ACCOUNTING POLICIES (CONTINUED)

Consolidation of subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the group

is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its

power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are

deconsolidated from the date that control ceases.

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as

transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant

share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling

interests are also recorded in equity.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a

subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests

issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration

arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured

initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-

acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s

identifiable net assets.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in

the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised

in profit or loss.

The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition-date fair value

of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with

the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the

operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the

portion of the cash-generating unit retained.

If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair

value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income

statement.

Inter-company transactions, balances and unrealised gains on transactions between the Group companies (including subsidiaries

classified as held for sale) are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment

of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies

adopted by the Bank.

Subsidiaries in the stand-alone financial statements are accounted for using equity method. Investment is initially recognized at cost, and

adjusted thereafter for the post-acquisition change in the Bank’s share of net assets of the subsidiary. the share of the profit or loss is

included in the value of investments in subsidiaries and Bank’s income statement, dividends paid by the subsidiary to the Bank are

subtracted from the value of investment in subsidiary and not included in Bank’s income statement.

The Group’s share of post-acquisition profit or loss is recognised in the income statement, and its share of post acquisition movements

in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount

of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other

unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made

payments on behalf of the associate.

ACCOUNTING POLICIES (CONTINUED)

Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic

environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in the euro,

which is the Bank’s functional and presentation currency. Euro also is functional and presentation currency of all the subsidiaries of

the Bank included in the consolidated financial statements.

(b) Transactions and balances

All monetary assets and liabilities denominated in foreign currencies are translated into the euro (EUR) at the official daily euro

foreign exchange reference rates (published by the European Central Bank) prevailing at the end of the reporting period. Gains and

losses arising from this translation are included in the income statement for the reporting period. All non-monetary liabilities and

assets are translated using the exchange rate prevailing on the date of acquisition.

Foreign currency transactions are recorded in the euro using the exchange rate ruling on the date of the transaction. Exchange differences

arising from the settlement of transactions denominated in foreign currency are charged to the income statement at the time of transaction

using the exchange rate ruling at that date.

Off-setting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to

offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Recognition of income and expenses

Interest income and expense are recognised in the income statement on debt instruments at amortized cost or at fair value through other

comprehensive income on an accrual basis using the effective interest method based on the actual purchase price. The effective interest

method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or

interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or

receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the

financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual

terms of the financial instrument (for example, prepayment options). The calculation includes all fees and points paid or received between

parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Loan origination fees are accounted for as an adjustment to the effective interest rate calculation for each issued loan separately. Other

commission fees and other similar income and expenses are recognised as gained or incurred.

For financial assets interest income is calculated by applying the effective interest rate to the gross carrying amount, except for financial

assets that are credit-impaired (Stage 3), for which interest income is calculated by applying the effective interest rate to the net carrying

amount (i.e. gross carrying amount reduced by the allowance for impairment), and purchased or originated credit-impaired (POCI) assets,

for which the credit-adjusted effective interest rate is applied to the amortized cost of the financial asset.

Revenues from contracts with customers consist primarily of service-related fees and are reported as Commission income, including fees

for settlement services, service plans, cash operations, cards, account servicing fees, services related to securities, funds management

fees, collection of utility and similar payments and others. The revenues reflect the consideration which is expected to be received in

exchange for those services or transactions. The recognition in Income statement depends on whether the Group's obligations are

provided. Revenue from such services is recognised over time on a straight-line basis when the services are provided to the customer.

Revenue related to transactions is recognised at a point in time when the transaction takes place. Fee income for settlement services,

cash operations, documentary collection, collection of utility and similar payments, services related to securities, funds distribution and

other is recognised at a point in time when the Group satisfies its performance obligation upon execution of the specified transaction.

Insurance income and expense recognition is disclosed under Accounting principles section Insurance and investment contracts

classification and accounting.

For distribution of second and third-tier pension funds Group uses services of external intermediaries, for whom a commission fee is paid

for conclusion of the contract. The Group considers commissions paid to intermediaries for the conclusion of contracts for new pension

fund participants as the costs of concluding contracts with clients and capitalizes and amortizes them over the average expected period

of the new client's retention as a client of the Group - 10 years. Capitalized amounts of commission fees to intermediaries are recognized

in the statement of financial position in the part of fixed assets.

Revenue from other activities of the Group comprise sale of apartments or other developed real estate projects. This revenue is

recognized at a point of time upon transfer of completed property to client.