annual report 2007 commerzbank prague · Commerzbank Branch Office Prague was able to continue its successful business activities in the year 2007. Proof of this positive development

annual report 2007 commerzbank prague

�

contents

Management report

Managementreportforthebusinessyear2007 5

Commerzbank AG

Commerzbankworldwide,CommerzbankintheCzechRepublic 6 GeneralManagers,Headsofdepartments 7

Report of independent auditors

Reportofindependentauditors 8

Financial statements

Balancesheetasat�1December2007 10 Off-balancesheetasat�1December2007 11 Incomestatementfortheyearended�1December2007 12 Statementofchangesinequityfortheyearended�1December2007 1�

Notes to financial statement for the year ended 31 December 2006

1Generalinformation 14 2Accountingpolicies 14 �Cashanddepositswithcentralbanks 18 4Duefrombanks 18 5Duefromcustomers 19 6Securities 20 7Longtermintangibleandtangiblefixedassets 21 8Otherassets 22 9Allowances,provisionsandwriteoffs 2� 10Duetobanks 24 11Duetocustomers 25 12Otherliabilities 26 1�Equityandprofitdistribution 26 14Contingenciesandcommitments 27 15Interestreceivableandsimilarincome 29 16Interestpayableandsimilarexpense 29 17Feeandcommissionincome �0 18Commissionandfeeexpense �0 19Gainslesslossesfromfinancialtransactions �0 20Otheroperatingincome �1 21Administrativeexpenses �1 22Taxation �2 2�Financialrisks �� 24Subsequentevents 41

Management Report

for Business Year 2007

2007 has again been a highly successful year for the Czech economy. The Ber-telsmann Foundation has appreciated the long-standing positive development ofCzech economy by awarding it the title of the “Most Successful TransformingCountryoftheWorld“.

Withanincreaseinitsgrossdomesticproductby6.5%in2007,theCzechRepub-licattainedthelevelof82%ofEuropeanUnion´sGDPperinhabitant.Asaresult,unemploymentfelltoitslowestlevelof4.9%inthelast10years.

CommerzbankBranchOfficePraguewasabletocontinueitssuccessfulbusinessactivitiesintheyear2007.ProofofthispositivedevelopmentisamongotherstheopeningofnewbranchesinHradecKrálovéandPlzeň.Thusthenumberoflocati-onsintheCzechRepublichasrisentofive.Withthiswearepursuingthestrategyofprovidingourproductsandservicestothemaintargetgroup–mediumsizedcompanies–onthespotanddirectlyatthecustomer.

AtthesametimetheextentofservicesprovidedfortheFrankfurtamMainheadqu-arters in the area of payment transactions and information technology has alsoincreased.Herewepursue the target toestablish the locationPragueas“Near-Shoring“unitforCommerzbankAG.

In2007too,CommerzbankPragueaccomplisheditschallengingbusinesstargets.Compared to previous year, balance sheet total rose by 15%, especially thankstostrongincreaseof lendingtocustomers(increaseby50%).Atthesametime,the loanportfoliocontinuestobeofhighquality–by theendof2007theshareof“classified”loanswasbelow0.5%.Also,ourbusinesswithupscaleprivateandPrivateBankingcustomersincreasedby�0%.Netincomegrewby22%tomorethan�90mio.CZK.

In spite of continued difficult market environment due to the crises on financialmarkets,theperspectivefortheyear2008continuestobepositive.Insofarweareconfidentthat–alsowiththeaidofnewtargetorientedmarketcampaign–wewillbeabletomakeabigstepforwardin2008towardsbecomingthe“BestSmallandMedium-SizedBusinessBank“,andalsothebestchoicefordemandingcustomersintheCzechRepublic.

Dr. Jutta Walter, Arno Walter, GeneralManager GeneralManager

5

Commerzbank worldwide

Commerzbank´s international activities are geared to institutional clients andcompanies.Insomebranchesprivate-bankingfacilitiesexistforwealthyprivatecustomers.

Inthenineties,thebankprimarilyexpandeditspresenceinCentralandEasternEurope. Inorder to complement itsoperational outlets inMoscow,Bratislava,Budapest,PragueandBrno, itmaintains representativeoffices inAlmaty,Bel-grade,Bucharest,Kiev,Minsk,Moscow,Novosibirsk, Tashkent andZagreb. InPoland,itisactivethroughthesignificantBREBank,inwhichitholdsacontrollingstakeof72%.Insouth-EastEurope,CommerzbankhasstrengtheneditspositionthroughparticipationinlocalProCreditbanks.Inadditiontocontributingexpertiseandexperience,Commerzbank,asthecommercialpartneroftheseinstitutionsalsohandlesinternationalpaymentsandforeigncommercialbusiness.

InNorthAmerica,Commerzbank´sbranchesinNewYork,Atlanta,ChicagoandLosAngelesconductcommercialbankingandinvestmentbankingbusiness.

In Latin America, North Africa and the Near and Middle East, Commerzbankprimarilymaintainsrepresentativeoffices.

AsianactivitiesarebundledintheformofCommerzbankAsia-PacificinSingapore.

Commerzbank in the czech republic

CommerzbankAGenteredtheCzechmarketin1992,andsoonopenedbran-chesinBrnoin1998,Ostravain2001,andrecentlyweexpandedourregionalpresencetoHradecKrálovéandPlzeň.Withasophisticatedproduct lineandhigh-qualityservicesforbothprivateandcorporateclients,CommerzbankhasestablisheditselfasaleadingfinancialinstitutionintheCzechRepublic.

InNovember2007mBank,subsidiaryofBREBankandpartofCommerzbankGroup,launchedoperationsintheCzechRepublic.

CommerzbankPraguecatersmainlytoacorporateclientele,offeringprofessi-onalsolutions foreveryclient.Untilnow,Commerzbank’sbusinessactivitiesin the Czech Republic have been primarily targetted towards multinationalsaswellasthetop-tierlocalcorporations.Today,wearepleasedtoextendourextensiveknowledgeandexpertisetomedium-sizedcompaniesactiveinthelocalmarket.

Inaddition,Commerzbankhasanexclusiveportfolioofprivatebankingproductstomeettheselectivedemandsofourcustomers.

Withourfocusoninternationalenterpreneurship,ourstrongknow-howacrossa variety of industry sectors, and our comprehensive range of products, weofferbetter,moreinnovativeandpromptfinancingsolutions.

6

Prague Branch

General Managers:

Dr. Jutta Walter Arno Walter (since 1 July 2007)

Heads of departments:

7

L'udovít BánCorporateBankingDepartment

Thomas BaumgartCorporateBankingDepartment

Margaret DvorakStructuredFinance

Klaus H. SchuckCreditOffice

Alena ŠtefaňákováPrivateBanking

RNDr. Jaromír Hronek, CSc.Treasury

Kai GrosseTradeFinanceandTransactionServices

Bernd KrönkeAdministration

Eva CollardováAccountingDepartment

Renata KloubekPersonnelDepartment

Dr. Bronislav HýblCorporateBankingDepartment,BrnoOffice

René MewaldCorporateBankingDepartment,HradecKrálovéOffice

Ondřej EliášCorporateBankingDeparment,PlzeňOffice

Dr. Roman ZedníčekCorporateBankingDepartment,OstravaOffice

8

PricewaterhouseCoopersAudit,s.r.o.

Kateřinská40/466

12000Prague2

CzechRepublic

Telephone+420251151111

Facsimile+420251156111

INDEPENDENT AUDITOR’S REPORT

TO THE MANAGEMENT OF COMMERZBANK AG, PRAGUE BRANCH

Report on the Financial Statements

WehaveauditedtheaccompanyingfinancialstatementsofCommerzbankAG,Prague

branch (“Branch”), which comprise the balance sheet as at �1 December 2007, the

incomestatement,statementofchanges inequityandnotes, includingasummaryof

significant accounting policies (“the financial statements”). Details of the Branch are

disclosedinnote1tothesefinancialstatements.

Management’s Responsibility for the Financial Statements

TheManagementisresponsibleforthepreparationandfairpresentationofthefinancial

statementsinaccordancewithCzechaccountinglegislation.Thisresponsibilityincludes:

designing, implementing and maintaining internal control relevant to the preparation

andfairpresentationof financialstatementsthatarefreefrommaterialmisstatement,

whetherduetofraudorerror;selectingandapplyingappropriateaccountingpolicies;and

makingaccountingestimatesthatarereasonableinthecircumstances.

Auditor’s Responsibility

Ourresponsibility is toexpressanopiniononthesefinancialstatementsbasedonour

audit. We conducted our audit in accordance with the Act on Auditors of the Czech

Republic,InternationalStandardsonAuditingandtherelatedapplicationguidanceofthe

ChamberofAuditorsof theCzechRepublic. Thosestandardsrequire thatwecomply

withethicalrequirementsandplanandperformtheaudittoobtainreasonableassurance

whetherthefinancialstatementsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsand

disclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’s

judgment, including assessmentof the risksofmaterialmisstatementof the financial

statements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditor

considers internal control relevant to theBranch’spreparation and fair presentationof

thefinancialstatementsinordertodesignauditproceduresthatareappropriate inthe

circumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessof

theBranch’s internalcontrol. Anauditalso includesevaluating theappropriatenessof

theaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadeby

management,aswellasevaluatingtheoverallpresentationofthefinancialstatements.

We believe that the audit evidence we have obtained is sufficient and appropriate to

provideabasisforourauditopinion.

Opinion

Inouropinion,thefinancialstatementsgiveatrueandfairviewofthefinancialposition

oftheBranchasat�1December2007,itsfinancialperformancefortheyearthenended

inaccordancewithCzechaccountinglegislation.

9

Without qualifying our opinion we draw attention to the fact that the Branch is not a

separatelegalentityandthefinancialpositionoftheBranchisfullydependentonthatof

CommerzbankAGasawhole.

Report on the Annual Report

Inadditionwehavealsoaudited theannual reportof theBranch forconsistencywith

the financial statements for theyearended�1December2007whichare included in

thisannualreportonpages10-40.TheManagementisresponsiblefortheaccuracyof

theannualreport.Ourresponsibilityistoexpressanopinionontheconsistencyofthe

annualreportandthefinancialstatementsbasedonouraudit.

We conducted our audit in accordance with the International Standards on Auditing

andtherelatedapplicationguidanceoftheChamberofAuditorsoftheCzechRepublic.

Thosestandardsrequirethattheauditorplanandperformtheaudittoobtainreasonable

assuranceaboutwhethertheinformationincludedintheannualreportdescribingmatters

thatarealsopresentedinthefinancialstatementsis,inallmaterialrespects,consistent

withtherelevantfinancialstatements.Webelievethatourauditprovidesareasonable

basisforouropinion.

Inouropinion,the informationincludedintheannualreportoftheBranchfortheyear

ended�1December2007isconsistent,inallmaterialrespects,withthefinancialstate-

mentsreferredtoabove.

ThemaintenanceandintegrityoftheBank’swebsiteiswhollytheresponsibilityofthe

managementoftheBank.Theworkundertakenbyusdoesnotincludeconsiderationof

thesemattersand, accordingly,weacceptno responsibility for anychanges thatmay

have occurred to the annual report since they were initially presented on the Bank’s

website.

�0April2008


representedby

PaulCunningham Ing.EvaLoulová

Partner Auditor,LicenceNo.1981

PricewaterhouseCoopersAudit,s.r.o.,registeredseatKateřinská40/466,12000Prague2,CzechRepublic,IdentificationNumber:40765521, registeredwith theCommercialRegisterkeptby theMunicipalCourt inPrague,SectionC,Insert�6�7,andintheRegisterofAuditCompanieswiththeChamberofAuditorsoftheCzechRepublicunderLicenceNo021.


Kateřinská40/466

12000Prague2

CzechRepublic

Telephone+420251151111

Facsimile+420251156111

BALANCE SHEET

AS AT 31 DECEMBER 2007

10

Assets Note 31 December 2007CZK’000

31 December 2006CZK’000

Cash and deposits with central banks � 120,185 703,188

Due from banks 4

a)repayableondemand

b)otherreceivables

17,713,147

2,715,071

14,998,076

27,235,168

6,944,246

20,290,922

Due from customers 5

a)repayableondemand

b)otherreceivables

57,204,645

�,160,�05

54,044,�40

38,014,895

�,114,�21

�4,900,574

Debt securities 6

a)issuedbygovernmentinstitutions

b)issuedbyotherentities

1,564,613

564,765

999,848

1,588,799

570,284

1,018,515

Long-term intangible fixed assets 7 40,745 48,857

Long-term tangible fixed assets 7

ofwhich:

buildingsforoperatingactivities

31,197

17,566

40,956

17,776

Other assets 8 4,618,280 3,308,123

Prepayments and accrued income 13,316 11,770

Total assets 81,306,128 70,951,756

Liabilities Note 31 December 2007CZK’000


Due to banks 10

a)repayableondemand

b)otherpayables

54,785,029

16,756,094

�8,028,9�5

46,495,740

1�,102,619

��,�9�,121

Due to customers 11

a)repayableondemand

b)otherpayables

21,186,240

4,812,256

16,�7�,984

20,081,404

5,4�9,245

14,642,159

Other liabilities 12 4,869,422 4,009,579

Accruals and deferred income 47,247 5,516

Provisions 9 1,000 197

Revaluation differences from assets and liabilities 2,297 10,721

Retained earnings (losses) from previous periods 24,425 29,019

Profit for the accounting period 1� 390,468 319,580

Total liabilities 81,306,128 70,951,756

OFF-BALANCE SHEET AS AT 31 DECEMBER 2007

11

Off-balance sheet assets Note 31 December 2007 CZK’000


Commitmentsandguaranteesgiven 14 16,049,87� 8,401,410

Receivablesfromspottransactions 990,66� 1,012,755

Receivablesfromterminstruments 2�(d) 768,819,52� 568,0�0,947

Receivablesfromoptioninstruments 2�(d) 507,454 412,425

Total off-balance sheet assets 786,367,513 577,857,087

Off-balance sheet liabilities Note 31 December 2007CZK‘000

31 December 2006CZK‘000

Commitmentsandguaranteesreceived 44,079,567 24,846,599

Collateralsreceivedandpledges 14 4,175,419 7,�05,011

Payablesfromspottransactions 990,8�8 1,012,722

Payablesfromterminstruments 2�(d) 769,2�1,5�8 568,41�,977

Payablesfromoptioninstruments 2�(d) 507,454 412,2�8

Assetsundercustodyandmanagedbyathird 14

party7,589,6�8 7,016,148

Assetsundermanagement 14 294,6�0 ��6,865

Total off-balance sheet liabilities 826,869,084 609,343,560

12

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007

Note 2007CZK’000

2006CZK’000

Interest receivable and similar income 15

ofwhich:

interestincomefromdebtsecurities

2,834,897

85,557

1,765,627

62,816

Interest payable and similar expense 16 (2,169,001) (1,218,898)

Fee and commission income 17 348,413 354,034

Fee and commission expense 18 (60,272) (14,099)

Gains from financial transactions 19 241,900 87,909

Other operating income 20 146,627 145,515

Other operating expense (15,208) (16,275)

Administrative expense 21

ofwhich:

a)staffcosts

ofwhich:

aa)wagesandsalaries

ab)socialandhealthinsurance

ac)otherstaffcosts

b)otheradministrativeexpenses

(713,820)

(�64,208)

(260,408)

(82,189)

(21,611)

(�49,612)

(642,650)

(��1,815)

(242,59�)

(69,520)

(19,702)

(�10,8�5)

Depreciation of long-term tangible and 7

intangible fixed assets(33,882) (40,627)

Release of allowances and provisions for 9

loans and guarantees, income from

receivables already written-off

41,707 12,186

Write-offs, additions and utilisation 9

of allowances and provisions for loans and

guarantees

(105,268) (22,108)

Release and utilisation 9

of other provisions(1,216) -

Profit on ordinary activities before taxation 514,877 410,614

Income tax 22 (124,409) (91,034)

Profit for the year after taxation 1� 390,468 319,580

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007

1�

Note Revaluation

reserve*

CZK’000

Retained

earnings /

Accumulated

losses

CZK’000

Profit of the

current year

CZK’000

Total equity

CZK’000

At 1 January 2006 1,159 (44,747) 352,789 309,201

Allocationof2005profittoCommerzbankAG 1� - - (289,020) (289,020)

Differencebetweenallocationofprofitto

CommerzbankAG,foreignexchange

differencesandprofitfortheyear2005 1� - 7�,766 (7�,766) -

Valuationdifferencesnotreflectedinprofit,net

oftax9,562 - - 9,562

Foreignexchangedifferencesinequity 1� - - 9,997 9,997

Profitfortheyear2006 1� - - �19,580 �19,580

At 31 December 2006 10,721 29,019 319,580 359,320

Allocationof2006profittoCommerzbankAG 1� - - (�24,0�2) (�24,0�2)

Differencebetweenallocationofprofitto

CommerzbankAG,foreignexchange

differencesandprofitfortheyear2006 1� - (4,594) 4,594 -

Valuationdifferencesnotreflectedinprofit,net

oftax (8,424)- -

(8,424)

Foreignexchangedifferencesinequity 1� - - (142) (142)

Profitfortheyear2007 1� - - �90,468 �90,468

At 31 December 2007 2,297 24,425 390,468 417,190

*Changesinthefairvalueofsecuritiesinavailable-for-saleportfolio.

14

1 GENERAL INFORMATIONCommerzbank Aktiengesellschaft, Prague branch (herei-nafterreferredtoas“theBranch”)wasincorporatedon1December1992asabranchofCommerzbankAG,whichisheadquarteredinFrankfurtamMain,Germany.TheBranchhasitsregisteredofficeinPragueandasubbranchinBrnoandanofficeinOstrava.In2007theBranchwasmanagedbyMr.GünterSteinerandMrs.JuttaWalter(since1July2007byMrs.JuttaWalterandMr.ArnoWalter).

TheBranch’soperationsprimarilyconsistof:

• providingCzechandforeigncurrencyloansandguarantees;

• acceptingandplacingdepositsinCzechandforeigncurrency;

• acceptingcurrentandtermaccountsdenominatedinCzechandforeigncurrency;

• renderingofgeneralbankingservicesthroughanetworkofbranchesandagencies;

• providingforeignexchangetransactionsontheinter-bankmoneymarket;

• providingforeigntradefinanceandrelatedbankingservices;

• tradinginsecuritiesandportfoliomanagement.

2 ACCOUNTING POLICIES

(a) Basis of preparation

The financial statements, comprising a balance sheet,statementsofincomeandofchangesinequityandaccom-panying notes, are prepared in accordance with the Actonaccountingand theapplicableaccounting rulessetbytheMinistryofFinanceof theCzechRepublicandCzechaccountingstandardsforfinancialinstitutions.Thefinancialstatementsarepreparedunderthehistoricalcostconven-tionasmodifiedbytherevaluationoffinancialinstrumentsat fair value through profit or loss and available-for-saleto fair values.TheBranchusesprimarily thestructureofaccounts of Commerzbank AG, which is subsequentlytranslatedforCzechreportingpurposes.

The financial statements are rounded to thousands ofCzechCrowns(“CZK’000”)unlessotherwisestated.

(b) Accounting basis

Allcashtransactions,purchasesandsalesoftradingsecu-

rities, term derivatives, options and foreign currencies,transactions made through the Czech National Bank’s(the “CNB”) clearing centre, grants or acceptances of aguarantee or credit commitments are recognised at thesettlementdate.(c) Foreign currencies

Financial assets and liabilities denominated in foreigncurrencies are translated to Czech Crowns at theexchange rate announced by the Czech National Bank(“CNB”) effective at the balance sheet date. All resul-ting foreign exchange gains and losses from monetaryitems are recognised in gains less losses from financialtransactions.

(d) Fair value of securities

Thefairvalueofasecurityisdeterminedasthemarketmidvaluequotedbyarelevantstockexchangeorotheractivepublicmarket.Inothercasesthefairvalueisestimatedbytheriskadjustednetpresentvaluefordebtsecurities.

(e) Available-for-sale securities

Available-for-sale securities are neither securities at fairvaluethroughprofitorlossnorsecuritiesheld-to-maturity.They comprise mainly debt securities held for liquiditymanagement.Available-for-salesecuritiesareinitiallyreco-gnized at cost which includes expenses incurred in con-nectionwiththeiracquisitionandaresubsequentlymeasu-redatfairvalue.Anysubsequentgainsandlossesarisingfromchangesinthefairvalueofavailable-for-salesecuritiesarerecognizeddirectlyinequity(netofanytaxeffect)untilthe financial asset is derecognized or impaired at whichtime thecumulativegainor losspreviously recognized inequityshouldberecognizedintheincomestatement.

(f) Securities financing arrangements

Securitiesborrowedorpurchasedunderagreementstoresell(resale or reverse repo agreements) are not recognised onthebalancesheet.TheyarerecognisedoffbalancesheetasCollateralsreceivedandpledges.Securitieslentorsoldunderagreementstorepurchase(repoagreements)areretainedintheir original portfolio. The underlying cash-flows are recor-dedasDue tobanksor customersandDue frombanksorcustomers,asappropriate,onthesettlementdate.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2007

15

(g) Derivative financial instruments and hedging

Derivativefinancialinstrumentsincludingforeignexchan-gecontracts,forwardrateagreements(“FRAs”),curren-cy and interest rate swaps, currency and interest rateoptionsandotherderivativefinancialinstrumentsareiniti-allyrecognisedonbalancesheetatcostandsubsequentlyareremeasuredattheirfairvalue.Fairvaluesareobtainedfromquotedmarketprices,discountedcash-flowmodelsandoptionspricingmodelsasappropriate.AllderivativesarepresentedinOtherassetsorinOtherliabilitieswhentheirfairvalueispositiveornegativerespectively.

ChangesinthefairvalueofderivativesheldfortradingareincludedinGainslesslossesfromfinancialtransactions.

The Branch designates prospectively certain derivativesaseitherahedgeofthefairvalueofarecognisedassetorliability(fairvaluehedge).Hedgeaccountingisusedforderivativesdesignatedinthiswayprovidedthefollowingcriteriaaremet:

thederivative is incompliancewith theBranch’s riskmanagementstrategy;formaldocumentationofthegeneralhedgingstrategy,hedged risk, hedging instrument, hedged item andtheirrelationshipispreparedbeforehedgeaccountingisapplied;thehedgedocumentationprovesthatitisexpectedtobehighlyeffectiveinoffsettingtheriskinthehedgeditematinceptionandthroughoutthereportingperiod;thehedgeiseffectiveonanongoingbasis;andthehedged item isnotasecurityclassifiedasat fairvaluethroughtheprofitorloss.

Changes in the fair value of derivatives that qualify aseffective fair value hedges are recorded in the incomestatement, along with the corresponding change in fairvalueofthehedgedassetorliabilitythatisattributabletothatspecifichedgedrisk.AstheBranchhedgesthefairvalueof its loansagainst interest rate risk, thechangesin the fair value of the appropriate hedging derivativesandrelevanthedgeditemsarerecognisednetininterestexpenseorinterestincome.

If the fair value hedge no longer meets the criteria forhedgeaccounting,theadjustmenttothecarryingamountofahedged item isamortised toprofitor lossover theperiodtomaturityofhedgeditem.

i)

ii)

iii)

iv)v)

(h) Interest income and expense

Interest incomeandexpensearerecognisedforall inte-rest bearing instruments on an accrual basis using theeffectiveyieldmethodbasedontheacquisitioncost.

Theeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofafinancialassetorafinancialliabilityandofallocatingtheinterest incomeor interestexpenseoverthe relevantperiod.Theeffective interest rate is the ratethat exactly discounts estimated future cash flows untilmaturityorthenearestchangeof interestratetothenetcarryingamountofthefinancialassetorfinancialliability.

The linear method is used as an approximation of theeffective interest method for securities with remainingmaturity shorter than1 year at the settlementdate, forloans, other receivables and liabilities with individualrepayment periods shorter than 1 year. Interest incomeincludesaccruedcoupons,discountandpremiumonallfixedincomeinstruments.

Income on non-performing receivables is also accru-ed and capitalised into the related loan balance. Suchamounts are considered in estimating the provision fornonperformingreceivables.

(i) Penalty interest

Penaltyinterestincome,whichissuspendedorforgiven,isexcludedfrominterestincomeuntilreceived.Amountspreviouslyrecognisedasincomearenotreversed.(j) Fee and commission income

Fees and commissions are generally recognised onan accrual basis when the service has been provided.Commissionandfeesarisingfromnegotiating,orparticipa-tinginthenegotiationofatransactionforathirdpartyarerecognised on completion of the underlying transaction.Portfolioandothermanagementadvisoryandservicefeesarerecognisedbasedontheapplicableservicecontracts,usuallyonatimeapportionedbasis.

(k) Receivables

ReceivablesoriginatedbytheBrancharestatedatnominalvaluelessallowances.Irrecoverablereceivablesarewrittenoffuponcompletionofbankruptcyproceedingsagainstthedebtor.

16

(l) Provisions

ProvisionsarerecognisedwhentheBranchhasapresentobligationasaresultofpastevents,itisprobablethatanoutflowof resourcesembodyingeconomicbenefitswillberequiredtosettletheobligation,andareliableestimateoftheamountoftheobligationcanbemade.Allprovisi-onsarepresentedinliabilities.

Additions to provisions are recognised in the incomestatement, their utilisation is recognised together withexpensesorlosses,forwhichpurposetheywerecreatedin the income statement. Release of provisions in casetheyarenolongernecessaryisrecognisedasincome.

Provisionsaresetaside in thecurrency inwhichsettle-mentisexpectedtobemade.

(m) Allowances

The Branch first assesses whether evidence of impair-ment exists for individual receivables. Individual recei-vablesarecategorisedinfivecategories(standard,watch,substandard,doubtful,loss).Impairedreceivablesincludesubstandard,doubtfulandlossreceivablesandrepresenttotaloutstandingprincipalandaccruedinterestreceivablewith service payments overdue more than 90 days orotherdefaultsincontractualtermsorfinancialperforman-ce.Watchreceivablesrepresenttotaloutstandingprinci-palandaccruedinterestreceivablewithservicepaymentsoverduelessthan90days.

Allowances to individual receivables are deducted fromthe nominal value of each receivable originated by theBranch.Theamountofallowanceforwatchandimpairedreceivablesisbasedonappraisalsoftheseassetsatthebalance sheet date after taking into consideration thepresentforcedsalevalueofcollateral.

Additions to allowances are recognised in the incomestatement, their utilisation is recognised together withexpenses and losses connected with the decrease ofassets, inthe incomestatement.Releaseofallowancesin case they are no longer necessary is recognised asincome.Allowancesforassetsdenominatedinaforeigncurrency are created in that foreign currency. Foreignexchangedifferencesarerecognisedinthesamewayasforeignexchangedifferencesfromtherelatedasset.

(n) Long-term tangible and intangible fixed assets

Long-termtangibleandintangiblefixedassetsarerecor-ded at cost. Fixed assets are depreciated/amortised byapplyingthereducingbalancemethodovertheestimateduseful lives.Non tangible fixedassetsacquiredafter�1December 2000 are amortised by applying the straight-linebasisovertheestimatedusefullives.

Repair and maintenance expenditures are charged toexpense as incurred. Expenditures enhancing the valueoftheassetarecapitalisedanddepreciated.

Assets held under finance lease agreements are notcapitalisedandareaccountedforinthesamewayasope-rating leases, with rental charges being reflected in theincomestatementonastraight-linebasis.Neitheristhecorrespondingleaseobligationrecordedasaliability.

(o) Value added tax

Since1August2004theBranchhasbeenregisteredforvalue added tax (hereinafter “VAT”) with quarterly sett-lement period. Intangible and tangible fixed assets andinventories are stated at acquisition cost including theappropriateVAT.TheBranchdoesnotclaiminputVATastheratioofthetaxableincometothetotalincomeoftheBranchissuchthatitisnoteconomicalfortheBranchtoclaimtheinputVAT.InputVAT(exceptfor intangibleandtangiblefixedassets)isexpensedimmediately.

(p) Deferred taxation

A deferred tax liability is recognised on all temporarydifferencesbetweenthecarryingamountofanassetorliabilityinthebalancesheetanditstaxbaseusingthefullliabilitymethod.Adeferredtaxassetisrecognisedtotheextentthatitisprobablethatfuturetaxableprofitwillbeavailableagainstwhichthisassetcanbeutilised.

TheapprovedtaxratefortheperiodinwhichtheBranchexpectstoutilisetheassetorsettletheliabilityisusedforthemeasurementofdeferredtax.

A deferred tax related to revaluation of hedging instru-mentsandavailable-for-salesecuritieswhicharechargedand credited directly to equity, is also charged and cre-diteddirectlytoequity.

17

(q) Staff costs and pensions

StaffcostsareincludedinAdministrativeexpenses.

TheBranchmakescontributionsonbehalfofitsemployeestoadefinedcontributionpensionplan.Contributionspaidby the Branch are accounted for directly as an expense.Regular contributions are made to the state to fund thenationalpensionplan.

(r) Related parties

RelatedpartiesaredefinedinaccordancewiththeActonBanksasfollows:

• boardmembers;• seniormanagementoftheBranch,beingpersons

responsibleformanagementfunctionsbasedonemploymentorothercontractsandpowersandresponsibilitiesofwhicharedefinedintheBranch’sstatute(“seniormanagement”);

• entitiescontrollingtheBranch,theirshareholdersholdingmorethan10%ofcapitalandtheirseniormanagement;

• relatives(directfamilymembers)ofboardmembersandofseniormanagementoftheBranch;

• entitiesinwhichboardmembersoftheBranch,seniormanagementorentitiescontrollingtheBranchholdatleast10%shareholding;

• shareholdersholdingmorethan10%ofthesharecapitalorvotingrightsoftheBankandentitiescont-rolledbythem.

Material transactions, outstanding balances and pricingpolicieswith relatedpartiesaredisclosed inNotes4,5,10,11,14and21.

(s) Foreign exchange differences in equity

ForeignexchangedifferencesarisingfromthedistributionoftheBranch’sprofitstoCommerzbankAG,whichaccoun-tingrecordsareinEuro,areaccountedforinequity.

(t) Subsequent events

Theeffectsofevents,whichoccurredbetweenthebalan-cesheetdateandthedateofpreparationofthefinancialstatements, are reflected in the financial statements inthe case that these events provide further evidence ofconditions,whichexistedatthebalancesheetdate.

Wheresignificanteventsoccursubsequenttothebalan-ce sheet date but prior to preparation of the financialstatementsthatare indicativeofconditionswhicharosesubsequent to the balance sheet date, the effects ofthese events are disclosed, but are not themselvesreflectedinthefinancialstatements.

(u) Changes in accounting policy

In2007theBranchstartedtodeferfeesreceivedunderthe termsof syndicated andbilateral credits. Followingthis change, within the year 2007 the Branch deferredfees in total amount of CZK �1,82�,000, which will becontinuouslyreleasedintotherevenues.In case previous accounting policy would have beenapplied these feeshadbeen recognised in the Incomestatement(2006:�4,869,000).

18

3 CASH AND DEPOSITS WITH CENTRAL BANKS

ObligatoryreservesaremandatorydepositswiththeCNB.ThesedepositsbearinterestattheCZKreporate,whichwas�.50%p.a.at�1December2007(�1December2006:2.50%).

4 DUE FROM BANKS

Loans and receivables to related parties of the Commerzbank AG Group

StandardloansandreceivablestobanksincludethefollowingloansandreceivablestorelatedpartiesoftheCommerzbankAGGroup:



Cashonhand 65,714 62,650

Obligatoryreserves 54,447 640,5�2

Currentaccountswithcentralbanks 24 6

120,185 703,188



Currentaccountswithbanks 440,�14 502,017

Termdepositsupto24hours 2,274,757 6,442,229

Othertermdepositswithbanks 1�,946,608 17,055,282

Standardloanstobanks 764,420 1,405,871

ReceivablesfromREPOtransactions - 1,521,049

Otherreceivablesfrombanks 287,048 �08,720

17,713,147 27,235,168



Commerzbank,Frankfurt 5,87�,67� 1�,9�1,700

Commerzbank,Bratislavabranch 5,55�,615 2,��2,690

Commerzbank,Parisbranch 94,698 10,119

BREBankS.A.,Warsaw 69,889 -

Commerzbank,NewYorkbranch 28,524 -

Commerzbank(Budapest)R.t.,Budapest 6,741 26,468

Commerzbank,HongKongbranch 5,�98 1,5�9

Commerzbank,Tokyobranch 1,097 6,675

Commerzbank(Euroasija)SAO,Moscow 71 695

Commerzbank,Bruxellesbranch - 59

11,633,706 16,309,945

19

5 DUE FROM CUSTOMERS

In2007loansinthetotalamountofCZK17.2millionwererestructured(in2006,noloanswererestructured).

Syndicated loans forming part of Due from banks and the exposure of the Branch totalled CZK �,109 millionat�1December2007(2006:CZK1,802million).

(a) Quality of loan portfolio

WhencontractinganewloantheBranchassessesthequalityoftheclient.

TheBranchsendstoitsclientsawrittennoticeforoverdueloansandunsuccessfulcasesarepassedforlegalsolutions(filingpetitionsandparticipatingincourtproceedings).Inlimitedcases,besidesthelegalprocedures,theBranchalsousesexecutor’sservices.

19



Currentaccountstogovernmentalentities 2,4�8 615

Currentaccountstootherclients �,157,867 �,11�,706

Standardloanstootherclients 5�,9�5,509 �4,�87,880

Otherreceivablesfromcustomers �4,98� 104,418

Standardloanstotal 57,1�0,797 �7,606,619

Impairedloanstocompaniesandindividuals 200,0�0 49�,011

57,��0,827 �8,099,6�0

Allowanceforimpairedloans(Note9) (126,182) (84,7�5)

57,204,645 38,014,895



Standard 57,1�0,797 �7,606,619

Watched - �,678

Impaired-Substandard -Doubtful -Loss

50,615 80,219

128,08� �4�,8�8

21,��2 65,276

57,330,827 38,099,630

20 20

(b) Loans to related parties

Standardloanstocompaniesandindividualsareasfollows:

Asat�1December2007,theBranchhasprovidedloansofCZK224,000toitsseniormanagementmembers(2006:CZK�22,000).

Allloanstorelatedpartiesweremadeintheordinarycourseofbusinessonsubstantiallythesametermsandconditions,includinginterestrates,asthoseprevailingatthesametimeforcomparabletransactionswithothercustomers,anddidnot,intheopinionofmanagement,involvemorethannormalcreditriskorpresentotherunfavourablefeatures.

6 SECURITIES

Debt securities



Available-for-sale 1,564,613 1,588,799

Thesecuritieswerevaluatedonlywiththeuseofmarketpricesoronthebasisofvaluationtechniques,whichuseonlymarketdata.

Noneoftheabovementionedsecuritieswasusedascollateralinrepotransactions.

TheBranchdoesnotpurchaseorholdanysecuritiesissuedbyasubsidiaryorassociatedundertakingofCommerzbankAG.

As at �1December 2007 the positive revaluation of securities available-for-sale including impact of deferred tax inamountofCZK2,297,000isreportedwithinequity(2006:CZK10,721,000).



BRELeasing,Sp.zo.o.,Warsaw 15,446,505 5,944,�75

Transfinance,a.s. 704,569 495,465

BREL-COMSp.zo.o 204,�69 251,�06

ImmobiliengesellschaftOstHägle,s.r.o. 46,542 66,288

Commerzleasing,s.r.o.,Praha 2�,411 16,690

16,425,396 6,774,124



Mainorauxiliarymarketofrecognisedstockexchanges

1,564,613 1,588,799

21

7 LONG TERM INTANGIBLE AND TANGIBLE FIXED ASSETS

Long term intangible fixed assets

Long term operating tangible fixed assets

21

31 December 2006

CZK’000

Additions /Depreciation

CZK’000

Disposals

CZK’000

31 December 2007

CZK’000

Cost

Software 190,547 14,170 (1,798) 202,919

Accumulated amortisation

Software (156,719) (20,097) 1,798 (175,018)

Net book amount 33,828 27,901

Advancesgrantedandassetsincourseofimplementation

15,029 12,844

48,857 40,745

31 December 2006

CZK’000

Additions /Depreciation

CZK’000

Disposals

CZK’000

31 December 2007

CZK’000

Cost

Buildings 27,282 1,27� - 28,555

Equipment 20�,621 �,678 (16,859) 190,440

Accumulated depreciation

Buildings (9,506) (1,48�) - (10,989)

Equipment (186,895) (12,�02) 16,846 (182,�51)

Net book amount 34,502 25,655

Advancesgrantedandassetsincourseofconstruction

6,454 5,542

40,956 31,197

22 22

Long term fixed assets held under lease contracts

TheBranchalsousesassetsheldunderfinanceleasecontracts,whicharerecordedasfixedassetsinthefinancialstate-mentsonlyafterterminationoftheleasecontract.Theleasescanbeanalysedasfollows:

Assets pledged as collaterals

TheBranchdidnotprovideanytangiblefixedassetsascollateralforitsliabilitiestothirdpartiesasat�1December2007and2006.

8 OTHER ASSETS

Thesignificant increaseofother receivables inyear2007wasmainly representedbypurchasingoftradereceivables.



Amountsalreadypaidonexistingleases 10,402 1�,56�

Amountspayablewithinoneyear �,11� 2,482

Amountspayablewithin1-5years 2,688 2,684

Totalamountpaidandpayableonexistingfinanceleases

16,203 18,729



Financialderivatives(Note2�(d)) �,810,75� �,25�,9�6

Netdeferredtax(Note22) 220 -

Anticipatedreceivables 5,861 �,651

Otherreceivables 801,446 50,5�6

4,618,280 3,308,123

2�2�

9 ALLOWANCES, PROVISIONS AND WRITE OFFS

The Branch had the following provisions and allowances for assets at risk:

The movements in provisions can be analyzed as follows:

The movements in allowances can be analyzed as follows:

Provisions for off-balancesheet items

CZK’000

At 1 January 2006 4,332

Foreignexchangetranslationdifference (150)

Writebacks (�,985)

At 31 December 2006 197

Addition 1,216

Foreignexchangetranslationdifference (41�)

At 31 December 2007 1,000



Provisions

Specificprovisonsforguaranteesgiven(Note14) 1,000 197

Allowances

Impairedloanstocustomers(Note5) 126,182 84,7�5

Impaired loans to customersCZK’000

At 1 January 2006 77,155

Addition 21,266

Usage (1,649)

Foreignexchangetranslationdifference (4,155)

Writebacks (7,882)

At 31 December 2006 84,735

Addition 105,258

Foreignexchangetranslationdifference (1,229)

Whitebacks (62,582)

At 31 December 2007 126,182

24 24

Release of allowances and provisions for loans and guarantees, income from receivables already written-off

Write-offs, additions and utilisation of allowances and provisions for loans and guarantees

BaddebtsarewrittenoffagainstestablishedspecificallowancesordirectlyexpensedinthecasethatmanagementoftheBranchassertstheirrecoverabilityasbeingremote.

10 DUE TO BANKS



Currentaccountswithbanks 248,664 151,627

Termdepositsdueupto24hours 16,507,4�0 12,950,992

Othertermdepositswithbanks �7,741,887 ��,�81,098

Otherliabilities 287,048 12,02�

54,785,029 46,495,740

2007CZK’000

2006CZK’000

Writebacksofprovisionsforloansandguarantees - �,985

Writebacksofallowancesforloansandguarantees 62,582 7,882

Incomefromamountduefromclientswrittenoff 205 �19

62,787 12,186

Lossfromthesaleofreceivables (21,080) -

41,707 12,186

2007CZK’000

2006CZK’000

Amountsduefromclientswrittenoff (10) (2,491)

Additionstoprovisionsandallowancesforloansandguarantees

(105,258) (21,266)

Usageofprovisionsandallowancesforloansandguarantees

- 1,649

(105,268) (22,108)

25




Commerzbank,Frankfurt 27,890,058 44,91�,489 29,406,269

BREBankS.A.,Warsaw 440,461 584,7�8 �,196,946

Commerzbank,Londonbranch 2,292 �,�68 2,6�1

Commerzbank,NewYorkbranch 8,719 �46 7,27�

25

Deposits from related parties

Intheopinionofmanagementdepositsfromrelatedpartieswereacceptedonsubstantiallythesametermsandcondi-tions,includinginterestrates,asthoseprevailingatthesametimeforcomparabletransactionswithothercustomers,anddidnotinvolvemorethannormalinterestrateandliquidityriskorpresentotherunfavourablefeatures.

11 DUE TO customers



Amountsduetogovernmentalentities 7,220 9,828

Amountsduetomunicipalities 4,105,107 �,08�,225

Amountsduetoprivatecustomers 17,07�,91� 16,988,�51

21,186,240 20,081,404



Commerzbank,Frankfurt 1�,555,4�4 27,890,058

Commerzbank,Bratislavabranch 816,874 461,589

BREBankS.A.,Warsaw 557,07� 440,461

Commerzbank(Budapest)R.t.,Budapest �2,204 8,04�

Commerzbank,NewYorkbranch 28,1�4 8,719

Commerzbank(Nederland)N.V.,Amsterdam 5,�78 15,805

Commerzbank,Madridbranch 2,800 2,915

Commerzbank,Londonbranch 2,64� 2,292

IntermarketBankAG 964 470

Commerzbank,Bruxellesbranch �28 -

Commerzbank(Schweiz)AG,Zürich 221 218

EurohypoAG,Frankfurt 5 1,60�

CaisseCentraledeRéescompte,Paris - 2�0

15,002,058 28,832,403



Liabilitiesrepayableondemand 4,812,256 5,4�9,245

Termaccountsforfixedterm 15,7�9,177 1�,999,644

Termaccountswithfixednoticeperiod 599,824 5�8,097

Otherliabilities �4,98� 104,418

21,186,240 20,081,404

26

Deposits from related parties

TheBranchaccepteddeposits fromseniormanagementof theBranchofCZK8,908,000asof�1December2007(2006:CZK12,�52,000).

Intheopinionofmanagementdepositsfromrelatedpartieswereacceptedonsubstantiallythesametermsandcondi-tions,includinginterestrates,asthoseprevailingatthesametimeforcomparabletransactionswithothercustomers,anddidnotinvolvemorethannormalinterestrateandliquidityriskorpresentotherunfavourablefeatures.

12 OTHER LIABILITIES

13 EQUITY AND PROFIT DISTRIBUTION

Profit distribution

ThenetprofitofCZK�19,580,000for2006wasdistributedandthenetprofitofCZK�90,468,000for2007hasbeenproposedtobeallocatedasfollows:

26


31 December 2006 CZK’000

ImmobiliengesellschaftOstHägle,s.r.o. �8,921 �9,858

Transfinance,a.s. 1�,12� 26,��9

BRELeasingSp.zo.o.,Warsaw 2,645 215

Commerzleasing,s.r.o.,Praha 1,048 �,661

55,737 70,073

2007CZK’000

2006CZK’000

AllocationtoCommerzbankAG ��6,41� �24,0�2

Differencefromforeignexchangetranslation - (2,877)

Transferto/(from)retainedearnings 54,055 (1,575)

Net profit as at 31 December 390,468 319,580



Financialderivatives(Note2�(d)) 4,279,�94 �,819,196

Estimatedpayables 77,888 82,6��

Otherliabilities 512,140 106,904

Deferredtaxliability(Note22) - 846

4,689,422 4,009,579

2727

14 CONTINGENCIES AND COMMITMENTS

Commitmentstoprovidealoan,loanguaranteestothirdparties,guaranteesfromacceptanceofbillsofexchangeandlettersofcreditexposetheBranchtocreditriskandtolossintheeventofaclient’sinabilitytomeethisobligations.Variouscommitmentsandcontingent liabilitiesarise in thenormal courseofbusiness involvingelementsof credit,interestrateandliquidityrisk.

Commitments and guarantees granted

Significantdifferencebetweenthecommitmentsin2006and2007wascausedbydifferentextentofcommitmentsused.Intheyear2006,significantcreditdrawingsoccurred,whereasintheyear2007theBranchrealizedincreasedinterestfornewcommitmentstobegranted.

Guarantees granted can be analysed as follows:



Commitments 10,�82,659 �,558,742

Guaranteesgranted 5,667,214 4,842,668

Total commitments and guarantees granted 16,049,873 8,401,410



Guarantees granted including guarantees from letters of credit

Onbehalfofbanks 1,�96,190 584,258

Onbehalfofcustomers 4,271,024 4,258,410

Totalguaranteesgranted 5,667,214 4,842,668

Specificprovisionforguaranteesgranted(Note9) (1,000) (197)

Net guarantees granted and letters of credit 5,666,214 4,842,471

28 28

Contingent liabilities can be analysed as follows:

Theabovementionedassetsarestatedatfairvalueincaseofpubliclytradedsecuritiesoratnominalvalueincaseofnot-publiclytradedsecurities.

TheBranchhasgrantedonbehalfofitsseniormanagementguaranteesofCZK225,000asat�1December2007(2006:CZK225,000).

Management considers that no present obligations were associated with these fiduciary duties at �1 December2007.

Collaterals received and pledges



Assets placed in custody

Shares 2,669,0�1 2,619,68�

Assets managed by a third party

Shares 885,�00 5�9,764

Bonds 2,114,282 1,575,108

Derivatives 28,560 -

Other 1,888,947 2,017,461

4,917,089 4,132,333

Assets under custody

Shares �,518 264,1�2

Assetsplacedincustody,managedbythirdpartyandundercustody

7,589,6�8 7,016,148

Assets under management

Shares 270,499 5�7

Bonds - ��2,�15

Other 24,1�1 4,01�

294,630 336,865



CNBtreasury-bills - 1,497,000

Realestatepledges �,211,180 �,599,952

Securities 2,114 852,840

Othercollateralsreceived 962,125 1,�55,219

4,175,419 7,305,011

29

2006CZK’000

2005CZK’000

2004CZK’000

Interestoninter-banktransactions 484,106 500,588 �70,215

Interestonloanstocustomersandstate 1,218,705 1,1�1,906 1,142,518

29

BesidesabovementionedcollateralstheBranchacceptsalsoothercollateralsandguaranteesforthepledgepurpo-ses(bankguarantees,insurance,guarantor’sproclamation,billsofexchange,etc.).Intheyear2007thesecollateralsamountedtoCZK44,079,567,000(2006:24,846,599,000).

ReceivablesfromReverserepotransactionsareincludedinDuefrombanks(Note4).

TwoindividualshavefiledalawsuitagainsttheBankwhichwasassessedbythefirstinstanceCourtasunreasonableandtheplaintiffs’casewasdismissed.ItsdecisionwassubsequentlyconfirmedbytheAppellationCourt.Basedonasecondappealbytheplaintiffs,theHighestCourtcancelledbothdecisionsandreturnedthecasetotheproceedingsofthefirstinstanceCourt.Althoughthedisputewasfinalisedattheendof2007,theBankisoftheopinionthatdemandsincludedinthiscaseareunreasonableandthereforedoesnotanticipateanyfinancialdamagetobepaidtotheplaintiffs.ThisBank‘sopinionwasalsoconfirmedbyitsexternaladvisors.).

15 INTEREST RECEIVABLE AND SIMILAR INCOME

ManagementestimatesthatapproximatelyCZK15.2millionofinterestincomewasrecognizedonimpairedloansintheyearended�1December2007(2006:CZK28.2million).Registeredunrecognizedpenaltyinterestincomeoutstandingasat�1December2007ofCZK0.2million(�1December2006:CZKnil)wasaccrued.

In2007and2006,theBranchdidnotforgiveanypenaltyinterestandnoperiodforclaimingpenaltyinterestexpired.

16 INTEREST PAYABLE AND SIMILAR EXPENSE

2007CZK’000

2006CZK’000

Interestoninter-banktransactions 645,289 484,106

Interestonloanstocustomersandstate 2,104,051 1,218,705

Interestanddiscountondebtsecurities 85,557 62,816

2,834,897 1,765,627

2007CZK’000

2006CZK’000

Interestoninter-banktransactions 1,674,966 889,097

Interestondepositsfromcustomersandstate 494,0�5 �29,801

2,169,001 1,218,898

�0 �0

17 FEE AND COMMISSION INCOME

18 COMMISSION AND FEE EXPENSE

19 GAINS LESS LOSSES FROM FINANCIAL TRANSACTIONS

2007CZK’000

2006CZK’000

Brokerageincomefrompurchaseandsaleofsecuritiesandderivatives

44,452 �5,772

Custodyfeeincome 927 210

Assetmanagementfeeandrelatedfeeincome 9,70� 9,469

Foreignanddomesticpayments 174,924 169,��2

Lettersofcredit 27,217 �1,64�

Guarantees 27,544 2�,968

Commissionsfromloans 44,240 67,000

Other 19,406 16,640

348,413 354,034

2007CZK’000

2006CZK’000

Gainsfromforeigncurrencytransactions 781,�45 798,144

LossesfromtransactionswithFXfinancialderivatives

(581,908) (708,510)

Gains/(losses)frominterestratefinancialderivatives

42,46� (1,725)

241,900 87,909

2007CZK’000

2006CZK’000

Domesticandforeigntransfers (7,982) (7,466)

Brokerageexpensefrompurchaseandsaleofsecurities

(�,990) (2,289)

Foreignexchangeoperation (2,8�5) (2,647)

Financialguarantees (40,475) -

Otherfinancialactivities (4,990) (1,697)

(60,272) (14,099)

�1�1

20 OTHER OPERATING INCOME

IncomefromintercompanyreinvoicingrepresentsreinvoicingofcostsrelatedtoactivitiescarriedoutfortheheadofficeinFrankfurtamMainandalsoincomefrominvoicingofservicesprovidedforhumancapital,accounting,IT,manage-ment,payments,creditadministrationandriskmanagementservices.TheseservicesareprovidedtoBratislavabranchandheadofficeinFrankfurtamMain.

21 ADMINISTRATIVE EXPENSES

Staff costs can be analyzed as follows:

In2007themanagementoftheBranchwaspaidwagesandsalariesofCZK60,644,000(2006:CZK59,656,000),socialandhealthinsurancepaidbytheBranchamountedtoCZK10,549,000(2006:CZK8,569,000).ThemanagementoftheBranchincludesitsdirectorsandfurtherthemanagersonthefirstleveloforganisationstructure(asat�1December2007totalof12employees,�1December2006:12).

Staff statistics

In 2007 the Branch provided contribution for pension insurance to its employees of CZK 770,000 (2006: CZK726,000).

2007CZK’000

2006CZK’000

Incomefromintercompanyreinvoicing 1�1,405 127,544

Otheroperatingincome 15,222 17,971

146,627 145,515

2007CZK’000

2006CZK’000

Staffcosts �64,208 ��1,815

Rentandleasecharges 51,127 48,707

Audit,taxandlegaladvisoryservices �,99� 4,127

Otheradministrationexpenses 294,492 258,001

713,820 642,650

2007CZK’000

2006CZK’000

Wagesandsalaries 260,408 242,59�

Socialsecurityandothersocialcosts 82,189 69,520

Otherstaffcosts 21,611 19,702

364,208 331,815

2007CZK’000

2006CZK’000

Averagenumberofemployees 267 2�5

�2 �2

22 TAXATION

ThetaxontheBranch’sprofitbeforetaxcanbeanalysedasfollows:

Theincometaxchargeiscomprisedof:

Deferredincometaxasset(+)/liability(-)iscalculatedas21%(incometaxratefor2008)20%(incometaxratefor2009)and19%(incometaxratefor2010)dependantontheperiod,inwhichinisexpectedthetemporarydifferencetobecompensatedanditcanbeanalyzedasfollows:

2007CZK’000

2006CZK’000

Netdeferredincometaxassetatthebeginningoftheperiod (846) 1,601

Deferredtaxincome/expensefromthechangeintemporary

differences(1,�75) 572

Changeofthedeferredtaxasset/liabilityonavailable-for-sale

securities2,441 (�,019)

Netdeferredincometaxasset/(liability)on�1December 220 (846)

Deferred income tax assets

Allowancestoloans

Non-taxdeductiblesocialinsurance

Differencebetweenaccountingandtaxdepreciation

-

802

-

2

2,094

77

802 2,173

Deferred income tax liability

Available-for-salesecurities

Acceleratedtaxdepreciation

(578)

(4)

(�,019)

-

(582) (3,019)

Net deferred tax asset (24%) (Note8) 220 -

Net deferred tax liability (24%) (Note12) - (846)

2007CZK’000

2006CZK’000

Profitbeforetaxation 514,877 410,614

Differencesbetweenprofitandtaxbase:

Non-taxableincome

Non-deductibleexpenses

(24,�60)

27,126

(29,468)

�1,686

Otherexpensesreducingnettaxableprofit (1,060) (950)

Nettaxableprofit 516,58� 411,882

Currenttaxchargeat24%(2006:24%)beforediscount 12�,980 98,852

Discountontax (148) (148)

Current tax charge after discount 123,832 98,704

2007CZK’000

2006CZK’000

Deferredtaxexpense/(income)recognisedontemporary

differences

Currentincometaxexpense

Adjustmentofprioryearincometaxexpense

1,�75

12�,8�2

(798)

(572)

98,704

(7,098)

Income tax expense 124,409 91,034

��

23 FINANCIAL RISKS

(a) Strategy in using financial instruments

TheBranch’sactivitiesareprincipallyrelatedtotheuseoffinancialinstruments.TheBranchacceptsdepositsfromcustomersatbothfixedandfloatingratesandforvariousperiodsandseekstoearnaboveaverageinterestmar-ginsbyinvestingthesefundsinhighqualityassets.TheBranchseekstoincreasethesemarginsbyconsolidatingshort-termfundsand lendingfor longerperiodsathigherrateswhilstmaintainingsufficient liquiditytomeetallclaimsthatmightfalldue.

TheBranchalsoseekstoraiseitsinterestmarginsbyobtainingaboveaveragemargins,netofprovisions,throughlendingtocommercialandretailborrowerswitharangeofcreditstanding.Suchexposuresinvolvenotjuston-balancesheet loansandadvancesbuttheBranchalsoenters intoguaranteesandothercommitmentssuchaslettersofcreditandothersimilarliabilities.

TheBranchalsotradesinfinancialinstrumentswhereittakespositionsintradedandoverthecounterinstrumentsincludingderivatives to take advantageof short-termmarketmovements in thebondmarkets and in currencyandinterestrates.ManagementoftheBranchplacestradinglimitsonthelevelofexposurethatcanbetakeninrelationtobothovernightand intra-daymarketpositions.Withtheexceptionofspecifichedgingarrangements,foreignexchangeand interest rateexposuresassociatedwith thesederivativesarenormallyoffsetbyenteringintocounterbalancingpositions, therebycontrolling thevariability in thenetcashamounts required to liquidatemarketpositions.

(b) Credit risk

TheBranchstructuresthelevelsofcreditriskitundertakesbyplacinglimitsontheamountofriskacceptedinrelationtooneborrower,orgroupsofborrowers,andtogeographicalandbusinesssegments.Suchrisksaremonitoredonarevolvingbasisandaresubjecttoanannualormorefrequentreview.Limitsonthelevelofcreditriskbyproduct,industrysectorandbycountryareapprovedbyCommerzbankAG,FrankfurtamMain.

TheBranchconsidersitscurrentcreditportfoliotobehightobehighqualitysincethevalueofallowancesislessthan0.5%ofthenominalvalueofthecreditportfolio.TheBranchusespledgetorealestate,cessionofrecei-vables,guaranteesandguarantors’proclamationandsimilarinstrumentsascollaterals.TheBranchmonitorstheconcentrationofrisksbasedongeographicalandindustrysectors.

��

�4

Geographical segmentation

At 31 December 2007

At 31 December 2006

Business segmentation

At 31 December 2007

�4

Assets Local banks

CZK’000

Foreign banks

CZK’000

Corporate sector

CZK’000

State institutions

CZK’000

Individuals

CZK’000

Other

CZK’000

Total

CZK’000

Cashandbalanceswithcentralbanks

120,185 - - - - - 120,185

Duefrombanks 1,700,184 16,012,96� - - - - 17,71�,147

Duefromcustomers - - 56,82�,749 2,4�8 �78,457 1 57,204,645

Securitiesavailable-for-sale - - 999,848 564,765 - - 1,564,61�

Otherassets 972,�44 2,869,4�2 76�,69� 96,�62 1,707 - 4,70�,5�8

2,792,713 18,882,395 58,587,290 663,565 380,164 1 81,306,128

Assets Domestic CZK’000

European union CZK’000

Other CZK’000

TotalCZK’000

Cashanddepositswithcentralbanks 120,185 - - 120,185

Duefrombanks 1,700,184 15,79�,6�5 219,�28 17,71�,147

Duefromcustomers �8,�07,820 17,904,�01 992,524 57,204,645

Securitiesavailable-for-sale 1,564,61� - - 1,564,61�

Otherassets 1,706,558 2,411,581 585,�99 4,70�,5�8

43,399,360 36,109,517 1,797,251 81,306,128

Assets Domestic CZK’000

European unionCZK’000

OtherCZK’000

TotalCZK’000

Cashanddepositswithcentralbanks 70�,188 - - 70�,188

Duefrombanks 8,075,529 18,806,�56 �5�,28� 27,2�5,168

Duefromcustomers �0,682,122 6,841,247 491,526 �8,014,895

Securitiesavailable-for-sale 1,588,799 - - 1,588,799

Otherassets 81�,179 2,�27,506 269,021 �,409,706

41,862,817 27,975,109 1,113,830 70,951,756

�5

Assets Local banks

CZK’000

Foreign banks

CZK’000

Corporate sector

CZK’000

State insti-tutions

CZK’000

Individuals

CZK’000

Other

CZK’000

Total

CZK’000


219,021 - - - - - 219,021

Assets Local banks

CZK’000

Foreign banks

CZK’000

Corporate sector

CZK’000

State insti-tutions

CZK’000

Individuals

CZK’000

Other

CZK’000

Total

CZK’000


1,��1,9�1 - - - - - 1,��1,9�1

Duefrombanks 19,2�9,777 �4,400,9�5 - - - - 5�,640,712

Duefromcustomers - - 29,046,194 2�2,110 209,092 2 29,487,�98

Securitiesavailablefor-sale - - - 572,�41 - - 572,�41

Otherassets �,080,174 7,�91,051 541,270 �51,955 996 - 11,�65,446

23,651,882 41,791,986 29,587,464 1,156,406 210,088 2 96,397,828

At 31 December 2006

(c) Market risk

TheBranchtakesonexposuretomarketriskswhicharisefromopenpositions in interestrate,currencyandequityproducts,whicharesubjecttogeneralandspecificfluctuationsinthemarketandtochangesinmarketratesorprices,whichareforexample:interestrates,creditspreads,FXratesandstockprices.

TheBranchappliesa”valueatrisk”(“VAR”)methodologytoestimatethemarketriskofpositionsheldandthemaximumlossesexpectedbasedonaparametricmodeldescribingrelationsbetweenriskfactorswithinhisto-ricalsimulationsofchangesinmarketconditions.CommerzbankAG,FrankfurtamMainsetslimitsonthelevelofriskthatmaybeaccepted,whichismonitoredonadailybasis.

ThedailymarketVARisanestimate,withaconfidencelevelsetat97.5%,ofthepotential losswhichmightariseifthecurrentpositionsweretobeheldunchangedforonebusinessday.Theactualdailygains/lossesaremonitoreddailybyasocalledBackTesttotestthevalidityoftheassumptionsandparameters/factorsusedintheVARcalculation.

SinceVARconstitutesanintegralpartoftheBranch’smarketriskcontrolregime,VARlimitsareestablishedbytheBoardforall tradingandportfoliooperations;actualexposureagainst limits, togetherwithaconsolidatedbank-wideVAR,isrevieweddailybymanagement.ConsolidatedVARfortheBranchasat�1December2007isCZK5.68million(�1December2006:CZK6.90million)andaveragedailyconsolidatedVARfortheBranchwasCZK�.58millionin2007(2006:CZK4.78million).

TheBranchperformsthestresstestingonadailybasis,whichgivestheinformationonriskexposureandpoten-tial lossesoftheBranch,theresultsarepresentedtothemanagementwithindailyreporting.Thereasonforstresstestingistogainanestimateofloss,whichtheBranchcouldsuffer,iftheworstcasescenarioofmarketdevelopmentwouldoccur.Theprobabilitythattheseexpectationswouldbefulfilledisveryunlikely.

However,theuseofthisapproachdoesnotpreventlossesoutsideoftheselimitsintheeventofmoresignifi-cantmarketmovements.

�5

Assets Local banks

CZK’000

Foreign banks

CZK’000

Corporate sector

CZK’000

Stateinstitutions

CZK’000

Individuals

CZK’000

Other

CZK’000

Total

CZK’000


70�,188 - - - - - 70�,188

Duefrombanks 8,075,529 19,159,6�9 - - - - 27,2�5,168

Duefromcustomers - - �7,581,896 615 4�1,868 516 �8,014,895

Securitiesavailable-for-sale - - 1,018,515 570,284 - - 1,588,799

Otherassets 7�9,682 2,595,415 42,748 29,875 1,986 - �,409,706

9,518,399 21,755,054 38,643,159 600,774 433,854 516 70,951,756

�6

Derivate financial instruments

TheBranchhasoutstandingderivativecontracts,whichcanbeanalysedasfollows:

Total financial derivatives

At 31 December 2007

At 31 December 2006

Trading agreements

At 31 December 2007

�6

Nominal amount assets

CZK’000

Nominal amount liabilitiesCZK’000

Fair value positiveCZK’000

Fair value negativeCZK’000

Interestratederivatives 44�,�59,700 44�,�59,700 488,96� (614,947)

Currencyderivatives 125,08�,222 125,466,515 2,764,97� (�,204,249)

Total 568,442,922 568,826,215 3,253,936 (3,819,196)


CZK’000




Interestratederivatives 569,858,214 569,858,214 479,5�1 (5�0,2�7)

Currencyderivatives 199,468,76� 199,880,778 �,��1,222 (�,749,157)

Total 769,326,977 769,738,992 3,810,753 (4,279,394)


CZK’000




Interest rate derivatives

FRAs 520,410,000 520,410,000 �27,055 (�49,719)

Swaps 48,�12,429 48,�12,429 150,161 (12�,102)

Options 507,454 507,454 2,�15 (2,�15)

569,229,883 569,229,883 479,531 (475,136)

Currency derivatives

Forwards 1,814,115 1,770,585 46,4�8 (9,508)

Swaps 197,654,648 198,110,19� �,284,784 (�,7�9,649)

199,468,763 199,880,778 3,331,222 (3,749,157)

Total 768,698,646 769,110,661 3,810,753 (4,224,293)

�7

At 31 December 2006

Fair value hedging agreements

At 31 December 2007

At 31 December 2006

�7


CZK’000




Interest rate derivatives

FRAs 416,119,700 416,119,700 �40,600 (�44,689)

Swaps 26,561,959 26,561,959 148,�6� (171,218)

442,681,659 442,681,659 488,963 (515,907)

Currency derivatives

Forwards 46�,84� 452,884 1�,608 (194)

Swaps 124,206,954 124,601,�9� 2,749,781 (�,201,001)

Options 412,425 412,2�8 1,584 (�,054)

125,083,222 125,466,515 2,764,973 (3,204,249)

Total 567,764,881 568,148,174 3,253,936 (3,720,156)

Interest rate derivatives Nominal amount assets

CZK’000




Swaps 678,041 678,041 - (99,040)

Interest rate derivatives Nominal amount assets

CZK’000


Fair valuepositiveCZK’000


Swaps 628,331 628,331 - (55,101)

�8

(e) Currency risk

TheBranchtakesonexposureresultingfromfluctuationsintheprevailingforeigncurrencyexchangeratesonitsfinan-cialpositionandcashflows.TheBoardofDirectorssetslimitsonthelevelofexposurebycurrencyandintotalforbothovernightandintra-daypositions,whicharemonitoreddaily.

(f) Interest rate risk

TheBranchtakesonexposureresultingfromfluctuationsintheprevailinglevelsofmarketinterestratesonitsfinancialpositionandcashflows.Interestmarginsmayincreaseasaresultofsuchchangesbutmayreduceorcreatelossesintheeventthatunexpectedmovementsarise.TheCommerzbankAG,FrankfurtamMainsetslimitsonthelevelofmismatchofinterestratere-pricingthatmaybeundertaken,whicharemonitoreddaily.

(g) Liquidity risk

TheBranchisexposedtodailycallsonitsavailablecashresourcesfromovernightdeposits,currentaccounts,maturingdeposits,loandrawdowns,guaranteesandfrommarginandothercallsoncashsettledderivatives.TheBranchdoesnotmaintaincashresourcestomeetalloftheseneedsasexperienceshowsthataminimumlevelofreinvestmentofmaturingfundscanbepredictedwithahighlevelofcertainty.

TheBoardofDirectorssetsliquiditylimitsaccordingtotimebandsandindividualcurrencies.Theselimitsaremonitoreddaily.

Thefairvaluesofderivativesarerecognizedinotherassetsandotherliabilities.TheBranchisabletocloseitsopenpositionsoncapitalmarkets,ifnecessary.Currentmaturitiesoffinancialderivativesarebetweensixmonthsandfiveyears.

ThetablebelowanalysesassetsandliabilitiesoftheBranchintorelevantmaturitybandsbasedontheremainingperiodatthebalancesheetdatetothecontractualmaturitydate.

�8

31 December 2007

31 December 2006

�9

Within 3 months

CZK’000

3 – 12 monthsCZK’000

1 – 5 years

CZK’000

Over 5 years

CZK’000

Unspecified

CZK’000

Total

CZK’000

Assets


62,656 - - - 640,5�2 70�,188

Duefrombanks 25,5�5,6�6 97�,605 �67,856 69,�74 288,697 27,2�5,168

Duefromcustomers 14,286,125 7,�1�,842 12,724,079 �,282,57� 408,276 �8,014,895

Securitiesavailable-for-sale - - 915,185 67�,614 - 1,588,799

Otherassets 1,710,�96 1,200,862 92,272 427 405,749 �,409,706

41,594,813 9,488,309 14,099,392 4,025,988 1,743,254 70,951,756

Liabilities

Duetobanks �7,859,784 �,452,752 �,455,�45 1,727,859 - 46,495,740

Duetocustomers 19,948,244 129,�68 2,�6� 1,429 - 20,081,404

Provisions - - - - 197 197

Otherliabilities 1,991,�50 1,��9,077 1�4,105 625 909,258 4,�74,415

59,799,378 4,921,197 3,591,813 1,729,913 909,455 70,951,756

Net assets/(liabilities) (18,204,565) 4,567,112 10,507,579 2,296,075 833,799 -

Within 3 months

CZK’000

3 – 12 monthsCZK’000

1 – 5 years

CZK’000

Over 5 years

CZK’000

Unspecified

CZK’000

Total

CZK’000

Assets


65,7�8 - - - 54,447 120,185

Duefrombanks 16,597,477 255,905 805,912 5�,85� - 17,71�,147

Duefromcustomers 2�,415,086 4,001,622 26,�78,898 �,�05,298 10�,741 57,204,645

Securitiesavailable-for-sale - 24�,445 668,106 65�,062 - 1,564,61�

Otherassets 1,867,78� 1,795,976 �02,551 585 7�6,64� 4,70�,5�8

41,946,084 6,296,948 28,155,467 4,012,798 894,831 81,306,128

Liabilities

Duetobanks 45,525,9�9 4,082,6�8 �,840,006 1,��6,446 - 54,785,029

Duetocustomers 20,717,545 466,4�7 828 1,4�0 - 21,186,240

Provisions - - - - 1,000 1,000

Otherliabilities 1,856,72� 1,711,165 244,79� 492,889 1,028,289 5,��,859

68,100,207 6,260,240 4,085,627 1,830,765 1,029,289 81,306,128

Net assets/(liabilities) (26,154,123) 36,078 24,069,840 2,182,033 (134,458) -

40

24 subsequent events

Current volatility of financial markets

Intherecentmonthstheglobalfinancialmarketswerenegativelyaffectedbyasignificantincreaseindefaultoflesscreditworthydebtors(so-calledsubprimes)onthemortgagemarketintheUnitedStates.Asaresultofthistheglobalinvestorswereforcedtoreassesstherisklevel,theyareexposedto,whichledtoincreasedvolatilityandlowerliqui-dityonfixedincome,securitiesandderivativesmarkets.RelatedconditionsonthecreditmarketscouldinfluencetheBranch’sabilitytorefinanceitsborrowings,liabilitiesduetoclientsorotherliabilitiesandvaluationsofitscreditportfo-lio.Thedecreaseofthefairvalueoffinancialassetsbelowtheirnotionalamount,causedbytheincreaseofthebasicinterestrates,isnotevidenceforimpairmentoffinancialassetsassuch.ThemanagementisnotabletoassesstheimpactsoffurtherpossibledeteriorationofliquidityandincreasedvolatilityonthefinancialmarketsontheBranch.

Therewerenoevents,whichhaveoccurredsubsequenttotheyear-end,whichwouldhaveamaterialimpactonthefinancialstatementsoftheBranchasat�1December2007.

ThesefinancialstatementshavebeenapprovedbyCommerzbankAGandhavebeensignedontheirbehalfby:

DateSignatureofthestatutoryrepresentative

Personresponsibleforaccounting

Personresponsibleforthefinancialstatementspreparation

14March2008 ArnoWalter Ing.EvaCollardováMBA Ing.RadekHudáček

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/ www.commerzbank.cz /

Documents

annual report 2007 commerzbank prague · Commerzbank Branch Office Prague was able to continue its successful business activities in the year 2007. Proof of this positive development