• Disclosure
• Banking license

DISCLOSURE
 
 PURSUANT TO THE REQUIREMENTS OF ORDINANCE № 8
FOR CAPITAL ADEQUACY OF CREDIT INSTITUTIONS
(Art. 335 of Ordinance № 8 of BNB)

Name of the bank and registered seat:
 
CIBANK was registered in the Republic of Bulgaria with registered seat at: Sofia 1000, № 2 Slavyanska Street. The Bank has a full banking license № B 13, issued by the Bulgarian National Bank (BNB).
 
The present disclosure is based on the requirements under Art. 335 of Ordinance № 8 of BNB for capital adequacy of the credit institutions.
 
The Bank drafts its financial statements in accordance with the International Financial Reporting Standards (IFRS), adopted by the Commission of the European Union and applicable in the republic of Bulgaria.
 
To prepare its financial statements the Bank uses as a basis for reporting assets and liabilities the historical price method, with the exception of securities for trade, investment for sales and derivative financial instruments, which are evaluated on a current basis, as well as land and buildings, which are estimated under impaired value. The reports are prepared in thousands of Bulgarian Leva.

The disclosed data are presented on an individual basis; the Bank is not subject to financial reporting on a consolidated basis.

The Risk Management at CIBANK PLC is implemented on the following levels of competence:
 
1. Supervisory Board. Under the proposal of the Management Board it adopts the internal regulations of the Bank containing provisions regarding the scope and procedure for the execution of operations, the capital and internal organization of the Bank.
 
2. The Management Board approves written rules  and procedures for risk management, provides the basic guidelines for the activities of the units, the evaluation, monitoring, risk management and control, determines parameters and limits for individual risks to which the Bank may be exposed;
 
3. The Risk Management and Analysis Department of the Risk Management Directorate identifies, monitors and measures risks to   which the Bank is exposed, prepares the reports and information in risk  and its management, procures the functioning of the models for measurement, analysis and monitoring of risk, monitors the adherence to set limits;
 
4. Internal Audit Department. Implements control over the activities of the risk management department, organizes inspections of the bodies and units responsible for risk management;
 
5. Bank Representatives. The representatives take managerial decisions regarding risk management, operationally monitor the observance of rules and procedures regarding risk management, control the work of the units responsible for risk management, report to the MB for the occurrence of critical risk circumstances.
 
The Bank has rules and procedures regarding to the identification and management of risk types, a system of limits and controls, clearly determined levels of registration, management and control for compliance with the limits and competences regarding the management of processes related to diversification of risk types.

1. Overview

The reports prepared by the Bank for supervisory purposes are drafted under the requirements of ordinance No 8 issued by BNB stipulating the requirements for capital adequacy in compliance with the Basel ІІ regulations.

In relation to credit and market risk the standardized approach is employed. The operational risk measurement is implemented through the method of the basic indicator.

The reports drafted and presented to the Central Bank under Ordinance № 8 contain the sum of risk weighted assets by the inpidual risk types, the capital base size, the coefficients of capital adequacy.

2. Capital Base Elements

The estimated equity capital (capital base) for regulatory purposes is subject to regulatory analysis by size, type and distribution of the necessary capital for the covering of risks to which the Bank’s activities are exposed.

The equity, in compliance with the requirements of Ordinance № 8, is formed as a sum of tier one capital and tier two capital.

The requirement of Art. 5 of Ordinance № 8 for the tier two capital not to exceed the tier one capital is kept.

The reduction of regulatory capital amounts to the acquired intangible assets and the specific allocated provisions.

The Bank does not have investments in shares or other form of share participation in non-consolidated companies, which account for over 10 per cent of the capital or over 20 per cent of the paid in capital of insurance, reinsurance companies and insurance holdings.

The allocated capital by risk types is as follows:

Ordinance № 8 of BNB determines minimum requirements for the adequacy of the capital as follows: general capital adequacy – not less than12 per cent, tier one capital adequacy – not less than 6 per cent.

The Bank implements these requirements as at 31.12.2008 as follows:

CIBANK employs the market valuation method to determine the risk from the contractor. This risk arises in transactions with derivative instruments, repo transactions, transactions for provision or receipt as a loan of securities and others, specified in the regulatory base. The Bank has developed a system of limits for local and foreign institutions in view of the restriction of the undertaken risk. The current control over the adherence to the limits is performed by a specialized unit.
 
At the end of the reporting year 2008 the exposures to local and foreign institutions are short-term and receive 20 % risk weight, determined by the requirements under Ordinance № 8 of BNB.
 
The closed repo transactions are secured with state securities issued by the Bulgarian government. The same are assessed on the basis of their fair (market) price, which always exceeds the extended funds.
 
Exposures, or part of a certain exposure, fully and completely secured with first rank mortgage on a fully insured and evaluated according to its fair market  value residential estate, which is occupied or will be occupied, or leased by the owner for the same purpose, receive a risk weight of 50%, and the unsecured part – 100 % risk weight. In general BNB requires the implementation of higher risk weights compared to Directive 200/12/EU of the European Parliament, which determines a 35 % risk weight for these exposures.

According to the stipulations of Ordinance № 8 of BNB, for the estimation of risk–weighed assets for credit risk, the Bank uses the standardized approach.

On the basis of Ordinance № 9 of BNB for the evaluation of risk exposures and formation of provisions for impairment losses, the Bank uses four categories – regular, watch, substandard and non-performing. The allocated provisions by types of risk groups are part of the forming of exposures to which risk types are allotted. The past due receivables by up to 30 days after the agreed maturity  and subject to stricter control and analysis on the part of the specialized structural units of the Bank.

Monitoring and detailed analysis are implemented for exposures by geographical distribution, sectors, contractor types, and maturity structure.

CIBANK uses the published valuations on contractors of the Banks of the rating agencies Standard&Poor’s, Moody’s _ Fitch Ratings. When there are two different valuations of recognized External Credit Valuation Agencies, the higher weight is applied. The credit quality of the exposures is allotted to the credit valuations give by these agencies.
 
The credit valuations given by External Credit Valuation Agencies are compared to the approved by BNB and the supervisory bodies degrees of credit quality for the determination of risk weights of the respective classes of exposures with the aim of assessment of the capital requirements for them.

At this stage the Bank does not employ an internal rating approach  for weighing credit risk  and does not apply the provisions of Art. 63 (7) and Art. 66 of Ordinance № 8.

The acquired debt and equity instruments are reported in the bank portfolio and the capital requirements for market risk are not calculated.

The structure of the securities portfolio as per 31.12.2008:

Due to lack of grounding the Bank does not allocate capital for settlement risk.

The allocated capital for currency risk is BGN 1.1 mln.

The market risk represents the potential for losses, arising form a change in the market conditions or parameters impacting the market conditions – risk factors.
 
In 2008 the Bank has not used internal models for market risk measurement and because of this it does not allocate capital pursuant to the requirements of Chapter Fifteen of Ordinance № 8 of BNB.

Operational risk – potential for losses arising from inadequate or not well-functioning internal processes, people, systems, or external events, which also includes legal risk.
 
The Bank has developed and adopts Rules for the determining of operational risk which are part of the overall process of risk management. These rules shall be used until the receipt of an approval by BNB for the use of one of the other envisaged methods. The Bank develops a technology for the gathering of information and accumulation of historical data and sufficient statistical order for internal operational losses  related to all  sections of its activities  and types of events.
 
The activities related to operational risk management are carried out by the business units of the Risk Management Directorate.
 
For the assessment of the capital requirements for operational risk, the Bank uses the “basic indicator approach”: the average gross income of the Bank  for the last three reporting years, multiplied by the coefficient  0.15.
 
On the basis of  Part Four – capital requirements for operational risk, abiding by the described  income structure and technology of assessment, the Bank has allotted at the end of 2008 capital amounting to BGN 8.1 mln.

The owned equity instruments form an insignificant part – 0,03 % of the total assets of the Bank. The investments in these instruments do not have a significant impact on the activities and the financial results of the Bank.

The interest risk constitutes the likelihood of losses due to a decrease in the realized net interest income, formed by financial instruments and portfolios as a result of negative changes, in the market interest conditions.
 
The monitoring of the interest risk  is implemented through day-to-day monitoring  of the forecast inflow and outflow of cash flows, analysis and strict monitoring  of the trends and processes  on the local market  and the banking system, provision of efficient  disposal of free resources, active management of the processes regarding the attraction of resources, analysis of the structure of assets  and liabilities per major sections as well as per optimally detailed basis, types of contractors, currency types.
 
Equivalent disclosure is made in the annual independent audit report as per 31.12.2008 pursuant to Art. 336, Para. 4 of Ordinance № 8 of BNB.

The Bank is not an initiator or sponsor of transactions securitizing its assets, as determined in chapter seven of Ordinance № 8 of BNB.

The Bank does not use internal models for credit risk.

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