Raport Anual Banca Comerciala Ion Tiriac 2002

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FOREWORD BY THE PRESIDENT

Three years ago we spoke about planning. Today we speak about achievements.The plan “Banca Tiriac 2000-2002” was the backbone for a complex changing process the bank wentthrough.

With a clean balance sheet and a strengthened capital base, the foundation is created for a healthy furtherdevelopment. A new organisation structure is in place where modern organisational concepts apply. The completion of the implementation of a new core banking system, together with the building of an on-line interface with our card systems brought the bank on the top ladder of quality of services andproducts offered to our clients. New and modern business concepts have been implemented simultaneously

with launching of new products and services. The branches networkis almost completely remodelled to meet the new corporate design.Staff training continues to be an essential component of the bank’sstrategy for development.

In 2003 Banca Œiriac will enter a new stage in its development.Competition is increasing and the fight for retail market share willbecome tougher. This will be in our perspective for the ultimate benefitof the client. Products and banking services will start to be moreaccessible, flexible and as a result more attractive, where quality will be an important criteria.

The financial market in Romania will further develop, whereas the clientswill become more sophisticated. Banks will gradually move fromtraditional products to financial integrated services (“the financialsupermarket”: bancassurance, leasing, capital market etc.).

We believe that business is about competition and competition can bedealt with if you have in your vision the idea that what you do today may be different tomorrow.

Our organisation has been put in place to permanently reinvent itself inview of dealing with the future. This is why sometimes we call ourselves“the innovative bank”!

George Toma MucibabiciChairman of the Board

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FOREWORD BY THE BOARD OF DIRECTORS

The Plan “Banca Œiriac 2000-2002” has been successfully finalized

2002 was the completion year for the plan Banca Œiriac 2000-2002. Launched three years ago the plan had as

main objective the transformation of the bank into an efficient and modern financial institution capable to deal

with the new market developments.

To summarize, the plan consisted of:

• Year 2000 - reorganization and clean-up of the balance sheet;

• Year 2001 - defining a flexible marketing strategy, supported by efficient operational policies and

implementation of new systems. The marketing team has been strengthened by also incorporating product

development and research. Important resources have been allocated to speed up the implementation of the

new core banking system.

• Year 2002 - aggressive launch of new products and services addressed both to corporate, but mainly to

private individuals.

A further increase of the share capital

The permanent trust of the shareholders in the viability of the bank and its capacity to be acknowledged as a

modern financial institution, were the main characteristics of the passed year.

The confirmation of the support the bank enjoys from its shareholders was the successful increase of the share

capital from ROL 490.9 bill to ROL 664.3 bill. This decision played an important role within the framework of

the measures adopted over the last year for maintaining a sound balance sheet.

The strengthening of the bank as a strong structure, with proper levels of assets qualityand capital adequacy ratios

By acting in compliance with sound banking lending and risk policies, and with an adequate management of its

business, the bank has continued to strengthen its balance sheet, reaching proper levels of the quality of its

assets, liquidity and capital adequacy ratio. At the end of 2002, the bank presented a solid structure capable to

face the increasing pace of the competition in the market.

On December 31st, 2002 the weight of non-performing loans in total credits portfolio was only 0.7%.

Consolidating the market position

In 2002, Banca Œiriac has striven to further consolidate its position in the market by promoting marketing

policies accommodated to the current trends and the increased demands of its clients.

The marketing policies of the bank were reflected in the level of the interest rates, commissions, exchange

rates, the pricing and not in the least in the attitude of the staff towards the clients, the image promotion

campaigns and also in the launch of new products & services.

An important focus has been put on the development of the retail segment of clients. Based mostly on the

promotion of consumer loans for individuals (i.e. Flanco, Mobexpert, Metro), the retail sector reached 22.7%

of the total credit portfolio of the bank at the end of 2002 (compared to 5.7% at the end of 2001). Overall in

the banking system, Banca Œiriac’s weight of ROL loans granted to individuals, increased from 3.2% at the

end of 2001, to around 9.5% as of 31.12. 2002.

As part of the general orientation toward the development of the retail segment the bank has also redefined a

number of innovative products, such as the Central Account and the Savings Account, both available presently

in ROL and FX, and launched the car loan and personal credit.

At the end of 2002 Allianz - Œiriac Asiguråri and Banca Œiriac signed a strategic cooperation agreement for

developing a bancassurance program. The insurance products offered consist of both life and non-life policies

covering all the needs of individual and corporate clients.

With a large network, a diversified range of quality products and services, including cards and a well-spread

ATM and POS network, the number of clients increased from 218,000 on 31.12.2001 to around 348,100 at the

end of 2002. Out of the total number of clients at 31.12.2002, 324,600 were individuals.

As a recognition of the positive trend of the bank development Fitch IBCA upgraded the long-term rating

of the bank from ‘B minus‘ to ‘B’, with a stable outlook. The individual rating of the bank was also upgraded

from ‘D/E’ to ‘D’. The short-term rating was reconfirmed to ‘B’. Fitch stated « these ratings reflect the

progress of the bank over the last two years, with respect to balance sheet improvement, risk mitigation

system, franchise reconstruction and improvement of the operational environment in Romania».

In December 2002 Banca Œiriac has been awarded “Bank of the Year” by the prestigious local magazine

“Capital” and was also awarded “The Bank with the Largest Acquiring Volume” in the local market,

for the second year in a row.

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The Network

In 2002 the bank expanded its territorial network with 7 new units: Arad and Sf. Gheorghe (Bucharest), the

agencies Pantelimon (Bucharest), Metro Oradea, Metro Ploieæti and Metro Sibiu and a working point at

GlobeGround - Cargo Otopeni. Trying to improve the general business profile of the network, 4 units were

relocated and 3 fully refurbished, in line with the new corporate design. At the end of 2002, more than 80%

of the network of the bank reflected the new corporate image of Banca Œiriac.

The ATM network increased with 56 new units (from 86 at end 31.12.2001 to 142 at end 31.2. 2002), while

POS number increased with 200 new units (297 at end 31.12.2001 to 497 units at the end of 2002).

Full implementation of the new IT system

By end of June 2002 Banca Tiriac finalized the implementation of the new IT systems which covers all

business areas - retail, corporate banking and treasury.

Beside functional aspects of the new systems the bank invested also in IT hardware and infrastructure. This

has been modernized in full compliance with international standards of performance and security.

Banca Tiriac is presently using a modern IT architecture with centralized systems and multiple delivery

channels for banking products.

A new card administration system

With the full integration of the Card System and Core Banking system the bank managed to be the first in

Romania that offers debit cards which are linked to central or current accounts, without additional card account

for transaction processing.

Future Outlook

Banca Tiriac aims to establish itself as an integrated financial services provider (banking, bancassurance and

leasing). It will continue developing modern and innovative retail and corporate products for its clients.

The bank will continue to increase its market share both in retail and corporate and expand its clients’ base and

network while focusing on a sound, profitable and balanced development.

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ABOUT US

VISION STATEMENT

Banca Œiriac wants to be a leading, innovative and customer-focused institution that provides best

quality integrated financial services to both individuals and companies, including small and medium

sized companies.

MISSION STATEMENT

Banca Œiriac aims to maximize the shareholder value, by achieving an optimum convergence between

the interests of its clients, employees and shareholders.

SHORT HISTORY

• Banca Œiriac is the largest Romanian private bank and was established after 1989.

The bank is the result of the courage and the vision of its founding members - "Ion Œiriac" Group of

Companies. Some 5500 individuals and companies joined this initiative as shareholders.

• Banca Œiriac became operational in April 1991, with an initial share capital of ROL 3 billion that was

successively increased, totaling presently over ROL 664 billion.

• Since the beginning, the bank has benefited from an excellent international reputation, which was further

enhanced when the European Bank for Reconstruction and Development (EBRD) became a shareholder

of the bank in April 1993 - EBRD's first participation in a Central European bank.

• Since its establishment the bank has evolved into a powerful institution counting for 1000 employees and

61 branches, agencies and points of sale which covers almost all the important economic centers in

Romania (at the end of 2003).

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• The implementation of the plan “Banca Œiriac 2000-2002” has pushed the bank up to the ladder of best

performing financial institutions acting in Romania. As recognition of the bank’s achievements, in

December 2002 Banca Œiriac has been awarded “Bank of the Year” by the prestigious local magazine

“Capital”. Fitch IBCA, which upgraded the bank’s rating for two years in a row, also reconfirmed the

positive trend of the bank’s development.

• Banca Œiriac was listed for the first time in year 2000 among the first 75 banks in Central and Eastern

Europe, according to the classification made by the prestigious international rating agency

Standard&Poors. Banca Œiriac also ranks among the first five Romanian commercial banks listed in top

100 in Central and Eastern Europe by "The Banker" magazine.

• Banca Œiriac is permanently preoccupied to establish correspondent relationships with various banks in

Romania and abroad in order to ensure the development of its operations as well as providing high

quality banking services to all its clients.

• Banca Œiriac is a member of: SWIFT, VISA, MASTERCARD, AMERICAN EXPRESS, DINERS, JCB,

REUTERS and ROMCARD.

PROFILE

• Banca Œiriac is a prominent private bank ranking amongst the most representative Romanian banks in

terms of assets and share capital. The bank performs mainly as a retail bank offering a full range of

products and banking services to legal entities and private individuals. The client base encompasses

middle and up-market private individuals and companies - including SME's, public sector and other

financial institutions.

• Banca Œiriac seeks to be an active player on the Romanian market, providing services of quality that

meet its customers' needs. The bank is permanently preoccupied to introduce new, innovative products

and services aimed at particular market segments through the use of modern delivery channels.

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• Banca Œiriac is conscious of its responsibility in a changing society. The bank sets clear objectives to

ensure stable growth and healthy profitability, as well as high standards of performance and integrity

across all the activities.

• Banca Œiriac wants to be recognized for the excellence, confidence and innovation of what it delivers

under its brand, and for the professionalism, integrity and flexibility of its business behavior.

THE SHAREHOLDERS STRUCTURE as at 31st of December 2002

Œiriac Group of Companies 69.05%

EBRD 5.43%

Others 25.52%

BOARD OF DIRECTORS

Chairman:

George Toma Mucibabici, President & CEO Banca Comercialå "Ion Œiriac" S.A. (as of 18th of August 2003)

Members:

Florian Kubinschi, Vicepresident Banca Comercialå "Ion Œiriac" S.A. (as of 1st of September 2003)

Cåtålin Pπrvu, Vicepresident Banca Comercialå "Ion Œiriac" S.A.

Ion Œiriac, Founder and Main Shareholder

Ion Nestor, Managing Partner Nestor, Nestor Diculescu & Kingston Petersen - Attorney-at-Law

Dan Petrescu, Businessman

Victor Anagnoste, Lawyer

Lakis Theodorou, Chief Financial Officer Œiriac Holdings Ltd. (as of 1st of September 2003)

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financial services indirectly measured ROL - 15,501.3 bill.

source: National Institute of Statistics, provisional data.

ROMANIA IN 2002

Macroeconomic highlights

Solid economic growth, continued disinflation process, the substantial increase of exports and international

reserves, the further decrease of the consolidated budget deficit and the decline of the unemployment rate were

the main achievements of 2002, the outcome of a 3 year sound and sustained policy mix pursued by the

Government.

• The third consecutive year with substantial GDP growth

The 4.9 % economic growth achieved in 2002 was again well above the official estimations and was

determined by the better performance of the services, industry and construction. The services alone accounted

for 44.7% of the GDP. Compared to the remarkable growth of 2001 (+25.2%), the agriculture sector registered

a contraction mainly due to the unfavourable weather conditions.

2002 GDP, bill. ROL

industry

agriculture

construction

services

net taxes on product

159,418.910.5%

439,490.629.1%

177,211.011.7%

675,932.044.7%

675,932.044.7%

75,705.45%

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The gross fixed capital formation advanced by 8.3%, while final and household consumption growth rate

fell to a modest 3% at year end. The net export of goods and services level slightly improved to -5.8% of

GDP from -7.8% in the previous year due to better performance of exports and a smaller increase of imports.

The investments in economy reached 198,466.3 bill. ROL representing a 7.4% real growth, out of which

66.4% were investments coming from the private sector.

Industrial output advance of 6% was driven mainly by 7.9% growth in the manufacturing sector, yet it was

still slower than in the 2 previous years.

• Inflation declined for the first time under 20%

Disinflation process continued, consumer prices reached 17.8%, the lowest level since 1990, 12.5 pp lower

than in 2001. Still the services’ prices registered the highest increase in 2002. The administered prices and,

mainly, the public utilities’ prices counted for 25.8% of the inflation rate.

source: National Bank of Romania

• Unemployment rate dropped to 8.1%

Unemployment rate situated below official estimations at about 9% for the year end and was the result of the

general improvement of the economic framework. However, the employed number decreased by 3.1%, while

the net average wage increased by a real 4.9%. The minimum wage increased by 25% in 2002 and a 43%

increase was announced in the beginning of 2003.

• Current account deficit improved

The better performance of the current account (the deficit shrunk by almost 29.2% in 2002 to 1.6 bill. USD)

was triggered by significant increase of the net current transfers and a smaller trade deficit.

45.0%

Dec.-99 Dec.-00 Dec.-01 Dec.-02

M2 (Broad Money) CPI

CPI and M2 (%)54.8%

38.0%40.7%

46.2%

30.3%

38.2%

17.8%

The narrowing of the trade balance deficit by 12% was the result of the record level of exports of 13.9 bill.

USD which outperformed the growing pace of imports. The FDIs contribution to the balance of payments

remained almost at similar level as in the previous years.

The National Bank of Romania FX reserves increased by 2.2 bill USD, reaching an all time high of 6.1

bill. USD at year end (USD 7.3 bill. NBR gross reserves). In the same time the official borrowings abroad

increased and the outstanding foreign debt reached 15.2 bill. USD about 33.8% of GDP.

The NBR conducted its monetary policy with caution in order to achieve the disinflation target while

preserving the sound growing pace of the economy. Broad money further expanded by 38.2% in nominal

terms at year end while in real terms recorded a higher change of 17.3% compared to the previous year.

This has been mainly determined by a 17.5% expansion in real terms of the quasi money (household savings,

ROL term deposits and FX resident’s deposits). These correlated with a better macroeconomic environment

secured the background for a 51.9% increase in non-government lending, with a 59.6% advance in FX

lending.


ROL exchange rate evolution followed closely the EUR/USD rate in the international market. The domestic

currency depreciated in nominal terms by 25.2% against EURO and only by 6% against USD.

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M2 (Broad Money) Domestic Credit Non-government credit

134,122.5

Dec. 1999 Dec. 2000 Dec. 2001 Dec. 2002

Broad Money and Domestic Credit(ROL bill.)

101,340.4

57,719.5

185,060.0

112,885.5

75,007.1

270,512.0

143,244.7

118,254.5

373,712.5

200,211.2

179,626.4

The nominal depreciation against the NBR informal benchmark (a 60% EUR-40% USD basket) was of

17.6% in line with the real appreciation target of the Central Bank for the year end.

NBR remained a net borrower in the domestic Money Market as a result of its continuing sterilisation efforts

aimed at controlling liquidity.

• Smaller budget deficit

The consolidated budget deficit stood at 2.6% of GDP, well below the initial target and the previous year

result, helped by a better revenue collection and lower cost on domestic market borrowings. Ministry of

Finance succeeded to raise longer tenor funds, 2 years bonds were introduced while 12 months t-bills were

the most frequent issued in 2002 compared to 2001 when 6M t-bills were predominant. The average yield at

the auctions for the discount t-bills dropped significantly from 35.7% at the end of December 2001 to 17.3%

at the end of December 2002.

source: Ministry of Finance, National Bank of Romania

• Improved international perception

In 2002 Romania has been invited to join NATO and it is working towards achieving EU membership, as

the year 2007 has been scheduled as ascension year. Romania has also concluded new agreements with IMF,

World Bank and EBRD which confirmed again its macroeconomic achievements and positive international

perception. The international rating agencies upgraded Romania again recognizing its progresses. As a direct

result, access and cost of international borrowing become easier and respectively, cheaper.

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Dec.-99 Dec.-00 Dec.-01 Dec.-02

Fiscal Deficit Current Account Deficit

Fiscal Deficit and Current Account Deficit(% in GDP)

-1.8%

-4.0%-3.7%

-3.3%

-5.5%

-2.6%

-3.4%

-4.1%

The still relatively moderate inflows of FDIs, the quite underdeveloped capital market, the still high level of

“grey economy”, the low consumer spending and still poor living standards are considered as being the main

difficulties which prevent Romania to speed up to its growth potential. There are still unsolved issues which

have a negative impact on the general business environment and are considered corner stones for further

sound development such as: the sluggish restructuring and privatisation process, the high enter-enterprise

and budgetary arrears result of insufficient financial discipline, the energy sector lagging reforms’, the

excessive fiscal duties.

Romania’s overall economic developments in 2002 confirmed the positive trend of the previous years. The

so far encouraging results have to be further consolidated in order to have a visible impact on the general

perception over the country’s continuing convergence towards European Union integration status.

Banking System Overview

In 2002 the Romanian banking system continued its strengthening and growing-up process and was still

characterized by a relatively large number of banks - 39, out of which 8 branches of foreign banks. The total

number of bank players decreased from 2001 due to the fact that NBR revoked 3 banks’ licenses and

approved the set-up of Miro Bank.

The Romanian banking system lags behind banking systems in West European countries and even behind some

of Central and Eastern European countries from the viewpoint of some important ratios, such as: total banking

assets, capital adequacy, total deposits and the weight of banking assets and non-government credit in GDP.

source: National Bank of Romania, IMF (IFS)

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Bulgaria CzechRepublic

Poland Romania Slovakia Slovenia Hungary

19.9%

33.4%

28.8%

11.9%

40.6% 39.2%35.9%

Non-government credit in GDP (%) - 2002

Against the background of general improvement of the macroeconomic indicators, the banks turned to the

real economy, channeling their funds into non-government lending. This was also favored by the declining

interest rates for T-bills. The major part of the non-government loans is still in FX despite Central Bank’s

efforts to reduce it by increasing the minimum reserve requirements for FX, while deposits shifted gradually

to ROL.

The competition grew stronger in terms of products and services, more banks competing for a larger market

share. The retail banking witnessed an explosive growth; banks’ offer for individuals products are

continuously improved and diversified.

The Central Bank pursued its stricter surveillance program throughout 2002. New legislation has been

implemented on money laundering, e-banking regulations and new rules regarding loans classification and

provisioning. The official discount rate was replaced with NBR’s reference rate better correlated with money

market evolutions.

At the end of 2002 the banking system indicators stood at a good level. Even if slightly decreases were

registered, the banking system health showed a substantial improvement compared to ‘90s. In 2002 there

were only 2 small banks in default with a very limited impact on the banking system. The non-performing

loans in total portfolio ratio and liquidity indicators posted better results, while the profitability indicators

slightly decreased due to increased competition in the system.

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Dec-00 Dec-01 Dec-02

solvency (>12%) 23.79 28.80 24.80

general risk ratio 38.70 39.70 42.60

liquidity * 1.30 1.37

Non-performing loans/ total portfolio (net value) ** 0.65 0.72 0.43

Non-govt. loans/ Total Assets (%) 32.20 33.60 37.60

ROE (Net income/Total equity) 12.53 21.79 18.30

ROA (Net income/ Total assets) 1.49 3.10 2.60

* calculated starting with July 2001* * calculated starting with January 2001


However, there is expected that the process of consolidation by mergers and acquisitions will continue in the

view of repositioning of some major players and new entrants in Romanian market.

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REPORT OF INDEPENDENT AUDITORSAND FINANCIAL STATEMENTSPREPARED UNDERINTERNATIONAL FINANCIAL REPORTING STANDARDS

FOR THE YEAR ENDED 31 DECEMBER 2002

CONTENTS

PAGE

General information 22

Auditors’ report 25

Income statement 27

Balance sheet 28

Statement of changes in shareholders’ equity 29

Cash flow statement 30

Notes to the financial statements 31

GENERAL INFORMATION

1. NATURE OF THE ENTERPRISE

Commercial Bank “Ion Œiriac” SA (the "Bank") has been incorporated in Romania since 1991 and is

licensed by the National Bank of Romania to conduct banking activities. The Bank is principally

engaged in wholesale and retail banking operations in Romania. The Bank operates through its head

office located in Bucharest and its network consisting of the following:

The address of its registered office is as follows: City Business Center, 3 Nerva Traian Street,

Complex M 101 Bucharest, Romania.

The Bank’s number of employees as at 31 December 2002 was of 1,021 (31 December 2001: 1,154).

2. DIRECTORS

The Bank is managed by a Board of Directors made up of 8 members elected for 4 years by the

ordinary shareholders’ meeting, lead by a president which also holds the position of Chief Executive

Officer. The Composition of the Board of Directors as at 31 December 2002 is as follows:

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Bucharest Rest of the country Total

Branches 5 22 27

Agencies 7 10 17

Working points 3 5 8

ATM’s 41 101 142

POS’s 398 99 497

Position Name

President Mr. Anthony van der Heijden

First Vice-president Mr. George Toma Mucibabici

Vice-president Mr. Constantin Barbu

Vice-president Mr. Cåtålin Pârvu

Member Mr. Ion Œiriac

Member Mr. Dan Petrescu

Member Mr. Ion Nestor

Member Mr. Victor Anagnoste

3. CAPITAL ADEQUACY

The Bank calculates the adequacy of its capital using ratios established by the Bank for International

Settlements (BIS), based upon its financial statements prepared in accordance with International

Financial Reporting Standards (IFRS). Based upon financial information prepared in accordance

with IFRS the Tier 1 and Tier 2 capital adequacy ratios of the Bank at 31 December 2002 were both

21.69 (31 December 2001: 20.80% both)

Under BIS guidelines assets are weighted according to broad categories of notional credit risk, being

assigned a risk weighting according to the amount of capital deemed to be necessary to support them.

Four categories of risk weights (0%, 20%, 50%, 100%) are applied; for example cash and money

market instruments have a zero risk weighting which means that no capital is required to support the

holding of these assets. Property and equipment carries a 100% risk weighting, meaning that it must

be supported by capital equal to 8% of the carrying amount. Other asset categories have intermediate

weightings.

Off-balance sheet credit related commitments and forwards and options based derivative instruments

are taken into account by applying different categories of credit conversion factors, designed to

convert these items into balance sheet equivalents. The resulting credit equivalent amounts are then

weighted for credit risk using the same percentages as for balance sheet assets.

21

GENERAL INFORMATION

22

GENERAL INFORMATION

Balance sheet/ Risk weightedNominal amount amount

2002 2001 2002 2001

(ROL mil) (ROL mil) (ROL mil) (ROL mil)

Balance sheet assets (net of provisions)

Due from other banks 1,318,286 1,803,150 263,657 360,630

Loans and advances to customers 6,160,861 4,531,316 6,099,252 4,486,003

Investment securities - available

for sale 70,646 73,220 70,646 73,220

Property and equipment 1,954,419 2,008,410 1,954,419 2,008,410

Other assets 643,605 652,695 643,605 652,695

Off balance sheet positions

Credit related commitments 517,056 771,572 206,822 308,629

Total risk weighted assets 9,238,401 7,889,587

BIS Capital ratios

Capital BIS%

2002 2001 2002 2001

(ROL mil) (ROL mil) (ROL mil) (ROL mil)

Tier 1 capital 2,003,823 1,640,990 21.69% 20.80%

Tier 1 + Tier 2 capital 2,003,823 1,640,990 21.69% 20.80%

Tier 1 capital consists of shareholders’ equity. Tier 2 capital includes the Bank’s eligible long-term debt

and general provisions.

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GENERAL INFORMATION

4 FINANCIAL REVIEW

As shown in the table below, due to measures taken by the Bank’s management starting in year

2000, over the past three years the Bank increased its profitability from a net loss of ROL 801,620

million in the year 2000 to a net profit of ROL 372,049 million in year 2002. The Bank’s total

assets increased from ROL 13,057,632 million as at 31 December 2000 to ROL 14,477,259 million

as at 31 December 2002. Shareholders’ equity increased from ROL 1,351,390 million as at 31

December 2000 to ROL 2,003,823 million as at 31 December 2002 and the BIS capital adequacy

ratio increased from 16.62% as at 31 December 2000 to 21.69% as at 31 December 2002.

2001 2002 2001

(ROL mil) (ROL mil) (ROL mil)

Profit / (loss) from operations 418,403 315,359 (746,668)

Net profit / (loss) 372,049 289,600 (801,620)

Shareholders’ equity 2,003,823 1,640,990 1,351,390

Total assets 14,477,259 13,673,484 13,057,632

(%) (%) (%)

BIS Capital adequacy ratio (tier 1) 21.69 20.80 16.62

INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF BANCA COMERCIALÅ "ION ŒIRIAC" SA

We have audited the accompanying balance sheet of Commercial Bank "Ion Œiriac" SA (the "Bank") as at 31

December 2002 and the related statements of income and cash flows for the year then ended, expressed in

the current purchasing power of the Romanian Lei (“ROL”) as at 31 December 2002. These financial

statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on

these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require

that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are

free of material misstatement. An audit includes examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements. An audit also includes assessing the accounting

principles used and significant estimates made by management, as well as evaluating the overall financial

statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion the accompanying financial statements referred to above present fairly, in all material

respects, the financial position of the Bank at 31 December 2002 and the results of its operations and its cash

flows for the year then ended in accordance with International Financial Reporting Standards.

PricewaterhouseCoopers Audit SRL Bucharest, 21 April 2003

With the exception of Note 34(d) and Note 34(e)

for which the signing date is 19 June 2003

Registration Number: J40/17223/1993

Fiscale Code: R4282940

24

AUDITORS REPORT

PrincewaterhouseCoopersAudit SRL1-5 Costache Negri StreetBucharest 5, RomaniaTelephone: +40 (21) 202 8500Facsimile: +40 (21) 202 8600

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INCOME STATEMENT

The financial statements set out on pages 1 to 50, prepared in accordance with International Accounting

Standards on the basis of the statutory accounts, were approved by the Bank’s Management on 21 April

2003 and signed on its behalf by:Mr. Anthony van der Heijden Mr. Florian KubinschiPresident and Chief Executive Officer Chief Financial Officer


(all amounts expressed in ROL million, in terms of purchasing power of the

Romanian Lei (ROL) at 31 December 2002,unless stated otherwise)

Year ended Year endedNote 31 December 31 December

2002 2001

Interest income 2 1,372,965 1,625,910Interest expense 2 (569,436) (744,176)Net interest income 803,529 881,734

Fee and commission income 3 647,535 688,033Fee and commission expense 3 (86,704) (88,069)Net fee and commission income 560,831 599,964

Net foreign exchange gains 4 140,269 113,259Gains less losses from

investments securities (13,781) (504)Other operating income 5 50,160 10,543Gain / (Loss) on net monetary position 63,792 (62,977)

Operating income 1,604,800 1,542,019

Impairment losses on loans, advances and other financial assets 8 142,398 (24,520)

Other operating expenses 6 (1,328,795) (1,202,140)

Profit from operations and before tax 418,403 315,359

Income tax 9 (46,354) (25,759)

Net profit for the year 372,049 289,600

FOR THE YEAR ENDED 31 DECEMBER 2002(all amounts expressed in ROL million, in terms of purchasing power of theRomanian Lei (ROL) at 31 December 2002,unless stated otherwise)

BALANCE SHEET

Note 31 December 31 December2002 2001

ASSETS

Cash and balances with the Central Bank 10 3,314,148 3,234,541

Treasury bills and other eligible bills 11 1,015,294 1,370,152Due from other banks 12 1,318,286 1,803,150Loans and advances to

customers, net of provisions 13 6,160,861 4,531,316Investment securities – available

for sale 16 70,646 73,220Other assets 14 553,807 590,974Assets for resale 15 89,798 61,721Property and equipment 17 1,954,419 2,008,410

Total assets 14,477,259 13,673,484

LIABILITIES

Due to other banks 18 511,943 374,221Due to customers 19 11,527,552 11,089,385Other liabilities 20 137,762 319,063Deferred tax 21 296,179 249,825

Total liabilities 12,473,436 12,032,494

SHAREHOLDERS’ EQUITY

Ordinary shares 22 6,681,832 6,627,119Share premium 72,872 72,872Reserves 23 411,876 209,266Accumulated deficits (5,162,757) (5,268,267)

Total shareholders’ equity 2,003,823 1,640,990

Total equity and liabilities 14,477,259 13,673,484

Off balance sheet commitments 25 517,056 771,572

26

27

STATEMENT OF CHANGESIN SHAREHOLDERS’

EQUITY




Share Share Accumulated Total

Notes capital premium Reserves deficit Equity

Balance at 1 January 2001 6,627,119 72,872 209,266 (5,557,867) 1,351,390

Net profit for 2001 - - - 289,600 289,600

Balance at 31 December 2001 6,627,119 72,872 209,266 (5,268,267) 1,640,990

Balance at 1 January 2002 6,627,119 72,872 209,266 (5,268,267) 1,640,990

Net profit for 2002 - - - 372,049 372,049

Dividend for 2001 24 - - - (63,929) (63,929)

Distribution of 2001

statutory profit - - 202,610 (202,610) -

Issue of share capital for cash 22 54,713 - - - 54,713

Balance at 31 December 2002 6,681,832 72,872 411,876 (5,162,757) 2,003,823

28


CASH FLOW STATEMENT

Year ended Year endedNotes 31 December 2002 31 December 2001

Cash flows from operating activitiesInterest receipts 1,327,065 1,610,275Interest payments (552,953) (796,611)Commission receipts 647,535 688,036Commission payments (86,704) (88,069)Dividend receipts 4,240 2,032Cash payments to employees and suppliers (984,078) (594,968)Net cash flow before changes in operating

assets and liabilities 355,105 820,695

Changes in operating assets and liabilitiesNet increase in loans to customers (1,453,774) (385,082)Net decrease in deposits to banks with maturity

over 90 days including mandatory reserve (230,196) (47,986)Net (increase) / decrease in treasury bills

with maturity over 90 days (185,987) 92,210Net decrease in other assets 50,133 102,091Net increase in customers deposits 421,139 301,786Net increase in deposits from other banks 138,267 20,681Net (decrease) / increase in other liabilities (292,474) 40,373Net cash flow from operating activities (1,197,787) 944,768

Cash flows from investing activitiesPurchase of property and equipment (206,089) (261,912)Sale of property and equipment 35,966 2,348Purchase of investment securities (14,230) -Sale of investment securities 3,023 37,600Net cash used in investing activities (181,330) (221,964)

Cash flows from financing activitiesCash proceeds from issue of share capital 54,713 -Dividends paid (63,929) -Net cash from financing activities (9,216) -

Effect of exchange rate changes (343,053) 659,237Effect of inflation on cash and cash equivalent 547,115 (609,127)

Net (decrease) / increase in cash and cash equivalents (1,184,271) 772,914

Cash and cash equivalents at beginning of year 3,605,357 2,832,443

Cash and cash equivalents at end of year 27 2,421,086 3,605,357

1 ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set

out below:

1.1 Basis of preparation

The financial statements are prepared in accordance with and comply with International

Financial Reporting Standards (IFRS).

1.2 Currency of Presentation

The accompanying financial statements are presented in terms of the purchasing power of the

Romanian Lei (ROL) as at 31 December 2002. These financial statements are measured in ROL.

1.3 Basis of Accounting

The Bank maintains its accounting records in Romanian Lei (ROL) and prepares its statutory

financial statements in accordance with banking regulations issued by the National Bank of

Romania. The accompanying financial statements are based on the statutory financial

statements of the Bank, which are prepared on a going concern basis under the historical cost

convention and subsequently have been adjusted to present financial statements that are in

accordance and comply in all material respects with IFRS.

1.4 Hyperinflation accounting

IFRS require that financial statements prepared on a historical cost basis should be adjusted to

take account of the effects of hyperinflation. International Accounting Standard No. 29 –

“Reporting in Hyperinflationary Economies” (“IAS 29”) provides guidance on how financial

information should be prepared in such circumstances. In summary it requires that financial

statements should be restated in terms of measuring unit current at the balance sheet date and

that any gain or loss on the net monetary position should be included in the income statement

and disclosed separately. The restatement of financial statements in accordance with IAS 29

requires the use of a general price index that reflects changes in general purchasing power.

29

NOTES TO THE FINANCIAL

STATEMENTS




30

NOTES TO THE FINANCIALSTATEMENTS


IAS 29 suggests that economies should be regarded as hyperinflationary if, among other factors,

the cumulative inflation rate over a period of three years exceeds 100%. The annual increase in

the general price index as issued by the National Statistical Bureau over the years 2000, 2001

and 2002:

2002 17.89%

2001 30.2%

2000 40.7%

The cumulative rate of inflation was 115.8 % over the period of three years ended on 31 December 2002 on

the basis of information published by the National Statistical Bureau. Therefore the provisions of IAS 29

have been adopted in preparing these financial statements.

The application of IAS 29 to specific categories of transactions and balances within the financial statements

is set out as follows:

(a) Monetary assets and liabilities

Cash, amounts due from banks, loans, accruals, receivables, payables (including taxes),

borrowed funds, both long and short term, have not been restated as they are considered

monetary assets and liabilities and therefore stated in ROL current at the balance sheet

date.

(b) Non monetary assets and liabilities

Non monetary assets and liabilities (i.e. those balance sheet items that are not already

expressed in terms of ROL current at the balance sheet date such as property and

equipment) and components of shareholders’ equity are restated from their historical cost

by applying the general price index from either the date of acquisition, valuation or

contribution to the balance sheet date.

(c) Property and equipment

All tangible and intangible fixed assets are restated from the date of their purchase using

the general price index.

(d) Income statement

All income statement items are restated by applying the change in the general price index

from the dates when the items of income and expenses were initially recorded in the

accounting records to the balance sheet date. In practice this restatement has been

calculated by using the monthly inflation indices.

(e) Shareholders' equity

All components of shareholders' equity are restated by applying a general price index from

the date of contribution or recording in the accounting records. The statutory increase of

share capital by bonus issue from statutory revaluation reserves is not taken in

consideration.

(f) Gain or loss on the net monetary position

In a period of hyperinflation, an entity holding an excess of monetary assets over monetary

liabilities in a hyperinflationary currency loses purchasing power, while an entity holding

an excess of monetary liabilities over monetary assets gains purchasing power. The net

gain or loss on the net monetary position comprises the effects of changes in the general

price indices on the net monetary asset/liability position. The net gain or loss is derived

after having restated the balance sheet and the income statement in accordance with the

procedures described above.

(g) Cash flow statement

IAll items included in the cash flow statement are expressed in terms of ROL current at

the balance sheet date.

(h) Corresponding figures

Corresponding figures for the previous reporting period are restated by applying the

change in the general price index so that the comparative figures are presented in terms of

31


STATEMENTS




ROL current at the end of the reporting year. Information that is disclosed in respect of

earlier periods is also expressed in terms of the measuring unit current as at 31 December

2002.

1.5 Principal accounting policies prior to hyperinflation adjustments

Set out below are the principal accounting policies adopted by the Bank in the preparation of

the IFRS financial statements prior to the hyperinflation adjustments. This financial

information is then adjusted for the effects of hyperinflation in accordance with the procedures

described above in Note 1.4.

(a) Foreign currency translation

Foreign currency transactions in the Bank are accounted for at the exchange rates

prevailing at the date of the transactions. Gains and losses resulting from the settlement of

such transactions and from the translation of monetary assets and liabilities denominated in

foreign currencies, are recognised in the income statement. Such balances are translated at

year-end exchange rates into ROL at the official rate of the National Bank of Romania

existing at the balance sheet date.

At 31 December 2002 the principal rates of exchange used for translating foreign balances

were USD 1 = ROL 33,500 (31 December 2001: USD 1=ROL 31,597) and EURO 1 =

ROL 34,919 (31 December 2001: EURO 1=ROL 27,881).

(b) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet

when there is a legally enforceable right to set off the recognised amounts and there is an

intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

(c) Interest income and expense

Interest income and expense are recognised in the income statement for all interest bearing

instruments on an accruals basis, using the effective yield method based on the actual

32



purchase price. Interest income includes coupons earned on fixed income investment and

trading securities and accrued discount and premium on treasury bills and other discounted

instruments. When loans become doubtful of collection, they are written down to their

recoverable amount and interest income is thereafter recognised based on the rate of

interest that was used to discount future cash flows for the purpose of measuring the

recoverable amount.

(d) Fee and commission income

Fees and commissions consist mainly of fees received for clients’ transactions and granting

of loans. Fees arising from guarantees given, opening of letters of credit and commissions

from managed funds on behalf of legal entities and citizens are also included.

Fees and commissions are generally recognised on an accrual basis when the service has

been provided. Loan origination fees for loans which are probable of being drawn down,

are deferred (together with related direct costs) and recognised as an adjustment to the

effective yield on the loan. Commissions on foreign currency transactions are credited to

income on receipt. Income on the endorsement of bills of exchange is recognised on an

accruals basis.

(e) Investment securities

The Bank classified its investment securities as available-for-sale assets. Investment

securities intended to be held for an indefinite period of time, which may be sold in

response to needs for liquidity or changes in interest rates, exchange rates or equity prices

are classified as available-for-sale. Management determines the appropriate classification

of its investment at the time of the purchase.

Investment securities are initially recognised at cost (which includes transaction costs).

The Bank’s available-for-sale investments comprise principally non-marketable equity

securities, which are not publicly traded or listed on the Romanian stock exchange and,

due to the nature of the local financial markets, it is not possible to obtain current market

value for these investments. Hence, such investments are carried at restated cost and are

subject to a provision for impairment. The reversal of impairment is recognized in equity.

33


STATEMENTS




All regular way purchases and sales of investment securities are recognised at trade date,

which is the date that the Bank commits to purchase or sell the asset.

(f) Sale and repurchase agreements and lending of securities

Security sold subject to a linked repurchase agreements (“repos”) are retained in the

financial statements as trading or investments securities and the counter-party liability is

included in amounts due to other banks or deposits from banks, as appropriate. Securities

purchased under agreements to resell (“reverse repos”) are recorded as loans and advances

to other banks. The difference between sale and repurchase price is treated as interest and

accrued over the life of repo agreements using the effective yield method.

Securities borrowed are not recognised in the financial statements, unless these are sold to

third parties, in which case the purchase and sale are recorded with the gain or loss

included in trading income. The obligation to return them is recorded at fair value as a

trading liability.

(g) Originated loans and provisions for loan impairment

Loans originated by the Bank by providing money directly to the borrower or to a sub-

participation agent at draw down, other than those that are originated with the intent of

being sold immediately or in the short-term which are recorded as trading assets, are

categorised as loans originated by the Bank and are carried at amortised cost, which is

defined as the fair value of cash consideration given to originate these loans as is

determinable by reference to market prices at origination date. Third party expenses, such

as legal fees, incurred in securing a loan are treated as part of the cost of the transaction.

All loans and advances are recognised when cash is advanced to borrowers.

An allowance for loan impairment is established if there is objective evidence that the

Bank will not be able to collect all amounts due according to the original contractual terms

of loans. The amount of the provision is the difference between the carrying amount and

34



the recoverable amount, being the present value of expected cash flows, including amounts

recoverable from guarantees and collateral, discounted at the original effective interest rate

of loans.

The loan loss provision also covers losses where there is objective evidence that probable

losses are present in components of the loan portfolio at the balance sheet date. These

have been estimated based upon historical patterns of losses in each component, the credit

ratings allocated to the borrowers and reflecting the current economic climate in which the

borrowers operate. Statutory and other regulatory loan loss reserve requirements that

exceed these amounts are dealt with in the general banking reserve as an appropriation of

retained earnings.

If the amount of the impairment subsequently decreases due to an event occurring after the

write-down, the release of the provision is credited to the bad and doubtful debt expense.

When a loan is un-collectable, it is written off against the related provision for

impairments; subsequent recoveries are credited to the bad and doubtful debt expense in

the income statement.

(h) Sundry debtors

A provision for sundry debtors is established on a case by case basis when there is

objective evidence that the Bank will not be able to collect the amount due.

(i) Provisions

Provisions are recognised when the Bank has a present legal or constructive obligation as a

result of past events, it is probable that an outflow of resources embodying economic

benefits will be required to settle the obligation, and a reliable estimate of the amount of

the obligation can be made.

Specific provisions are made against identified risks related to off balance sheet

commitments, in particular letters of guarantee.

35


STATEMENTS




36



(j) Computer software development costs

Costs associated with maintaining computer software programmes are recognised as an

expense as incurred. However, expenditure that enhances or extends the benefits of

computer software programmes beyond their original specifications and lives is recognised

as a capital improvement and added to the original cost of the software. Computer

software development costs recognised as assets are amortised using the straight-line

method over their useful lives but not exceeding a period of three years.

(k) Property and equipment

All property and equipment are stated in the balance sheet at cost restated in terms of

purchasing power as at the balance sheet date less accumulated depreciation.

Depreciation is calculated on the straight line method to write down the cost of such assets

to their residual values over their estimated useful lives as follows:

Years

Buildings 40

Computers 5

Equipment 5

Motor vehicles 5

Furniture and other 10

Land is not depreciated. Assets in the course of construction are not depreciated until they

are brought into use.

Property and equipment are periodically reviewed for impairment. Where the carrying

amount of an asset is greater than its estimated recoverable amount, it is written down

immediately to its recoverable amount. Gains and losses on disposal of property and

equipment are determined by reference to their carrying amount and are taken into account

in determining operating profit. Repairs and renewals are charged to the income statement

when the expenditure is incurred.

(l) Assets for resale

Assets held for resale are initially recorded at fair value and subsequently measured at

lower of cost or net realisable value.

(m) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances

with less than 90 days maturity from the date of acquisition including: cash and balances

with the Central Bank, treasury bills and other eligible bills and amounts due from other

banks.

(n) Treasury bills

Treasury bills are issued by the Romanian Ministry of Finance and other state

corporations. Treasury bills are classified as held for trading and are carried at fair value.

All interest income and any accrued gains/losses from trading in treasury bills are included

in interest income. The changes in fair value are recognised in the statement of income.

(o) Pension obligations and other post retirement benefits

In the normal course of business the Bank makes payments to the Romanian state funds on

behalf of its employees for pension, health care and unemployment benefit. The cost of

these payments is charged to the income statement in the same period as the related salary

cost. All employees of the Bank are members of the State pension plan. The Bank does

not operate any other pension scheme and, consequently, has no obligation in respect of

pensions. The Bank does not operate any other defined benefit plan or post retirement

benefit plan. The Bank has no obligation to provide further services to current or former

employees.

(p) Income taxes

The Bank records current profit tax based on the net income from the Bank’s statutory

financial statements, in accordance with Romanian profit tax legislation. Romanian profits

37


STATEMENTS




tax legislation is based on a fiscal year ending on 31 December. In recording both the

current and deferred income tax charge for the year, the Bank computes the annual income

tax charge based on Romanian profit tax legislation enacted (or substantially enacted) at

the balance sheet date.

Differences between financial reporting under International Accounting Standards and

Romanian fiscal regulations give rise to material differences between the carrying value of

certain assets and liabilities and income and expenses for financial reporting and income

tax purposes.

Differences between financial reporting under International Accounting Standards and

Romanian fiscal regulations give rise to material differences between the carrying value of

certain assets and liabilities and income and expenses for financial reporting and income

tax purposes.

Deferred income tax is provided in full, using the liability method, for all temporary

differences arising between the tax bases of assets and liabilities and their carrying values

for financial reporting purposes.

The principal temporary differences arise from the hyperinflation restatement of property

and equipment, and provisions for impairment of loans and of other assets.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit

will be available against which the temporary differences can be utilised.

(q) Share capital

(i) Share issue costs

External costs directly attributable to the issue of new shares, other than on a business

combination, are deducted from equity net of any related income taxes.

38



(ii) Dividends on ordinary shares

Dividends on ordinary shares are recognised in equity in the period in which they are

declared. Dividends for the year which are declared after the balance sheet date are

dealt with in the subsequent events note. Dividends are declared on the basis of

statutory financial statements prepared in accordance with banking regulations issued

by the National Bank of Romania.

(r) Acceptances

Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on

customers. The Bank expects most acceptances to be settled simultaneously with the

reimbursement from the customers. Acceptances are accounted for as off-balance sheet

transactions and are disclosed as contingent liabilities and commitments.

(s) Fiduciary activities

Assets and income arising thereon together with related undertakings to return such assets

to customers are excluded from these financial statements where the Bank acts in a

fiduciary capacity such as nominee, trustee or agent.

(t) Use of estimates

The preparation of financial statements in conformity with IFRS necessarily requires

management to make estimates and assumptions that affect the reported amounts of assets

and liabilities and disclosures of contingent assets and liabilities at the date of the financial

statements and reported expenses during the reported period.

(u) Comparatives

Where necessary, comparative figures have been adjusted to conform with changes in

presentation in the current year.

39


STATEMENTS




40



2 NET INTEREST INCOME

Year ended Year ended

31 December 2002 31 December 2001

Interest and discount income

Interest income from banks 181,715 272,075

Loans and advances 1,006,337 1,164,778

Treasury bills 184,913 189,057

1,372,965 1,625,910

Interest expense

Bank deposits 49,635 81,267

Customer deposits 517,773 655,234

Borrowings 2,028 7,675

569,436 744,176

3 FEE AND COMMISSION INCOME / EXPENSE

3.1 Fee and commission income



Commission income from money transfers 301,995 463,168

Commission income from loans and advances 104,662 109,033

Other fee and commission income 240,878 115,832

647,535 688,033

41


STATEMENTS




3.2 Fee and commission expense



Commission expense due to interbank operations 85,148 85,662

Other fee and commission expenses 1,556 2,407

86,704 88,069

4 NET FOREIGN EXCHANGE GAINS



Foreign exchange gains:

- Revaluation of monetary assets 11,824,654 6,771,351

- Transaction gain 188,844 206,746

12,013,498 6,978,097

Foreign exchange losses:

- Revaluation of monetary liabilities 11,807,769 6,789,575

- Transaction loss 65,460 75,263

11,873,229 6,864,838

Net foreign exchange gains 140,269 113,259

42



5 OTHER OPERATING INCOME



Dividend income 4,240 2,033

Other income 45,920 8,510

50,160 10,543

6 OTHER OPERATING EXPENSES



Staff costs (Note 7) 452,058 416,374

Depreciation 138,272 117,000

Loss on disposal of tangible fixed assets 85,842 16,619

Administration expenses 236,178 228,418

Rent expenses 132,983 116,847

Services from third parties 171,382 191,362

Contributions to the Customer’s Deposits

Guarantee Fund 66,238 56,332

Taxes other than income tax 45,842 59,188

1,328,795 1,202,140

Banks operating in Romania are required to make annual contributions to the Customer’s Deposits

Guarantee Fund (“the Fund”), which are established by Government Ordinance at 0.8% (2001: 0.8%)

of the balance of individuals’ deposits at 31 December of the preceding year.

43


STATEMENTS




7 STAFF COSTS



Salaries 357,404 320,484

Social security costs 94,654 95,890

452,058 416,374

8 IMPAIRMENT LOSSES ON LOANS, ADVANCES AND OTHERFINANCIAL ASSETS



Amounts due from other banks (Note 12) (8,757) -

Loans and advances to customers (Note 13) 38,388 245,810

Recoveries of amounts previously written-off (167,475) (205,793)

Provision for sundry debtors 4,877 -

Provision for risks arising from

off balance sheet items (Note 20) (9,431) (15,497)

(142,398) 24,520

44



9 INCOME TAX



Current tax - -

Deferred tax charge (Note 21) 46,354 25,759

46,354 25,759

The tax on the Bank’s profit tax differs from the theoretical amount that would arise using the basic

tax rate of 25% applicable in Romania as follows:



Profit before tax 418,403 315,359

Tax calculated at 25% (2001: 25%) 104,601 78,840

Tax effects of items which are not deductible

- non assessable income (3,097) (82,869)

- non-deductible expense 6,071 11,946

- inflation effect on deferred tax balance at

the beginning of the year 9,478 12,994

- other IFRS adjustments that have

non-monetary nature (11,812) 24,498

Utilisation of previously unrecognised tax losses (58,887) (19,650)

Income tax expense 46,354 25,759

Unutilised fiscal loss carried forward as at 31 December 2002 is ROL 180,003 million (2001: ROL

489,890 million).

45


STATEMENTS




10 CASH AND BALANCES WITH THE CENTRAL BANK


Cash in hand 494,696 795,189Current account with the Central Bank 2,572,267 2,321,016Placement with the Central Bank 247,185 118,336

3,314,148 3,234,541

In accordance with local regulations in force, the Bank holds mandatory reserves with the CentralBank. The mandatory reserves are required to be held either in US Dollars or in EURO againstforeign currency deposits, the Bank choosing to hold it in US Dollars, and in ROL for the ROLdeposits, calculated according to a prescribed formula. The formula is based upon a set percentage of each type of deposit taken by the Bank. The balance of mandatory reserves can vary on a dailybasis but its average for the period from 24 November 2002 to 23 December 2002 was set at aminimum of ROL equivalent 2,481,397 million (2001: from 1 December 2001 to 15 December 2001:ROL equivalent 2,254,404 million). The interest rates paid by the Central Bank for mandatoryreserves held by banks are 6.25% for ROL denominated reserves and 0.75% for US Dollardenominated reserves as at 31 December 2002. Mandatory reserve deposits are not available for usein the Bank’s day-to-day operations.

11 TREASURY BILLS AND OTHER ELIGIBLE BILLS


Treasury bills 1,015,294 1,370,152

Treasury bills are debt securities issued by the Romanian Treasury Department. Bills are categorisedas assets held for trading and are carried at their fair value.

Treasury bills denominated in US Dollars carry an annual interest rate between 5% and 5.5%, couponbills denominated in ROL carry discount rates varying between 21.00% and 33.50%, while the othertreasury bills denominated in ROL carry annual interest rates between 21.28% and 35.61%. Theoriginal maturity for bills denominated in US Dollars is one year. The original maturity for billsdenominated in ROL is three months and six months.

The maturity of treasury bills is further analysed in Note 30 - Liquidity risk. Treasury bills are furtheranalysed by currencies in Note 29 - Currency risk.

46



12 DUE FROM OTHER BANKS


Current accounts 75,907 32,167

Placements with other banks 1,262,583 1,799,944

Less: allowance for losses on amounts

due from other banks (20,204) (28,961)

1,318,286 1,803,150

Allowance for losses on amounts due from other banks

Allowance for losses on amounts due from other banks is related to exposures to foreign counterparts,

which defaulted on their payments. All amounts due have been written down to their estimated

recoverable amount.

The movements in allowance for losses on amounts due from other banks are as follows:

2002 2001

At 1 January (28,961) (28,961)

Net movement for the year 8,757 -

At 31 December (20,204) (28,961)

The amount of collateral deposits in other banks as at 31 December 2002 is ROL 133,274 million (31

December 2001: ROL 147,658 million).

47


STATEMENTS




13 LOANS AND ADVANCES TO CUSTOMERS


(a) Analysis by type of customer

Gross loans and advances originated

by the Bank

- companies 4,822,488 4,494,459

- individuals 1,545,461 300,609

6,367,949 4,795,068

Less allowance for losses on loans

and advances (207,088) (263,752)

Total net 6,160,861 4,531,316

(b) Allowance for losses on loans and advances

The movements in the allowance for losses on loans and advances are as follows:

2002 2001

At 1 January 263,752 408,011

Loans written-off during the

year as uncollectible (95,052) (390,069)

Provision for loan impairment 38,388 245,810

At 31 December 207,088 263,752

The above provisions are in respect of loan principal and interest receivable. The net amount of

interest receivable is made of amounts not older than 90 days.

48



(c) Economic sector risk concentrations

Economic sector risk concentrations are analysed by the main line of business of borrowers as

follows:

2002 2002 2001 2001

% %

Agriculture 202,353 3 104,915 2

Manufacturing 2,001,394 32 2,360,267 50

Trade and finance 1,657,865 26 703,396 15

Transport and communications 378,197 6 262,287 5

Retail customers - individuals 1,545,461 24 300,609 6

Miscellaneous 582,679 9 1,063,594 22

Gross loans and advances 6,367,949 100 4,795,068 100

(d) Geographic sector risk concentrations

All corporate loans were extended to companies operating in Romania.

(e) Interest rate variability

Of the total loans, the majority by value have variable interest rates. Under the terms of such loans

the Bank can change the interest rate every month.

(f) Other analyses

Loans and advances are further analysed as a part of the balance sheet in the following notes: Related

party transactions Note 28, Currency risk Note 29, Liquidity Risk Note 30 and Interest rate risk Note 32.

49


STATEMENTS




14 OTHER ASSETS


Prepaid tax, other than income tax 14,349 16,916

Other prepayments 366,650 380,293

Sundry debtors 208,089 224,169

Provision for sundry debtors (35,281) (30,404)

553,807 590,974

Movements in provisions for impairment of sundry debtors are as follows:

2002 2001

At 1 January 30,404 30,404

Doubtful debts expense 4,877 -

At 31 December 35,281 30,404

15 ASSETS FOR RESALE

Assets for resale represent collateral recovered from debtors in litigation.


Assets for resale 89,798 61,721

50



16 INVESTMENT SECURITIES


Securities available-for-sale

Equity securities

- Listed 1,441 927

- Unlisted 69,205 72,293

70,646 73,220

The Bank does not control or exercise significant influence on any of the companies in which it has

shareholdings. The Bank’s shareholding does not exceed 20% in the share capital of any such companies.

17 PROPERTY AND EQUIPMENT

Land Furniture Assets in

& & Motor course of

buildings Computers equipment vehicles construction Total

Restated cost or valuation

At 1 January 2002 2,008,925 227,343 284,417 99,294 296,919 2,916,898

Additions 249 50,861 1,237 3,946 113,830 170,123

Disposals (110,675) (10,969) (9,836) (5,336) (25,611) (162,427)

Transfers 58,546 117,746 21,613 - (197,905) -

At 31 December 2002 1,957,045 384,981 297,431 97,904 187,233 2,924,594

Depreciation

At 1 January 2002 (641,629) (100,876) (89,194) (76,789) - (908,488)

Depreciation charge (51,145) (42,549) (33,673) (10,905) - (138,272)

Disposals 61,958 7,084 4,830 2,713 - 76,585

At 31 December 2002 (630,816) (136,341) (118,037) (84,981) - (970,175)

Net book value

At 31 December 2002 1,326,229 248,640 179,394 12,923 187,233 1,954,419

At 31 December 2001 1,367,296 126,467 195,223 22,505 296,919 2,008,410

51


STATEMENTS




18 DUE TO OTHER BANKS


Current accounts 5,031 15,145Deposits from other banks 462,801 138,958Borrowings 44,111 220,118

511,943 374,221

As at 31 December 2002 the Bank has borrowings amounting to ROL 44,111 million (2001: ROL 107,268 million) representing finance from the World Bank through Eximbank Romania.The finance accord was signed on 22 June 1995 and the last instalment is due on 15 May 2004.In the year ended 31 December 2002 the interest rate ranged between 2.42% and 2.63% (for the yearended 31 December 2001, between 4,31% and 7,58%).

19 DUE TO CUSTOMERS


Demand depositsCitizens 1,631,001 1,323,490Enterprises 2,395,935 2,154,892

4,026,936 3,478,382

Savings and time depositsCitizens 5,731,891 6,590,178Enterprises 1,258,427 990,653

6,990,318 7,580,831

Certificates of depositCitizens 494,013 27,529Enterprises 16,285 2,643

510,298 30,172

Aggregate 11,527,552 11,089,385

Included in customer accounts are deposits of ROL 3,550 million (2001: ROL 14,452 million) held ascollateral for irrevocable commitments under import letters of credit.

52



20 OTHER LIABILITIES


Deferred income 16,904 22,777

Provision for risks arising from

off balance sheet items (see below) - 9,431

Other liabilities 120,858 286,855

137,762 319,063

Movements in provisions for risks arising from off-balance sheet items are as follows:

2002 2001

At 1 January 9,431 24,928

Charge/(release) for the year (9,431) (15,497)

At 31 December - 9,431

21 DEFERRED INCOME TAXES

Deferred income taxes are calculated on all temporary differences under the liability method using an

effective tax rate of 25 % (2001: 25 %).

The movement on the deferred income tax account is as follows:

2002 2001

At beginning of year 249,825 224,066

Income statement charge (Note 9) 46,354 25,759

At end of year 296,179 249,825

53


STATEMENTS




Deferred income tax assets and liabilities are attributable to the following items:


Deferred income tax liabilities

Restatement of property and equipment 313,385 313,623

Restatement of other assets 9,663 -

Restatement of investments 9,895 9,425

Restatement of assets for resale 7,316 5,514

340,259 328,562

Deferred income tax assets

Provisions for impairment of loans 30,209 49,168

Provision for impairment of other assets 8,820 20,139

Provisions for off-balance sheet commitments - 2,190

Provision for amounts due from other banks 5,051 7,240

44,080 78,737

Net deferred income tax liability 296,179 249,825

The deferred tax charge in the income statement comprises the following temporary differences:



Restatement of property and equipment (236) 30,408

Restatement of other assets 9,662 -

Restatement of investments 470 (3,424)

Restatement of assets for resale 1,802 -

Provisions for impairment of loans 18,958 (15,984)

Provision for impairment of other assets 11,319 10,885

Provisions for off-balance sheet commitments 2,190 3,874

Provision for amounts due from other banks 2,189 -

46,354 25,759

54



22 ORDINARY SHARES

(a) Movements in share capital as restated with hyperinflation:

2002 2001

Balance at 1 January 6,627,119 6,627,119Issue of shares for cash 54,713 -

Balance at 31 December 6,681,832 6,627,119

(b) Movements in share capital, statutory (nominal amounts, not expressed in terms of purchasing power as at 31 December 2002):

All shares are ordinary, denominated in ROL, have a par value of ROL 93,000 each and carry onevote each.

Number of shares Amount(ROL million)

At 1 January 2001 5,278,128 490,866

At 31 December 2001 5,278,128 490,866

Issue of shares - bonus issue (incorporation of statutory reserves) 1,325,616 123,282- rights issue (for cash) 538,872 50,115

At 31 December 2002 7,142,616 664,263

(c) The shareholders with a holding in excess of 5 % are as follows (based on statutory sharecapital figures, expressed in nominal values, not expressed in terms of purchasing power asat 31 December 2002, see Note 22 (b)):

31 December 2002 31 December 2001Shares % Shares %

Redrum Television International B.V. 2,958,629 41.42 2,137,318 40.49

Mr. Ion Œiriac, members of his familyand other companies controlled by Mr. Ion Œiriac 1,973,252 27.63 1,425,490 27.00

European Bank for Reconstructionand Development 387,678 5.43 309,900 5.87

Redrum Television International B.V. is a company controlled by Mr. Ion Œiriac, registered in theNetherlands.

55


STATEMENTS




23 RESERVES


Statutory legal reserve 166,696 94,239

General reserve for loans’ risk 103,815 -

Other reserves 141,365 115,027

411,876 209,266

2002 2001

Statutory legal reserve

- At 1 January 94,239 94,239

- Distribution of prior year profit 72,457 -

- At 31 December 166,696 94,239

General reserve for loans’ risk

- At 1 January - -


- At 31 December 103,815 -

2002 2001

Other reserves

- At 1 January 115,027 115,027


- At 31 December 141,365 115,027

411,876 209,266

23 RESERVES (CONTINUED)

Statutory reserves

In accordance with the Romanian law on banks and banking activities, the Bank must distribute thestatutory profit as dividends or effect a transfer to retained earnings (reserves) on the basis of thefinancial statements prepared under Romanian Accounting Regulations (“RAR”). Amounts transferredto reserves must be used for the purposes designated when the transfer is made. Currently, underRomanian banking legislation the Bank is required to create the following reserves from appropriationof the statutory profit calculated under RAR:

(a) legal reserve, appropriated at the rate of 20% of the gross statutory profit, until the total reserve isequal to the issued and fully paid up share capital, 10% until the total reserve is equal to twice theshare capital issued and fully paid up and thereafter from the net profit without limit (all based onfigures from the statutory financial statements prepared in accordance with RAR);

(b) general reserve for possible credit losses, appropriated from the statutory gross profit at the rate of2% of the loan risk portfolio;

After reducing taxes and setting aside the legal reserves and general reserves, as discussed above, theremaining balance of the statutory net profit may be distributed to shareholders. Dividends may only bedeclared from current statutory profit determined in accordance with RAR. The dividend proposed forthe year ended 31 December 2002 is nil (31 December 2001: 63,929).

24 DIVIDENDS

Dividends are not accounted for until they have been ratified at the Annual General Meeting ofshareholders. Dividends on ordinary shares are recognised in equity in the period in which they aredeclared.

In accordance with the decision taken at the Annual General Meeting held on 27 March 2003, the totalamount of dividends to be distributed is nil. The dividends proposed for the year ended 31 December2001 were approved by the Annual General Meeting of shareholders held on 27 March 2002.

The statutory accounting reports of the Bank prepared in accordance with Romanian AccountingRegulations are the basis for profit distribution and other appropriations. For 2002, the statutory netprofit of the Bank as reported in the published annual statutory financial statements prepared inaccordance with Romanian Accounting Regulations is ROL 335,758 million.

56



25 CONTINGENCIES AND COMMITMENTS

Legal proceedings

As at 31 December 2002 there were a number of legal proceedings outstanding against the Bank.Below are presented only legal proceedings in which amounts claimed are material. Amounts claimedin the rest of the legal proceedings are immaterial in aggregate.

(i) A foreign company (“the plaintiff company”), claims an amount of US Dollars 25 million (ROL837,500 million at the 31 December 2002 exchange rate) previously deposited in June 1993 in aprivate account with an individual agreed by the plaintiff company, held with the BucharestBranch of the Bank.

The management of the Bank states that all the money in the respective account was graduallywithdrawn by the account holder and then the representative of the plaintiff company authorised theaccount to be closed. Management of the Bank considers that in managing this customer account theBank has complied with all legal procedures in respect of the administration of customer bank accounts.

This legal proceeding was opened by the foreign plaintiff company firstly in 1997 and since thenhearings were held at the Court of the City of Brasov, the Court of Appeal of Brasov and the SupremeCourt of Justice of Romania, all passing favorable decisions for the Bank. Following a second appeal ofthe plaintiff company, at the end of year 2000 the Supreme Court of Justice ruled the lawsuit to be againjudged by the primary court, i.e. the Court of the City of Brasov. During the hearings at the Court ofthe City of BraŒov, apart from the disputed USD 25 million, the plaintiff Company also requestedinterest for the delayed payment of the disputed amount, interest in amount of USD 1 million (ROL33,500 million at the 31 December 2002 exchange rate). The latest hearing was held on 14 April 2003,when the Court of the City of BraŒov rejected the plaintiff company’s claims.

Based on professional advice of the Bank’s legal counselors, and on the fact that so far three courts havepassed several resolutions favorable to the Bank, the management of the Bank is confident that theeventual outcome of this litigation will be favorable to the Bank and consequently does not consider arisk provision being required against this litigation.

(ii) A mutual fund (“the Fund”) that collapsed in year 2000 filed a claim against the company actingas fund administrator and, in subsidiary, against the Bank as custody agent, claiming an amount ofROL 20,000 milion. On 18 December 1999, the Bank concluded a Custody Agreement with thefund administrator for one year, based on which the Bank had as main obligations to receive anddeposit the net assets of the Fund and to compute and publish the net asset value, to distribute thenet assets of the Fund based on information and orders from the Company acting as fund

57


STATEMENTS




administrator. On 31 May 2000, the Bank terminated the Custody Agreement, aftercommunicating on 15 May 2000 to the National Securities Commission its intention to terminatethe Custody Agreement because the fund administrator had failed to communicate informationand orders as from the end of 1999. A number of hearings were held, which only took intodiscussion procedural aspects. The next hearing will be on 2 June 2003.

At this stage, the continuation of the lawsuit is rather uncertain as there are certain criminalcomplaints filed against the directors of the company acting as fund administrator and there aregrounds to believe that suspension seems unlikely, as the solving of the criminal complaints isstrongly connected with the ruling upon this lawsuit.

Based on professional advice of the Bank’s legal counselors, the management of the Bank isconfident that the eventual outcome of this litigation will be favorable to the Bank andconsequently does not consider a risk provision being required against this litigation.

Capital commitments

As at 31 December 2002 the Bank had capital expenditure contracted for but not recognized in thesefinancial statements of ROL 12,234 million (31 December 2001: ROL 8,141 million), in respect ofbuildings and equipment purchases. The Bank’s management is confident that future net revenues andfunding will be sufficient to cover these commitments.

Credit related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required.Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will makepayments in the event that a customer cannot meet its obligations to third parties, carry the same creditrisk as loans. Documentary and commercial letters of credit, which are written undertakings by theBank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulatedamount under specific terms and conditions, are collateralised by the underlying shipments of goods towhich they relate and therefore have significantly less risk than a direct borrowing. Cash requirementsunder guarantees and standby letters of credit are considerably less than the amount of the commitmentbecause the Bank does not generally expect the third party to draw funds under the agreement.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form ofloans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, theBank is potentially exposed to loss in an amount equal to the total unused commitments. However, thelikely amount of loss is considerably less than the total unused commitments since most commitments toextend credit are contingent upon customers maintaining specific credit standards. While there is somecredit risk associated with the remainder of commitments, the risk is viewed as modest, since it results

58



59


STATEMENTS




from the possibility of unused portions of loan authorisations being drawn by the customer and, second,from these drawings subsequently not being repaid as due. The Bank monitors the term to maturity ofcredit commitments because longer-term commitments generally have a greater degree of credit riskthan shorter-term commitments. The total outstanding contractual amount of commitments to extendcredit does not necessarily represent future cash requirements, since many of these commitments willexpire or terminate without being funded. The same provision criteria applied to loans are applied tocommitments to extend credit.

The following table indicates the contractual amounts of the Bank’s off-balance sheet financialinstruments that commit it to extend credit to customers.


Guarantees given 461,702 489,764

Documentary and commercial letters

of credit 7,135 30,226

Commitments to extend credit 48,219 261,013

517,056 781,003

Less risk provision - (9,431)

Net off-balance sheet items 517,056 771,572

The Bank issues guarantees and letters of credit on behalf of its customers. The credit risk onguarantees is similar to that arising from granting of loans. In the event of a claim on the Bank as aresult of a customer’s default on a guarantee these instruments also present a degree of liquidity riskto the Bank. At 31 December 2002 no provision has been established for risks arising from offbalance sheet commitments (2001: ROL 9,431 million).

Assets pledged

As at 31 December 2002, the Bank had no assets pledged as collateral. Mandatory reserve depositsare held with the Central Bank in accordance with Central Bank requirements (Note 10). Thesedeposits are not available to finance the Bank’s day to day operations.

60



26 CONCENTRATION OF ASSETS DUE FROM THE GOVERNMENT AND CENTRAL BANK


Balances with the Central Bank 2,819,452 2,439,352

Treasury bills 1,015,294 1,370,152

3,834,746 3,809,504

The assets above represent 26% (2001 - 28%) of the Bank’s total assets.

27 CASH AND CASH EQUIVALENTS

For the purpose of the cash flow statement, cash and cash equivalents comprise the following

balances with less than 90 days maturity.


Cash and balances with the Central Bank 832,751 980,137

Due from other banks 1,297,643 1,793,683

Treasury bills 290,692 831,537

2,421,086 3,605,357

28 RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability to control the other party or exercise

significant influence over the other party in making financial or operational decisions. The Bank is

controlled by Mr. Ion Œiriac through direct and indirect shareholdings.

A number of banking transactions are entered into with related parties in the normal course of

business. These include loans, deposits and foreign currency transactions. These transactions were

carried out on commercial terms and conditions and at market rates or at rates that are representative

of the credit risk of respective entities.

61


STATEMENTS




The Bank’s related parties are made up essentially of companies controlled by Mr. Ion Œiriac through

direct and indirect shareholdings.

The related parties transactions and outstanding balances at the year end 31 December 2002 are as

follows:


Assets

Loans and advances, net of provisions 785,916 485,517

Other debtors - receivables from sale of investments 148,573 151,979

Liabilities

Current accounts 148,850 167,611

Deposits 126,764 76,487

Lease liabilities 18,089 48,290

Income

Interest income 15,909 7,693

Commission income 2,261 14,042

Other income - 264

Expense

Interest expense 3,410 10,240

Other expense 50 1,229

Off Balance Sheet Items

Commitments to extend credit - 106,454

Letter of guarantee granted 8,985 1,538

Loans recorded off balance sheet according

to Norm 2 of NBR (Note 13 (b)) 190,618 222,653

Other commitments given 36,489 16,723

62



29 CURRENCY RISK

The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange

rates on its financial position and cash flows. The Board of Directors sets limits on the level of

exposure by currency and in total for both overnight and intra-day positions, which are monitored

daily. The table below summarises the Bank’s exposure to foreign currency exchange risk at 31

December 2002. Included in the table are the Bank’s assets and liabilities at carrying amounts,

categorised by currency.

USD EUR Other ROL Total

Assets

Cash and amounts with

Central Banks 2,056,030 109,718 16,045 1,132,355 3,314,148

Treasury bills and

other eligible bills 356,630 - - 658,664 1,015,294

Due from other banks 704,751 375,471 101,914 136,150 1,318,286

Loans and advances to

customers, net of provisions 2,130,878 1,606,710 40,032 2,383,241 6,160,861

Other assets, net of provisions 499,958 4,240 75 49,534 553,807

Assets for resale - - - 89,798 89,798

Investments securities - 80 - 70,566 70,646

Property and equipment - - - 1,954,419 1,954,419

Total assets 5,748,247 2,096,219 158,066 6,474,727 14,477,259

Liabilities

Due to other banks 48,139 365 2,438 461,001 511,943

Due to customers 5,433,468 2,218,980 124,809 3,750,295 11,527,552

Other liabilities 68,330 33,293 4,324 31,815 137,762

Deferred tax - - - 296,179 296,179

Total liabilities 5,549,937 2,252,638 131,571 4,539,290 12,473,436

Net balance sheet position 198,310 (156,419) 26,495 1,935,437 2,003,823

63


STATEMENTS




Amounts of assets and liabilities held in ROL and in foreign currency at 31 December 2001 are

analysed as follows:

USD EUR Other ROL Total

Assets

Cash and amounts with

Central Banks 1,806,142 471,576 14,707 942,116 3,234,541

Treasury bills and

other eligible bills 784,849 106,185 - 479,118 1,370,152

Due from other banks 1,212,012 407,886 169,593 13,659 1,803,150


customers, net of provisions 2,164,340 1,335,123 - 1,031,853 4,531,316

Other assets, net of provisions 543,403 7,470 - 40,101 590,974

Assets for resale - - - 61,721 61,721

Investments securities - 93 - 73,127 73,220

Property and equipment - - - 2,008,410 2,008,410

Total assets 6,510,746 2,328,333 184,300 4,650,105 13,673,484

Liabilities

Due to other banks 212,302 18,317 22,798 120,804 374,221

Due to customers 6,676,513 1,707,840 110,519 2,594,513 11,089,385

Other liabilities 62,871 221,300 1,950 32,942 319,063

Deferred tax - - - 249,825 249,825

Total liabilities 6,951,686 1,947,457 135,267 2,998,084 12,032,494

Net balance sheet position (440,940) 380,876 49,033 1,652,021 1,640,990

64



30 LIQUIDITY RISK

The Bank is exposed to daily calls on its available cash resources from overnight deposits, currentaccounts, maturing deposits, loan draw downs and guarantees. The Bank does not maintain cashresources to meet all of these needs as experience shows that a minimum level of reinvestment ofmaturing funds can be predicted with a high level of certainty.

The table below analyses assets and liabilities of the Bank as at 31 December 2002 into relevantmaturity groupings based on the remaining period at balance sheet date to the contractual maturity date.

1 month 1 year Up to to 3 months to Over 5

1 month 3 months to 1 year 5 years years Total

AssetsCash and balances with

the Central Bank 3,314,148 - - - - 3,314,148Treasury bills and

other eligible bills 126,366 164,326 724,602 - - 1,015,294Due from other banks 1,297,643 - 17,729 2,914 - 1,318,286Loans and advances to customers, net of provisions 703,528 686,246 2,383,320 2,111,829 275,938 6,160,861Other assets, net of provisions 9,274 43,208 5,065 150,920 345,340 553,807Assets for resale - - 89,798 - - 89,798Investment securities - - - - 70,646 70,646Property and equipment - - - - 1,954,419 1,954,419

5,450,959 893,780 3,220,514 2,265,663 2,646,343 14,477,259LiabilitiesDue to other banks 469,628 8,214 18,739 15,362 - 511,943Due to customers 8,464,119 1,403,449 1,640,634 18,016 1,334 11,527,552Other liabilities 21,779 17,803 53,846 38,928 5,406 137,762Deferred tax - - - 296,179 - 296,179

8,955,526 1,429,466 1,713,219 368,485 6,740 12,473,436

Net liquidity gap (3,504,567) (535,686) 1,507,295 1,897,178 2,639,603 2,003,823

Cumulative net liquidity gap (3,504,567) (4,040,253) (2,532,958) (635,780) 2,003,823

As at 31 December 2002, the remaining maturity of treasury bills was of maximum six months.

65


STATEMENTS




The amounts of assets and liabilities analysed over the remaining period at 31 December 2001 to thecontractual maturity date are as follows:

1 month 1 year Up to to 3 months to Over 5

1 month 3 months to 1 year 5 years years Total



other eligible bills 175,565 655,972 538,615 - - 1,370,152Due from other banks 1,770,804 22,879 9,467 - - 1,803,150Loans and advances to customers, net of provisions 685,453 724,168 1,795,177 934,299 392,219 4,531,316Other assets, net of provisions 7,273 34,442 - 182,335 366,924 590,974Assets for resale - - - 61,721 - 61,721Investment securities - - - - 73,220 73,220Property and equipment - - - - 2,008,410 2,008,410

5,873,636 1,437,461 2,343,259 1,178,355 2,840,773 13,673,484LiabilitiesDue to other banks 272,883 9,198 44,803 47,337 - 374,221Due to customers 8,719,476 1,257,025 1,086,081 25,395 1,408 11,089,385Other liabilities 219,608 14,658 11,052 73,745 - 319,063Deferred tax - - - 249,825 - 249,825

9,211,967 1,280,881 1,141,936 396,303 1,408 12,032,494

Net liquidity gap (3,338,331) 156,580 1,201,323 782,052 2,839,365 1,640,990

Cumulative netliquidity gap (3,338,331) (3,181,751) (1,980,427) (1,198,375) 1,640,990

As at 31 December 2001, the remaining maturity of treasury bills was of maximum six months.

The matching and controlled mismatching of the maturities and interest rates of assets and liabilitiesis fundamental to the management of the Bank. It is unusual for banks ever to be completely matchedsince business transacted is often of uncertain term and of different types. An unmatched positionpotentially enhances profitability, but can also increase the risk of losses.

The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest bearingliabilities as they mature, are important factors in assessing the liquidity of the Bank and its exposureto changes in interest and exchange rates.

31 RISK MANAGEMENT

Interest rate risk

The Bank is exposed to various risks associated with the effects of fluctuations in the prevailinglevels of market interest rates on its financial position and cash flows.

In order to hedge its interest rate position, the Bank sets short term variable interest rates on itsborrowing and lending.

The effective average interest rate by major currencies for monetary financial instruments issummarised in Note 32.

Market risk

The Romanian economy is at an early stage of development and there is a degree of uncertaintysurrounding the likely future direction of domestic economic policy and political development.Management are unable to predict what changes will take place in Romania and what effect thesemight have on the financial position and the results of operations and cash flows of the Bank. TheBank has established limits on trading. The operating environment of the Bank is further described inNote 34.

Liquidity risk

The Bank's policy on liquidity is to maintain sufficient liquid resources to meet its obligations as theyfall due. The amount of total assets and liabilities at 31 December 2002 and 31 December 2001analysed over the remaining period to the contractual maturity date is included in Note 30.

Currency risk

The Bank operates in a developing economy. Romania experiences high rates of inflation andsignificant currency depreciation. There is a consequent risk of loss in value in respect of netmonetary assets held in ROL. To hedge its currency risk the Bank’s policy is to maintain a longposition (i.e. assets exceeding liabilities) in hard currencies. The amounts of total assets andliabilities held in ROL and in foreign currency at 31 December 2002 and 31 December 2001 areanalysed in Note 29.

Credit risk

The Bank takes on exposure to credit risk which is the risk that a counter-party will be unable to payamounts in full when due. The Bank structures the levels of credit risk it undertakes by placing limits

66



67

on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to industrysegments. Such risks are monitored on a revolving basis and subject to annual or more frequentreview. The Board of Directors approves limits on the level of credit risk for each branch. Loansexceeding the limits assigned to branches are approved at head office by the Bank’s Credit RiskCommittee.

The exposure to any one borrower including banks and brokers is further restricted by sub-limitscovering on and off-balance sheet exposures and daily delivery risk limits in relation to trading items.Actual exposures against limits are monitored daily.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potentialborrowers to meet interest and capital repayment obligations and by changing these lending limitswhere appropriate. Exposure to credit risk is also managed in part by obtaining collateral andcorporate and personal guarantees.

Taxation risk

The taxation system in Romania is subject to varying interpretations and to constant changes, whichmay be retroactive. In certain circumstances the tax authorities can be aggressive and arbitrary inassessing tax penalties and interest. Although the actual tax due on a transaction may be minimal,penalties can be significant as they may be calculated based on the value of the transaction and can beas high as 0.30% per day. In Romania, tax periods remain open to tax audits for a period of 5 yearsfrom the end of the period. To minimise the Bank’s exposure to taxation risk, the Bank’smanagement makes use of professional advisory on a regular basis.

32 INTEREST RATE RISK

The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interestrates on its financial position and cash flows. Interest margins may increase as a result of suchchanges but may reduce or create losses in the event that unexpected movements arise. The Bank’sCommittee for Monitoring Assets and Liabilities sets limits on the level of mismatch of interest ratere-pricing that may be undertaken, which is monitored daily.

The table below summarises the Bank’s exposure to interest rate risks. Included in the table are theBank’s assets and liabilities at carrying amounts, categorised by the earlier of contractual re-pricing ormaturity dates.Expected re-pricing and maturity dates do not differ significantly from the contractdates.


STATEMENTS




68



Expected re-pricing and maturity dates do not differ significantly from the contract dates.

As at 31 December 2002As at 31 December 2001Foreign Currency Foreign Currency

ROL USD EUR Other ROL USD EUR Other(%) (%) (%) (%) (%) (%) (%) (%)

Assets

Cash and balances with

the Central Bank 6.25 0.75 - - 15.00 1.00 - -

Treasury bills 30.52 5.81 - - 43.13 7.43 5.1 -

Due from other banks 27.16 1.78 4.78 4.78 37.60 3.55 4.08 4.08

Loans and advances to customers 43.14 5.31 8.05 8.05 55.61 8.55 9.31 9.31

Liabilities

Deposits from other banks 20.95 0.90 3.15 - 37.69 2.07 3.69 -

Borrowings from banks - 0.03 - - - 5.53 - -

Due to customers-term deposits 20.59 2.38 2.97 - 29.76 4.33 3.08 -

Due to customers-current accounts 2.51 0.46 0.59 - 3.77 1.36 1.30

Certificates of deposit 27.01 - 3.65 - 34.15 - - -

69


STATEMENTS




The table below summarizes the Bank’s exposures to interest rate risk. Included in the table are theBank’s assets and liabilities at carrying amount categorized by earlier of contractual repricing ormaturity dates as at 31 December 2002:

1 month 1 year NonUp to to 3 months to Over 5 interest

1 month 3 months to 1 year 5 years years bearing Total

Assets

Cash and balances with

the Central Bank 3,179,658 134,490 - - - - 3,314,148

Treasury bills and

other eligible bills 19,988 42,146 953,160 - - - 1,015,294

Due from other banks 1,284,734 12,909 17,460 3,183 - - 1,318,286


customers, net of

provisions 523,300 478,778 1,815,030 2,540,744 803,009 - 6,160,861

Other assets, net of provisions - - - - - 553,807 553,807

Assets for resale - - - - - 89,798 89,798

Investment securities - - - - - 70,646 70,646

Property and equipment - - - - - 1,954,419 1,954,419

5,007,680 668,323 2,785,650 2,543,927 803,009 2,668,670 14,477,259

Liabilities

Due to other banks 466,816 1,016 688 - 43,423 - 511,943

Due to customers 8,329,062 1,427,373 1,751,800 17,983 1,334 - 11,527,552

Other liabilities - - - - - 137,762 137,762

Deferred tax - - - - - 296,179 296,179

8,795,878 1,428,389 1,752,488 17,983 44,757 433,941 12,473,436

Interest sensitivity gap (3,788,198) (760,066) 1,033,162 2,525,944 758,252 2,234,729 2,003,823

70

The table below summarizes the Bank’s exposures to interest rate risk. Included in the table are theBank’s assets and liabilities at carrying amount categorized by earlier of contractual repricing ormaturity dates as at 31 December 2001:

1 month 1 year NonUp to to 3 months to Over 5 interest

1 month 3 months to 1 year 5 years years bearing Total



other eligible bills - 153,443 625,931 590,778 - - 1,370,152Due from other banks 1,570,002 4,033 229,115 - - - 1,803,150Loans and advances to

customers, net of provisions 436,841 581,981 1,592,594 1,318,895 601,005 - 4,531,316

Other assets, net of provisions - - - - - 590,974 590,974Assets for resale - - - - - 61,721 61,721Investment securities - - - - - 73,220 73,220Property and equipment - - - - - 2,008,410 2,008,410

5,241,384 739,457 2,447,640 1,909,673 601,005 2,734,325 13,673,484LiabilitiesDue to other banks 247,540 - 2,783 - 123,898 - 374,221Due to customers 8,914,798 1,190,274 984,313 - - - 11,089,385Other liabilities - - - - - 319,063 319,063Deferred tax - - - - - 249,825 249,825

9,162,338 1,190,274 987,096 - 123,898 568,888 12,032,494

Interest sensitivity gap (3,920,954) (450,817) 1,460,544 1,909,673 477,107 2,165,437 1,640,990

33 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The following table summarizes the carrying amounts and fair values of those financial assets andliabilities not presented on the Bank’s balance sheet at their fair value. Bid prices are used toestimate fair values of assets, whereas offer prices are applied for liabilities.

Carrying value Fair value2002 2001 2002 2001

Financial assetsDue from other banks 1,318,286 1,803,150 1,319,173 1,802,981

Financial liabilitiesDue to other banks 511,943 374,221 511,382 374,180Due to customers 11,527,552 11,089,385 11,760,566 11,342,063



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34 OPERATING ENVIRONMENT OF THE BANK

The economy of Romania continues to display characteristics of an emerging market. Thesecharacteristics include, but are not limited to, the existence of a currency that is not freely convertibleoutside of the country; a low level of liquidity in the public and private debt and equity markets; andhigh inflation.Additionally, the banking sector in Romania is particularly impacted by adverse currency fluctuationsand economic conditions. Furthermore, the need for further developments in the bankruptcy laws, informalized procedures for the registration and enforcement of collateral, and other legal and fiscalimpediments contribute to the difficulties experienced by banks currently operating in the Romania.The prospects for future economic stability in Romania are largely dependent upon the effectiveness ofeconomic measures undertaken by the government, together with legal and regulatory developments.

35 POST BALANCE SHEET EVENTS

(a) On 21 April 2003 the Central Bank of Romania’s official exchange rate for the EURO wasEURO 1 = ROL 36,575 compared to EURO 1 = ROL 34,919 at 31 December 2002 (31December 2001: EURO 1 = ROL 27,881). This represents a 4.74% depreciation of the ROLagainst the EURO since 31 December 2002.

(b) The Annual General Meeting of Shareholders held on 26 March 2003 approved the followingdistribution of the statutory net profit (statutory amounts):

ROL million

- Statutory legal reserves: 67,151- Statutory general reserve for loans 44,955- Off setting of statutory accumulated losses 135,346- Other statutory reserves 88,305

Total 335,757

During the meeting, the intention of a group of main shareholders of the Bank to seek thealliance with a strategic investor was also announced. Subsequently, on 18 April 2003, anengagement letter was signed in this respect, that sets the terms and conditions upon which thegroup of main shareholders of the Bank agrees to engage Deloitte & Touche as its exclusivefinancial adviser with respect to the sale of all or part of their shareholdings in the Bank.

(c) The Extraordinary General Meeting of Shareholders also held on 26 March 2003 approved theincrease of the statutory share capital by ROL 340,681 million as follows:

- a bonus issue of 1,163,227 ordinary shares from incorporation of statutory reserves in amountof ROL 108,180 million;

- a rights issue of 2,500,002 ordinary shares, by cash contribution from existing shareholders, inamount of ROL 232,501 million.

(d) On 15 May 2003 Mr. Constantin Barbu, Vice-president of the Bank’s Board of Directors,resigned for health reasons.

(e) On 19 June 2003, an Extraordinary General Meeting of Shareholders was held, which approved asupplementary increase of the statutory share capital by way of a rights issue of 994,627 ordinaryshares, by cash contribution from existing shareholders, in amount of ROL 92,500 million.


STATEMENTS




THE NETWORK

1. BUCHAREST BRANCHl ADDRESS: 123, Calea 13 Septembrie, cod 050717, District 5, Bucharestl TELEPHONE: +40 21 410.01.82l FAX: +40 21 411.97.02l e-mail: [email protected]

Point of Sale Cargo Otopenil ADDRESS: Bucureæti-Ploieæti Æos., km 16,5, Otopeni, Ilfov Countyl TELEPHONE: +40 21 201 49 47l FAX: +40 21 201 49 31l e-mail: [email protected]

2. IZVOR BRANCHl ADDRESS: 20, Libertåœii Av., bl. 3, Tronson I and II, cod 050707, District 5, Bucharestl TELEPHONE: +40 21 336.62.33 l FAX: +40 21 336.62.11l e-mail: [email protected]

3. VICTORIA BRANCHl ADDRESS: 1, Nicolae Titulescu Av., bl. A7 ground floor, cod 011131, District 1, Bucharestl TELEPHONE: +40 21 212.52.15 l FAX: +40 21 312.76.93l e-mail: [email protected]

4. ROSETTI BRANCHl ADDRESS: 36, C.A.Rosetti St., District 2, Bucharestl TELEPHONE: +40 21 206.72.00l FAX: +40 21 206.72.01l e-mail: [email protected]

Hotel Hilton Bucharest Exchange Officel TELEPHONE: +40 21 303.37.77/ext. 6813

Hotel Sofitel Bucharest Exchange Officel TELEPHONE: +40 21 224.29.23

5. SF∏NTU GHEORGHE BRANCHl ADDRESS: 102, Lipscani St., Centrul Nouveau, cod 704591, District 3, Bucharestl TELEPHONE: +40 21 206.62.30 l FAX: +40 21 315.80.51 l e-mail: [email protected]

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6. PANTELIMON BRANCHl ADDRESS: 256, Pantelimon Æos., cod 735491, District 2, Bucharestl TELEPHONE: +40 21 255.6372l FAX: +40 21 255.63.68l e-mail: [email protected]

7. TRAIAN AGENCYl ADDRESS: 248, Traian St., cod 731143, District 2, Bucharestl TELEPHONE: +40 21 252.05.70l FAX: +40 21 252.04.43l e-mail: [email protected]

8. NORILOR AGENCYl ADDRESS: 13, Constantin Rådulescu Motru St., cod 75124, District 4, Bucharestl TELEPHONE: +40 21 330.23.21l FAX: +40 21 330.06.33l e-mail: [email protected]

9. MIHAI BRAVU AGENCYl ADDRESS: 204, Mihai Bravu Æos., bl. S 105, cod 4221, District 3, Bucharestl TELEPHONE: +40 21 327.57.81l FAX: +40 21 320.68.10l e-mail: [email protected]

10. METRO MILITARI AGENCYl ADDRESS: 500, Iuliu Maniu Av., District 6, Bucharestl TELEPHONE: +40 21 434.12.67 l FAX: +40 21 434.12.67l e-mail: [email protected]

11. METRO OTOPENI AGENCYl ADDRESS: 289, Bucharest - Ploieæti Æos., Otopeni, Ilfov Countyl TELEPHONE: +40 21 236.17.09l FAX: +40 21 236.17.09l e-mail: [email protected]

12. METRO VOLUNTARI AGENCYl ADDRESS: DN2, KM 10, Afumaœi Æos., cod 72900, Voluntaril TELEPHONE: +40 21 241.03.65l FAX: +40 21 241.03.63l e-mail: [email protected]

13. ARAD BRANCH l ADDRESS 13, Avram Iancu Sq., corp A, cod 2900, Arad Countyl TELEPHONE: +40 257 213.088l FAX: +40 257 213.305l e-mail: [email protected]

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14. BACÅU BRANCHl ADDRESS: 1, Nicolae Bålcescu St., cod 5500, Bacåu Countyl TELEPHONE: +40 234 570.242l FAX: +40 234 576.648l e-mail: [email protected]

15. METRO BACÅU AGENCYl ADDRESS: DN2, Comuna Nicolae Bålcescu, Bacåu Countyl TELEPHONE: +40 234 552.126l FAX: : +40 234 530.000l e-mail: [email protected]

16. BISTRIŒA BRANCHl ADDRESS: 17A, Alexandru Odobescu St., Bistriœa Nåsåud Countyl TELEPHONE: +40 263 239.220l FAX: : +40 263 239.221l e-mail: [email protected]

17. BOTOÆANI BRANCHl ADDRESS: 152, Calea Naœionalå, cod 6800, Botoæani Countyl TELEPHONE: +40 231 536.511l FAX: +40 231 536.510l e-mail: [email protected]

18. BRAÆOV BRANCHl ADDRESS: 20, Michael Weiss St., cod 2200, Braæov Countyl TELEPHONE: +40 268 474.034l FAX: +40 268 410.139l e-mail: [email protected]

19. METRO BRAÆOV AGENCYl ADDRESS: Ghimbav, DN 1 Braæov - Sibiu, KM 8, cod 2251, Braæov Countyl TELEPHONE: +40 268 258.228l FAX: +40 268 258.333l e-mail: [email protected]

20. BRÅILA BRANCHl ADDRESS: 27, Ømpåratul Traian St., cod 6100, Bråila County l TELEPHONE: +40 239 615.097 l FAX: +40 239 615.115l e-mail: [email protected]

21. BUZÅU BRANCHl ADDRESS: 3-5, Bazar - Obor St., cod 5100, Buzåu Countyl TELEPHONE: +40 238 722.246l FAX: +40 238 710.751l e-mail: [email protected]

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22. CLUJ BRANCHl ADDRESS: 11, Moœilor St., cod 400001, Cluj County l TELEPHONE: +40 264 599.178l FAX: +40 264 599.551l e-mail: [email protected]

23. METRO CLUJ AGENCYl ADDRESS: 488-490, Avram Iancu St., Floreæti, Cluj Countyl TELEPHONE: +40 264 591.027l FAX: +40 264 591.028l e-mail: [email protected]

24. CONSTANŒA BRANCHl ADDRESS: 32-34, Ætefan cel Mare St., cod 8700, Constanœa Countyl TELEPHONE: +40 241 548.803l FAX: +40 241 550.509l e-mail: [email protected]

25. METRO CONSTANŒA AGENCYl ADDRESS: 144, Aurel Vlaicu Av., cod 8700, Constanœa Countyl TELEPHONE: +40 241 548.814l FAX: +40 241 548.814l e-mail: [email protected]

26. CRAIOVA BRANCHl ADDRESS: 3, Madona Dudu St., Bl. 1-3-5, cod 1100, Dolj County l TELEPHONE: +40 251 418.037l FAX: +40 251 418.038l e-mail: [email protected]

27. CALAFAT AGENCYl ADDRESS: 16, Al. Ioan Cuza St., bl. 6, cod 1275, Dolj Countyl TELEPHONE: +40 251 333.029 l FAX: +40 251 333.039l e-mail: [email protected]

28. FOCÆANI BRANCHl ADDRESS: 11, Gårii Av., cod 620104, Vrancea Countyl TELEPHONE: +40 237 215.785 l FAX: +40 237 215.520;l e-mail: [email protected]

29. GALAŒI BRANCHl ADDRESS: bl V5, Tecuci St., cod 6200, Galaœi Countyl TELEPHONE: +40 236 460.577l FAX: +40 236 460.577l e-mail: [email protected]

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30. IAÆI BRANCHl ADDRESS: 10, Ætefan cel Mare æi Sfπnt Av., cod 6600, Iaæi Countyl TELEPHONE: +40 232 211.740l FAX: +40 232 264.858l e-mail: [email protected]

31. METRO IAÆI AGENCYl ADDRESS: DN 28, Miroslava, cod 5529, Iaæi Countyl TELEPHONE: +40 232 248.086l FAX: +40 232 248.088l e-mail: [email protected]

32. LUGOJ BRANCHl ADDRESS: 33, 20 Decembrie 1989 St., cod 305500, Timiæ Countyl TELEPHONE: +40 256 350.493l FAX: +40 256 350.494l e-mail: [email protected]

33. ORADEA BRANCHl ADDRESS: 8, Libertåœii St., cod 3700, Bihor Countyl TELEPHONE: +40 259 418.862l FAX: +40 259 413.624l e-mail: [email protected]

34. METRO ORADEA AGENCYl ADDRESS: 231, Calea Clujului, cod 410553, Bihor County l TELEPHONE: +40 259 407.130l FAX: +40 259 407.131l e-mail: [email protected]

35. SALONTA AGENCYl ADDRESS: 28, Republicii St., cod 3650, Bihor Countyl TELEPHONE: +40 259 373.036l FAX: +40 259 373.039l e-mail: [email protected]

36. PIATRA NEAMŒ BRANCHl ADDRESS: 24, Traian Av., bl. A7 parter, cod 5600, Neamœ Countyl TELEPHONE: +40 233 236.080l FAX: +40 233 237.256l e-mail: [email protected]

37. PITEÆTI BRANCHl ADDRESS: 21-23, Fraœii Goleæti St., cod 0300, Argeæ Countyl TELEPHONE: +40 248 250.381l FAX: +40 248 250.556l e-mail: [email protected]

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38. PLOIEÆTI BRANCH l ADDRESS: 8, Emile Zola, cod 100043, Prahova Countyl TELEPHONE: +40 244 594.440l FAX: +40 244 594.441l e-mail: [email protected]

39. METRO PLOIESTI AGENCYl ADDRESS: DN 1, KM 6, Bucureæti - Ploieæti, Prahova Countyl TELEPHONE: +40 244 597.671l FAX: +40 244 597.671l e-mail: [email protected]

40. SATU MARE BRANCHl ADDRESS: bl. D8, Piaœa Romanå, cod 3900, Satu Mare Countyl TELEPHONE: +40 261 768.293l FAX: +40 261 768.462l e-mail: [email protected]

41. SIBIU BRANCHl ADDRESS: 19, Someæului St., cod 530003, Sibiu Countyl TELEPHONE: +40 269 211.020l FAX: +40 269 216.053l e-mail: [email protected]

42. METRO SIBIU AGENCYl ADDRESS: 79A, Alba Iulia Æos, cod 2400, Sibiu County l TELEPHONE: +40 269 208.130l FAX: +40 269 208.131l e-mail: [email protected]

43. SUCEAVA BRANCHl ADDRESS: 6, Vasile Alecsandri St. cod 720001, Suceava Countyl TELEPHONE: +40 230 551.562l FAX: +40 230 551.561l e-mail: [email protected]

44. T∏RGU MUREÆ BRANCHl ADDRESS: 2, Arany Janos St., cod 540045, Mureæ Countyl TELEPHONE: +40 265 216.114l FAX: +40 265 210.356l e-mail: [email protected]

45. TIMIÆOARA BRANCHl ADDRESS: 3, Bocæa St., cod 1900, Timiæ Countyl TELEPHONE: +40 256 293.701l FAX: +40 256 200.403l e-mail: [email protected]

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Documents

Raport Anual Banca Comerciala Ion Tiriac 2002