Audit Report

Independent auditing firm Fink-Audit
implications for auditing financial statements
JSC “Credit Optima Bank” for 2008

Shareholders and Board
JSC "Credit Optima Bank
National Bank of Ukraine

We have been auditing the annual financial statements of JSC“Credit Optima Bank” (the Bank), that is attached, including financial results, record of changes in equity statement, cash flow, general information on the activities of the Bank for the year ending on the specified date, the description of the basic principles of accounting policies and other explanatory notes to financial statements for the year as of (end of day) 31 December 2008.

Responsibility of management personnel

Management personnel responsible for preparing and accurate presentation of these financial statements in accordance with the procedure of accounting in banks andin accordance with the requirements for disclosure in accordance with International Financial Reporting Standards.Responsibility of management personnel include: development, implementation and use of internal controls regarding the preparation and presentation of accurate financial statements that do not contain material misstatement due to fraud or error; selection and application of appropriate accounting policies and accounting estimates that meet the specific circumstances.

Auditor's Responsibility

We conducted an audit in accordance with the requirements of Ukrainian legislation and international auditing standards.Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that financial statements are free of material misstatement.Audit to perform audit procedures to obtain audit evidence about the amounts and disclosures in the financial statements.Selection procedures depend on the auditor's judgments. These procedures include risk assessment of material misstatement of financial statements due to fraud or error.In assessing these risks, the auditor considers internal control managemententity to prepare accurate financial records for audit procedures that meet the circumstances.

The audit includes evaluation of the accounting policies used, theacceptability of accounting estimates made by management personnel and general financial reporting, risk assessment of the operations of insider and relatedparties.

We believe that our audit provides a reasonable basis for expressing our views.

Conclusion

Result of the verification gives grounds to assert that the financial statements fairly and accurately in all material respects, the financial position of the Bank on 31.12.2008r. And the results of its operations and cash flows for the year ended, in accordance with International Financial Reporting Standards legislation and requirements of the National Bank of Ukraine.

Not expressing conditionally positive thoughts, we draw attention for information toparagraph2.6 "Assessment of banking operations and transactions with insider / relatedparties regarding strengthening attention to the financial and functional risks

Director of Audit Firm “Fink-Audit” A. Mazur

APU Certificate No 0618, the Certificate of Auditors of Banks 0000005 the Certificates of NBU No 0000028 of 30.08.2007, the Certificate of registration in the register of auditors of banks of 15.01.2007,Kyiv, April 23, 2009

Report of independent auditors in accordance with other legislative and regulatory requirements

1. Tasks and representation.

According to the Contract number 49 of October, 8th, 2008 concluded between the Auditing Firm “Fincke-Audit” (the Audit Chamber of Ukraine Certificate of inclusion in the register of auditing number 0618 of 15 December 2005 and the certificate number 0000028 Bank of 30.08. 2007 of inclusion in the register of auditors of banks) and JSC “Credit Optima Bank” to the Bank, held the annual financial statements to banks for the period from 01.01.2008 till 31.12.2008

Scale of audit was determined in accordance with Article 69 of the Law "On banks and banking activity" and paragraph.3.3 "The situation on the banks of the submission to the National Bank of Ukraine audit reports for the annual inspection of financial statements, approved by the Board of the National Bank of Ukraine of September 9th, 2003 № 389 with changes and additions.

The aim of our work was to obtain evidence regarding:

  • conformity of the annual financial statements for the Bank in 2008 under the requirements of the Regulations on the order of financial reporting and disclosure of banks', which was approved by the Board of the National Bank of Ukraine № 480 dated 27.12.2007 as amended;
  • according volume of assets and liabilities of the Bank of maturity based on the analysis of statistical form number 631 "Report on the structure of assets and liabilities for the period of time approved by the Board of the National Bank of Ukraine dated 19.03.2003, № 124 and registered in the Ministry of Justice Ukraine 07.05.2003 g. № 353/7674 (with amendments);
  • quality of asset management and liability;
  • quality of loan portfolio and the portfolio of securities, state receivables;
  • adequacy of reserves and capital, including on capital formation under the Bank funds, reserve requirements regulations of the National Bank;
  • risk assessment of banking operations and transactions with insider / associated persons;
  • adequacy of accounting, internal auditing and controls the bank.

In forming the audit opinion the principle of materiality is applied, which is determined depending on the impact of these decisions by users of financial information.

The source of information that used in this report are details of annual financial statements for the Bank in 2008. Audit is planned and conducted by testing the balance of the account or class of operations and use of audit sampling.

This report is intended for information and guidance of the Bank and National Bank of Ukraine and can not be used by any other party. When reading this report should take into account the limited nature of the assessment of issues related to the Bank and the organization's accounting system and internal controls.

Also, please note that our criteria for evaluating these issues associated with the activities of the Bank and the organization's accounting system may differ from criteria used by National Bank of Ukraine.

2. Procedures and findings

2.1. Checking conformity of the annual financial statements to banks for 2008 Instructions on the order and disclosure of banks' financial reporting, which was approved by the Board of the National Bank of Ukraine № 480 of 27.12.2007 town.

Procedures. During the audit we have covered all the important aspects of the Bank.

Set of financial statements prepared in accordance with the Law "On banks and banking activity", "About accounting and financial reporting in Ukraine" and is based on the fundamental requirements for disclosure in the financial statements in accordance with international financial reporting standards, national regulations (standards) accounting regulations of the National Bank of Ukraine.

The Bank maintains financial discipline in the performance of statute of operations and is equipped with adequate source of funds for timely implementation of commitments and Development Bank.

Financial Statements made in real operations for the period that has elapsed, which were adjusted in order to justify the recognition of financial assets and liabilities at fair value. These estimates are based on information available at the date of the financial statements. Operation, which provides the bank, appear in the accounting day of the rights or obligations. Transactions in foreign currencies are shown in the financial statements in the national currency of Ukraine in the official rate of National Bank of Ukraine on the date reporting.. Selective audit covering all significant balance sheet item and makes a conclusion about the absence of significant deficiencies that could affect financial results and the Bank’s report.

Conclusion. We have noted that in all material respects filed annual reports reflecting the results of the Bank, its property and financial condition. The Bank maintains financial discipline in the performance of statute of operations and is equipped with adequate source of funds for timely implementation of commitments and Development Bank.

2.2. Checking volume under assets and liabilities of the Bank of maturity,

Treatment: Based on criteria of information disclosure under the volume of assets and liabilities of the Bank of maturity, was adopted with the requirements of statistical reporting and the algorithm of the form number 631 "Report on the structure of assets and liabilities for the period of time approved by the Board of the National Bank of Ukraine from 19.03 .2003, № 124 and registered in the Ministry of Justice on 07.05.2003 for № 353/7674 (with changes).

At the end of the day on 31 December 2008 total assets / liabilities to the balance sheet amounted to 119 487 thousand. The source of funding of active operations were funds in the amount of 51 868 thousands UAH. and equity of 66 985 thousands UAH.

Volume highly assets (money in the cashier and the correspondent accounts of) of 6 098 thousands UAH or 5% of total assets as at 31 December 2008.

Calculation of resource position (liquidity crunch) is above the bank balance sheet assets and liabilities of banks under the terms of their return under the agreements, contracts and other instruments in terms of rates and general all currencies.

Analysis of standards of liquidity the bank as of 01.01.2009 was revealed that the bank to the specified date can ensure the timely performance of their liability, which is balanced between the timing and amount of assets placed repayment terms and amounts, and the implementation of commitments the bank and also the timing and amounts of other sources and destinations of funds.

But in terms of rates and terms in the assets and liabilities of the Bank are discontinuities between the assets and liabilities, namely:

In the short-term assets and liabilities of the Bank:

  • period of 184 to 274 day discrepancy is 422 thousand UAH or 0.3% of the assets of the Bank.
  • analysis of discrepancies in terms to maturity of assets and liabilities indicates that the level of liquidity in the whole of the current fiscal year not exceed the recommended limits of the National Bank of Ukraine (no more - 10% of total assets).

Negationist gap on short-term liquidity funds is overlapping by thre greater liquidity funds. The Bank puts the long-term liabilities in the short-term assets, primarily in the interbank market, as well as short-term funds of clients. This negative discrepancy between the asset and liability management is not a significant burden on the liquidity of the Bank.

To analyze the liquidity string break the Bankconducts the centralized policy management of liquidity as in the national currency so in terms of individual currencies by continuously monitoring the provision of a certain share of liquid assets in the overall structure of the balance of the Bank.

The primary means of measuring market liquidity risk is to determine the degree of liquidity of different types of bank assets and calculating the percentage share of assets with high liquidity to total bank assets and assets with low liquidity.

The main goal of liquidity risk management is to guarantee a permanent liquidity and solvency of the bank in compliance with all regulated requirements for them.

As of 01.01.2009 the Bank’s codes are the following: standard instant liquidity (R4) - 44.87%,ratio of current liquidity (R5) - 120.84%, required short-term liquidity (R6) -119.60%.

Conclusion: a) lists the form number 631 "Report on the structure of maturities" demonstrate sufficient balance of maturity and deployment of assets and obligations the bank, b) assets and liabilities by maturities between a generally agreed, the level Liquidity is sufficient.

2.3. Audit of asset management and bank liabilities.

Procedures. Based on the fact that the National Bank of Ukraine does not set clear requirements to the criteria determining the quality of asset management, we have adopted the requirements of the National Bank of Ukraine on similar issues.

Politicy of asset and liability management is focused on the implementation of safety, operations, profitability and liquidity to maintain balance. The composition of assets is diversified to achieve a reasonable balance between profitability, risk and liquidity relative to total liabilities and capital.

Method of accounting of assets and liabilities of the Bank based on the validity and accuracy in accounting and reporting indicators relevant accounts (articles), the reliability of determining the value of objects in cash accounting. In accounting and financial reporting, the methods of valuation of assets and liabilities according to historical (original) or the purchasing value of the acquisition are used, the value of obligations - for the sum of income.

General structure of the Bank indicates a balanced attitude to the bank as its assets. This approach allows the Bank to effectively manage and achieve positive results for each active operation.

Asset Management solves the problem of profitability, compliance regulations and control liquidity risk inherent in the Bank. During the year, consistently performed the diversification of assets to optimize their structure and adequate response to changing economic conditions, activities of the Bank, the needs of customers, prospects of development of different market segments and business in Ukraine.

Disclosure of informaqtion by the types of assets in financial statements the Bank, meets the requirements of the National Bank of Ukraine and national regulations (standards) of accounting.

Disclosure of liabilities in the financial reporting meets Bank National Bank of Ukraine and national regulations (standards) of accounting.

The financial results of the Bank, as an indicator of the Bank's ability to generate sufficient revenue to compensate all the losses, as well as ensuring the real return on invested capital shareholders are in a "Report on financial results and losses”, and notes to financial statements.

Total income and expenses is confirmed: treaties, acts, orders, details of interest, the memorial orders and payment orders and bank customers.

According to the auditors on the results of audit procedures to verify the reliability of income and expenses the Bank in 2008 and reliability of "Report on the financial results for 2008, provided a reasonable basis for the audit opinion on the overall amount received in 2008 net profit of the Bank, which of 3 985 thousands UAH.

Conclusion: a) the quality of management of assets and liabilities of the Bank is proved as satisfactory b) the Bank's Management provides asset management and liability at the appropriate level.

In general, management of assets and liabilities of the Bank aims to maximize profits from banking operations in the enforcement time and in full

2.4. The quality of loan portfolio and the portfolio of securities, the status of receivables.

Procedures. The criteria for disclosure based on the quality of loan portfolio and the portfolio of securities, state of accounts receivable was the requirements of the Regulation “On the formation and use of reserves to compensate possible losses on credit operations of banks”, approved by the Board of the National Bank of Ukraine of 06 July 2000, number 279, as amended; the Regulation "On the formation of reserve bank operations with securities” approved by the Board of the National Bank of Ukraine of 02 February 2007 number 31, as amended; the Regulation" On the formation and use reserves for compensation of possible losses from accounts receivables” approved by the Board of the National Bank of Ukraine of 13 December 2002, the number 505, as amended; the Regulation "On the order form must reserve for the banks'" approved by the Board of the National Bank of Ukraine on 16 March 2006 number 91, as amended

Loan portfolio quality.

In the Bank’s balance the loans appear on the principal debt amount (including accrued interest) minus reserves for potential losses. As of 01.01.2009the Customers’loans and debts are 57,199 thousands UAH.

As of 01.01.2009 of loans in the diversified sector, so the risk of deterioration of the loan portfolio through a separate industry crisis is moderate.

It should be noted that during the year the Bank was present concentration of credit investments for certain types of economic activity and by a contractor.

According to the National Bank of Ukraine (Decree number 279) and internal regulations regarding the monthly calculation of reserves, the Bank provides a classification of credit operations through inventory loan portfolio. As a result, lending operations (including off-balance sheet obligations) have been structured for the search categories of risk as follows:

Bank's loan portfolio by risk groups

Table number 1
(thousands UAH).
Risk category / On 31.12.08
Standard / 96625
Under control / 9634
The sub-prime / 6100
Uncertain / 0
Bad / 0
Total / 112359

For the purpose of monitoring credit debt the Bank does: regulated procedures of loan products, assessment of the creditworthiness of the borrower in accordance with the Regulations of credit, and assess its financial condition by their own methods, personal approach to inter-bank loans and overdrafts, depending on its financial condition. Check collateral, monitoring the movement of funds in the accounts of clients, tracks the turnover on accounts with other banks, checks the balances on goods in circulation and more.

As of 01.01. amount of reserves actually formed under the debt on the loan is 902 thousand., representing 0.8% of the total debt on credit operations. Classification of loans by groups of risk is considered and approved by the monthly meeting on the credit committee.

Quality classification ofthe portfolio of active operations in general can be adequately seen through internal ratings (but methods of determination of the financial status of the borrower, as stated in the intra-bank credit is more favorable than provided in the Regulation “On the formation and use of reserve for possible losses on credit operations "). Provisions for losses on active operations can be considered sufficient and those that cover possible losses.

Please note that the Bank should be improved internal situation in the credit risk in setting limits on granting loans to industry trends, continuously improve the system analysis estimates the financial condition of borrowers as at the stage of considering and granting credits and during their escorts, to comply with requirements of the law " On Mortgage "and"OnInsurance "in the insurance of immovable property transferred to the mortgage bank.

As at 31 December 2008, according to the Bank’s data, the value of credit risk standards are:

- ratio of credit risk on a counterparty R7 (standard value is not more than 25%) - 20.69%;

- ratio of large credit risks R8 (standard value is not more than 800%) - 117.92%;

- ratio of maximum size of loans, guarantees and sureties granted to an insider R9 (standard value is not more than 5%) - 3.67%;

- ratio of maximum aggregate size of loans, guarantees and sureties granted insider R10 (standard value is not more than 30%) - 3.84%