REG - Alpha Bank A.E. - Annual Financial Report <Origin Href="QuoteRef">ACBr.AT</Origin> - Part 5

Alpha Services and Holdings SAAnnouncement

31/03/2017 07:07

- Part 5: For the preceding part double click  ID:nRSe0956Bd 

Classification and measurement of financial instruments 
 
Initial recognition 
 
The Group recognises financial assets or financial liabilities in its statement of financial position when it becomes a
party to the contractual provisions of the instrument. 
 
Upon initial recognition the Group measures financial assets and liabilities at fair values. Financial instruments not
measured at fair value through profit or loss are initially recognised at fair value plus transaction costs and minus
income or fees that are directly attributable to the acquisition or issue of the financial instrument. 
 
Subsequent measurement of financial assets 
 
The Group classifies its financial assets as: 
 
•   Loans and receivables 
 
•   Held-to-maturity investments 
 
•   Financial assets at fair value through profit or loss 
 
•   Available-for-sale financial assets 
 
For each of the above categories the following apply: 
 
a) Loans and receivables 
 
Non derivative financial assets, with fixed or determinable payments, that are not quoted in an active market and for which
the Group does not expect not to recover substantially its investment other than because of credit deterioration of the
issuer, can be classified as loans and receivables. The Group has classified the following as loans and receivables: 
 
i.  loans to customers, 
 
ii. amounts paid to acquire a portion or the total of series of bonds that are not quoted in an active market, 
 
iii. all receivables from customers, banks etc., 
 
iv. bonds with fixed or determinable payments that are not quoted in an active market. 
 
This category is measured at amortized cost using the effective interest rate method and is periodically tested for
impairment based on the procedures described in note 1.14. 
 
The effective interest rate method is a method of calculating the amortised cost of a financial instrument and of
allocating the interest income or expense during the relative period. The effective interest rate is the rate that exactly
discounts the estimated future cash payments or receipts through the contractual life of a financial instrument or the next
repricing date. 
 
b) Held-to-maturity investments 
 
Non derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive
intention and ability to hold until maturity can be classified as Held-to-maturity investments. 
 
The Group has classified bonds, treasury bills and other debt securities in this category. 
 
Held-to-maturity investments are measured at amortized cost using the effective interest rate method and are tested for
impairment at each reporting date. In cases when objective evidence exists that an impairment loss has occurred, the
carrying amount of the financial asset is reduced to the recoverable amount, and the difference is recognised in profit or
loss. 
 
c) Financial assets at fair value through profit or loss 
 
Financial assets included in this category are: 
 
i.  Financial assets which are acquired principally for the purpose of selling in the near term to obtain short term profit
(held for trading). 
 
The Group has included in this category bonds, treasury bills and a limited number of shares. 
 
ii. Financial assets the Group designated, at initial recognition, as at fair value through profit or loss. This
classification is used in the following circumstances: 
 
•   When management monitors and manages the financial instruments on a fair value basis in accordance with a documented
risk management or investment strategy. 
 
•   When the designation eliminates an accounting mismatch which would otherwise arise from measuring financial assets and
liabilities on a different basis (i.e. amortized cost) in relation to another financial asset or liability (i.e.
derivatives which are measured at fair value through profit or loss). 
 
•   When a financial instrument contains an embedded derivative that significantly modifies the cash flows, or the
separation of these derivatives from the main financial instruments is not prohibited. 
 
As at the reporting date, the Group had not designated, at initial recognition, any financial assets as at fair value
through profit or loss. 
 
d) Available-for-sale 
 
Available-for-sale financial assets are financial assets that have not been classified in any of the previous categories. 
 
The Group has included in this category bonds, treasury bills, debt securities, shares and mutual fund units. 
 
This category is measured at fair value. Changes in fair value are recognized directly in equity until the financial asset
is sold, where upon, the cumulative gains and losses previously recognized in equity are recognized in profit or loss. 
 
The financial assets included in this category are reviewed at each balance sheet date to determine whether there is any
indication of impairment. For investments in shares, in particular, a significant or prolonged decline in their fair value
below their acquisition cost is considered as an objective evidence of impairment. The Group considers as "significant" a
decrease of over 20% compared to the cost of the investment. Respectively, "prolonged" is a decrease in the fair value
below amortised cost for a continuous period exceeding one year. The above criteria are assessed in conjunction with the
general market conditions. 
 
In case of impairment, the cumulative loss already recognised in equity is reclassified in profit or loss. When a
subsequent event causes the amount of impairment loss recognised on an available-for-sale bond or debt security to
decrease, the impairment loss is reversed through profit or loss, if it can objectively be related to an event occurring
after the impairment loss was recognized. However, impairment losses recognised for investments in shares and mutual funds
are not reversed through profit or loss. 
 
The measurement principles noted above are not applicable when a specific financial asset is the hedged item in a hedging
relationship, in which case the principles set out in note 1.7 apply. 
 
Reclassification of financial assets 
 
Reclassification of non-derivative financial assets is permitted as follows: 
 
i.  Reclassification out of the "held-for-trading" category to the "loans and receivables" category, "investments
held-to-maturity" category or "available-for-sale" category is permitted only when there are rare circumstances and the
financial assets are no longer held for sale in the foreseeable future. 
 
ii. Reclassification out of the "held-for-trading" category to either "loans and receivables" or "available-for-sale" is
permitted, even when there are no rare circumstances, only if the financial assets meet the definition of loans and
receivables and there is the intention to hold them for the foreseeable future or until maturity. 
 
iii. Reclassification out of the "available-for-sale" category to the "loans and receivables" category is permitted for
financial assets that would have met the definition of loans and receivables and the entity has the intent to hold the
financial asset for the foreseeable future or until maturity. 
 
iv. Reclassification out of the "available-for-sale" category to the "held-to-maturity" category is permitted for financial
assets that meet the relevant characteristics and the entity has the intent and ability to hold them until maturity. 
 
v. Reclassification out of the "held-to-maturity" category to the "available-for-sale" category occurs when the entity has
no longer the intention or the ability to hold these instruments until maturity. 
 
It is noted that in case of sale or reclassification of a significant amount of held-to-maturity investments, the remaining
investments in this category are mandatorily transferred to the available-for-sale category. This would prohibit the
classification of any securities as held for maturity for the current and the following two financial years. Exceptions
apply in cases of sales and reclassifications of investments that: 
 
-   are so close to maturity or the financial asset's call date that changes in the market rate of interest would not have
a significant effect on the financial asset's fair value; 
 
-   occur after the Group has collected substantially all of the financial asset's original principal through scheduled
payments or prepayments; or 
 
-   are attributable to an isolated, nonrecurring event that is beyond the Group's control. 
 
Derecognition of financial assets 
 
The Group derecognizes financial assets when: 
 
•   the cash flows from the financial assets expire, 
 
•   the contractual right to receive the cash flows of the financial assets is transferred and at the same time both risks
and rewards of ownership are transferred, 
 
•   loans or investments in securities are no longer recoverable and consequently are written off. 
 
In the case of transactions where despite the transfer of the contractual right to recover the cash flows from financial
assets both the risk and rewards remain with the Group, no derecognition of these financial assets occurs. The amount
received by the transfer is recognized as a financial liability. The accounting practices followed by the Group in such
transactions are discussed further in notes 1.21 and 1.22 
 
In the case of transactions, whereby the Group neither retains nor transfers risks and rewards of the financial assets, but
retains control over them, the financial assets are recognized to the extent of the Group's continuing involvement. If the
Group does not retain control of the assets then they are derecognised, and in their position the Group recognizes,
distinctively, the assets and liabilities which are created or retained during the transfer. No such transactions occurred
upon balance sheet date. 
 
Subsequent measurement of financial liabilities 
 
The Group classifies financial liabilities in the following categories for measurement purposes: 
 
a) Financial liabilities measured at fair value through profit or loss 
 
i.  This category includes financial liabilities held for trading, that is: 
 
•   financial liabilities acquired or incurred principally with the intention of selling or repurchasing in the near term
for short term profit, or 
 
•   derivatives not used for hedging purposes. Liabilities arising from either derivatives held for trading or derivatives
used for hedging purposes are presented as "derivative financial liabilities" and are measured according to the principles
set out in note 1.7. 
 
ii. this category also includes financial liabilities which are designated by the Group as at fair value through profit or
loss upon initial recognition, according to the principles set out above for financial assets (point cii). 
 
In the context of the acquisition of Emporiki Bank, the Group issued a bond which was classified in the above mentioned
category. 
 
b) Financial liabilities carried at amortized cost 
 
The liabilities classified in this category are measured at amortized cost using the effective interest method. 
 
Liabilities to credit institutions and customers, debt securities issued by the Group and other loan liabilities are
classified in this category. 
 
In cases when financial liabilities included in this category are designated as the hedged item in a hedge relationship,
the accounting principles applied are those set out in note 1.7. 
 
c) Liabilities arising from financial guarantees and commitments to provide loans at a below market interest rate 
 
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder
for a loss it incurs because a specified debtor fails to make payment. 
 
The financial guarantee contracts and the commitments to provide loans at a below market interest rate are initially
recognized at fair value, and measured subsequently at the higher of: 
 
•   the amount of the provision (determined in accordance with IAS 37) when an outflow of resources is considered probable
and a reliable estimate of this outflow is possible, 
 
•   the amount initially recognised less cumulative amortization. 
 
Derecognition of financial liabilities 
 
The Group derecognizes a financial liability (or part thereof) when its contractual obligations are discharged or cancelled
or expire. 
 
In cases that a financial liability is exchanged with another one with substantially different terms, the exchange is
accounted for as an extinguishment of the original financial liability and the recognition of a new one. The same applies
in cases of a substantial modification of the terms of an existing financial liability or a part of it (whether or not
attributable to the financial difficulty of the debtor). The terms are considered substantially different if the discounted
present value of the cash flows under the new terms (including any fees paid net of any fees received), discounted using
the original effective interest rate, is at least 10% different from the present value of the remaining cash flows of the
original financial liability. 
 
In cases of derecognition, the difference between the carrying amount of the financial liability (or part of the financial
liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets
transferred or liabilities assumed, is recognised in profit or loss. 
 
Offsetting financial assets and financial liabilities 
 
Financial assets and liabilities are offset and the net amount is presented in the balance sheet, only in cases when the
Group has both the legal right and the intention to settle them on a net basis, or to realize the asset and settle the
liability simultaneously. 
 
1.7 Derivative financial instruments and hedge accounting 
 
Derivative financial instruments 
 
Derivatives are financial instruments that upon inception have a minimal or zero value that subsequently changes in
accordance with a particular underlying instrument (foreign exchange, interest rate, index or other variable). 
 
All derivatives are recognized as assets when their fair value is positive and as liabilities when their fair value is
negative. 
 
Derivatives are entered into for either hedging or trading purposes and they are measured at fair value irrespective of the
purpose for which they have been transacted. 
 
In the cases when derivatives are embedded in other financial instruments, such as bonds, loans, deposits, borrowed funds
etc and the host contract is not itself carried at fair value through profit or loss, then they are accounted for as
separate derivatives when the economic characteristics and risks of the embedded derivative are not closely related to
those of the host contract. These embedded derivatives are measured at fair value and are recognized as derivative assets
or liabilities. 
 
In the cases where derivatives are embedded in financial instruments that are measured at fair value through profit or
loss, the changes in the fair value of the derivative are included in the fair value change of the combined instrument and
recognized in gains less losses on financial transactions. 
 
The Group uses derivatives as a means of exercising Asset-Liability management within the guidelines established by the
Asset-Liability Committee (ALCO). 
 
In addition the Group uses derivatives for trading purposes to exploit short-term market fluctuations, within the Group
risk level set by the Asset-Liability Committee (ALCO). 
 
Valuation differences arising from these derivatives are recognized in gains less losses on financial transactions. 
 
When the Group uses derivatives for hedging purposes it ensures that appropriate documentation exists on inception of the
transaction, and that the effectiveness of the hedge is monitored on an ongoing basis at each balance sheet date. 
 
We emphasize the following: 
 
a. Synthetic Swaps 
 
The parent company (Alpha Bank), in order to increase the return on deposits to selected customers, uses synthetic swaps. 
 
This involves the conversion of a Euro deposit to JPY or other currency with a simultaneous forward purchase of the related
currency to cover the foreign exchange exposure. 
 
The result arising from the forward transaction is recognized as interest expense, which is included in deposits' interest
expense, foreign exchange differences and other gains less losses on financial transactions. 
 
b. FX Swaps 
 
These types of swaps are entered into primarily to hedge the exposures arising from customer loans and deposits. 
 
As there is no documentation to support hedge accounting they are accounted for as trading instruments. 
 
The result arising from these derivatives is recognized as interest and foreign exchange differences, in order to match
with the interest element and foreign exchange differences resulting from the deposits and loans, and as other gains less
losses on financial transactions. 
 
Hedge accounting 
 
Hedge accounting establishes the valuation rules to offset the gain or loss of the fair value of a hedging instrument and a
hedged item which would not have been possible if the normal measurement principles were applied. 
 
Documentation of the hedging relationship upon inception and of the effectiveness of the hedge on an on-going basis are the
basic requirements for the adoption of hedge accounting. 
 
The hedge relationship is documented upon inception and the hedge effectiveness test is carried out upon inception and is
repeated at each reporting date. 
 
a. Fair value hedges 
 
A fair value hedge of a financial instrument offsets the change in the fair value of the hedged item in respect of the
risks being hedged. 
 
Changes in the fair value of both the hedging instrument and the hedged item, in respect of the specific risk being hedged,
are recognized in the income statement. 
 
When the hedging relationship no longer exists, the hedged items continue to be measured based on the classification and
valuation principles set out in note 1.6. Specifically any adjustment, due to the fair value change of a hedged item for
which the effective interest method is used, up to the point that the hedging relationship ceases to be effective, is
amortized to interest income or expense based on a recalculated effective interest rate, over its remaining life. 
 
The Group uses interest rate swaps (IRS's, caps) to hedge risks relating to borrowings, bonds, and loans. 
 
b. Cash flow hedge 
 
A cash flow hedge changes the cash flows of a financial instrument from a variable rate to a fixed rate. 
 
The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, whereas the
ineffective portion is recognized in profit or loss. The accounting treatment of the hedged item does not change. 
 
When the hedging relationship is discontinued, the amount recognized in equity remains there separately until the cash
flows or the future transaction occur. When the cash flows or the future transaction occur the following apply: 
 
-   If the result is the recognition of a financial asset or a financial liability, the amount is reclassified to profit or
loss in the same periods during which the hedged forecast cash flows affect profit or loss. 
 
-   If the result is the recognition of a non-financial asset or a non-financial liability or a firm commitment for which
fair value hedge accounting is applied, the amount recognized in equity either is reclassified to profit or loss in the
same periods during which the asset or the liability affect profit or loss or adjusts the carrying amount of the asset or
the liability. 
 
If the expected cash flows or the transaction are no longer expected to occur, the amount is reclassified to profit or
loss. 
 
The Group applies cash flow hedge accounting for specific groups of term deposits as well as for the currency risk of
specific assets. The amount that has been recognized in equity, as a result of revoked cash flow hedging relationships for
term deposits, is linearly amortized in the periods during which the hedged cash flows from the aforementioned term
deposits affect profit or loss. 
 
c. Hedges of net investment in a foreign operation 
 
The Group uses foreign exchange derivatives or borrowings to hedge foreign exchange risks arising from investment in
foreign operations. 
 
Hedge accounting of net investment in a foreign operation is similar to cash flow hedge accounting. The cumulative gain or
loss recognized in equity is reversed and recognized in profit or loss, at the time that the disposal of the foreign
operation takes place. 
 
1.8 Fair Value Measurement 
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, in the principal market for the asset or liability or, in the absence
of a principal market, in the most advantageous market for the asset or liability. 
 
The Group measures the fair value of assets and liabilities traded in active markets based on available quoted market
prices. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer,
broker, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions
on an arm's length basis. Especially, for the measurement of securities, the Group uses a particular range of prices,
within the bid-ask spread, in order to characterize the prices as prices of an active market. 
 
The fair value of financial instruments that are not traded in an active market is determined by the use of valuation
techniques, appropriate in the circumstances, and for which sufficient data to measure fair value are available, maximizing
the use of relevant observable inputs and minimizing the use of unobservable inputs. If observable inputs are not
available, other model inputs are used which are based on estimations and assumptions such as the determination of expected
future cashflows, discount rates, probability of counterparty default and prepayments. In all cases, the Group uses the
assumptions that 'market participants' would use when pricing the asset or liability, assuming that market participants act
in their economic best interest. 
 
Assets and liabilities which are measured at fair value or for which fair value is disclosed are categorized according to
the inputs used to measure their fair value as follows: 
 
•   Level 1 inputs: quoted market prices (unadjusted) in active markets 
 
•   Level 2 inputs: directly or indirectly observable inputs 
 
•   Level 3 inputs: unobservable inputs used by the Group, to the extent that relevant observable inputs are not available 
 
In particular, the Group applies the following: 
 
Financial instruments 
 
For financial instruments the best evidence of fair value at initial recognition is the transaction price, unless the fair
value can be derived by other observable market transactions relating to the same instrument, or by a valuation technique
using mainly observable inputs. In these cases, if the fair value differs from the transaction price, the difference is
recognized in the statement of comprehensive income. In all other cases, fair value is adjusted to defer the difference
with the transaction price. After initial recognition, the deferred difference is recognized as a gain or loss only to the
extent that it arises from a change in a factor that market participants would take into account when pricing the
instrument. 
 
When measuring fair value, the Group takes into consideration the effect of credit risk. Specifically, for derivative
contracts, the Group estimates the credit risk of both counterparties (bilateral credit valuation adjustments). 
 
The Group measures fair value for all assets and liabilities separately. Regarding derivative exposures, however, that the
Group manages as a group on a counterparty basis and for which it provides information to the key management personnel, the
fair value measurement for credit risk is performed based on the net risk exposure per counterparty. Credit valuation
adjustments arising from the aforementioned process are allocated to either assets or liabilities, depending on whether the
net exposure to the counterparty is long or short respectively. 
 
Furthermore, the fair value of deposit accounts with a demand feature (such as saving deposits) is no less than the amount
payable on demand, discounted from the first date that the amount could be required to be paid. 
 
The principal inputs to the valuation techniques used by the Group are: 
 
•   Bond prices - quoted prices available for government bonds and certain corporate securities. 
 
•   Credit spreads - these are derived from active market prices, prices of credit default swaps or other credit based
instruments, such as debt. Values between and beyond available data points are obtained by interpolation and
extrapolation. 
 
•   Interest rates - these are principally benchmark interest rates such as the LIBOR, OIS and other quoted interest rates
in the swap, bond and futures markets. Values between and beyond available data points are obtained by interpolation and
extrapolation. 
 
•   Foreign currency exchange rates - observable markets both for spot and forward contracts and futures. 
 
•   Equity and equity index prices - quoted prices are generally readily available for equity shares listed on stock
exchanges and for major indices on such shares. 
 
•   Price volatilities and correlations - Volatility and correlation values are obtained from pricing services or derived
from option prices. 
 
•   Unlisted equities - financial information specific to the company or industry sector comparables. 
 
•   Mutual Funds- for open-ended investments funds listed on a stock exchange the published daily quotations of their net
asset values (NAVs). 
 
Non financial assets and liabilities 
 
The most important category of non financial assets for which fair value is estimated is real estate property. 
 
The process, mainly, followed for the determination of the fair value is summarized below: 
 
•   Assignment to the engineer - valuer 
 
•   Case study- Setting of additional data 
 
•   Autopsy - Inspection 
 
•   Data processing - Calculations 
 
•   Preparation of the valuation report 
 
To derive the fair value of the real estate property, the valuer chooses among the three following valuation techniques: 
 
•   Market approach (or sales comparison approach), which measures the fair value by comparing the property to other
identical ones for which information on transactions is available. 
 
•   Income approach, which capitalizes future cash flows arising from the property using an appropriate discount rate. 
 
•   Cost approach, which reflects the amount that would be required currently to replace the asset with another asset with
similar specifications, after taking into account the required adjustment for impairment. 
 
Examples of inputs used to determine the fair value of properties and which are analysed to the individual valuations, are
the following: 
 
•   Commercial property: price per square meter, rent growth per annum, long-term vacancy rate, discount rate, expense rate
of return, lease term, rate of non leased properties/units for rent. 
 
•   Residential property: Net return, reversionary yield, net rental per square meter, rate of continually non leased
properties/units, expected rent value per square meter, discount rate, expense rate of return, lease term etc. 
 
•   General assumptions such as the age of the building, residual useful life, square meter per building etc are also
included in the analysis of the individual valuation assessments. 
 
It is noted that the fair value measurement of a property takes into account a market's participant ability to generate
economic benefits by using the asset in it's highest and best use or by selling it to another market participant that would
use the asset in it's highest and best use. 
 
1.9 Property, Plant and Equipment 
 
This caption includes: land, buildings used by branches or for administrative purposes, additions and improvements of
leased property and equipment. 
 
Property, plant and equipment are initially recognised at cost which includes any expenditure directly attributable to the
acquisition of the asset. 
 
Subsequently, property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. 
 
Subsequent expenditure is recognized on the carrying amount of the item when it increases future economic benefit. 
 
Expenditure on repairs and maintenance is recognized in profit or loss as an expense as incurred. 
 
Depreciation is charged on a straight line basis over the estimated useful lives of property, plant and equipment and it is
calculated on the asset's cost minus residual value. 
 
The estimated useful lives are as follows: 
 
•   Buildings: up to 50 years 
 
•   Additions to leased fixed assets and improvements: duration of the lease 
 
•   Equipment and vehicles: up to 40 years 
 
Land is not depreciated but it tested for impairment. 
 
The right to use of land for indefinite period that is held by Alpha Real Estate D.O.O. Belgrade, a subsidiary of the
Group, is recorded as land and is not depreciated. 
 
The residual value of property and equipment and their useful lives are periodically reviewed and adjusted if necessary at
each reporting date. 
 
Property, plant and equipment are reviewed at each reporting date to determine whether there is an indication of impairment
and if they are impaired the carrying amount is adjusted to its recoverable amount with the difference recorded in profit
or loss. 
 
Gains and losses from the sale of property and equipment are recognized in profit or loss. 
 
1.10 Investment property 
 
The Group includes in this category buildings or portions of buildings together with their respective portion of land that
are held to earn rental income. 
 
Investment property is initially recognised at cost which includes any expenditure directly attributable to the acquisition
of the asset. 
 
Subsequently investment property is measured at cost less accumulated depreciation and impairment losses. 
 
Subsequent expenditure is recognized on the carrying amount of the item when it increases future economic benefit. All
costs for repairs and maintenance are recognized in profit or loss as incurred. 
 
The estimated useful lives over which depreciation is calculated using the straight line method are the same as those
applied to property, plant and equipment. 
 
In case of a change in the Group's intention regarding the use of property, reclassifications to or from the "Investment
Property" category occur. In particular, property is reclassified to "Property, plant and equipment" if the Group's
intention is to use the asset in its own business operations, whereas in case the Group decides to sell the property, it is
reclassified to the "Assets held-for-sale" category, provided that all conditions mentioned in paragraph 1.17 are met.
Conversely, property not classified as "Investment Property" is transferred to this category in case a decision for its
lease is made. 
 
1.11 Goodwill and other intangible assets 
 
Goodwill 
 
Goodwill represents the difference between the cost of an acquisition as well as the value of non-controlling interests and
the fair value of the assets and liabilities of the entity acquired, as at the acquisition date. 
 
Positive goodwill arising from acquisitions after 1/1/2004 is recorded to "Goodwill and other intangible assets", if it
relates to the acquisition of a subsidiary, and it is tested for impairment at each balance sheet date. Goodwill on
acquisitions of associates or joint ventures is included in "Investment in associates and joint ventures". 
 
Negative goodwill is recognized in profit or loss. 
 
Other intangible assets 
 
The Group has included in this caption: 
 
a) Intangible assets which are recognized from business combinations in accordance with IFRS 3 or which were individually
acquired. The intangible assets are carried at cost less accumulated amortization and impairment losses. 
 
Intangible assets include the value attributed to the acquired customer relationships, deposit bases and mutual funds
management rights. Their useful life has been determined from 2 to 9 years. 
 
b) Software, which is measured at cost less accumulated amortization and impairment losses. The cost of separately acquired
software comprises of its purchase price and any directly attributable cost of preparing the software for its intended use,
including employee benefits or professional fees. The cost of internally generated software comprises of expenditure
incurred during the development phase, including employee benefits arising from the generation of the software.
Amortization is charged over the estimated useful life of the software which the Group has estimated between 1 to 15 years.
Expenditure incurred to maintain software programs is recognized in the income statement as incurred. Software that is
considered to be an integral part of hardware (hardware cannot operate without the use of the specific software) is
classified in property, plant and equipment. 
 
c) Brand names and other rights are measured at cost less accumulated amortization and impairment losses. The amortization
is charged over the estimated useful life which the Group has estimated up to 7 years. 
 
Intangible assets are amortized using the straight line method, excluding those with indefinite useful life, which are not
amortized. All intangible assets are tested for impairment. 
 
No residual value is estimated for intangible assets. 
 
1.12 Leases 
 
The Group enters into leases either as a lessee or as a lessor. 
 
When the risks and rewards incident to ownership of an asset are transferred to the lessee they are classified as finance
leases. 
 
All other lease agreements are classified as operating leases. 
 
The accounting treatment followed depends on the classification of the lease, which is as follows: 
 
a) When the Group is the lessor 
 
i. Finance leases: 
 
For finance leases where the Group is the lessor the aggregate amount of lease payments is recognized as loans and
advances. 
 
The difference between the present value (net investment) of lease payments and the aggregate amount of lease payments is
recognized as unearned finance income and is deducted from loans and advances. 
 
The lease rentals received decrease the aggregate amount of lease payments and finance income is recognized on an accrual
basis. 
 
The finance lease receivables are subject to the same impairment testing as applied to customer loans and advances as
described in note 1.14. 
 
ii. Operating leases: 
 
When the Group is a lessor of assets under operating leases, the leased asset is recognized and depreciation is charged
over its estimated useful life. Income arising from the leased asset is recognized as other income on an accrual basis. 
 
b) When the Group is the lessee 
 
i. Finance leases: 
 
For finance leases, where the Group is the lessee, the leased asset is recognized as property, plant and equipment and a
respective liability is recognized in other liabilities. 
 
At the commencement of the lease the leased asset and liability are recognized at amounts equal to the fair value of leased
property or, if lower, the present value of the minimum lease payments. The discount rate used in calculating the present
value of the minimum lease payments is the interest rate implicit in the lease or if, this is not available, the Group's
borrowing rate for similar financing. 
 
Subsequent to initial recognition, the leased assets are depreciated over their useful lives unless the duration of the
lease is less than the useful life of the leased asset and the Group is not expected to obtain ownership at the end of the
lease, in which case the asset is depreciated over the term of the lease. 
 
The lease payments are apportioned between the finance charge and the reduction of the outstanding liability. 
 
ii. Operating leases: 
 
For operating leases the Group, as a lessee, does not recognize the leased asset but charges in general administrative
expenses the lease payments on an accrual basis. 
 
1.13 Insurance activities 
 
a) Insurance contracts 
 
An insurance contract is a contract with which significant insurance risk is transferred from the policyholder to the
insurance company and the insurance company agrees to compensate the policyholder if a specified uncertain future event
affects him adversely. Insurance risk is significant if, and only if an event could force the company to pay significant
additional benefits. For the Group, insurance risk is significant when the amount paid in the event of insurance risk
exceeds 10% of the total benefit arising from the contract. 
 
b) Distinction of insurance products 
 
In accordance with IFRS 4 contracts that do not transfer significant insurance risk are characterized as investment and/or
service contracts, and their accounting treatment is covered by IAS 32 and IAS 39 for financial instruments and IAS 18 for
revenue. 
 
All types of contracts offered by the Group are classified as insurance life contracts, as they represent individual,
traditional insurance contracts that provide earnings participation based on surplus revenue from investment (in relation
to the technical interest rate) on the mathematical reserves. 
 
c) Insurance reserves 
 
The insurance reserves are the current estimates of future cash flows arising from insurance life contracts. The reserves
consist of: 
 
i. Mathematical reserves 
 
The insurance reserves for the term life contracts (e.g. term, comprehension, investment) are calculated on actuarial
principles using the present value of future liabilities less the present value of premiums to be received. 
 
The calculations are based on technical assumptions (mortality tables, interest rates) in accordance with the respective
supervisory authorities on the date the contract was signed. 
 
If the carrying amount of the insurance reserves is inadequate, the entire deficiency is provided for. 
 
ii. Outstanding claims reserves 
 
They concern liabilities on claims occurred and reported but not yet paid at the balance sheet date. These claims are
determined on a case-by-case basis based on existing information (loss adjustors' reports, court decisions etc) at the
balance sheet date. 
 
They include also provisions for claims incurred but not reported at the balance sheet date (IBNR). The calculation of
these provisions is based on statistical experience and the estimated average cost of claim. 
 
d) Revenue recognition 
 
Revenue from life insurance contracts is recognized when it becomes payable. 
 
e) Reinsurance 
 
The Group currently does not use reinsurance contracts. 
 
f) Liability adequacy test 
 
In accordance with IFRS 4 an insurer shall assess at each reporting date whether its recognized insurance reserves less
deferred acquisition costs are adequate to cover the risk arising from the insurance contracts. 
 
The methodology applied for life insurance products was based on current estimates of all future cash flows from insurance
contracts and of related handling costs. These estimates were based on assumptions representing current market conditions
and regarding parameters such as mortality, cancellations, future changes and allocation of administrative expenses as well
as the discount rate. The guaranteed return included in certain insurance contracts has also been taken into account in
estimating cash flows. 
 
If that assessment shows that the carrying amount of its insurance reserves is inadequate, the entire deficiency is
recognized against profit or loss. 
 
1.14 Impairment losses on loans and advances 
 
The Group assess at each balance sheet date whether there is evidence of impairment in accordance with the general
principles and methodology set out in IAS 39 and the relevant implementation guidance. 
 
Specifically, the steps performed are the following: 
 
a. The criteria of assessment on an individual or collective basis 
 
The Group assesses for impairment on an individual basis the loans that it considers individually significant. Significant
are the loans of the wholesale sector as well as specific loans of the retail sector. For the remaining loans impairment
test is performed on a collective basis. 
 
The Group has determined the criteria that consist trigger events for the assessment of impairment. 
 
Loans which are individually assessed for impairment and found not impaired are included in groups, based on similar credit
risk characteristics, and assessed for impairment collectively. 
 
The Group groups the portfolio into homogenous populations, based on common risk characteristics, and has a strong
historical statistical basis, in which it performs an analysis with which it captures and defines impairment testing, by
segment population. 
 
In addition, as part of the collective assessment, the Group recognizes impairment for loss events that have been incurred
but not reported (IBNR). The calculation of the impairment loss in these cases takes into account the period between the
occurance of a specific event and the date it becomes known (Loss Identification Period). 
 
A detailed analysis of the loans that belong to the wholesale and the retail sectors, of the trigger events for impairment
as well as of the characteristics used for the determination of the groups for the collective assessment is included in
note 41.1. 
 
b. Methodology in determining future cash flows from impaired loans 
 
The Group has accumulated a significant amount of historical data, which includes the loss given default for loans after
the completion of forced recovery, or other measures taken to secure collection of loans, including the realization of
collaterals. 
 
Based on the above, the amount of the recoverable amount of each loan is determined after taking into account the time
value of money. The cash flows are discounted at the loans' original effective interest rate. 
 
An impairment loss is recognized to the extent that the recoverable amount of the loan is less than its carrying amount. 
 
c. Interest income recognition 
 
Interest income on impaired loans is recognized based on the carrying value of the loan net of impairment at the original
effective interest rate. 
 
d. Impairment recognition - Write - offs 
 
Amounts of impaired loans are recognized on allowance accounts until the Group decides to write them down/write them off. 
 
The policy of the Group regarding write downs/write offs is presented in detail in note 41.1. 
 
e. Recoveries 
 
If in a subsequent period, after the recognition of the impairment loss, events occur which require the impairment loss to
be reduced, or there has been a collection of amounts from loans and advances previously written-off, the recoveries are
recognized in impairment losses and provisions to cover credit risk. 
 
1.15 Impairment losses on non-financial assets 
 
The Group assess as at each balance sheet date non-financial assets for impairment, particularly property, plant and
equipment, investment property, goodwill and other intangible assets as well as its investment in associates and joint
ventures. 
 
In assessing whether there is an indication that an asset may be impaired both external and internal sources of information
are considered, of which the following are indicatively mentioned: 
 
-   The asset's market value has declined significantly, more than would be expected as a result of the passage of time or
normal use. 
 
-   Significant changes with an adverse effect have taken place during the period or will take place in the near future, in
the technological, economic or legal environment in which the entity operates or in the market to which the asset is
dedicated. 
 
-   Significant unfavorable changes in foreign exchange rates. 
 
-   Market interest rates or other rates of return of investments have increased during the period, and those increases are
likely to affect the discount rate used in calculating an asset's value in use. 
 
-   The carrying amount of the net assets of the entity is greater than its market capitalization. 
 
-   Evidence is available of obsolescence or physical damage of an asset. 
 
An impairment loss is recognized in profit or loss when the recoverable amount of an asset is less than its carrying
amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. 
 
Fair value less costs to sell is the amount received from the sale of an asset (less the cost of disposal) in an orderly
transaction between market participants. 
 
Value in use is the present value of the future cash flows expected to be derived from an asset or cash -generating unit
through their use and not from their disposal. For the valuation of property, plant and equipment, value in use
incorporates the value of the asset as well as all the improvements which render the asset perfectly suitable for its use
by the Group. 
 
1.16 Income tax 
 
Income tax consists of current and deferred tax. 
 
Current tax for a period includes the expected amount of income tax payable in respect of the taxable profit for the
current reporting period, based on the tax rates enacted at the balance sheet date. 
 
Deferred tax is the tax that will be paid or for which relief will be obtained in future periods due to the different
period that certain items are recognized for financial reporting purposes and for taxation purposes. It is calculated based
on the temporary differences between the tax base of assets and liabilities and their respective carrying amounts in the
financial statements. 
 
Deferred tax assets and liabilities are calculated using the tax rates that are expected to apply when the temporary
difference reverses, based on the tax rates (and laws) enacted at the balance sheet date. 
 
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against
which the asset can be utilized. 
 
Income tax, both current and deferred, is recognized in profit or loss except when it relates to items recognized directly
in equity. In such cases, the respective income tax is also recognized in equity. 
 
1.17 Non-current assets held for sale 
 
Non-current assets or disposal groups that are expected to be recovered principally through a sale transaction, along with
the related liabilities, are classified as held-for-sale. 
 
The above classification is used if the asset is available for immediate sale in its present condition and its sale is
highly probable. The sale is considered highly probable when it has been decided by Management, an active programme to
locate a buyer has been initiated, the asset is actively marketed for sale at a price which is reasonable in relation to
its current fair value and the sale is expected to be completed within one year. Non-current assets that are acquired
exclusively with a view to their subsequent disposal are classified as held for sale at the acquisition date when the
one-year requirement is met and it is highly probable that the remaining criteria will be met within a short period
following the acquisition (usually within three months). 
 
Non-current assets held for sale mainly consist of assets acquired through the enforcement of security over customer loans
and advances. Before their classification as held for sale, the assets are remeasured in accordance with the respective
accounting standard. 
 
Assets held for sale are initially recognised and subsequently remeasured at each balance sheet date at the lower of their
carrying amount and fair value less cost to sell. Any loss arising from the above measurement is recorded in profit or loss
and can be reversed in the future. When the loss relates to a disposal group it is allocated to assets within the disposal
group with the exception of specific assets that are not within the scope of IFRS 5. The impairment loss on a disposal
group is first allocated to goodwill and then to the remaining assets and liabilities on a pro-rata basis. 
 
Assets in this category are not depreciated. 
 
Gains or losses from the sale of these assets are recognized in the income statement. 
 
Non - current assets that are acquired through enforcement procedures but are not available for immediate sale or are not
expected to be sold within a year are included in Other Assets and are measured at the lower of cost (or carrying amount)
and fair value. Non-current assets held for sale, that the Group subsequently decides either to use or to lease, are
reclassified to the categories of property, plant and equipment or investment property respectively. During their
reclassification, they are measured at the lower of their recoverable amount and their carrying amount before they were
classified as held for sale, adjusted for any depreciation, amortization or revaluation that would have been recognized had
the assets not been classified as held for sale. 
 
1.18 Employee benefits 
 
The Group has both defined benefit and defined contribution plans. 
 
A defined contribution plan is where the Group pays fixed contributions into a separate entity and the Group has no legal
or constructive obligation to pay further contributions if the fund does not have sufficient assets to pay all employees
the benefits relating to employee service in current or prior years. The contributions are recognized as employee benefit
expense on an accrual basis. Prepaid contributions are recognized as an asset to the extent that a cash refund or a
reduction in the future payments is available. 
 
A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on
retirement which is dependent, among others, on years of service and salary on date of retirement and it is guaranteed by
the entity of the Group. 
 
The defined benefit obligation is calculated, separately for each plan, based on an actuarial valuation performed by
independent actuaries using the projected unit credit method. 
 
The net liability recognized in the consolidated financial statements is the present value of the defined benefit
obligation (which is the expected future payments required to settle the obligation resulting from employee service in the
current and prior periods) less the fair value of plan assets. The amount determined by the above comparison may be
negative, an asset. The amount of the asset recognised in the financial statements cannot exceed the total of the present
value of any economic benefits available to the Group in the form of refunds from the plan or reductions in future
contributions to the plan. 
 
The present value of the defined benefit obligation is calculated based on the return of high quality corporate bonds with
a corresponding maturity to that of the obligation, or based on the return of government bonds in cases when there in no
deep market in corporate bonds. 
 
Interest on the net defined benefit liability (asset), which is recognised in profit or loss, is determined by multiplying
the net defined benefit liability (asset) by the discount rate used to discount post-employment benefit obligation, as
determined at the start of the annual reporting period, taking into account any changes in the net defined benefit
liability (asset). 
 
Service cost, which is also recognised in profit or loss, consists of: 
 
•   Current service cost, which is the increase in the present value of the defined benefit obligation resulting from
employee service in the current period; 
 
•   Past service cost, which is the change in the present value of the defined benefit obligation for employee service in
prior periods, resulting from the introduction or withdrawal of, or changes to, a defined benefit plan or a curtailment (a
significant reduction by the entity in the number of employees covered by a plan) and 
 
•   Any gain or loss on settlement. 
 
Before determining past service cost or a gain or loss on settlement, the Group remeasures the net defined benefit
liability (asset) using the current fair value of plan assets and current actuarial assumptions, reflecting the benefits
offered under the plan before its amendment, curtailment or settlement. 
 
Past service cost, in particular, is directly recognized to profit or loss at the earliest of the following dates: 
 
•   When the plan amendment or curtailment occurs; and 
 
•   When the Group recognizes related restructuring costs (according to IAS 37) or termination benefits. 
 
Likewise, the Group recognizes a gain or loss on the settlement when the settlement occurs. 
 
Remeasurements of the net defined benefit liability (asset) which comprise: 
 
•   actuarial gains and losses; 
 
•   return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and 
 
•   any change in the effect of the limitation in the asset recognition, excluding amounts included in net interest on the
net defined benefit liability (asset), 
 
are recognized directly in other comprehensive income and are not reclassified in profit or loss in a subsequent period. 
 
Finally, when the Group decides to terminate the employment before retirement or the employee accepts the Group's offer of
benefits in exchange for termination of employment, the liability and the relative expense for termination benefits are
recognized at the earlier of the following dates: 
 
a. when the Group can no longer withdraw the offer of those benefits; and 
 
b. when the Group recognizes restructuring costs which involve the payment of termination benefits. 
 
1.19 Share options granted to employees 
 
The granting of share options to the employees, their exact number, the price and the exercise date are decided by the
Board of Directors in accordance with the Shareholders' Meeting approvals and after taking into account the current legal
framework. 
 
The fair value calculated at grant date is recognized over the period from the grant date to the exercise date and recorded
as an expense in payroll and related costs with an increase of a reserve in equity respectively. The amount paid by the
beneficiaries of share options on the exercise date increases the share capital of the Group and the reserve in equity from
the previously recognized fair value of the exercised options is transferred to share premium. 
 
1.20 Provisions and contingent liabilities 
 
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. 
 
Provisions are, also, recognized in cases of restructuring plans with which management attempts either to change the
subject of a corporate activity or the manner in which it is conducted (e.g. close down business locations). The
recognition of provision is accompanied with the relevant, authorized by the Management, program and with the suitable
actions of disclosure. 
 
The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present
obligation at the end of the reporting period. Where the effect of the time value of money is material, the amount of the
provision is equal to the present value of the expenditures expected to settle the obligation. 
 
Amounts paid for the settlement of an obligation are set against the original provisions for these obligations. Provisions
are reviewed at the end of each reporting period. 
 
If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the
obligation, the provision is reversed. Additionally, provisions are not recognized for future operating losses. 
 
Future events that may affect the amount required to settle the obligation, for which a provision has been recognized, are
taken into account when sufficient objective evidence exists that they will occur. 
 
Reimbursements from third parties relating to a portion of or all of the estimated cash outflow are recognized as assets,
only when it is virtually certain that they will be received. The amount recognized for the reimbursement does exceed the
amount of the provision. The expense recognized in profit or loss relating to the provision is presented net of the amount
of the reimbursement. 
 
The Group does not recognize in the statement of financial position contingent liabilities which relate to: 
 
•   possible obligations resulting from past events whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control of the Group, or 
 
•   present obligations resulting from past events for which: 
 
-   it is not probable that an outflow of resources will be required, or 
 
-   the amount of liability cannot be measured reliably. 
 
The Group provides disclosures for contingent liabilities taking into consideration their materiality. 
 
1.21 Sale and repurchase agreements and securities lending 
 
The Group enters into purchases of securities under agreements to resell at a certain date in the future at a fixed price.
Securities purchased subject to commitments to resell them at future dates are not recognized as investments. 
 
The amounts paid are recognized in loans and advances to either banks or customers. The difference between the purchase
price and the resale price is recognized as interest on an accrual basis. 
 
Securities that are sold under agreements to repurchase continue to be recognized in the consolidated balance sheet and are
measured in accordance with the accounting policy of the category that they have been classified in and are presented as
investments. 
 
The proceeds from the sale of the securities are reported as liabilities to either banks or customers. The difference
between the sales price and the repurchase price is recognized on an accrual basis as interest. 
 
Securities borrowed by the Group under securities lending agreements are not recognized in the consolidated balance sheet
except when they have been sold to third parties whereby the liability to deliver the security is recognized and measured
at fair value. 
 
1.22 Securitization 
 
The Group securitises financial assets by transferring these assets to special purpose entities, which in turn issue
bonds. 
 
In each securitization of financial assets the assessment of control of the special purpose entity is considered, based on
the circumstances mentioned in note 1.2, so as to examine whether it should be consolidated. In addition, the contractual
terms and the economic substance of transactions are considered, in order to decide whether the Group should proceed with
the derecognition of the securitised financial assets, as referred in note 1.6. 
 
1.23 Equity 
 
Distinction between debt and equity 
 
Financial instruments issued by Group companies to obtain funding are classified as equity when, based on the substance of
the transaction, the Group does not undertake a contractual obligation to deliver cash or another financial asset or to
exchange financial instruments under conditions that are potentially unfavorable to the issuer. 
 
In cases when Group companies are required to issue equity instruments in exchange for the funding obtained, the number of
equity instruments must be fixed 

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