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Komercni Banka (KMCA)

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Tuesday 02 April, 2002

Komercni Banka

Annual Report part 2/5

Komercni Banka
2 April 2002

PART 2



// Annual report part 2



(d) Amounts due from banks and customers

Loans originated by the Bank by providing money directly to a borrower are
categorised as loans originated by the Bank and are carried at amortised cost.
All loans and advances are recognised when cash is advanced to borrowers.

Loans and advances to customers and financial institutions are stated net of
provisions for loan losses. A credit risk provision for loan impairment is
established if there is objective evidence that the Bank will not be able to
collect all amounts due. The amount of the provision is established pursuant to
regulation of the Czech National Bank no. 194/1998 Coll., which provides
guidance on loan receivable classification and provisioning against loan
receivables. A portion of the classified loans which the Bank administers in a
special division are provisioned reflecting the expected recovery rates as
estimated by the Bank, provided that such a provisioning charge is greater than
the provision established under the regulation of the Czech National Bank.
Specific provisions are assessed with reference to the credit standing and
performance of the borrower and take into account the value of any collateral or
third party guarantees.

The Bank charges penalty interest to borrowers when a portion of the loan falls
overdue. Pursuant to the Bank's internal policies, penalty interest is not
covered by the collateral set aside against the loan of the borrower. With
effect from 1 January 2001, the Bank has altered its accounting treatment for
penalty interest reflecting the requirements set out in the regulation of the
Czech Finance Ministry no. 282/65 327/2000, which establishes the chart of
accounts and the accounting principles for banks. Penalty interest assessed
subsequent to 1 January 2001 is accounted for as income in the profit and loss
statement and reflected in the on-balance sheet receivable balance and, whereas
penalty interest assessed prior to 1 January 2001 is retained in off balance
sheet accounts, as was the case in 2000, and included in income when received.
The penalty interest in receivable balance are covered by provisions.



The Bank recorded a general provision for impairment of on-balance sheet and
off-balance sheet loan receivables. A portion of the general provision relating
to the on-balance sheet exposures is designed to cover losses that are judged by
the management of the Bank to be present in the loan portfolio as of the balance
sheet date, but which have not been allocated to specific or individual
exposures.

The Bank writes off loss loans when clients are unable to fulfil their
obligations to the Bank in respect of these loans. The loan is written off
against the related provision for loan impairment. Subsequent recoveries are
credited to the profit and loss statement in 'Other income' if previously
written off.

Discounted bills of exchange are carried at nominal value. The related discount
is included in the balance sheet line 'Accruals and deferred income' and is
amortised on a straight line basis to income over the period from acquisition
till maturity.



(e) Securities

In accordance with the regulation of the Czech Finance Ministry no. 282/65 327/
2000, which establishes the chart of accounts and the accounting principles for
banks, securities held by the Bank are categorised into portfolios in accordance
with the Bank's intent on the acquisition of the securities and pursuant to the
Bank's security investment strategy. The Bank has classified securities as '
Trading securities', 'Available for sale' and 'Held to maturity.'

All securities held by the Bank are recognised using settlement date accounting
and initially measured at their cost plus accrued coupon. The carrying value of
debt securities is increased or decreased to reflect the accrued interest income
using the effective interest rate method. Interest income includes the accrued
income and the accrued difference between the nominal value of the security and
its amortised cost. Disposals of securities are calculated using the average
cost method.

The Bank establishes provisions against securities as equal to the excess of net
carrying value over the market value of the security. Provisions are recognised
on a daily basis in respect of securities held for trading and on a monthly
basis in respect of securities carried within the available for sale category or
held to maturity (as a result of the deterioration of credit risk attached to
the security's issuer).

Trading securities are reported on the face of the balance sheet as securities
held for trading and capital gains and losses and provisions are include in the
profit and loss statement line 'Profit/(loss) on financial operations.'
Securities available for sale and held to maturity are carried on the balance
sheet within 'Other financial investments.' Capital gains and losses on the
disposal of the security are included in 'Profit/(loss) on financial operations'
whilst provisions are reported as provisions for fixed asset investments and
financial investments.





Trading securities

Trading securities are financial assets (equity and debt securities, treasury
bills, participation certificates) acquired by the Bank for the purpose of
generating a profit from fluctuations in prices in the short term, typically
defined as one year.

All purchases and sales of trading securities that require delivery within the
time frame established by regulation or market convention ('regular way'
purchases and sales) are recognised as spot transactions. Transactions that do
not meet the 'regular way' settlement criterion are treated as financial
derivatives.





Investments held to maturity

Investments held to maturity are financial assets with fixed or determinable
payments and fixed maturities that the Bank has the positive intent and ability
to hold to maturity. This portfolio comprises treasury bills and debt
securities.

The Bank assesses on a regular basis whether there is any objective evidence
that an investment held to maturity may be impaired. A financial asset is
impaired if its carrying amount is greater than its estimated recoverable amount
which is equal to the present value of the expected future cash flows discounted
at the financial instrument's original effective interest rate. The amount of
the impairment loss for assets carried at amortised cost is calculated as the
difference between the asset's carrying amount and the present value of the
expected future cash flows discounted at the financial instrument's original
effective interest rate. When the impairment of assets is identified, the Bank
recognises provisions through the profit and loss statement as provisions
against financial investments.





Securities available for sale



Available for sale securities are those financial assets that are not classified
as financial assets held for trading or held-to-maturity investments. This
portfolio comprises equity securities and debt securities, including asset
backed securities and participation certificates.



(f) Tangible and intangible fixed assets



Tangible and intangible fixed assets are stated at historical cost less
accumulated depreciation together with accumulated impairment losses. Fixed
assets are depreciated through the accumulated depreciation charge. Depreciation
is calculated on a straight-line basis to write off the cost of each asset to
their residual values over their estimated useful economic life. Land and assets
in the course of construction are not depreciated.

The estimated useful economic lives in years are set out below:
Machinery and equipment, computers, vehicles                                                                        4
Fixtures, fittings and equipment                                                                                    6
Energy machinery and equipment                                                                                     12
Buildings and structures                                                                                           30





Low value fixed assets and repairs in the nature of technical improvements
costing less than CZK 40,000 in the case of tangible fixed assets and CZK 60,000
in the case of intangible fixed assets with an estimated useful life greater
than one year are charged to the profit and loss statement when the expenditure
is incurred. Technical improvements costing greater than CZK 40,000 in respect
of tangible fixed assets and greater than CZK 60,000 in respect of intangible
fixed assets increase the acquisition cost of the related fixed asset.
Acquisition costs of know-how greater than CZK 60,000 with an estimated useful
life exceeding one year are recorded as intangible fixed assets.

The Bank periodically tests its assets for impairment and temporary impairments
are provisioned. Repairs and renewals are charged to the profit and loss
statement when the expenditure is incurred.







(g) Leases




Assets held under finance leases are not recognised on the balance sheet over
the lease term. These assets are recorded in the off balance sheet records.
Amounts related to fixed assets acquired under finance leases are amortised and
expensed over the lease term. The future lease payments of the Bank are made by
reference to the payment schedule agreed upon within the finance lease
arrangement.



At present the Bank does not act as a lessor for finance or operating leases.





(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. In
addition, the Bank recorded provisions for standard loans and estimated losses
on off balance sheet exposures.





(j) Certificated debts

Certificated debts issued by the Bank are stated at their nominal value net of
any unamortised interest expense and premium or discount arising on issue. The
premium or discount is amortised over the term of issue to maturity using the
effective interest rate method. Interest expense arising on the issue of
certificated debts is included in the profit and loss statement line 'Interest
expense and similar expenses'.





(k) Recognition of income and expense

Interest income and expense are recognised in the profit and loss statement for
all interest bearing instruments on an accruals basis. Interest income includes
coupons earned on fixed income investments and trading securities and accrued
discount and premium on treasury bills and other discounted instruments. Penalty
interest is accounted for on a cash basis. Fees and commissions are recognised
as income in the profit and loss statement when due.







(l) Taxation

Taxation is calculated in accordance with the provisions of the relevant
legislation of the Czech Republic and other jurisdictions in which the Bank
operates, based on the profit or loss recognised in the income statement
prepared pursuant to Czech Accounting Standards.

Deferred income tax is provided, using the balance sheet liability method, for
temporary differences arising between the tax bases of assets and liabilities
and their carrying values for financial reporting purposes. Currently enacted
tax rates are used to determine deferred income tax. The principal temporary
differences arise from depreciation on property, plant and equipment, specific
and general provisions for loans, securities valuation and tax losses carried
forward. Deferred tax assets in respect of tax losses carried forward and other
temporary differences are recognised to the extent that it is probable that
future taxable profit will be available against which the tax assets can be
utilised.









(m) Sale and repurchase agreements

Securities sold under sale and repurchase agreements ('repos') are recorded as
assets in the balance sheet line 'Amounts due from banks' or 'Amounts due from
customers' and the counterparty liability is included in 'Amounts owed to banks'
or 'Amounts owed to customers' as appropriate.

Securities purchased under agreements to purchase and resell ('reverse repos')
are recorded on the balance sheet within the relevant category of trading
securities or available for sale. Liabilities arising from the securities
acquired under reverse repos are included in the balance sheet line 'Amounts
owed to banks' or 'Amounts owed to customers' as appropriate. Loans advanced
under reverse repos are recorded as 'Amounts due from banks' or 'Amounts due
from customers' as appropriate. The difference between the sale and repurchase
price is treated as interest and accrued evenly over the life of the repo
agreement using the effective interest rate.

Transactions involving the sale of securities with a concurrently negotiated
repurchase and the purchase of securities with a concurrently negotiated resale
are accounted for as repo and reverse repo transactions.





(n) Derivative financial instruments and hedging

In the normal course of business, the Bank is a party to contracts for
derivative financial instruments which represent a very low initial investment.
The derivative financial instruments used include interest rate forward or swap
agreements and currency swaps. These financial instruments are used by the Bank
to hedge interest rate risk and currency exposures associated with its
transactions in the financial markets. The Bank also acts as an intermediary
provider of these instruments to certain clients.

Derivative financial instruments are initially recognised in the balance sheet
at cost and subsequently are remeasured at their fair value. Fair values are
obtained from quoted market prices, discounted cash flow models and options
pricing models as appropriate. All derivatives are carried as assets when fair
value is positive and as liabilities when fair value is negative.

Certain derivatives are embedded in other financial instruments, such as the
conversion option in a convertible bond, and are treated as separate derivatives
when their risks and characteristics are not closely related to those of the
host contract and the host contract is not carried at fair value with unrealised
gains and losses reported in the profit and loss statement.



Changes in the fair value of derivatives held for trading are included in the
profit and loss statement line 'Profit/(loss) on financial operations.'

On the date a derivative contract is entered into, the Bank designates certain
derivatives as hedges which are recognised using hedging accounting rules
provided that the criteria set out in the regulation of the Czech Finance
Ministry 282/65 327/2000, which establishes the chart of accounts and the
accounting principles for banks, are met.



The Bank's criteria for a derivative instrument to be accounted for as a hedge
include:

(a) The Bank has developed a risk management strategy;

(b) At the inception of the hedge, the hedging relationship is formally
documented, the documentation identifies the hedged item and the hedging
instrument, defines risk that is being hedged and the approach to establishing
whether the hedge is effective;

(c) The hedge is effective, that is if changes in the fair value or cash flows
of the hedged item are almost fully offset by changes in the fair value or cash
flows of the hedging instrument and the results are within a range of 80 percent
to 125 percent.

Changes in the fair value of derivatives that are designated and qualify as
hedges and that prove to be highly effective in relation to the hedged risk, are
recorded in the balance sheet. The balances on the balance sheet are taken to
the profit and loss statement and classified as income and expenses in the
period in which the hedged asset or liability impacts the profit and loss
statement.

Certain derivative transactions, while providing effective economic hedges under
the Bank's risk management positions, do not qualify for hedge accounting and
are therefore treated as derivatives held for trading with fair value gains and
losses reported in the profit and loss statement 'Profit/(loss) on financial
operations.'

As of 1 January 2001, pursuant to the requirements of the regulation of the
Czech Finance Ministry 282/65 327/2000, which establishes the chart of accounts
and the accounting principles for banks, the Bank re-assessed transactions that
were originally treated as hedges in 2000 and where these transactions did not
qualify for special hedge accounting these instruments were treated as trading
items and marked to market. The difference of CZK 140 million arising between
the previous carrying value and the fair value was reported in the profit and
loss statement as income for the current accounting period.



(o) Regulatory requirements

The Bank is subject to the regulatory requirements of the Czech National Bank.
These regulations include limits and other restrictions pertaining to minimum
capital adequacy requirements, classification of loans and off balance sheet
commitments and provisioning to cover credit risk, liquidity, interest rate and
foreign currency position.



(p) Extraordinary income and costs

Extraordinary income and costs represent items that do not relate to the current
account period on an accruals basis.



(q) New accounting pronouncements for 2002

With effect from 1 January 2002, the regulation of the Czech Finance Ministry
dated 15 November 2001, which establishes the chart of accounts and the
accounting principles for banks and certain financial institutions, has altered
the accounting and valuation policies of securities, the accounting treatment
for repo transactions and recognition of reserves. As a result of the
implementation of the new accounting policies as of 1 January 2002, the Bank
generated a one-off gain that was recognised as extraordinary income or costs,
as appropriate, in accordance with the transitory provisions of the new
regulation.





Key changes are set out below:



Securities

As of 1 January 2002, the Bank has allocated securities into four portfolios: '
Held for trading', 'Available for sale', 'Held to maturity' and 'Acquired under
initial offerings not designated for trading.' The securities are initially
measured at their cost including all transaction costs attributable to their
acquisition. Securities held to maturity and carried within the new portfolio of
securities acquired under initial offerings are stated at amortised cost and any
impairment associated with credit risk is provisioned. As of 1 January 2002,
securities held for trading and available for sale are fair valued and changes
in the fair value are recognised through the profit and loss statement. The Bank
recognised a one-off gain of CZK 530 million as a result of the remeasurement of
securities to fair values as of 1 January 2002.

In the event of the repurchase of its own certificated debts the Bank does not
recognise these debts as assets but reduces the balance of own certificated
debts reported as liabilities. The difference between the cost and the accrued
value of the issued certificated debts is reported as profit or loss. As of 1
January 2002, the Bank incurred a one-off loss of approximately CZK 50 million
from the reversal of its own certificated debts.

With effect from 1 January 2002, the gains or losses arising from the sale of
treasury shares are not recognised through the profit and loss statement but
directly impact the Bank's equity. As such, the Bank released the provision for
treasury equities established for the losses associated with their disposal as
equal to the difference of their carrying value and the current market value.



Reverse repo transactions

Securities received as collateral under reverse repo transactions are not
recognised on the Bank's balance sheet and are stated at fair value in off
balance sheet memorandum accounts. The off balance sheet accounts do not reflect
collateral that is subject to a short sale. The reverse repo is defined as a
standard reverse repurchase transaction and also as a borrowing of securities
secured by the transfer of financial assets and a purchase of securities with a
concurrently negotiated resale.



Provisioning policies

As part of the adoption of the amended accounting procedures, the Bank updated
its provisioning policy. A provision may recognised only when there is an
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 and all
these criteria must be met simultaneously. In this context, the Bank is
re-assessing its current provisioning policies, primarily in relation to credit
risk management.


    4 Net interest income



Net interest income comprises:
                                                              Year ended 31 December 2001   Year ended 31 December 2000
                                                                                 CZK '000                      CZK '000
Interest income
- Loans and advances to financial institutions                                 11 790 100                    12 704 816
- Loans and advances to customers                                              14 091 501                    14 782 663
- Bonds, treasury bills and other fixed income securities                       2 805 224                     1 608 048
Total interest income                                                          28 686 825                    29 095 527
Interest expense
- Amounts owed to financial institutions                                      (3 427 126)                   (4 386 293)
- Amounts owed to customers                                                   (9 233 593)                  (10 284 173)
- Certificated debts                                                          (2 460 861)                   (2 081 195)
Total interest expense                                                       (15 121 580)                  (16 751 661)
Net interest income                                                            13 565 245                    12 343 866



Interest income on loans and advances to customers as of 31 December 2001 also
includes accrued penalty interest of CZK 761,162 thousand assessed subsequent to
1 January 2001, of which CZK 593,208 thousand remained outstanding as of 31
December 2001. The Bank has established provisions against outstanding penalty
interest.




    5 Net fees and commissions

Net fees and commissions comprise:
                                                     Year ended 31 December 2001            Year ended 31 December 2000
                                                                        CZK '000                               CZK '000
Fees and commissions income                                            6 486 429                              5 426 949
Fees and commissions expense                                           (505 042)                            (1 005 225)
Net fees and commissions income                                        5 981 387                              4 421 724



Fees and commissions comprise commission income and expenses received or paid
principally in respect of loan administration, issued guarantees and agency
services.








    6 Profit/(loss) on financial operations

                                                                          Year ended 31 December Year ended 31 December
                                                                                            2001                   2000
                                                                                        CZK '000               CZK '000
Gains/(losses) on trading securities                                                      81 268               (27 932)
Gains/(losses) on investment securities                                                   27 490              (133 967)
Provisions against trading securities                                                      9 850              1 136 616
Net income from foreign exchange commissions from clean and documentary                1 478 177              1 599 801
payments
Net income from commissions from foreign exchange transactions                           882 265              1 159 341
Realised and unrealised gains/(losses) on foreign exchange trading and                   438 847              (361 396)
currency derivatives
Realised and unrealised gains/(losses) on interest rate and credit                       194 358              (144 696)
derivatives
Realised and unrealised gains/(losses) on commodity derivatives                            2 339                      0
Realised and unrealised gains/(losses) on security derivatives                            39 781                      0
Realised and unrealised gains/(losses) on securities trading on behalf of                  (221)               (11 757)
customers
Profit/(loss) on financial operations                                                  3 154 154              3 216 010






    7 Other income and expenses

Other income and expenses comprise:
                                                                      Income    Expenses        Income         Expenses
                                                                    CZK '000    CZK '000      CZK '000         CZK '000
                                                                        2001        2001          2000             2000
Income/(expenses) from the sale of assets                            181 437   (161 989)       196 032        (111 601)
Income/(expenses) from the sale of fixed asset investments                 0           0       150 140         (64 635)
Income/(expenses) from written off loan receivables from banks             0           0        84 746                0
Income/(expenses) from written off loan receivables from customers 2 252 415   (152 834)     7 402 840      (5 161 220)
Income/(expenses) from other written off receivables                       0   (129 367)            41         (46 004)
Income/(expenses) from transferred receivables                         6 015 (1 706 450)    29 582 090     (49 208 469)
Remuneration to Management and Supervisory Boards                          0   (115 397)             0         (40 018)
Other operating income/(expenses)                                    656 689 (1 164 996)       111 943      (1 266 828)
Total                                                              3 096 556 (3 431 033)    37 527 832     (55 898 775)



Prior years numbers (2000) reflect assets transfers to Konpo and related income/
expense.




    8 General operating costs

In addition to wages and salaries and social security costs, general operating
costs in the aggregate amount of CZK 12,141,073 thousand comprise purchased
consumables and depreciation/amortisation of tangible and intangible fixed
assets. Wages and salaries include Management Board bonuses paid under
management contracts and compensation paid under the equity compensation scheme.
Remuneration to the members of the Management and Supervisory Boards arising
from mandate contracts are recorded in the profit and loss statement line 'Other
costs.'
                                                         Year ended 31 December 2001       Year ended 31 December 2000
                                                                            CZK '000                          CZK '000
Wages and salaries                                                       (4 418 105)                       (3 910 700)
Social security costs                                                    (1 137 610)                       (1 036 069)
Health insurance costs                                                     (381 182)                         (343 280)
Staff costs                                                              (5 936 897)                       (5 290 049)
Depreciation of tangible fixed assets                                    (1 239 461)                       (1 497 888)
Amortisation of intangible fixed assets                                    (558 108)                         (340 207)
Taxes and charges                                                           (44 867)                          (60 484)
Purchased consumables                                                    (4 361 740)                       (4 106 968)
Other operating costs                                                    (6 204 176)                       (6 005 547)
Total general operating costs                                           (12 141 073)                      (11 295 596)
Number of employees at the year-end                                            9 299                            10 703
Average number of employees during the year                                    9 873                            11 865
Average cost per employee (CZK)                                              601 327                           445 853



Restructuring costs

The management of the Bank approved a restructuring plan for the Bank in June
2000. The plan was announced in July 2000 and implemented primarily in 2000.
During 2001, the Bank continued implementing its restructuring program, the most
significant matters being the centralisation and redistribution of certain
activities and services to the Bank's specialised subsidiaries (refer to Note 2
to the financial statements).

Costs relating to the restructuring comprise costs of severance and compensation
associated with reducing staff numbers, costs of disposal of redundant buildings
and early termination of leases and costs reflecting the impairment of
under-utilised leasehold improvements on leased premises.

Following the entrance of the new shareholder, the Bank reviewed the location,
appearance and positioning of its branch network in the context of its strategic
plans for customers and product delivery in the three-year period from 2002
through 2004. This review identified a number of buildings, owned and leased,
whose location and appearance is not compatible with such plans. The Bank's
intention is to dispose of these premises and vacate the leases as and when the
market conditions allow in the medium term. The impairment charge from this
review and earlier reviews amounts to CZK 1,276,312 thousand and includes
expected losses on the sale of premises presently owned by the Bank, the
writedown of leasehold improvements on leased premises for which it intends to
sell or terminate the rental agreements and the writedown of the carrying amount
of prepaid rentals on buildings that will be vacated. Management of the Bank
considers such impairment charges as restructuring costs.



Restructuring costs comprise:


                                                                       Year ended 31 December    Year ended 31 December
                                                                                         2001                      2000
                                                                                     CZK '000                  CZK '000
Redundancy compensation costs                                                          85 546                   320 065
Impairment charge relating to branch network and termination of                     1 276 312                   252 000
leases
Other restructuring costs                                                             393 427                   255 044
Total restructuring costs                                                           1 755 285                   827 109



Of the aggregate restructuring costs of CZK 1 755 285 thousand, CZK 1 278 135
thousand is charged in the creation/use of provisions for tangible and
intangible assets, CZK 80 787 thousand in staff costs and CZK 396,363 thousand
in the creation/use of other provision and reserves.




    9 Reserves and provisions

Provisions are established pursuant to the regulation of the Czech National Bank
no. 194/1998 Coll., which provides guidance on loan receivable classification
and provisioning against loan receivables. Classified loans which the Bank
administers in a special division are provisioned reflecting the expected
recovery rates as estimated by the Bank, provided that such a provisioning
charge is greater than the provision required under the regulation of the Czech
National Bank.

Tax deductible reserves for general banking risks and reserves for repairs of
tangible assets are recorded in accordance with Provisioning Act 593/1992 Coll.,
as amended (the 'Provisioning Act').

In addition, the Bank creates non-tax deductible reserves to cover general risk
inherent in the loan portfolio in an amount in excess of the statutory limit set
out in the Provisioning Act, reserves for fixed asset investments and other
financial investments and reserves for restructuring costs.



Prior to the end of 2001, provisions for loans to borrowers in bankruptcy were
recorded in special analytical accounts and the Bank recorded tax deductible and
non-tax deductible provisions pursuant to the Provisioning Act. Effective 2001,
the Bank recognises provisions for new bankruptcies as a component of loan loss
provisions.

During the year ended 31 December 2001, pursuant to the Provisioning Act, the
Bank created tax deductible reserves for the risks inherent in the standard loan
portfolio as equal to 1 percent of the average balance of these loans and
reserves for guarantees issued equivalent to 2 percent of the average balance of
these receivables. In addition, the Bank recorded non-tax deductible reserves
for standard loans/guarantees above the set limit.

The use of reserves and provisions involves their drawing and release into
income. Reserves and provisions are used when loans are sold or written off
against the costs associated with the sale or write-off. Reserves and provisions
are released into income in circumstances where the Bank reassesses the
requirements for such provisions, for example when the loan classification is
upgraded or when the loan is sold for a value greater than the net book value.

For futher information refer to Note 3(i).




            Reserves and provisions for loans and guarantees

                                        Balance at 1 January   Creation       Use  FX effect     Balance at 31 December
                                                        2001                                                       2001
                                                    CZK '000   CZK '000  CZK '000   CZK '000                   CZK '000
Provisions for classified loans                   12 275 425  7 531 210 5 194 276  (234 683)                 14 377 676
of which: banks                                       13 088     35 610    35 097      (808)                     12 793
of which: customers                               12 262 337  7 495 600 5 159 179  (233 875)                 14 364 883
Provisions for debtors in                          1 444 423    491 379   730 254    (8 450)                  1 197 098
bankruptcy
of which: banks                                            0          0         0          0                          0
of which: customers                                1 444 423    491 379   730 254    (8 450)                  1 197 098
Total provisions                                  13 719 848  8 022 589 5 924 530  (243 133)                 15 574 774
of which: banks                                       13 088     35 610    35 097      (808)                     12 793
of which: customers                               13 706 760  7 986 979 5 889 433  (242 325)                 15 561 981
Total reserves                                     8 387 171  2 736 419   491 913          0                 10 631 677
Reserves and provisions                           22 107 019 10 759 008 6 416 443 ( 243 133)                 26 206 451





Of the aggregate reserve of CZK 10,631,677 thousand for loans and guarantees,
CZK 9,709,682 thousand is tax deductible and CZK 921,995 thousand non-tax
deductible. The non-tax deductible reserves are reported in the balance sheet
line 'Reserves for other banking risks.' The balance of CZK 10,631,677 thousand
comprises the reserve for loans of CZK 8,780,117 thousand and the reserves for
guarantees of CZK 1,851,560 thousand.



General reserve for risks and uncertainties inherent in the loan portfolio

The Bank's loan portfolio includes a number of risks that cannot be specifically
identified as such.

As of 31 December 2001, the Bank maintains reserves of CZK 8,780,117 million to
cover the risks and uncertainties, which may be present in the loan portfolio as
of that date but which cannot be allocated to individual exposures. This reserve
also covers an assessment of the Bank's participation in the aggregate losses
incurred on the guaranteed risk portfolio covered by the State Guarantee (see
above). The breakdown of the reserve for general risks is as follows:
Risk                                                                                                            Reserve
                                                                                                               CZK '000
Standard loans                                                                                                3 304 600
Other general credit risks                                                                                    5 475 517
Total                                                                                                         8 780 117















Reserve for risks and uncertainties inherent in off balance sheet credit-related
commitments and credit instruments

As of 31 December 2001, the balance of the reserve for other credit commitments
was CZK 1,851,560 thousand. This reserve covers credit risks associated with
issued credit commitments, off balance sheet credit instruments and the
participation in the estimated losses on the guaranteed portfolio of off balance
sheet exposures of the Bank pursuant to the Guarantee Agreement dated 29
December 2000 (see above).




            Reserves and provisions for tangible and intangible assets

                                 Balance at 1 January 2001  Creation         Use            Balance at 31 December 2001
                                                  CZK '000  CZK '000    CZK '000                               CZK '000
Provisions for tangible assets                     152 000 1 145 983      83 573                              1 214 410
Provisions for intangible assets                   221 000   328 663     269 014                                280 649
Reserves                                                 0    41 809           0                                 41 809
Total reserves and provisions                      373 000 1 516 455     352 587                              1 536 868



For further information refer to Note 8, sub-caption 'Restructuring costs.'



Reserves and provisions for fixed asset investments and financial investments

                                              Balance at 1 January  Creation       Use       FX  Balance at 31 December
                                                              2001                       effect                    2001
                                                          CZK '000  CZK '000  CZK '000 CZK '000                CZK '000
Provisions for fixed asset investments                     533 836   395 759   177 548    (147)                 751 900
Reserves for fixed asset investments                             0   388 000   108 000        0                 280 000
Reserves and provisions for fixed asset                    533 836   783 759   285 548    (147)               1 031 900
investments
Provisions for financial investments                       692 099 4 022 640 2 559 568 (23 558)               2 131 613
                                                                                
Reserves for financial investments                         322 000         0   322 000        0                       0
Reserves and provisions for financial                    1 014 099 4 022 640 2 881 568 (23 558)               2 131 613
investments                                                                     
Total reserves and provisions                            1 547 935 4 806 399 3 167 116 (23 705)               3 163 513
                                                                                





As of 31 December 2001, the Bank carried a reserve for the estimated losses of
Komercni pojistovna which are expected to exceed the entity's equity. This
reserve provided for the amount of the known aggregate accumulated losses
reported by the entity as of 31 December 2001.


                Other reserves and provisions

                                           Balance at 1 January 2001   Creation        Use  Balance at 31 December 2001


                                                            CZK '000   CZK '000   CZK '000                     CZK '000
Closure of foreign representative offices                     21 200          0     21 200                            0
Termination of lease agreements                              100 000     96 000    100 000                       96 000
Legal disputes                                                     0    100 385      1 439                       98 946
Disposal of redundant inventories                                  0     49 400     12 612                       36 788
Advisory costs                                                55 810    152 603     99 977                      108 436
Equity compensation program                                   53 000    130 447    174 624                        8 823
Wages and salaries                                           262 516  1 396 100  1 464 554                      194 062
Other risks                                                        0    314 837    205 802                      109 035
Total other reserves                                         492 526  2 239 772  2 080 208                      652 090
Provisions for other receivables                             254 738    545 738    239 759                      560 717
Total other reserves and provisions                          747 264  2 785 510  2 319 967                    1 212 807






    10 Taxation

The major components of corporate income tax expense are as follows:
                                                  Year ended 31 December 2001              Year ended 31 December 2000
                                                                     CZK '000                                 CZK '000
Tax payable - current year                                            745 167                                   10 547
Tax paid - prior year                                                  17 355                                    ( 51)
Deferred tax movement                                                     728                                    6 912
Total income tax expense                                              763 250                                   17 408



The tax of CZK 17,355 thousand paid in the prior year primarily represents an
additional tax charge assessed by the tax office pursuant to its tax review in
respect of the year ended 31 December 1999.



The corporate tax rate for the year ended 31 December 2001 is 31 % (2000: 31 %).
The effective tax rate as of 31 December 2001 is 23 % (2000: zero %). The tax on
the operating profit differs from the theoretical amount that would arise using
the basic tax rate as follows:
                                                                          Year ended 31 December Year ended 31 December
                                                                                            2001                   2000
                                                                                        CZK '000               CZK '000
Profit/(loss) before tax (current tax rate)                                            3 367 455              (202 239)
Profit before tax (special tax rate)                                                      19 437                 70 312
Profit/(loss) before tax                                                               3 386 892              (131 927)

Theoretical tax credit calculated at a tax rate of 31% and 15%,                        1 046 827               (52 147)
respectively (1999: 31%)

Income not taxable, primarily interest                                               (4 387 458)            (7 240 426)
Expenses not deductible for tax purposes                                               4 669 200              6 987 102
- Provisions for loan losses                                                           1 390 943              1 278 674
- Other non-deductible costs                                                           3 278 257              5 708 428
Utilisation of tax losses carried forward                                              (558 148)                316 018
Non-consolidated tax losses (only consolidation)
Other                                                                                   (20 812)
Movement on deferred tax                                                                     728                  6 912
Tax allowance                                                                            (4 442)
Income tax expense                                                                       742 980                  6 912
Other tax expense (15% foreign dividend tax)                                               2 915                 10 547
Prior period tax expense                                                                  17 355                   (51)
Withholding tax (15% local dividend tax)                                                       0                      0
Total income tax expense                                                                 763 250                 17 408



The Bank's tax liability is calculated based upon the accounting profit/(loss)
taking into account tax non-deductible expenses and tax exempt income or income
subject to the final tax rate.

The Bank's tax liability as of 31 December 2001 was calculated taking into the
account the availability and use of its tax losses carried forward from previous
accounting periods. At the beginning of July 2001, the tax office allowed the
Bank to increase the limit for tax deductible provisions for the year 2000 by
CZK 4 billion in excess of the statutory provisioning limit. This gave rise to a
tax loss in 2000 which is available for utilisation in 2001. As of 31 December
2001 the Bank has no corporate income tax losses to carry forward into future
accounting periods.



Deferred income tax

Deferred income taxes are calculated on all temporary differences using the
corporate income tax rate effective for the following year, that is 31 percent
(2000: 31 percent).







The movement on the deferred income tax account is as follows:
                                                          Year ended 31 December 2001       Year ended 31 December 2000
                                                                             CZK '000                          CZK '000
At beginning of period                                                       (80 391)                          (73 479)
- fixed asset depreciation                                                     21 124                           (6 912)
- penalty interest and contractual penalties                                 (21 852)                                 0
At end of period                                                             (81 119)                          (80 391)



The movement in the deferred income tax account comprises the movement in
accelerated tax depreciation. Deferred income tax assets and liabilities are
attributable to the following items:


                                                                              31 December 2001         31 December 2000
                                                                                      CZK '000                 CZK '000
Deferred income tax liabilities
Accelerated tax depreciation                                                          (59 267)                 (80 391)
Penalty interest and contractual penalties                                            (21 852)                        0
Other temporary differences                                                                  0                        0
                                                                                      (81 119)                 (80 391)
Deferred income tax assets
General and specific loan loss provisions                                              394 000                2 387 000
Reserves and provisions for assets                                                     450 970                        0
Other reserves                                                                         124 870                        0
Provisions for non-banking receivables                                                  64 395                        0
Tax loss carry forwards                                                                      0                  118 000
Unrealised losses on securities                                                        190 848                  290 000
Fixed asset depreciation                                                                     0                        0
Other temporary differences                                                             85 286                  268 000
                                                                                     1 310 369                3 063 000

Net deferred income tax asset before adjustment                                      1 229 250                2 982 609
Adjustment for uncertain realisation of tax asset                                  (1 310 369)              (3 063 000)
Net deferred income tax liability                                                     (81 119)                 (80 391)



The reduction in the unrecognised deferred tax asset as of 31 December 2001 when
compared with the prior year end reflects primarily changes in the treatment of
the general reserves held by the Bank as of 31 December 2001 pursuant to the
prospective application of amendments to the Act on Reserves. The Act as
presently drafted requires that the Bank release these provisions in the
accounting periods ending 31 December 2005.








    11 Extraordinary income, extraordinary costs

                                                 Year ended 31 December 2001               Year ended 31 December 2000
                                                                    CZK '000                                  CZK '000
Extraordinary income                                                 825 799                                   218 176
Extraordinary costs                                                (274 986)                                  (61 341)
Net extraordinary income                                             550 813                                   156 835



Extraordinary income and costs principally consist of income and costs that
relate to the previous accounting period, such as the recognition of identified
errors and unbooked transactions and also exceptional events that relate to the
current period but are not part of the Bank's normal business, such as losses
incurred, damages and compensation for damage.

For the year ended 31 December 2001, extraordinary income and costs principally
consisted of non-recurring income and costs of CZK 428 million and CZK 121
million, respectively, from the write-off and write back of receivables and
payables held in suspense and clearing accounts. A significant proportion of
these balances arose as a result of payment transactions at the beginning of the
1990's in connection with the Bank's migration to a new banking system for
domestic payments and unsettled amounts that were due to the clean and
documentary payment system being effected through a local banking intermediator.

Extraordinary income and costs additionally comprise income and costs arising
from a transaction effected in 2000 under which a loan insured by EGAP was
transferred and the insurance company paid the insurance claim. The aggregate
income and costs recognised as a result of this transaction amounted to CZK 154
million and CZK 180 million, respectively.

During the year ended 31 December 2001, the Bank corrected errors in the
recognition of fair values of certain derivative transactions. The difference of
CZK 95 million between the carrying value and the actual fair value was recorded
as extraordinary income.

As of 31 December 2001, the balance of identified deficits and damage is CZK 24
million, of which CZK 8 million was recognised as income as a result of
financial surpluses and compensation collected in respect of the deficits and
damage.




    12 Cash in hand, deposits with central banks, treasury bills



Cash and balances with central banks comprise:
                                                                            31 December 2001           31 December 2000
                                                                                    CZK '000                   CZK '000
Cash in hand                                                                       8 687 988                  7 913 287
Balances with the Czech National Bank                                              8 571 854                 11 873 740
Total cash and balances with central banks                                        17 259 842                 19 787 027







Balances with the Czech National Bank include:
                                                                      31 December 2001                 31 December 2000
                                                                              CZK '000                         CZK '000
Obligatory minimum reserves                                                  6 101 355                        5 055 577
Deposits repayable on demand                                                 2 470 499                        6 818 163
Total                                                                        8 571 854                       11 873 740



As of 31 December 2001, obligatory minimum reserves bore interest at 2 percent
per annum.

Government treasury bills and other treasury bills
                                                                     31 December 2001                  31 December 2000
                                                                             CZK '000                          CZK '000
Government treasury bills                                                  15 517 207                        11 368 789
Other treasury bills                                                       79 673 000                        64 857 000
Total                                                                      95 190 207                        76 225 789



As of 31 December 2001, treasury bills received under repo transactions amounted
to CZK 93,200,000 thousand (2000: CZK 64,857,000 thousand).




    13 Amounts due from banks

                                                                                  31 December 2001    31 December 2000
                                                                                          CZK '000            CZK '000
Term placements and loans to banks                                                      74 442 392         104 458 493
Advances due from central banks (repo transactions)                                     81 172 000          70 854 000
Placements with other banks                                                                951 464           1 120 527
Total                                                                                  156 565 856         176 433 020
Specific provisions against balances due from financial institutions                      (12 793)            (13 088)
Total due from banks                                                                   156 553 063         176 419 932



Advances due from central banks are collateralised by treasury bills and other
debt securities issued by Czech National Bank of CZK 79,673,000 thousand (2000:
CZK 64,857,000 thousand) and the Ministry of Finance of the Czech Republic of
CZK 13,527,000 thousand (2000: CZK nil).

The year-on-year decrease in the balances due from banks is partially
attributable to the transfer of amounts due from the former Konsolidacni banka,
which was transformed into a non-banking institution Ceska konsolidacni agentura
as of 1 September 2001, from the amounts due from banks to the amounts due from
customers. As of 31 December 2001, the Bank recorded the aggregate balances due
from Ceska konsolidacni agentura of CZK 49,765,145 thousand (2000: CZK
52,642,417 thousand).

Set out below is an analysis by remaining maturity:
                                                               31 December 2001                       31 December 2000
                                                                       CZK '000                               CZK '000
On demand                                                               215 475                                777 073
Less than 3 months                                                  149 737 756                            113 580 988
Less than 1 year                                                      5 585 531                             10 157 397
From 1 to 2 years                                                         2 370                              5 558 125
From 2 to 4 years                                                       877 030                             10 359 067
From 4 to 5 years                                                             0                             36 000 370
Over 5 years                                                            147 694                                      0
Total                                                               156 565 856                            176 433 020



The proportion of loans with remaining maturity less than one year to the
aggregate balances due from banks represents 99.34 percent (2000: 70.57
percent).

Written off loans and income from written off loans to banks comprise:
                                                                      31 December 2001                 31 December 2000
                                                                              CZK '000                         CZK '000
Written off loans                                                                    0                                0
Income from written off loans                                                        0                           84 746






    14 Amounts due from customers

Amounts due from customers comprise:
                                                                            31 December 2001           31 December 2000
                                                                                    CZK '000                   CZK '000
Loans and advances to customers                                                  207 538 870                144 642 615
Bills of exchange                                                                    912 141                  1 356 267
Forfaits                                                                             873 969                  1 676 295
Total gross loans and advances to customers                                      209 324 980                147 675 177
Less provisions for loan losses                                                 (15 561 981)               (13 706 760)
Total amounts due from customers, net                                            193 762 999                133 968 417



The substantial increase in the amounts due from customers is due primarily to
the transfer of amounts due from the former Konsolidacni banka from the amounts
due from banks to the amounts due from customers. Ceska konsolidacni agentura
(the Czech Consolidation Agency, henceforth 'CKA') was formed as the legal
successor to Konsolidacni banka Praha, s. p. u. ('Konsolidacni banka') pursuant
to Czech Consolidation Agency Act No. 239/2001 Coll., which took effect on 1
September 2001 (the 'Act'). CKA was established as the legal successor of
Konsolidacni banka under Section 19 of the Act. Under Section 1 of the Act, the
commitments of CKA, as was the case with its legal predecessor Konsolidacni
banka (under Section 44a of Banking Act No. 21/1992 Coll.), are guaranteed by
the Czech State.

As of 31 December 2001, the Bank recorded the amount of CZK 49,765,145 thousand
due from CKA (2000: CZK 52,642,417 thousand).

Of the total forfaits of CZK 873,969 thousand (2000: CZK 1,676,295 thousand),
forfaits issued by foreign debtors amount to CZK 25,735 thousand (2000: CZK
3,626 thousand).



Amounts due from customers include interest due of CZK 2,810,248 thousand (2000:
CZK 1,313,578 thousand), of which CZK 958,114 thousand (2000: CZK 746,952
thousand) represents interest of loans overdue.



The loan portfolio of the Bank as of 31 December 2001 comprises the following
breakdown by classification:
                                   Gross receivable                       Collateral applied               Net exposure
                                           CZK '000                                 CZK '000                   CZK '000
Standard                                144 233 634                               92 494 995                 51 738 639
Watch                                    26 025 490                               14 179 234                 11 846 256
Substandard                              11 153 160                                8 099 453                  3 053 707
Doubtful                                 11 051 522                                5 870 900                  5 180 622
Loss                                     16 861 174                                1 701 093                 15 160 081
Total                                   209 324 980                              122 345 675                 86 979 305




                                         Provisions                          Carrying value                  Provisions
                                           CZK '000                                CZK '000                           %
Standard                                          0                             144 233 634                           0
Watch                                       712 588                              25 312 902                        6.02
Substandard                                 566 317                              10 586 843                       18.55
Doubtful                                  1 967 308                               9 084 214                       37.97
Loss                                     12 315 768                               4 545 406                       81.24
Total                                    15 561 981                             193 762 999                       17.89



* Provisioning percentage by category does not conform to the requirement of the
Czech National Bank as the 'Collateral' item does not reflect the state
guarantee value as described below in this note.



Set out below is the breakdown of loans by sector :
                                                                                             2001                 2000
                                                                                         CZK '000             CZK '000
Agriculture                                                                             7 966 347            9 523 368
Processing industry                                                                    47 467 797           51 351 373
Distribution and production of energy                                                   8 211 798            7 772 629
Construction                                                                            3 965 532            4 944 530
Trade, catering, transport and communication                                           34 642 891           32 024 323
Insurance, banking                                                                     11 296 311           11 353 573
Ceska konsolidacni agentura /*                                                         49 765 145                    0
Other                                                                                  46 009 159           30 705 381
Total loans to clients                                                                209 324 980          147 675 177



/* Loans to CKA were carried within the amounts due from banks as of 31 December
2000.



Set out below is an analysis by remaining maturity:
                                                                                 2001                              2000
                                                                             CZK '000                          CZK '000
On demand                                                                   1 926 460                         1 040 497
Less than 3 months                                                         38 638 360                        25 246 014
Less than 1 year                                                           43 598 226                        42 725 242
From 1 to 2 years                                                          10 925 658                        13 684 318
From 2 to 4 years                                                          67 800 015                        23 627 029
From 4 to 5 years                                                           7 009 597                        10 473 330
Over 5 years                                                               39 426 664                        30 878 747
Total                                                                     209 324 980                       147 675 177





The proportion of loans with remaining maturity less than one year to the
aggregate balances due from customers represents 40.21 percent (2000: 46.73
percent).



Written off loans and income from written off loans to customers by sector
comprise:
                                                                                                2001               2000
                                                                                            CZK '000           CZK '000
Agriculture                                                                                   17 214            100 017
Processing industry                                                                           34 814          1 150 614
Distribution and production of energy                                                              0             36 115
Construction                                                                                   3 121            157 904
Trade, catering, transport and communication                                                  46 481          1 406 906
Insurance, banking                                                                               248          1 217 801
Other                                                                                         25 168          1 068 433
Total written off loans                                                                      127 046          5 137 790
Current account debit balances written off                                                    25 788             69 434
Total written off receivables                                                                152 834          5 207 224
Income from written off receivables                                                        2 252 415          7 402 881



Of the receivables written off, the write-off of CZK 99,640 thousand was covered
by provisioning charges and the write-off of CZK 228 thousand was covered by the
use of general reserves.

Income from written off receivables from customers amounted to CZK 2,252,415
thousand. Of this aggregate balance, recoveries from fully written off
receivables from customers amounted to CZK 2,245,211 thousand and income from
current account debit balances amounted to CZK 7,204 thousand. Income from
written off receivables from customers also include proceeds of CZK 1,414,909
thousand from the sale of fully written off receivables to Konpo.





Set out below is an analysis of types of collateral underlying loans and
advances to customers:
                                           Total client loan         Discounted client loan         Applied client loan
                                                  collateral               collateral value            collateral value
                                            31 December 2001               31 December 2001            31 December 2001
                                                    CZK '000                       CZK '000                    CZK '000
Guarantees of state and governmental              60 813 434                     59 366 992                  54 973 068
institutions
Bank guarantee                                     3 729 202                      2 807 939                   2 386 895
Guaranteed deposits                                1 552 622                      1 550 699                   1 224 617
Issued debentures in pledge                       12 994 754                     12 994 754                  12 994 754
Pledge of real estate                            155 856 443                     45 226 625                  29 567 293
Pledge of movable assets                          10 040 130                        978 664                     947 858
Guarantee by corporate entity                     17 421 275                      1 808 369                   1 691 600
Guarantee by individual (physical                  4 821 407                        535 533                     530 379
entity)
Pledge of receivables                             17 285 404                      7 110 070                   6 101 565
Insurance of credit risk                           5 042 738                      4 972 319                   4 939 587
Other                                             13 312 544                      9 009 984                   6 988 059
Total nominal value of collateral                302 869 953                    146 361 948                 122 345 675


                                           Total client loan         Discounted client loan         Applied client loan
                                                  collateral               collateral value            collateral value
                                            31 December 2000               31 December 2000            31 December 2000
                                                    CZK '000                       CZK '000                    CZK '000
Guarantees of state and governmental               8 498 194                      7 873 019                   2 751 820
institutions
Bank guarantee                                     2 773 817                      2 644 199                   2 419 500
Guaranteed deposits                                1 496 346                      1 496 146                     988 300
Issued debentures in pledge                            4 000                          3 200                       3 200
Pledge of real estate                            177 920 335                     72 555 149                  45 738 000
Pledge of movable assets                           6 498 491                        657 715                     657 714
Guarantee by corporate entity                     19 738 960                      9 988 326                   8 324 944
Guarantee by individual (physical                  4 069 403                      3 373 621                   2 811 803
entity)
Pledge of receivables                              6 580 620                      5 024 855                   4 188 052
Insurance of credit risk                           6 616 379                      6 616 379                   6 616 379
Other                                             13 264 991                      9 627 391                   8 726 585
Total nominal value of collateral                247 461 537                    119 859 999                  83 226 297



The pledges on industrial real-estate represent 57 percent of total pledges on
real estate (2000: 60 percent).



State guarantee covering losses on the Bank's risk assets

On 29 December 2000, the Bank entered into an agreement with Konsolidacni banka
under which Konsolidacni banka will cover losses, up to a maximum amount of CZK
20,000 million, which may be incurred over a three year period, which began on
31 December 2000, on a defined portfolio of classified exposures. This agreement
was signed on 29 December 2000 on the basis of the resolution of the Government
of the Czech Republic dated 18 December 2000. The guarantee applies to the net
book value (defined as principal less specific provision) of assets classified
as substandard, doubtful and loss (in accordance with relevant CNB regulations)
as of 31 December 2000. This defined portfolio corresponds largely with that
portfolio held within the Bank's Debt Recovery Division. The payment under the
guarantee agreement is effected through a mechanism whereby the Bank's
participation increases as the aggregate loss incurred on the defined portfolio
increases. The Bank will retain these assets on its balance sheet and continue
to maximise recovery. The difference between the net book value as of 31
December 2000 and the actual amount recovered by December 2003 is covered by the
guarantee up to a maximum amount of CZK 20,000 million. In accordance with the
agreement this amount will be settled in either cash or Government securities by
30 June 2004.

The table below sets out the structure of the Bank's participation in losses
incurred on the guaranteed portfolio:


  Final       Guarantee paid by Konsolidacni banka      Bank's participation in final  Bank's cumulative participation
  losses                                                           losses                      in final losses
  (CZKm)                                                                                           (CZKm)
0 - 10,000                     95%                                   5%                              500
  10,000 -  CZK 9,500 million plus 85% of the amount           CZK 500 million                      2,000
  20,000           over CZK 10,000 million           plus 15% of the amount over CZK
                                                               10,000 million
  20,000 -             CZK 18,000 million                     CZK 2,000 million                     5,000
  25,000
             plus 40% of the amount over CZK 20,000    plus 60% of the amount over CZK
                             million                           20,000 million
    Over             CZK 20,000 million                     CZK 5,000 million                       -
  25,000                                                plus 100% of the amount over
                                                             CZK 25,000 million



The Bank is required to report regularly to Konsolidacni banka (now the Czech
Consolidation Agency) on the administration of the assets and the expected
losses on the guaranteed exposures.

The state guarantee became effective at the beginning of October 2001 following
the decision of the Economic Competition Protection Office, dated 20 September
2001, to cease its proceedings in connection with the guarantee as set out in
the Guarantee Agreement dated 29 December 2000 regarding the provision of public
support, pursuant to the Public Support Act No. 59/2000 Coll.





Reserves and provisions to cover the Bank's participation in the expected final
losses on the guaranteed portfolio

The Bank establishes provisions, on an accruals basis, to cover its
participation in the aggregate losses that it estimates will be incurred on the
guaranteed portfolio. As of 31 December 2001, the Bank carried within its
general reserve an amount of CZK 4,449,677 thousand which represents the Bank's
present assessment of its participation in the estimated aggregate losses on the
guaranteed portfolio (that is, total losses in the amount of approximately CZK
24,500 million). Management of the Bank monitors closely the expected
development of the guaranteed portfolio through a series of scenario analyses
and assessments of a large number of individual exposures representing a
substantial proportion of the nominal value outstanding. The scenarios and
assessments employed reflect the uncertainties arising from the absence of
benchmark recovery rates when using systematic recovery efforts in the Czech
Republic, the weaknesses in the legal framework regarding the enforcement of
creditor rights and the intention of management to realise substantially all of
the portfolio over a three year time horizon. Based on the facts presently
available and given that the Bank has only twelve months experience of
realisation of the guaranteed portfolio, management consider it appropriate and
prudent to maintain its estimate of the aggregate loss at a level similar to
that as of 31 December 2000. Management will continue to monitor developments in
the guaranteed portfolio and will revisit its estimates again during 2002.





Exchange of non-performing assets transferred to Konpo as part of the
restructuring of assets in March 2000

On 29 January 2001, the Bank entered into an agreement with Konpo, a subsidiary
of Ceska konsolidacni agentura, under which it agreed to take back certain
assets transferred to it under an original agreement dated 25 March 2000. Under
this latter agreement the Bank had transferred non-performing assets with a
nominal value of CZK 60,000 million. The Bank replaced these assets which did
not comply with the parameters of the original agreement with other assets of
the quality that did so. The final exchange of assets that had a gross nominal
value of CZK 2,958 million took place on 31 May 2001. The transfers were
effected at a price representing 60 percent of the gross nominal value of the
assets, that is, the same price that was used in transferring the assets in
March 2000. The financial impact of this asset transfer on the Bank's profit and
loss statement was negative and amounted to CZK 435 million.



Syndicated loans granted

The Bank acts as an agent, arranger, co-arranger or participant in syndicated
loan arrangements and in circumstances where it acts as an agent it also assumes
the role of an arranger or co-arranger. The table below reflects only those loan
facilities where the Bank acts as an agent and the Bank's participation was
lower than 100 percent as of 31 December 2001 (the table excludes balances where
a portion of the loan is sold on a secondary market).

Non-banking syndicated loans
                                               Participation              Interest rate                 Portion of risk
                                                    CZK '000                        (%)                             (%)
Komercni banka, a. s.                                866 159                       6.58                           50.00
Other creditors                                      866 159                                                      50.00
Total to client 1*                                 1 732 318                                                     100.00
Komercni banka, a. s.                              1 527 940                       6.99                           55.56
Other creditors                                    1 222 132                                                      44.44
Total to client 2*                                 2 750 072                                                     100.00
Komercni banka, a. s.                                112 888                       7.76                           28.19
Other creditors                                      287 566                                                      71.81
Total to client 3*                                   400 454                                                     100.00
Komercni banka, a. s.                              1 529 528                       3.28                           60.00
Other creditors                                    1 019 686                                                      40.00
Total to client 4*                                 2 549 214                                                     100.00



* The Bank does not indicate names of its clients as a result of banking secrecy
restrictions.



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                      This information is provided by RNS
            The company news service from the London Stock Exchange

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