Hrvatska postanska banka d d : Annual report - 31.12.2023

Euro is here!

On January 1, 2023, the Republic of Croatia replaced kuna with euro and became the 20th member of the euro area.

Annual report for 2023

Zagreb, March 2024

Content

Introduction .............................................................. 4

Subsidiaries operations .......................................... 94

Mission, vision and corporative values .................... 5

Key Financial Indicators ........................................... 7

Responsibilities of the Management Board for the preparation and approval of the

Annual financial statements ................................... 96

Statement by the President

of the Management Board ........................................ 8

Management Board of Hrvatska

poštanska banka p.l.c. ............................................. 11

Macroeconomic environment .................................. 13

Independent Auditor's Report ................................ 97

Separate and Consolidated

Statement of Financial Position ............................ 109

Separate and Consolidated Statement

of Profit or Loss .................................................... 110

Business environment ............................................. 17

Management Board Statement of

Condition of HPB p.l.c. ........................................... 21

Internal control system and control functions ........ 55

Development plan of Hrvatska poštanska

banka p.l.c. ............................................................. 62

Non-financial report for 2023 ................................. 68

Report on Application of the Corporate

Governance Code .................................................. 76

Separate and Consolidated Statement

of Other Comprehensive Income ......................... 111

Consolidated Statement of Changes

in Equity ................................................................ 112

Separate Statement of Changes

in Equity ................................................................ 113

Consolidated Cash Flow Statement ...................... 114

Separate Cash Flow Statement ............................ 115

Notes to the Financial Statements ........................ 116

Hrvatska poštanska banka

organizational structure .......................................... 88

Regulatory Financial Statements of

Croatian National Bank ......................................... 241

Human resource management in HPB .................. 92

Branch network and contacts ............................... 255

Introduction

The Annual report includes a summary of financial information, description of operations and audited financial reports together with the independent auditor's opinion for the year ended December 31, 2023, in English language. Original and official Annual report is published in Croatian.

Legal status

The Annual report includes the annual financial reports prepared in accordance with statutory accounting requirements for banks in Republic of Croatia and audited in accordance with International Standards on Auditing.

The Annual report has been prepared in accordance with the Accounting Act and the Companies Act that require reporting to shareholders at the annual shareholders' meeting of the Management Board. According to the Accounting Law the statutory financial reports are report of financial position, PNL report with a report of comprehensive income, report of changes in equity, cash flow report and notes to the financial reports, and the Companies Act, in accordance Article 250.a and 250.b, prescribes the obligation to submit an annual report on the state of the Bank, and other members of HPB Group.

Abbreviations

In the Annual report Hrvatska poštanska banka p.l.c. is referred to as «the Bank» or «HPB», Hrvatska poštan-ska banka Group is referred to as «the HPB Group» or just «the Group», the Croatian National Bank is referred to as «the CNB» or «HNB», Republic of Croatia is referred to as «RH» or «HR» and the Croatian Bank for Reconstruction and Development is referred to as «the CBRD» or «HBOR».

Exchange rates

For the purpose of translation of foreign currencies into Croatian Kuna, the following exchange rates of the CNB were used:

December 31, 2023 .............................................................. 1 USD = 0.904977 EUR

December 31, 2022 ............. 1 EUR = 7.53450 KN .............. 1 USD = 0.883783 EUR

Vision	Mission
A Croatian-owned bank	We create
with relevant market	conditions
influence that cares best	for a better life
for clients, shareholders	in Croatia.
and the community.

Key financial indicators

Group (EUR '000)

Basic Indicators

Profit for the Year Operating Profit

Total Assets

Loans to Customers

Received Deposits

Share Capital and Reserves

Other Indicators

Return on Equity Return on Assets

Operating expenses1 to Operating Income Ratio

2023

2022

83

127

99

28

7,046

5,540

2,910

3,062

5,923

4,641

534

457

3,694

1,892

51.30% 1.18% 53.15%

78.56% 2.29% 79.18%

16.68% 0.73% 62.36%

Bank (EUR '000)

Basic Indicators

Profit for the Year Operating Profit

Total Assets

Loans to Customers

Received Deposits

Share Capital and Reserves

Other Indicators

Return on Equity Return on Assets

Operating expenses1 to Operating Income Ratio

Regulatory Capital Capital Adequacy

2023

81

94

7,046

2,910

5,924

534

49.77% 1.14% 50.56%

505 22.51%

2022

18

24

4,563

2,107

3,924

347

10.92% 0.39% 76.01%

345 23.57%

3,694

1,892

16.64% 0.73% 62.03%

349 25.65%

1 General and Administrative Expenses, Depreciation and Amortization and Other Cost

2021

2020

2019

27

24

19

41

39

46

3,380

3,155

1,954

1,770

3,111

2,815

2,663

353

329

315

15.10% 0.72% 64.10%

2021

2020

27

24

41

38

3,380

1,954

3,112

2,816

352

328

14.99% 0.71% 63.78%

307 21.82%

12.09% 0.62% 61.36%

2019

19

43

3,155

1,770

2,664

315

11.84% 0.60% 61.27%

293 20.17%

Statement by the President of the Management Board

Dear and esteemed shareholders,

It is with great pleasure that I present the 2023 per-formance outcomes of Hrvatska poštanska banka p.l.c., a year that not only underscores our consistent success but also emerges as the most distinguished period in our entire corporate history.

HPB recorded unparalleled growth in assets in 2023, securing a position among the five largest banks on the domestic market holding nearly a 9% market share. This achievement significantly aligns with our mid-term strategic objectives and the over-arching vision we have established. Beyond asset growth and an expanded market share, 2023 was marked by exceptional profitability, the completion of the legal merger with Nova hrvatska banka and a surge in market capitalization outperforming all major indexes. This performance earned us the ZSE award for the stock with the most notable price growth. Following investor interest, HPB's share, known for its high liquidity and substantial daily trading volumes on the Zagreb Stock Exchange, was incorporated into the CROBEX stock indexes in September 2023. Additionally, in a decision at the year's end, a dividend of EUR 2.61 per share was proposed and ratified by our shareholders, marking a pivotal moment since 2016.

Recognition extended beyond our investor base, as our advancements in governance and market positioning were honoured with a transparency award from PWC and a distinction in environmental man-agement from HRIO.

Review of HPB's Financial Performance and Position

HPB p.l.c. witnessed a nearly fivefold increase in net profit in 2023, reaching EUR 80.6 million, the highest in its corporate history. This profitability milestone resulted in an 18.31 percent return on equity, posi-tioning HPB as the second-leading among Croatia's large banking institutions. Building on this momentum of increased profitability and the successful merger of Nova hrvatska banka, the Bank's capital and reserves

experienced a 53.8 percent uplift, and the book value of HPB d.d.'s shares rose by EUR 92, culminating in a value of EUR 264 by year-end. Our cautious capital enhancement, alongside managed risk exposure, is reflected in a steady capital adequacy ratio of 22.5%.

Profit growth was significantly driven by a 106 percent increase in net interest income, primarily due to a rise in the ECB's reference interest rates, which positively impacted HPB's earnings from its liquid assets held at central and commercial banks.

This boost was further amplified by the merger with Nova hrvatska banka, which became a part of HPB's operational units as of July 3, 2023. There was also a notable improvement in fee income, achieving a 6.5% increase, and the favourable dynamics in capital mar-kets contributed to the operational results through div-idends received, gains from valuation, and trading of financial instruments, totalling EUR 6.8 million. These factors combined to boost our total net operating income by 93% in 2023.

Given the complexities of numerous strategic efforts and the merger, necessitating an increase in our workforce and operational units, an increase in operational expenses were an anticipated outcome amid escalating prices and inflationary pressures. Yet, our administrative and general expenses saw a modest rise of 28.3%, markedly trailing behind our revenue growth. This development improved our cost-to-income ratio to 51%, edging closer to the banking sector average in Croatia of 41%. This sector average is primarily influenced by the operations of the four largest banks, which have achieved economies of scale.

The movement in the loan portfolio affected the impairment and provisions, which in 2023 had a neu- tral effect on the profit and loss account, against a EUR 2.6 million expense in 2022.

HPB has consistently outgrown the market since the beginning of 2019, a trend strongly reaffirmed in 2023 with an asset increase of 54.4 percent.

This surge propelled HPB into the top five banks by market share in Croatia. Aside from the merger of