erste&Steiermärkische Bank d.d.
37. Liquidity risk (continued)
Undiscounted financial liabilities (continued)
BANK
in HRK million
Carrying amounts
Contractual cash flows
< 1 month
1‑12 months
1‑5 years
> 5 years
Non-derivative liabilities
92,103
92,419
72,498
10,867
5,257
3,797
Deposits by banks
7,431
7,473
5,346
188
1,939
-
Customer deposits
80,413
80,431
66,843
10,356
2,676
556
Debt securities in issue
3,646
3,884
12
302
350
3,220
Subordinated liabilities
226
246
-
-
246
-
Finance lease liabilities
93
91
4
20
46
21
Other financial liabilities
294
294
293
1
-
-
Derivative liabilities
175
176
(2)
11
29
138
Derivatives liabilities with netted Cash Flows
-
165
-
1
26
138
Derivatives liabilities with gross Cash Flow (net)
-
11
(2)
10
3
-
Outflows
-
2,196
1,145
817
234
-
Inflows
-
(2,185)
(1,147)
(807)
(231)
-
Contingent liabilities
-
12,502
12,502
-
-
-
Financial guarantees
-
5,080
5,080
-
-
-
Irrevocable commitments
-
7,422
7,422
-
-
-
Total
92,278
105,097
84,998
10,878
5,286
3,935
BANK
in HRK million
Carrying amounts
Contractual cash flows
< 1 month
1‑12 months
1‑5 years
> 5 years
Non-derivative liabilities
72,478
72,846
50,545
10,454
7,771
4,076
Deposits by banks
3,016
3,040
616
402
1,907
115
Customer deposits
64,927
64,962
49,716
9,655
4,888
703
Debt securities in issue
4,010
4,284
13
380
661
3,230
Subordinated liabilities
226
260
-
-
260
-
Finance lease liabilities
100
101
2
16
55
28
Other financial liabilities
199
199
198
1
-
-
Derivative liabilities
56
59
5
32
4
18
Derivatives liabilities with netted Cash Flows
-
20
-
-
2
18
Derivatives liabilities with gross Cash Flow (net)
-
39
5
32
2
-
Outflows
-
3,732
1,662
1,830
240
-
Inflows
-
(3,693)
(1,657)
(1,798)
(238)
-
Contingent liabilities
-
9,297
9,297
-
-
-
Financial guarantees
-
4,413
4,413
-
-
-
Irrevocable commitments
-
4,884
4,884
-
-
-
Total
72,534
82,202
59,847
10,486
7,775
4,094
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
200
Definition and overview
Pursuant to Article 4 (52) of CRR, the Bank defines operational risk as the risk of loss resulting from inadequacy or failure of internal processes, people or systems, or from external events, including legal risk, model risk and information and communication technology risk, but not strategic and reputational risk. Both quantitative and qualitative methods are used to identify operational risk and are refined further in order to capture all information relevant to risk management.
Operational risk events are categorized within seven event types: Internal fraud, External fraud, Employment practices and workplace safety, Clients, products and business practices, Damage to physical assets, Business disruption and system failures and, Execution, delivery and process management.
Operational Risk Framework and Standards
For managing operational risk the Bank applies following elements: identification of operational risk, assessment, mitigation and acceptance of operational risk, quantification of operational risk and monitoring, controlling and reporting of operational risk.
When determining the operational risk exposure for the Bank, qualitative and quantitative tools have been applied.
The quantitative analysis of operational risk includes collection of internal and external loss event data where particular emphasis is put on the data classification and quality necessary for quantifying operational risk. Furthermore, the Bank uses external operational risk loss data and scenario analysis which are implemented to analyse possible future losses which the Bank has not experienced yet.
For the qualitative analysis risk and control self-assessments (RCSA) has to be performed on a regular basis and corrective measures have to be implemented by relevant organizational unit for high risk points where internal controls are not adequate or efficient.
An objective in the identification of operational risk is to establish key risk indicators such as system availability, staff turnover, customer complaints, which are measured and give a timely indication regarding changes in the operational risk profile.
The Bank locally applies The Standardised Approach – TSA for operational risk capital requirements calculation.
The Bank is included in the insurance program for operational risk on the Erste Group level (Captive Insurance) which offers risk mitigating effect on operational risk losses and is incorporated into capital requirement calculation using Advanced Measurement Approach on Erste Group’s consolidated level.
The Bank's Management Board is informed on operational risk through Operational Risk Quarterly Report which includes operational risk exposure and losses, risk assessments results, key risk indicators and corrective measures. Non-Financial Risk management committee is held at minimum on a quarterly basis which decides also on operational risk management related topics.
Notes to the financial statements
Year ended 31 December 2022
201
Erste&Steiermärkische Bank d.d.
Non-current assets and other investments
Property and equipment
Property and equipment are measured at cost less accumulated depreciation and any accumulated impairment. The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that property and equipment. Depreciation is calculated using the straight-line method to write down the cost of such assets to their residual values over their estimated useful lives. Depreciation is reported in the statement of profit or loss in the line item ‘Depreciation and amortisation’ and impairment in the line item ‘Other operating result’.
The estimated economic useful lives are set out below:
Useful life in years
2021
2022
Buildings
40
40
Office furniture and equipment
3-10
3-10
Motor vehicles
4-6
4-6
Computer hardware
4
4
Land is not depreciated.
Property and equipment are derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in the statement of profit or loss in the line item ‘Other operating result’.
Investment properties
Investment property is a property (land and buildings or part of a building or both) held for the purpose of earning rentals and/or for capital appreciation. In case of partial own use, the property is investment property only if the owner-occupied portion is insignificant. Investments in land and buildings under construction when the future use is expected to be the same as for investment property are treated as investment property.
Investment property is initially measured at cost, including transaction costs. Subsequently, investment property is measured at cost less accumulated amortisation and impairment. Investment property is presented in the statement of financial position under the line item ‘Investment properties’.
Rental income is recognised and presented in the statement of profit or loss in the line item ‘Rental income from investment properties and other operating leases’. Depreciation is recognised and presented in the statement of profit or loss in the line ‘Depreciation and amortisation’ using the straight-line method over an estimated useful life. The useful lives of investment properties are identical to those of buildings presented under ‘Property and equipment’. Any impairment losses, as well as their reversals, are recognised in the statement of profit or loss and presented in the line item ‘Other operating result’ .
Assets under operating leases
Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. The leased asset is presented by the lessor in the statement of financial position under the line item ‘Property and equipment’.
Initial direct costs of obtaining the lease are added to the underlying asset and recognised as an expense over the lease term on the same basis as the lease income.
For assets held under operating lease the Group uses a depreciation policy which is consistent with the normal depreciation policy for similar assets. Depreciation is recognised and presented in the statement of profit or loss in the line item ‘Depreciation and amortisation’.
Lease income arising is accounted for on a straight-line basis over the lease terms and presented in the statement of profit or loss in the line item ‘Rental income from investment properties and other operating leases’.
The Group’s policy is the sale of assets under the operating lease after the termination of the lease.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
202
Under IFRS 16, the Group as a lessee recognises a right-of-use asset representing its right to use the underlying asset.
The right-of-use asset is initially measured at cost. The cost comprises the amount of the initial measurement of the lease liability and includes other elements such as initial direct costs incurred by the lessee. The right-of-use assets is presented in the statement of financial position under the line item ‘Property and equipment’. Subsequently, the right-of-use asset is depreciated to the earlier of the end of its useful life or the end of the lease term. The Group uses the straight-line method of depreciation. The useful lives for property are between 2 and 15 years while the motor vehicles are depreciated based on useful lives between 2 and 6 years. Depreciation is reported in the statement of profit or loss in the line item ‘Depreciation and amortisation’ and impairment in the line item ‘Other operating result’.
Impairment of non-financial assets (property and equipment, investment properties, right of use assets)
The Group assesses at each reporting date whether there is an indication that a non-financial asset may be impaired. Testing for impairment is done at individual asset level if the asset generates cash inflows that are largely independent of those from other assets. The typical case is investment property. Otherwise, the impairment test is carried out at the level of the cash-generating unit (CGU) to which the asset belongs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
If any indication of impairment exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of the assets or CGU's fair value less costs of disposal and its value in use. If the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In measuring value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
At each reporting date an assessment is made as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. The previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount or does not exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.
Impairment losses and their reversals are recognised in profit or loss and presented in the statement of profit or loss under the line item ‘Other operating result’.
Notes to the financial statements
Year ended 31 December 2022
203
Erste&Steiermärkische Bank d.d.
39.Property, equipment and Investment properties
Acquisition costs
Own property, equipment and investment properties
GROUP
Property and equipment – Acquisition costs
in HRK million
Land and buildings
Office and plant equipment / other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Balance as at 1 January 2021
922
345
397
397
2,061
12
Additions (+)
22
26
43
64
155
1
Disposals (-)
(4)
(18)
(19)
(128)
(169)
-
Disposal of group
-
-
-
-
-
-
Reclassification
-
-
-
-
-
-
Assets held for sale
(3)
(1)
(2)
-
(6)
(8)
Currency translation
-
-
-
-
-
-
Balance as at 31 December 2021
937
352
419
333
2,041
5
Additions (+)
34
33
54
65
186
8
Disposals (-)
(6)
(19)
(17)
(86)
(128)
-
Addition to group
-
2
-
8
10
-
Reclassification
2
1
(2)
-
1
(2)
Assets held for sale
(6)
-
-
-
(6)
-
Currency translation
-
-
-
-
-
-
Balance as at 31 December 2022
961
369
454
320
2,104
11
Accumulated depreciation
Own property, equipment and investment properties
GROUP
Property and equipment – Accumulated depreciation
in HRK million
Land and buildings
Office and plant equipment / other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Balance as at 1 January 2021
(299)
(243)
(238)
(145)
(925)
(7)
Depreciation (-)
(20)
(30)
(58)
(52)
(160)
-
Disposals (+)
4
18
18
81
121
-
Disposal of group
-
-
-
-
-
-
Impairment
-
-
-
-
-
-
Reclassification
-
-
-
-
-
-
Assets held for sale
2
-
1
-
3
5
Balance as at 31 December 2021
(313)
(255)
(277)
(116)
(961)
(2)
Depreciation (-)
(20)
(28)
(57)
(47)
(152)
-
Disposals (+)
2
18
17
51
88
-
Addition to group
-
(3)
-
(4)
(7)
-
Impairment
-
-
-
-
-
-
Reclassification
-
-
-
-
-
-
Assets held for sale
3
-
-
-
3
-
Balance as at 31 December 2022
(328)
(268)
(317)
(116)
(1,029)
(2)
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
204
39.Property, equipment and Investment properties (continued)
Carrying amounts
Own property, equipment and investment properties
GROUP
Property and equipment
in HRK million
Land and buildings
Office and plant equipment / other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Balance as at 31 December 2021
624
97
142
217
1,080
3
Balance as at 31 December 2022
633
101
137
204
1,075
9
Rights of use: property, equipment and investment properties
GROUP
Property and equipment
in HRK million
Land and buildings
Office and plant equipment / other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Balance as at 31 December 2021
97
2
-
-
99
-
Balance as at 31 December 2022
89
2
-
-
91
-
Acquisition costs
Own property, equipment and investment properties
BANK
Property and equipment – Acquisition costs
in HRK million
Land and buildings
Office and plant equipment / other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Balance as at 1 January 2021
761
296
242
-
1,299
7
Additions (+)
17
20
34
-
71
-
Disposals (-)
(4)
(16)
(8)
-
(28)
-
Reclassification
-
-
-
-
-
-
Assets held for sale
(3)
-
-
-
(3)
(7)
Balance as at 31 December 2021
771
300
268
-
1,339
-
Additions (+)
33
30
45
-
108
-
Disposals (-)
(6)
(15)
(10)
-
(31)
-
Reclassification
1
1
(1)
-
1
-
Assets held for sale
-
-
-
-
-
-
Balance as at 31 December 2022
799
316
302
-
1,417
-
Notes to the financial statements
Year ended 31 December 2022
205
Erste&Steiermärkische Bank d.d.
39.Property, equipment and Investment properties (continued)
Accumulated depreciation
Own property, equipment and investment properties
BANK
Property and equipment – Accumulated depreciation
in HRK million
Land and buildings
Office and plant equipment / other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Balance as at 1 January 2021
(268)
(206)
(114)
-
(588)
(5)
Depreciation (-)
(15)
(26)
(44)
-
(85)
-
Disposals (+)
3
15
8
-
26
-
Impairment
-
-
-
-
-
-
Reclassification
-
-
-
-
-
-
Assets held for sale
2
-
-
-
2
5
Balance as at 31 December 2021
(278)
(217)
(150)
-
(645)
-
Depreciation (-)
(16)
(25)
(47)
-
(88)
-
Disposals (+)
3
15
9
-
27
-
Impairment
-
-
-
-
-
-
Reclassification
-
-
-
-
-
-
Assets held for sale
-
-
-
-
-
-
Balance as at 31 December 2022
(291)
(227)
(188)
-
(706)
-
Own property, equipment and investment properties
BANK
Property and equipment
in HRK million
Land and buildings
Office and plant equipment / other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Balance as at 31 December 2021
493
83
118
-
694
-
Balance as at 31 December 2022
508
89
114
-
711
-
Rights of use: property, equipment and investment properties
BANK
Property and equipment
in HRK million
Land and buildings
Office and plant equipment / other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Balance as at 31 December 2021
88
10
-
-
98
-
Balance as at 31 December 2022
82
9
-
-
91
-
In the reporting period, expenditures in the amount of HRK 140 million and 131 million for the Group and the Bank respectively (2021: HRK 119 million for the Group and and HRK 112 million for the Bank) are capitalised in the carrying amount of fixed assets during their construction. The contractual commitments for purchase of fixed assets amounted to HRK 21 million for the Group and the Bank as of 31 December 2022 (2021: HRK 20 million for the Group and the Bank).
As of 31 December 2022, the Group's property and equipment amounted to HRK 1,166 million (2021: HRK 1,179 million). The carrying amount of property and equipment of HRK 195 million (2021: HRK 208 million) was leased under operating lease of which the amount of HRK 191 million (2021: HRK 206 million) relates to movable property, and the reamining amount of HRK 4 million (2021: HRK 2 million) relates to land and buildings.
As of 31 December 2022, the Bank's property and equipment amounted to HRK 802 million (2021: HRK 792 million). The carrying amount of property and equipment of HRK 13 million (2021: HRK 13 million) relates to land and buildings leased under operating lease.
For details related to right of use assets capitalized in balance sheet arising from leases where Group is lessee, please see Note 43 Group as a lessee.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
206
39.Property, equipment and Investment properties (continued)
As of 31 December 2022, the fair value of investment properties with a carrying amount of HRK 9 million for the Group and nil for the Bank (2021: HRK 3 million for the Group and nil for the Bank) amounts to HRK 12 million for the Group (2021: HRK 5 million) and is classified as level 3 of the fair value hierarchy.
For non-financial assets owned by the Group the valuations are carried out using the comparative and investment methods. Assessment is made on basis of a comparison and analysis of appropriate comparable investment and rental transactions, together with evidence of demand within the vicinity of the relevant property. The characteristics of such similar transactions are then applied to the asset, taking into account size, location, terms, covenant and other material factors. Such measurements are presented in Level 3 of the fair value hierarchy.
Information about Fair values of assets held for sale is provided in Note 53 Assets held for sale and liabilities associated with assets held for sale
Notes to the financial statements
Year ended 31 December 2022
207
Erste&Steiermärkische Bank d.d.
Goodwill
Other intangible assets
In addition to goodwill, the Group’s intangible assets include computer software, customer relationships and other intangible assets. An intangible asset is recognised only when its cost can be measured reliably, and it is probable that the expected future economic benefits that are attributable to it will flow to the Group.
Intangible assets acquired separately are measured on initial recognition at cost. Costs of internally generated software are capitalised if the Group can demonstrate the technical feasibility and intention of completing the software, the ability to use it, how it will generate probable economic benefits, the availability of resources and the ability to measure the expenditures reliably. Following inital recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
The cost of intangible assets acquired in a business combination is their fair value as of the date of acquisition. In the Group, these are customer relationships, and they are capitalised on acquisition if they can be measured with sufficient reliability.
Intangible assets with finite lives are amortised over their useful economic lives using the straight-line method. The amortisation period and method are reviewed at least at each financial year-end and adjusted if necessary. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss under the line item ‘Depreciation and amortisation’.
The estimated useful lives are as follows:
Impairment of intangible assets including goodwill
Goodwill arising on acquisition of a business is carried at cost as established, as the date of acquisition of the business less accumulated subsequent impairment losses, if any.
Goodwill is tested for impairment annually in November, or whenever there is an indication of possible impairment during the year, with any impairment determined recognised in profit or loss.
The impairment test is carried out for each cash-generating unit (CGU) to which goodwill has been allocated. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets.
Goodwill is tested for impairment by comparing the recoverable amount of each CGU, to which goodwill has been allocated with its carrying amount. The carrying amount of a CGU is derived based on the amount of equity allocated to CGU taking into account any goodwill and unamortised intangible assets recognised at the time of business combination if they are allocated to the CGU.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
208
40.Intangible assets (continued)
The estimation of future earnings distributable to shareholders is based on financial plans for CGUs as agreed by the management taking into account the fulfilment of the respective regulatory capital requirements. The planning period range is five years. Any forecasted earnings beyond the planning period are derived on the basis of the last year of the planning period and a long-term growth rate, which is based on macroeconomic parameters for each CGU. The estimated future earnings beyond the initial planning period are captured in the terminal value (TV).
The value in use is determined by discounting the cash flows at a rate that takes into account present market rates and the specific risks of the CGU. The discount rates applied to calculate present values have been determined based on the capital asset pricing model (CAPM). According to CAPM, the discount rate comprises a risk-free interest rate together with a market risk premium that itself is multiplied by a factor that represents the systematic market risk (beta factor). Furthermore, a country-risk premium is considered in calculation of the discount rate. The values used to establish the discount rates are determined using external sources of information.
When the recoverable amount of CGU is less than its carrying amount, the difference is recognized as an impairment loss in the statement of profit or loss and reported under the line item ‘Other operating result’. The impairment loss is allocated first to writing down the CGU’s goodwill. Any remaining impairment loss reduces the carrying amount of the remaining individual assets of the CGU, though not to an amount lower than their fair value less costs of disposal. Impairment loss is not recognised if the recoverable amount of the CGU is higher than or equal to its carrying amount. Impairment losses relating to goodwill cannot be reversed in future periods.
Acquisition costs
GROUP
Acquisition costs
in HRK million
Goodwill
Customer relationships
Software acquired
Others (licenses, patents, etc.)
Total
Balance as at 1 January 2021
607
181
314
299
1,401
Additions (+)
-
-
41
17
58
Disposals (-)
-
-
(1)
(6)
(7)
Disposal of group
-
-
-
-
-
Reclassification
-
-
-
-
-
Assets held for sale
(10)
(10)
Currency translation
-
-
(1)
-
(1)
Balance as at 31 December 2021
607
181
353
300
1,441
Additions (+)
-
-
31
10
41
Disposals (-)
-
-
-
-
-
Addition to group
-
-
1
-
1
Disposal of group
-
-
-
-
-
Reclassification
-
-
-
-
-
Currency translation
-
-
-
-
-
Balance as at 31 December 2022
607
181
385
310
1,483
Accumulated depreciation
GROUP
Accumulated depreciation
in HRK million
Goodwill
Customer relationships
Software acquired
Others (licenses, patents, etc.)
Total
Balance as at 1 January 2021
(435)
(181)
(184)
(211)
(1,011)
Amortisation (-)
-
-
(38)
(31)
(69)
Disposals (+)
-
-
1
6
7
Disposal of group
-
-
-
-
-
Reclassification
-
-
-
-
-
Assets held for sale
7
7
Impairment
(48)
-
-
-
(48)
Balance as at 31 December 2021
(483)
(181)
(221)
(229)
(1,114)
Amortisation (-)
-
-
(46)
(28)
(74)
Disposals (+)
-
-
-
-
-
Disposal of group
-
-
-
-
-
Reclassification
-
-
-
-
-
Impairment
(124)
-
-
-
(124)
Balance as at 31 December 2022
(607)
(181)
(267)
(257)
(1,312)
Notes to the financial statements
Year ended 31 December 2022
209
Erste&Steiermärkische Bank d.d.
40.Intangible assets (continued)
Carrying amounts
GROUP
in HRK million
Goodwill
Customer relationships
Software acquired
Others (licenses, patents, etc.)
Total
Balance as at 31 December 2021
124
-
132
71
327
Balance as at 31 December 2022
-
-
118
53
171
Goodwill and customer relationship carrying amount in whole relates to Erste Card Club d.o.o.
Acquisition costs
BANK
Acquisition costs
in HRK million
Goodwill
Customer relationships
Software acquired
Others (licenses, patents, etc.)
Total
Balance as at 1 January 2021
-
-
244
114
358
Additions (+)
-
-
35
5
40
Disposals (-)
-
-
-
(1)
(1)
Reclassification
-
-
-
-
-
Balance as at 31 December 2021
-
-
279
118
397
Additions (+)
-
-
22
1
23
Disposals (-)
-
-
1
-
1
Reclassification
-
-
-
-
-
Balance as at 31 December 2022
-
-
302
119
421
Accumulated depreciation
BANK
Accumulated depreciation
in HRK million
Goodwill
Customer relationships
Software acquired
Others (licenses, patents, etc.)
Total
Balance as at 1 January 2021
-
-
(143)
(80)
(223)
Amortisation (-)
-
-
(33)
(7)
(40)
Disposals (+)
-
-
-
1
1
Reclassification
-
-
-
-
-
Balance as at 31 December 2021
-
-
(176)
(86)
(262)
Amortisation (-)
-
-
(39)
(8)
(47)
Disposals (+)
-
-
-
-
-
Reclassification
-
-
-
-
-
Balance as at 31 December 2022
-
-
(215)
(94)
(309)
Carrying amounts
BANK
in HRK million
Goodwill
Customer relationships
Software acquired
Others (licenses, patents, etc.)
Total
Balance as at 31 December 2021
-
-
103
32
135
Balance as at 31 December 2022
-
-
87
25
112
Software acquired column relates to core banking system.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
210
40.Intangible assets (continued)
The goodwill impairment assessment for the year 2022 and 2021 addressed the subsidiary Erste Card Club d.o.o. (CGU).
For these purposes we used discounted cash flow method, based on budgeted figures of Erste Card Club d.o.o. for the period of 2022 till 2027. Discount rate applied to determine the value in use was 14.54% (2021: 11.90%).
The business of Erste Card Club d.o.o. in 2022 is stable despite the impact of COVID-19, the war in Ukraine and inflation. In challenging business environment, regulatory requirements, digital technologies, new foreign competition (TPP and cross-border acquirers) and especially the pressure of merchants on MSC fees will make card business and its profitability more uncertain after 2022. In the periods after 2024, a decrease in operating income is expected in Erste Card Club d.o.o. due to the market situation, entry into EMU and due to further competitive pressure on cooperation with merchants and customers, and the volume of transactions and margins and an increase in operating expense due to the continued impact of inflation. Due to these expectations, the Management Board reduced part of the estimated operating income and increased part of the estimated operating expense in periods 2025-2027, which resulted in impairment of its investments in this subsidiary and an impairment of goodwill of Erste Card Club d.o.o. in consolidated financial statements in the amount of HRK 125 million in 2022 (2021: 48 million). For segment information in accordance with IFRS 8, information is dislosed in Note 1 Segment reporting.
The following table shows the sensitivity analysis of the recoverable value dependent of investment in Erste Card Club d.o.o. for 2022 and 2021 on the main variables (terminal growth rate and terminal cost of equity):
Risk free rate
TV growth rate
14.04%
14.54%
15.04%
Risk free rate
TV growth rate
11.40%
11.90%
12.40%
1.8%
1,408
1,391
1,375
2.3%
1,413
1,395
1,379
2.8%
1,420
1,400
1,383
Notes to the financial statements
Year ended 31 December 2022
211
Erste&Steiermärkische Bank d.d.
41.Other assetsThe repossessed asset is classified as ‘other assets’ and measured in accordance with the requirements of IAS 2 ‘Inventories’ if the asset is intended for sale in the ordinary course of business. Namely, it is recognized at an acquisition cost equal to its fair value as estimated and documented upon repossession. Upon each subsequent reporting date, it is measured at lower of cost and net realizable value (expected selling price less costs to sell).
Inventory
Gains or losses resulting from sale are recognised in the statement of profit or loss and presented under the line item ‘Other operating result’ in the statement of profit or loss, together with costs of sales and other costs incurred in selling the assets.
GROUP
BANK
in HRK million
2021
2022
2021
2022
Prepayments and accrued income
40
33
24
11
Inventories
280
201
240
169
Value adjustments of inventories
(98)
(87)
(67)
(56)
Sundry assets
102
124
54
53
Other assets
324
271
251
177
In the line ‘Inventories’ the Group holds repossessed assets (collaterals obtained in foreclosure procedures) which the Group has the intention to sell.
In 2022 the impairment of inventories, shown as expense in the reporting period was recognised in amount of HRK 5 million for the Group and HRK 6 million for the Bank (2021: HRK 41 million for the Group and HRK 37 million for the Bank).
Fiduciary assets
The Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity are not reported in the financial statements, as they are not the assets of the Group.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
212
LeasesIn the case of operating leases, which are leases other than finance leases, the leased asset is reported by the lessor in ‘Property and equipment’ or in ‘Investment properties’ and is depreciated in accordance with the principles applicable to the assets involved. Lease income is recognised on a straight-line basis over the lease term in the statement of profit or loss under the line item ‘Rental income from investment properties and other operating leases’.
A lease is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration.
A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. In the case of a finance lease, the lessor reports a receivable from the lessee under the line item ‘Finance lease receivables’. The receivable is equal to the present value of the contractually agreed payments taking into account any residual value. Interest income on the receivable is reported in the statement of profit or loss in the line item ‘Other similar income’ under ‘Net interest income’.
Finance leases
The Group leases movable property to other parties under finance lease arrangements. For the finance lease receivables included in this item, the reconciliation of the gross investment in leases to the present value of the minimum lease payments are as follows:
GROUP
in HRK million
2021
2022
Outstanding lease payments
2,780
3,331
Non-guaranteed residual values
-
-
Gross investment
2,780
3,331
Unrealised financial income
(176)
(267)
Net investment
2,604
3,064
Present value of non-guaranteed residual values
-
-
Present value of outstanding lease payments
2,604
3,064
The maturity analysis of lease by residual maturities under IFRS 16:
GROUP
2021
2022
in HRK million
Gross investment
Present value of outstanding lease payments
Gross investment
Present value of outstanding lease payments
< 1 year
976
899
1,089
979
1 – 2 years
699
670
818
775
2 – 3 years
513
484
593
550
3 – 4 years
322
299
424
387
4 – 5 years
189
173
259
230
> 5 years
81
79
148
143
Total
2,780
2,604
3,331
3,064
During 2022, Group recognised interest income on finance lease receivables in the amount of HRK 109 million (2021: HRK 100 million).
Notes to the financial statements
Year ended 31 December 2022
213
Erste&Steiermärkische Bank d.d.
42.Group as a lessor (continued)
Finance lease receivables
The analysis of the gross carrying amount (GCA) and of related credit loss allowances (CLA) of finance lease receivables per impairment buckets as of 31 December 2022 and 31 December 2021 is provided in the table below:
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2022
Central banks
-
-
-
-
-
-
-
-
-
-
-
General governments
20
28
-
-
48
-
-
-
-
-
48
Credit institutions
1
-
-
-
1
-
-
-
-
-
1
Other financial corporations
10
1
-
-
11
-
-
-
-
-
11
Non-financial corporations
1,720
531
52
-
2,303
(6)
(17)
(17)
-
(40)
2,263
Households
610
74
16
-
700
(1)
(2)
(2)
-
(5)
695
Total
2,361
634
68
-
3,063
(7)
(19)
(19)
-
(45)
3,018
GROUP
GCA
CLA
in HRK million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
2021
Central banks
-
-
-
-
-
-
-
-
-
-
-
General governments
56
1
-
-
57
-
-
-
-
-
57
Credit institutions
1
-
-
-
1
-
-
-
-
-
1
Other financial corporations
10
1
-
-
11
-
-
-
-
-
11
Non-financial corporations
1,480
455
54
-
1,989
(8)
(21)
(22)
-
(51)
1,938
Households
472
63
11
-
546
(1)
(3)
(3)
-
(7)
539
Total
2,019
520
65
-
2,604
(9)
(24)
(25)
-
(58)
2,546
For information about development of credit loss allowances refer to Note 32 Development of credit loss allowances, part ‘Finance lease receivables’: Table ‘Movement in credit loss allowances – finance lease receivables’.
During the process of credit risk assessment, the Company applies prudent methods and assessment models in the risk assessment process. To evaluate a portion of the lessees, the Company uses an internally developed system in the form of score cards as well as the Group’s internal system. The internal evaluation system for natural persons and sole traders with single-entry bookkeeping consists of four grades for non-default clients and one grade for default clients. For other clients, the Group’s evaluation system is used that has thirteen grades for non-default clients and one grade for default clients.
For the purpose of simplified presentation of the credit risk exposure, the grades obtained in this way are internally divided into four risk levels: low risk indicates a high probability of collection; moderate risk is when the debtor’s financial situation is stable but there may be a limited negative impact resulting from an undesired economic situation; moderately high risk is when the debtor is vulnerable to negative financial and economic impacts and therefore needs to be monitored and sufficient collateralisation needs to be ensured. High risk relates to the occurrence of a default event.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
214
42. Group as a lessorFor information about rental income please refer to Note 7 Rental income from investment properties and other operating leases .The Group primarily rents real estate’s such as buildings and land for branches and parking lots. In addition, movables such as IT equipment are rented for business operations.
Operating leases
Under operating leases, the Group and the Bank has entered into commercial leases on premises, vehicles and equipment.
Maturity analysis of lease payments from operating leases under IFRS 16
Under IFRS 16, Group as a lessee recognises a right of use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases (less than 12 months) and leases of low-value items.
The right of use asset is initially measured at cost. The cost comprises the amount of initial measurement of the lease liability (including any lease payments made at or before the commencement date), less any lease incentives received, any initial direct costs incurred by the lessee and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset. Subsequently, the right-of-use asset is depreciated to the earlier of the end of its useful life or the end of the lease term. The Group uses the straight-line method of depreciation. The right of use assets are presented as part of ‘Property and equipment’ in the statement of financial position and depreciation cost as part of the line item ‘Depreciation and amortisation’ in the statement of profit or loss. The right of use asset is in scope of impairment requirements in IAS 36.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if the rate cannot be readily determined, the lessee’s incremental borrowing rate. Lease payments comprise fixed lease payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee. Additionally, the exercise price under a purchase option and lease payments in an optional renewal period are considered if the lessee is reasonably certain to exercise the option. Variable lease payments not included in the measurement of the lease liability are recognised as an expense in profit or loss, in the period in which the event or condition that triggers those payments occur. The incremental borrowing rate for movables consists of Euribor as a base rate, adjusted by a surcharge based on the entity’s rating, the amount of funds borrowed, the term of the lease and the collateral provided. The determination of the incremental borrowing rate for property leases is based on two components, the market rate and the single property rate. The market rate considers the lease term, creditworthiness and is derived from existing bank data from the lending business. The single property rate represents a surcharge to the market rate based on the quality of the single property.
Subsequently, the carrying amount of the lease liability is increased by interest accrued using the applicable discount rate, reduced by lease payments made and remeasured to reflect any reassessment or lease modification. In the statement of financial position, the lease liabilities are presented in the line item ‘Lease liabilities’. Interest expense decreases over the lease term and it is presented as part of ‘Other similar expenses’ under the line ‘Net interest income’ in the statement of profit or loss.
Notes to the financial statements
Year ended 31 December 2022
215
Erste&Steiermärkische Bank d.d.
43. Group as a lessee (continued)
Rights of Use Assets
GROUP
BANK
in HRK million
Land and buildings
Office and plant equipment / other fixed assets
Property and equipment
Land and buildings
Office and plant equipment / other fixed assets
Property and equipment
2021
Carrying amounts
97
2
99
88
10
98
Additions (+)
29
1
30
17
7
24
Depreciation (-)
(20)
(1)
(21)
(17)
(2)
(19)
2022
Carrying amounts
89
2
91
82
9
91
Additions (+)
22
2
24
13
3
16
Depreciation (-)
(20)
-
(20)
(17)
(2)
(19)
Maturity analysis of lease liabilities based on undiscounted cash flows
GROUP
BANK
in HRK million
2021
2022
2021
2022
< 1 year
17
24
19
27
1 – 5 years
57
50
57
48
> 5 years
31
23
30
23
Total
105
97
106
98
During 2022, interest expenses on lease liabilities were recognised in the amount of HRK 2 million for the Group and the Bank (2021: HRK 2 million for the Group and the Bank).
In 2022, expenses in the amount of HRK 330 thousand for the Group and HRK 331 thousand for the Bank relating to short term leases, (2021: HRK 337 thousand for the Group and HRK 382 thousand for the Bank) for which the recognition exemption of IFSR 16 applies, were recognised. In addition, expenses in the amount of HRK 13 million for the Group and HRK 11 million for the Bank relating to leases of low value items, for which the recognition exemption of IFSR 16 applies, were recognized (2021: HRK 13 million for the Group and HRK 10 million for the Bank).
Total cash outflow for leases in 2022 were HRK 32 million for the Group and HRK 38 million for the Bank (2021: HRK 34 million for the Group and HRK 36 million for the Bank).
There are no commitments for future cash outflows which are not reflected in the measurement of lease liabilities for the Group and for the Bank (2021: 1 million HRK for the Group and nil for the Bank). The Group had no restrictions or covenants imposed by leases or sales and lease back transactions as of 31 December 2022 and 31 Decemeber 2021.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
216
44.Other liabilities
GROUP
BANK
in HRK million
2021
2022
2021
2022
Prepayments received from debtors
179
172
149
140
Salaries and bonuses payable
210
241
171
197
Deferred income and accrued fee expenses
76
79
6
10
Payables to State Agency for deposit
8
30
5
27
Sundry liabilities
158
196
107
121
Other liabilities
631
718
438
495
The item ‘Sundry liabilities’ mainly contains outstanding settlement liabilities as well as other liabilities from employee benefits.
Provisions are recognized when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle that obligation and and the amount of the obligation can be estimated reliably.
Provisions for liabilities and charges are maintained at the level that the Group’s management considers sufficient for absorption of losses. The management determines the sufficiency of provisions on the basis of insight into specific items, current economic circumstances, risk characteristics of certain transaction categories, as well as other relevant factors.
Recognition of provisions requires judgement with respect to whether Group has a present obligation as a result of a past event and whether it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Furthermore, estimates are necessary with respect to the amount and timing of future cash flows when determining the amount of provisions. Further details on provisions for off-balance credit risk exposures are explained in Note 29 Credit risk exposure and Note 32 Development of credit loss allowances.
Following classes of provision can be distinguished:
Notes to the financial statements
Year ended 31 December 2022
217
Erste&Steiermärkische Bank d.d.
45. Provisions (continued)Actuarial gains or losses in provisions for jubilee benefits are recognised in the statement of profit or loss in the period in which they occur. Remeasurement of jubilee defined-benefit plans are recognised in the statement of profit or loss and presented under the line item ‘Personnel expenses’ .
Long-term employee benefits
Long-term employee benefits are all benefits given by the Group in exchange for services rendered by employees which become due in more than 12 months from the period of services rendered to which they relate.
Obligations for defined retirement benefit and jubilees are recognised in the amount of net present value determined by using the Projected Unit Credit Method, with actuarial valuations being carried out at each statement of financial position date.
Actuarial gains or losses in respect of pension benefit provisions are recognized in full in the period in which they occur. Remeasurement of actuarial gains or losses related to pension benefits are recognised in other comprehensive income and the amounts of remeasurements accumulated in other comprehensive income are not reclassified to profit or loss
GROUP
in HRK million
Pensions
Jubilee payments
Total
Present value of long-term employee benefit obligations, 31 December 2020
6
10
16
Service cost
-
1
1
Interest cost
-
-
-
Payments
-
(1)
(1)
Actuarial gains/losses recognised in income
-
1
1
Adjustments in financial assumptions
-
1
1
Present value of long-term employee benefit obligations, 31 December 2021
6
11
17
Service cost
-
1
1
Interest cost
-
-
-
Payments
-
(1)
(1)
Actuarial gains/losses recognised in income
-
-
-
Adjustments in financial assumptions
-
-
-
Present value of long-term employee benefit obligations, 31 December 2022
6
11
17
BANK
in HRK million
Pensions
Jubilee payments
Total
Present value of long-term employee benefit obligations, 31 December 2020
3
8
11
Service cost
-
1
1
Interest cost
-
-
-
Payments
-
(1)
(1)
Actuarial gains/losses recognised in income
-
1
1
Adjustments in financial assumptions
-
1
1
Present value of long-term employee benefit obligations, 31 December 2021
3
9
12
Service cost
-
-
-
Interest cost
-
-
-
Payments
-
(1)
(1)
Actuarial gains/losses recognised in income
-
1
1
Adjustments in financial assumptions
-
-
-
Present value of long-term employee benefit obligations, 31 December 2022
3
9
12
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
218
45.Provisions (continued)
Actuarial assumptions
The actuarial calculation of pension obligations and jubilee provisions is based on the following assumptions:
The expected retirement age for each employee was individually calculated on the basis of their current age and average of retirement age, which is for men 61 and for women 60.
Obligations were calculated in accordance with the mortality tables entitled Life tables for the Republic of Croatia 2010-2012 Issued by Croatian Bureau of Statistics.
Sensitivity to Key Assumption
The following table presents how the reasonably possible changes of individual parameters effect post-employment benefit obligations as of year-end 2022.
Pensions
Jubilee payments
Total
Change in discount rate + 1.0%
2
9
11
Change in discount rate - 1.0%
3
10
13
Impact on Cash Flows
The following table reflects the benefits expected to be paid by the defined benefit plans in each of the respective periods:
Duration
The following table presents the weighted average duration of the defined-benefit obligations as of year-end 2022:
In the ordinary course of business, the Group provides guarantees consisting of various types of letters of credit and guarantees. A financial guarantee is a contract that requires the guarantor to make specified payments to reimburse the holder for a loss it incurs in case a specified debtor fails to make a payment when due in accordance with the original or modified terms of a debt instrument. Performance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation. Performance guarantees contracts issued transfer primarily credit risk.
The Group as a guarantor recognises financial guarantees as soon as it becomes a contracting party. Guarantees are initially recognised at their fair value, which is normally evidenced by the amount of fees received. The fee is received over the life of the guarantee given, in arrears, on a quarterly basis and recognised in the statement of profit or loss, in the line item ‘Fee and commission income’ under ‘Net fee and commission income’.
Notes to the financial statements
Year ended 31 December 2022
219
Erste&Steiermärkische Bank d.d.
45.Provisions (continued)
The Group has the contractual right to revert to its customer for recovering amounts paid to settle the guarantee. Such amounts will be recognised as a financial asset upon transfer of the loss compensation to the guarantee’s beneficiary.
Subsequent to initial recognition, provisions are recognised based on the expected credit loss impairment model and reported in the statement of financial position under the line item ‘Provisions’.
Loan commitments are firm commitments to provide credit under prespecified terms and conditions. Loan commitments are generally not recognised in the balance sheet before they are drawn. If it is probable that the bank will enter into the loan agreement loan commitment fees received are deferred and adjust the effective interest rate of the loan when the commitment is drawn. Loan commitments result in recognition of provisions based on the expected credit loss impairment model.
For information about development of credit loss allowances for provision for financial guarantees and loan commitments refer to Note 32 Development of credit loss allowances, part ‘Loan commitments and financial guarantees’: table ‘Movement in credit loss allowances – loan commitments and financial guarantees.
Following table provides the information about the development of the remaining classes of provisions
GROUP
in HRK million
2021
Allocations
Use
Releases
Exchange rate
2022
Pending legal issues
224
243
(16)
(53)
-
398
Other provision
-
1
-
-
-
1
Total
224
244
(16)
(53)
-
399
BANK
in HRK million
2021
Allocations
Use
Releases
Exchange rate
2022
Pending legal issues
214
178
(17)
(53)
-
322
Other provision
-
-
-
-
-
-
Total
214
178
(17)
(53)
-
322
GROUP
in HRK million
2020
Allocations
Use
Releases
Exchange rate
2021
Pending legal issues
416
101
(108)
(184)
(1)
224
Other provision
-
-
-
-
-
-
Total
416
101
(108)
(184)
(1)
224
BANK
in HRK million
2020
Allocations
Use
Releases
Exchange rate
2021
Pending legal issues
403
100
(106)
(182)
(1)
214
Other provision
-
-
-
-
-
-
Total
403
100
(106)
(182)
(1)
214
In Croatia, the Supreme Court, in a proceeding initiated by a local consumer protection association against several credit institutions (‘Collective Case’), among them Erste Bank Croatia (‘EBC’), declared in 2015 that Swiss Franc (CHF) clauses in loan agreements with consumers are valid, but contractual provisions permitting unilateral change of the variable interest rates in CHF denominated consumer loans, used by the majority of credit institutions from 2004 until 2008, are null and void. In 2016, the Croatian Constitutional Court rescinded the part of the Supreme Court of Croatia decision relating to the validity of CHF clauses. After the case had been returned for a retrial with respect to the CHF clause to the court of second instance, such court delivered its decision in 2018, declaring in essence the nullification of the CHF currency clause, holding that collective and individual consumer rights were breached. However, no specific obligation of the bank was ordered by the verdict. In 2019 the Supreme Court rejected the appeal of the credit Institutions against the 2018 decision. As the subsequent constitutional claim against such decision was rejected by the Constitutional Court in 2021, EBC filed a request to the European Court of Human Rights (“ECHR”), which was declared as inadmissible at the end of 2022.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
220
The impact of the rulings in the Collective case on legal disputes with individual clients related to CHF denominated loan agreements is still difficult to predict. In December 2022, the Supreme Court (after a procedure before the European court of Justice regarding the interpretation of relevant provisions of EU’s Directive 93/13) reached a legal standing according to which clients who have converted their loans according to the applicable laws enacted in 2015 are entitled to default interest for overpaid amounts taken into account by a credit institution when converting CHF loans into EURO loans.
Apart from the fact, that a consumer protection association – disagreeing with the Supreme Court’s reasoning in the Legal Standing, publicly declared their willingness to pursue further actions before the Constitutional Court the ultimate effects of the aforementioned legal standing as well as court practices in individual cases are difficult to predict.
Further information on disclosed disputes are not being provided following IAS 37.92, in order to protect the position of the Group in pending court cases.
During 2022, a first instance verdict was reached against the Defendant, one of the Bank's subsidiary company. This non-final verdict ordered the Defendant to pay the Claimant a significant money amount, together with the default interest and the litigation costs. The Defendant filed an appeal against the part of the verdict, which largely accepted the claim and made a provision in the total amount of HRK 64 mil for the potential liability that may arise in the event of failure in the appeal procedure.
To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. Even though these obligations may not be recognised in the Statement of Financial Position, they do involve credit risk and are therefore part of the overall risk of the Group and the Bank (see Note 28 Credit risk review and monitoring and Note 32 Development of Credit loss allowances).
The Group is involved in legal disputes, most of which have arisen in the course of ordinary banking business. These proceedings are not expected to have a significant negative impact on the financial position or profitability of the Group.
Any possible financial impacts of these proceedings are not disclosed, as neither the duration nor the outcome can be reliably estimated and to avoid influencing the outcome of the various proceedings.
Notes to the financial statements
Year ended 31 December 2022
221
Erste&Steiermärkische Bank d.d.
Capital instruments, equity and reserves
47.Total equity
Share capital
As of 31 December 2022 and 2021 the share capital of the Bank comprises of 16,984,175 ordinary fully paid shares with a par value of HRK 100 per share. All the ordinary shares are ranked equally and bear one vote.
Capital reserves and share premium
The Bank’s distributable and non-distributable reserves are determined by regulations of the CNB. As of 31 December 2022 and 2021 the legal reserves of the Bank disclose non-distributable reserves in amount of HRK 85 million.
Share premium as of 31 December 2022 and 2021 amounted to HRK 1,801 million.
Dividends
The dividends for 2022 are subject to approval by shareholders at Annual General Assembly which has not been held as of the date when these consolidated financial statements were authorized for issue.
As a consequence of the COVID-19 crisis, the European Central Bank as well as local national bank issued recommendations to restrict dividend payouts. As a result, no dividends were paid out by the Bank for 2019 and in May 2021 the Bank held its regular General Meeting at which Net profit for the year 2020 was distributed in the retained earnings. As the Decision on the abolition of the Decision on the temporary restriction of distributions was adopted, at extraordinary General Meeting held on November 2, 2021, Decision on distribution of retained earnings, was made. By the Decision on distribution of retained earnings, the amount of HRK 161,009,979.00 was distributed as the dividend to the Bank's shareholders. The dividend is determined in amount of 9.48 % of the nominal share value, which makes HRK 9.48 per share.
The dividend for the year 2021 in the amount of HRK 524,980,849.25 was distributed to the shareholders, in amount of 30.91 % of the nominal share value, which is HRK 30.91 per share
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
222
The consolidated financial statements incorporate the financial statements of the Bank and entities controlled by the Bank (subsidiaries) together with the Group's share in associates.
Merger and disposal in 2022
Company S Leasing d.o.o. Podgorica has been merged with Erste bank AD Podgorica as of 12th December 2022.
Erste bank AD Podgorica is an entity that has survived the merger. This is a business combination transaction under common controls as all merging companies are businesses in the meaning of IFRS 3, are controlled by the same party and the control is not transitory. No consideration transferred for this merger as the Erste bank AD Podgorica holds 100% interest in subsidiary.
The transaction is a business combination under common control and was accounted for using a predecessor value method). The carrying amounts of assets and liabilities of S Leasing d.o.o. Podgorica. from the consolidated financial statements of the Group were used to account for this transaction. The difference between carrying amount of the investment in subsidiary (recognised before the merger at cost in the separate FS of the surviving entity) and the carrying amount of the net assets of the acquired company is recognised in equity (in Retained earnings).
The merger was accounted for prospectively from the date of the transaction. The comparatives are not restated thus the comparatives present only the assets, liabilities, income, expenses of the acquirer; whereas assets, liabilities, income, expenses of acquiree (of S Leasing d.o.o. Podgorica) are incorporated only from the date of the merger which is 12th December 2022.
Effects of merger recognized at the merger date:
12 December 2022
Cash and cash balances
34
Property and equipment
3
Other asset
1
Finance lease receivables
123
Trade and other receivables
3
Financial liabilities measured at amortised cost
(142)
Other liabilities
(2)
Elimination of carrying amount of the investments in subsidiary
(15)
Difference recognised in Equity, incl.: · Retained earnings
5
Disposal of subsidiary of Erste Card d.o.o. Slovenia
Subsidiaries are entities over which the Group has control.
All entities directly or indirectly controlled by the Group are consolidated in the Group financial statements on the basis of their annual accounts as of 31 December 2022, and for the year then ended.
Subsidiaries are consolidated from the date on which control is obtained until the date when control is lost. Control is achieved when the Group is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power to direct the relevant activities of the investee. Relevant activities are those which most significantly affect the variable returns of an entity.
Notes to the financial statements
Year ended 31 December 2022
223
Erste&Steiermärkische Bank d.d.
The financial statements of the Bank’s subsidiaries are prepared for the same reporting year as that of the Group and using consistent accounting policies. All intragroup transactions, balances, income and expenses as well as unrealised gains and losses are eliminated on consolidation.
Non-controlling interests represent the portion of total comprehensive income and net assets of subsidiaries that is not attributable, directly or indirectly, to the owners of the Bank. Non-controlling interest is presented separately in the consolidated statement of profit or loss, in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position. Acquisitions of non-controlling interests as well as disposals of non-controlling interests that do not lead to a change of control are accounted for as equity transactions, whereby the difference between the consideration transferred and the share in the carrying amount of the net assets acquired is recognised in equity.
Control
IFRS 10 Consolidated Financial Statements defines the investor’s control over an investee in terms of the investor having all of the following:
_power to direct the relevant activities of the investee, i.e. activities that significantly affect the investee’s returns;
_exposure, or rights, to variable returns from its involvement with the investee; and
_the ability to use its power over the investee to affect the amount of the investor’s returns.
Hence, assessing the existence of control under this definition may require considerable accounting judgements, assumptions and estimates, notably in non-standard situations such as:
_power stemming both from voting rights and from contractual arrangements (or mostly from the latter);
_exposure stemming both from on-balance investments and from off-balance commitments or guarantees (or mostly from the latter); or
_variable returns stemming both from readily identifiable income streams (e.g. dividends, interest, fees) and from cost savings, economies of scale and/or operational synergies (or mostly from the latter).
Following the acquisition of the additional stake in Erste Leasing d.o.o. (the Company) in 2014, the Bank has ownership interest of 50% in the Company. The other 50% interest is held by Steiermarkische Bank und Sparkassen AG, Austria. The Group consolidates the Company based on the assessment of control over its relevant activities as defined by IFRS 10 Consolidated Financial Statements.
The Group has considered the local legislation and the Incorporation Act of the Company and concluded that in accordance with the Incorporation Act the Bank controls the Company. According to the Incorporation Act of the Company the decisions at the shareholders level, requiring unanimous decision-making, are of a protective nature. The decisions over relevant activities are taken by the simple majority of the Supervisory Board members of the Company, where the Bank has the right to appoint the majority of the members, and therefore controls the Company.
Furthermore, the Bank has the ability to use its power over the Company to affect the amount of the investor's returns. The Bank has established frame within which can keep track of The Company's portfolio movement as well as their entire business operations. Close collaboration has been established between sales business lines as well as constant coordination of risk management organisational parts, respectively strategic risk management of the Company has been implemented and strategic management of the entire Company's relevant business aspects.
Business combinations
Businesses combinations are accounted for using the acquisition method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
224
48.Investment in subsidiaries (continued)The difference between consideration transferred and the carrying amount of the net assets of the acquired company is recognised in equity (in Retained earnings) .
If, after reassessment of all components described above, the calculation results in a negative amount, it is recognised as a gain and presented in the statement of profit or loss under the line item ‘Other operating result’ in the year of acquisition.
For business combinations prior to 1 January 2010, acquisition costs were included in the cost of business combination and the goodwill represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. If the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeded the cost of the business combination, the determined amount was recognized in profit or loss in the period of acquisition and presented in the statement of profit or loss under the line ‘Other operating result’.
Non-controlling interests which are present ownership interests in the acquiree are measured at the proportionate share of the acquiree’s identifiable net assets.
A merger or business combination involving entities or businesses under common control is a business combination in which all of the combining businesses are ultimately controlled by the same party or parties both before and after the merger or business combination, and that control is not transitory.
The predecessor method of accounting is used to account for the mergers and business combinations of entities (businesses) under common control.
Under the predecessor method, the acquirer incorporates the carrying values of assets (including goodwill, if any) and liabilities of the acquired or merged entity (i.e. entity which cease to exist as the result of the merger) from the consolidated financial statements of the highest level parent that has common control for which consolidated financial statements are prepared or the lower level parent company, if justifiable (for example, when the parent company merges with its subsidiary, the carrying amounts from the consolidated financial statements of the merging parent are used to account for the merger).
The acquired or merged entity’s results and balance sheet are incorporated prospectively from the date on which the merger or business combination between entities under common control occurred. On the date of the merger, inter-company transactions, balances and unrealised gains and losses on transactions between the two entities merging are eliminated.
Investment in subsidiaries
Main business activity
Ownership % held
Group's share of net assets
Investment at cost less impairment
in HRK million
2021
2022
2021
2022
2021
2022
Erste Nekretnine d.o.o.
Real estate business
100%
100%
8
9
1
1
Erste Card Club d.o.o.
Financial intermediation and services
100%
100%
1,288
1,412
611
486
Izbor Nekretnina d.o.o.
Real estate management and lease
100%
100%
3
4
2
2
Erste Bank AD, Podgorica
Credit institution
100%
100%
754
814
100
100
Erste&Steiermarkische S-leasing d.o.o.
Leasing company
50%
50%
428
415
89
89
Erste Group IT HR d.o.o.
IT engineering
80%
80%
11
13
2
2
Direct control
2,492
2,667
805
680
Erste Card d.o.o. Slovenia
Financial intermediation and services
100%
100%
37
0
24
0
Indirect control
37
0
24
0
Total subsidiaries:
2,529
2,667
829
680
The following subsidiaries have non material Non-Controlling Interest (NCI):
_Erste & Steiermarkische S-leasing d.o.o. (50%)
_Erste Group IT HR d.o.o. (20%)
The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from the supervisory frameworks within which the banking subsidiaries operate. The supervisory frameworks require banking subsidiaries to keep certain levels of regulatory capital and liquid assets, limit their exposure to other parts of the Group and comply with other ratios.
Notes to the financial statements
Year ended 31 December 2022
225
Erste&Steiermärkische Bank d.d.
49.Investments in associatesHowever, impairment losses, reversal of impairment losses and realised gains and losses on investments in associates accounted for using the equity method are reported under the line item ‘Other operating result’ .
Associates are entities over which the Group has significant influence but no control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. As a general rule, IAS 28 indicates that if an entity holds, directly or indirectly 20% or more of the voting power of the investee, it is presumed that the entity has significant influence unless it can be clearly demonstrated that this is not the case.
Investments in associates are accounted for using the equity method of accounting. Under the equity method, interest in an associate is recognised in the consolidated statement of financial position at cost and adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of the individual investment.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized in the statement of profit or loss.
The Group’s share of the associate’s result is recognised in the consolidated statement of profit or loss in line item ‘Net result from equity method investments’. The line item contains result from associates recorded by applying the equity method (measured as investor’s share of profit or loss in the associates).
Investment in associates
Erste d.o.o.
Country of Incorporation
Croatia
Place of business
Croatia
Main business activity
Management company for obligatory and voluntary pension fund
in HRK million
2021
2022
Ownership % held
45.86%
45.86%
IFRS Classification
Associate
Associate
Reporting currency
HRK
HRK
Dividend income received
5
5
Impairment loss recognized (cumulative basis)
-
-
Impairment loss recognized (for the reporting year)
-
-
Investee's key financial information for the reporting year (as at reporting-year-end)
Financial assets
114
116
Other assets
19
24
Financial liabilities
0
0
Other liabilities
17
19
Revenue
72
73
Expense
(53)
(56)
Investment at cost
38
38
Reconciliation of investee's net assets against equity investment's carrying amount
24
27
Net assets attributable to the Group
62
65
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
226
50.Related-party transactions
When considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. Transactions with related parties are done at arm’s length. Therefore, the applicable interest rates and other terms (maturity dates and collateral) represent market conditions.
The parent company (which is also the ultimate controlling parent entity of the entire group) is Erste Group Bank AG, Vienna (EGB). Entity with significant influence on the Group is Steiermärkische Bank und Sparkassen AG.
The ‘Key management personnel’ includes Management Board and Supervisory Board while ‘Other’ includes close family members of key management personnel.
As at 31 December 2022 and 31 December 2021, balances outstanding with related parties comprised:
GROUP
Loans and receivables
Derivatives
Other
Loans and receivables
Derivatives
Other
in HRK million
2021
2022
Entity with significant influence on the Group
-
-
4
-
-
7
Key management personnel
5
-
-
3
-
-
Parent company
43
27
198
50
191
251
Other EGB companies
5
-
8
2
-
12
Other
-
-
-
-
-
-
Associates
-
-
-
-
-
-
Total assets
53
27
210
55
191
270
GROUP
Deposits
Derivatives
Other
Deposits
Derivatives
Other
in HRK million
2021
2022
Entity with significant influence on the Group
2,989
-
-
3,318
-
-
Key management personnel
17
-
-
14
-
-
Parent company
4,393
40
76
5,722
3
1
Other EGB companies
180
-
68
159
-
-
Other
-
-
-
1
-
-
Associates
26
-
-
36
-
-
Total liabilities
7,605
40
144
9,250
3
1
BANK
Loans and receivables
Derivatives
Other
Loans and receivables
Derivatives
Other
in HRK million
2021
2022
Entity with significant influence on the Group
-
-
-
-
-
-
Key management personnel
3
-
-
3
-
-
Parent company
42
27
77
49
191
141
Other EGB companies
3
-
5
1
-
5
Other
-
-
-
-
-
-
Subsidiaries
144
-
-
93
-
-
Associates
-
-
-
-
-
-
Total assets
192
27
82
146
191
146
Notes to the financial statements
Year ended 31 December 2022
227
Erste&Steiermärkische Bank d.d.
50.Related-party transactions (continued)
BANK
Deposits
Derivatives
Other
Deposits
Derivatives
Other
in HRK million
2021
2022
Entity with significant influence on the Group
572
-
-
575
-
-
Key management personnel
17
-
-
14
-
-
Parent company
3,775
40
1
5,178
3
-
Other EGB companies
176
-
-
157
-
-
Other
-
-
-
1
-
-
Subsidiaries
136
-
1
187
-
1
Associates
26
-
-
36
-
-
Total liabilities
4,702
40
2
6,148
3
1
GROUP
BANK
in HRK million
2021
2022
2021
2022
Interest income
19
33
21
32
Entity with significant influence on the Group
-
-
-
-
Key management personnel
-
-
-
-
Parent company
19
33
19
31
Other EGB companies
-
-
-
-
Subsidiaries
-
-
2
1
Associates
-
-
-
-
Fee income
27
28
100
133
Parent company
8
8
6
6
Other EGB companies
16
17
16
15
Subsidiaries
-
-
75
109
Associates
3
3
3
3
Gains and losses from net trading result
20
151
20
148
Parent company
20
151
20
151
Subsidiaries
-
-
-
(3)
Other operating income
28
44
19
21
Parent company
8
9
5
5
Subsidiaries
-
14
13
15
Other EGB companies
20
21
1
1
Associates
-
-
-
-
Total income
94
256
160
334
GROUP
BANK
in HRK million
2021
2022
2021
2022
Interest expense
127
106
92
67
Entity with significant influence on the Group
35
41
11
10
Key management personnel
-
-
-
-
Other EGB companies
1
-
-
-
Parent company
91
65
81
57
Subsidiaries
-
-
-
-
Associates
-
-
-
-
Fee expense
32
37
35
49
Parent company
6
7
5
7
Other EGB companies
26
30
20
23
Other
-
-
-
-
Subsidiaries
-
-
10
19
Other administrative expenses
114
110
154
166
Parent company
31
14
31
13
Other EGB companies
83
96
68
80
Key management personnel
-
-
-
-
Subsidiaries
-
-
55
73
Associates
-
-
-
-
Other operating expenses
-
-
-
-
Parent company
-
-
-
-
Total expenses
273
253
281
282
Significant related party transactions are related to financial services and IT activities.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
228
GROUP
BANK
in HRK million
2021
2022
2021
2022
Guarantees issued
20
16
20
16
Parent company
20
16
20
16
Other EGB companies
-
-
-
-
Other
-
-
-
-
Subsidiaries
-
-
-
-
Undrawn credit and loan commitments
2
1
150
176
Key management personnel
1
-
-
-
Other EGB companies
1
1
-
-
Subsidiaries
-
-
150
176
Associates
-
-
-
-
Total commitments and contingent liabilities
22
17
170
192
Borrowings from parent company as of 31 December 2022, were HRK 2,016 million for the Group (2021: HRK 919 million) and HRK 1,473 million for the Bank (2021: HRK 226 million).
As of 31 December 2022, the Group has had no cash deposit as collateral within Amounts due to banks from the parent company (2021: nil).
Phantom Share Program
On yearly basis, however subject to a separate yearly annual approval process each year, the Group grants a bonus to selected employees (variable remuneration component) for services rendered during the year (performance year). The payment is only made if the regulatory requirements in respect of financial result and capital requirements (RAS indicators) are met, both for Erste Group Bank AG and the Group. If the individual bonus exceeds a certain limit, the final payment amount of at least 50% of the individual bonus determined at the end of the performance year depends on the development of the average, volume-weighted daily price of Erste Group Bank AG shares in subsequent years ("Phantom Share Program").
The corresponding portion of the individual bonus is converted into share equivalents (phantom shares) using the average, volume-weighted, daily share price of Erste Group Bank AG during the performance year. The share equivalents are divided into several tranches, which differ based on the development of the Erste Group Bank AG share price during the vesting period. At the end of the respective vesting period, the amount that will be paid out in the following year is determined from the corresponding number of share equivalents and the average price. The vesting period corresponds to the performance year. Part of the bonus converted into share equivalents (phantom shares) is paid out in a year following the vesting period, while the remaining part is paid out in equal tranches over the next five years (retention period).
Notes to the financial statements
Year ended 31 December 2022
229
Erste&Steiermärkische Bank d.d.
Since the Group receives the entire work service in the respective performance year, the estimated amount of the variable remuneration for stock equivalents is recognized as a liability at fair value. The final determination of the calculated and allocated share equivalents takes place in the following year. The liability for share equivalents, that have not yet been paid out, is continuously measured at fair value, up to the cap limit. until it is paid out. Changes in fair value up to the final allocation in subsequent years are recognized in profit or loss. To determine the fair value, the number of share equivalents not yet paid out on the balance sheet date, is multiplied by the estimated average price of Erste Group Bank AG share for the respective year of payment. The estimated average share prices for the respective payment year are determined using an Option pricing model (Black-Scholes model). The main parameters are the share price of the Erste Group Bank AG share on the balance sheet date and the expected dividend payments up to the date of payment. As of 31 December 2022, the valuation of the liability is based on the average weighted daily share price of Erste Group Bank AG of the year 2022 in the amount of EUR 29.01 (2021: EUR 33.08) per share.
It is expected that 46,206 share equivalents with a fair value of HRK 11 million will be granted to eligible employees for the Group and 34,474 share equivalents with a fair value of HRK 8 million will be granted to eligible employees for the Bank (2021: 43,045 share equivalents with a fair value of HRK 12 million for the Group and 34,208 share share equivalents with a fair value of HRK 10 million for the Bank).
The total expense recorded for the Phantom Share Program in the reporting period amounts to HRK 8 million for the Group and HRK 2 million for the Bank (2021: HRK 12 million for the Group and HRK 10 million for the Bank), the book value of the liability as of the balance sheet date is HRK 32 million for the Group and HRK 25 million for the Bank (2021: HRK 30 million for the Group and HRK 23 million for the Bank).
We Share Program
The WeShareParticipation program and WeShare-Investment Plus program are cash-settled share-based payment transactions based on the fact that that the payment is settled by the Group using Erste Group Bank AG equity instruments, not own shares. Both programs are offered to employees of the Group provided that the specific requirements are met.
Under the WeShare-Investment Plus part program all employees, who had been employed by an entity of the Group, from April 2022 until September 2022 could voluntarily invest in Erste Group shares and receive free shares depending on the amount of their personal investment. The WeShare-Investment Plus program was settled in September 2022. The number of free shares, which were granted under this program for the period, is 40,980. Personnel expenses in the amount of HRK 7 million were recorded.
The following table contains fundamental audit fees by the auditors in the financial years 2022 and 2021:
In the period from 1 January 2022 to 31 December 2022 the auditors provided two permissible non-audit services to the Bank.
They are consultat services for annual update of the documentation related to Multi Issuer Program and Retail programe and assurance for contribution to SRF. Total fee for provided non-audit services is not material.
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
230
53.Assets held for sale and liabilities associated with assets held for sale
Non-current assets are classified as held for sale if they can be sold in their present condition and the sale is highly probable within 12 months from the date of classification as held for sale. If assets are to be sold as part of a group that may also contain liabilities (e.g. a subsidiary), they are referred to as a disposal group held for sale.
Assets classified as held for sale and assets belonging to the disposal group held for sale are reported under the balance sheet line item ‘Assets held for sale’. Liabilities belonging to the disposal group held for sale are presented on the balance sheet under the line item ‘Liabilities associated with assets held for sale’.
Non-current assets and disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. The carrying amount of assets and liabilities that are not within the scope of the measurement requirements of IFRS 5 are measured in accordance with the applicable IFRSs before the fair value of less costs to sell of the disposal group is measured. Accordingly, financial assets and financial liabilities included in the disposal group are measured at amortised cost in accordance with IFRS 9.
Property, plant and intangible assets are not depreciated or amortised once classified as held for sale. Assets held for sale related to property, are measured at fair value on non-recurring basis when their carrying amount is impaired down to fair value less costs to sell. The fair values are determined by experts with recognised and relevant professional qualification.
GROUP
BANK
in HRK million
2021
2022
2021
2022
Assets held for sale
336
4
3
-
Liabilities associated with assets held for sale
261
-
-
-
As of the end 2022, line ‘Assets held for sale’ includes property, and as of the end of 2021, it mainly included disposal group (Erste Card d.o.o,. Slovenia) in amount of HRK 333 million (2021: HRK 333 million) for the Group.
As of end 2022, there is no Assets held for sale for the Bank and as of end 2021, it included property.
Disposal group held for sale (ERSTE CARD d.o.o., Slovenia)
Due to strategic guidelines of Erste Card Club d.o.o. and focus on the market in Republic of Croatia the activities regarding the sale of its fully owned subsidiary – Erste Card d.o.o., Slovenia was initiated. In October 2021 Erste Card Club d.o.o. signed an agreement for the sale of Erste Card d.o.o., Slovenia to Banka Sparkasse d.d. Slovenia, a related party.
The agreed selling price amounts to approximately HRK 67.7 million (9 EUR million at the EUR/HRK exchange rate of 7,517174 from 31 December 2021). Due to the procedural aspects of obtaining formal approval of the transaction by the supervising authorities in Austria and Slovenia, its closure date is expected by the end of the 2nd quarter of 2022.
Having met the qualifying criteria of IFRS 5, Erste Card d.o.o., Slovenia is presented in Group consolidated financial statements for the financial year ending 31 December 2021 as a disposal group held for sale and reported under the balance sheet line items ‘Assets held for sale’ and ‘Liabilities associated with assets held for sale’. In accordance with the presentation requirements of IFRS 5, the assets and liabilities of Erste Card d.o.o., Slovenia are neither reclassified nor represented in the statements of financial position of prior years.
As Erste Card d.o.o., Slovenia does not fulfil any of the criteria stipulated in IFRS 5.32, it is not classified as ‘discontinued operation’.
The disposal group is measured at the consolidated level according to IFRS 5 at carrying amount. As the selling contract had been signed before the end of 2021, the best indication for fair value of the disposal group is the agreed transaction price. The agreed price of approximately HRK 67.7 million (EUR 9 million) has been found higher than the net equity of Erste Card d.o.o., Slovenia in the amount of HRK 37 million as of 31 December 2021.
The disposal group is disclosed in segment reporting as ALM&LLC.
Notes to the financial statements
Year ended 31 December 2022
231
Erste&Steiermärkische Bank d.d.
53.Assets held for sale and liabilities associated with assets held for sale (continued)
The carrying amounts of major classes of assets and liabilities of Erste Card d.o.o., Slovenia as of 31 December 2021 are as follow:
2021
Assets
Cash and cash balances
1
Financial assets at amortised cost
207
Property and equipment
10
Intangible assets
3
Tax assets
3
Trade and other receivables
105
Other assets
4
Total assets
333
Liabilities
Financial liabilities measured at amortised cost
257
Finance lease liabilities
8
Provisions
5
Tax liabilities
1
Other liabilities
25
Total liabilities
296
The agreed transaction price is subject to pre-closing price adjustments. It is expected that operating business performance of Erste Card d.o.o., Slovenia in the period from 1 January 2022 until the closing of the transaction will not lead to any deductions from the agreed transaction price, and thus no further material adjustments to the carrying amount of the disposal group are expected. Moreover, there is no uncertainty as to the ability of the buyer to pay the purchase price.
Other comprehensive income includes in total HRK 121 thousand of cumulative expenses relating to Erste Card d.o.o., Slovenia, comprising HRK 86 thousand negative currency translation reserve and HRK 35 thousand negative actuarial loss on defined pension plans.
Effect of disposal
Until the date of disposal Erste Card d.o.o., Slovenia had contributed HRK 1 million of gain for the year to the Group. These figures are consolidated within Group retained earnings.
24 June 2022
Carrying amounts of net assets over which control was lost
Total assets
351
Total liabilities
(312)
Net assets derecognised
39
Consideration received
68
Gain on disposal
Consideration received
68
Net assets derecognised
(39)
Gain on disposal
29
Cash inflow on disposal of the subsidiary
Cash and cash equivalents disposed of
(5)
Cash consideration received
68
Net cash inflow arising on disposal
63
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
232
54.Analysis of remaining maturities
Expected cash flows are broken down by contractual maturities in accordance with the amortization schedule and arranged in maturity ranges less than 1 year and more than 1 year. The following table shows the contractual maturities as of 31 December 2022 and 31 December 2021.
GROUP
in HRK million
2021
2022
< 1 year
> 1 year
< 1 year
> 1 year
Cash and cash balances
14,530
-
25,982
-
Financial assets HfT
113
32
22
175
Derivatives
38
32
18
175
Other financial assets held for trading
75
-
4
-
Non-trading financial assets at FVPL
29
46
22
38
Equity instruments
-
10
-
21
Debt securities
29
36
22
17
Financial assets at FVOCI
2,020
9,927
2,246
6,921
Equity instruments
-
4
-
4
Debt securities
2,020
9,923
2,246
6,917
Financial assets at AC
17,347
41,981
16,645
54,404
Debt securities
151
4,784
654
9,370
Loans and advances to banks
4,312
94
2,796
94
Loans and advances to customers
12,884
37,103
13,195
44,940
Finance lease receivables
876
1,670
965
2,053
Trade and other receivables
1,268
2
1,297
-
Property, plant and equipment
-
1,179
-
1,166
Investment properties
-
3
-
9
Intangible assets
-
327
-
171
Investments in associates
-
62
-
65
Current tax assets
-
-
7
-
Deferred tax assets
-
207
-
404
Assets held for sale
336
-
4
-
Other assets
120
204
131
140
TOTAL ASSETS
36,639
55,640
47,321
65,546
Financial liabilities HfT
34
22
18
157
Derivatives
34
22
18
157
Financial liabilities measured at amortised cost
65,568
13,991
88,740
11,209
Deposits from banks
2,181
4,352
7,004
4,213
Deposits from customers
62,264
6,004
80,549
3,649
Debt securities issued
376
3,634
300
3,346
Other financial liabilities
747
1
887
1
Finance lease liabilities
22
77
26
65
Provisions
330
79
455
219
Tax liabilities
92
2
251
-
Liabilities associated with assets held for sale
261
-
-
-
Other liabilities
599
32
682
36
TOTAL LIABILITIES
66,906
14,203
90,172
11,686
Notes to the financial statements
Year ended 31 December 2022
233
Erste&Steiermärkische Bank d.d.
54.Analysis of remaining maturities (continued)
BANK
in HRK million
2021
2022
< 1 year
> 1 year
< 1 year
> 1 year
Cash and cash balances
13,518
-
24,632
-
Financial assets HfT
113
32
23
174
Derivatives
38
32
19
174
Other financial assets held for trading
75
-
4
-
Non-trading financial assets at FVPL
24
46
22
36
Equity instruments
-
10
-
19
Debt securities
24
36
22
17
Financial assets at FVOCI
2,013
9,435
2,240
6,547
Equity instruments
-
4
-
4
Debt securities
2,013
9,431
2,240
6,543
Financial assets at AC
15,350
39,369
14,314
51,563
Debt securities
151
4,523
654
9,067
Loans and advances to banks
4,228
94
2,504
94
Loans and advances to customers
10,971
34,752
11,156
42,402
Trade and other receivables
692
-
879
-
Property, plant and equipment
-
792
-
802
Investment properties
-
-
-
-
Intangible assets
-
135
-
112
Investments in subsidiaries
-
805
-
680
Investments in associates
-
38
-
38
Current tax assets
-
-
-
-
Deferred tax assets
-
132
-
338
Assets held for sale
3
-
-
-
Other assets
63
188
45
132
TOTAL ASSETS
31,776
50,972
42,155
60,422
Financial liabilities HfT
34
22
18
157
Derivatives
34
22
18
157
Financial liabilities measured at amortised cost
60,950
11,428
83,315
8,695
Deposits from banks
1,017
2,225
5,531
2,126
Deposits from customers
59,358
5,569
77,190
3,223
Debt securities issued
376
3,634
300
3,346
Other financial liabilities
199
-
294
-
Finance lease liabilities
18
82
27
66
Provisions
320
64
444
138
Tax liabilities
74
-
230
-
Other liabilities
405
33
460
35
TOTAL LIABILITIES
61,801
11,629
84,494
9,091
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
234
On January 1, 2023, euro becomes the official currency and legal tender in the Republic of Croatia. The fixed conversion rate is set at HRK 7.534500 for one euro. The introduction of the euro as the official currency in the Republic of Croatia represents a change in the functional currency that will be calculated prospectively and does not represent an event after the balance sheet date that requires the reconciliation of the amounts in these financial statements.
Operating income
Pre-tax result from continuing operations
Income tax
Employees
2022
GROUP
Croatia
3,115
1,433
(357)
3,003
Montenegro
243
110
(14)
317
Slovenia
-
-
-
-
Total
3,358
1,543
(371)
3,320
2 The expressed figure is the total number of active employees, taking into account whether they work full-tome or part time.
Notes to the financial statements
Year ended 31 December 2022
235
Erste&Steiermärkische Bank d.d.
Regulatory Requirements
Since 1 January 2014, the Group has been calculating the regulatory own funds and the regulatory capital requirements according to the Capital Requirements Regulation (CRR, Regulation (EU) No. 575/2013) and the Capital Requirement Directive (CRD IV, Directive (EU) 2013/36/EU)3. Both the CRD IV and CRD V were enacted in national law in Croatian Credit Institutions Act (ZOKI), as well as within various technical standards issued by the European Banking Authority (EBA).
All requirements as defined in the CRR, ZOKI and the aforementioned technical standards are fully applied by the Group for regulatory purposes and for the disclosure of regulatory information.
Furthermore, the Group also fulfils capital requirements determined in the Supervisory Review and Evaluation Process (SREP).
Accounting Principles
The financial and regulatory figures published by the Group are based on IFRS. Eligible capital components derived from the Statement of financial position and Statement of profit or loss which were prepared in accordance with IFRS. Adjustments to the accounting figures are considered due to the different definitions in the scope of consolidation and for items where the regulatory treatment is not equal to the accounting requirements.
The uniform closing date of the consolidated financial statements and consolidated regulatory figures of the Group is the 31 December of each respective year.
Regulatory scope of consolidation
The definition of entities to be consolidated for regulatory purposes are mainly defined in Articles 4 (1) (3) and (16) to (27) CRR in line with the Articles 18 and 19 CRR. Based on the relevant sections in Article 4 CRR, entities to be consolidated are determined based on the business activity of the relevant entities.
Moreover, Art. 18 (7) CRR applies: Where an institution has a subsidiary which is an undertaking other than an institution, a financial institution or an ancillary service undertaking or holds a participation in such an undertaking, it shall apply to that subsidiary or participation the equity method. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis.
The definition pursuant to CRR differs from the scope of consolidation according to IFRS, which also includes insurance companies and other entities, that are subject to full consolidation.
3 Both CRD IV and CRR have been amended since the entry into force in 2014 inter alia with Directive (EU) 2019/878 (CRD V) as well as regu-lations (EU) 2019/876 (CRR 2) and (EU) 2020/873 (CRR Quick Fix).
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
236
57. Own funds and capital requirements (continued)
Own funds
Own funds according to CRR consists of Common equity Tier 1 (CET 1), Additional Tier 1 capital (AT 1) and Tier 2 capital (T2). According to article 92 CRR credit institutions are required to fulfil following requirements; CET 1 capital ratio in amount of 4.5%, Tier 1 capital ratio in amount of 6% and total capital ratio in amount of 8%.
Capital buffer requirements are set out in section VII of the Credit institutions Act (ZOKI). Capital conservation buffer, countercyclical buffer, Globally Systemic Important Institutions buffer, Other Systemic Important Institutions and Systemic risk buffer are further specified in Credit Institutions Act section VII. All capital buffers have to be met entirely with CET1 capital. The sum of all CRD buffers applicable to a Bank is defined as the ‘Combined Buffer Requirement’ (CBR).
Article 117 of ZOKI requires that the Group and the Bank cover capital conservation buffer in amount of 2.5%. Besides capital conservation buffer the Group and the Bank have to establish systemic risk buffer in amount 1,5% in accordance with articles 129, 130, 131 and Other Systemic Important Institution (O-SII) buffer in the amount of 2% in accordance with articles 137, 138 and 139 of ZOKI.
In addition to minimum capital ratios and capital buffer requirements, institutions also have to fulfil capital requirements determined in the Supervisory Review and Evaluation Process (SREP). The Bank applies a Pillar 2 requirement (P2R) of 1.75% as of 01. March 2022. Capital quantitative requirement has to be held in the minimum form of 56.25% of Common Equity Tier 1 capital and 75% of Tier 1 capital. The Pillar 2 Guidance (P2G) for the Bank is determined on a sub-consolidated and on an individual level as 1% of total risk exposure amount as of 01. March 2022.
Overview of capital requirements and capital buffers
Dec 21
Dec 22
Pillar 1
Minimum CET 1 requirement
4.50%
4.50%
Minimum Tier 1 requirement
6.00%
6.00%
Minimum Own Funds requirement
8.00%
8.00%
Combined buffer requirement (CBR)
6.00%
6.00%
Capital conservation buffer
2.50%
2.50%
Countercyclical capital buffer
0.00%
0.00%
Systemic risk buffer
1.50%
1.50%
O-SII capital buffer
2.00%
2.00%
Minimum CET 1 requirement (incl.CBR)
10.50%
10.50%
Minimum Tier 1 requirement (incl.CBR)
12.00%
12.00%
Minimum Own Funds requirement (incl.CBR)
14.00%
14.00%
Pillar 2
2.90%
1.75%
Minimum CET1 requirement
1.62%
0.98%
Minimum T1 requirement
2.18%
1.31%
Minimum Own Funds requirement
2.90%
1.75%
Total CET 1 requirement for Pillar 1 and Pillar 2
12.12%
11.48%
Total Tier 1 requirement for Pillar 1 and Pillar 2
14.18%
13.31%
Total Capital requirement for Pillar 1 and Pillar 2
16.90%
15.75%
Notes to the financial statements
Year ended 31 December 2022
237
Erste&Steiermärkische Bank d.d.
57. Own funds and capital requirements (continued)
Capital structure according to the EU regulation 575/2013 (CRR)
GROUP
BANK
in HRK million
Article pursuant to CRR
2021
2022
2021
2022
Common equity tier 1 capital (CET1)
Other reserves
85
85
85
85
Common equity tier 1 capital (CET1) before regulatory adjustments
10,412
10,191
8,793
8,404
Prudential filter: fair value gains and losses arising from the institution's own credit risk related to derivative liabilities
(2)
(9)
(2)
(9)
DTA that rely on future profitability and do not arise from temporary differences net of associated tax liabilities
-
-
-
-
Insufficient coverage for non-performing exposures
(11)
(13)
(10)
(10)
CET1 capital elements or deductions – other
-
-
-
-
Additional deductions of CET1 Capital due to Article 3 CRR
(68)
(65)
(61)
(62)
Tier 2 capital (T2)
2021
2022
in HRK million
Total risk (final)
Capital requirement (final)
Total risk (final)
Capital requirement (final)
Total risk exposure amount
56,368
4,509
52,704
4,216
Risk-weighted assets (credit risk)
50,915
4,073
46,193
3,695
Standardised approach
10,655
852
10,710
857
IRB approach
40,260
3,221
35,483
2,839
Trading book, foreign FX risk and commodity risk
97
8
1,037
83
Operational risk
5,324
426
5,447
436
Exposure for CVA
32
3
27
2
Notes to the financial statements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
238
Risk structure according to EU regulation 575/2013 (CRR) (continued)
The Group fulfilled the capital requirements in 2022. In accordance with Art. 26 (2) CRR the item retained earnings includes the eligible profits of HRK 585.3 million (the Bank HRK 389.3 million) approved by the European Central Bank by decision of 06 February 2023.
The position CET1 elements or deduction – Others include development of unaudited risk provisions during the year (EU No 183/2014) and insufficient coverage for non-performing exposures (NPE Backstop) covering the requirements from both Art. 36 para 1 (m) CRR in connection with Art. 47(c) CRR and the Addendum to the ECB Guidance to banks on non-performing loans: supervisory expectations for prudential provisioning of non-performing exposures.
The capital structure table above is based on the Commission Implementing Regulation (EU) No 2021/637 laying down implementing technical standards regarding to disclosure of own funds requirements. Positions, which are not relevant for Group are not disclosed. Figures shown under full implementation of Basel 3 considered the current CRR.
At the end of 2022 total risk-weighted assets for credit risk at Bank level amounted HRK 39,379 million, which is a decrease by HRK 5,083 million compared to previous year. The decrease was mainly caused by adoption of permanent partial use of the Standardized Approach for exposures to central governments and central banks as well as multilateral development banks treated as Sovereign. However, it was partially offset by significant business increase, largely related with business lines SME, Large Corporates, Real Estate and Privates.
At local Group level, credit RWA decreased by HRK 4,722 million. Due to decrease of Bank’s RWA, share of subsidiaries in total Group credit RWA recorded mild increase.
The Group uses the standardised approach for the purposes of the calculating the capital requirements for market risk. The risk primarily arises from derivative transactions (FX Swap, FX Forward and Interest Rate Swap) with clients and capital requirements for currency risk based on the calculation of the total net foreign exchange position. Standardised approach for counterparty credit risk (SA-CCR) according to CRR II Art. 274 -280 is used to manage credit risk from derivatives.
The Bank is using the standardized approach (”TSA”) for the capital requirement calculation, according to CRR, as well as the Group Members Erste Card Club d.o.o. and Erste&Steiermärkische S-Leasing d.o.o., while other members apply Basic indicator approach (“BIA“). The Bank provides the operational risk capital requirement in such a way that it is constantly adequate to the type, range and complexity of its services as well as to its operational risk exposure or possible exposure within its scope of services.
2021
2022
in HRK million
Total risk (final)
Capital requirement (final)
Total risk (final)
Capital requirement (final)
Total risk exposure amount
48,540
3,883
44,000
3,520
Risk-weighted assets (credit risk)
44,462
3,557
39,379
3,150
Standardised approach
2,535
203
2,374
190
IRB approach
41,927
3,354
37,005
2,960
Trading book, foreign FX risk and commodity risk
48
4
448
36
Operational risk
3,998
320
4,146
332
Exposure for CVA
32
2
27
2
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
239
Erste&Steiermärkische Bank d.d.
Forms according to local requirements
Pursuant to the Decision of the CNB on structure and content of Bank's annual financial statements (Official Gazette 42/2018, 122/2020, 119/2021 and 108/2022) below we present the required forms for the Group and the Bank for the year ended 31 December 2022 in the form required by the decision. Information about the basis of presentation as well as a summary of accounting policies are given in the notes to the financial statements. Information important for better understanding of certain positions of the statement of financial position, statement of profit or loss, changes in equity as well as cash flow statement are also included in the notes.
Differences between forms (appendix 1) presented below on pages 235 to 244 and primary financial statements are presented in appendix 2 titled Differences between financial statements according to IFRS and local requirements.
GROUP
In HRK million
2021
2022
1.
Interest income
2,262
2,359
2.
(Interest expenses)
259
238
3.
(Expenses on share capital repayable on demand)
-
-
4.
Dividend income
1
-
5.
Fees and commissions income
1,068
1,199
6.
(Fees and commissions expenses)
259
315
7.
Gains or (-) losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net
-
1
8.
Gains or (-) losses on financial assets and liabilities held for trading, net
226
228
9.
Gains or (-) losses on non-trading financial assets mandatorily at fair value through profit or loss, net
4
(12)
10.
Gains or (-) losses on derecognition of financial assets and liabilities at fair value through profit or loss, net
-
-
11.
Gains or (-) losses from hedge accounting
-
-
12.
Exchange rate differences [gain or (-) loss], net
(5)
70
13.
Gains or (-) losses on derecognition of investments in subsidiaries, joint ventures and associates, net
-
-
14.
Gains or (-) losses on derecognition of non-financial assets, net
17
21
15.
Other operating income
119
77
16.
(Other operating expenses)
47
40
17.
Total operating income, net (1 – 2 – 3 + 4 + 5 – 6 + from 7 to 15 – 16)
3,127
3,350
18.
(Administrative expenses)
1,378
1,504
19.
(Cash contributions to resolution boards and deposit guarantee schemes)
35
92
20.
(Depreciation)
250
246
21.
Modification gains or (-) losses, net
(1)
-
22.
(Provisions or (-) reversal of provisions)
82
404
23.
(Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss)
6
(531)
24.
(Impairment or (-) reversal of impairment of investments in subsidiaries, joint ventures and associates)
-
-
25.
(Impairment or (-) reversal of impairment on non-financial assets)
87
130
26.
Negative goodwill recognised in profit or loss
-
-
27.
Share of the profit or (-) loss of investments in subsidiaries, joint ventures and associates accounted for using the equity method
9
8
28.
Profit or (-) loss from fixed assets and disposal groups classified as held for sale not qualifying as discontinued operations
-
30
29.
Profit or (-) loss before tax from continuing operations (17 – from 18 to 20 + 21- from 22 to 25 + from 26 to 28)
1,297
1,543
30.
(Tax expense or (-) income related to profit or loss from continuing operations)
228
371
31.
Profit or (-) loss after tax from continuing operations (29 – 30)
1,069
1,172
32.
Profit or (-) loss after tax from discontinued operations (33 – 34)
-
-
33.
Profit or (-) loss before tax from discontinued operations
-
-
34.
(Tax expense or (-) income related to discontinued operations)
-
-
35.
Profit or ( – ) loss for the year (31 + 32; 36 + 37)
1,069
1,172
36.
Attributable to minority interest [non-controlling interests]
19
(4)
37.
Attributable to owners of the parent
1,050
1,176
STATEMENT OF OTHER COMPREHENSIVE INCOME
38.
Income or (-) loss for the current year
1,069
1,172
39.
Other comprehensive income (40+ 52)
(121)
(813)
40.
Items that will not be reclassified to profit or loss (from 41 to 47) + 50 + 51)
8
1
41.
Tangible assets
-
-
42.
Intangible assets
-
-
43.
Actuarial gains or (-) losses on defined benefit pension plans
-
1
44.
Fixed assets and disposal groups classified as held for sale
-
-
45.
Share of other recognised income and expense of entities accounted for using the equity method
-
-
46.
Fair value changes of equity instruments measured at fair value through other comprehensive income
9
-
47.
Gains or (-) losses from hedge accounting of equity instruments at fair value through other comprehensive income, net
-
-
48.
Fair value changes of equity instruments measured at fair value through other comprehensive income [hedged item]
-
-
49.
Fair value changes of equity instruments measured at fair value through other comprehensive income [hedging instrument]
-
-
50.
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk
-
-
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
240
51.
Income tax relating to items that will not be reclassified
(1)
-
52.
Items that may be reclassified to profit or loss (from 53 to 60)
(129)
(814)
53.
Hedge of net investments in foreign operations [effective portion]
-
-
54.
Foreign currency translation
(2)
2
55.
Cash flow hedges [effective portion]
-
-
56.
Hedging instruments [not designated elements]
-
-
57.
Debt instruments at fair value through other comprehensive income
(153)
(994)
58.
Fixed assets and disposal groups classified as held for sale
-
-
59.
Share of other recognised income and expense of investments in subsidiaries, joint ventures and associates
-
-
60.
Income tax relating to items that may be reclassified to profit or (-) loss
26
178
61.
Total comprehensive income for the current year (38 + 39; 62 + 63)
948
359
62.
Attributable to minority interest [non-controlling interest]
19
(4)
63.
Attributable to owners of the parent
929
363
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
241
Erste&Steiermärkische Bank d.d.
BANK
In HRK million
2021
2022
1.
Interest income
1,821
1,935
2.
(Interest expenses)
209
188
3.
(Expenses on share capital repayable on demand)
-
-
4.
Dividend income
11
47
5.
Fees and commissions income
713
860
6.
(Fees and commissions expenses)
194
262
7.
Gains or (-) losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net
-
1
8.
Gains or (-) losses on financial assets and liabilities held for trading, net
223
222
9.
Gains or (-) losses on non-trading financial assets mandatorily at fair value through profit or loss, net
6
(13)
10.
Gains or (-) losses on derecognition of financial assets and liabilities at fair value through profit or loss, net
-
-
11.
Gains or (-) losses from hedge accounting
-
-
12.
Exchange rate differences [gain or (-) loss], net
(5)
87
13.
Gains or (-) losses on derecognition of investments in subsidiaries, joint ventures and associates, net
14.
Gains or (-) losses on derecognition of non-financial assets, net
12
15
15.
Other operating income
31
29
16.
(Other operating expenses)
23
23
17.
Total operating income, net (1 – 2 – 3 + 4 + 5 – 6 + from 7 to 15 – 16)
2,386
2,710
18.
(Administrative expenses)
1,034
1,176
19.
(Cash contributions to resolution boards and deposit guarantee schemes)
26
79
20.
(Depreciation)
143
154
21.
Modification gains or (-) losses, net
(1)
-
22.
(Provisions or (-) reversal of provisions)
90
339
23.
(Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss)
(25)
(463)
24.
(Impairment or (-) reversal of impairment of investments in subsidiaries, joint ventures and associates)
48
125
25.
(Impairment or (-) reversal of impairment on non-financial assets)
37
6
26.
Negative goodwill recognised in profit or loss
-
-
27.
Share of the profit or (-) loss of investments in subsidiaries, joint ventures and associates accounted for using the equity method
-
-
28.
Profit or (-) loss from fixed assets and disposal groups classified as held for sale not qualifying as discontinued operations
-
1
29.
Profit or (-) loss before tax from continuing operations (17 – from 18 to 20 + 21- from 22 to 25 + from 26 to 28)
1,032
1,295
30.
(Tax expense or (-) income related to profit or loss from continuing operations)
185
318
31.
Profit or (-) loss after tax from continuing operations (29 – 30)
847
977
32.
Profit or (-) loss after tax from discontinued operations (33 – 34)
-
-
33.
Profit or (-) loss before tax from discontinued operations
-
-
34.
(Tax expense or (-) income related to discontinued operations)
-
-
35.
Profit or ( – ) loss for the year (31 + 32; 36 + 37)
847
977
36.
Attributable to minority interest [non-controlling interests]
-
-
37.
Attributable to owners of the parent
847
977
STATEMENT OF OTHER COMPREHENSIVE INCOME
-
-
38.
Income or (-) loss for the current year
847
977
39.
Other comprehensive income (40+ 52)
(105)
(778)
40.
Items that will not be reclassified to profit or loss (from 41 to 47) + 50 + 51)
6
1
41.
Tangible assets
-
-
42.
Intangible assets
-
-
43.
Actuarial gains or (-) losses on defined benefit pension plans
-
1
44.
Fixed assets and disposal groups classified as held for sale
-
-
45.
Share of other recognised income and expense of entities accounted for using the equity method
-
-
46.
Fair value changes of equity instruments measured at fair value through other comprehensive income
7
-
47.
Gains or (-) losses from hedge accounting of equity instruments at fair value through other comprehensive income, net
-
-
48.
Fair value changes of equity instruments measured at fair value through other comprehensive income [hedged item]
-
-
49.
Fair value changes of equity instruments measured at fair value through other comprehensive income [hedging instrument]
-
-
50.
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk
-
-
51.
Income tax relating to items that will not be reclassified
(1)
-
52.
Items that may be reclassified to profit or loss (from 53 to 60)
(111)
(779)
53.
Hedge of net investments in foreign operations [effective portion]
-
-
54.
Foreign currency translation
-
-
55.
Cash flow hedges [effective portion]
-
-
56.
Hedging instruments [not designated elements]
-
-
57.
Debt instruments at fair value through other comprehensive income
(135)
(950)
58.
Fixed assets and disposal groups classified as held for sale
-
-
59.
Share of other recognised income and expense of investments in subsidiaries, joint ventures and associates
-
-
60.
Income tax relating to items that may be reclassified to profit or (-) loss
24
171
61.
Total comprehensive income for the current year (38 + 39; 62 + 63)
742
199
62.
Attributable to minority interest [non-controlling interest]
-
-
63.
Attributable to owners of the parent
742
199
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
242
In HRK million
GROUP
2021
2022
ASSETS
1.
Cash, cash balances and liabilities at central banks and other demand deposits (from 2 to 4)
14,530
25,982
2.
Cash on hand
3,052
3,135
3.
Cash balances and liabilities at central banks
11,036
22,177
4.
Other demand deposits
442
670
5.
Financial assets held for trading (from 6 to 9)
145
197
6.
Derivatives
70
193
7.
Equity instruments
-
-
8.
Debt securities
75
4
9.
Loans and advances
-
-
10.
Non-trading financial assets mandatorily at fair value through profit or loss (from 11 to 13)
75
60
11.
Equity instruments
39
43
12.
Debt securities
36
17
13.
Loans and advances
-
-
14.
Financial assets designated at fair value through profit or loss (15 + 16)
-
-
15.
Debt securities
-
-
16.
Loans and advances
-
-
17.
Financial assets at fair value through other comprehensive income (from 18 to 20)
11,947
9,167
18.
Equity instruments
4
4
19.
Debt securities
11,943
9,163
20.
Loans and advances
-
-
21.
Financial assets at amortised cost (22 + 23)
63,144
75,364
22.
Debt securities
4,935
10,024
23.
Loans and advances
58,209
65,340
24.
Derivatives – Hedge accounting
-
-
25.
Fair value changes of the hedged items in portfolio hedge of interest rate risk
-
-
26.
Investments in subsidiaries, joint ventures and associates
62
65
27.
Tangible assets
1,182
1,175
28.
Intangible assets
327
171
29.
Tax assets
207
411
30.
Other assets
324
271
31.
Fixed assets and disposal groups classified as held for sale
336
4
32.
TOTAL ASSEST (1+5+10+14+17+21+ from 24 to 31)
92,279
112,867
LIABILITIES
33.
Financial liabilities held for trading (from 34 to 38)
56
175
34.
Derivatives
56
175
35.
Short positions
-
-
36.
Deposits
-
-
37.
Debt securities issued
-
-
38.
Other financial liabilities
-
-
39.
Financial liabilities designated at fair value through profit or loss (from 40 to 42)
-
-
40.
Deposits
-
-
41.
Debt securities issued
-
-
42.
Other financial liabilities
-
-
43.
Financial liabilities measured at amortised cost (from 44 to 46)
79,658
100,040
44.
Deposits
74,801
95,415
45.
Debt securities issued
4,010
3,646
46.
Other financial liabilities
847
979
47.
Derivatives – Hedge accounting
-
-
48.
Fair value changes of the hedged items in portfolio hedge of interest rate risk
-
-
49.
Provisions
409
674
50.
Tax liabilities
94
251
51.
Share capital repayable on demand
-
-
52.
Other liabilities
631
718
53.
Liabilities included in disposal groups classified as held for sale
261
-
54.
TOTAL LIABILITIES (33+39+43+ from 47 to 53)
81,109
101,858
EQUITY
0
-
55.
Initial capital
1,698
1,698
56.
Share premium
1,801
1,801
57.
Equity instruments issued other than capital
-
-
58.
Other equity instruments
-
-
59.
Accumulated other comprehensive income
139
(673)
60.
Retained profit
6,181
6,711
61.
Revaluation reserves
-
-
62.
Other reserves
85
85
63.
Treasury shares
-
-
64.
Profit or loss attributable to owners of the parent
1,050
1,176
65.
Interim dividends
-
-
66.
Minority interests [Non-controlling interests]
216
211
67.
TOTAL EQUITY (from 55 to 66)
11,170
11,009
68.
TOTAL LIABILITIES AND EQUITY (54+67)
92,279
112,867
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
243
Erste&Steiermärkische Bank d.d.
BANK
In HRK million
2021
2022
ASSETS
1.
Cash, cash balances and liabilities at central banks and other demand deposits (from 2 to 4)
13,518
24,632
2.
Cash on hand
2,831
2,792
3.
Cash balances and liabilities at central banks
10,577
21,661
4.
Other demand deposits
110
179
5.
Financial assets held for trading (from 6 to 9)
145
197
6.
Derivatives
70
193
7.
Equity instruments
-
-
8.
Debt securities
75
4
9.
Loans and advances
-
-
10.
Non-trading financial assets mandatorily at fair value through profit or loss (from 11 to 13)
70
58
11.
Equity instruments
34
41
12.
Debt securities
36
17
13.
Loans and advances
-
-
14.
Financial assets designated at fair value through profit or loss (15 + 16)
-
-
15.
Debt securities
-
-
16.
Loans and advances
-
-
17.
Financial assets at fair value through other comprehensive income (from 18 to 20)
11,448
8,787
18.
Equity instruments
4
4
19.
Debt securities
11,444
8,783
20.
Loans and advances
-
-
21.
Financial assets at amortised cost (22 + 23)
55,411
66,756
22.
Debt securities
4,674
9,721
23.
Loans and advances
50,737
57,035
24.
Derivatives – Hedge accounting
-
-
25.
Fair value changes of the hedged items in portfolio hedge of interest rate risk
-
-
26.
Investments in subsidiaries, joint ventures and associates
843
718
27.
Tangible assets
792
802
28.
Intangible assets
135
112
29.
Tax assets
132
338
30.
Other assets
251
177
31.
Fixed assets and disposal groups classified as held for sale
3
-
32.
TOTAL ASSEST (1+5+10+14+17+21+ from 24 to 31)
82,748
102,577
LIABILITIES
33.
Financial liabilities held for trading (from 34 to 38)
56
175
34.
Derivatives
56
175
35.
Short positions
-
-
36.
Deposits
-
-
37.
Debt securities issued
-
-
38.
Other financial liabilities
-
-
39.
Financial liabilities designated at fair value through profit or loss (from 40 to 42)
-
-
40.
Deposits
-
-
41.
Debt securities issued
-
-
42.
Other financial liabilities
-
-
43.
Financial liabilities measured at amortised cost (from 44 to 46)
72,478
92,103
44.
Deposits
68,169
88,070
45.
Debt securities issued
4,010
3,646
46.
Other financial liabilities
299
387
47.
Derivatives – Hedge accounting
-
-
48.
Fair value changes of the hedged items in portfolio hedge of interest rate risk
-
-
49.
Provisions
384
582
50.
Tax liabilities
74
230
51.
Share capital repayable on demand
-
-
52.
Other liabilities
438
495
53.
Liabilities included in disposal groups classified as held for sale
-
-
54.
TOTAL LIABILITIES (33+39+43+ from 47 to 53)
73,430
93,585
EQUITY
55.
Initial capital
1,698
1,698
56.
Share premium
1,801
1,801
57.
Equity instruments issued other than capital
-
-
58.
Other equity instruments
-
-
59.
Accumulated other comprehensive income
142
(635)
60.
Retained profit
4,745
5,066
61.
Revaluation reserves
-
-
62.
Other reserves
85
85
63.
Treasury shares
-
-
64.
Profit or loss attributable to owners of the parent
847
977
65.
Interim dividends
-
-
66.
Minority interests [Non-controlling interests]
-
-
67.
TOTAL EQUITY (from 55 to 66)
9,318
8,992
68.
TOTAL LIABILITIES AND EQUITY (54+67)
82,748
102,577
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
244
In HRK million
GROUP
Attributable to owners of the parent
Non-controlling interests
Equity
Share premium
Equity instruments issued other than capital
Other equity instru-ments
Accumulated other comprehensive income
Retained profit
Revaluation reserves
Other reserves
Treasury shares
Profit or loss attributable to owners of the parent
Interim dividends
Accumulated other comprehensive income
Other items
Total
Opening balance [before restatement]
1,698
1,801
-
-
139
6,181
-
85
-
1,050
-
-
216
11,170
Effects of error corrections
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Effect of changes in accounting policies
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Opening balance (current period) (1 + 2 + 3)
1,698
1,801
-
-
139
6,181
-
85
-
1,050
-
-
216
11,170
Ordinary shares issue
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Preference shares issue
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Issue of other equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exercise or expiration of other equity instruments issued
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Conversion of debt to equity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Capital reduction
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Dividends
-
-
-
-
-
(525)
-
-
-
-
-
-
(1)
(526)
Purchase/sale of treasury shares
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sale or cancellation of treasury shares
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Reclassification of financial instruments from equity to liability
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Reclassification of financial instruments from liability to equity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Transfers among components of equity instruments
-
-
-
-
-
1,050
-
-
-
(1,050)
-
-
-
-
Share based payments
-
-
-
-
-
-
-
-
-
-
-
-
-
Other increase or ( - ) decrease of equity instruments
-
-
-
-
1
5
-
-
-
-
-
-
-
6
Total comprehensive income for the current year
-
-
-
-
(813)
-
-
-
-
1,176
-
-
(4)
359
Equity instruments increase or (-) decrease resulting from business combinations
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Closing balance [current period] (from 4 to 20)
1,698
1,801
-
-
(673)
6,711
-
85
-
1,176
-
-
211
11,009
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
245
Erste&Steiermärkische Bank d.d.
In HRK million
BANK
Attributable to owners of the parent
Non-controlling interests
Equity
Share premium
Equity instruments issued other than capital
Other equity instru-ments
Accumulated other comprehensive income
Retained profit
Revaluation reserves
Other reserves
Treasury shares
Profit or loss attributable to owners of the parent
Interim dividends
Accumulated other comprehensive income
Other items
Total
Opening balance [before restatement]
1,698
1,801
-
-
142
4,745
-
85
-
847
-
-
-
9,318
Effects of error corrections
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Effect of changes in accounting policies
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Opening balance (current period) (1 + 2 + 3)
1,698
1,801
-
-
142
4,745
-
85
-
847
-
-
-
9,318
Ordinary shares issue
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Preference shares issue
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Issue of other equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exercise or expiration of other equity instruments issued
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Conversion of debt to equity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Capital reduction
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Dividends
-
-
-
-
-
(525)
-
-
-
-
-
-
-
(525)
Purchase of treasury shares
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sale or cancellation of treasury share
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Reclassification of financial instruments from equity to liability
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Reclassification of financial instruments from liability to equity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Transfers among components of equity instruments
-
-
-
-
-
847
-
-
-
(847)
-
-
-
-
Share-based Payments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other increase or ( - ) decrease of equity instruments
-
-
-
-
1
(1)
-
-
-
-
-
-
-
-
Total comprehensive income for the current year
-
-
-
-
(778)
-
-
-
-
977
-
-
-
199
Equity instruments increase or (-) decrease resulting from business combination
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Closing balance [current period] (from 4 to 20)
1,698
1,801
-
-
(635)
5,066
-
85
-
977
-
-
-
8,992
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
246
GROUP
In HRK million
2021
2022
Operating activities – direct method
1.
Interest received and similar receipts
-
-
2.
Fees and commissions received
-
-
3.
(Interest paid and similar expenditures)
-
-
4.
(Fees and commissions paid)
-
-
5.
(Operating expenses paid)
-
-
6.
Net gains/losses from financial instruments at fair value through statement of profit or loss
-
-
7.
Other receipts
-
-
8.
(Other expenditures)
-
-
Operating activities – indirect method
9.
Profit/(loss) before tax
1,297
1,543
Adjustments:
-
-
10.
Impairment and provisions
145
15
11.
Depreciation
249
247
12.
Net unrealised (gains)/losses on financial assets and liabilities at fair value through statement of profit or loss
-
-
13.
(Profit)/loss from the sale of tangible assets
3
-
14.
Other non-cash items
1
(23)
Changes in assets and liabilities from operating activities
15.
Deposits with the Croatian National Bank
601
(3,795)
16.
Deposits with financial institutions and loans to financial institutions
(764)
5,200
17.
Loans and advances to other clients
(2,758)
(9,846)
18.
Securities and other financial instruments at fair value through other comprehensive income
(1,095)
1,635
19.
Securities and other financial instruments held for trading
(32)
71
20.
Securities and other financial instruments at fair value through statement of profit or loss, not traded
244
14
21.
Securities and other financial instruments at fair value through statement of profit or loss
-
-
22.
Securities and other financial instruments at amortised cost
(2,586)
(5,144)
23.
Other assets from operating activities
89
(87)
24.
Deposits from financial institutions
(24)
39
25.
Transaction accounts of other clients
9,109
14,293
26.
Savings deposits of other clients
898
2,419
27.
Time deposits of other clients
(1,044)
(727)
28.
Derivative financial liabilities and other traded liabilities
(52)
115
29.
Other liabilities from operating activities
211
4,358
30.
Interest received from operating activities [indirect method]
2,224
2,268
31.
Dividends received from operating activities [indirect method]
7
-
32.
Interest paid from operating activities [indirect method]
(274)
(253)
33.
(Income tax paid)
(32)
(239)
34.
Net cash flow from operating activities (from 1 to 33)
6,417
12,103
Investing activities
35.
Cash receipts from the sale / payments for the purchase of tangible and intangible assets
(174)
(186)
36.
Cash receipts from the sale / payments for the purchase of investments in branches, associates and joint ventures
-
87
37.
Cash receipts from the sale / payments for the purchase of securities and other financial instruments held to maturity
-
-
38.
Dividends received from investing activities
-
-
39.
Other receipts/payments from investing activities
-
-
40.
Net cash flow from investing activities (from 35 to 39)
(174)
(99)
Financing activities
41.
Net increase/(decrease) in loans received from financing activities
-
-
42.
Net increase/(decrease) of debt securities issued
-
-
43.
Net increase/(decrease) of Tier 2 capital instruments
-
-
44.
Increase of share capital
-
-
45.
(Dividends paid)
(162)
(527)
46.
Other receipts/(payments) from financing activities
(19)
(25)
47.
Net cash flow from financing activities (from 41 to 46)
(181)
(552)
48.
Net increase/(decrease) of cash and cash equivalents (34 + 40 + 47)
6,062
11,452
49.
Cash and cash equivalents at the beginning of period
8,468
14,530
50.
Effect of exchange rate fluctuations on cash and cash equivalents
-
-
51.
Cash and cash equivalents at the end of period (48 + 49 + 50)
14,530
25,982
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
247
Erste&Steiermärkische Bank d.d.
BANK
In HRK million
2021
2022
Operating activities – direct method
1.
Interest received and similar receipts
-
-
2.
Fees and commissions received
-
-
3.
(Interest paid and similar expenditures)
-
-
4.
(Fees and commissions paid)
-
-
5.
(Operating expenses paid)
-
-
6.
Net gains/losses from financial instruments at fair value through statement of profit or loss
-
-
7.
Other receipts
-
-
8.
(Other expenditures)
-
-
Operating activities – indirect method
9.
Profit/(loss) before tax
1,032
1,295
Adjustments:
-
-
10.
Impairment and provisions
154
932
11.
Depreciation
143
152
12.
Net unrealised (gains)/losses on financial assets and liabilities at fair value through statement of profit or loss
-
-
13.
(Profit)/loss from the sale of tangible assets
(3)
(5)
14.
Other non-cash items
6
7
Changes in assets and liabilities from operating activities
15.
Deposits with the Croatian National Bank
601
(3,795)
16.
Deposits with financial institutions and loans to financial institutions
(750)
5,518
17.
Loans and advances to other clients
(2,307)
(10,144)
18.
Securities and other financial instruments at fair value through other comprehensive income
(1,132)
1,580
19.
Securities and other financial instruments held for trading
(32)
71
20.
Securities and other financial instruments at fair value through statement of profit or loss, not traded
114
11
21.
Securities and other financial instruments at fair value through statement of profit or loss
-
-
22.
Securities and other financial instruments at amortised cost
(2,502)
(5,091)
23.
Other assets from operating activities
72
(54)
24.
Deposits from financial institutions
(39)
198
25.
Transaction accounts of other clients
8,625
13,851
26.
Savings deposits of other clients
894
2,416
27.
Time deposits of other clients
(1,009)
(682)
28.
Derivative financial liabilities and other traded liabilities
(52)
115
29.
Other liabilities from operating activities
567
3,902
30.
Interest received from operating activities [indirect method]
1,879
1,902
31.
Dividends received from operating activities [indirect method]
7
-
32.
Interest paid from operating activities [indirect method]
(222)
(191)
33.
(Income tax paid)
(18)
(197)
34.
Net cash flow from operating activities (from 1 to 33)
6,028
11,792
Investing activities
35.
Cash receipts from the sale / payments for the purchase of tangible and intangible assets
(108)
(125)
36.
Cash receipts from the sale / payments for the purchase of investments in branches, associates and joint ventures
38
-
37.
Cash receipts from the sale / payments for the purchase of securities and other financial instruments held to maturity
-
-
38.
Dividends received from investing activities
-
-
39.
Other receipts/payments from investing activities
-
-
40.
Net cash flow from investing activities (from 35 to 39)
(70)
(125)
Financing activities
41.
Net increase/(decrease) in loans received from financing activities
-
-
42.
Net increase/(decrease) of debt securities issued
-
-
43.
Net increase/(decrease) of Tier 2 capital instruments
-
-
44.
Increase of share capital
-
-
45.
(Dividends paid)
(161)
(525)
46.
Other receipts/(payments) from financing activities
(21)
(28)
47.
Net cash flow from financing activities (from 41 to 46)
(182)
(553)
48.
Net increase/(decrease) of cash and cash equivalents (34 + 40 + 47)
5,776
11,114
49.
Cash and cash equivalents at the beginning of period
7,742
13,518
50.
Effect of exchange rate fluctuations on cash and cash equivalents
-
-
51.
Cash and cash equivalents at the end of period (48 + 49 + 50)
13,518
24,632
Appendix 1 – Forms according to local requirements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
248
Off balance sheet items
GROUP
2021
2022
1.
Guarantees
4,679
5,207
2.
Letters of credit
181
232
3.
Bills of exchange
-
-
4.
Undrawn loans and loan commitments
6,162
8,747
5.
Other risk off balance items
73
79
6.
Futures
-
-
7.
Options
-
-
8.
Swaps
7,208
3,564
9.
Forwards
1,917
1,780
10.
Other derivatives
-
-
Appendix 2 – Differences between financial statements according to IFRS and local requirements
Year ended 31 December 2022
249
Erste&Steiermärkische Bank d.d.
GROUP
Annual report (AR)
in HRK million
Statement of financial position (CNB)
in HRK million
Diff.
Explanation
Cash and cash balances
25,982
Cash on hand, Cash balances at Central bank and Other demand deposits
25,982
-
-
Financial assets held for trading
197
Financial assets held for trading
197
-
-
Non-trading financial assets at fair value through profit or loss – Equity instruments
21
Non-trading financial assets at fair value through profit or loss- Equity instruments
43
(22)
AR – Non-trading financial assets at fair value through profit or loss- Debt securities
Non-trading financial assets at fair value through profit or loss – Debt securities
39
Non-trading financial assets at fair value through profit or loss- Debt securities
17
22
CNB- Equity instruments
Financial assets at fair value through other comprehensive income
9,167
Financial assets at fair value through other comprehensive income
9,167
-
-
Financial assets at amortised cost – Loans and advances
61,025
Financial assets at amortised cost- Loans and advances
65,340
-
-
Trade and other receivables
1,297
Finance lease receivables
3,018
Financial assets at amortised cost – Debt securities
10,024
Financial assets at amortised cost- Debt securities
10,024
-
-
Investments in subsidiaries
-
Investments in associates, subsidiaries and joint ventures
65
-
-
Investments in associates
65
Property and equipment
1,166
Tangible assets
1,175
-
-
Investment property
9
Intangible assets
171
Intangible assets
171
-
-
Deferred tax assets
411
Tax assets
411
-
-
Other assets
271
Other assets
271
-
-
Assets held for sale
4
Non-current assets and disposal groups classified as held for sale
4
-
-
TOTAL ASSETS
112,867
TOTAL ASSETS
112,867
-
-
GROUP
Annual report (AR)
in HRK million
Statement of financial position (CNB)
in HRK million
Diff.
Explanation
Financial liabilities held for trading- Derivatives
175
Financial liabilities held for trading- Derivatives
175
-
-
Financial liabilities measured at amortised cost- Deposits
95,415
Financial liabilities measured at amortised cost- Deposits
95,415
-
-
Debt securities in issue
3,646
Debt securities in issue
3,646
-
-
Other financial liabilities
888
Finance lease liabilities
91
Other financial liabilities
979
-
-
Provisions
674
Provisions
674
-
-
Tax liabilities
251
Tax liabilities
251
-
-
Other liabilities
718
Other liabilities
718
-
-
Total equity
11,009
Total equity
11,009
-
-
TOTAL LIABILITIES AND EQUITY
112,867
TOTAL LIABILITIES AND EQUITY
112,867
-
-
Appendix 2 – Differences between financial statements according to IFRS and local requirements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
250
GROUP
Annual report (AR)
in HRK million
Income statement (CNB)
in HRK million
Diff.
Explanation
Interest income
2,175
Other similar income
184
Interest income
2,359
-
-
Interest expense
(170)
Other similar expense
(68)
Interest expense
(238)
-
-
Fee and commission income
1,199
Fees and commissions income
1,199
-
-
Fee and commission expense
(315)
Fees and commissions expenses
(315)
-
-
Net trading result
298
Gains or losses on financial assets and financial liabilities held for trading, net
228
-
-
Exchange differences [gain or loss], net
70
Personnel expenses
(860)
Administrative expenses
(1,504)
2
CNB- Other operating expense
Other administrative expenses
(699)
Depreciation
(246)
35
AR- Other operating result
Depreciation and amortisation
(246)
Cash contributions to resolution boards and deposit guarantee schemes
(92)
-
Other operating result
(329)
Gains or losses from derecognition of non-financial assets, net
21
Rental income from investment properties & other operating leases
59
Other operating income
77
Net impairment loss on financial instruments
318
Other operating expense
(40)
Gains/losses from derecognition of financial assets measured at amortised cost
-
Provisions or cancellation of provisions
(404)
(2)
AR – Other administrative expenses
Impairment or reversal of impairment on financial assets not measured at FVPL
531
Profit or (-) loss from fixed assets and disposal groups classified as held for sale not qualifying as discontinued operations
30
Modification gains or (-) losses, net
-
(35)
CNB - Cash contributions to resolution boards and deposit guarantee schemes
Impairment of non-financial assets
(130)
Net result from equity method investments
8
Share of the profit or (-) loss of investments in subsidiaries, joint ventures and associates accounted for using the equity method
8
-
-
Dividend income
-
Dividend income
-
-
-
Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
1
Gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
1
-
-
Gains/losses from financial instruments measured at fair value through profit or loss
(12)
Gains/losses from financial instruments measured at fair value through profit or loss
(12)
-
-
Pre-tax profit from continuing operations
1,543
P R E – T A X P R O F I T
1,543
-
-
Income tax
(371)
Taxes on income
(371)
-
-
NET PROFIT OF THE YEAR
1,172
NET PROFIT FOR THE PERIOD
1,172
-
-
Appendix 2 – Differences between financial statements according to IFRS and local requirements
Year ended 31 December 2022
251
Erste&Steiermärkische Bank d.d.
BANK
Annual report (AR)
in HRK million
Statement of financial position (CNB)
in HRK million
Diff.
Explanation
Cash and cash balances
24,632
Cash on hand, Cash balances at Central bank and Other demand deposits
24,632
-
-
Financial assets held for trading
197
Financial assets held for trading
197
-
-
Non-trading financial assets at fair value through profit or loss – Equity instruments
19
Non-trading financial assets at fair value through profit or loss- Equity instruments
41
(22)
AR – Non-trading financial assets at fair value through profit or loss- Debt securities
Non-trading financial assets at fair value through profit or loss – Debt securities
39
Non-trading financial assets at fair value through profit or loss- Debt securities
17
22
CNB – Equity instruments
Financial assets at fair value through other comprehensive income
8,787
Financial assets at fair value through other comprehensive income
8,787
-
-
Financial assets at amortised cost – Loans and advances
56,156
Trade and other receivables
879
Financial assets at amortised cost- Loans and advances
57,035
-
-
Financial assets at amortised cost – Debt securities
9,721
Financial assets at amortised cost- Debt securities
9,721
-
-
Investments in subsidiaries
680
Investments in associates, subsidiaries and joint ventures
718
-
-
Investments in associates
38
Property and equipment
802
Investment property
-
Tangible assets
802
-
-
Intangible assets
112
Intangible assets
112
-
-
Deferred tax assets
338
Tax assets
338
-
-
Other assets
177
Other assets
177
-
-
TOTAL ASSETS
102,577
TOTAL ASSETS
102,577
-
-
BANK
Annual report (AR)
in HRK million
Statement of financial position (CNB)
in HRK million
Diff.
Explanation
Financial liabilities held for trading- Derivatives
175
Financial liabilities held for trading- Derivatives
175
-
-
Financial liabilities measured at amortised cost- Deposits
88,070
Financial liabilities measured at amortised cost- Deposits
88,070
-
-
Debt securities in issue
3,646
Debt securities in issue
3,646
-
-
Other financial liabilities
294
Finance lease liabilities
93
Other financial liabilities
387
-
-
Provisions
582
Provisions
582
-
-
Tax liabilities
230
Tax liabilities
230
-
-
Other liabilities
495
Other liabilities
495
-
-
Total equity
8,992
Total equity
8,992
-
-
TOTAL LIABILITIES AND EQUITY
102,577
TOTAL LIABILITIES AND EQUITY
102,577
-
-
Appendix 2 – Differences between financial statements according to IFRS and local requirements
Year ended 31 December 2022
Erste&Steiermärkische Bank d.d.
252
BANK
Annual report (AR)
in HRK million
Income statement (CNB)
in HRK million
Diff.
Explanation
Interest income
1,859
Other similar income
76
Interest income
1,935
-
-
Interest expense
(121)
Other similar expense
(67)
Interest expense
(188)
-
-
Fee and commission income
860
Fees and commissions income
860
-
-
Fee and commission expense
(262)
Fees and commissions expenses
(262)
-
-
Net trading result
309
Gains or losses on financial assets and financial liabilities held for trading, net
222
-
-
Exchange differences [gain or loss], net
87
Personnel expenses
(670)
Administrative expenses
(1,176)
1
CNB- Other operating expense
Other administrative expenses
(550)
Depreciation
(154)
34
AR- Other operating result
Depreciation and amortisation
(154)
Cash contributions to resolution boards and deposit guarantee schemes
(79)
-
Other operating result
(271)
Gains or losses from derecognition of non-financial assets, net
15
Rental income from investment properties & other operating leases
3
Other operating income
29
Net impairment loss on financial instruments
248
Other operating expense
(23)
Gains/losses from derecognition of financial assets measured at amortised cost
-
Provisions or cancellation of provisions
(339)
(1)
AR – Other administrative expenses
Impairment or reversal of impairment on financial assets not measured at FVPL
463
(34)
CNB - Cash contributions to resolution boards and deposit guarantee schemes
I Modification gains or (-) losses, net
-
(Impairment or (-) reversal of impairment of investments in subsidiaries, joint ventures and associates)
(125)
Profit or (-) loss from fixed assets and disposal groups classified as held for sale not qualifying as discontinued operations
1
Impairment of non-financial assets
(6)
Dividend income
47
Dividend income
47
-
-
Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
1
Gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
1
-
-
Gains/losses from financial instruments measured at fair value through profit or loss
(13)
Gains/losses from financial instruments measured at fair value through profit or loss
(13)
-
-
Pre-tax profit from continuing operations
1,295
P R E – T A X P R O F I T
1,295
-
-
Income tax
(318)
Taxes on income
(318)
-
-
NET PROFIT OF THE YEAR
977
NET PROFIT FOR THE PERIOD
977
-
-
253
Erste&Steiermärkische Bank d.d.
ERSTE&STEIERMÄRKISCHE BANK d.d.
Supervisory Board
No: 230324-1
Zagreb/Videoconference
Excerpt from Minutes
of the 1st meeting of the Supervisory Board of Erste&Steiermärkische bank d.d.
First meeting of the Supervisory Board of Erste&Steiermärkische bank d.d. in the year 2023 which was held on March 24, 2023, in the premises of Erste&Steiermärkische bank d.d. Zagreb, Ivana Lučića 2, Conference room at 10th floor and via Videoconference, at 11.30 PM.
The meeting attendees:
Supervisory Board:
Willibald Cernko, President
Georg Bucher, Deputy President
Judit Ágnes Havasi, Member,
Walburga Seidl, Member
Ingo Bleier, Member
Roland Klimesch, Member
Management Board:
Christoph Schoefboeck, President
Martin Hornig, Member
Zdenko Matak, Member
Krešimir Barić, Member
Hannes Frotzbacher, Member
Others in attendance:
Davor Miokovic, Erste Group Bank AG
Marija Lonjak Goetzhaber, Steiermärkische Bank und Sparkassen AG
Boris Pivić, Steiermärkische Bank und Sparkassen AG
Elio Cetina, Erste&Steiermärkische bank d.d.
Božidar Jovanović, Erste&Steiermärkische bank d.d.
Maja Kuhar Sobin, Erste&Steiermärkische bank d.d.
Željka Štefanić Zadravec, Erste&Steiermärkische bank d.d.
Siniša Dušić, PwC d.o.o. (regarding Item 2.2 of the Agenda)
Sebastian Artl, PwC d.o.o. (related to Item 2.2 of the Agenda)
***
Ad 2.2.1Financial Statements including the Report on Good Standing of the Bank for the year 2022 with the Report of the Independent Auditor
After the voting procedure, the President established that the following decision was made unanimously:
“The Supervisory Board grants approval to the Financial Statements including the Report on Good Standing of the Bank for the year 2022, in the proposed wording.”
“The Supervisory Board takes into consideration the Report of the independent auditor on the audit of financial statements for 2022, in the proposed wording.”
***
President of the Supervisory Board
Willibald Cernko
Minutes taken by
Željka Štefanić Zadravec
Erste&Steiermärkische Bank d.d.
254
ERSTE&STEIERMÄRKISCHE BANK d.d.
Supervisory Board
No: 230324-1
Zagreb/Videoconference
Excerpt from Minutes
of the 1st meeting of the Supervisory Board of Erste&Steiermärkische bank d.d
First meeting of the Supervisory Board of Erste&Steiermärkische bank d.d. in the year 2023 which was held on March 24, 2023, in the premises of Erste&Steiermärkische bank d.d. Zagreb, Ivana Lučića 2, Conference room at 10th floor and via video conference, at 11.30 PM.
The meeting attendees:
Supervisory Board:
Willibald Cernko, President
Georg Bucher, Deputy President
Judit Ágnes Havasi, Member,
Walburga Seidl, Member
Ingo Bleier, Member
Roland Klimesch, Member
Management Board:
Christoph Schoefboeck, President
Martin Hornig, Member
Zdenko Matak, Member
Krešimir Barić, Member
Hannes Frotzbacher, Member
Others in attendance:
Davor Miokovic, Erste Group Bank AG
Marija Lonjak Goetzhaber, Steiermärkische Bank und Sparkassen AG
Boris Pivić, Steiermärkische Bank und Sparkassen AG
Elio Cetina, Erste&Steiermärkische bank d.d.
Božidar Jovanović, Erste&Steiermärkische bank d.d.
Maja Kuhar Sobin, Erste&Steiermärkische bank d.d.
Željka Štefanić Zadravec, Erste&Steiermärkische bank d.d.
Siniša Dušić, PwC d.o.o. (regarding Item 2.2 of the Agenda)
Sebastian Artl, PwC d.o.o. (related to Item 2.2 of the Agenda)
***
Ad 2.2.2Proposal of the Decision on Profit Distribution
After the voting procedure, the Chairman established that the following decision was made unanimously:
“The Supervisory Board grants approval to the proposal of the Management Board of the decision on profit distribution for the year 2022 to be submitted to the Annual General Meeting, which reads as follows:
DECISION
I
Erste&Steiermärkische Bank's d.d. net profit for the year 2022 in the amount of HRK 977,280,291.22 shall be distributed as follows:
•to retained earnings HRK 389,288,152.72 (51,667,416.91 EUR)
•dividend to shareholders HRK 587,992,138.50 (78,039,967.95 EUR)
The dividend is determined in amount of 34.62 % of the nominal share value, which makes HRK 34.62 per share. Total dividend distributable makes 60.17 % of the net profit of the Erste&Steiermärkische Bank d.d. mentioned in previous article.
255
Erste&Steiermärkische Bank d.d.
The dividend will be paid out to those shareholders whose shares are on the accounts with Central Depository & Clearing company Inc. 15 (fifteen) days before annual General Assembly.
Dividend will be paid out at the latest on 31st May 2023.
II
This decision becomes effective on the day of annual General Assembly and is applied from the date of adoption.
III
Accounting and Controlling Division is responsible for the implementation of this decision.
IV
This Decision is submitted to: Accounting and Controlling Division, Risk Management Division, Asset and Liability Management Division, Management Office and Internal Audit Division.
***
President of the Supervisory Board
Willibald Cernko
Minutes taken by
Željka Štefanić Zadravec