1 CONTENTS LETTER FROM CEO ...................................................................................................................2 1. ABOUT THIS REPORT .........................................................................................................3 2. DSK BANK ..........................................................................................................................5 3. SUSTAINABILITY AND CHALLENGES FOR DSK BANK .......................................................7 4. PRINCIPLES AND PRACTICES DETERMINING THE OPERATION OF THE BANK................10 5. ECONOMIC PERFORMANCE..............................................................................................14 5.1 Economic role of DSK Bank ..................................................................................14 5.2 Products and services .............................................................................................14 6. OUR CLIENTS....................................................................................................................19 7. THE EFFECTS OF THE ECONOMIC CRISIS ON THE OPERATIONS OF DSK BANK............23 7.1 Communication and trustworthy information assurance ...................................23 7.2 Change in the operational structure .....................................................................24 7.3 Alteration in the product portfolio ........................................................................24 7.4 Our colleagues .........................................................................................................25 8. OUR EMPLOYEES ..............................................................................................................26 9. SOCIAL PARTICIPATION ...................................................................................................34 10. SECONDARY STAKEHOLDERS.......................................................................................38 10.1 Suppliers ..................................................................................................................38 10.2 Competitors .............................................................................................................38 10.3 Government agencies ..............................................................................................39 10.4 Media ........................................................................................................................40 11. ENVIRONMENTAL PERFORMANCE ...............................................................................41 12. OBJECTIVES FOR THE FUTURE.....................................................................................46 13. CORPORATE GOVERNANCE .........................................................................................48 14. GRI INDEX ....................................................................................................................52 3 million 379 3939 clients in Bulgaria branches, 90% of Bulgarian employees cities are reached More than 300 1st place 60 tickets purchased for in Accountability Rating branches were reconstructed employees to attend theatre Bulgaria 2008 within the in 2008 performances financial sector 5-6 films supported annually by 180 520 BGN 17 300 BGN donated to employees for awarded for pensioners as DSK Bank medical treatment and culture prize of the bank lottery 20 tons of paper collected sorted 2 LETTER FROM CEO Dear Reader, Corporations face more challenges in the field of corporate social responsibility (CSR) than ever before. The global finance crisis has forced directors to axe expenses in order to be able to maintain business operations, and in many cases, CSR falls victim to these cuts. On the other hand, this is an opportunity to prove to sceptics that CSR is far beyond donations and sponsorships; in fact, it should be a new management approach. It is no secret that these are tough times for all members of the economy and the private sector, and for the banking industry throughout the world. The crisis proves that long- term success may not be reached without the highest standards of corporate governance, control and strong background of values; I do believe that DSK Bank operates in such a manner. Bulgarian companies are at the beginning of the reporting process of CSR and I am personally pleased that DSK Banks is among the first. Our own persuasion, past, market share, and the owner’s commitment to sustainability have all driven us to publish this report. At DSK Bank, we are proud of those principles, which form the base of our business. I suggest that every stotinka spent on CSR programs related to the core business pays off; lower energy consumption, less use of paper, higher rate of loyalty within employees are just examples how we can do better while taking shareholders’ and local society’s interest into account. Let me state that this report is the first visible step of the structured CSR activity within DSK Bank. We have also composed and agreed on the CSR strategy and we are committed to proceed through it. I am certain that the strategic focused CSR activity will help DSK Bank to remain the leader in trust amidst the users of banking and financial services in Bulgaria. Any questions or comments are welcomed and help us fulfilling our mission to enhance business and create value for all stakeholders and be number one in sustainability in Bulgaria. Violina Marinova Chairwoman of the Management Board and Chief Executive Officer 3 1. ABOUT THIS REPORT The first corporate social responsibility report of DSK Bank EAD aims to present the economic, social and environmental performance of the organization. This report is the first strategic step towards a structural social responsibility activity and good corporate citizenship. In parallel with the report we have also prepared a sustainability strategy and a program plan for 2009 determining the direction of development. All the corporate social responsibility activities of DSK Bank are in line with the activities and aims of our parent company’s, OTP Bank Plc’s. We plan to publish a CSR report on an annual basis, simultaneously with the Annual Report. The corporate social responsibility report is in accordance with the GRI (Global Reporting Initiative) G3 guidelines, the world’s most widely used sustainability reporting framework, ensuring credibility. In the course of defining the report’s content: - we assessed the main economic, social and environmental impacts of the organization, focusing on our core activities. In order to present our performance in its wider, sustainability context, we have applied the principles of materiality and completeness. - we strived to determine the primary users of the report, and the impacts of our operation, which is considered the most material by our stakeholders. Our assessment was based on: o size of the stakeholder group; o extent to which they are affected; o capacity of stakeholders to represent their own interests – we also take into consideration the rightful interests of groups with weaker lobbying powers; o nature of the impact itself – direct or indirect, positive or negative, reversible, irreversible or recoverable, permanent or temporary. - the first CSR report of DSK Bank focuses on 2008 – ensuring timeliness – but to demonstrate our commitment we have presented some exemplary practices beyond the scope of the reporting period. - principles and performance indicator protocols of GRI Guidelines determine the way and depth of presenting the information and providing credibility. - methodology of preparing the report and the newly introduced CSR data gathering tool ensure data reliability. GRI Guidelines served as a basis for data measurement techniques and calculations, methodologies applied are explained at the location of the specific data. - for the sake of balance we present the challenges for the future and the directions of improvement beside our achievements. Objective evaluation and comparability are supported by numeric data. - we intend the report to be read by as many of our stakeholders as possible, thus contributing to the development of a CSR culture. One of the main challenges of reporting was the clarity and comprehensibility, ensuring at the same time 4 professionally sound terminology and complying stakeholders different requirement for information. The CSR report could primarily be of interest to: - employees, - owner(s), - clients, - organizations that receive support, - the media, - competitors, - NGOs and the general public, - state and regulatory bodies and - suppliers. We have structured the report to ensure maximum comprehensibility, along the lines of the logical and coherent relationships between the various elements; thus the importance of the individual issues is primarily reflected in the depth of exploration. We have defined the boundary of the report as extending to DSK Bank. The report does not cover the subsidiaries as material information is not available to present their performance. We will not have our report assured this year; however we are going to consider external assurance later on. Determining the report application level according to GRI G3 guidelines Application level / C C+ B B+ A A+ criteria Profile 1.1; 2.1-2.10; All criteria All criteria Disclosures 3.1-3.8; 3.10- 3.12; 4.1- 4.4;4.14-4.15 Management Not required Report Externally Assured Report Externally Assured Report Externally Assured Approach For each For each Disclosures Indicator Indicator Category Category Report on a Report on a Performance minimum of 10 minimum of 20 Indicators indicators, at Each core G3 indicators, and Sector including at least least one from each of: Supplement one from each of: indicator social, economic economic, and environment. environment, human rights, labour society, product responsibility 5 2. DSK BANK Who are we? DSK Bank EAD – established in 1951 as the State Savings Bank – was transformed from a retail bank to joint-stock company. Since October 2003 OTP Group has owned 100% of DSK Bank’s share capital. DSK Bank provides full-scale financial services as a universal commercial bank. The Bank’s portfolio primarily consists of traditional banking services and products, offered through traditional and electronic channels. DSK Bank is one of the leading financial institutions in Bulgaria, first in retail banking and strengthening its position in corporate banking as well. The clients’ confidence in the Bank’s long-standing traditions combined with innovation and flexibility have helped in achieving excellent results. With largest branch network in the country, DSK Bank reaches 85% of the population of Bulgaria. The Bank is present in all 9 regions of the country with 379 branches, in almost 90% of the Bulgarian cities, providing work for nearly 4000 employees. DSK Bank is the best bank, Violina Marinova is the Banker of the year in Bulgaria The British „Finance Central Europe” magazine awarded DSK Bank „The Best Bank in Bulgaria 2008” and Ms. Violina Marinova, CEO of DSK Bank „Banker of the Year in Bulgaria 2008” for the third year in a row. The two prizes awarded are yet another recognition not only of the Bank’s efficiency and its ability to set and maintain banking standards, but also of the personal contribution of its head, Violina Marinova to the successful development of the institution. 6 DSK Bank offers various services through its subsidiaries and associated companies. POK DSK-Rodina offers pension insurance, DSK Tours provides complex tourist services, DSK Trans Security proposes services for secure transportation. Other affiliates are DSK Leasing, DSK Asset Management and DSK Bul-Project. The latter has an important role in the utilization of the European funds by providing consultancy services for companies and municipalities. What are our aims? We aim to preserve the leading position in retail banking by providing complete, efficient and distinctive financial services for our clients, who are always at the centre of our activities. Our employees’ loyalty and expertise combined with our clients’ trust can help us maintain our position in the market. We are committed to work with the highest standards in our business and to perform in compliance with the laws of the Republic of Bulgaria, and the regulations and rules of banking. We focus on maximizing our shareholders value in a socially responsible manner. As responsible employers we are socially committed to our employees’ needs, providing adequate working conditions and opportunities for training and career growth. More detailed information regarding our values and mission is available on our website. Success at Accountability Rating Bulgaria DSK Bank was rated in first place within the financial sector in the Accountability Rating Bulgaria 2008. Our Bank received 26 points, thus achieving third place of the overall rating. In the Accountability Rating Bulgaria 2008, the 45 largest companies were rated according to international methodology. The Rating is a tool for measuring the extent to which companies have built responsible practices into their business. 7 3. SUSTAINABILITY AND CHALLENGES FOR DSK BANK Corporate social responsibility has evolved rapidly since the 1990s, after a series of high-profile scandals. Operating in a responsible manner serves the long-term interests of corporations by raising the legitimacy and trust of stakeholders and reducing risks. Corporate social responsibility is not a supplementary tool of the core activity, but a way of corporate governance. Among the various definitions of CSR one of the most concise and most commonly approved can be found in the European Council’s Green Paper of 2001: “Corporate social responsibility is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” Economic sustainability points beyond the profitability of the organization and also takes into account the organization’s impact on local, national and global economies; it raises the question: how the organization contributes to the sustainability of the economic system at a higher level. The threefold approach to social responsibility – economic, social and environmental – reflects the components of the concept of sustainability. According to another approach, there are four areas a responsible company should focus on. Economic responsibility is about profitability and effective operation, which can only be accomplished within the constraints of the legal framework and which is represented by legal compliance. Philanthropic responsibility focuses on charitable giving, while ethical responsibility implies the conduct of activities and practices expected by the society. A responsible company is required to integrate into its operations the interests and values of all its main stakeholders, such as shareholders, consumers, employees and suppliers, and in a broader sense the government, competitors, local organizations, natural environment and future generations. DSK Bank and corporate social responsibility DSK Bank forms an integral part of its own environment: the operations of the company affect the economy, society and the natural environment. This impact is the direct and indirect result of the Bank’s main activities, arising from the financial services provided on the one hand, and from its physical operations on the other. The organization is also affected by the external circumstances and tendencies. The company’s impacts on sustainable development are meant to be considered with the tendencies and risks of sustainability together. DSK Bank, as a prominent financial institution of Bulgaria, takes an active part in solving the challenges the society has to face. According to our code of conduct and our long- term interests the Bank’s challenges and opportunities from the sustainability’s point are the following: 8 - ensuring an accountable and transparent operation and a responsible provision of financial services with respect to our customers’, business partners’ and shareholders’ interests; - providing comprehensive, high-quality services to our customers while informing them correctly on the possibilities and risks of our products; - providing equal opportunities to all our stakeholders – including our customers, potential customers and employees; - retaining a highly-qualified, loyal employee base by ensuring them appropriate working conditions, personalized career-planning and incentive packages; - anticipating the dangers and crimes threatening the financial institutions (fight against money laundering and financing terrorism); - developing financial literacy; - promoting the efforts of local communities and society by gaining a deeper understanding of vulnerable social groups and by supporting initiatives and events; - minimizing the direct and indirect environmental impact of our activities. SHAREHOLDERS The conditions of our operations are determined by 9 A részvényesek, a társaság tulajdonosaiként, a EMPLOYEES the owners of our corporation and our shareholders. működés feltételeit teremtik meg. A Bankcsoport In consequence one of the most important goals of egyik legfontosabb célja ezért szükségszerűen a CLIENTS The Bank has a significant impact on the life of its our Bank is the value creation for our shareholders. részvényesi értékteremtés. The biggest challenge of our bank is the appropriate employees; as an employer we strongly affect the life The expectations of the owners determine the and security of thousands of people and their functioning of our Bank. and responsible service of our client’s needs. It families. We have a decisive influence on the work includes informing the clients in an adequate way by and life balance of our colleagues. One of the most important challenges for our unfolding their real possibilities and needs and the corporation is to fulfil the expectations of our CL E protection of our creditors risk management forItheNTS The creation of a career plan suiting each of our shareholders while operating sustainably. and depositors. All our activities are determined by employee’s personal ambitions and skills, allowance the code of conduct for businesses. Another package reflecting their performance and adequate challenge for us is to contribute only to those goals A részvényesi érdekek our shareholders secures Fulfilling the interests of kiszolgálása biztosítja a which fulfil the social and environmental working environment is the common interest of our stabilitást. Az elvárások gyakran often aligned with our stability. Their expectations are egybe esnek a requirements. Bank and our employees. Strengthening the loyalty felelős, fenntartható működés the criterias of responsible and kritériumaival: sustainable The most important role of the Bank is to play an of our employees is a crucial challenge for our transzparens működés és vállalatirányítás, operation. Among these is the transparency in our intermediary role among the different actors of company. előírásoknak való megfelelés. A jogszabályi and in our corporate governance or the operations society, thus helping the development of the In the current economical situation retaining our functioning felelősségvállalás legal jelentéstétel társadalmi according to the és a requirements. economy and society as well. stability and preserving the workplaces is considered Corporate social responsibility and reporting are szintén fokozódó elvárás. By offering loans, the Bank gives the opportunity to an important responsibility of ours. growing expectations as well. its customers to raise their living standards and for the companies and local governments to reach Our employees are the key agents of the Bank’s economic development and more successful success, their competences and their ability of achievements of their tasks. innovation are the premises of our effective DSK BANK The secure allocation of savings according to operation. individual needs is a tool of augmenting one’s assets Regarding awareness raising we practice a mutual and realizing one’s self-care. Moreover it can not be impact with our employees. We aim to develop neglected that the Bank takes active part in the commitment to environmental and social issues effective realization of the money transactions among our colleagues. At the same time we are between the citizens, the economic, state and non- open to put into practice any initiative coming from CIVIL SOCIETY profit sector. our co-workers concerning the improvement of our company. The relationship between the Bank and certain groups of the society (e.g. local government, the The biggest challenge of our bank is the appropriate state, regulating authorities, non-profit organizations) and responsible service of our client’s needs. This can be seen at different levels. Society expects the includes informing the clients in an adequate manner SUPPLIERS Bank to fulfil the minimum legal requirements and by unfolding their real possibilities and needs as well possibly to realize further achievements as taking as the risk management for the protection of our The effective functioning of our Bank requires the part in maintaining the institutes of the society (for creditors and depositors. All our activities are involvement of external organizations, by which we example by paying taxes) or supporting noble determined by the code of conduct for businesses. indirectly contribute to the development of our causes. Another challenge for us is to contribute only to those economy and the creation of jobs. The impact made goals which fulfil the social and environmental on each of the suppliers depends on its size and the The goals of certain groups of the society and their requirements. range of its subcontractors. We commit ourselves to representatives vary, and areoften contrary. Fulfilling certain values through our suppliers. Our professional knowledge helps us give orientation the legal requirements is obvious for us. The to our customers in choosing the appropriate decision of realizing further practices depends on the products. This means developing a range of products It is one of our challenges to co-operate with requirements of our stakeholders. which fulfil the needs of our clients. Moreover it gives suppliers who are in line with the Bank’s values and us the opportunity to offer services which strengthen ethical business conduct while offering adequate We intend to develop a cooperative partner relation the environmental consciousness and responsible services. Moreover we aim to attain correct with the state authorities and the local governments behaviour of our clients. There are several cooperation without taking advantage of our possible with the aim of creating an effective regulating possibilities to create a simple way of connection superiority. environment serving the interests of the society. between our customers and the good cause. The expectations towards our suppliers on the one We reveal together with the representatives of the hand helps the Bank’s sustainable development and society the problems we can help to tackle. We on the other hand fosters the propagate responsible acknowledge the role of civil society organizations in and sustainable business behaviour through the IMPACT our society; hence we support their efforts according whole chain of creating values in the economy. We to our possibilities. For the sake of transparency and are trying to be a role model by showing commitment CHALLENGES efficiency we offer our support by a determined to correct business practices. direction. OPPORTUNITIES 10 4. PRINCIPLES AND PRACTICES DETERMINING THE OPERATION OF THE BANK Responsibility and long-term sustainability require fair and ethical business conduct. The organization’s values, conduct and operation are regulated by the following documents, which apply to every organizational unit and which were determined in accordance with international, and OTP Group standards: - Code of Ethics; - Organizational and Operational Regulations; - Group Management Regulations; - Collective Bargaining Agreement. Code of Ethics Our activity is performed by sticking to specific ethical values. DSK Bank applies the unified ethical guidelines and system of Code of Ethics drawn up by the OTP Bank Plc., complemented with the Code of Conduct, containing internal regulations. The Code of Ethics covers and regulates – among others – the topics of conflicts of interests, anti- money laundering, terrorist financing, confidentiality, unauthorized and unethical use of insider and internal information and corporate governance. DSK Bank declares to condemn and refrain from all forms of negative discrimination and harassment. Anti-Money Laundering and Anti-Terrorist Financing DSK Bank complies with the 40 anti-money laundering recommendations and 9 special recommendations on terrorist financing developed by FATF (Financial Action Task Force); all the rules and regulations of Bulgaria. The Bank espouses, and sets out the manner in which an ethics process may be initiated. The Bank reviews all reported ethical misconduct in the framework of a process set out in the Code of Ethics and notifies those concerned of the result of the process. In 2008 there were no ethics processes. The Ethical Declaration is available on our website. The Code of Conduct – regulating the ethical behaviour of the employees – is obligatory for all of our employees. Our employees were provided training on the Code of Ethics and Code of Conduct and it is part of the introductory training of the new entrants; the Code of Conduct is available on the Intranet. Aiming to spread the ethical business conduct, our suppliers will be expected to comply with the Ethical Declaration. Compliance The task of the independent Compliance Department is to monitor the legal environment of the Bank’s operation and to help the Bank adapt to it. Our objective is to ensure that the compliance function operates in a way that provides effective support for responsible corporate governance, and to ensure the continued independence of the organizational 11 unit. The interests of our clients and other stakeholders require us to give a broad understanding for the meaning of compliance with the aim of maintaining the good reputation of DSK Bank. One of the main challenges is the consistent management of information flows within the organization; we are expected to find appropriate solutions to manage the incoming information and to provide information according to the expectations and requirements of the different functions and stakeholders. The tasks and operation of the compliance department is regulated by the unified Compliance Constitution of OTP Group. Protecting our depositor and responsible lending The bank, playing the intermediary role among the different actors of society, is responsible for those depositing their funds (depositors) and towards the outsourcing (lending) as well. The bank is considered to be responsible towards those offering their funds in case it secures the repayment of their money. The security of the depositors requires that the bank exercise a strict and coherent review in the process of lending. The institution should offer credit only in the case of adequate collateral and appropriate solvency and willingness to do so. The conservative policy is true for the borrower and this additionally protects the client from getting overdebted which can even lead to personal tragedies and bankruptcy of companies. Responsibility does not end at the disbursement of the loan, but continues during the whole period of the repayment when following up the debtor’s solvency. Principles of responsible credit*: - Responsible and affordable credit for all – without discrimination. - Credit relations are transparent and easy to understand – comparability with competitors, adequate time for reflection, access to independent advice is provided. - Lending is at all times cautious, responsible and fair – the credit is productive for the borrower, weakness, need or naivety of borrowers is not allowed to be exploited. - Adaptation of credit conditions is preferred to credit cancellation and destruction. - Protective legislation has to be effective. - Overindebtedness is a public concern. - Borrowers are provided with the adequate means to defend their rights and are free to voice their concerns. * The introduction of principles was conducted according to the “Rules of Responsible Credit” created by the European Coalition for Responsible Credit. Our Bank agrees and complies with the principles. Though we are not a member of the Coalition as only non-profit organizations are allowed to be part of it. 12 Security One of the most determining characteristics of the bank is security. It is considered essential both for DSK Bank and the OTP Group to maintain security and manage risks; hence we are aiming to apply internationally leading practices. Issues regarding security are handled in a complex manner by DSK Bank. The traditional personal- and property protection and the defence of the information technology are widened to other dimensions of security. Handling the security risks of the activities of credit banks and commercial institutions; handling the HR risks, secret- and data protection, defending business interests; preventing, impeding and retracing or contributing in retracing crimes and illegal behaviours menacing the Bank; providing appropriate security training for the employees; complex realization of security checks. The detailed regulatory system together with the high level security by the absolute adherence of the controls requires continuous attention and immediate reaction. In the internal operations of the Bank the security and the risk management work in strong cooperation. The establishment of the secure operation of the Bank is set by unified principles and rules in the OTP Group. We set equally high requirements towards our security suppliers. Our security operations, working in an effective organizational framework, are continuously facing challenges. In order to impede abuses, we are aiming to use new prevention methods. Our company exercises zero tolerance towards abuses. In the coming year we intend to involve our clients in security issues, by drawing their attention for possible risks they face in certain cases, and providing them with recommendations to avoid risks. Corrupted ATMs in DSK Bank network, 2008 ATMs with skimming device 0 Successful robberies 10 Unsuccessful robberies 16 ATM vandalism 8 Risk management DSK Bank considers risk management as its social duty, far beyond its economic interest. The method of the risk management is strictly regulated, unified in the whole Group. The Bank established an independent risk management organization and operates risk management committees. Credits and Limits Council, Credit Committee, Assets and Liabilities Committee are in charge of assessing, guaranteeing and monitoring the optimum balance of risk. DSK Bank is Basel II compliant. In order to comply with the stipulation of the Basel II Contract we set up an independent department on operational risk in 2008. We require our customers to be transparent in their financial management and business operations, we do not accept loan applications for purposes which: constitute breaches of the law or criminal acts or contravene environmental protection regulations. Forbidden areas of business are illicit arms trade, illicit gambling, narcotics trade, other illegal activities (money laundering, black-marketeering, etc.) Customers whose activities can 13 be presumed to breach general moral standards or social values are also not eligible to receive loans. DSK Bank pursues a sound credit policy. We use a centralized risk assessment process. In order to evaluate the solvency and paying willingness of our clients we use a statistical based, automated scoring and rating system. The experiences on our clients’ repayment prove the correctness of our methodology. 14 5. ECONOMIC PERFORMANCE 5.1 Economic role of DSK Bank The introduction of the economic performance makes it possible to present the contribution of our Bank to the sustainability of the economic systems at local and national levels. The display of our performance differs from the financial approach of the Annual Report and emphasizes the money flow among the stakeholders. Direct economic value generated and distributed at DSK Bank, 2008 (based on the non-consolidated, IFRS profit and loss statement, million BGN) I. Generated direct economic value =1 551,2 Revenues Net interest income + non-interest 551,2 1. income (with net fees, adjusted) II. Economic value distributed = 2+3+4+5 199,7 2. Operating costs + payment to providers of Operating costs – Personnel expenses – 91,6 capital Depreciation – Taxes reducing the corporate tax base 3. Employee wages and benefits Personnel expenses 67,7 4. Payments to government (gross taxes) Total tax-payment liability 40,3 5. Community investment (voluntary) Charitable giving 0,1 III. Economic value retained = 1-(2+3+4+5) 351,6 DSK Bank fulfils its tax payment obligations as required by law. The amount of paid taxes – highly influenced among others by the revenues and profit – is significant for society. DSK Bank is a considerable tax payer at a local and national level as well. Our constant goal is to avoid damaging the interests of our clients’ while complying with the statutory regulations. We aim to reduce the number of prosecutions resulting in exoneration of our Bank and the amount of penalties by preliminary reconciliations with the concerned bodies and by raising our prudence. Nevertheless we acknowledge the legitimate complaints and sentences fulfilling the imposed sanctions. At the end of 2008, 95 court proceedings were ongoing against DSK Bank, the total value of these claims was 1 351 541 BGN. 5.2 Products and services What makes a banking service or product responsible? What are the tasks of the bank in economic processes? Who and in what proportion should undertake the risk? To which extent can self-regulating and differing from the competitors be expected? During the development of our products we often have to face these and several other questions. However, it is much easier to raise a question than to answer it. We have to fulfil the different needs of our owners, our depositors and loaners. Successful operation demands different requirements than regulatory institutions do. The constant challenge 15 of our corporation and our employees is to create a balance to harmonize among all the interests. - Stability is one of the core values why our clients choose DSK Bank. In order to maintain stability we implement sound risk management policy. - The development and sale of all of our products is done according to responsible and sustainable principles: we apply the rules of the Code of Ethics; we pay constant attention to the development and frames of the social and economic environment. - We constantly deliver our services in a responsible manner. Beyond that some of our products are designed to fulfil the financial needs of a certain group in society. We strive to fulfil the variety of the needs of our clients by widening the spectrum of our services. Our products, packages of services and offers inspire: - the development of the financial literacy and knowledge of our individual and corporate clients (creating access to the bank services for youth; packages for savings; securing the possibilities of self-care); - a raising of environmental awareness (renovation loans helping energy efficiency, financing projects aiming at the use of renewable energies); - the utilization of state and European Union funds. Individual banking products DSK Bank pays special attention to the generation of the future, the youth and to elderly people. We are committed to enhance their financial knowledge, awareness and culture. Our products promote savings for the future: - Children’s Deposit offers a flexible but at the same time sound saving construction. Children’s Deposit provides more favourable financial conditions than the indefinite deposits. - DSK FUTURE Children Saving Account serves long-term accumulation of funds, the use of funds starts when the beneficiary becomes eighteen and lasts until he/she becomes twenty-five. DSK Bank provides the only youth card in Bulgaria. Three different packages are offered for the youth according to their age. Bank cards and own bank accounts contribute to the development of financial culture and to the responsible management of finances for youth. - DSK Start is intended for children between 7 and 14 years: parents or guardians are entitled to control the spending of the children as they are the account holders; - DSK Teen is offered for teenagers between 14 and 18 years: teenagers are provided with more responsibility, they are able to perform real bank operations on their accounts; - DSK Max is issued to you young people between 18 and 24 years and provides all the functions of a standard payment account and bank card at a considerably lower price. 16 In 2008 we granted student loans in 64 cases, the current portfolio was 244 917 BGN by the end of the year. The introduction of DSK ISIC card required a joint effort from DSK Bank and ISTC1. DSK ISIC card is a 3-in-1 card combination: it is a debit card, an ISIC student identification card and a student discount card for Bulgarian railways. DSK Bank is one of the few financial institutions providing services for pensioners. Our program was launched two years ago when we set the goal of enhancing the use of financial services for pensioners. Elderly people were provided information on the advantages of bank cards on several channels. DSK Bank offers special discount, debit cards free of charge for pensioners and at the beginning of 2008 we introduced a bank lottery. Every week a prize of BGN 100 is drawn, and once a month the prize reaches BGN 1000. All pensioners holding a DSK Bank card are participants of the lottery on condition that a transaction has been made on the card account during the respective period. We awarded a total of 17 300 BGN in 2008 as prize of the lottery. We are proud of the successful campaign resulting in higher awareness, and more frequent use of bank cards and ATMs by the elderly. Virtual Visa Card – security above all DSK Bank offers a unique bank card for paying online. Virtual Visa is not a real card, hence ensuring maximum security. Using DSK Direct, our clients are able to transfer the necessary amount to buy the desired goods and services on the internet, while the rest of the money remains under protection in the payment account. DSK-Rodina offers voluntary and mandatory pension insurance as a supplement to the state pension to secure income for older age. Pension funds are responsible possibilities for self-care. An important advantage of voluntary pension insurance is the possibility of withdrawing money at any time even before the insurance claim (old age, disability, death) has occurred. DSK-Rodina enjoys a 9% market share within the insured persons of the pension security market. Corporate banking products DSK Bank strives to satisfy their customers’ needs in the corporate sector as well. We offer special packages and loans primarily for micro enterprises and for SME’s (e.g. for dentists and doctors special loans are available). As for big companies tailor-made services are provided and we have the possibility to determine the conditions in accordance with the clients’ and corporation’s interests. Most of our preferential products and packages are related to EU or national programs targeting the development of corporations, agriculture and in many cases promoting energy efficiency. We strive to exploit the cooperation possibilities with international and national institutions. The European Union and the Government grant funds for innovative goals and long-term return projects. 1 The international Student Travel Confederation issues the International Student Identity Card (ISIC), the only internationally accepted student ID card. With access to a global network ISIC provides 41,000 possibilies for discounts and benefits in 106 countries worldwide. 17 Different types of investment loans are available: - for pre-project activities and preparation for tender participation (DSK EUROSTART); - for expenditures of project realization, approved for financing by the European and the Government budget (DSK EUROBRIDGE, DSK EUROFINAL); - for co-financing of expenditure payments, related to the execution of a project approved according to a program of the European Union (DSK EUROPROJECT); The EBRD (European Bank for Reconstruction and Development) agreement – signed in 2004 – provided a facility line of 40 million BGN for project financing. The agreement covered projects improving energy efficiency, construction of equipment and investment projects for use of renewable energy resources (e.g. waterpower stations and wind energy generators). Subsidized organizations were granted a determined proportion of the loan after the appropriate implementation of the project. Funds of the facility line were used by 2008 but further negotiations are proceeding. In the framework of the EIB (European Investment Bank) agreement municipal projects were also supported. DSK Bank is in close cooperation with the Bulgarian Development Bank. For SME’s a fund is available for guaranteeing loans, and in the beginning of 2009 another agreement is to be signed for a facility line of 20 million BGN. The 10-year project is meant to finance technical innovation and pre-export of Bulgarian companies. Breakdown of Corporate Loans by Sector Trade Real estate operations 18% Building and construction 1% 26% Food and beverages 1% Services 1% Tourism, accommodation and catering 2% Agriculture 2% 2% Energy production 3% Manufacturing machines, transport, other services 5% Culture, sports and entertainment and related 14% Health and social activities 6% Other services 7% 12% Computer-related activities All other less than 1% (R&D; post&communication; transport; tourism; w aste management; education etc.) DSK Bank is the significant partner of municipalities by serving the financial needs of almost one third of the local governments. In 2008 we financed about 10 projects of municipalities by succeeding in the public procurement process. Most of the projects 18 target the development of the infrastructure; one of the most important goals is the construction of the water pipeline systems. With the aim of facilitating the process of European fund’s resources absorption, DSK Bank established DSK Bul-Project Ltd. The company offers highly qualified consultants to the applicants for operative programs financing from preliminary research and preparation of the project proposal right through to its final phase, including the entire management of the activities approved in the project. 19 6. OUR CLIENTS The honoured trust of almost 3 million of our clients is one of the most important values for us. DSK Bank is considered to be a safe and credible financial institute. It is our responsibility to preserve our clients’ trust and confidence by the following means: - Prior to offering and selling a banking product or a service, we explore the real aims of our clients. We have to ascertain that our client is thoroughly informed about their financial possibilities, that they are aware of the advantages and risks of the service and willing and also able to undertake these risks and obligations. Fulfilling this need requires extreme care and well organized background operations, since the honesty and openness of our clients depend highly on the first contact with our Bank and our offers. - Our responsibility lasts even after the purchase of the product. Our aim is that our client relations are marked by ethical business conduct, reliable conditions and a partner relation with the client at all times. We aim for constant and innovative development in order to provide responsible services and meeting our clients’ needs. We measure the success of our initiatives with extensive satisfaction surveys. The clientele of our Bank come from all walks of life; hence we aim to offer personal advices to satisfy the expectations of all our clients. We consider it a priority to provide information which can be easily understood by all, including the exact explanation of the risks. Providing information in an easy to understand way, including a precise explanation of the risks is considered to be of great priority at DSK Bank. The development of the conditions of our services We prioritize quality over quantity in our sales. The role of our employees working in the call-center and customer care areas is crucial. Besides the professional expertise of our co-workers, we lay emphasis on the development of their communication skills with the aim of providing clear, relevant and professional information to our clients as well as to establish their real needs. The use of intranet and e-learning has significantly increased the possibilities of trainings. With the help of these tools we are enabled to inform our colleagues immediately on new possibilities. We are continuously developing our incentive system designed for our employees in order to provide services to our clients according to their real needs. 20 MiFID The European Union directive of "Markets in Financial Instruments" (MiFID) aims to establish a common set of conditions and an order of processes in the field of investments among the member states, which help to defend the interests of the investors and the service of the clients’ needs. The MiFID is concerned with the investment service providers and the clients. The new law in effect as of 1st February 2008 ensures: - detailed communication regarding the financial tools of the service providers and the offered services and products - provides transparency regarding the operations of the investor companies and the implementation of the transactions, alleviating the orientation of the clients in the cobwebs; - Furthermore the service providers have to proceed according to the needs of our clients fulfilling their assignments with the best possible conditions MiFID at DSK Bank Our company has always tried to attend to the clients’ needs by providing services with the best conditions, the directive of the MiFID assists in the thorough realization of this. With the aim of fulfilling the regulations in mind we have introduced the following changes: - According to the regulations of the law we have adopted new categories in qualifying our clients, which determine the depth of the information we give our clients. - Prior to starting the portfolio management of our clients, we find out their risk undertaking ability, financial knowledge and situation as well as their investment goals. - We have elaborated an Implementation Policy, which contains the normative rules to be used while dealing with our customers in order to fulfill their assignments in the best possible way. Our goal is to be extended to all of the services of the Bank, and make use of the so-called Aptitude and Adequacy test with this overperforming the regulations. Our Call Center plays an emerging role in serving and informing clients. Promoting our call center and its availability on many different channels has resulted in increasing popularity. Apart from immediate actions our Call Center is prepared to answer and provide detailed information on all possible questions from our clients around the clock. The Call Center offers an appropriate channel for informing clients and to enhance financial literacy. According to our experiences our clients are willing to call the Call Center and ask for a wide range of information. In order to make our Call Center as client friendly as possible we record and analyze all the incoming calls, the results of evaluation serve as a basis of improvement. The Call Center is available in 24 hours a day, 7 days a week and it is charged at the price of a city call. 21 Our clients’ feedback gives us reason to be proud of the Call Center. The Call Center is of great importance for our colleagues as well by providing up-to-date information on our products and services. In addition to all the modern tools of communications personal contact plays a determining role for our clients. With its 379 branches DSK Bank owns 14% of the banking branch network in Bulgaria. DSK is available all over the country and we have an ever growing branch network. Placing emphasis on equal opportunities we make our branches accessible for disabled people. Branch reconstruction serves as a frame for creating barrier-free environment. Renewal of our branch network is constant, 60 branches were reconstructed in 2008, and we intend to refurbish 40 in the coming year. To improve comfort we are planning to offer free mineral water in bank branches in the summer period. To ease our clients’ choice at the customer orientation automatic machine one of our staff – in most cases the security guard – is ready to give assistance in our bigger braches. In order to measure the quality of our services we conduct mystery shopping on a regular basis. While pretending to be potential clients mystery shoppers examine and evaluate a wide range of factors keeping their eyes open for everything: - from the appearance of the branch – e.g. if the customer orientation system is clear enough; if the branch is tidy; if the leaflets and brochures are appropriately available; - to the customer service – e.g. clarity and accuracy of information provided, exploration of customer needs and situation; management of clients. The management is provided with the results of the mystery shopping on a regional breakdown. From time to time we managed to improve and conclusions of the report define the way of future development. One of the most important challenges we face – and strive to solve – is to reduce customer’s waiting time. Besides analyzing the quality of our services we conduct mystery shopping at our competitors. In 2008 DSK Bank achieved outstanding results among Bulgarian banks and among OTP Group affiliates as well. Among the OTP Group members we performed best together with the OTP Bank, Hungary; and we have gained a 6% advantage compared to our competitors in fierce competition. We constantly monitor our corporate clients’ satisfaction. The personal and closer relationship allows a deeper and more detailed exploration. In order to become more familiar with our clients’ expectation and opinion we are planning to introduce a customer satisfaction survey in 2009. Although we are succeeding in achieving a low proportion of customers’ complaints compared to our competitors, we place great emphasis on managing and reducing customers’ complaints. We use a centralized system for managing customers’ complaints providing professional and quick solutions. We continuously work on the development of our customer complaints management. The satisfaction of our employees is a crucial part of our strategy. 22 Customer contacts and handling complaints, 2008 Number of customer contacts (complaints, requests, inquires, suggestions) 1301 Number of customer contacts regarding bank card transactions (complaints, requests, inquires, suggestions) 3129 Reimbursed amount on justified complaints (BGN) 15 584 Reimbursed amount for handling non-identified card transactions (BGN) 51 115 Enhancing financial literacy The ever developing financial products are becoming more and more complex and the complication of the money markets keep growing. Despite this we are convinced that we provide thorough information on our products and product groups, and fully understanding them requires the often missing financial literacy. DSK Bank promotes the development of the financial literacy of its clients and the wider public. One of the main pillars of this has to be the financial education of the people. The responsibility of the educational institutions in providing the basic financial knowledge and culture is crucial. At the same time we can take part in providing a solution with the use of our programs. Our initiatives mainly focus on students and children and we work in close cooperation with the Association of Bulgarian Banks. As a result of this joint effort a dictionary has been prepared on the financial expressions. This dictionary is available on the Association’s website. Our educational program targets secondary schools: every year the colleagues of DSK visit different schools all over the country and while introducing the youth cards they explain the responsible financial management and provide essential information on financial mechanisms. In cooperation with the secondary schools the best performing students are granted a debit card as an reward for their academic results. From 2009 on we are planning to widen the channels and tools for improving financial literacy. We intend to make the explanation of financial expressions and main features of types of products available on our website and in our branches available. Several of our charity activities target the development of financial knowledge by supporting students or schools. Further information on the projects can be found at the Social Participation Chapter. World Savings Day DSK Bank has been engaged in the World Savings Day for many years. - In 2008 we organized a joint campaign with an NGO: children collected stotinka for charity purposes, for medical operators for children clinics. The commitment and willingness to help of the children was exemplary all over the country, they were proud of counting the stotinka at the DSK branches where they were supposed to take the money. (The campaign was organized on International Children’s Day as well.) - World Savings Day is traditionally the occasion for awarding the outstanding efforts and performances at the OTP Group. The prize was set up in 1984 by the OTP Bank in memory of András Fáy – the father of the savings movement in Hungary and the founder of OTP Bank’s historic predecessor. From year to year our colleagues are also awarded, in 2008 Ms. Detelina Nikolova, Chief Regional Manager received the award in recognition of her successful work in the North and Northwestern Region of Bulgaria. 23 7. THE EFFECTS OF THE ECONOMIC CRISIS ON THE OPERATIONS OF DSK BANK The financial and economic crisis – resulting from the crisis on the money markets – deteriorated during the fall of 2008, and thus seriously affected the operations of the OTP Group and DSK Bank as well. The strict risk management of the OTP Group gives a stable background for maintaining the financial balance and the liquidity. At the same time the crisis required, and continuously requires immediate reactions in many fields. With the aim of maintaining our stability we: - have changed our product portfolio; - have applied stricter measures regarding our risk management; - now provide a wider, more active communication towards our clients and investors; - have reduced our investment costs to a minimum; - aim to protect our depositors and - aim to help our debtors and to prevent them from insolvency, credit defaults and bankruptcy. Beyond our clients and investors, we are highly responsible to our employees. Preservation of jobs has become one of the most important factors for our colleagues to secure their livelihood. 7.1 Communication and trustworthy information assurance Leaders of DSK Bank are important and highly recognized actors in our society, in several cases possessing the role of opinion shapers. Violina Marinova, the CEO and chairperson of DSK Bank gives regular interviews to different media groups on various financial issues and questions related to DSK Bank. Ms. Marinova has informed the Bulgarian society on various channels regarding the financial crisis and the possibilities open to our clients who found themselves in a difficult situation. We publish statements of our opinion regarding important economical and financial plans, and we provide press releases widely covered by the media. Our clients are personally informed through our Call Center and the customer service employees of our branches. In order to provide accurate and reliable information we constantly inform and train our staff on the overall situation of the Bank and the possible solutions for our clients in trouble. We prepare them to answer and attend our clients’ questions and needs efficiently. We have organized two seminars for our corporate clients sharing with them our plans and expectations in business development for the year 2009. We set a high value on establishing a dialogue with our partners and are open to their feedback as well. Confirming the success of our efforts there was no mass withdrawal of the deposits, in October 2008 our Bank was rated with the highest confidence in client service. We maintained the safeguarding image of our Bank which helps us to keep our main asset, the trust of our clients. 24 7.2 Change in the operational structure Although it was not necessary to make changes in our structure and in the principles of our operations as a result of the crisis; the altering market and economical conditions have made it essential to revise our operating system. The principles of the amendment of our operations aiming to maintain our stability: - decreasing the risks: - security; - quick reaction; - accurate situation analysis; - reduction of expenditure. Sudden and unexpected changes require the management to make frequent decisions and to adopt a stricter control of the processes. Our decisions have become more centralized and the personal responsibility of our leaders has become stronger, due to our aim of making faster and even wiser decisions, placing high importance on our security. Increased precautions during the planning processes mean drafting various scenarios, as well as making the internal control by frequent revisions stricter. In the current situation maintaining our stability and security is more essential over the growth of the Bank; hence the importance of the functions, supporting the core business, playing a more significant role. The emphasis of the following areas has risen in particular: risk management, compliance, controlling and security. Thanks to these changes several risks and dangers have become more foreseeable and avoidable. Therefore we are convinced that the development of the functions mentioned above, has added long-term value, and will continue to do so even after the passing of the crisis. It is obvious that in the unfavourable economic environment we aim to reduce the operational costs. We are managing this by postponing all investments – real estate, equipment, IT tools and software – which would add to the standards of our operations and working environment, but currently are indispensible. 7.3 Alteration in the product portfolio Our product portfolio and sales activity is determined by our goal of aiming to increase the deposits and savings. Deposits As a result of the scarce funds, we have to rely mainly on deposits, both in the field of product development and in sales. The unforeseen situations require us to widen the range of our low-risk products while focusing on the different needs of our individual, corporate and local governmental clients. 25 Protecting our debtors The economic crisis renders it more difficult for our individual and corporate clients to pay back their debts. We consider it as a high priority to offer our clients – overstepping the legal requirements – personal negotiations, in order to support them to overcome the payment difficulties. A wide range of possibilities are available such as restructuring the loan, extension of the repayment period, temporarily suspending the redemption of the debt or to change to foreign currency loans. We treat our clients individually by offering tailor-made solutions to suit their exact needs. We strive to use all the possible channels to make our clients pay attention to the solutions. Unfortunately, according to our experience, our clients turn to our Bank only as a last resort, when the arrears are already high. We actively encourage our clients to contact us before accumulating their arrears, in order to find a solution convenient for all. Loan products Due to the increased risks, our Bank, as well as the depositors’ and the loaners’ interests require us to apply stricter conditions for providing loans and for credit assessment. With regards to the maintenance of the economic processes and the development, it is essential to continue offering loans. Hence we constantly offer credit to all of our client groups, except the areas with exceptionally high risks. In the current economic situation funding has become even more difficult, thus the state and European Union refinanced credits are of a higher significance. These credits stimulate economic processes as they expand resources. DSK Bank aims to find and draw in refinanced funds and to join state and European Union programs. 7.4 Our colleagues The economic crisis has had a serious impact on our employees as well. During work, frequent changes and insecurity have caused an increase in burdens. The role of our colleagues, working in customer care, is crucial, as they secure information and communicate with our clients. However, providing always up-to-date information needs constant preparation. The increased need of information, the more frequent questions on the overall situation of the Bank and the economy all require broad knowledge. We ensure the background information needed for client communications in time, and we focus on the development of our employees’ competencies as well. We are aware that our colleagues are working under more stressful conditions and we aim to reduce the workload. The co-workers of our head offices are constantly working to find solutions to be used for the changing economic and financial situation. As a consequence of the crisis we have decided to postpone our traditional events such as Christmas Party and DSK Bank Cup, the tennis tournament. We are convinced that common events are an essential part of our work, thus we are committed to organize the aforementioned events in 2009. One of the most affected sectors hit by the economic crisis is the financial sector specifically the banks; fortunately by the end of 2008 we were not forced to make any redundancies. A future cutback of the headcount may become necessary due to the decline of the market possibilities and the loss of demand. DSK Bank will continue to do everything possible in order to secure its employees’ jobs. 26 8. OUR EMPLOYEES Our employees play a crucial role in the realization of our strategy, in achieving our goals. One part of our HR policy is to express our appreciation of our colleagues and their work. DSK Bank, due to its extensive branch network, plays an important role as an employer in the country. Besides strengthening the commitment of our co-workers and striving for the enforcement of their skills and ability for innovation, we also have a responsibility towards them. Our duty is to secure the stability of their workplaces, to provide healthy working conditions, to maintain the work-life balance and to assure equal opportunities. The size of our Bank requires the standardization of the HR processes as we have to ensure a transparent operating structure. The opportunities – supposed to raise the performance and commitment to our Bank – have to be available for all of our colleagues. The means of possibilities include, among others: communication channels, representation of interests, career management, etc. Workforce headcount data Employee headcount data st per person, 31 December 2008 Full-time employees 3 826 Part-time employees 113 Total headcount 3 939 Number of employees with a fixed- 3 402 term employment contract Effective capacity management is an essential factor contributing to the Group’s successful operation. Headcount is optimally matched with the human resource requirements specified for the individual work processes. Most of the staff are employed on a full-time basis. From the standpoint of labour law and our benefits policy all the employees receive equal treatment, in accordance with the statutory provisions. 27 Total headcount by region 31st December 2008 6% 8% Sofia Pleven Region 6% Veliko Tarnovo Region 47% Varna Region 7% Burgas Region Stara Zagora Region 10% Plovdiv Region Blagoevgrad Region 8% 8% In the regional distribution of employees Sofia is notably dominant among the regions, with almost half of the employees working in the capital. The proportion of the other regions is quite evenly balanced. Breakdown of employees per category according to gender 31st December 2008 2 500 1 999 2 000 1 500 1 000 674 600 291 500 3 3 58 47 76 54 75 59 0 Female Female Female Female Female Female Male Male Male Male Male Male Senior Middle Line manager While collar Administrative Blue collar manager manager (not manager) The distribution by gender shows a predominance of women; the ratio of women within the total workforce is 70%. Women are equally represented at management level as well. 28 Percentage of employees by age group 31st December 2008 11% 5% <25 yrs 26% 25-35 yrs 35-45 yrs 45-55 yrs 32% >55 yrs 26% The breakdown of employees by age reveals a broad distribution, with the average age of the workforce being 41. Although DSK Bank does not have a comprehensive policy and practice of giving preference to local inhabitants when hiring people, the employees of the Bank are predominantly locals. At the establishment of the new Head Office, new positions were firstly offered to DSK employees as part of their career development, hence these people transferred to Sofia from other parts of the country. The history of DSK Bank dates back to the 1950’s thus we have a long-standing relationship with our employees. Establishment and penetration of new banks in Bulgaria resulted in some of DSK employees leaving the Bank. The most important factors of our human resource practices are proven to be satisfying for our employees as many of the former employees are rejoining DSK Bank. The fluctuation tendencies are between 12 – 15%, the turnover in 2008 was 14.8%. The level of turnover has decreased in the second half of the year. Our long-term objective is to further decrease and stabilize turnover by strengthening our colleagues’ satisfaction and loyalty. Our ability to retain our colleagues is influenced by a number of factors, and the majority of our HR management activities are geared, either directly or indirectly, towards ensuring the retention of employees. We should concentrate on the branch network, as the turnover is significantly higher than that of the head office’s. Employee turnover is greatly influenced by job opportunities of the region, and this is also reflected in the demographic profiles of outgoing employees. In Sofia and Plovdiv the turnover is significantly higher than in the regions, the age group under 25 is proven to show the least loyalty among the employees. Turnover of men was 15%, whereas the female was 17%. 29 Turnover of employees by region compared to the headcount of the region, 31st December 2008 20% 18% 17% 16% 15% 13% 12% 12% 11% 9% 10% 5% 0% n on on n n n n n io io io io io io gi gi eg eg eg eg eg eg Re Re R R R R R R en v d o ra f ia a as di ov ra rn go ev rg So ov vg rn Va Za Bu Pl Pl Ta oe a ag o ar l ik Bl St Ve Percentage of employee turnover by age group compared to the headcount of the age group 31st December 2008 30% 24% 25% 21% 20% 15% 15% 11% 9% 10% 5% 0% <25 yrs 25-35 yrs 35-45 yrs 45-55 yrs >55 yrs Training and education One of our main goals is to continuously develop the professional knowledge and personal skills of our employees. Training is closely linked to everyday work, new products and services, changing conditions need continuous education and information. Currently we are proceeding with the introduction of the e-learning system, providing a faster, more easily available and flexible way of education. E-learning creates the possibility of mass training on the spot, suiting the time schedule of employees. In 2008 we conducted a mass education program jointly with a consultancy company. The trainings aimed to develop the skills and competencies, and middle management was provided leadership training. As a consequence of the economic crisis we have been forced to cut back training costs on the short run. We provide topic related trainings on special issues concerning all or most of the employees. The introduction of the Code of Conduct (2006) and Code of Ethics (2007) were followed by an education program, in which all DSK Bank staff participated. 30 A great emphasis is placed on the training of new entries. The introductory training consists of three modules: - general information on DSK Bank and on working conditions including the organizational structure, governance bodies, legal compliance, historical aspects, standards of behaviour, internal communication, performance evaluation; - banking products and services training; - software and IT knowledge training. In 2009 we are planning to launch the talent management program. The purpose of the system is to provide talented and motivated employees with clearly defined opportunities for professional advancement and promotion within the Bank. The talent-nurturing scheme aims to enhance professional and interpersonal skills of the participants. The program is going to be based on the one used by OTP Bank, and the first step will be the selection and retention of talented staff. Average hours of training per employee by employee category, 2008 68 66 64 5 62 Employees 10 60 Management 58 56 61 54 56 52 50 hours In-house External The ratio of in-house training to training provided by external companies is roughly half and half. Training expenditure per employee amounts to an average of 242 BGN, with 24% spent on in-house and 76% on external trainings. DSK Bank provides internships to young expertise, trainees are provided with relevant professional experience, and after fulfilling the program they may become a probable candidate for the open positions. Programs for skills management, lifelong learning and career changes Availability In-house training courses yes Financial support for external training or education yes Provision of study leave, with guaranteed retention of position no Pre-retirement planning for those approaching retirement age no Further training for those who would like to continue working for longer yes Severance packages no Job search help for dismissed employees no Assistance with the transition to life without work (e.g. training, counselling) no 31 Performance evaluation Assessment and evaluation of personnel performance is an essential part of our human resource management. We use both qualitative and quantitative indicators to measure performance annually or twice a year. Qualitative evaluation and feedback is a part of the manager’s job with all of the employees, and 72% of our staff receives an official performance assessment and appraisal of their work. Benefits policy Our benefits policy is required to fulfil twofold aim: to provide a fair remuneration and to motivate our employees to perform even better, to reward loyalty to the Bank and to reflect the level of responsibility associated with their jobs. DSK Bank is the most effective bank not only among the OTP Group, but among all banks in Bulgaria regarding HR costs compared to economic results. Salaries are determined in accordance with uniform principles, while the assessment of performance and the related incentives are also regulated. Performance is measured on the basis of business and financial indicators. Remuneration consists of three parts: salary, bonuses – determined by the performance, and a social package – provided to all employees equally. The social package is voted locally and contains additional pension fund contributions, and other social support. Benefits in excess of salary make 25% of compensation. The average earnings are more than double the national average earnings but lower than that of the financial sector. The yearly increase rate of real earnings at DSK Bank indicates our objective: to increase benefits and achieve the average for the whole financial sector. Employee Benefits 2008 1400 1 230 1 184 1200 BGN per person per month 1 060 1000 800 600 500 400 200 0 Net average earnings Net average earnings Net average earnings Total compensation at the organisation w ithin the financial in the national package, including sector economy salary and benefits in kind 32 Real earnings at DSK Bank and national economy, 2008 Change in real earnings at DSK Bank (compared to 2007) 17% Change in real earnings in the financial sector (compared to 2007) 15% Change in real earnings in the national economy (compared to 2007) 20% To express our appreciation and acknowledgement our best performing colleagues are rewarded on Bankers Day and World Savings Day. The awarding procedure is always connected to a special event participated in by most of the employees and a celebration of the common success of DSK Bank together. Employee advocacy and deliverance Providing appropriate advocacy to our employees and their involvement into all the relevant decisions is taken for granted at DSK Bank. The Bank’s management conducts negotiations and consultations with the Trade Union and the Workers’ Council prior to making decisions or taking steps that affect larger groups of employees, in accordance with the statutory regulations. DSK Bank cooperates with the trade union on a continuous basis, and makes the necessary information and infrastructure available for advocacy activities. Collective Bargaining Agreement applies to all employees independent their trade union membership. Employees are welcomed to provide suggestions and ideas to the management. Working groups are managed by the responsible organizational units; recommendations of the network on the everyday work are received by a dedicated mail box. Proposals are reviewed on a monthly basis, and suggestions are provided for the management. For the sake of exploring our colleagues’ opinion we conduct employee satisfaction surveys. According to the results of the last survey – which took place in 2007 – work safety and working environment; training and development opportunities; and internal communication are the fields where DSK Bank’s performance is the best. In the coming years we have to focus on compensation packages and maintaining work-life balance in order to enhance the staff’s engagement. Internal communication A well organized and appropriate internal communication is one of the main factors of efficient and successful operation. Electronic channels are becoming more and more important. Intranet is one of the most important resources regarding professional and organizational information, but the role of personal meetings cannot be stressed enough. The most commonly used channels for providing news of general interest are Intranet and the internal newspaper of DSK Bank published in every three months. We are convinced that employees’ commitment is highly influenced by the atmosphere and cohesion, and for this reason we inform our staff on a wide range of topics; interviews with the best performing employees, donations, branch openings, events of the Bank are only a few to mention here. We have also given a summary of CSR in our internal newspaper. Health Healthy and safety working conditions are provided according to statutory legislation. Most of our employees participate in a regular annual medical check-up. Expenditure of 33 the medical check-up has a determining role in our donation costs. Employees working under special risk conditions are covered by life insurance. DSK Tours provides discounts for our employees when buying its services. We are convinced that prevention should be preferred to treatment, thus we are planning to promote healthy life by supporting recreation and sports of our employees. 34 9. SOCIAL PARTICIPATION Being a determining company of Bulgaria we are committed to take an active part in the realization of programs serving the needs and interests of the whole society beyond the frame of our financial services. According to the Bulgarian Donors’ Forum DSK Bank is one of the biggest donors among the Bulgarian financial institutes. It is easy to stand up for a good cause. But it is challenging to subsidize effectively. How can the funds be used in the most effective way? How can we be sure that the target set will be realized with our help? What type of support should we use among all the various ones available? DSK Bank supports a wide range of initiatives and programs in order to express its engagement towards the community the Bank is operating in and the solutions of social challenges. - Youth and children, the future generation and our employees are at the very centre of our charity activities. We consider familiarity and love of the arts and music to be of great importance besides education. - We pay continuous attention to the health conditions of our colleagues and we support their participation in cultural events. - We are willing to help local communities according to their current needs. Though the decision-making process fully concerns the CEO of DSK Bank, regional officers have the opportunity to recommend local initiatives worth supporting. As we are not in a position to help everyone we do not support individuals in order to avoid being discriminatory. We are committed to ensure the best use of the given funds, thus we expect our beneficiaries to comply with the strict regulations on the expenditures, and demand detailed feedback on the results and impact of the programs. For further improvement of our supporting activities we aim to reconstruct our donation policy and to determine the principles and fields of charity more exactly. Many of our beneficiaries are granted long-term backing (i.e. 2-3 years), but we also support single events and initiatives. Chiefly we provide our subsidies with a donation and the majority of financial contributions are in-kind donations. In-kind contribution of DSK Bank is related to IT equipment: - We provide hospitals, schools and different public institutions with used computers. - In 2008 we updated six PC sets for the Union of Bulgarian Journalists (UBJ) in order to equip a computer room in the union. From 2009 on we are placing more emphasis on in-kind donations by increasing the diversity of support and by quantifying the financial amount of giving. We prefer to exploit possibilities that are connected to our core business and currently used communication channels. We aim to get our colleagues more involved in charitable activities in the future. We are planning several programs serving to improve their commitment and participation; one of our objectives is to encourage the employees’ initiatives by establishing a channel for 35 their ideas. Our focus will be set on joint efforts: DSK Bank will actively contribute to the colleagues’ donations. We intend to make our staff more acquainted with DSK Bank’s social participation. Amount of Donation and Sponsorship at the DSK Bank, 2008 Sponsorship Donations 0 20000 40000 60000 80000 100000 120000 140000 160000 BGN Education and related initiatives Arts and culture Medical care Public institutions and related initiatives Employees (medical care and arts) Education We are committed to support the education at all possible levels from primary schools to universities; from buying textbooks up to providing scholarships. In 2008 we donated for the following causes: - textbooks to a public school; - publishing a folklore encyclopaedia for children; - publishing a book on economics; - publishing collected works with scientific researches at the University of National and World Economy in Sofia , to be later presented at an international conference; - the Bulgarian University Students’ Union to organize and hold an European University Students’ Conference; - the development of a concept for a specialized economic Internet gateway; - an international children’s chess tournament “The Elephant’s Cup”. DSK Bank provides traditionally – for the third consecutive year– debit cards for the winners in the different age groups. DSK Bank is an active member in the two significant foundations – the Buruv Foundation and the Dr. Gavriiski Foundation – in Bulgaria supporting the development of financial knowledge by providing scholarships to talented young people. DSK Bank is committed to employing young experts granted support by the Foundations. 36 The Foundation “Atanas Burov” The foundation is the first non-profit organization with ideal aims, working in the field of banking, finance and industry since 1992. The foundation: - annually provides scholarships to students, - organizes the only countryside Summer Schools focusing on modern banking and corporate governance; - initiates competitions on important topics of financial development; - implements a joint initiative called "Investment Academy” to disseminate the opportunities for investment in the country; - supports the participation of young experts in different educational programs. Art and music We are convinced that art and music are essential parts of life and represent a high value. We are committed to contribute to the establishment of plays and performances and we consider wide notoriety with the same importance. In most cases we support cultural institutions that do not receive state subsidies. In 2008 we provided contributions to: - The National Opera and Ballet for the “We Go to the Opera” program. The aim of the sponsorship program was to introduce the youngest generation to the world of music by attending opera and ballet performances specially adapted for children. - Purchasing of tickets for DSK Bank employees to attend a Drama performance and a Christmas concert at the National Palace of Culture. - Pernik Municipal Drama Theatre for staging Ray Cooney’s comedy “Two Marriages and One Adultery”. - The State Musical Theatre (Operetta) to install a stage-manager system. - The State Touring Theatre, Sofia for performing the Bulgarian comedy “The Underground” in Cyprus, Nicosia. - We regularly co-operate with the Cultural Institute of the Hungarian Embassy and in 2008 we supported the so-called “Hungarian Wave” program, a series of cultural events; where modern and classical Hungarian arts were introduced and presented including an art exhibition of Victor Vasarely. - The “Nicothea” Producers Company for staging “America! America!” in Sofia. - The Bulgarian Christian Union in order for them to become acquainted with Christian culture and relics in Istanbul. Medical care Our donations focus on the staff of DSK Bank. The long-term approach towards our employees requires us to act in a responsible way regarding health. For the sake of preventing illnesses and early treatment we provide our employees a regular medical check-up on a yearly basis. 37 Some charity programs target children’s health. In 2008 we donated to the “Sveta Marina” hospital, the clinic for children’s oncohaematology; and provided the infrastructure and delivery for the campaign aiming at collecting stotinka. (The campaign was mentioned earlier is this report.) Bulgarian Christmas DSK Bank is a traditional donor in the Bulgarian Christmas charity campaign; besides participating in the charity concert we support the organization of the concert. The main objective of the campaign is to provide proper education or medical treatment to orphans or children living in poor families who cannot afford this. Public institutions We are convinced that as being an integral part of the local communities we are supposed to help them to reach their goals. DSK Bank happily contributes to local needs and objectives. In 2008 we supported: - the municipality of Momchilgrad for maintenance of small gardens and green areas around schools and kindergartens; - the municipality of Karnobat for the town’s local holiday; - the National Fire Brigade and Protection of the Civil Population. - We sponsored the National Association of the Municipal Officers in Bulgaria to hold an international conference in Sofia on “The European City – City Planning and Architecture, Security and Finances”. 38 10. SECONDARY STAKEHOLDERS 10.1 Suppliers While conducting business a wide range of suppliers support DSK Bank. In order to boost efficiency and leverage economies of scale we make an effort to centralize procurements wherever possible. In several cases – like with IT equipment – centralization is implemented on the OTP Group level. The selection of suppliers takes place through a tendering process, and bidders – on condition that they comply with the technical competence – are chosen based on the price and payment condition of their bid, and security for the provision of proper services is also of great emphasis. The provision for proper services takes into account environmental, security and ergonomic aspects as well. We demand that all our suppliers comply with the legislative provisions. We conduct a deep examination into the potential suppliers analyzing among others fields that help us to assess responsibility and reliability of the prospective supplier, e.g. reputation, financial standing, ISO qualifications. Endeavouring to ensure equal opportunity is taken for granted in the course of selecting our suppliers. Although the size and market weight of DSK Bank potentially gives it the power to dictate terms to its suppliers, in all cases we strive to forge fair, long-term business partnerships based on two-way communication. The Bank clearly states its expectations towards its suppliers, and does everything in its power to fulfil its own commitments, and in the event of any problems attempts to reach a mutually agreeable solution. Our position enables us to shape the attitudes of our suppliers by setting a good example, and we intend to make more effective use of this opportunity in the future. We aim to ensure that our suppliers comply with our Code of Ethics, and from 2009 our contracts will contain clauses to this effect. 10.2 Competitors DSK Bank faces ever fiercer competition, thus the success of the Bank’s business operations, and the achievement of its market objectives, presupposes a knowledge and analysis of competitors’ activities, a pro-active approach and an ability to respond effectively to the actions of competing market operators. The Bank primarily uses indirect means to obtain information regarding its competitors’ operations. We strive for a fair and proper relationship with our competitors. We are convinced that in many fields banks are not rivals and supportive cooperation can best serve the interest of clients and other stakeholders. Experience exchange and common search for solutions can provide an additional value for all participants. We are committed to launch joint initiatives with our competitors targeting a more simple and unified communication towards clients. A direct relationship with participants in the banking sector is inevitable through interest representation and industry associations. DSK Bank is an active member of the Association of Banks in Bulgaria, and represented in many of the Association’s 39 committees. We are proud that the CEO of DSK Bank, Ms. Violina Marinova is the Chairperson of the Association. 10.3 Government agencies DSK Bank endeavours to comply with all the legal provisions. Compliance requires the maintenance of contacts with the competent supervisory bodies. In many respects our cooperation with government agencies goes beyond the simple fulfilment of our statutory obligations. The cooperation with the government agencies indicates the high reputation of DSK Bank: our opinion is often requested on a prospective new regulation or a change. DSK Bank uses its expertise to inspire national legislation. DSK Bank is hardly ever – five or six times on an annual basis – placed under surveillance or supervision from the side of supervision bodies and committees for protection of interests (e.g. Consumer Protection Agency, Committee for Personal Data Protection). Additionally the majority of cases were closed in favour of DSK Bank. Many former employees of DSK Bank occupy high positions in governmental or professional bodies, or have been elected as mayors. Membership in associations In order to effectively maintain its market presence and to assert its interests, DSK Bank joins industry associations that complement its objectives and interests, and share its values. Membership, for the Bank, involves playing an active role in the operation of these organizations. DSK Bank is the member of: - The Association of Banks in Bulgaria; - The Bulgarian Stock Exchange; - Bulgarian Chamber of Commerce; - The Central Depository; Bulgarian Dealers’ Association; - The Atanas Bourov Foundation; - The Prof. Dr. Veleslav Gavriiski Foundation; - The World Savings Banks Institute; - The European Savings Banks Group; - MasterCard; - Visa Europe; - S.W.I.F.T.; - The Association for Control and Audit of Information Systems (in USA); - Confederation of Employers and Industrialists in Bulgaria; - Bulgarian - Hungarian Chamber of Commerce. 40 10.4 Media As DSK Bank aims to be an open company, we regard it as imperative to continuously provide our customers, investors and the general public with comprehensive information regarding our business results, development, products and services. Our strategy in media communication has always been to maintain the reputation of the Bank and to strengthen the bond of trust, but the current financial crisis has made this even more relevant. An important means of providing this information is regular, pro-active, credible and consistent media communication. Attention is always paid to activities of DSK Bank. We keep in touch with the representatives of the media on a daily basis and we also monitor the media constantly. One of the most important channels for reaching the general public is to publish press releases virtually on a weekly basis. The interviews of the CEO of DSK Bank are another significant means of providing information. Interviews are always welcomed by Violina Marinova. Topics that need special expertise – e.g. IT – are discussed with the competent employees of the Bank. DSK Bank has a strict policy on interviewing; the interviewee on behalf of the Bank is to be authorized by the CEO. Special and significant events are followed by press conferences. DSK Bank enjoys a close relationship with the local media as well; regional offices are always willing to satisfy the information needs of the public. As financial institutions are often objects of criticism we are proud that DSK Bank has not been criticized in principles for more than a year. 41 11. ENVIRONMENTAL PERFORMANCE What is the most important environmental impact of a financial company? To what extent should environmental protection play a role in the corporate social responsibility of the Bank? Our internal and external stakeholders are right to raise these questions. The Bank’s commitment to environmental protection is clearly demonstrated in the corporate social responsibility report as well. The environmental impact of DSK Bank is as diverse as the social and economic effects of its operation. Our effect on the environment is obviously of another character than the impact of industrial companies. Thus we need to consider different aspects when evaluating our performance and setting the direction of our development. We identified three main areas while defining the environmental impact of DSK Bank: - Resulting from its intermediary role in the economy, DSK Bank contributes and provides the possibility of investments and activities which may affect the environment in a positive or negative way; - The maintenance of buildings and facilities of the wide branch network of the Bank as well as the necessary business trips have an inherent impact on the environment; - The Bank is entitled to raise environmental awareness; the Bank’s economic multiplying effect can be exercised in the field of the environment as well due to the 3 million clients and four thousand employees. The environmental impact of financial services Risk management and careful allocation of funds play a determining role in financial services regarding prevention of environmental burdening operations beyond the legal regulations. In addition our products may be specifically designed to finance environmentally friendly investments as well as indirectly enhancing the spread of environmentally sound practices. Detailed information can be found in the following chapters: Principles and Practices Determining the Operation of the Bank, Banking Products and Services. Environmental impacts deriving from the operations of the Bank The main effects on the environment resulting from the Bank’s operations stem from the maintenance of the Head Office and branches, and also the business trips. Real estate DSK Bank’s operations have become more centralized since joining the OTP Group, hence there has been an increase in the staff working at the head offices in Sofia. For the sake of rationalization of real estate management and in order to make the operations more efficient we are closing up the rented head office buildings and moving 42 into newly built offices. New and DSK owned buildings provide more space for environmentally friendly solutions. In compliance with the national law on energy efficiency two buildings of DSK Bank are certified as energy efficient properties; the Kaloyan building is certified as a Class A, and the Moskovska as a Class B building. Previous to the certification of the Kaloyan building it was reconstructed by applying energy and water saving solutions. The almost one hundred year-old historical building of the Moskovska head office is energy efficient in many aspects by nature. Thick brick walls absorb the heat in wintertime while at the same time keep the temperature low in the summer period. We pay high attention to reasonable use of resources and the temperature of our buildings is adjusted to the weather conditions and to the working hours. While processing the constant renovation of our head offices and branches we use the same standards assuring high efficiency. By the end of 2008 almost two-thirds of our premises had been reconstructed and applied the same water saving taps, toilet flushes, energy saving light bulbs etc. A new head office of DSK Bank is currently under construction and planned to be completed in 2010. The new building provides the possibility to set new goals and to exceed current standards: we intend to use cutting-edge installation, which includes an automatic building management system as well. We are investigating whether the conditions are appropriate to involve renewable energy resources. In 2009 we are planning to receive the energy efficiency classification for another of our head offices, the Batenberg building. Materials used As a consequence of the office environment, the furniture and the equipment of the branches and the IT facilities are the most frequently used materials. Paper, ink and toner cartridges are the most significant materials we use. Data of DSK Bank’s materials usage, 2008 Number of branch offices 379 Number of branches renovated in 2008 60 Quantity of paper procured directly (t) 105 Weight of ink and toner cartridges used (t) 12 Weight of CDs and DVDs used (kg) 85 Procurement is centralized, thus the criteria of selection can be unified and easily monitored. Maintenance and waste management of the IT equipment is also more efficient in this way. In the course of selecting the products and service providers we concentrate on the durable condition and aftercare as well, besides cost and quality criteria. The new equipment is more environmentally friendly concerning its energy consumption as well as its materials. At the same time we intend to find the optimum balance in the frequency of change. The technical prerequisites for the usage of environmentally friendly materials are not always adequate. Although we have been forwarding our empty toner and ink cartridges for refill for several years, we cannot use refilled toners as their quality does not meet our requirements. We have the same problems regarding recycled paper for office use, besides the issue of significantly higher costs as well. Nevertheless we are searching for the possibilities of widening the use of recycled paper. 43 Energy and water consumption Efficiency requires continuous monitoring on resource utilization, focusing on the determining users. Environmentally friendly solutions and low energy consumption play an important role during the reconstruction of buildings and branches, and the establishment of the new head office. For further improvement of the energy management of DSK Bank four of our colleagues will be attending an energy efficiency seminar. The most significant energy consumption results from our electricity usage – deriving mainly from IT devices – and central heating – seeing as the most commonly used heating at DSK Bank is central heating. In the new head office we are planning to use electric heating to secure a higher reliability of supply. We foster our colleagues towards environmentally conscious behaviour by logging off the computer upon leaving, or being responsible in the use of water and electricity. The Bank’s water consumption is not excessive; the water is mainly supplied from the main public water system and is discharged into the public sewage system. One of our premises at the sea side possesses its own water resource. Consumption data is summarized centrally, hence we are not able to disclose exact information on the consumption. We undergo a continuous improvement in the estimation method as well as include more criteria in the measurement. Waste management Our waste management system is undergoing continuous development. We prevent producing waste by only making a rational change in office furniture, facilities and IT equipment, reducing the amount of our printouts, and in 2009 we are planning to introduce electronic invoices as well. Recycling and reuse has been realized in terms of selected waste collection. A significant part of waste paper is derived from our archives. Disposal of confidential information is strictly regulated thus we collect archives selected all around the country, shred the paper and reuse it again. In 2008 we collected 20 tons of paper sorted. Toners and ink cartridges have been delivered for recycling since the middle of 2008. Used computers, printers and copy machines are offered either as donations to non-profit organizations or institutes or for employees at a reasonable price. In 2009 we are planning to conclude an agreement for the reuse of the metal parts of the computers in 2009 but we also intend to retain the previously mentioned system. We strive to extend sorted waste collection in the coming years with the focus on household waste (paper, PET bottles etc.). Company vehicles, business trips The motor vehicle fleet of DSK Bank requires continuous maintenance. DSK Bank uses leased cars, the period of change depending on the driven kilometres but generally vehicles are changed every three years. In the selection of vehicles the primary considerations are quality and price in this field as well. Other important criteria are 44 security, consumption and the expected time of the reliable usage. Our new vehicles fulfil high level environmental requirements. As a result our motor vehicle fleet is gradually becoming more and more environmentally friendly. Our leaders enjoy a degree of freedom when selecting their vehicles. In order to reduce the number of business flights, we have extended the use of video conferences. The last few years’ experience shows that regional operation requires close personal contact, thus we do not foresee a considerable drop in the number of trips. To give a complete list we are required to report on the courier services we subcontracted, however our Bank rarely makes use of these possibilities. Bicycle usage among our employees depends on personal commitment. Some of our branches provide bicycle parks; however showers, which could further enable our colleagues to travel by bicycle, are rarely available. Business travels at DSK Bank, 2008 Number of vehicles 110 vehicles Trips by air 91 return journeys Raising awareness - With the aim of raising the environmental awareness of our clients, we promote the use of electronic channels. o Among other possibilities, our clients can access their bank statements online. o For clients requiring printed bank statements we intend to make use of empty space by placing CSR messages on it. - We plan to use recycled paper for marketing purposes, for our publications, leaflets and brochures. - We would like to enhance the responsible attitude of our employees with our programs, a few of which will be realized in 2009: o We plan to provide CSR training, which will contain several ideas and recommendations on the practical adaptation of environmentally conscious behaviour. o We are going to introduce a printing policy, promoting the reduction of paper and toner usage. o We aim to launch a pilot project for promoting a “green office” by decreasing energy consumption, and having selective waste collection etc. - Environmentally conscious operations can only be realized with the involvement and active participation of our employees, thus we feel it is essential that our colleagues consider us as partners and supporters in the realization of their initiatives e.g. to promote carpooling among employees, colleagues sharing cars will be rewarded. - We strive to transmit environmental friendliness towards our partners as well while reducing our own emission by “green event management”. We are going to choose environmentally friendly locations, catering and materials, as well as CO2 neutralization. 45 - We are open to new ideas and suggestions from all of our stakeholders regarding the strengthening of environmental awareness. Our email address firstname.lastname@example.org is live; moreover we are planning to establish boxes for ideas in our branch offices. Promoting energy efficiency DSK Bank jointly with three other Bulgarian banks created a TV commercial to promote energy efficiency in 2006. The animated advertisement explained the meaning of energy efficiency and provided recommendations on how to implement it in every day life. 46 12. OBJECTIVES FOR THE FUTURE We have summarized our objectives and commitments for the future in the interests of responsible and sustainable operations. DIRECTIONS OF OUR FUTURE DEVELOPMENT Strengthening the principles of CSR in our organization and among our suppliers We are going to consider auditing the report by external assurance from 2009 onwards. We aim to ensure that our suppliers comply with our Code of Ethics, and from 2009 our contracts will contain clauses to this effect. Security and risk management In the coming year we intend to involve our clients in security issues, by drawing their attention to possible risks they may face in certain cases, and providing them with recommendations on how to avoid these risks. Customer service In order to become more familiar with our clients’ expectations and opinions we are planning to introduce a customer satisfaction survey in 2009. We intend to refurbish 40 branches in the coming year. We are committed to launch joint initiatives with our competitors with more simple and unified form of communication towards clients. We are planning to offer free mineral water in bank branches in the summer period in order to improve the comfort of our clients. One of the most important challenges we face – and strive to solve – is to reduce customer waiting times. Development of financial literacy From 2009 on we are planning to widen the channels and tools for improving financial literacy. We intend to make the explanation of financial expressions, and main features of types of products, available on our website and in our branches. Products and services Further negotiations for future funding of the facility line are in process. For SME’s a fund is available for guaranteeing loans, and at the beginning of 2009 another agreement is to be signed for a facility line of 20 million BGN. The ten-year project is meant to finance technical innovation and the pre-export of Bulgarian companies. DSK Bank is aiming to find and draw in refinanced funds and to join state and European Union programs. Employees Currently we are proceeding with the introduction of the e-learning system. In 2009 we are planning to launch the talent management program. We are convinced that common events like the company Christmas Party and DSK Bank Cup are essential parts of our work, thus we are committed to continue organizing them in 2009. We are planning to promote healthy lifestyle by supporting recreation and sports for our employees, giving a preference to prevention over treatment. Social participation We are aiming to reconstruct our donation policy and to determine the principles and fields of charity more exactly. We aim to get our colleagues more involved in charity work in the future. We are planning several programs serving to improve their commitment and participation; one of our objectives is to encourage the employees’ initiatives by establishing a channel for their ideas. Our focus will be set on joint efforts: DSK Bank will actively contribute to the colleagues’ donations. We intend to make our staff more acquainted on DSK Bank’s social participation. 47 From 2009 on we are placing a higher emphasis on in-kind donations with an increase in the diversity of support and by quantifying the financial amount of donations. We prefer to use possibilities that are already connected to our core business and currently used communication channels rather than new ones. Environmental protection In 2009 we are planning to receive the energy efficiency classification for one of our head offices, the Batenberg building. We continuously improve the method of our emission estimation as well as extending the measured activities. We are investigating whether the conditions are appropriate to utilize renewable energy resources. We are planning to conclude an agreement for the reuse of the metal parts of the computers in 2009. We are intending an extension of sorted waste collection in the coming years with the focus on household waste (paper, PET bottles etc.). We strive to make selective collection of used paper complete. We are going to prepare and implement a printing policy, promoting the reduction of paper and toner use. For clients requiring bank statements on paper we make use of the empty space by placing CSR messages on it. We are planning to use recycled paper for marketing purposes for our publications, leaflets and brochures. We aim to launch pilot project for promoting a “green office” by decreasing energy consumption, offering selective waste collection etc. In order to enhance the energy management of DSK Bank four of our colleagues will take part in energy efficiency training. We are planning to provide CSR training. We promote carpooling among employees, with rewards for colleagues sharing cars. We strive to transmit environmental friendliness towards our partners, while reducing our own emission by “green event management”. We are going to choose environmentally friendly locations, catering and materials, as well as CO2 neutralization. 48 13. CORPORATE GOVERNANCE Governance structure of OTP Group The OTP Group consists of the OTP Bank and its subsidiaries with which it has a close – controlling or shareholding – relationship. The OTP Group operates in accordance with the governance model best suited to the Group’s special characteristics, under a country-responsibility central functional matrix system. The aim of the model is that the organization is governed in conformity with a set of unified principles, but with consideration paid to local factors, thereby optimizing business results at the group level. We differentiate between three types of governance: - Business governance describes the management of retail banking and sales, and corporate banking operations. - Functional governance is applied by the central management and controlling functions, and the group level operation of the service areas. - Owner governance is the exercising of ownership rights and obligations between the parent company and its subsidiaries, realized in a different way at each respective subsidiary. Governance structure at DSK Bank The different organizational units, their functional obligations and the collective governance bodies and their functions are set according to governance rules. DSK Bank has a two-tier system of management. The Bank is ruled by a Supervisory Board consisting of three members elected by the General Meeting. The Supervisory Board supervises the activities of the Bank and elects the six-member Management Board, Chief Executive Officer, and Executive Directors to the members of the Management Board. The Management Board is the governing and representative body of DSK Bank. The Bank is represented jointly by two of the Executive Directors and Procurators. DSK Bank Supervisory Board Dr. Sándor Csányi (56) László Wolf (49) Dr. Frigyes Hárshegyi (63) Chairman of the Deputy Chairman of the Member of the Supervisory Board and Supervisory Board and Supervisory Board Chief Executive Officer of Deputy Chief Executive OTP Bank Officer of OTP Bank DSK Bank Management Board Violina Marinova (55) Miroslav Vichev (44) Diana Miteva (44) Chairperson of the Member of the Management Member of the Management Management Board and Board and Executive Board and Executive Director, Chief Executive Officer Director, IT and Operations Retail Banking 49 Nikolay Borisov (41) Dorothea Nikolova (38) Lyubomir Zhelyazkov (40) Member of the Member of the Member of the Management Management Board and Management Board and Executive Director, Executive Director, Board and Executive Credit Risk Management Corporate Banking Director, Finance and Planning Performance management of the higher bodies Requirements for the qualifications of the members of Higher Bodies are suitable experience, expertise and education level. Senior Executive Managers have to be certified by the Bulgarian National Bank. Positions for members of the committees are appointed as positions in the Bank. The objectives of performance assessment are determined based on financial targets. There is no assessment system or regulation for defining criteria of performance. The final assessment of the Bank is most visible by the financial indicators and awards granted for the Bank. Compensation of higher body members is directly linked to the company’s performance. Permanent committees Permanent committees are the Bank’s decision-preparation, decision-making and negotiating forums. The participants of all the bodies mentioned below are members of the management, and seeing as membership is linked to the positions no mandate is defined for the committees. Audit Committee According to the Independent Financial Audit Law, all of the banks should have an Audit Committee, to observe the independence of the internal financial audit. All three members of the Audit Committee are independent and are not employees of the Bank. Credit Committee The mission of the Credit Committee is to monitor, assess, classify and set aside provisions for the Bank’s risk exposures. This body is entitled to make the operative decisions in relation to the application of the different regulations and the policies for classification of exposures in compliance with the basic rules adopted by the management board of the Bank. It is also responsible for covering the so-called problematic loans. Credits and Limits Council The mission of this body is to guarantee the optimum balance of risk and reward according to Bank strategy within the lending activities to larger corporate clients. In the case of equal votes, the Head of the Credit Risk Management Division shall cast the deciding vote. 50 Assets and Liabilities Committee The main responsibility of this body is to manage the Bank’s assets and liabilities structure so as to maximize the risk-adjusted return to stakeholders in the long run. Investment Committee The mission of the Committee is to manage the Bank’s investment program and large expenses for maximum return on investments. This body determines the priorities of capital investment projects and includes them in the annual investment program. Ethical Committee The mission of this body is the investigation and management of suspected ethical offences. Any detected suspected ethical offence can be reported directly to the Committee according to the Code of Ethics. Corporate structure Each organizational unit has a role to play in implementing corporate responsibility at DSK Bank in order to ensure that sustainability is achieved primarily, in respect of the company’s core activities. The following is a list of the organizational units that have the most direct impact on social responsibility: - Chief Executive Officer - Communications and Coordination Department - Compliance Department - Human Resources and Legal Department - Security - Retail Banking Division, including Marketing and Sales Department - Corporate Banking Division, including Project and Structured Finances Department and Sales and Products Management Department - Finances and Planning Division, including Planning and Controlling Department, and the Bank and Market Risk Department - Credit and Operational Risk Management Division - IT and Operations Division 51 Secretary of the Internal Control and Supervisory Board Audit Management Board Chief Executive Officer Communications Compliance Human Resources Security and Coordination and Legal Retail Banking Corporate Banking Finances and Credit and IT and Operations Planning Operational Risk Management Marketing and Sales Project & Structured Planning and Finances Controlling Sales and Product Bank and Market Management Risk 52 14. GRI INDEX No. Description of indicator Page Comments of indi- cator Strategy and analysis 1.1 2 1.2 7-9;46- 47 Organizational Profile 2.1 56 2.2 5-6;14- 18;24- 25; 2.3 50-51 2.4 56 2.5 5 2.6 56 2.7 5-6;15- Annual Report provides 18 more information. 2.8 5-6 2.9 52 Annual Report provides more information regarding changes. 2.10 5-6; 34 Report parameters 3.1 3 3.2 52 No previous report 3.3 3 3.4 56 3.5 3-4 3.6 4 3.7 4;52 We have determined DSK Bank as scope of the report, while mentioning the subsidiaries as well. 3.8 4 3.9 3-4 At the location of the specific report as well. 3.10 52 No previous report 3.11 52 No previous report 3.12 52-56 Use of the table means providing information as well. 3.13 4 53 Governance, Commitment and Engagement 4.1 48-50 4.2 48 4.3 53 Not relevant. 4.4 32; 48 4.5 49 4.6 53 The employees of the Bank have to declare their awareness of the incompatibility regulation of the Bank. 4.7 49 4.8 10 4.9 49-50 4.10 49 4.11 12-13; Precaution in core 53 operations. 4.12 53 No such charters or principles. 4.13 39 4.14 4 4.15 3 4.16 19-22; 23;25; 32; 34; 38-40 4.17 19-22; 23;25; 32; 34; 38-40 54 Economic Performance Indicators Management approach: Economic performance can be measured in different ways; as each stakeholder group has different expectations towards the Bank. We are convinced that besides the financial results, other aspects of the performance have to prevail as well. Our contribution to the economic development is obvious due to our role as financial mediator. We are traditionally committed to secure the access to the state funded products as well as to serve the needs of the vulnerable social/economic groups or organizations advocating a group of the society. Besides providing services we contribute to the sustainability of the economic system by cooperating with suppliers as well as by employing workforce. We exercise equal rights and ethical business conduct while dealing with the above-mentioned groups. We consider it our responsibility to be active in social issues and to help community goals. We continuously develop our support of social activities in order to be more effective supporters of local communities. We take for granted the fulfilment of our state duties (paying taxes). Economic Performance EC1 14 EC4 54 No financial assistance received Market Presence EC7 28; 48- 49 Environmental performance indicators – these indicators are mainly created specifically to the characteristics of producing companies, hence in the case of DSK Bank some of the definitions, requirements are not always fitting. Management approach: DSK Bank recognizes environmental values and the priority of protection of the environment. The report shows the actual results of the Bank regarding environmental performance which is explained in the respective chapter. DSK Bank, as a company working in the financial sector, interprets the environment in a wide sense, looking for those areas in its services, operations and raising awareness, where the biggest impact can be made. Materials EN1 42 EN2 42 EN28 54 None Labour practices and decent work indicators Management approach: Highly qualified and committed employees are indispensible in order to achieve the Bank’s goals. Our Human Resources management works beyond the regulations of fair employment. We consider equal opportunities, fair employment conditions and safety as granted. In order to retain our employees we lay a higher emphasis on their education. Employment LA1 26-27 LA2 28-29 LA3 26 Labour/Management relations LA4 32 Occupational health and safety 55 LA10 30 Training and Education LA11 30 LA12 31 Diversity and equal opportunity LA13 Composition of governance bodies and breakdown of employees 48-49 per category according to gender, age group, minority membership, and other indicators of diversity LA14 55 There is no difference. The salary of the employees under Collective Bargaining Agreement is set according to the Collective Bargaining Agreement. The remuneration of overtime is carried out according to the regulations of the law. Human Rights Performance Indicators Management approach: DSK Bank fulfils the requirements of respecting the human rights of its stakeholders to the maximum extent. Being a Central-Eastern European company, child and forced labour does not occur as a problem. There are adequate regulations and practices in terms of assuring freedom of association, concluding and practicing collective agreements. Our acquisitions and investments do not require human rights inspection due to the regional practices. We require our partners to operate according to the regulations. We continuously work on the development of our customer complaints management. The satisfaction of our employees is a crucial part of our strategy. The possible ethical complaints are treated according to the Code of Ethics, although in recent years we have had no need to convoke the Ethical Committee. Non-discrimination HR4 55 There was no such case. HR6 55 The Bank does not use forced labour or child labour. HR7 55 Society Performance Indicators Management approach: Our company is committed to compliance towards legal regulations, and the voluntary obligations regarding responsible operation. To follow the changes of the legal environment and to support implementation of these the independent Compliance and Legal Department play a prominent role. Their guidance and control covers all the units of the company. Our company recognized its role on society and we are striving to strengthen the positive effects. We gain the information regarding our impact on the local community by receiving feedback from our stakeholders. Our company is absolutely politics and party neutral. Corruption 56 SO2 56 No such analyses were conducted SO4 56 No corruption related legal procedures was known, and no investigation was taken place by the Ethical Committee in 2008 Product Responsibility Performance Indicators Management approach During the overall process of the development, sales of our products and the delivery of our services we proceed with maximum adherence to the Code of Ethics as well as to our legal and voluntary obligations. Product and service labelling PR5 21 Customer Privacy PR8 56 No such complaint was substantiated. Sector supplement indicators – social performance FS5 38; 44- 45 FS15 14-15 Head office address: DSK Bank Plc: 19, Moskovska Str., 1036 Sofia We look forward to receiving your feedback! For the sake of sustainable development of DSK Bank we need your opinions. Thank you in advance for taking the time to give us your feedback! email@example.com 57 Publisher: DSK Bank Plc. Personable editor: …. Chief Editor: …. Collaborator in the preparation of this publication: Personar Communications Consulting Ltd.; RTG Corporate Responsibility Consulting Ltd. Photography: …. Graphic Design: …. Production: …..
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