Tartalom di jak MKB

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					      CONTENTS

  2 AWARDS AND PRIZES
  3 CHAIRMAN'S STATEMENT
 11 BUSINESS REPORT
 22 CONSOLIDATED FINANCIAL STATEMENTS
      (INTERNATIONAL FINANCIAL REPORTING STANDARDS)
 23 KEY FIGURES
      (INTERNATIONAL FINANCIAL REPORTING STANDARDS)
 24 AUDITOR’S REPORT
 91 MANAGEMENT'S DISCUSSION AND ANALYSIS
102 KEY FIGURES
103 UNCONSOLIDATED BALANCE SHEET AND INCOME STATEMENT
      (HUNGARIAN ACCOUNTING RULES)
111 AUDITOR’S REPORT
112 MKB GROUP
113         BRANCH NETWORK OF THE MKB GROUP IN CENTRAL AND EASTERN EUROPE
            KEY FIGURES OF THE MKB GROUP
114         BUSINESS AND FINANCIAL PERFORMANCE OF MKB EUROLEASING GROUP
            BALANCE SHEET AND INCOME STATEMENT OF MKB-EUROLEASING LTD.
            (INTERNATIONAL FINANCIAL REPORTING STANDARDS)
116         THE BUSINESS PERFORMANCE AND KEY FIGURES OF MKB INSURANCE COMPANIES
118         BUSINESS AND FINANCIAL PERFORMANCE OF MKB ROMEXTERRA BANK
            KEY FIGURES, BALANCE SHEET AND INCOME STATEMENT
            (INTERNATIONAL FINANCIAL REPORTING STANDARDS)
122         BUSINESS AND FINANCIAL PERFORMANCE OF MKB UNIONBANK
            KEY FIGURES, BALANCE SHEET AND INCOME STATEMENT
            (INTERNATIONAL FINANCIAL REPORTING STANDARDS)
126 INFORMATION
127         THE BOARDS AND THE AUDITOR OF MKB BANK
129         BRANCH NETWORK OF MKB BANK IN HUNGARY
131 SUSTAINABILITY REPORT




            Publisher: dr. Adrienne Kraudi
            Editor: dr. Pál Simák, Csaba Szekeres
AWARDS AND PRIZES


In 2008 MKB Bank received several honourable and presti-            in the artist’s home town with the collaboration of the local
gious awards. Besides the Bank’s commitment to quality and          museum, and is accompanied by a beautiful and informative
quality services, these also recognized corporate social            catalogue. In 2008, we organized an exhibition entitled “The
responsibility to a great extent. At the beginning of the           Hungarian Cubist” in memory of János Kmetty. This was held
Annual Report we have listed all our awards; here we only           at the Herman Ottó Museum in Miskolc, and paintings from
describe those related to corporate social responsibility. We       public and private collections were borrowed. On the cente-
are proud of our awards, as they provide a true picture of our      nary of its foundation, the Herman Ottó Museum of Miskolc
esteem and justify our efforts.                                     granted the Pro Museo award, which was established in 1989,
                                                                    to MKB Bank for organizing and sponsoring the exhibition,
The most efficient branch network and Call Centre                   saying “The excellent conditions they created for the exhibi-
According to a survey by the London-based, independent              tion with their sponsorship were unprecedented in the histo-
company Benchmarking, after its 2007 success, the MKB               ry of our museum.”
Bank’s branch network and Call Centre surpassed all other              The support policy of MKB Bank striving for good quality in
local competitor banks in the quality of its service and its cus-   all of its activities and every one of its services is characterised
tomer-friendly attitude. The Bank’s performance as regards          by corporate social responsibility (CSR). We are proud of the
operative and sales efficiency is outstanding in the case of        honouring and prestigious awards, which we consider the
both the branch network and the Call Centre. MKB’s results          recognition of our efforts and a sign of appreciation.
surpassed those of its competitors
particularly in respect of the high-                                Voting of the Liquid Real Estate real estate market
quality, unified interior design, the                               magazine
short waiting times and the sound                                   It is the recognition of our business performance that on the
know-how, kindness and cus-                                         voting of Liquid Real Estate real estate market magazine
tomized service of its administra-                                  belonging to Euromoney group MKB Bank came first in two
tors. The result of the survey is yet                               categories:
more proof of the professionalism                                       – “Commercial Banking” (commercial banking, real estate
of our colleagues and their dedica-                                       financing activity),
tion to our clients and quality.                                        – “Financial Services” (financial consultation services) with-
                                                                          in the summary category of ”Advisory and Consultancy
MasterCard – Bank of the Year                                             Services”
We were awarded a prestigious third place in the category
Socially Responsible Bank of the Year in the Bank of the Year       Prima Primissima award for MKB Veszprém KC
2008 competition sponsored by MasterCard Worldwide.                 The winner of the sports category of the 2008 Prima
                                                                    Primissima award became the sixteen times Hungarian
Good CSR 2008: The Best Strategic Cooperation with Civil            champion MKB Veszprém KC men’s handball team constitut-
Organizations                                                       ing the backbone of the national team.
Last year the increased CSR (corporate social responsibility)         MKB Bank made its present in the competitive sports more
activity of the Bank received a prestigious award. Within the       marked by the presentation of the awards of the Junior Prima
Good CSR 2008 programme, the jury consisting of representa-         Sports Category added to the Prima Primissima Award –
tives from Figyelô, Hungarian Business Leaders Forum and            founded by our Bank in 2007 – in 2008 again to the 10 best
Transparency International awarded MKB Bank the Best                sportsmen younger than 26 years.
Strategic Cooperation with Civil Organizations prize. The jury
were particularly impressed with the relationship between MKB       Our sports results
Bank and the National „Save the Chidren” Service, and the           The key element of our CSR portfolio is the sponsorship of
Bank’s sponsorship–partnership activities of more than a            successful team sports. Currently our two sponsored teams
decade, including, especially, the MKB Scholarship Programme.       are the MKB Veszprém men’s handball team and MKB
                                                                    Euroleasing Sopron women’s basketball team. In addition to
PRO MUSEO Award                                                     the national champion title the former also won the KEK
The fine arts collection of MKB                                     championship, the latter collected both the national champi-
Bank is of national importance. We                                  on and coup winner titles in 2007 and 2008. In addition to
are aware of the fact that it is when                               them we also sponsor the Kayak-canoe Association proven
the Bank puts the works of art on                                   the most successful Hungarian sporting association at the
display to the general public that                                  Beijing Olympic Games.
our acquisition activity takes on
real meaning. Every year, in keep-
ing with this principle, we organize an exhibition of works by
an artist featured in our collection. The exhibition takes place
                                            Chairman’s
                                             Statement




Tamás Erdei, Chairman and CEO of MKB Bank
C H A I R M A N ’ S      S T A T E M E N T




                 FROM BUSINESS POINT OF VIEW, MKB BANK AND THE MKB GROUP IN 2008 CLOSED AN EXPLICITLY SUC-
                 CESSFUL YEAR, THE KEY BUSINESS PORTFOLIOS REFLECTED DYNAMIC GROWTH AND IN A NUMBER OF BUSINESS

                 LINES   MKB BANK AND THE GROUP PRESERVED, OR FURTHER INCREASED THEIR MARKET SHARE, WHICH WAS
                 REFLECTED IN THE TWO-DIGIT DYNAMICS OF THE GROSS OPERATING INCOME. THE GROWTH OF THE OPERATING

                 PROFIT WAS ABOVE INFLATION IN SPITE OF THE FACT THAT THE COSTS, AS PLANNED, INCREASED AT A HIGHER

                 PACE DUE TO THE NETWORK DEVELOPMENTS AND THE COMPREHENSIVE MEDIUM-TERM BUSINESS DEVELOPMENT

                 PROGRAM LAUNCHED IN MKB BANK. THE DETERIORATION OF THE PORTFOLIO QUALITY OF THE LOWER-MEDI-

                 UM SIZE COMPANY SEGMENT, MOSTLY EXPOSED TO THE UNFAVOURABLE ECONOMIC ENVIRONMENT UP TO

                 DATE, HAD AN UNFAVOURABLE EFFECT ON THE PRE-TAX PROFIT OF MKB BANK. IN ADDITION, THE ROMANIAN

                 SUBSIDIARY BANK REQUIRED HIGHER PROVISION CHARGE FOR ITS PROBLEMATIC SME AND RETAIL PORTFOLIO.

                 NEVERTHELESS, MKB BANK AND THE BANK GROUP CLOSED 2008 PROFITABLY.
                      DESPITE THE INTERNATIONAL FINANCIAL CRISIS, AND THE RECESSION OF THE WORLD AND DOMESTIC ECO-
                 NOMY, THE BANK’S LIQUIDITY AND CAPITAL BASE REMAINED CONTINUOUSLY STABLE AND SOUND THROUGHO-

                 UT THE YEAR, MEETING BOTH ITS OWN AS WELL AS THE SHAREHOLDERS’ EXPECTATIONS AND THE SUPERVISORY

                 REQUIREMENTS. MKB BANK AND THE MKB GROUP MEMBERS DID NOT HAVE ANY DIRECT SUB-PRIME EXPOSU-

                 RES OR OTHER EXPOSURES TO AMERICAN FINANCIAL INSTITUTIONS SUFFERING A SHOCK DURING THE YEAR.

                      IN 2009, IN A MARKET ENVIRONMENT OF UNCERTAINTIES, RECESSION AND SLOW CONSOLIDATION, MKB
                 GROUP LAYS EMPHASIS ON REINFORCING ITS BASIC PILLARS. IN LINE WITH THE STRATEGIC RESTRUCTURING
                 PROGRAM OF    BAYERNLB, INTERNAL CONSOLIDATION WILL BE THE MAIN FOCUS OF THE YEAR, WITH THE PRI-
                 MACY OF STABILITY, SAFE OPERATION, LIQUIDITY AND SOLID CAPITAL BASE. IN ADDITION TO STRENGTHEN THE

                 ACQUISITION OF FUNDING, THE BASIC OBJECTIVE IS TO PRESERVE THE QUALITY OF THE PORTFOLIO. MOREOVER,

                 THE BANK WILL REVIEW ITS BUSINESS MODEL IN ORDER TO ENSURE THAT IN THE MEDIUM TERM MKB GROUP

                 WILL SUSTAINABLY INCREASE ITS VALUE GENERATION AND PROFIT CONTRIBUTION TO THE   BAYERNLB GROUP.




4
                                                                                   C H A I R M A N ’ S        S T A T E M E N T




THE HUNGARIAN ECONOMY WAS                                            ment projects, and the postponed and private sector invest-
VULNERABLE IN 2008 IN THE HECTIC                                     ments could not be outbalanced up to date from the EU
INTERNATIONAL MONEY MARKET                                           funds flowing into the country. As a result of the crisis, the
ENVIRONMENT                                                          first wave of lay-offs started in the construction industry,
2008 represented an unfavourable and worsening environ-              automotive industry, electronic and light industry, and in the
ment. The escalation of the global financial and economic cri-       IT sector. Thus, the unemployment rate increased to 8%, and
sis in October hit the domestic economy in a vulnerable state        the activity rate, which is already low compared to the
due to its unbalance. The still relatively high budget deficit,      European average, further deteriorated.
the cancelled structural reforms, a growth rate that slowed             The average annual rate of inflation was 6.1% in 2008. As
down even before the crisis, the loss of relative competitive-       a consequence of the significant decrease in the price of
ness, the inability of the political elite to come to a consensus,   raw material and oil, the outstanding agriculture producti-
and the indebtedness of the private sector with high propor-         on and the drastically falling demand, it showed a continu-
tion of foreign exchange loans were manifested in increased          ously decreasing trend and the year-end inflation reduced
and permanent vulnerability, even in international compari-          to 3.5% (yoy). The base rate increased in several steps at the
son as the economy is fundamentally exposed to the availa-           beginning of the year, due to still apparent inflation-related
bility of external funds.                                            fears (wage increase). However, the new wave of the econo-
   In October, during one of the most severe stages of the cri-      mic crisis put an end to such fears, as the competitive sector
sis, the issue of government securities was unsuccessful, thus       was forced to make cost adjustments. In order to protect
the Treasury suspended the issues. To relieve the financial cri-     financial stability, the NBH in October decided to increase
sis, the IMF and the EU assisted Hungary with a EUR 20 billion       the interest rate by 300 bps. From the level of 11.5% the
credit facility. In addition, the government and the central         base rate gradually decreased to 10% by the end of the
bank adopted a number of further financial and budget                year.
balancing measures in order to stabilise the money markets
and avoid the collapse of the economy.                               HUNGARIAN BANKING SECTOR:
   Domestic demand was the victim of measures taken in               TIGHT LIQUIDITY, DECREASING
order to restore macroeconomic balance, resulting in a serio-        PROFITABILITY
us slowdown of economic growth even before the crisis.               While the global financial crisis, and as a consequence of that
Then the economy was mainly driven by exports. However,              the impacts of the recession in Hungary strengthened from
the decrease of demand on the export markets, especially at          August 2008, in October they escalated, which also had a sig-
the end of the year, brought down the Hungarian industrial           nificant impact on the domestic bank system. Based on that,
production by 1.1% on average in 2008, and it resulted in a          2008 was characterised by two markedly different phases
19.6% fallback in the last month of the year (yoy). The GDP          even from business aspects. The demand for credits in the
increased by 0.6% in 2008 (but it decreased in the last quarter      wholesale and retail sector moved along a relatively balan-
by 2%), which was significantly lower than the Hungarian             ced course of growth until September, but from October, the
growth rate in previous years and in another countries of the        escalation of the crisis, and the fear of recession fundamen-
region. Besides, a significant part of the growth was due to         tally changed the chances and appetite of the economic
the good performance of agriculture, especially compared to          players for financing. Following that, due to the tight foreign
the weak basis of the previous year.                                 exchange liquidity, several banks stopped granting Swiss
   The above processes contributed to the improvement of             Franc and Japanese Yen loans, and significantly tightened
the external balance. In 2008 Hungary’s foreign trade balance        the conditions of borrowing loans and increased its pricing.
is expected to improve further, even showing a slight surplus.       All these steps led to a halt in the further growth of the port-
(The value of exports increased by 5.5%, and that of imports         folios in the remaining part of the year.
by 5.2% on Euro basis.) The decrease in import dynamics                 In 2008, the corporate sector gradually used up its reserves
exceeded that of the export so far due to the decrease in            to an increasing extent and reduced its liquidity to the mini-
domestic demand and cutback in investments at the same               mum. The growth of retail savings was minimal in 2008 and
time, export growth also slowed down significantly. The C/A          the market intensified to some degree because of the fierce
deficit is expected to be around 8.9% of the GDP in 2008.            interest competition evolving by the end of the year due to
   As a consequence of the austerity measures of the govern-         the tight liquidity. In 2008, the market environment was not
ment, the 2008 budget deficit (ESA) reached 3.3% (prelimi-           favourable for the alternative saving opportunities, conse-
nary data), and with the adjustments permitted by the EU it          quently, the last years‘ tendencies of diversification were hal-
may well be under 3%, so even the convergence criterion              ted. The low level of savings in the long term may hinder sus-
might be fulfilled. However, in 2008 the government did not          tainable growth.
have actual elbow room to be able to introduce significant              Following the trend since 2006, the performance of the
measures to boost the economy in order to soften the effects         bank sector further deteriorated in 2008. The more expensive
of the crisis. The earlier cut-back in the government’s invest-      funding, the margins decreasing due to the competition in a


                                                                                                                                   5
C H A I R M A N ’ S         S T A T E M E N T




business growth with slowing dynamics, and the continuati-            taking corporate deposits (2007: 11.2%). In the strategic seg-
on of network expansion all led to the decrease of profitabi-         ment of non-financial companies the Bank is the 2nd largest
lity. From October liquidity became a critical issue, the costs       financier bank, with a market share of 14.1%. Preserving its
of funds skyrocketed, and the growth of business volumes              dynamics on the household credit market, it increased its
significantly slowed down, excluding the effects brought              market share from the 2007 5.5% to 6.1%. MKB Bank continu-
over. Year-end provision charge reached a record in the sec-          ed to preserve its retail savings, and to obtain new resources
tor. Nevertheless, the sector closed 2008 with profit; this,          by applying a business policy that aimed at a deliberate, pro-
however, will be under the level of previous years. In a market       fitability-based diversification of its instruments. As a result of
environment that may be described as an international finan-          this, the loss of market share in deposits could be compensa-
cial crisis, the Hungarian bank system preserved its stability in     ted by the joint increase of the market share held in bonds
2008 too. The capital adequacy of banks continues to be               and investment funds, and the total savings position increa-
above the minimum level stipulated by the law, and their              sed from the 2007 year-end 5.6% to 5.8% by September 2008.
liquidity is safe.                                                    At the same time, the Bank’s market share decreased in hou-
   In 2009 the main risks may basically include more modera-          sehold deposits to 5.4% in 2008. The bank’s own bonds sold
te growth outlooks and opportunities caused by a deeper               to private individual customers reached HUF 46.1 billion at
recession, and the lower level of employment arising from             the end of 2008 (growth of 92.5%). In line with the strategic
that, the possibility of permanently high exchange rates, and         objectives, the market share of the MKB investment funds
the impact of all these to the quality of the portfolio. The          dynamically increased, thus by the end of 2008 it reached
depth of the recession may be reduced by the measures of              5.1% (2007: 3.7%). It was able to increase the managed port-
the domestic government and central bank as well as inter-            folio, as the only significant market player, thus by the end of
national actions. The banks are expected not to be able to            2008 it increased by 5% to HUF 119.6 billion (2007: HUF 114.0
fully transfer to clients their higher costs of funds. The role of    billion) – on the investment fund market decreasing by close
risk management and risk-based pricing will further increase.         to 25% during the year. Within this, the net asset value of
All these will encourage the domestic market players to con-          investment funds sold to private individuals by 5.2%, i.e. HUF
sistently follow-through the efficiency improvement and cost          4.6 billion to HUF 93.4 billion as a result of re-channelling the
optimisation steps already having commenced, but these                savings and the usage of new funds, this way the market
will be able to compensate the negative factors influencing           share of MKB at the end of December 2008 reached 5.6% in
the profits only in a small part, therefore, profitability may sig-   this segment (2007: 4.1%). The Bank’s dynamics is better ref-
nificantly worsen in 2009.                                            lected by the position reached in the new deals of different
                                                                      segments than the static market shares in businesses with
MKB GROUP: REMARKABLE BUSINESS                                        private persons, e.g. in the case of CHF loans to households,
PERFORMANCE IN A DIFFICULT                                            its market share is an average of 10.8%, or the 3rd place it ran-
ENVIRONMENT                                                           ked on the market of guaranteed funds with a market share
The successful business performance of MKB Bank in 2008 is            of 11.3%.
reflected in its figures. Total assets of the Bank according to          In strengthening of the market positions, in addition to the
IFRS in 2008 increased by 18.8%, significantly exceeding              growth of product penetration, the increase of the clientele
inflation, to HUF 2656.6 billion. Customer loans increased by         also played a role, mainly in the retail business line due to the
17.4% to HUF 2018.4 billion. Within this, the net credit portfo-      reasons already mentioned. The number of private individual
lio granted to wholesale customers was increased by MKB by            clients, increasing by 13.5% i.e. by 34 thousand amounted to
11.8% to HUF 1571.0 billion in 2008. The net retail credit port-      288 thousand, while the number of small-companies became
folio of MKB (private individuals and small companies) incre-         29,150 after a growth of 13.9%. The slight decrease of whole-
asing by 57.8% reached HUF 496.6 billion in 2008, in which            sale customers – from 14,540 to 14,200 – was partly caused
the portfolios of private individuals are determinant.                by the decrease of medium-sized company customers. At the
Customer accounts and deposits, due to the economic envi-             end of 2008, MKB Bank offered the fully range of banking pro-
ronment, increased by 1.1% to HUF 1,087.8 billion. Within             ducts through a wide selection of sales channels to close to
this, wholesale deposits by the end of 2008 decreased by              its 332 thousand customers.
3.5% to HUF 551.8 billion. The retail deposit portfolio increa-          The consolidated figures of MKB reflect the business deve-
sed by 0.5% to HUF 418.0 billion. The total household savings         lopment similarly to those of the bank, which also characteri-
portfolio (deposit+bonds+funds) increased by 5.0 % to HUF             sed the MKB group in 2008. The consolidated total assets of
502.9 billion in 2008.                                                MKB Bank as per IFRS in 2008 increased by 17.1% from HUF
   In 2008, MKB Bank deliberately held back its activity in           2885.4 billion (2007: HUF 2465.0 billion). On the group level,
some segments of the wholesale business line, while further           customer loans increased by 20.3% from HUF 1905.9 billion
strengthened its market positions on the private individuals          to HUF 2292.8 billion, while customer accounts and deposits
market. The Bank’s market share made up 12.8% of corporate            increasing by 1.7% amounted to HUF 1267.8 billion from HUF
lending (2007: 13.4 %), and reached a 10.1% market share in           1247.1 billion by the end of 2008.


6
                                                                                                C H A I R M A N ’ S      S T A T E M E N T




   The MKB-Euroleasing Group has been a determinant                             that, MKB Unionbank had more than 67,500 private indivi-
player of the Hungarian car financing market for 18 years. In                   dual clients last year (2007: 62,780). Its customer loans incre-
car financing, by 2.5% lower than in 2007, the group granted                    ased by 50.8% in 2008 and the net loan portfolio reached
new loans in the amount of HUF 61.4 billion, and thus the                       BGN 1,094.8 million, while customer deposits showed a
group ranked 4th on the market with a market share of 10.3                      growth of 21.5% and amounted to BGN 855.9 million. The
%. The total credit portfolio of MKB Euroleasing Autóhitel Zrt.                 Bank had a network of 58 members.
in 2008 was HUF 104.4 billion. The MKB Euroleasing group                          Through its 219-member network in 3 countries, MKB Bank
serves more than 88 thousand retail customers in car finan-                     Group serves nearly 1 million customers (880 thousand priva-
cing, and sold on-line insurance products for 300 thousand                      te individual clients and 85 thousand wholesale customers).1
customers and off-line insurance products to 116 thousand
customers. Also, 390 wholesale customers used their fleet                       16% GROSS OPERATING INCOME
financing services in 2008.                                                     INCREASE ON GROUP LEVEL EXCEEDING
   As a member of the wider BayernLB/S-Finanzgruppe stra-                       THE RATE OF INFLATION
tegic network, in the autumn of 2007 MKB General and MKB                        The gross operating income, with a significant increase of
Life Insurance, whose minority owner is MKB Bank, started                       16.0%, amounted to HUF 97.0 bn, while the operating profit
their respective activities fundamentally relying on the                        increased by 11.9% to HUF 42.7 bn (2007: HUF 38.1 bn) exce-
Bank’s sales network and customers. The success of the bank                     eding the rate of inflation. The cost to income ratio, at the
cross-selling activities is reflected by the fact that in spite of              end of 2008, was 56.0% (2007: 54.4%), partly owing to MKB
the unfavourable environment, it had 15,009 contracts with                      Bank laid down the cornerstones of medium-term growth,
12,337 customers at the end of 2008 in its first complete busi-                 carrying out serious developments in a number of business
ness year. Through the insurance companies, the Bank suc-                       lines and increasing the headcount in relation with that,
cessfully operates its one-point bank-insurance service                         which caused the bank operating costs to increase by 19.4%.
model, and this way it has become fully universal in the                        The deteriorating economic environment was mainly reflec-
country too.                                                                    ted in the increased provisioning, which increased by 54.9%
   MKB Bank’s strategic business partners, MKB Voluntary and                    yoy to HUF 35.1 billion (2007: HUF 22.7 billion). This mostly
Private Pension Fund and the Health Fund closed a relatively                    can be linked to the segment of lower-medium size compa-
successful year. After a 10% growth, their total number of                      nies, while the large corporate and project portfolio slightly
members was 255 thousand at the end of 2008. Based on its                       deteriorated, and the retail portfolio improved. As the sum of
assets, the Voluntary Pension Fund was the 4th biggest mar-                     the above, the Bank’s non-consolidated pre-tax profit as per
ket player (due to the merger of two market players) at the                     IFRS, decreasing by 51.0 %, amounted to HUF 7.6 bn (2007:
end of 2008. Based on the number of its members, the Health                     HUF 15.5 bn). MKB Bank’s equity increased to HUF 216.8 bn
Fund ranked 2nd of all health funds, reaching a market share                    (2007: HUF 210.8 bn). The decrease in profit result is also ref-
of 13.2%.                                                                       lected in the change of the profitability ratios. Return on ave-
   MKB Bank and its domestic group members, including the                       rage equity (ROAE, not weighted, excluding capital invest-
funds, serve 59 thousand corporate and 585 thousand priva-                      ments of foreign subsidiaries) was 4.6% (2007: 10.4%), and
te individual customers.1                                                       the value of return on average assets (ROAA) was 0.3% (2007:
   In 2008 T-Mobile/T-Com, Deutsche Leasing, Lufthansa,                         0.8%) in 2008.
Fundamenta Home Savings Fund, and WestEnd-Trigránit                                The business dynamics of the MKB Bank Group similarly to
Group continued to be the key strategic partners of MKB                         the Bank’s reflected in the increase of Group’s gross opera-
Bank and play an important role for the Bank in cross-selling.                  ting income by 16.0% to HUF 120.4 bn (2007: HUF 103.8 bn).
   The dynamic business growth of the MKB Bank’s CEE sub-                       In spite of the significant costs of the strategic developments,
sidiaries continued, manifested both in the customer num-                       business expansions and network developments, the opera-
bers and the business volumes. The number of MKB                                ting profit, showing a 12.2% impressive growth rate, approa-
Romexterra Bank’s large company customers is cca. 290,                          ched HUF 50.1 billion (2007: HUF 44.6 bn). The cost to income
while the number of midmarket customers is 13,830, that of                      ratio at the end of 2008 was 58.4% (2007: 57.0%). The dyna-
micro companies is 1,500, while the number of private indi-                     mic growth of the group’s business revenues and result,
vidual clients is 227,130 (2007: 194,830), who are served in                    however, was balanced out by the growing provisioning
the network of 80 units (2007: 76). The net loan portfolio of                   charge at MKB Bank basically due to the unfavourable situati-
MKB Romexterra Bank increased by 50.7% and reached ROL                          on of the Hungarian economy, therefore the MKB Bank gro-
1,828.2 million, and the accounts and deposits reached ROL                      up’s consolidated pre-tax profit as per IFRS reached HUF 8.3
1,117.7 million. The number of MKB Unionbank’s large com-                       bn (2007: HUF 20.9 bn). MKB’s consolidated equity increased
pany customers exceeded 280 with an increase of 19.6%,                          to HUF 229.2 bn (2007: HUF 214 bn), based on which the
that of its small and midmarket clients increased by 6.5% to                    Bank’s reached 3.3% return on average equity (ROAE) in 2008
more than 930, while the number of its micro companies                          (2007: 10.6%). The value of its return on average assets
was higher than 9,000 in 2008. (2007: 8,950) In addition to                     (ROAA) was 0.3% (2007: 0.9%).
1
    Excluding the calculated insurance brokerage clients of MKB-Euroleasing group in Hungary.
                                                                                                                                              7
C H A I R M A N ’ S        S T A T E M E N T




CAPITAL STRENGTH OF MKB BANK AND                                     Within the Group, the headcount of MKB Bank increased to
MKB GROUP IS SOUND, THE LIQUIDITY                                    2,259 due to the headcount increase of 280 persons related
IS STABLE AND THE OPERATION IS SAFE                                  to the expansion of the branch network and to the imple-
The capital strength of MKB Bank and MKB Group is solid, the         mentation of the medium-term development program deci-
capital adequacy ratio reflected a safe level throughout 2008.       ded in 2007.
The shareholders reinforced the capital base of MKB Bank               The most significant development was the preparation for a
when it was made necessary by the money market environ-              complex performance planning and monitoring system in
ment and the capital requirement of the Bank’s planned               2008. The new system will be the main tool in communication
development, by granting EUR 50 million subordinated capi-           between leaders and employees and serves the individual
tal in the autumn of 2008. During the year, MKB Bank also inc-       assessment, personal developing plans, loyalty, and retention.
reased capital in the subsidiaries in the total amount of EUR          The foreign subsidiaries (MKB Unionbank, MKB Romexterra
21.2 million (at MKB Unionbank BGL 20 million, at MKB                Bank) employed 1,775 persons as of 31st December 2008.
Romexterra Bank ROL 40 million). At the beginning of 2009            The headcount of the foreign affiliate banks increased to a
the capital of MKB Bank was increased by a further EUR 95.6          minimum extent (by 2%) in 2008.
million by its strategic owner BayernLB.                               As a reaction to the recession of the world and domestic
   The liquidity of MKB Bank and the MKB Group was continu-          economy and its impacts on the banks, the members of the
ously stable and their operation was safe throughout the             MKB Group introduced stricter conditions of staff manage-
year, meeting both their own as well as the shareholders’ and        ment and measures aimed at significant decrease and rest-
supervisory limits and expectations. Perceiving the prolon-          ructuring of personnel type of costs.
ged and deepening global financial problems – in its activiti-
es MKB Bank laid on the business policy level special empha-         OUTLOOK FOR 2009: WITH RECESSION
sis on enforcing the short-term and long-term prudential             TOWARDS EMU CONVERGENCE PATH?
requirements of solvency even, significantly increased the           In 2009, due to the effects of the global economic crisis the
liquidity of its total assets, and mitigated market and risk         recession of the economy is expected to be around 6.0% in
exposure. BayernLB continuously and unconditionally ensu-            Hungary, one of the highest levels in the EU. The depth of the
red the additional capital and funds requirements of the busi-       recession may be reduced by a foreseeable convergence
ness plan all along, consistently fulfilling the role of lender of   course of the economic policy, a restrictive fiscal policy and
last resort function toward its subsidiaries. BayernLB firmly        the fulfilment of the budget deficit plan, and the elimination
confirmed this commitment for 2009 as well, and MKB Bank             of the competitive disadvantages and obstacles. At the
added to it alternative fund raising possibilities focusing on       beginning of 2009, the government announced several mea-
the domestic savings market.                                         sures to aid the construction industry, to preserve jobs and to
   The risk weighted total assets of MKB Bank according to           mitigate the risks of home loan borrowers. Further measures
the Hungarian Accounting Standards increased from the year           may be expected during the year to ease the effects of the cri-
2007 HUF 1996.1 billion to HUF 2103.8 billion growing by             sis. The effects of the long overdue reforms of the structural
5.4% by the end of year 2008, while its regulatory capital           and economic model (taxation, social allowances, structural
during the subject year increasing by 5.4% increased to HUF          policy, education, pension system and healthcare), which is
224.1 billion (2007: HUF 212.6 billion). The Bank’s capital ade-     expected to commence in 2009, will have an impact in the
quacy ratio was 9.65% in 2008 (2007: 10.65%).                        long term. Showing an intention to these reforms would also
   The risk weighted total assets of the MKB Group according         improve the assessment of Hungary on the international
to the IFRS was HUF 2210.0 billion, its regulatory capital was       money markets.
HUF 273.1 billion, and capital adequacy ratio 10.9% in 2008.            The medium-term forecasts may be made with an uncerta-
   The two CEE subsidiaries both maintained capital ade-             inty significantly above the average. The most realistic scena-
quacy ratios in excess of the 12% regulatory minimum in              rio counts on a significant growth course starting in 2011,
effect in the countries concerned. The ratio of MKB                  while, according to the best case scenario by the end of 2009
Romexterra Bank was 14.0% at the end of 2007 (2007: 9.3%),           consolidation will evolve on the financial markets. The signs of
while the same ratio in the case of MKB Unionbank reached            growth in the real economy may appear in the second half of
13.8% at the end of 2008. (2007: 15.1%).                             year 2010, but for the time being neither the export nor the
                                                                     domestic demand will be able to close the output gap. The
HUMAN RESOURCES                                                      fallback in consumption will also reduce the volume of invest-
The total headcount of MKB Group – including the foreign             ment projects. The limited resources of the government are
subsidiaries – was 4,269 on 31st December 2008, while at the         tied-up for preserving the financial balance, and no opportu-
beginning of the year it was 3,942 persons (8% increase).            nities will appear in the short term to boost domestic demand,
  The number of persons employed by MKB Group members                only if the structural reforms were successfully implemented.
operating in Hungary was 2,494 on 31st December 2008,                   At the beginning of 2009 some figures of the budget were
which is a 13% yearly growth compared to 2,198 persons.              reviewed. In order to offset the effects of the deteriorating


8
                                                                                     C H A I R M A N ’ S         S T A T E M E N T




expectations on the macroeconomic environment, the level               market with its business model ’arrange and sell’ in the medi-
of income to the budget, and on the inflation rate, all resul-         um-term, while preserving its market leading position and
ting in a higher budget deficit, the government modified the           know-how. In the lower-midmarket corporate segment the
rates of corporate tax, personal income tax and VAT and also           Bank wishes to lay special emphasis on the consolidation of
employee contribution.                                                 the existing clientele and portfolio, and does not plan any
   Due to the decrease in import-intense investments and in            growth. In the small company segment, MKB Bank will focus
the consumption, the foreign trade balance and the C/A balan-          on the primary bank relations, account management, the sale
ce are expected to further improve. As an effect of the recessi-       of deposit and market products, through the selective sale of
on, price stability is not really endangered, while the world pri-     state-guaranteed and refinanced loan products. In the hou-
ces of raw material and oil are not likely to increase. In this res-   sehold customer segment the key objective is the fund rai-
pect, without the increase of the VAT rate, the Maastricht crite-      sing and protection, focusing on primary bank relations and
rion could have been safely met as early as in 2009.                   turnover, while lending will be limited to selective and only
   On the domestic money market, the cautious and gradual              mortgage-secured loan products. The wholesale treasury
decrease of the very high real interest rates (7-8%) is likely;        and fundamentally retail investment service cross-selling will
however, only a credible and consequent economic policy                remain a priority. In 2009, the Bank will implement only those
may make the international investors accept a lower country-           branch developments that were started and brought over
risk premium. Effective crisis management may help in the              from 2008, as a result of which by the end of the year, 86 net-
second half of the year to drive the volatile HUF exchange             work units will be available to serve the customers. In additi-
rate from the extremely weak level into a stronger tier.               on to that, increasing the penetration of electronic services
                                                                       remains another strategic objective.
BUSINESS POLICY OBJECTIVES OF MKB                                         Significant market recession is expected in car financing, to
BANK AND BANK GROUP FOR 2009:                                          which the MKB-Euroleasing group will react with a reduced
SOUNDNESS, STABILITY AND INTERNAL                                      financing plan, cost reduction and portfolio monitoring. MKB
CONSOLIDATION                                                          Unionbank aims at a considerably more moderate growth
The basic pillars of the medium-term strategy of MKB Bank will         dynamics by preserving the quality of the portfolio, while
remain unchanged; however, in the short term the recession             MKB Romexterra Bank focuses on consolidation and portfolio
of world economy, and the crisis on the money market, the              cleaning.
limited growth potential and the shareholders’ requirements               As a reaction to the crisis and complying with the owner
of medium-term efficiency improvement and cost structure               BayernLB’s medium-term strategic restructuring program,
optimisation will determine the business policy goals valid for        the Bank and Bank group introduced strict cost management
2009, both on the level of the bank and the bank group.                measures already in 2008. In addition, carried out a compre-
   In 2009 the Bank wishes to lay special emphasis on sound-           hensive review of all cost types early 2009 and as a results int-
ness and stability of its operation, on the continuous mainte-         roduced cost reduction measures, which also involves staff
nance of the prudent level of its capital base and liquidity,          headcount rationalisation paired with organisation changes.
and on internal consolidation, therefore, the protection of            Moreover, the Bank will review its business model in order to
the existing portfolios, concentration on its existing custo-          ensure that in the medium term MKB group will sustainably
mers and the cleaning of the problem portfolio will enjoy first        increase its value generation and profit contribution to the
priority, while the growth of business must be ensured only            BayernLB group.
selectively and by taking into account the optimisation of                The MKB Bank’s unconsolidated total assets planned accor-
resources (RWA, capital, refinancing) and profitability factors.       ding to IFRS will amount to HUF 2668.5 billion in 2009 increa-
The key objective of MKB Bank and the MKB Group in 2009 is             sing by 0.4%. By the end of 2009 the customers’ planned
to preserve its stable liquidity position in the interest of           account and deposit portfolios will exceed HUF 1170.5 billi-
which the Bank and the subsidiaries focus on raising and pre-          on, while the credit portfolio will reach HUF 1998.9 billion.
serving primary customer funds.                                        The consolidated planned total assets of the MKB group as
   With regards to the market environment and the utilisation          per IFRS will amount to HUF 2894.2 billion in 2009, increasing
of scarce resources, for 2009 MKB Bank laid down an action             by 0.3%. By the end of 2009 the customers’ planned account
plan by segments. In the large corporate and upper-middle              and deposit portfolios will exceed HUF 1353.0 billion, while
company segment the key business policy objective is to                the credit portfolio will reach HUF 2219.1 billion. With regards
maintain the existing position, and achieve selective, account         to the gross profit, a more moderate growth is targeted at
turnover based business growth through intensifying the                (5.4%), while MKB Bank is planning to significantly increase
fund raising activities. In commercial real estate financing           its pre-tax profit both on the bank and the group level com-
MKB Bank repositions itself, turning toward the domestic               pared to year 2008.




                                                                                                                                      9
C H A I R M A N ’ S             S T A T E M E N T




TRANSFORMATION OF THE CORPORATE                                                 In line with the abovementioned, several personned chan-
GOVERNANCE STRUCTURE AND                                                      ges have been made in the composition of the concerned
ACKNOWLEDGEMENTS                                                              bodies.2 Let me thank hereby, without naming them indivi-
In line with the alternative possibility provided by the Act on               dually, the former and the newly elected members of the
Business Associations, the General Meeting held on 19th June                  Board of Directors and of the Supervisory Board, as well as
2008 transformed the current Supervisory Board into a                         those with extended mandate for their successful and devo-
Decision Making Supervisory Board. Hence, the former 3 pillar                 ted activity throughout the year. I would also like to express
management and supervision structure have been replaced                       my gratitude to the employees of the Bank for their commit-
by a new 2 pillar model. The members of this body will not only               ted work in this challenging environment. And last, but not
have supervisory rights, but will have decision making autho-                 least I thank our customers and our shareholders for their
rity in strategic issues of the highest importance in the future.             continued confidence and support.
   For the more explicit separation of day-to-day manage-
ment activity from the owners’ supervision and for the impro-
vement of business efficiency, the Board of Directors has also
been transformed. Shareholders are no longer represented,
thus the Board will exclusively consist of management mem-
bers. The aforementioned changes in the corporate gover-
nance structure of MKB Bank are aimed at the harmonization
of tasks, responsibilities and composition of these two funda-                                                  Tamás Erdei
mental bodies with Group standards.                                                                     Chairman & Chief Executive




2
    The composition of the governing bodies of MKB Bank Zrt. can be found on pages 126-128.



10
                                                                                     Business
                                                                                      Report




MKB Veszprém KC won both the European Cup-winners Cup and the Hungarian Championships,
becoming the most successful Hungarian handball team of 2008.
B U S I N E S S   R E P O R T




                    2008 WAS AN AMBIVALENT YEAR FOR MKB BANK’S BUSINESS ACTIVITY BASICALLY AS A RESULT OF THE
                  ECONOMIC ENVIRONMENT. IT WAS FUNDAMENTALLY UNFAVOURABLE EVEN BEFORE THE DOMESTIC ESCA-
                  LATION OF THE INTERNATIONAL FINANCIAL CRISIS IN OCTOBER, BUT TAKING ADVANTAGE OF ITS DYNAMISM
                  IN A NUMBER OF BUSINESS LINES AND SEGMENTS THE BANK SUCCEEDED IN REALISING ITS ANNUAL GROWTH
                  TARGETS.   AS STILL ONE OF THE DETERMINANT MARKET PARTICIPANTS MKB BANK ACHIEVEMENTS WERE
                  LARGELY ENHANCED BY THE LARGE, UPPER-MEDIUM CORPORATE AND PROJECT FINANCE AND REGIONAL
                  ACTIVITY, SUPPLEMENTED BY THE UNCHANGED MARKET LEADER FACTORING ACTIVITY.       EXPANSION   IN
                  HOUSEHOLD BUSINESS CONTINUED, CHARACTERISED BY INCREASING LENDING ACTIVITIES (INCLUDING CAR
                  FINANCE OFFERED BY THE  MKB EUROLEASING GROUP) AND DESPITE THE MASSIVE CROSS-SELLING COM-
                  MENCED WITH THE   MKB INSURANCE COMPANIES; THE BANK SLIGHTLY INCREASED ITS MARKET SHARE ON
                  SAVINGS MARKET. THE PRIVATE BANKING BUSINESS IS ON THE RISE. THE CROSS-SELLING OF TREASURY
                  PRODUCTS SIGNIFICANTLY GREW IN THE LARGE COMPANY SEGMENT, AND THE SALE OF INVESTMENT PROD-
                  UCTS INCREASED IN THE RETAIL SEGMENT, RESULTING THE MOST DYNAMIC GROWTH OF THE MKB INVEST-
                  MENT FUNDS ON THE MARKET. ALL THESE WERE MANIFESTED IN THE TWO-DIGIT DYNAMICS OF THE GROSS
                  OPERATING INCOME AND OPERATING PROFIT, SIGNIFICANTLY EXCEEDING INFLATION.
                     MARKET DEVELOPMENTS IN THE LAST QUARTER OF 2008, WHICH HAVE A LASTING NEGATIVE EFFECT IN
                  THE MEDIUM-TERM, RADICALLY REARRANGED THE PRIORITIES. IN THE SHORT TERM, THE REINFORCEMENT OF
                  THE BASIC REQUIREMENTS OF THE BANK’S SAFE OPERATION (LIQUIDITY, SOLVENCY, PRUDENCE, SOUND CAP-
                  ITALISATION) CAME TO FIRST PRIORITY, AS WELL AS BUSINESS MEASURES TO HOLD BACK GROWTH AND
                  COSTS, WHICH MKB BANK IMMEDIATELY AND ADEQUATELY EXECUTED. IN THIS ENVIRONMENT, FURTHER
                  MARKET SHARE GAINING NATURALLY CEASED TO BE A PRIMARY OBJECTIVE. ALTHOUGH PROVISION CHARGE
                  SIGNIFICANTLY INCREASED, MAINLY BECAUSE OF THE DETERIORATION OF THE LOWER-MIDMARKET CLIENTS
                  PORTFOLIO, MKB BANK STILL CLOSED THE YEAR WITH A POSITIVE RESULT.
                     THE BANK’S LIQUIDITY AND CAPITAL BASE REMAINED CONTINUOUSLY STABLE AND SAFE THROUGHOUT
                  THE YEAR, MEETING BOTH ITS OWN AS WELL AS THE SHAREHOLDERS’ EXPECTATIONS AND THE SUPERVISO-
                  RY REQUIREMENTS. THE MAIN SHAREHOLDER, SUPPORTED THE BANK’S SAFE OPERATION AND GROWTH BY
                  PROVIDING A TOTAL OF EURO 50 MILLION SUBORDINATED CAPITAL IN 2008 AND CLOSE TO EUR 95.6
                  MILLION SHARE CAPITAL HIKE AT THE BEGINNING OF YEAR 2009. SIMILARLY, BAYERNLB ALSO ENSURED
                  REFINANCING NECESSARY FOR THE CONTINUATION OF THE BUSINESS ACTIVITIES.




12
                                                                                              B U S I N E S S       R E P O R T




PERFORMANCE OF THE INDIVIDUAL BUSINESS LINES


CORPORATE AND INSTITUTIONAL                                        the business activities of wholesale. The increasing cost of
CUSTOMERS                                                          funding considerably deteriorated the bank’s pricing compet-
MKB Bank fundamentally dedicated year 2008 to the existing         itiveness in lending. Parallel to that, due to the more expen-
portfolio, preserving and improving its quality, and increasing    sive foreign funding, significant struggle broke out on the
profitability instead of increasing its volumes. Special empha-    domestic deposit market but the Bank was not aggressive in
sis was laid on the better exploitation of the possibilities in    the price competition, which, caused the loss of market posi-
existing internal resources and cross-selling, and on the          tion in corporate deposits. Deposits of large, medium-size
increase of product penetration, in particular in the case of      companies and institutional customers decreased by 3.5% to
treasury products. Innovative wholesale business structures        HUF 551.8 billion in 2008 (2007: HUF 571.7 billion) fundamen-
were developed, pricing was increasingly laid on customer          tally as an effect of the economic environment. MKB Bank was
profitability with developed methology, and the customers          characterised by a higher extent decrease, therefore the
were called on proactively in order to be served by high-qual-     Bank’s domestic market share declined from the 2007 year-
ity and increasingly efficient services.                           end 11.2% to 10.1%. Due to non-financial companies: decline
   Loans of large company, midmarket, project and institu-         from 11.7% to 10.0% in market share, which was not compen-
tional customers increased by 11.8%, amounting to HUF              sated by the deposits of the financial companies. Last year the
1,571.0 billion at the end of year 2008 (2007: HUF 1,404.7 bil-    number of wholesale account-holding customers (including
lion). Within the country, in certain segments growth was          large company, institutional, and medium-size customers)
more moderate than the market, and lending was deliberate-         approached 14,200, out of which large companies made up
ly held back, especially after October. Consequently, MKB          3,100, and medium-size companies 11,100.
Bank’s market share decreased by 0.6% to 12.8% in domestic
corporate lending. In the strategic segment of non-financial                  Market shares in corporate deposits
companies the Bank has a market share of 14.1% and it is still
one of the market leaders.

            Market shares in corporate lending




                                                                      In 2008 the ”fine-tuning” of the business organisation
                                                                   restructuring continued. In the last quarter the industry com-
                                                                   petence concept, which is built on dedicated senior relation-
                                                                   ship managers, was implemented in the key industries for
   Especially from the second half of 2008 MKB Bank held           MKB Bank. This way it can be ensured that in the future the
back the dynamics of real estate deals, and repositioned its       Bank’s business and risk areas could react faster together to
activities in this sector, but due to its growth in the past, it   the changes in the economic environment, and the sound-
represents the biggest part within the total wholesale credit      ness and consistency of the business and risk strategies to be
portfolio (34%). The Bank’s exposure to financial services is      worked out together with the strategy area would strengthen.
significant, with around 10% (but this basically represents the       In 2008 the product-based competence centres were
refinancing of the strategic participation MKB-Euroleasing         given key importance, whose tasks include the implementa-
Group), and to food industry exceeding 5%. The remaining           tion of the requirement surveys and developments belong-
proportion is divided up among such sectors that typically         ing to the given product group, and follow-up of these and
represent 1-5% of the portfolio, with more emphasis on             supporting the sales areas. These product centres are as fol-
trade, logistics, construction industry, car manufacturing and     lows: 1. Treasury, whose organisational restructuring (region-
the technological sector. However, the weight of construc-         al officers, full product range offered by one relationship
tion, food industry and logistics decreased within the credit      manager) and the introduction of new products completely
portfolio compared to 2007.                                        enabled the anticipated results: compared to 2007 the treas-
   The bank’s refinancing opportunities and its increased          ury cross-selling results of the wholesale business line
costs of funds significantly affected the Bank’s business activ-   increased by 45%; 2. Subsidised and EU funds, whose tasks is
ities through the whole of 2008, and within that in particular     to maintain partnership with the state organisations and


                                                                                                                               13
B U S I N E S S      R E P O R T




financial institutions, working out and mediation of new           the Bank’s market share increased dynamically among its
product structures, supporting such new structures towards         wholesale and institutional customers.
the business areas; 3. Cash-Management: account and
deposit products, and electronic channels (SEPA) develop-          MIDMARKET CLIENTS
ments. In addition to that, the analysis of the customers’            The medium-size customer segment was divided into two
account turnover and identification of the sales opportuni-        in MKB Bank from the business and risk management point of
ties; 4. Trade-Finance: whose target customers are typically       view. In the whole SME business line, the credit portfolio,
partly companies manufacturing easy-to-sell mass products          increasing from HUF 629.6 billion by 4.0% amounted to HUF
by using simple production technology in capital intensive         654.6 billion, while the account and deposit portfolio, from
sectors, and partly companies trading in mass products. The        HUF 300.0 billion to HUF 286.3 billion after a 4.6% decrease,
department manages a total of HUF 30 billion credit, letter of     thus business line is a net funds user. The entire business line
credit and guarantee portfolio, which, compared to 2007,           entails remarkably different performance and tendencies in
represents 40% growth. This form of financing allows the           the upper-middle (UMC, basically from HUF 2.5 billion to HUF
financing of problem deals at a lower risk level, and to           12.5 billion sales revenues) and lower-middle (LMC, basically
restructure the problematic portfolio; 5. The factoring and        from HUF 250 M to HUF 2.5 billion sales revenues) segments.
leasing product centre was set up earlier, and in 2008 the            The deposits of the upper-medium-size companies,
scope of services was extended, and internal organisational,       decreasing by 2.0%, showed HUF 117.1 billion, while the cred-
process development steps were taken.                              it portfolio, increasing by 25.9%, reached HUF 322.8 billion at
                                                                   the end of year 2008. MKB Bank, with positions close to those
LARGE CORPORATES, PROJECT AND                                      of the large company segments (34.3% penetration in
COMMERCIAL REAL ESTATE FINANCING                                   account relations) is well imbedded in this customer segment,
Due to the permanent impacts of the crisis for the medium-         and offers full-rang of tailor-made services to their customers,
term, the Bank is gradually repositioning the commercial real      which are regarded as its strengths. This customer segment
estate financing business. In the last quarter of 2008, the bal-   was affected only to a limited extent by the impacts of the
ance sheet type financing activities started to be held back,      austerity government measures introduced from the second
and in the medium term MKB Bank, focusing basically on the         half of year 2006 restricting and reducing demands, as well as
domestic market, is using the position already built up to         by the effects of the world economy and domestic recession
implement the ’arrange and sell’ concept by keeping the            until the end of year 2008, so the quality of the portfolio is
know-how. This new strategy naturally could not be reflected       good. At the same time, in MKB Bank the gradual deteriora-
yet by the year 2008 growth rates. The closing balance of          tion of the domestic economic environment affected mostly
large company and project and institutional placements             the lower-midmarket segment, which process already started
amounted to HUF 916.4 billion in 2008, increasing by 18.2%         in 2007. Consequently, in 2008 the focus shifted from the
(2007: HUF 775.1 billion). In project and commercial real          dynamic business growth mainly to managing and cleaning
estate financing, playing a determining role within that, MKB      existing portfolios. Partly due to the deliberate cut-back of
Bank is still the number one player on the domestic market.        lending, increasing the market share in this segment was not
This is also reflected in the proportion of financing within the   a purpose. In line with that, the credit and deposit portfolios of
business line: increasing by 30%, the credit portfolio was         lower-midmarket customers, respectively decreasing by
close to HUF 720 billion (2007: HUF 553.0 billion), or             11.1% and 6.3%, amounted to HUF 331.8 billion and HUF
increased to 80% of large company financing, while the num-        169.2 billion respectively, at the end of 2008. In 2008, MKB
ber of customers also continued to increase to cca. 620 (2007:     Bank reviewed the business and risk management processes
554). The commercial real estate portfolio continues to have       not only for the lower-midmarket segment but for the entire
a good quality and is well diversified towards to the various      wholesale clientele and took a number of measures. In spite of
sub-segments as well as geographically; from the construc-         this, in the case of the deals of previous periods, due to the
tion of office buildings, commercial centres, hotels and resi-     deterioration of the market circumstances, in this segment
dential complexes through energy and transportation devel-         the quality of the portfolio further worsened for which MKB
opment up to developments financed in the countries of the         Bank prudently allocated the necessary provision. In order to
CEE region.                                                        reinforce the bases of consolidated development in the
   In 2008, the accounts and deposits of large companies           future, to improve the quality of the portfolio, and to increase
amounted to HUF 265.5 billion, decreasing by 2.3% (2007:           profitability, MKB Bank will complete in 2009 the review of the
HUF 271.7 billion). In addition to the collection of deposits,     standard lower-midmarket risk model and product range.
MKB Bank, in line with its efforts to generate cross-selling and      The Bank’s basic objective is to position itself as an institu-
fee income, offered open-ended investment funds, own-              tion efficiently channelling state development subsidies to
issue bonds and a wide selection of government securities          small and medium-size companies, therefore the Bank con-
for the purpose of liquidity management and investments to         tinued to sell its AVHA, MFB (New Hungary, Small and
its wholesale customers. Regarding the investment funds,           Medium-size company Credit Program, New Hungary


14
                                                                                              B U S I N E S S       R E P O R T




Operating Assets Credit Program, GLOBAL LOAN) Eximbank,           Romanian subsidiaries, MKB realised more Bulgarian and
etc. structures to its customers, and further expanded its        Romanian wholesale business. Also, the Bank has exposures
cooperation with the various state institutions and other         on other markets, though with decreasing dynamics. All in all,
partner organisations. MKB is still market leader in factoring    at the end of 2008, MKB Bank had a highest-volume credit
business line in 2008. The scope of services was further          portfolio in Russia, Romania, Croatia, Turkey and Bulgaria.
extended and internal organisational and process develop-
ment actions were taken. The condition system of interna-         INSTITUTIONAL CUSTOMERS
tional factoring was standardised as well as the export factor-   MKB Bank Zrt. maintains traditionally good relations with its
ing product simultaneously with that – in 2008 the Bank           basically domestic institutional customers. The four Hungary-
realised an export factoring turnover significantly higher        based insurance companies, pension funds, health funds,
than ever before.                                                 local governments, chambers, interest representation and
                                                                  church, associations, foundations, and other organisations of
Market share of MKB Bank in factoring by turnover – 2008          civil society provided significant funds in 2008, including the
                                                                  deposits placed by the MKB investment funds, close to HUF
                                                                  185 billion (2007: HUF 152 billion).

                                                                  GROUP-RELATIONS, BUSINESS DESKS
                                                                  Through the Bavarian and SCountry desk, MKB Bank, fulfilling
                                                                  a CEEU bridgehead function as well, provides cost-effective
                                                                  house-banking services to Bavarian, and German companies,
                                                                  basically channelled from the shareholder. The Bank assists
                                                                  the deals made in the region by medium-size company cus-
                                                                  tomers of more than 60 Bavarian Savings Co-operatives, in
                                                                  opening accounts, performing payment transactions and
                                                                  financing. The SCountry desk represents access to the cus-
   Partly due to the traditional factoring services rendered to   tomers of the German Savings Co-operatives. The Desks in
the suppliers of large company customers, partly through the      2008 contacted close to 150 Bavarian, German and roughly
implementation of individual and special structures, and          30 Austrian companies (for purposes of account opening,
through the purchase of special receivables related to the        preparations for financing, retention, acquisition, consulting
state, health care and EU supports, the number of customers       and complaint management, negotiations at fairs), and this
significantly increased (by 17% from 1150 to 1340) while the      way they have relations with close to 400 German, Bavarian,
turnover performed decreased from HUF 235 billion to HUF          foreign and domestic, existing and potential corporate cus-
210 billion. MKB Bank preserved its market leading position       tomers.
with a 25.6% market share based on the turnover performed            The activities of the MKB Group Desk, responsible for
(2007: 29.7%). The agreement made between MKB Bank and            Hungarian-Bulgarian-Romanian regional customer informa-
Deutsche Leasing Hungaria for the sale of financial leasing,      tion, acquisition, services and business development, com-
leasing and asset-based loan products related to EU subsidies     menced in 2008. Last year more than 160 deals were chan-
is successful, and sales show increasing results. In 2008 MKB     nelled towards the Desk, 10%-10% of which was successfully
Bank established business cooperation with HGAA Leasing,          closed or is in realisation phase. The business activity of MKB
its extensive introduction is expected for the beginning of       Bank is facilitated by participation in joint chamber events,
year 2009.                                                        professional exhibitions and fairs through the Desks. As a
                                                                  result of the activities of the Desks in 2008 several significant
FOREIGN COMPANIES, FINANCIAL                                      MKB Bank customers opened accounts with the subsidiaries,
INSTITUTIONS                                                      indicating the potentials inherent in business synergies and
The escalation of the financial crisis last autumn and the        appearance as an integrated bank group.
medium-term outlook cut a permanently new line for financ-
ing of foreign companies and financial institutions, as risks     RETAIL BANKING SERVICES
may be assumed up to a limited extent and only in relation        During 2008, the fine-tuning of the new value-proposal and
with the domestic core-customer segment; other exposures          service model introduced in the private individual business
will be gradually cut down. At the end of 2008, the disbursed     from the beginning of 2006, called ”Personally to You” was
foreign corporate and financial institution credit portfolio,     completed. This model distinguishes MKB Bank from all of its
after a 22% growth, amounted to HUF 237.8 billion (2007:          competitors as it provides the services of a dedicated person-
HUF 195.3 billion). 80% of this, however, represents financing    al advisor to each customer. The model was extended (and
to the affiliate banks. A double effect played a role in this     partly implemented) to the small company customer seg-
growth: partly, in cooperation with its Bulgarian and             ment in a comprehensive project and in line with the small


                                                                                                                                15
B U S I N E S S      R E P O R T




company strategy and adjusted to the increased annual net                        Market share in households’ savings*
sales range. With a significantly wider range of products, ded-
icated small company advisors are ready to assist customers.
Parallel to that, the image of the private banking business
line, representing the highest quality of service, was also
renewed, and a number of new products were added to its
offer.
   In addition to laying the foundation of future growth, 2008
was characterised by several business successes. The busi-
ness line further reinforced its positions in lending and in
investment services. The dynamics of sales continues to be
strong, while its structure further shifted towards higher
added-value e.g. investment services (the number of retail
customers having investment products increased significant-        *Deposit, investment funds, bonds issued other than government
ly by 50% and the managed portfolio by 23%), and further
improved the quality of customer service. The importance of
the results is stressed by the fact that the business line           MKB Bank’s private individual deposit portfolio decreased
achieved those in an increasingly deteriorating economic           by 1% to HUF 382 billion, thus contrary to the tendencies in
environment and continually fierce competitive environ-            the sector (2007 fact: HUF 386 billion), the bank’s market
ment. As a result of all these, the efficiency of the business     share fell from 6.2% to 5.4%. At the same time, however, the
line further improved and contributed to the Bank’s business       portfolio of own issued bonds sold to household customers
result and volumes to an increasing extent. At the end of          increased dynamically on a nearly doubled market. Similarly,
2008 the deposits of retail customers made up more than            the net asset value of investment funds sold to private indi-
48% of all customer deposits, while the rate of retail loans       viduals increased dynamically as a result of the re-chan-
increased from 19% to 22% within customer loans. Including         nelling of the savings and aquisition of new funds.
the security type fund raising, the business line is a net fund
raiser for MKB Bank.                                                    Market share in deposits from private individuals

PRIVATE INDIVIDUALS
   During 2008 the number of the bank’s individual clients
increased by 32,000 to 286,000. Despite the significant
growth of customer number, the clientele preserves all in all
its status that is higher positioned than the average with the
dominance of affluent customers. It is also reflected by the
fact that the saving per customer is one of the highest in the
sector, 1.6 times the average, while the per capita credit is
close to double. Growing trend of product penetration con-
tinued and the shift in business policy is reflected by the fact
that the term deposits and MKB investment funds penetra-
tion increased, while that of credit somewhat reduced.
   In 2008 MKB Bank continued to preserve its retail savings          The loan portfolio of private individuals increased by close
and to acquire new funds by intentional profitability-driven       to HUF 155 billion during the year, i.e. by 50% and amounted
diversification among instruments. As a result of this, the loss   to HUF 464.5 billion. The Bank’s market share increased from
of market share in deposits could be compensated by the            the 2007 year-end 5.5% to 6.1%. The Bank’s market share
joint increase of the market share held in bonds and invest-       measured in new contracts was above 10% on average in
ment funds. The retail liabilities of MKB Bank (deposit+           2008. The bank achieved good performance with a signifi-
bonds+funds) increased by 8.0% from the 2007 year-end              cantly smaller branch network than those of the competitors
HUF 485 billion to HUF 523 billion, and as a result of that the    with a well performing agent network and partly relying on
total savings position improved from the 2007 year-end 5.6%        its affluent customers. MKB Bank was able to gain ground
to 5.7% by December 2008.                                          mainly on the market of mortgage-covered loans.




16
                                                                                                B U S I N E S S       R E P O R T




       Market shares in loans to private individuals               biggest success of 2008 is that the assets managed conserva-
                                                                   tively in the consulting structure – due to its very low risk pro-
                                                                   file – was able to preserve its value and this approach focus-
                                                                   ing on capital protection ensured customer satisfaction
                                                                   despite the crisis. The medium-term objective of MKB Bank is
                                                                   to achieve a major role on the domestic private banking mar-
                                                                   ket. To support this objective a new organisational structure
                                                                   was set up, the private banking service model was renewed,
                                                                   the selection of products were refreshed, and the business
                                                                   line was given a new and distinct image; also, the founda-
                                                                   tions of the future dynamic business growth were laid.

                                                                   SMALL ENTERPRISES
                                                                   The number of small enterprises reached 29,150 by the end
                                                                   of 2008. This, compared to 2007, represents a growth of 14.8
   In order to provide high-quality services for the customers,    %. The credit portfolio of the business line increased by 5.9%
special product developments took place in 2008: MKB Real          from HUF 30.2 billion to HUF 32.0 billion, and its deposits
estate loan is a tailor-made product for the purchase of holi-     grew by 34.2% from HUF 70.1 billion to HUF 94.0 billion. The
day cottages or shop spaces, while MKB Kivételes Housing           volumes reflect the short-term business policy targets of MKB
Loan was a loan product combined with the very successful          Bank for this business lines, according to which the Bank
MKB Kivételes Current Account, developed uniqually for the         focuses on the primary bank relations, account holding, the
time of the related mass media campaign. The successful sale       sale of deposit and payment products, taking also into
of mortgage loans combined with life-insurance and house           account the current economic environment, thus ensuring
savings continued. The raising of funds was helped by new          additional funds for the Bank, while extending its lending
investment fund structures (e.g.: fixed, high yield in the first   activities gradually, selectively by basically state-guaranteed
year of the tenor), continuous term deposit offers, and the        and refinanced products.
”Hozamsuli” savings scheme: a deposit combined with                   In 2008 the development of the business model, processes
investment funds and offering high interest rates. The prod-       and risk management system of the small company business
uct range of the MKB Insurance companies, one of the major         line commenced, in the frames of the Small Company Business
strategic partners of the business line, was extended further      Model. It is also covered the introduction of new service pack-
by 3 new products to the 3 started in 2007. In the successful      ages, new credit products, the review of existing processes,
acceleration of sales, and related fee income, the Bank’s          and working out new segmentation rules and the new branch
branch network continued to play a fundamental role.               model. In this latter, MKB Bank continued to keep in sight the
   In addition to product developments, the further expan-         one-stop shop service model based on the ”Personally for You”
sion of the branch network, the penetration of the electronic      concept. The small company advisors provide a one-man serv-
channels still showing a double-digit growth dynamics, the         ice and handle the financial requests/requirements of small
skyrocketing increase of transactions carried out through          companies, and their owners/managers. For start-up compa-
such channels all contributed to the success of the business       nies the Bank launched a service package portfolio from
line. However, the primacy of quality services was not             September 2008 in respect to the size of such companies and
harmed either. This is verified by e.g. that the Call-centre won   their financial habits. As a result of the developments 4
first prize twice in a row for sales communication. The strate-    account packages were renewed and 2 new were created, out
gic partnership further expanded, in 2008 with the establish-      of which one was intended specifically for customers using
ment of business cooperation with HGAA Leasing. As the first       electronic banking, while the other package was prepared for
step the HGAA retail real estate leasing product is expected       large transactor small companies with high sales revenues.
to be sold in the MKB Bank branch network.                            Also as a result of the successful introduction of the
                                                                   Széchenyi Card 2 products, by the end of the year the Bank
PRIVATE BANKING                                                    obtained cca. 15% market share of the total Széchenyi Card
The number of customers served by MKB Private banking              market. As part of the renewed small company active prod-
business line doubled from the 2007 year-end 593 to 1,017          uct range, the Bank tailor made 4 products of the 1x1 product
by the end of 2008. The assets managed at the end of 2008          family to the market needs and prepared 3 new products for
exceeded HUF 135 billion (2007: HUF 90 billion) with an aver-      introduction on the 1st January 2009. New products include
age of HUF 132 million per customer, which is regarded as          the 1x1 Folyószámlahitel Plusz, an overdraft which can be
outstanding on the domestic market of private banking.             applied for with the surety of Garantiqa Hitelgarancia with-
  The asset growth represented significant external funds          out tangible collateral, while the mortgage based products
acquisition for the business line and for MKB Bank as well. The    were extended with the 1x1 investment and working capital


                                                                                                                                  17
B U S I N E S S       R E P O R T




loans so that the financing needs of small companies related         ket circumstances the Bank was able to fulfil market expecta-
to their business activities may be satisfied to an even higher      tion imposed upon Primary Dealers and successfully partici-
extent. MKB Bank expressed its intention to join the Jeremie         pated in restarting the market at the end of the year.
Micro Credit Programme targeting the development of SME                 Partly due to the hectic market environment, MKB Bank
by the government, and at the same time started to make              improved its positions in secondary trading in 2008. MKB
preparations for the introduction of 2 new, refinanced credit        Bank reached 4.1% market share (2007: 2.8%) in the total
products with preferential interest rates and secured by the         prompt OTC securities market. Not only the total position
MV Zrt. Portfolio Guarantee, which is expected to appear on          improved but also in all subsegments (government securi-
the market at the end of quarter I of 2009.                          ties, shares, bonds, investment fund notes, derivative deals).
                                                                     The market share increased to 3.9% in the OTC trade of gov-
MONEY AND CAPITAL MARKETS,                                           ernment securities (2007: 3.0%). MKB Bank was able to
INVESTMENT SERVICES                                                  strengthen its position on the stock market even in this
Despite the extremely volatile and negative market and eco-          unfavourable environment. The turnover of stock market
nomic environment, the business line maintained the level of         shares increased by 57.4% to reach HUF 63.2 billion, while the
its business activity or even increased that in certain seg-         total turnover of the stock exchange decreased by 39.2%.
ments in 2008, significantly contributing to the Bank’s busi-        Foreign securities trading was affected in general by risk
ness performance and its strategic objectives. As the global         aversion of the investors.
financial crisis has become long-lasting and deep, aggravat-            The role of the business line is gradually increasing in diver-
ed by the domestic macroeconomic problems and their                  sified, primary fund raising based on own-issued securities.
effect on the internal market, the traditional core tasks of the     MKB Bank, still as one of the leading issuers among domestic
business line have been emphasised and given higher priori-          credit institution, issued HUF denominated bonds of HUF
ty: financing, effective liquidity management, and hedging           72.4 billion of nominal value in 2008 (10.6% market share
market risks (interest rate, exchange rate) have become more         among new issues including debenture-bonds). Almost two-
important. Besides, the business line continued to accom-            thirds of the newly issued bonds were sold to private individ-
plish its medium-term strategic goals through significant            uals. At the end of 2008 the total nominal value of the 13 MKB
product, system, process and organisational developments             bond series introduced to the Budapest Stock Exchange
and through the increase of fee and commission income gen-           amounted to HUF 104.3 billion. In November 2008 MKB Bank
erating activities related to treasury and investment services       renewed its domestic public issuance program. One of the
cross-selling.                                                       most significant product developments took place in this
   The significant growth the foreign exchange trade turnover        area: the newly issued structured bonds allow the better
with wholesale customers reflects the hectic market environ-         diversification of the investment portfolios. The total volume
ment and the increasing Treasury cross-selling activity. The spot    of the EUR and other, regional currency denominated bonds
foreign exchange turnover increased by 15% to HUF 791.8 bn,          issued in the frame of the EUR 3 billion international bond
and forward transactions increased by 37% to HUF 314.8 bn in         program exceeded EUR 972 million at the end of 2008, no
2008. The changed market environment drew customers’                 new issues took place. In addition to the product develop-
attention to the simpler derivative exchange rate products,          ments, the first phase of the NetBróker online securities trad-
which the bank ensured to them by taking into account the            ing system, introduced in 2008, made MKB’s own-issue secu-
customers’ risk exposure to a maximum extent, in line with the       rities and government securities available.
market circumstances. A wider range of exchange rate options            In line with the strategic objectives, the market share of
is available for wholesale customers as well as to private bank-     MKB investment funds dynamically increased, thus by the
ing customers mainly. At the same time, in addition to the sim-      end of 2008 it reached 5.1% (2007: 3.7%). Hence, MKB Fund
ple exchange rate hedging deals, the number and volume of            Manager was the 7th largest at the end of 2008. MKB was the
interest rate hedging deals also significantly increased.            only significant player able to increase its portfolio, which by
   The Bank continues to be a determinant player of the pri-         the end of year grew by 5% (to HUF 119.6 billion) on a market
mary government security market. In the ÁKK (Government              that decreased by close to 25% during the year. The MKB
Debt Management Agency) bond auctions in the rank of 11              palette widened by 10 investment funds in 2008, thus, the
primary dealers, MKB Bank with a share of 6.7% ranks the 7th         current selection of 33 funds satisfies all customer needs and
(2007: 7.3%, 6th), while regarding treasury bills with a share of    requirements. The most significant new fund of the year was
2.8 % MKB Bank came up as the 10th (2007: 4.6%, 9th). During         the Euro denominated, open-ended, principle guaranteed
autumn, the turbulences on the international money market            fund, the portfolio of which increased to EUR 31.4 mn in 4
led to significantly increasing volatility on the Hungarian mar-     months (app. HUF 8.3 billion). The principle guaranteed
ket, too. The forint showed extreme exchange rate movements          funds, representing an investment of moderate risk, are still
throughout 2008, and the Hungarian government security               available permanently. In this segment MKB Fund Manager is
market dried up twice as never witnessed before, making the          the 3rd biggest market player with assets under manage-
securities trade very difficult. In spite of the unfavourable mar-   ment of HUF 57.7 bn and a market share of 11.3%.


18
                                                                                             B U S I N E S S      R E P O R T




            Market share in investment funds                     branch network increased to 81 units (24 in Budapest, 8 in the
                                                                 agglomeration, 49 in the countryside). This represents a
                                                                 growth higher than 20% in the last two years. Thus, MKB
                                                                 Bank appeared in Ajka, Dunaújváros, Gyula, Kiskőrös and
                                                                 Szigetszentmiklós, and in another two shopping centres situ-
                                                                 ated in the local centres of the outer districts of Budapest.
                                                                    More than 36% of the Bank’s corporate customers, i.e.
                                                                 15,700 clients actively use the MKB PCBankár service.
                                                                 NetBankár, the internet based banking service of MKB Bank,
                                                                 is already used by 37% of the household customers, which
                                                                 means more than 106 thousand clients, while in the case of
                                                                 business customers the same proportion reached 70%,
                                                                 which means 30 thousand clients. The number of cus-
                                                                 tomers having a household Telebank (Call Center) contract
                                                                 at the end of year 2008 exceeded 137 thousand, while the
   The Bank had HUF 1,227 bn of assets (securities) at the end   number of corporate Telebank contracts was close to 15
of 2008 (7.9% decrease, 2007: HUF 1,332 billion) under cus-      thousand. The Call Center fulfills the expected service levels
tody (in broad sense) services provided to institutional,        under dynamically increasing number of calls. 67% of the
wholesale and retail customers. The bank is one of the           calls received from household clients and 33% from corpo-
biggest custodian on the domestic pension fund market with       rates. One of the breakthroughs of the strategic develop-
27.6% market share in compulsory and 18.7 % in voluntary         ments of the investment services is that MKB Bank launched
pension funds. In 2008 MKB Bank was the first to offer a unit-   its NetBróker service available in the NetBankár system. In
linked system with optional portfolios.                          this online security trading system, the full selection of MKB
   Assets under portfolio and asset management amounted          Bank issued securities is available with transaction function-
to HUF 151.8 billion at the end of 2008 (decrease of 9.3%),      ality, in addition to the information functions, while the
which represents a 4.4% market share (2007: 4.9%). The most      extension of the total functionality to other securities is
difficult task was to preserve the portfolio value as much as    expected for year 2009. The number of household
possible under the given circumstances in this unfavourable      bankcards issued by MKB Bank, increasing by more than
investment market, while risk profile of the portfolios          13,500 (7% growth y/y), was close to 200,000 at the end of
increased. Contribution to the voluntary funds decreased         the year, while the number of issued business bank cards
(the market share in asset management was 7.4% (2007:            increased by 5%, to close to 21,400. The number of own-
8.1%), while yields changed negatively also as a result of the   logo and co-branded credit cards for private individuals at
market environment. However, the business line achieved an       the end of 2008 was 24,700.
above-the-benchmark performance throughout the year.                The External Sales Partner (Agent) Network of MKB Bank,
                                                                 increasing with 225 contracted partners during the year,
BRANCH NETWORK AND ALTERNATIVE                                   reached 850 by the end of the year, whose work was sup-
SALES CHANNELS                                                   ported by a sales force of 1600. The contribution made by
In line with the earlier decided branch opening strategy,        external sales partners to the retail credit portfolio disbursed
including the 7 new branches opened in 2008, the Bank’s          by MKB Bank in the given year further increased.




                                                                                                                              19
B U S I N E S S       R E P O R T




MKB BANK GROUP IN HUNGARY:
STRATEGIC BUSINESS SUBSIDIARIES AND PARTNERS
VEHICLE FINANCING: THE OPERATIONS                                    ume of assets under management adversely in the entire sec-
OF THE MKB-EUROLEASING GROUP                                         tor. The relative advantage of the healthcare funds in this
MKB-Euroleasing Group, which has been a dominant partici-            environment, however, is that the services may be used
pant of the Hungarian car financing market for some 18 years         immediately.
now, involves uniquely on the market the full scale of financ-          Given the current conditions the MKB Pension fund closed
ing, fleet management, car trading, and insurance brokerage,         2008 successfully. The number of members increased to
providing complex services to its customers.                         146,000 (2007: 145,300). Due to the above-mentioned rea-
   In 2008 the Group was able to stably preserve its market          sons, assets under management decreased to HUF 121 billion
position in spite of the different economic environment. The         (-7%). The voluntary scheme contributed to the performance
Group’s total new lending to customers, after a change of -          of the fund with 111,000 members (2007: 112,900) and assets
2.5% amounted to HUF 61.4 billion, and the number of new             worth of HUF 78 billion (2007: HUF 90 billion), while the com-
customer financing contracts reached 24,955 (2007: 25,003).          pulsory with over 35,000 members (2007: 32,400), and HUF
Its activity is reflected in the fact that based on the new pas-     43 billion of assets (2007: HUF 40.6 billion). The preliminary
senger car financing deals in year 2008, the group was the           market share of the MKB voluntary fund in terms of assets is
4th (2007: 6th place, 9.1%) with a market share of 10.3%.            11.2%, which makes it the 4th biggest market player (the 3rd
Based on the total receivables, it is the 5th biggest vehicle fin-   place was lost to the merger of two market players during the
ancier (retail+fleet) on the market (2007: 6th place). The num-      year). The positioning of the MKB funds is reflected by per
ber of cars financed and managed by MKB-Euroleasing                  capita assets, which still exceeds the market average signifi-
Autópark Zrt. in 2008 was 7,737, which means a 3.1% growth           cantly, in the voluntary scheme by 40.8% (preliminary data),
compared to year 2007 (2007: 7,506 ). With this, it is the 7th       and in the compulsory by 82%. Although the crisis resulted in
biggest player of the new fleet financing market (2007: 6th          negative yields in 2008, the performance of the funds should
place 6.8%) with a market share of 6.9%, while based only on         be evaluated in a fair way of looking at the long term: in the
the managed fleets it is the number one market player with a         voluntary scheme, during the 13 years since the foundation
48.6% market share. In its network Carnet Zrt. – MKB-Euro-           of the fund, the yield exceeded the inflation rate by 2.5% p.a.
leasing Group’s vehicle trading subsidiary – sold a total of         The compulsory yielded 1.2% above the inflation rate on
8,412 new cars in 2008 (2007: 6,410), achieving a 31.2%              average during the 11 year period of operation.
increase and 5.3% market share (2007: 3.6%) in the gradually            2008 was a very successful year for MKB Healthcare fund in
shrinking market of new cars. Insurance brokerage activities         all respects. The fund, sooner than defined in its strategic
are carried out by Eurorisk Kft., leader in the market of con-       plan, reached one of the market leading positions: the num-
ventional insurance brokerage, and by Netrisk Kft., leader in        ber of members totalled at 108,800 growing by 26%, ranking
the internet insurance brokerage segment. In 2008 their              2nd on the market and reaching a 13.2% market share. The
combined portfolio comprised a total of 244,000 Casco and            income from membership fees reached a new record, while
mandatory motor third party liability insurance contracts            the 18% own contribution ratio is one of the highest among
(2007: 195,000 contracts, 25.1% increase).                           healthcare funds. The assets of the Fund almost reached HUF
   In response to the growing risks in the vehicle financing         6.9 billion at the end of the year with a HUF 2 billion increase.
market the MKB-Euroleasing Group will continue to lay partic-        While the members are increasingly active users of the fund
ular emphasis on maintaining the quality of the portfolio, mit-      (number of invoices up by app. 49%, services worth HUF 4.5
igating the risks and continuing improvement of the admis-           billion), the assets of members already equals the value of
sion systems. While its medium-term business and profit tar-         services of one and a half years.
gets are ambitious, as a reaction to the escalation of the finan-       The sudden growth of business relations is of the same
cial crisis the Group reviewed its growth plans, switched to         importance. At the end of 2008 the Fund had business rela-
Euro based financing, adopted the recommendations formu-             tions with 2,850 employers (2007: 2,010). At the same time,
lated by PSZÁF, and introduced cost saving measures.                 the number of contracted healthcare service providers is
                                                                     close to 8,600 (2007: 5,700), while the number of card accept-
MKB PRIVATE PENSION AND                                              ing sales points increased to 4,545 (2007: 3,400) facilitating
HEALTHCARE FUNDS                                                     the more active use of the issued 120,000 MKB Healthcare
The operational environment of the MKB Private Pension and           Cards. Turnover performed by using cards increased signifi-
Healthcare funds was a lot more unfavourable than that of a          cantly, and in the last quarter of the year the system of elec-
number of other banking business lines in 2008. It is especial-      tronic billing and forwarding was also launched.
ly true to the pension fund segment, where the number of
members stagnates due to retirement and to the increase of           MKB INSURANCE COMPANIES
membership termination after 10 years. The negative fund             The strategic interests of MKB Bank, MKB General Insurance
yields, caused by decreasing prices on the security market,          and MKB Life Insurance, started their operation in October
and the temporary decrease of the long-term individual and           2007, thus, the first full year following the start up was of
corporate saving ability and willingness also affected the vol-      utmost importance for these companies. Despite the


20
                                                                                              B U S I N E S S      R E P O R T




unfavourable market environment both companies closed a           for the whole year amounted to HUF 163 million. The number
successful year.                                                  of the members of MKB General Insurance is 8936.
  The revenues of MKB Life Insurance from premiums                   In 2008 insurance companies introduced a number of new
reached HUF 1.27 billion by the end of 2008. As a new market      life and non-life insurance products. In the sale of insurance
player, it concluded 5796 life and pension insurances with        products the MKB branch network plays an important role,
continuous premium payment, whose accumulated average             where, at the end of 2008 close to 700 financial advisors were
premiums reached HUF 95 thousand. The number of the               authorized to sell insurance products. Through the founda-
members of MKB Life Insurance is 5828. The accumulated            tion of the insurance companies the Bank was able to suc-
premium of MKB General Insurance at the end of year 2008          cessfully implement its one-stop-shop service strategy and
exceeded HUF 300 million, and the income from premiums            the Bank became fully universal in the country.




MKB SUBSIDIARIES IN CEE
MKB UNIONBANK, BULGARIA                                           MKB ROMEXTERRA BANK, ROMANIA
In 2008 MKB Unionbank showed dynamic development and              As another token of MKB Group’s long-term strategic com-
business growth, its total assets increased by 49.6% thus         mitment to the region, MKB Bank increased its share held in
reaching BGN 1,535 million. Hence, its weight in the banking      MKB Romexterra Bank from 75.94% to 80.48%. By the end of
sector grew by 0.5% to 2.2%. Customer loans increased by          2008 the total assets of MKB Romexterra Bank, with a growth
50.8% in year 2008, the net portfolio reached BGN 1,094.8         of 46% reached RON 2,900.9 million (2007: RON 1,985.2 M).
million (wholesale loans 2.8%, retail loans 1.2% market share).   The net credit portfolio of MKB Romexterra bank increased
Despite the growth, the portfolio continues to have a good        by 50.7% and reached RON 1,828.2 million, the balance of
quality: performing loans make up 97.8% of the volume.            accounts and deposits was RON 1,117.7 million.
Customer deposits showed a 21.5% growth (wholesale cus-           Shareholder’s equity amounted to RON 187.4 million. Gross
tomers 2.9%, retail customers 1.3% market share). By the end      operating profit was RON 153.4 million (2007: RON 131.2 mn)
of the year, the number of active customers increased by          affected adversely by the increased cost of funding, while the
6.8% reaching 77,783. The number of wholesale customers           operating costs remained under the plan with RON 138.1 mil-
increased by 1.7% being close to 10,200, while the number of      lion. With a provisioning of RON 73.3 million, the pre-tax prof-
retail customers increased by 7.6% reaching almost 67,600.        it is RON -58.0 million (2007: RON 13.2 million). The high level
By the end of year the number of branches was 58, and the         of provisioning was caused mainly by the problematic credit
number of regional corporate centres was 6. The Bank’s oper-      portfolio parts of the SME and retail sector. The profit after
ating profit increased by 43.9% to BGN 60.6 mn, the amount        taxes is RON -59.1 million. The number of the Bank’s cus-
of operating costs in 2008 was BGN 40.1 mn, which repre-          tomers increased by 15.2% to 242,750. The number of large
sents an increment of 24.9% as a result of the development in     corporates reached 290, SMEs 13,830, micro companies 1,500
infrastructure and the harmonization process (e.g. organisa-      and the number of private individual clients was 227,130
tion, headcount, branches and operating processes) as well        (2007: 194,830). The Bank’s geographical coverage further
as the costs implied by dynamic business growth. MKB              improved by the end of 2008, the number of branch network
Unionbank closed year 2008 with a pre-tax profit of BGN           units reached 80.
14,528 thousand (growth of 73.0%).




                                                                                                                               21
Consolidated
Financial Statements




          Tamás Erdei, Chairman and CEO of MKB Bank,
          founder of Junior Prima Award "Hungarian sport category"
KEY FIGURES
Consolidated IFRS
HUF million

                                               2007        2008
  Total Assets                              2 465 014   2 885 426
  Loans and advances to customers           1 905 898   2 292 794
  Current and deposit accounts              1 247 136   1 267 842
  Shareholders' equity                        229 680     229 222


  Gross Operating Income                      103 807     120 444
  Operating Expenses                         (59 176)    (70 360)
  Operating profit                             44 631      50 084
  Impairments and Provision for losses       (24 774)    (43 003)
  Profit Before Taxation                       20 905       8 336


  Pre-tax Return on Average Equity (ROAE)      10,6%        3,3%
  Pre-tax Return on Average Assets (ROAA)       0,9%        0,3%
  Cost-to-income ratio                         57,0%       58,4%
  Capital adequacy ratio                       11,6%       10,8%




                                                                    23
                                               C O N S O L I D A T E D      F I N A N C I A L      S T A T E M E N T S




Table of contents


1   General information                                        10 Investments in securities
2   Compliance with International Financial Reporting          11 Loans and advances to customers
    Standards                                                     Loans and advances to customers at amortised cost
3   Basis of measurement                                          Allowances for impairment
4   Summary of significant accounting policies                    Finance lease receivables
    a, Financial statement presentation                        12 Other assets
    b, Consolidation                                           13 Goodwill
    c, Investments in jointly controlled entities and             Impairment testing for cash-generating units
       associated companies                                    14 Investments in jointly controlled entities and associates
    d, Intangible assets                                       15 Intangibles, property and equipment
    e, Property, plant and equipment                           16 Amounts due to other banks
    f, Cash reserve                                            17 Current and deposit accounts
    g, Determination of fair value                             18 Trading liabilities
    h, Loans and advances to banks and customers               19 Derivative liabilities held for risk management
    i, Impairment of loans and advances                        20 Other liabilities and provision
    j, Trading assets and trading liabilities                     Provision for contingencies and commitments
    k, Financial instruments designated at fair value             Finance leases as a lessee
    l, Investments in securities                               21 Issued debt securities
    m, Derivatives                                             22 Subordinated debt
    n, Hedge accounting                                        23 Share capital
    o, Derecognition of financial assets and liabilities       24 Reserves
    p, Offsetting financial assets and financial liabilities      Currency translation reserve
    q, Finance and operating leases                               Capital reserve
    r, Deposits, debt securities issued and subordinated          General risk reserve
        liabilities                                               Revaluation reserve
    s, Provisions                                              25 Minority interest
    t, Income tax                                              26 Deferred tax assets and liabilities
    u, Interest income and expense                             27 Interest income
    v, Fees and commission                                     28 Interest expense
    w, Other income                                            29 Net income from commissions and fees
    x, Dividends                                               30 Other operating income
    y, Employee benefits                                       31 Impairments and provisions for losses
    z, Segment reporting                                       32 Operating expenses
    aa, Foreign currencies                                     33 Income tax
    ab, Financial guarantees                                      Income tax expense recognized in the Income
    ac, Share capital                                             Statement
    ad, Earnings per share                                        Reconciliation of effective tax rate
    ae, New standards and interpretations not yet adopted      34 Earnings per share
                                                               35 Contingencies and commitments
5   Financial risk management                                  36 Use of estimates and judgements
    a, Introduction and overview                                  Key sources of estimation uncertainty
    b, Risk management framework                                  Critical accounting judgements in applying the Group’s
    c, Credit risk                                                accounting policies
    d, Liquidity risk                                          37 Accounting classifications and fair values
    e, Market risk                                             38 Related parties
    f, Operational risks                                          Transactions with related parties
    g, Capital management                                      39 Group entities
6   Cash reserves                                              40 Funds management
7   Loans and advances to banks                                41 Segment information
8   Trading assets                                                Business segments
9   Derivative assets held for risk management                    Measurement of segment profit or loss
    Fair value hedges of interest rate risk                    42 Changes in accounting policies
    Other derivatives held for risk management                 43 Disclosure of prior period misstatement
                                                               44 Events after the balance sheet date




                                                                                                                        25
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Consolidated Balance Sheet as at December 31, 2008


                                                                                              Note           2008          2007
                                                                                                                     HUF million
     Assets
     Cash reserves                                                                               6        212 685        127 298
     Loans and advances to banks                                                                 7        116 611        193 005
     Trading assets                                                                              8         65 590         57 027
     Derivative assets held for risk management                                                  9             80           802
     Investments in securities                                                                  10         51 051         41 866
     Loans and advances to customers                                                            11       2 292 794     1 905 898
     Other assets                                                                               12         18 217         16 063
     Goodwill                                                                                   13         33 650         37 502
     Deferred tax assets                                                                        26          3 246          2 559
     Investments in jointly controlled entities and associates                                  14         11 231          9 946
     Intangibles, property and equipment                                                        15         80 271         73 048
     Total assets                                                                                       2 885 426     2 465 014


     Liabilities
     Amounts due to other banks                                                                 16        947 109        578 630
     Current and deposit accounts                                                               17       1 267 842     1 247 136
     Trading liabilities                                                                        18         30 231         10 579
     Derivative liabilities held for risk management                                            19          3 224          2 134
     Other liabilities and provisions                                                           20         31 604         37 577
     Deferred tax liability                                                                     26          4 173          4 751
     Issued debt securities                                                                     21        269 129        269 062
     Subordinated debt                                                                          22        102 892         85 465
     Total liabilities                                                                                  2 656 204     2 235 334


     Equity
     Share capital                                                                              23         14 094         14 094
     Reserves                                                                                   24        198 576        199 946


     Total equity attributable to equity holders of the Bank                                              212 670       214 040
     Minority interest                                                                          25         16 552         15 640


     Total equity                                                                                         229 222       229 680


     Total liabilities and equity                                                                       2 885 426     2 465 014

Budapest, 23 February, 2009




                                                                                             Tamás Erdei
                                                                                       Chairman & Chief Executive




26
                                                          C O N S O L I D A T E D        F I N A N C I A L   S T A T E M E N T S




Consolidated Income Statement for the year ended December 31, 2008


                                                                                                Note           2008         2007
                                                                                                                       HUF milion
 Interest income                                                                                    27       223 807      165 212
 Interest expense                                                                                   28       141 128       93 426
 Net interest income                                                                                         82 679       71 786


 Net income from commissions and fees                                                               29        19 541       12 896
 Other operating income                                                                             30        18 224       19 125
 Impairments and provisions for losses                                                              31        43 003       24 774
 Operating expenses                                                                                 32        70 360       59 176
 Share of jointly controlled and associated companies' profit / (loss) before taxation                         1 255        1 048
 Profit before taxation                                                                                       8 336       20 905


 Income tax                                                                                         33         1 176        4 036
 Profit for the period                                                                                        7 160       16 869


 Attributable to: Shareholders of the parent                                                                   6 449       14 204
 Minority interest                                                                                              711         2 665


 Net income available to ordinary shareholders                                                                 6 449       14 204
 Average number of ordinary shares outstanding (thousands)                                                    14 094       13 579


 Earnings per Ordinary Share (in HUF)                                                               34
 Basic                                                                                                          458         1046
 Fully diluted                                                                                                  458         1046
 Dividend per Ordinary Share (in HUF)




                                                                                               Tamás Erdei
                                                                                         Chairman & Chief Executive




                                                                                                                                    27
C O N S O L I D A T E D                 F I N A N C I A L           S T A T E M E N T S




Consolidated Statement of Changes in Equity for
the year ended December 31, 2008

                                                           Note      Share    Capital Currency-     Retained- Revaluation Minority          Total
                                                                    capital   reserve translation    earnings     reserve interest         equity
                                                                                          reserve
                                                                                                                                      HUF million
     At 1 January 2007                                              13 133    61 253       1 469     102 834        333    14 094        193 116


     Issue of share capital and share premium              23, 24      961     33 199           -           -          -          -        34 160
     Foreign exchange movements                                           -         -        984            -          -          -           984
     Revaluation of available-for-sale instruments            24          -         -           -           -      (391)                    (391)
     Change in minority interest during the period                        -         -           -        (44)          -    (1 071)        (1 115)
     Profit for the period                                                -         -           -     14 204           -     2 665         16 869
     Appropriation from general risk reserve, net of tax                  -         -           -           -          -                         -
     Dividend for the year 2006                                           -         -           -    (16 035)          -                 (16 035)
     Restatement due to deferred tax                                      -         -           -        168           -                      168
     Restatements (see below in 43 note)                      43          -       48            -      1 924           -       (48)         1 924
     At 31 December 2007                                            14 094    94 500       2 453     103 051       (58)    15 640        229 680


     Issue of share capital and share premium              23, 24         -         -           -           -          -          -              -
     Foreign exchange movements                                           -         -     (7 127)           -          -          -        (7 127)
     Revaluation of available-for-sale instruments            24          -         -           -           -      (786)          -         (786)
     Purchase/sale of subsidiaries                                        -         -           -         94           -          -            94
     Change in minority interest during the period                        -         -           -           -          -       895            895
     Profit for the period                                                -         -           -      6 449           -       711          7 160
     Appropriation from general risk reserve, net of tax                  -         -           -           -          -                         -
     Dividend for the year 2007                                           -         -           -           -          -     (694)          (694)
     At 31 December 2008                                            14 094    94 500      (4 674)    109 594      (844)    16 552        229 222

                                                           Note      Share    Capital Currency-     Retained- Revaluation Minority          Total
                                                                    capital   reserve translation    earnings     reserve interest         equity
                                                                                          reserve
     Capital transactions with shareholders                               -         -           -      6 543           -       912          7 455
     Recognised gains and losses for the year                             -         -     (7 127)           -      (786)          -        (7 913)
                                                           Note      Share    Capital Currency-     Retained- Revaluation Minority          Total
                                                                    capital   reserve translation    earnings     reserve interest         equity
                                                                                          reserve
     Capital transactions with shareholders                            961     33 199           -     (1 707)          -     1 594         34 047
     Recognised gains and losses for the year                             -       48         984       1 924       (391)       (48)         2 517




                                                                                                      Tamás Erdei
                                                                                                Chairman & Chief Executive




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                                                         C O N S O L I D A T E D                F I N A N C I A L     S T A T E M E N T S




Consolidated Cash Flow Statement for the year ended December 31, 2008


                                                                                                           Note        2008           2007
                                                                                                                                HUF million
 Cash flow from operating activites
 Profit for the period                                                                                                 7 160         16 869


 Adjustments for:
 Depreciation, amortisation and impairment                                                                    15       7 473          5 177
 Impairment on non-financial assets                                                                           31       1 877             23
 Impairment on financial assets                                                                           11, 31      37 924         23 585
 Deferred tax movement                                                                                        33      (1 265)        (1 725)
 Foreign Exchange movement                                                    7, 11, 13, 15, 20, Change in Equity     (2 465)            10
                                                                                                                      50 704         43 939


 Change in loans and advances to banks (gross amounts)                                                         7      76 374         23 810
 Change in loans and advances to customers (gross amounts)                                                    11    (426 149)     (466 300)
 Change in trading assets                                                                                      8      (7 841)        (3 022)
 Change in AFS securities (without revaluation and impairment)                                                10     (10 164)        21 253
 Change in other assets (gross amounts)                                                                       12      (2 367)        (6 414)
 Change in amounts due to banks                                                                               16     368 479        150 423
 Change in current and deposit accounts                                                                       17      20 706        163 040
 Change in other liabilities and provisions (without provision charge of the year)                            20      (6 585)      (10 616)
 Change in trading liabilities                                                                                18      20 742          5 819
                                                                                                                      33 194      (122 007)


 Net cash used in operating activities                                                                                83 898       (78 068)


 Cash flow from investing activities
 Investment in group companies                                                                            10, 13        (296)        (9 782)
 Disposals of group companies                                                                             10, 13            -           185
 Purchase of property and equipment                                                                           15     (11 638)      (23 219)
 Disposals of property and equipment                                                                          15       1 004         12 151
 Purchase of intangible assets                                                                                15      (8 466)      (11 487)
 Disposals of intangible assets                                                                               15       4 084          8 792


 Net cash used in investing activities                                                                              (15 311)       (23 360)


 Cash flow from financing activities
 Increase in issued securities                                                                                21          67        108 355
 Increase in subordinated liabilities                                                                         22      17 427         19 749
 Issuance of new shares and proceeds from share premium                                                   23, 24            -        34 160
 Dividend paid                                                                                 Change in equity         (694)      (16 035)
 Net cash from financing activites                                                                                    16 800       146 229


 Net increase/decrease of cash and cash equivalents                                                                   85 387        44 801


 Cash reserves at 1 January                                                                                    6    127 298         82 497


 Cash reserves at December 31                                                                                  6    212 685        127 298




                                                                                                       Tamás Erdei
                                                                                                 Chairman & Chief Executive


                                                                                                                                               29
    C O N S O L I D A T E D          F I N A N C I A L       S T A T E M E N T S




    Supplementary Notes


1   General information
    MKB Bank Zrt. (“MKB” or “the Bank”) is a commercial bank domiciled in Hungary, organised under the laws of Hungary and reg-
    istered under the Hungarian Banking Act. The address of MKB is Váci utca 38., HU-1056 Budapest, Hungary.
       The consolidated financial statements of the Bank as at and for the year ended 31 December 2008 comprise the Bank and its
    subsidiaries (together referred to as the “Group”). The Group conducts its domestic and cross-border financial services busi-
    nesses through banking and non-banking subsidiaries. For further information on consolidated subsidiaries please see Note 39.
       MKB is a member of the BayernLB Group, domiciled in Germany. The address of BayernLB's Head Office is Brienner Str. 18, D-
    80333 Munich, Germany.


2   Compliance with International Financial Reporting Standards

    The consolidated financial statements of the Group has been prepared in accordance with International Financial Reporting
    Standards (‘IFRSs’) as adopted by the EU.
      IFRSs comprise accounting standards issued by the IASB and its predecessor body and interpretations issued by the
    International Financial Reporting Interpretations Committee (‘IFRIC’) and its predecessor body.
      These financial statements are presented in Hungarian Forint (HUF), rounded to the nearest million, except as indicated.
    These financial statements were authorised for issue by the Board of Directors on 23 February, 2009.



3   Basis of measurement

    The consolidated financial statements have been prepared on the historical cost basis except for the following:
    – derivative financial instruments are measured at fair value
    – financial instruments at fair value through profit or loss are measured at fair value
    – available-for-sale financial assets are measured at fair value
    – Other financial instruments are measured at amortised cost
       The preparation of financial statements requires management to make judgements, estimates and assumptions that affect
    the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may
    differ from these estimates.
       Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
    in the period in which the estimate is revised and in any future periods affected.
       In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting
    policies that have the most significant effect on the amount recognised in the financial statements are described in Note 36.



4   Summary of significant accounting policies

    Accounting policies are the specific principles, bases, conventions, rules and practices adopted by the Group in preparing and
    presenting the consolidated financial statements. The accounting policies set out below have been applied consistently to all
    periods presented in these consolidated financial statements, and have been applied consistently by Group entities.

    a, Financial statement presentation

    These consolidated financial statements include the accounts of MKB and its subsidiaries, jointly controlled entities and associ-
    ates (“the Group”). The income, expenses, assets and liabilities of the subsidiaries are included in the respective line items in the
    consolidated financial statements, after eliminating inter-company balances and transactions.

    b, Consolidation

    Subsidiaries
    Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and oper-
    ating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently
    are exercisable are taken into account. Newly acquired subsidiaries are consolidated from the date that the Group gains control.


    30
                                                     C O N S O L I D A T E D           F I N A N C I A L        S T A T E M E N T S




The purchase method of accounting is used to account for the acquisition of subsidiaries by MKB. The cost of an acquisition is
measured at the fair value of the consideration given at the date of exchange, together with costs directly attributable to that
acquisition. The acquired identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of
acquisition. Any excess of the cost of acquisition over the fair value of the Group’s share of the identifiable assets, liabilities and
contingent liabilities acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of
the identifiable assets, liabilities and contingent liabilities of the business acquired, the difference is recognised immediately in
the income statement.

Special purpose entities
Special purpose entities are entities that are created to accomplish a narrow and well-defined objective such as the execution
of a specific borrowing or lending transaction.
  The financial statements of special purpose entities are included in the Group’s consolidated financial statements where the
substance of the relationship is that the Group controls the special purpose entity.

Funds management
The Group manages and administers assets held in investment funds on behalf of investors. The financial statements of these
entities are not included in these consolidated financial statements except when the Group controls the entity. Information
about the Group’s funds management activities is set out in Note 40.

Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in prepar-
ing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.

c, Investments in jointly controlled entities and associated companies

Jointly controlled entities
Where the Group is a party to a contractual arrangement whereby, together with one or more parties, it undertakes an eco-
nomic activity that is subject to joint control, the Group classifies its interest in the venture as a joint venture. Jointly controlled
entities are included in the consolidated financial statements using equity method of accounting, from the date that joint con-
trol effectively commences until the date that joint control effectively ceases. Under this method, such investments are initially
stated at cost, including attributable goodwill, and are adjusted thereafter for the post-acquisition change in the Group’s share
of net assets.

Associates
MKB classifies investments in entities over which it has significant influence, and that are neither subsidiaries nor joint ventures,
as associates. For the purpose of determining this classification, control is considered to be the power to govern the financial
and operating policies of an entity so as to obtain benefits from its activities. Associates are accounted for under the equity
method of accounting except when the investment is acquired and held exclusively with a view to its disposal in the near
future, in which case it is accounted for under the cost method. Under this method, such investments are initially stated at cost,
including attributable goodwill, and are adjusted thereafter for the post-acquisition change in MKB’s share of net assets.
  Profits on transactions between MKB and its associates and joint ventures are eliminated to the extent of MKB’s interest in the
respective associates or joint ventures. Losses are also eliminated to the extent of MKB’s interest in the associates or joint ven-
tures unless the transaction provides evidence of an impairment of the asset transferred.
  A list of the Group’s significant jointly controlled and associated companies is set out in Note 39.

d, Intangible assets

Intangible assets are identifiable non-monetary assets without physical substance held for supply of services, or for administra-
tion purposes.

Goodwill
Goodwill arises on business combinations, including the acquisition of subsidiaries, and on the acquisition of interests in joint
ventures and associates, when the cost of acquisition exceeds the fair value of Group’s share of the identifiable assets, liabilities
and contingent liabilities acquired. If Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabili-


                                                                                                                                       31
C O N S O L I D A T E D          F I N A N C I A L       S T A T E M E N T S




ties of an acquired business is greater than the cost of acquisition, the excess is recognised immediately in the income state-
ment.
   Goodwill was amortised over 5 years using the straight-line method till the end of 2004. From 2005, goodwill is not amortised
but annually tested for impairment instead.
   For the purpose of impairment testing, goodwill is allocated to one or more of the Group's cash-generating units, that are
expected to benefit from the synergies of the business combination, irrespective whether other assets or liabilities are assigned
to them. Impairment testing is performed at least annually, and whenever there is an indication that the cash-generating unit
may be impaired, by comparing the present value of the expected future cash flows from a cash-generating unit with the car-
rying amount of its net assets, including attributable goodwill. Goodwill is stated at cost less accumulated impairment losses.
Impairment losses recognized for goodwill are charged to the income statement and are not reversed in a subsequent period.
   Goodwill on acquisitions of interests in joint ventures and associates is included in ‘Investments in jointly controlled entities
and associates’.
   At the date of disposal of a business, attributable goodwill is included in MKB’s share of net assets in the calculation of the
gain or loss on disposal. For further details on the assumptions used in the calculation, please see Note 13.

Other intangible assets
Intangible assets that have a finite useful life are measured initially at costs and subsequently carried at costs less any accumu-
lated amortisation and any accumulated impairment losses. Intangible assets are amortised over their estimated useful lives
not exceeding 15 years from the date when the asset is available for use, applying the straight-line method.
   Intangible assets that have an indefinite useful life, or are not yet ready for use, are tested for impairment annually. This
impairment test may be performed at any time during the year, provided it is performed at the same time every year. An intan-
gible asset recognised during the current period is tested before the end of the current year.
   Expenditure on internally developed intangible asset (software) is recognised as an asset when the Group is able to demon-
strate its intention and ability to complete the development and use the software in a manner that will generate future eco-
nomic benefits, and can reliably measure the costs to complete the development. The capitalised costs of internally developed
software include all costs directly attributable to developing the software, and are amortised over its useful life. Internally devel-
oped software is stated at capitalised cost less accumulated amortisation and impairment.
   Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in
the specific asset to which it relates. All other expenditure is expensed as incurred.

e, Property, plant and equipment

Items of property and equipment including leasehold improvements are measured at cost less accumulated depreciation and
impairment losses.
   Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property or
equipment have different useful lives, they are accounted for as separate items (major components) of property and equip-
ment.
   The estimated useful lives of property, plant and equipment are as follows:
– freehold land is not depreciated;
– components of freehold buildings are depreciated over 0-50 years
– leasehold buildings are depreciated over the unexpired terms of the leases, or over their remaining useful lives.
   The estimated residual value of some of the buildings is higher than the book value and therefore not depreciated.
   Equipment, fixtures and fittings (including equipment on operating leases where MKB Group is the lessor) are stated at cost
less any impairment losses and depreciation calculated on a straight-line basis to write off the assets over their useful lives,
which run to a maximum of 20 years but are generally between 5 years and 10 years.
   Depreciation of property, plant and equipment are included in ”Operating expenses” line in Income statement.
   Property, plant and equipment is subject to an impairment review if there are events or changes in circumstances which indi-
cate that the carrying amount may not be recoverable.
   Net gains and losses on disposal or retirement of property and equipment are included in other income, in the year of dis-
posal or retirement.

f, Cash reserve

Cash reserve include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets
with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are


32
                                                     C O N S O L I D A T E D          F I N A N C I A L        S T A T E M E N T S




used by the Group in the management of its short-term commitments.
  Cash and cash equivalents are carried at amortised cost in the balance sheet.

g, Determination of fair value

All financial instruments are recognised initially at fair value. In the normal course of business, the fair value of a financial instru-
ment on initial recognition is the transaction price (that is, the fair value of the consideration given or received). In certain cir-
cumstances, however, the fair value will be based on other observable current market transactions in the same instrument,
without modification or repackaging, or on a valuation technique whose variables include only data from observable markets,
such as interest rate yield curves, option volatilities and currency rates. When such evidence exists, the Group recognises a trad-
ing gain or loss on inception of the financial instrument. When unobservable market data have a significant impact on the val-
uation of financial instruments, the entire initial difference in fair value indicated by the valuation model from the transaction
price is not recognised immediately in the income statement but is recognised over the life of the transaction on an appropri-
ate basis, or when the inputs become observable, or the transaction matures or is closed out, or when the Group enters into an
offsetting transaction.
   Subsequent to initial recognition, the fair values of financial instruments measured at fair value that are quoted in active mar-
kets are based on bid prices for assets held and offer prices for liabilities issued. When independent prices are not available, fair
values are determined by using valuation techniques which refer to observable market data. These include comparison with
similar instruments where market observable prices exist, discounted cash flow analysis, option pricing models and other valu-
ation techniques commonly used by market participants. For financial instruments, fair values may be determined in whole or
in part using valuation techniques based on assumptions that are not supported by prices from current market transactions or
observable market data.
   Factors such as bid-offer spread, credit profile and model uncertainty are taken into account, as appropriate, when fair values
are calculated using valuation techniques. Valuation techniques incorporate assumptions that other market participants would
use in their valuations, including assumptions about interest rate yield curves, exchange rates, volatilities, and prepayment and
default rates. Where a portfolio of financial instruments has quoted prices in an active market, the fair value of the instruments
are calculated as the product of the number of units and quoted price and no block discounts are made.
   If the fair value of a financial asset measured at fair value becomes negative, it is recorded as a financial liability until its fair
value becomes positive, at which time it is recorded as a financial asset.
   The fair values of financial liabilities are measured using quoted market prices where available, or using valuation techniques.
These fair values include market participants’ assessments of the appropriate credit spread to apply to the Group’s liabilities.

h, Loans and advances to banks and customers

Loans and advances to banks and customers include loans and advances originated by the Group which are not classified either
as held for trading or designated at fair value. Loans and advances are recognised when cash is advanced to borrowers (settle-
ment date). They are derecognised when either borrowers repay their obligations, or the loans are sold or written off, or sub-
stantially all the risks and rewards of ownership are transferred. They are initially recorded at fair value plus any directly attrib-
utable transaction costs and are subsequently measured at amortised cost using the effective interest method, less impairment
losses. Where loans and advances are hedged by derivatives designated and qualifying as fair value hedges, the carrying value
of the loans and advances so hedged includes a fair value adjustment for the hedged risk only.

i, Impairment of loans and advances

At each balance sheet date the Group assesses whether there is objective evidence that loans and advances are impaired. Loans
and advances are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of
the asset, and that the loss event has an impact on the future cash flows on the asset that can be estimated reliably.
   Objective evidence that loans and advances are impaired can include default or delinquency by a borrower, restructuring of
a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will
enter bankruptcy, or other observable data relating to a group of assets such as adverse changes in the payment status of bor-
rowers in the group, or economic conditions that correlate with defaults in the group.
   Impairment allowances are calculated on individual loans and on groups of loans assessed collectively. Impairment losses are
recorded as charges to the income statement. The carrying amount of impaired loans on the balance sheet date is reduced
through the use of impairment allowance accounts. Losses expected from future events are not recognised.



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Individually assessed loans and advances
For all loans that are considered individually significant, the Group assesses on a case-by-case basis at each balance sheet date
whether there is any objective evidence that a loan is impaired. Impairment losses on assets carried at amortised cost are meas-
ured as the difference between the carrying amount of the financial assets and the present value of estimated cash flows dis-
counted at the assets’ original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance
account against loans and advances. Interest on the impaired assets continues to be recognised through the unwinding of the
discount.

Collectively assessed loans and advances
Impairment is assessed on a collective basis for homogeneous groups of loans that are not considered individually significant.
On loans subject to individual assessment but not impaired are not assessed collectively.
  Loans not assessed on an individual basis are grouped together according to their credit risk characteristics for the purpose
of calculating an estimated collective loss. Losses in these groups of loans are recorded on an individual basis when individual
loans are written off, at which point they are removed from the group.
  In assessing collective impairment the Group uses statistical modelling of historical trends of the probability of default, tim-
ing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and
credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default
rates, loss rates and the expected timing of future recoveries are regularly benchmarked.

Renegotiated loans
Loans subject to collective impairment assessment whose terms have been renegotiated are no longer considered past due,
but are treated as new loans for measurement purposes once the minimum number of payments required under the new
arrangements have been received. Loans subject to individual impairment assessment, whose terms have been renegotiated,
are subject to ongoing review to determine whether they remain impaired or should be considered past due.

Write-off of loans and advances
A loan (and the related impairment allowance account) is normally written off, either partially or in full, when there is no realis-
tic prospect of recovery of the principal amount and, for a collateralised loan, when the proceeds from realising the security
have been received.

Reversals of impairment
If the amount of an impairment loss decreases in a subsequent period, and the decrease can be related objectively to an event
occurring after the impairment was recognised, the excess is written back by reducing the loan impairment allowance account
accordingly. The write back is recognised in the income statement.

Assets acquired in exchange for loans
Non-financial assets acquired in exchange for loans as part of an orderly realisation are recorded as assets held for sale and
reported in ‘Other assets’. The asset acquired is recorded at the lower of its fair value (less costs to sell) and the carrying amount
of the loan (net of impairment allowance) at the date of exchange. No depreciation is charged in respect of assets held for sale.
Any subsequent write-down of the acquired asset to fair value less costs to sell is recognised in the income statement, in ‘Other
operating income’. Any subsequent increase in the fair value less costs to sell, to the extent this does not exceed the cumulative
write down, is also recognised in ‘Other operating income’, together with any realised gains or losses on disposal.

j, Trading assets and trading liabilities

Treasury bills, debt securities, equity shares are classified as held for trading if they have been acquired principally for the pur-
pose of selling or repurchasing in the near term. These financial assets or financial liabilities are recognised on trade date, when
the Group enters into contractual arrangements with counterparties to purchase or sell securities, and are normally derecog-
nised when either sold (assets) or extinguished (liabilities). Measurement is initially at fair value, with transaction costs taken to
the income statement. Subsequently, their fair values are remeasured, and all gains and losses from changes therein are recog-
nised in the income statement in ‘Other operating income’ as they arise.
  Interest earned on trading debt securities is reported as trading result among the other operating income when it becomes
due. The dividends earned on trading equity instruments are disclosed separately among the interest income when received.
Interest payable on financial liabilities acquired for trading purposes is reported as other operating expense.



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k, Financial instruments designated at fair value

Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria
set out below, and are so designated by management. the Group may designate financial instruments at fair value when the
designation eliminates or significantly reduces valuation or recognition inconsistencies that would otherwise arise from meas-
uring financial assets or financial liabilities, or recognising gains and losses on them, on different bases. Under this criterion, the
main classes of financial instruments designated by the Group are:

Long-term deposit
The interest payable on certain fixed rate long-term deposits from investment funds has been matched with the interest on
‘receive fixed/pay variable’ interest rate swaps and cross-currency swaps as part of a documented interest rate risk and FX risk
management strategy. An accounting mismatch would arise if the deposits were accounted for at amortised cost, because the
related derivatives are measured at fair value with changes in the fair value recognised in the income statement. By designat-
ing the long-term deposits at fair value, the movement in the fair value of the long-term deposits will also be recognised in the
income statement.

Structured Bond
MKB has issued structured bonds for its retail and institutional clients in 2008. In these bonds there are embedded derivatives
(options) that have to be separated under IAS 39.11 unless the hybrid instruments are measured at fair value. The Group elimi-
nated its risk arising from the above mentioned options by entering into offsetting option transactions. To eliminate valuation
inconsistencies, these structured bonds are designated at fair value to profit or loss in their entirety and as a consequence the
embedded derivates are not separated.
  The fair value designation, once made, is irrevocable. Designated financial assets and financial liabilities are recognised when
the Group enters into the contractual provisions of the arrangements with counterparties, which is generally on trade date, and
are normally derecognised when sold (assets) or extinguished (liabilities). Measurement is initially at fair value, with transaction
costs taken directly to the income statement. Subsequently, the fair values are remeasured, and gains and losses from changes
therein are recognised in “Interest income”.

l, Investments in securities

Treasury bills, debt securities and equity shares intended to be held on a continuing basis, other than those designated at fair
value (Note 4 k,), are classified as available-for-sale. The held to maturity category is not applied at the Group level. Financial
investments are recognised on trade date, when the Group enters into contractual arrangements with counterparties to pur-
chase securities, and are normally derecognised when either the securities are sold or the borrowers repay their obligations.
   Available-for-sale securities are initially measured at fair value plus direct and incremental transaction costs. They are subse-
quently remeasured at fair value, and changes therein are recognised in equity in the ‘Revaluation reserve’ (Note 24) until the
securities are either sold or impaired. When available-for sale securities are sold, cumulative gains or losses previously recog-
nised in equity are recognised in the income statement as “Other operating income”.
   At each balance sheet date an assessment is made of whether there is any objective evidence of impairment in the value of a
financial asset or group of assets. This usually arises when circumstances are such that an adverse effect on future cash flows
from the asset or group of assets can be reliably estimated. If an available-for-sale security is impaired, the cumulative loss (mea-
sured as the difference between the asset’s acquisition cost (net of any principal repayments and amortisation) and its current
fair value, less any impairment loss on that asset previously recognised in the income statement) is removed from equity and
recognised in the income statement.
   When a subsequent event causes the amount of impairment loss on an available-for-sale debt security to decrease, the
impairment loss is reversed through profit or loss. However, any subsequent recovery in the fair value of an impaired available-
for-sale equity security is recognised directly in equity. Changes in impairment provisions attributable to time value are reflect-
ed as a component of interest income.

m, Derivatives

Derivatives are recognised initially, and are subsequently remeasured, at fair value. Fair values of exchange-traded derivatives
are obtained from quoted market prices. Fair values of over-the-counter derivatives are obtained using valuation techniques,
including discounted cash flow models and option pricing models.
  Derivatives may be embedded in other financial instruments. Embedded derivatives are treated as separate derivatives when


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their economic characteristics and risks are not clearly and closely related to those of the host contract; the terms of the embed-
ded derivative would meet the definition of a stand-alone derivative if they were contained in a separate contract; and the com-
bined contract is not held for trading or designated at fair value. These embedded derivatives are measured at fair value with
changes therein recognised in the income statement.
   Derivatives are classified as assets when their fair value is positive, or as liabilities when their fair value is negative. Derivative
assets and liabilities arising from different transactions are only offset if the transactions are with the same counterparty, a legal
right of offset exists, and the parties intend to settle the cash flows on a net basis.
   The method of recognising fair value gains and losses does not depend on whether derivatives are held for trading or are des-
ignated as hedging instruments. All gains and losses from changes in the fair value of derivatives held for trading or designat-
ed as hedging instrument is hedging relationships are recognised in the income statement as the group uses only fair value
hedges to hedge its risks.

n, Hedge accounting

As part of its asset/liability management activities, the Group uses interest rate swaps and cross currency interest rate swaps, to
hedge existing foreign currency and interest rate exposures. A hedging relationship qualifies for special hedge accounting if,
and only if, all of the following conditions are met:
– at the inception there is a formal documentation of the hedging relationship that includes among others the identification of
– the hedging instrument and the specific hedged item, the nature of risk being hedged.
– a high level of hedge effectiveness is expected at the inception and the hedge is actually effective throughout the hedge period,
– the hedge effectiveness can be reliably measured.
   The Group also requires a documented assessment on an ongoing basis, of whether or not the hedging instruments, prima-
rily derivatives, that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged
risks in the fair values of the hedged items. Interest on designated qualifying hedges is included in “Interest income” or “Interest
expense”.

Fair value hedge

A fair value hedge represents a contract that hedges a recognised asset or liability, or an identified portion of such an asset or
liability, against exposure to changes in the fair value that is attributable to a particular risk and that will affect reported net
income. The gain or loss from re-measuring the hedging instrument at fair value and the loss or gain on the hedged item attrib-
utable to the hedged risk are recognised immediately in net profit or loss for the period.
   If a hedging relationship no longer meets the criteria for hedge accounting, the cumulative adjustment to the carrying
amount of the hedged item is amortised to the income statement based on a recalculated effective interest rate over the resid-
ual period to maturity, unless the hedged item has been derecognised, in which case, it is released to the income statement
immediately.

Hedge effectiveness testing

To qualify for hedge accounting, the Group requires that at the inception of the hedge and throughout its life, each hedge must
be expected to be highly effective (prospective effectiveness), and demonstrate actual effectiveness (retrospective effective-
ness) on an ongoing basis.
  The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed. The method the
Group adopts for assessing hedge effectiveness will depend on its risk management strategy.
  For prospective effectiveness, the hedging instrument must be expected to be highly effective in offsetting changes in fair
value attributable to the hedged risk during the period for which the hedge is designated. For actual effectiveness to be
achieved, the changes in fair value must offset each other in the range of 80 per cent to 125 per cent.

o, Derecognition of financial assets and liabilities

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards
of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the
Group is recognised as a separate asset or liability.
   The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.


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  The Group enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all risks and
rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the trans-
ferred assets are not derecognised from the balance sheet. Transfers of assets with retention of all or substantially all risks and
rewards include, for example repurchase transactions.

p, Offsetting financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and set-
tle the liability simultaneously.

q, Finance and operating leases

Agreements which transfer to counterparties substantially all the risks and rewards incidental to the ownership of assets, but
not necessarily legal title, are classified as finance leases. When the Group is a lessor under finance leases the amounts due
under the leases, after deduction of unearned charges, are included in ‘Loans and advances to banks’ or ‘Loans and advances to
customers’ as appropriate. The finance income receivable is recognised in “Interest income” over the periods of the leases so as
to give a constant rate of return on the net investment in the leases.
  When the Group is a lessee under finance leases, the leased assets are capitalised and included in ‘Intangibles, property and
equipment’ and the corresponding liability to the lessor is included in ‘Other liabilities and provisions’. A finance lease and its
corresponding liability are recognised initially at the fair value of the asset or, if lower, the present value of the minimum lease
payments. Finance charges payable are recognised in “Interest expense” over the period of the lease based on the interest rate
implicit in the lease so as to give a constant rate of interest on the remaining balance of the liability.
  All other leases are classified as operating leases. When acting as lessor, the Group includes the assets subject to operating
leases in ‘Intangibles, property and equipment’ and accounts for them accordingly. Impairment losses are recognised to the
extent that residual values are not fully recoverable and the carrying value of the equipment is thereby impaired. When the
Group is the lessee, leased assets are not recognised on the balance sheet. Rentals payable and receivable under operating leas-
es are accounted for on a straight-line basis over the periods of the leases and are included in “Other operating income” and
“Operating expenses”, respectively.

r, Deposits, debt securities issued and subordinated liabilities

Deposits, debt securities issued and subordinated liabilities are the Group’s sources of debt funding.
   When the Group sells a financial asset and simultaneously enters into a “repo” or “stock lending” agreement to repurchase
the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a deposit, and the underlying
asset continues to be recognised in the Group’s financial statements.
   Deposits, debt securities issued and subordinated liabilities are initially measured at fair value plus transaction costs, and sub-
sequently measured at their amortised cost using the effective interest method, except where the Group chooses to carry the
liabilities at fair value through profit or loss.
   The Group carries some deposits, debt securities and subordinated liabilities at fair value, with fair value changes recognised
immediately in profit or loss as described in accounting policy (Note 4 k,).

s, Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be esti-
mated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability.
   Contingent liabilities, which include certain guarantees, are possible obligations that arise from past events whose existence
will be confirmed only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the con-
trol of the Group. Contingent liabilities are not recognised in the financial statements but are disclosed unless the probability of
settlement is remote.




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t, Income tax

Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that
it relates to items recognised directly in equity, in which case it is recognised in equity.
    Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or sub-
stantively enacted by the balance sheet date, and any adjustment to tax payable in respect of previous years.
    Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recog-
nised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in
a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating
to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is meas-
ured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date.
    A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
    Deferred tax assets and liabilities are offset when they arise in the same tax reporting group and relate to income taxes levied
by the same taxation authority, and when a legal right to offset exists in the entity.
    Deferred tax relating to fair value remeasurement of available-for-sale investments which are charged or credited directly to
equity, is also credited or charged directly to equity and is subsequently recognised in the income statement when the deferred
fair value gain or loss is recognised in the income statement.

u, Interest income and expense

Interest income and expense for all financial instruments except for those classified as held for trading and kept in trading book
are recognised in ‘Interest income’ and ‘Interest expense’ in the income statement using the effective interest method. The
effective interest method is a way of calculating the amortised cost of a financial asset or a financial liability (or groups of finan-
cial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.
   The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the
expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial
asset or liability. The effective interest rate is established on initial recognition of the financial asset and liability and is not
revised subsequently. When calculating the effective interest rate, the Group estimates cash flows considering all contractual
terms of the financial instrument but not future credit losses. The calculation includes all amounts paid or received by the Group
that are an integral part of the effective interest rate of a financial instrument, including transaction costs and all other premi-
ums or discounts. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a
financial asset or liability.
   Interest income is recognised on available-for-sale securities using the effective interest rate method, calculated over the
asset’s expected life. Dividends are recognised in the income statement when the right to receive payment has been established.
   Interest on impaired financial assets is calculated by applying the original effective interest rate of the financial asset to the
carrying amount as reduced by any allowance for impairment.

v, Fees and commission

Fee and commission income is accounted for as follows:
– income earned on the execution of a significant act is recognised as revenue when the act is completed (for example the
  arrangement for the acquisition of shares or other securities);
– income earned from the provision of services is recognised as revenue as the services are provided (for example asset man-
  agement and service fees); and
– income that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the
  effective interest rate (for example, certain loan commitment fees).

w, Other income

Other income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair
value changes, interest, dividends and foreign exchange differences.


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x, Dividends

Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity
securities.

y, Employee benefits

The Group operates a staff pension scheme that is qualified as a defined contribution plan under IFRS. All of the Group's
employees are entitled to participate in this plan and the majority of employees have elected to join. Assets of this defined con-
tribution plan are managed separately from the group.
   Payments to the defined contribution plan and state-managed retirement benefit plans, where the Group’s obligations
under the plans are equivalent to a defined contribution plan, are charged as an expense as they fall due.

Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is
provided.
  A provision is recognised for the amount expected to be paid under short-term cash bonus if the Group has a present legal
or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be
estimated reliably.

z, Segment reporting

In November 2006, the IASB issued IFRS 8, “Operating Segments” (“IFRS 8”), which defines requirements for the disclosure of
financial information of an entity’s operating segments. IFRS 8 replaces IAS 14, “Segment Reporting”. It follows the manage-
ment approach which requires operating segments to be identified on the basis of internal reports about components of the
entity that are regularly reviewed by the chief operating decision-maker, in order to allocate resources to a segment and to
assess its performance. IFRS 8 is effective for fiscal years beginning on or after 1 January 2009, although earlier application is per-
mitted. The Group adopted IFRS 8 from 1 January 2008. Therefore, the operating segment comparative information contained
in the Group’s consolidated financial statements for the year ending 31 December 2007 has been presented under the IFRS 8
requirements.
   A segment is a distinguishable component of the Group that is engaged either in providing products or services (business
segment), or in providing products or services within a particular economic environment (geographical segment), which is sub-
ject to risks and rewards that are different from those of other segments.
   Segment revenue, segment expense, segment assets and segment liabilities are determined as those that are directly attrib-
utable or can be allocated to a segment on a reasonable basis, including factors such as the nature of items, the conducted
activities and the relative autonomy of the unit. The Group allocates segment revenue and segment expense through an inter-
segment pricing process. These allocations are conducted on arm’s length terms and conditions. Please find further details on
segment reporting in Note 41.

aa, Foreign currencies

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary eco-
nomic environment in which the entity operates (‘the functional currency’).
   Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at
the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is
the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest
and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the
period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated
to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences aris-
ing on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equi-
ty instruments.
   The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are trans-
lated to HUF at exchange rates at the reporting date. The income and expenses of foreign operations are translated to HUF at
exchange rates at the dates of the transactions. Foreign currency differences are recognised directly in equity, in the Currency


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translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency trans-
lation reserve is transferred to profit or loss.

ab, Financial guarantees

Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
   Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over the life of the
financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value
of any expected payment (when a payment under the guarantee has become probable). Financial guarantees are included
within other liabilities.

ac, Share capital

Shares are classified as equity when there is no contractual obligation to transfer cash or other financial assets. Incremental
costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax.

ad, Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the
profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding
during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the
weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. For further
information about basic and diluted EPS, please see Note 34.

ae, New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31
December 2008, and have not been applied in preparing these consolidated financial statements:
   IFRIC 13 ‘Customer Loyalty Programmes’ (‘IFRIC 13’) was issued on 28 June 2007 and is effective for annual periods begin-
ning on or after 1 July 2008. IFRIC 13 addresses how companies that grant their customers loyalty award credits (often called
‘points’) when buying goods or services should account for their obligation to provide free or discounted goods and services, if
and when the customers redeem the points. IFRIC 13 requires companies to allocate some of the proceeds of the initial sale to
the award credits and recognise these proceeds as revenue only when they have fulfilled their obligations to provide goods or
services. The Group does not expect adoption of the interpretation to have a significant effect on the consolidated financial
statements.
   Amendment to IFRS 2 Share-based Payment – Vesting Conditions and Cancellations clarifies the definition of vesting
conditions, introduces the concept of non-vesting conditions, requires non-vesting conditions to be reflected in grant-date fair
value and provides the accounting treatment for non-vesting conditions and cancellations. The amendments to IFRS 2 will
become mandatory for the Group’s 2009 consolidated financial statements, with retrospective application. Adoption of the
amendment is unlikely to have a significant effect on the Group’s consolidated financial statements.
   Revised IFRS 3 Business Combinations (2008) incorporates the following changes that are likely to be relevant to the
Group’s operations:
– The definition of a business has been broadened, which may result in more acquisitions being treated as business combina-
  tions.
– Contingent consideration will be measured at fair value, with subsequent changes in fair value recognised in profit or loss.
– Transaction costs, other than share and debt issue costs, will be expensed as incurred.
– Any pre-existing interest in an acquiree will be measured at fair value, with the related gain or loss recognised in profit or loss.
– Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable
  assets and liabilities of an acquiree, on a transaction-by-transaction basis.
   Revised IFRS 3, which becomes mandatory for the Group’s 2010 consolidated financial statements, will be applied prospec-
tively and therefore there will be no impact on prior periods in the Group’s 2010 consolidated financial statements.
   Revised IAS 1 Presentation of Financial Statements (2007) introduces the term “total comprehensive income,” which rep-
resents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as
owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively


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combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement
and a separate statement of comprehensive income. Revised IAS 1, which becomes mandatory for the Group’s 2009 financial
statements, is expected to have a significant impact on the presentation of the consolidated financial statements as the Group
plans to provide total comprehensive income in a single statement of comprehensive income for its 2009 consolidated finan-
cial statements.
   Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalise bor-
rowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that
asset. Revised IAS 23 will become mandatory for the Group’s 2009 consolidated financial statements and will constitute a
change in accounting policy for the Group. In accordance with the transitional requirements, the Group will apply the revised
IAS 23 to qualifying assets for which capitalisation of borrowing costs commences on or after the effective date. Therefore there
will be no impact on prior periods in the Group’s 2009 consolidated financial statements.
   Amended IAS 27 Consolidated and Separate Financial Statements (2008) requires accounting for changes in ownership
interests in a subsidiary that occur without loss of control, to be recognised as an equity transaction. When the Group loses con-
trol of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognised
in profit or loss. The amendments to IAS 27, which become mandatory for the Group’s 2010 consolidated financial statements,
are not expected to have a significant impact on the consolidated financial statements.
   Amendments to IAS 32 and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and
Obligations Arising on Liquidation require puttable instruments and instruments that impose on the entity an obligation to
deliver to another party a pro rata share of the net assets of the entity only on liquidation to be classified as equity if certain con-
ditions are met. The amendments, which become mandatory for the Group’s 2009 consolidated financial statements with ret-
rospective application required, are not expected to have any significant impact on the consolidated financial statements.
   The International Accounting Standards Board made certain amendments to existing standards as part of its first annual
improvements project. The effective dates for these amendments vary by standard and most will be applicable to the Group’s
2009 consolidated financial statements. The Group does not expect these amendments to have any significant impact on the
consolidated financial statements.
   Amendments to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items clarifies the
application of existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a
hedging relationship. The amendments will become mandatory for the Group’s 2010 consolidated financial statements, with
retrospective application required. The Group is currently in the process of evaluating the potential effect of this amendment.
   IFRIC 16 Hedges of a Net Investment in a Foreign Operation clarifies that:
– net investment hedging can be applied only to foreign exchange differences arising between the functional currency of a for-
  eign operation and the parent entity’s functional currency and only in an amount equal to or less than the net assets of the for-
  eign operation
– the hedging instrument may be held by any entity within the group except the foreign operation that is being hedged
– on disposal of a hedged operation, the cumulative gain or loss on the hedging instrument that was determined to be effec-
  tive is reclassified to profit or loss.
   The Interpretation allows an entity that uses the step-by-step method of consolidation an accounting policy choice to deter-
mine the cumulative currency translation adjustment that is reclassified to profit or loss on disposal of a net investment as if the
direct method of consolidation had been used. IFRIC 16, which becomes mandatory for the Group’s 2009 consolidated financial
statements. The Group does not expect these amendments to have any significant impact on the consolidated financial state-
ments.
   In November 2008 the IASB issued a revised IFRS 1 to make it easier for the reader to understand and to design it to better
accommodate future changes. The version of IFRS 1 issued in 2008 retains the substance of the previous version, but within a
changed structure. It replaces the previous version and is effective for entities applying IFRSs for the first time for annual peri-
ods beginning on or after 1 January 2009. Earlier application is permitted. The Group does not expect this revision to have any
significant impact on the consolidated financial statements.
   On 27 November 2008 the IFRIC issued its guidance IFRIC 17 Distributions of Non-cash Assets to Owners. IFRIC 17 clarifies
that:
– a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of
  the entity.
– an entity should measure the dividend payable at the fair value of the net assets to be distributed.
– an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in
  profit or loss.
   The Interpretation also requires an entity to provide additional disclosures if the net assets being held for distribution to own-
ers meet the definition of a discontinued operation. An entity shall apply this Interpretation prospectively for annual periods


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    beginning on or after 1 July 2009. Retrospective application is not permitted. Earlier application is permitted. If an entity applies
    this Interpretation for a period beginning before 1 July 2009, it shall disclose that fact and also apply IFRS 3 (as revised in 2008),
    IAS 27 (as amended in May 2008) and IFRS 5 (as amended by this Interpretation). The Group is currently in the process of evalu-
    ating the potential effect of this guidance.


5   Financial risk management

    a, Introduction and overview

    All the Group’s activities involve the measurement, evaluation, acceptance and management of some degree of risk, or combi-
    nation of risks.
       Risk management is an integral part of the Group’s operations and a crucial component of its overall financial performance.
    The Group’s risk management framework has been designed to foster the continuous monitoring of the risk environment and
    is supported by the strong commitment to a prudent risk management culture both on the executive and business line levels.
       The main principles and priorities of the Group’s risk management function include the ultimate oversight by the Board of
    Directors, the importance of independent review of all risk-taking activities separately from business lines, and the proper eval-
    uation, diversification, monitoring and reporting of all risks. Decisions in respect of major risk principles are made at group level,
    and are implemented individually by the own decision making boards of the Group members.
       The effective communication on risk and risk appetite, the on-going initiatives to better identify, measure, monitor and man-
    age risks, the improvement of efficiency, user-friendliness and awareness of key risk processes and practices, and the employ-
    ment of highly-skilled staff are major aspects in running an effective risk management function in the Group.
       The Group has exposure to the following risks from its use of financial instruments:
    – credit risk (including cross-border country risk)
    – liquidity risk
    – market risks (including foreign exchange and interest rate risks)
    – operational risks.
       This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and
    processes for measuring and managing risk, and the Group’s management of capital.

    b, Risk management framework

    The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management frame-
    work, including approving the Risk strategy (requiring final approval by the Supervisory Board), the relating policies and the
    monitoring activities relating to risks the Group exposed to.
       The Group's risk strategy was set up in consistence with the business strategy. The tasks incorporated in the risk strategy aim
    at ensuring a balanced risk/return relationship, development of a disciplined and constructive control environment, the ongo-
    ing ability of the Group to manage its risks and the maintenance of its funds to cover risk exposures. It defines the targets of the
    risk management of the Group’s main business activities including mid-term planning, thus providing the annual profit and risk
    planning framework.
       The directions incorporated in risk strategy are specified in internal policies and instructions that must be adhered to in order
    to achieve the risk strategy goals and targets. The risk strategy is approved by the Supervisory Board following the previous
    agreement of the Board of Directors.
       The Board has established the Asset and Liability Committee (ALCO) and Credit Committee, which are responsible for devel-
    oping and monitoring Group risk management policies in their specified areas. All Board committees have both executive and
    non-executive members and report regularly to the Board of Directors on their activities.
       The primary responsibility of the Credit Committee is to manage credit risk. The Credit Committee regularly reviews the poli-
    cies, standards and limits that control credit risks and recommends to the Board of Directors any amendments that may be
    required from time to time. All major credit decision has to be approved by the Credit Committee, while exposures exceeding
    a certain limit need Board of Directors and above a set threshold Supervisory Board authorisation as well.
       ALCO is responsible for the asset and liability management and for the provision of liquidity, funding, capital adequacy and
    market risks of the Group. ALCO is responsible for the elaboration of risk policies in principle for the management of liquidity
    risk, interest rate risk, exchange rate risk (foreign exchange and securities), capital adequacy risk and the submission of this pol-
    icy to the Board of Directors at MKB and Group level, which shall include the following:
       measurement guidelines and limit system for the above mentioned risks;


    42
                                                    C O N S O L I D A T E D          F I N A N C I A L       S T A T E M E N T S




   competence and decision-making mechanism;
   guidelines for management of limit excess.
   The Supervisory Board is responsible for monitoring compliance with the Group’s risk management policies and procedures,
and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group. The Supervisory
Board is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk man-
agement controls and procedures, the results of which are reported to the Supervisory Board.
   The Supervisory Board, when approving certain decisions of the Board of Directors, shall act as a Decision Making Supervisory
Board. Regarding the Risk Management in particular, the following decisions of the Board of Directors are subject to approval
by the Supervisory Board:
– decision on the medium term and annual business policy and financial plan;
– decision on determining the risk strategy;
– decision on the approval of the Peremptory Risk Competence Regulation and on matters conditional upon the approval of the
  Supervisory Board pursuant to this regulation;
– decision on country limits.

c, Credit risk

Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises princi-
pally from the Group’s lending, trade finance and leasing business, but also from certain off-balance sheet products such as
guarantees, and from assets held in the form of debt securities.
  For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure (such as
individual obligor default risk, country and sector risk).

Management of credit risk
The Group has standards, policies and procedures dedicated to monitoring and managing risk from lending (including debt
securities) activities. In the MKB Risk Office in Budapest, the Group Risk function provides high-level centralised oversight and
management of credit risk for the entire Group. Its responsibilities include:
– Formulating Group credit policy in consultation with business units by establishing credit approval policies, standards, limits
  and guidelines that define, quantify, and monitor credit risk.
– Establishing the authorisation structure for the approval and renewal of credit facilities. Depending on the amount, certain
  authorisation limit is allocated to competence holders at Market and Risk units to enable flexibility. Larger facilities require
  approval by the Credit Committee, the Board of Directors or the Supervisory Board as appropriate.
– Monitoring the performance and management of retail and wholesale portfolios across the Group.
– Supervising the management of exposures to debt securities by establishing controls in respect of securities held for trading
  purposes.
– Establishing and maintaining the Group’s policy on limit concentrations ensuring that concentrations of exposure do not
  become excessive in relation to the Group’s capital base and remain within internal and regulatory limits.
– Developing and maintaining the Group’s risk gradings in order to categorise exposures according to the degree of risk of
  financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where
  impairment provisions may be required against specific credit exposures. The current risk grading framework consists of sev-
  eral grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation (see
  Credit rating system subchapter).
– Providing advice, guidance and specialist skills to Group business units to promote best practice throughout the Group in the
  management of credit risk.
   Each business unit is required to implement Group credit policies and procedures, with credit approval authorities delegat-
ed by the authorised decision maker bodies. Each business unit has a Chief Credit Risk officer who reports on all credit related
matters to local management and the highest decision making and/or supervisory bodies of the Group entity. Each business
unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its
portfolios. This includes managing its own risk concentrations by market sector, geography and product. Local systems are in
place throughout the Group to enable operating companies to control and monitor exposures by customer and retail product
segments.

  The Group’s exposure to credit risk at the reporting date is shown below:




                                                                                                                                    43
      C O N S O L I D A T E D                F I N A N C I A L      S T A T E M E N T S




      Consolidated Financial Statements as at December 31, 2008


5.1                                                                              Loans         Loans
                                                                                                         Investment
                                                                     Cash          and           and                    Derivative      OFF B/S
                              2008                                                                           in debt
                                                                  on hand   advances to   advances to                       assets    exposures
                                                                                                           securities
                                                                                 Banks         Banks
                                                                                                                                     HUF million

           Individually impaired
           Performing                                                   -             -      134 935                -            -            153
           Substandard                                                  -             -        29 048               -            -            685
           Doubtful                                                     -             -        37 058               -            -            327
           Bad                                                          -            39        64 500               -            -            890
           Total individually impaired gross amount                     -            39      265 541                -            -          2 055
           Total individually impaired allowance for impairment         -          (39)      (69 085)               -            -        (1 957)
           Total individually impaired carrying amount                  -             -      196 456                -            -             98

           Collectively impaired
           Performing                                                  3        69 911      1 463 708               -            -      582 069
           Substandard                                                 -             -          34 768              -            -            -
           Doubtful                                                    -             -           4 252              -            -            8
           Bad                                                         -             -          12 047              -            -           28
           Total collectively impaired gross amount                    3        69 911      1 514 775               -            -      582 105
           Total collectively impaired allowance for impairment        -             -        (10 018)              -            -            -
           Total collectively impaired carrying amount                 3        69 911      1 504 757               -            -      582 105

           Past due but not impaired
           Performing                                                   -             -         9 554               -            -          290
           Substandard                                                  -             -           148               -            -           98
           Doubtful                                                     -             -         1 177               -            -           21
           Bad                                                          -             -           107               -            -          233
           Total past due but not impaired carrying amount              -             -        10 986               -            -          642
           Past due comprises:
           up to 30 days                                                -             -         9 244               -            -          349
           30 to 90 days                                                -             -         1 637               -            -          292
           over 90 days                                                 -             -           104               -            -            -
           Total past due but not impaired carrying amount              -             -        10 985               -            -          641

           Neither past due nor impaired
           Performing                                             212 682       46 700       580 544         51 051        23 613        70 979
           Substandard                                                  -            -            49              -             -         3 020
           Doubtful                                                     -            -             -              -             -             -
           Bad                                                          -            -             2              -             -           124
           Total neither past due nor impaired carrying amount    212 682       46 700       580 595         51 051        23 613        74 123
           Includes receivables with renegotiated terms

           Total gross amount                                     212 685      116 650      2 371 897        51 051        23 613       658 925
           Total allowance for impairment                               -          (39)       (79 103)            -             -        (1 957)
           Total carrying amount                                  212 685      116 611      2 292 794        51 051        23 613       656 968




      44
                                                              C O N S O L I D A T E D         F I N A N C I A L        S T A T E M E N T S




      Consolidated Financial Statements as at December 31, 2008


5.2                                                                            Loans         Loans
                                                                                                       Investment
                                                                  Cash           and           and                    Derivative      OFF B/S
                          2007                                                                             in debt
                                                               on hand    advances to   advances to                       assets    exposures
                                                                                                         securities
                                                                               Banks         Banks
                                                                                                                                   HUF million

       Individually impaired
       Performing                                                     -             -         2 641               -            -          342
       Substandard                                                    -             -        10 812               -            -          255
       Doubtful                                                       -             -        32 055               -            -          878
       Bad                                                            -           19         33 218               -            -          459
       Total individually impaired gross amount                       -           19         78 726               -            -         1 934
       Total individually impaired allowance for impairment           -          (19)       (39 892)              -            -         1 532
       Total individually impaired carrying amount                    -             -       38 834                -            -        3 466


       Collectively impaired
       Performing                                                  146              -     1 460 749               -            -        13 901
       Substandard                                                    -             -         7 818               -            -           27
       Doubtful                                                       -             -        10 417               -            -           22
       Bad                                                            -             -         2 811               -            -            5
       Total collectively impaired gross amount                    146              -     1 481 795               -            -        13 955
       Total collectively impaired allowance for impairment           -             -        (3 702)              -            -             -
       Total collectively impaired carrying amount                 146              -     1 478 093               -            -       13 955


       Past due but not impaired
       Performing                                                     -             -        17 180               -            -             -
       Substandard                                                    -             -         4 842               -            -          204
       Doubtful                                                       -             -         3 231               -            -           33
       Bad                                                            -             -         8 634               -            -             -
       Total past due but not impaired carrying amount                -             -       33 887                -            -          237
       Past due comprises:
       up to 30 days                                                  -             -        20 925               -            -          204
       30 to 90 days                                                  -             -         4 728               -            -           33
       over 90 days                                                   -             -         8 234               -            -             -
       Total past due but not impaired carrying amount                -             -       33 887                -            -          237


       Neither past due nor impaired
       Performing                                               127 152       193 005       339 869         41 866        22 479       665 981
       Substandard                                                    -             -        14 741               -            -            1
       Doubtful                                                       -             -           189               -            -             -
       Bad                                                            -             -           285               -            -             -
       Total neither past due nor impaired carrying amount
       Includes receivables with renegotiated terms             127 152      193 005       355 084         41 866        22 479       665 982


       Total gross amount                                       127 298      193 024      1 949 492        41 866        22 479       682 108
       Total allowance for impairment                                 -          (19)      (43 594)               -            -        1 532
       Total carrying amount                                    127 298      193 005      1 905 898        41 866        22 479       683 640




                                                                                                                                                 45
C O N S O L I D A T E D            F I N A N C I A L    S T A T E M E N T S




Credit rating system
The Group’s credit risk rating systems and processes differentiate exposures in order to highlight those with greater risk factors
and higher potential severity of loss. For individually significant accounts, risk ratings are reviewed regularly and amendments,
where necessary, are implemented promptly. The Group use the following rating system with categories described below:
– Pass
– Special mention
– Substandard
– Doubtful
– Loss

   Pass include items which are likely to return, as it is substantiated by documents, and where the Group entity does not have
to expect a loss, or the delay in the repayment of the principal and the interests, or in the performance of any other repayment
obligations does not exceed fifteen days and the loss likely to arise due to such delay is fully covered by the value of the avail-
able collateral;
   Special mention: exposures falling under this debt rating category show the signs of such potential or actual worsening,
which, in lack of appropriate measures, reduces the probability of future repayment.
   In this case the primary source of repayment is not evidently jeopardized yet, maximum 10% potential loss may be expected,
however, the dependence on the collaterals or on those granting the collaterals is increasing.
   For credits, the repayment of which basically depends on the collateral, i.e. are based primarily on the value of collateral, this
rating category is to be applied if the value of collateral becomes uncertain or falls below the level as defined in the framework
of the respective decision.
   In contrast to the category of “Special mention”, the exposures with rating “Substandard” have one or more such features,
which unambiguously refer to problems in respect of ability of the Customer to repay the credit. The rate of potential loss
exceeds 10% and the collaterals do not provide coverage either with proper safety. These exposures can be regarded as not
properly secured in case of possible occurrence of any loss. These features may cover but are not limited to the following: con-
siderable worsening of the financial position, worsening of the payment discipline, improper collaterals or possibilities of
enforcing the collaterals.
   Exposures that need partial or full restructuring of the credit documentation or important change in the payment schedule,
are to be classified as “Substandard“ as well. The same is applicable to the exposures, in the case of which the future necessity
of the above measures may be considered presumably likely.
   The exposures falling under the category “Doubtful” have the feature in addition to those of the category “Substandard” that
the problems arisen in the position, indicators and management environment of the debtor make the repayment of the loan
doubtful or improbable.
   Exposures must be classified into this category, if payment delay exceeds 90 days and the collaterals available do not provide
appropriate coverage for the expectable losses.
   In this category the probability of loss is high. On the other hand, significant and important events may still result in improve-
ment of the quality of loan. Since such events may incidentally occur, neither the rate of loss nor the date of its occurrence can
be exactly estimated.
   Exposures having an expected rate of loss exceeding 70% and the debtor fails to meet his payment obligations despite sev-
eral reminders to this effect, should be classified under category “Loss”.
   Receivables from debtors under liquidation procedure must be classified under category “Loss”, unless higher recovery than
30% may be supposed with great probability on the basis of the collateral available.
   The possible types of exposure handling are: normal, intensive and problematic. A set of criteria has been defined for deter-
mining the type of exposure handling, based on relevant indicators warning of the customer or the transaction being prob-
lematic. Transaction rating categories have been assigned to customer handling types as presented below:


     Transaction rating category        Type of customer support
     Pass                               Normal
     Special mention                    Intensive
     Substandard                        Problematic
     Doubtful                           Problematic
     Loss                               Problematic




46
                                                  C O N S O L I D A T E D          F I N A N C I A L      S T A T E M E N T S




   Intensive care of wholesale exposures is performed under joint responsibility of Market and Risk.
   Problematic Loan Treatment takes over all of the tasks of dealing with the given customer, preparing the necessary applica-
tions and carrying out the tasks of receivable and customer rating in its own scope of competence. In terms of the organisation
structure Problematic Loan Treatment belongs to the Risk Office.
   Exposures are monitored on an ongoing basis and in the case of default it has to be ensured that the customer is transferred
to the appropriate type of customer handling (intensive or problematic).
   Periodic risk-based audits of the Group’s credit processes and portfolios are undertaken by the Group’s Internal Audit func-
tion. Audits include consideration of the adequacy and clarity of credit policy/procedure manuals; an in-depth analysis of a rep-
resentative sample of accounts; consideration of any oversight or review work performed by credit risk management functions
and the adequacy of impairment calculations and a check that Group and local standards and policies are adhered to in the
approval and management of credit facilities.

Impaired loans and securities
Impaired loans and securities are loans and securities for which the Group determines that it is probable that it will be unable
to collect all principal and interest due according to the contractual terms of the loan / securities agreement(s).
   When impairment losses occur, the Group reduces the carrying amount of loans and advances through the use of an
allowance account. When impairment of available-for- sale financial assets occurs, the carrying amount of the asset is reduced
directly. Two types of impairment allowance are in place: individually assessed and collectively assessed, as discussed below.

Individually assessed impairment allowances
These are determined by evaluating exposure to loss, case by case, on all individually significant accounts and all other
accounts that do not qualify for the collective assessment approach outlined below. Loans are treated as impaired as soon as
there is objective evidence that an impairment loss has been incurred.
   The criteria used by the Group to determine that there is such objective evidence include:
– known cash flow difficulties experienced by the borrower;
– past due contractual payments of either principal or interest;
– the probability that the borrower will enter bankruptcy or other financial realisation;
   In determining the level of allowances on such accounts, the Group considers the amount and timing of expected receipts
and recoveries and the value of security and likelihood of successfully realizing it.

   For significant commercial and corporate debts, specialized loan ‘work-out’ teams with experience in insolvency and specif-
ic market sectors are used to manage the lending and assess likely losses. Individually assessed impairment allowances are only
released when there is reasonable and objective evidence of a reduction in the established loss estimate.
   Those exposures that are defined as individually non-significant are excluded from the individually impairment process and
belong to the collectively impaired items. Definition of non significant exposures are follows:
– Non-problem loan exposure up to HUF 250 million
– Problem loan up to HUF 125 million

Collectively assessed impairment allowances
Impairment is assessed on a collective basis in two circumstances:
– to cover losses that have been incurred but have not yet been identified on loans subject to individual assessment; and
– for homogeneous groups of loans that are not considered individually significant.

Incurred but not yet reported impairment loss
Individually assessed loans for which no evidence of impairment has been specifically identified on an individual basis are
grouped together according to their credit risk characteristics. A collective impairment allowance is calculated to reflect impair-
ment losses incurred at the balance sheet date which will only be individually identified in the future. When determining col-
lective impairment allowance the Group takes into account the historical loss experience in portfolios of similar credit risk char-
acteristics and the “emergence period” (the estimated period between impairment occurring and the loss being identified and
evidenced by the establishment of an appropriate allowance against the individual loan) .

Homogeneous groups of loans
In case of large numbers of relatively low value assets, a comprehensive portfolio-based approach is used to calculate impair-
ment allowances. This approach is based on a statistical analysis of historical trends of default and the amount of consequential
loss. This method is applied for the following sub portfolios of the Group:


                                                                                                                                47
C O N S O L I D A T E D            F I N A N C I A L       S T A T E M E N T S




– Residential and non-residential mortgages that have not been individually assessed
– Credit cards
– Private loans
– Overdraft
– Széchenyi card loans (special purpose government subsidized loan for micro enterprises)
– Motor vehicle financing

Past due but not impaired loans
Loans and securities where contractual interest or principal payments are past due but the Group believes that impairment is
not appropriate on the basis of the level of security / collateral available and/or the stage of collection of amounts owed to the
Group.

Loans with renegotiated terms
Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position
and where the Group has made concessions that it would not otherwise consider.

Write-off policy
The Group writes off a loan / security balance (and any related allowances for impairment losses) when there is documented
evidence that no further recovery can be expected. This determination is reached on the basis of a final statement in case of liq-
uidation or upon establishment that after ceasing the debtor and/or collateral provider to exist, and/or after using all proceeds
from collaterals there is still unrecovered exposure remaining.

Collaterals
It is the Group’s policy, when lending, to do so within the customer’s capacity to repay, rather than rely excessively on security.
Depending on the customer’s standing and the type of product, facilities may be unsecured. Nevertheless, collateral can be an
important mitigant of credit risk.

The principal collateral types are as follows:
– in the personal sector, mortgages over residential properties;
– in the commercial and industrial sector, charges over business assets such as premises, stock and debtors;
– in the commercial real estate sector, charges over the properties being financed; and
– sureties, guarantees,
– money, securities deposited as collateral

  Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated
except when a loan is individually assessed as impaired, except for real estates in respect of which regular revaluation has been
introduced during 2008 at MKB Bank..
  Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse repur-
chase activity.



     The fair values of collaterals held at the reporting date were as follows:




48
                                  C O N S O L I D A T E D       F I N A N C I A L        S T A T E M E N T S




5.3                                    Loans       Loans
                                         and         and                   Guarantees    Letter of     Undrawn
                         2008                               Securities            and      credit        credit
                                   advances     advances
                                    to banks   Corporates                contingencies

                                                                                                     HUF million

      Cash deposit                         -       45 205            -         12 129         175         6 288


      Debt securities issued by
      Central governments                  -        1 375            -           1 912           -           62
      Companies                            -       12 050            -           1 104           -          894
      Others                               -            -            -               -           -             -


      Shares                               -          29             -               -           -             -


      Mortgage
      Building                             -      894 715            -          29 756        272         87 805
      Other                                -      325 718            -           9 667        238         35 533


      Guarantees from
      Central governments                  -       64 455            -           1 851           -         7 846
      Other banks                          -       10 005            -            739            -          173
      Companies                            -       52 602            -          15 071           -         4 877


      Others                               -       27 443            -             33            -        2 503


      Total collateral                     -    1 433 597            -         72 262         685       145 981



                                       Loans       Loans
                                         and         and                   Guarantees    Letter of     Undrawn
                         2007                               Securities            and      credit        credit
                                   advances     advances
                                    to banks   Corporates                contingencies

                                                                                                     HUF million

      Cash deposit                         -       38 742            -          6 505         139         2 008


      Debt securities issued by
      Central governments                  -         274             -           3 228           -             -
      Companies                            -       14 717            -            549            -          435
      Others                               -            -            -          26 399           -             -


      Shares                               -            -            -          2 323            -             -


      Mortgage
      Building                             -      705 895            -           4 205        357         69 701
      Other                                -      196 951            -           3 722        574         13 077


      Guarantees from
      Central governments                  -       52 766            -          13 815         17         14 546
      Other banks                          -       10 833            -           7 235        222           211
      Companies                            -       59 909            -               -        225          2 702


      Others                               -       32 176            -               -         68         9 957


      Total collateral                     -    1 112 263            -         67 981       1 602       112 637



                                                                                                                   49
      C O N S O L I D A T E D                  F I N A N C I A L     S T A T E M E N T S




        The Group obtained assets by taking possession of collateral held as security, or calling upon other credit enhancements, as
      follows:


5.4                                                                                                                     2008             2007
                                                                                                                                   HUF million
           Financial assets
           Equities                                                                                                         -                -
           Debt securities                                                                                                  -                -


           Non-financial assets
           Properties                                                                                                   1 408                -
           Inventories                                                                                                  1 680             680
           Other                                                                                                            -                -


           Total assets obtained                                                                                        3 088             680




      Concentrations
      The Group monitors concentrations of credit risk by sector and by risk classification. An analysis of concentrations of credit risk
      by sector and by risk classification at the reporting dates is shown below:


5.5                                                                              Loans         Loans   Investment
                                                                                                                                      OFF B/S
                                                                   Cash on         and           and             in   Derivative
                              2008                                                                                                  exposures
                                                                     hand    advances       advances         debt         assets
                                                                              to banks   to costumer     securities
                                                                                                                                   HUF million
           Category I - without country risk                             -      51 486       140 595              -        8 825        39 580
           Category II - with low to medium country risk                 -      14 356        53 326         2 640          471          9 558
           Category III - with medium to high country risk               -      13 632        56 323              -         229         46 290


           Total exposure                                                -     79 474       250 244          2 640        9 525        95 428



                                                                                 Loans         Loans   Investment
                                                                                                                                      OFF B/S
                                                                   Cash on         and           and             in   Derivative
                              2007                                                                                                  exposures
                                                                     hand    advances       advances         debt         assets
                                                                              to banks   to costumer     securities
                                                                                                                                   HUF million
           Category I - without country risk                             -      31 858        33 894         1 785        14 201        25 476
           Category II - with low to medium country risk              345       31 042       109 960         2 563         3 590        35 725
           Category III - with medium to high country risk             16       33 735        28 674              -        1 324        19 267


           Total exposure                                             361      96 635       172 528          4 348       19 115        80 468




      Category I          comprises countries in the EMU, Great Britain and Switzerland
      Category II         comprises countries with BayernLB country rating 1 to 11 excluding countries in Category I, e.g. Russia, Croatia,
                          Latvia, Czech Republic
      Category II         comprises countries with BayernLB country rating over 11, e.g. Romania, Bulgaria, Turkey, Ukraine.



      50
                                      C O N S O L I D A T E D      F I N A N C I A L        S T A T E M E N T S




5.6                                                   Loans         Loans   Investment
                                        Cash on         and           and             in   Derivative      OFF B/S
                       2008
                                          hand    advances       advances         debt         assets    exposures
                                                   to banks   to costumer     securities
                                                                                                        HUF million
      Automotive                              -          -         47 629            -            10        18 040
      Aviation                                -          -          7 641            -             -           611
      Banks                             116 189    116 304        101 174       12 303        12 786        36 991
      Chemicals                               -          -         26 167            -             1         8 288
      Construction                            -          -         92 831            -           906       109 399
      Consumer Durables                       -          -         22 544            -            88         7 079
      Defence                                 -          -            219            -            86           917
      Food + Beverages                        -          -        173 812            -           656        35 178
      Gas                                     -          -            194            -             -           119
      Health Care                             -          -          3 104            -             -         1 496
      Hotels                                  -          -         19 603          115             4         1 784
      Insurance companies                     -          -          5 960            -             -         2 718
      Logistic                                -          -         68 487            -             -        29 215
      Manufactoring and Engineering           -          -         40 141            -            36        24 103
      Media                                   -          -          9 854            -             1         2 421
      Metals + Mining                         -          -         22 834            -           113         5 249
      Oil                                     -          -         18 250            -             -        25 062
      Pharmaceuticals                         -          -         14 936            -         3 243         8 803
      Pulp + paper                            -          -         18 076            -             -         5 344
      Real Estate                             -          -        718 845            -         4 667       176 758
      Retail                                394          -        118 113            -           360        27 104
      Sovereigns                          1 934          -         15 660       66 743             -        11 746
      Steel                                   -          -            516            -             -         4 983
      Technology                              -          -         70 527            -            86        23 357
      Telecom                                 -          -         17 091            -             -        13 432
      Textiles + Apparel                      -          -         14 228            -           203         2 051
      Tourism                                 -          -          2 176            -             -         2 674
      Utilities                               -          -         35 436            -             -        51 308
      Non profit organization                 -          -         14 673           36             -         3 840
      Without sector                     94 168        307         65 016       10 347           366         3 660
      Private                                 -          -        606 160            -             1        17 292
      Total exposure                    212 685    116 611      2 371 897       89 544        23 613       661 022


                                                      Loans         Loans   Investment
                                        Cash on         and           and             in   Derivative      OFF B/S
                       2007
                                          hand    advances       advances         debt         assets    exposures
                                                   to banks   to costumer     securities
                                                                                                        HUF million
      Automotive                              -          -         41 563             -            -        24 167
      Aviation                                -          -          5 865             -            -           119
      Banks                              71 827    192 989        105 992       17 415        22 218        42 192
      Chemicals                               -          -         26 037             -        1 234         8 746
      Construction                            -          -         97 063             -           41       116 354
      Consumer Durables                       -          -         25 978             -           99        11 337
      Defence                                 -          -            204             -            -         1 125
      Food + Beverages                        -          -        185 079             -           21        37 990
      Gas                                     -          -          1 105             -            -         3 121
      Health Care                             -          -          2 864             -            -         1 453
      Hotels                                  -          -         37 452           114            7         7 099
      Insurance companies                     -          -            105             -            -         2 045
      Logistic                                -          -         65 987             -            -        34 038
      Manufactoring and Engineering           -          -         30 094             -           27        25 249
      Media                                   -          -         10 079             -            -         2 547
      Metals + Mining                         -          -         25 254             -            -         5 430
      Oil                                   345          -         18 892             -            -        39 686
      Pharmaceuticals                         -          -         12 882             -            6         6 079
      Pulp + paper                            -          -          8 382             -            -         1 534
      Real Estate                             -          -        515 321        -1 447         -223       151 417
      Retail                                187          -        106 649         1 785            7        45 109
      Sovereigns                          1 880          -         14 453       50 166             -        10 662
      Steel                                   -          -         11 019             -            -           268
      Technology                              -          -         52 860             -            7        21 692
      Telecom                                 -          -         10 815             -            -         9 186
      Textiles + Apparel                      -          -         12 053             -            -         2 217
      Tourism                                 -          -          1 817             -            3         2 348
      Utilities                               -          -         40 950             -          106        46 468
      Non profit organization                 -          -         26 039            35            -         3 917
      Without sector                     53 059         16         44 699         3 667          524         2 988
      Private                                 -          -        417 110             -            6        17 057
      Total exposure                    127 298    193 005      1 954 662       71 735        24 083       683 640




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      C O N S O L I D A T E D           F I N A N C I A L      S T A T E M E N T S




      d, Liquidity risk

      Liquidity risk is the risk that the Group's cash flows may not be adequate to fund operations and meet commitments on a time-
      ly and cost-effective basis. This risk arises from mismatches in the timing of cash flows.

      Management of liquidity risk
      The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its
      liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to
      the Group’s reputation.
         The Group requires its operating entities to maintain a strong liquidity position and to manage the liquidity profile of their
      assets, liabilities and commitments with the objective of ensuring that cash flows are appropriately balanced and all obligations
      can be met when due.
         The management of liquidity and funding is primarily carried out locally in the operating entities of the Group in accordance
      with practices and limits set by the Board of Directors. These limits vary by entity to take account of the depth and liquidity of
      the market in which the entity operates. It is the Group’s general policy that each banking entity should be self-sufficient with
      regards to funding its own operations.
         The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering
      both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by
      ALCO.



      Contractual maturity of liabilities

5.7                                                                 Gross
                                                   Carrying      nominal       up to 1   1 month      3 months         1 year      5 years
                                                    amount        inflow/      month to 3 months       to 1 year   to 5 years     and over
                                                                (outflow)
                                                                                                                                HUF million
           Non-derivative liabilities
           Trading liabilities                        30 231            -            -            -            -            -             -
           Deposits from banks                       947 109     747 608       15 994       30 974      155 133      543 100          2 406
           Deposits from customers                 1 267 842    1 253 574     716 056      242 760      267 010       27 222           527
           Debt securities issued                    269 129     288 965         1 101         819      193 866       90 180          3 000
           Subordinated liabilities                  102 892     101 940             -            -            -      10 591         91 349


           Derivative liabilities
           Trading: outflow                                -    (390 580)     (44 575)     (27 778)     (83 035)    (212 242)      (22 951)
           Trading: inflow                                 -     360 261       31 649       16 570       74 474      214 814         22 754
           Risk management: outflow                        -     (26 622)            -         (81)        (334)     (26 207)             -
           Risk management: inflow                         -       26 851            -         232          663       25 956              -
           Unrecognised loan commitments                   -     372 435       24 529       28 281      212 405       42 613        64 607


        The previous table shows the undiscounted cash flows on the Group’s financial liabilities and unrecognised loan commit-
      ments on the basis of their earliest possible maturity. The Gross nominal inflow / (outflow) disclosed in the previous table is the
      contractual, undiscounted cash flow on the financial liability or commitment. The disclosure for derivatives shows a gross inflow
      and outflow amount for derivatives (e.g., forward exchange contracts and currency swaps).




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                                                          C O N S O L I D A T E D           F I N A N C I A L        S T A T E M E N T S




         The Group’s expected cash flows on these instruments vary significantly from this analysis. For example, demand deposits
      from customers are expected to maintain a stable or increasing balance; and unrecognised loan commitments are not all
      expected to be drawn down immediately. Due to the significant difference between the expected and the contractual cash-
      flows, the Group’s risk management department use both analysis to manage liquidity risk. The expected, undiscounted cash-
      flows on the Group’s financial liabilities were as follows:

5.8                                                                  Gross
                                                    Carrying      nominal       up to 1   1 month       3 months         1 year      5 years
                                                     amount        inflow/      month to 3 months        to 1 year   to 5 years     and over
                                                                 (outflow)
                                                                                                                                  HUF million
        Non-derivative liabilities
        Trading liabilities                           30 231             -            -            -             -            -             -
        Deposits from banks                          947 109      747 608        13 844       32 656      154 339      544 362          2 406
        Deposits from customers                     1 267 842    1 253 574     133 288       164 338      287 377      111 758        556 814
        Debt securities issued                       269 129      288 965         1 101         819       193 866       90 180          3 000
        Subordinated liabilities                     102 892      101 940             -            -             -      10 591         91 349


        Derivative liabilities
        Trading: outflow                                    -    (390 580)     (44 575)     (27 778)      (83 035)    (212 242)      (22 951)
        Trading: inflow                                     -     360 261        31 649       16 570       74 474      214 814         22 754
        Risk management: outflow                            -     (26 622)            -         (81)        (334)      (26 207)             -
        Risk management: inflow                             -      26 851             -         232           663       25 956              -


        Unrecognised loan commitments                       -     372 435       24 529       28 281      212 405        42 613        64 607


        The decision of the Management of the Group, however, are also based on the liquidity gap (net position) between contrac-
      tual in- and outflows, therefore both financial assets and liabilities are grouped into liquidity brackets.

      e, Market risk

      Market risk is the risk that changes in market prices, such as interest rate (interest rate risk), equity prices (equity risk), and for-
      eign exchange rates (foreign exchange risk) will affect the Group’s income or the value of its holdings of financial instruments.

      Management of market risks
      As part of the Risk strategy, the Board of Directors approves the maximum amount and scope of market risks incurable by the
      Bank, ensured by a comprehensive limit structure broken down by relevant portfolios.
         The Board has established the Asset and Liability (ALCO) committee, which is responsible for developing and monitoring
      Group market risk management policies. ALCO has the overall responsibility for establishing and managing market risk policies
      for the Bank, within the framework of internal policies, covering risk management, assessment of risk and related limits, com-
      petence and decision-making mechanism, and regulation for breaches of limits, approved by the Board of Directors. The mem-
      bers of the ALCO are senior executives who have principal decision-making responsibilities for businesses throughout the
      whole Group. At the operational level, market risk is managed by the Money and Capital Markets Directorate on a group-wide
      basis.
         The objective of market risk management is to manage and control market risk exposures within acceptable parameters,
      while optimizing the return on risk.
         The Group separates its exposure to market risk between trading and non-trading portfolios.
         Trading portfolios include those positions arising from market-making, proprietary position-taking and other marked-to-
      market positions so designated. Trading activities include transactions with debt and equity securities, foreign currencies, and
      derivative financial instruments.
         Non-trading portfolios include positions that arise from the interest rate management of the Group’s retail and commercial
      banking assets and liabilities. The Group's non-trading activities encompass all activities other than accounted for as trading
      transactions, including lending, accepting deposits, and issuing debt instruments.


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      C O N S O L I D A T E D         F I N A N C I A L       S T A T E M E N T S




      Exposure to market risks – trading portfolios
      The Group manages exposure to market risk by establishing and monitoring various limits on trading activities. These limits
      include:
      – Product volume limits define maximum aggregate amounts of trading products and contracts that the Group may hold at any time.
      – FX position limits restrict the gross and net amounts of FX positions that can be held in the trading and banking books.
      – VaR limits: The VaR of a trading portfolio is the estimated loss that will arise on the portfolio over a specified period of time
        (holding period) from an adverse market movement with a specified probability (confidence level). MKB Group applies para-
        metric VaR method with 1-day holding period at 99% confidence level with 0.94 decay factor, and with an observation period
        of 187 business days.
      – PLA (Potential Loss Amounts) limits define maximum amount of loss that the Group is willing to assume.

        The VaR model used is based mainly on historical data. Taking account of market data from the previous half year, and
      observed relationships between different markets and prices, the model calculates both diversified and undiversified total VaR,
      and VaR by risk factors like interest rate, equity and currency VaR.
        Although VaR is an important tool for measuring market risk, the assumptions on which the model is based do give rise to
      some limitations, including the following:

      – A 1-day holding period assumes that it is possible to hedge or dispose of positions within that period. This is considered to be
        a realistic assumption in almost all cases but may not be the case in situations in which there is severe market illiquidity for a
        prolonged period.
      – A 99 percent confidence level does not reflect losses that may occur beyond this level. Even within the model used there is a
        one percent probability that losses could exceed the VaR.
      – VaR is calculated on an end-of-day basis and does not reflect exposures that may arise on positions during the trading day.
         VAR only covers “normal” market conditions.
      – The VaR measure is dependent upon the Group’s position and the volatility of market prices. The VaR of an unchanged posi-
        tion reduces if the market price volatility declines and vice versa.

         The overall structure of VaR limits is subject to review and approval by ALCO. VaR limits are allocated to trading portfolios. VaR
      is measured on a daily basis. Daily reports of utilisation of VaR limits are submitted to Group Risk and regular summaries are sub-
      mitted to ALCO.
         A summary of the VaR position of the Group’s trading portfolios (i.e. only trading book) at 31 December and during the peri-
      od is as follows:
           2008                                                                                 Average        Maximum         Minimum
5.9                                                                                                                          HUF million
           Foreign currency risk                                                                     291           2 201              10
           Interest rate risk                                                                        614           1 513             184
           Equity risk                                                                                12              21               6
           Overall                                                                                   917           3 735             200


           2007                                                                                 Average        Maximum         Minimum
           Foreign currency risk                                                                      22              48              11
           Interest rate risk                                                                        214             293             136
           Equity risk                                                                                16              27              11
           Overall                                                                                   252             368             158



      Exposure to interest rate risk – non-trading portfolios
      The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair
      values of financial instrument because of a change in market interest rates.

        The management of interest rate risk is supplemented by monitoring the sensitivity of the financial assets and liabilities to
      various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a
      200 basis point parallel fall or rise in all yield curves worldwide.


      54
                                                         C O N S O L I D A T E D           F I N A N C I A L    S T A T E M E N T S




        The ALCO is the monitoring body for compliance with approved limits and is assisted by Risk Management in its day-to-day
       monitoring activities. A summary of the Group’s interest rate gap position on non-trading portfolios is as follows:

         At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:

       As at 31 December 2008
5.10     Fixed rate instruments                                                                                           HUF million
         Financial assets                                                                                                     310 083
         Financial liabilities                                                                                             (1 017 990)
         Total fixed rate instruments                                                                                       (707 907)


         Variable rate instruments                                                          Denominated in                     Other
                                                                   HUF             CHF             EUR            USD      currencies
         Financial assets                                       496 779         718 650          904 462         78 001       127 934
         Financial liabilities                                 (331 987)       (257 546)       (870 280)       (38 086)      (52 658)
         Total variable rate financial instruments              164 792         461 104          34 182         39 915        75 276


       As at 31 December 2007
         Fixed rate instruments                                                                                           HUF million
         Financial assets                                                                                                     253 028
         Financial liabilities                                                                                             (1 018 509)
         Total fixed rate instruments                                                                                       (765 481)


         Variable rate instruments                                                          Denominated in                     Other
                                                                   HUF             CHF             EUR            USD      currencies
                                                                                                                          HUF million
         Financial assets                                       535 645         523 522          777 022       117 953        159 405
         Financial liabilities                                 (371 794)       (142 622)       (593 894)       (45 450)     (123 739)
         Total variable rate financial instruments              163 851         380 900         183 128         72 503        35 666


        An analysis of the Group’s sensitivity to an increase or decrease in market interest rates (assuming no asymmetrical move-
       ment in yield curves and a constant balance sheet position) is as follows:

       As at 31 December 2008
5.11     Effect on equity
                                                                                                                          HUF million
         HUF
         200 bp increase                                                                                                          268
         200 bp decrease                                                                                                        (317)
         CHF
         200 bp increase                                                                                                          261
         200 bp decrease                                                                                                        (820)
         EUR
         200 bp increase                                                                                                       (2 232)
         200 bp decrease                                                                                                         2 589
         USD
         200 bp increase                                                                                                          (74)
         200 bp decrease                                                                                                             7
         Other currencies
         200 bp increase                                                                                                          (41)
         200 bp decrease                                                                                                            20



                                                                                                                                         55
       C O N S O L I D A T E D                   F I N A N C I A L        S T A T E M E N T S




       As at 31 December 2007
            Effect on equity
                                                                                                                                        HUF million
            HUF
            200 bp increase                                                                                                                     319
            200 bp decrease                                                                                                                   (427)
            CHF
            200 bp increase                                                                                                                   (746)
            200 bp decrease                                                                                                                     767
            EUR
            200 bp increase                                                                                                                  (1 239)
            200 bp decrease                                                                                                                   1 366
            USD
            200 bp increase                                                                                                                   (403)
            200 bp decrease                                                                                                                     414
            Other currencies
            200 bp increase                                                                                                                     300
            200 bp decrease                                                                                                                   (377)


         The Group employs investment securities, advances to banks, deposits from banks, interest rate swaps and other derivative
       interest rate contracts as primary risk management techniques to keep interest rate risk within the approved limits.

       Exposure to other market risks – non-trading portfolios
       The Group is exposed to foreign exchange risk through its holdings of financial instruments denominated in foreign currencies.
       Exchange risk management aims to reduce the adverse impact of potential changes in the market value of foreign currency
       financial instruments induced by exchange rate fluctuations. The Group’s financial position in foreign currencies at the report-
       ing dates was as follows:


5.12                                                                       In functional              In foreign currencies
            2008                                                                                                                              Total
                                                                              currencies      USD           EUR         CHF    Other
                                                                                                                                        HUF million
            Financial assets except for derivatives                             689 125    106 649    1 078 699    640 220    370 733     2 885 426
            Financial liabilities except for derivatives                        977 032    119 080    1 290 575    164 996    333 743     2 885 426
            Net derivative and spot instruments (short) / long position         233 944     12 539     218 469    (475 225)    10 273              -
            Total net currency positions                                       (53 963)        108       6 593          (1)   47 263               -


                                                                           In functional              In foreign currencies
            2007                                                                                                                              Total
                                                                              currencies      USD           EUR         CHF    Other
            Financial assets except for derivatives                             709 311    145 138     881 327     496 750    229 207     2 461 733
            Financial liabilities except for derivatives                      1 061 734    123 846     970 783       93 035   212 335     2 461 733
            Net derivative and spot instruments (short) / long position         352 946    (21 201)     73 021    (403 037)   (1 729)              -
            Total net currency positions                                            523         91    (16 435)         678    15 143               -



       f, Operational risks

       Operational risk is the risk of loss arising from error, system failure, fraud, inadequate internal controls and procedures, or exter-
       nal events. Operational risk is inherent in each of the Group’s business and internal supporting activities.
         The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the
       Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.
         The primary responsibility for the development and implementation of controls to address operational risk is assigned to sen-
       ior management within each business unit. This responsibility is supported by the development of overall Group standards for
       the management of operational risk in the following areas:


       56
                                                   C O N S O L I D A T E D          F I N A N C I A L       S T A T E M E N T S




– requirements for appropriate segregation of duties, including the independent authorisation of transactions
– requirements for the reconciliation and monitoring of transactions
– compliance with regulatory and other legal requirements
– documentation of controls and procedures
– requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address
  the risks identified
– requirements for the reporting of operational losses and proposed remedial action
– development of contingency and business recovery plans
– training and professional development
– ethical and business standards

  Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results
of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries sub-
mitted to the Supervisory Board and senior management of the Group.

g, Capital management

The Group’s lead regulator, the Hungarian Financial Supervisory Authority sets and monitors capital requirements for the
Group as a whole. The parent company and individual banking operations are directly supervised by their local regulators.
   In June 2006, the Basel Committee on Banking Supervision (‘the Basel Committee’) published the final comprehensive ver-
sion of ‘International Convergence of Capital Measurement and Capital Standards’ (‘Basel II’) which replaced Basel I. The new
framework is designed to more closely align regulatory capital requirements with underlying risks by introducing substantive
changes in the treatment of credit risk. Moreover, an explicit new capital charge for operational risk has also been introduced,
as well as increased supervisory review and extended public disclosure needs. In 2008, as the Group operates under Basel II, it
targets a tier 1 capital ratio above the range 8.5 per cent for the purposes of its long-term capital planning.

   The Group’s regulatory capital is analyzed into two tiers:
– Tier 1 capital, which includes ordinary share capital, share premium, perpetual bonds (which are classified as innovative Tier 1
  securities), retained earnings, translation reserve and minority interests after deductions for goodwill and intangible assets,
  and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy
  purposes.
– Tier 2 capital, which includes qualifying subordinated liabilities and the element of the fair value reserve relating to unrealised
  gains on equity instruments classified as available-for-sale.

  Various limits are applied to elements of the capital base. The amount of innovative tier 1 securities cannot exceed 15 percent
of total tier 1 capital; qualifying Tier 2 capital cannot exceed tier 1 capital; and qualifying term subordinated loan capital may
not exceed 50 percent of Tier 1 capital. There also are restrictions on the amount of collective impairment allowances that may
be included as part of tier 2 capital. Other deductions from capital include the carrying amounts of investments in subsidiaries
that are not included in the regulatory consolidation, investments in the capital of banks and certain other regulatory items.
  Banking operations are categorised as either trading book or banking book, and risk-weighted assets are determined accord-
ing to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures.
Although the required CAR is 8%, the Group internal limit is 8.5%.

  Capital allocation
  It is the Group’s policy to maintain a strong capital base to support the development of its business and to meet regulatory
capital requirements at all times. The Group also maintains a strong discipline over its investment decisions and where it allo-
cates its capital, seeking to ensure that returns on investment are appropriate after taking account of capital costs. The Group
recognises the effect on shareholder returns of the level of equity capital employed within the Group and seeks to maintain a
prudent balance between the advantages and flexibility afforded by a strong capital position and the higher returns on equity
that are possible with greater leverage.
  In 2008, the Group introduced the Economic Value Added (EVA) method for capital allocation and budgeting purposes.
  Economic Value Added is a financial performance method to calculate the true economic profit of a corporation. EVA can be
calculated as net operating after taxes profit minus a charge for the opportunity cost of the capital invested.
  EVA is an estimate of the amount by which earnings exceed or fall short of the required minimum rate of return for share-
holders or lenders at comparable risk. EVA can be calculated for a divisional (Strategic Business Unit) level.


                                                                                                                                  57
C O N S O L I D A T E D          F I N A N C I A L        S T A T E M E N T S




The basic formula for calculating EVA is:

Operating Income
– Operating Expenses

Operating Profit
– Impairment and provision

Net Operating Profit Before Tax
– Capital Changes (Allocated Capital x Cost of Capital)

Economic Value Added (EVA)

  By taking all capital costs into account, including the cost of equity, EVA shows the financial amount of value a business has
created or destroyed in a reporting period.
  The Group has identified the following as being the material risks faced and managed through the Capital Management
Framework; credit, market, operational, and asset and liability management risks.

Basel II
The supervisory objectives of Basel II are to promote safety and soundness in the financial system and maintain at least the cur-
rent overall level of capital in the system, enhance competitive equality, constitute a more comprehensive approach to address-
ing risks, and focus on internationally active banks. Basel II is structured around three ‘pillars’: minimum capital requirements,
supervisory review process and market discipline. The Capital Requirements Directive (‘CRD’) implements Basel II in the EU.
   Basel II provides three approaches of increasing sophistication to the calculation of pillar 1 credit risk capital requirements.
The most basic, the standardised approach, requires banks to use external credit ratings to determine the risk weightings
applied to rated counterparties, and groups other counterparties into broad categories and applies standardised risk weight-
ings to these categories. The next level, the internal ratings-based (‘IRB’) foundation approach, allows banks to calculate their
credit risk capital requirements on the basis of their internal assessment of the probability that a counterparty will default (‘PD’),
but with quantification of exposure at default (‘EAD’) and loss given default estimates (‘LGD’) being subject to standard super-
visory parameters. Finally, the IRB advanced approach allows banks to use their own internal assessment of not only PD but also
the quantification of EAD and LGD. Expected losses are calculated by multiplying EAD by PD and LGD. The capital resources
requirement under the IRB approaches is intended to cover unexpected losses and is derived from a formula specified in the
regulatory rules, which incorporates these factors and other variables such as maturity and correlation.
   For credit risk, the Group has adopted the standardised approach to Basel II with effect from 1 January 2008. A rollout plan is
in place to advance to IRB approach over the next three years, leaving a small residue of exposures on the standardised
approach.
   Basel II also introduces capital requirements for operational risk and, again, contains three levels of sophistication. The capi-
tal required under the basic indicator approach is a simple percentage of gross revenues, whereas under the standardized
approach it is one of three different percentages of gross revenues allocated to each of eight defined business lines. Finally, the
advanced measurement approach uses banks’ own statistical analysis and modelling of operational risk data to determine cap-
ital requirements. The Group has adopted the standardized approach to the determination of Group operational risk capital
requirements.




58
                                                             C O N S O L I D A T E D    F I N A N C I A L       S T A T E M E N T S




         The basis of calculating capital changed with effect from 1 January 2008 and the effect on capital is shown in the table below:
5.13                                                                                                             2008           2007
                                                                                                               Basel II        Basel I
                                                                                                                          HUF million
         Share capital                                                                                         14 094-         14 094
         Nominal value of repurchased own shares                                                                     -              -
         Issued, but unpaid                                                                                          -              -
         Outstanding share capital                                                                             14 094          14 094

         General reserves                                                                                      210 523        207 177
         Cost of repurchased own shares over nominal value                                                                           -
         Intangible assets                                                                                    (23 766)        (22 070)
         Goodwill                                                                                             (33 650)        (37 502)
         Participations in financial institutions                                                              (2 453)         (9 076)
         Tier 1: Net core capital                                                                             164 748         152 623

         Considerable subordinated debt                                                                        99 822          82 338
         Revaluation reserves                                                                                    (844)            (58)
         Reserve for general banking risk                                                                       5 449           5 775
         Tier 2: Supplementary capital                                                                        104 427          88 055

         Other deductions                                                                                        (194)           (154)

         Regulatory capital                                                                                   268 980         240 524

         Risk-weighted assets (RWA)                                                                          2 209 975      2 070 089
         Operational risk (OR)                                                                                  15 028         12 868
         Market risk positions (MR)                                                                              8 221          6 737
         Total risk weighted assets (RWA +12.5*(MR+OR))                                                      2 500 586      2 315 150

         Regulatory capital / Total assets                                                                       9.32%          9.76%
         Capital adequacy ratio                                                                                 12.17%         11.62%
         Capital adequacy ratio (including market risk)                                                        10.76%         10.39%


       According to Hungarian Supervisory Regulation Basel I. principals was in force in 2007.

         The second pillar of Basel II (Supervisory Review and Evaluation Process – ‘SREP’) involves both firms and regulators taking a
       view on whether a firm should hold additional capital against risks not covered in pillar 1. Part of the pillar 2 process is the
       Internal Capital Adequacy Assessment Process (‘ICAAP’) which is the firm’s self assessment of risks not captured by pillar 1. The
       Group has identified the following additional risks not covered in pillar 1 as significant and implemented policies and practices
       to measure the effect of these risks in pillar 2:
       – Strategic risk
       – Country risk
       – Model risk
       – Residual risk
       – Settlement risk
       – Liquidity risk

          Pillar 3 of Basel II is related to market discipline and aims to make firms more transparent by requiring them to publish spe-
       cific, prescribed details of their risks, capital and risk management under the Basel II framework.
          The Group's Asset and Liability Management Committee (ALCO) has the overall responsibility for managing capital adequacy
       ratio of the Group. Besides this the Group is required to disclose capital adequacy ration to the Hungarian Financial Supervisory
       Authority. The Group has its own capital management system which is able to report on a daily base towards ALCO. The
       Management report comprises the current Risk Weighted Assets situation and daily forecasted levels for subsequent 2-weeks.

         The Group and its individually regulated operations have complied with all externally imposed capital requirements through-
       out the period.

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6   Cash reserves


                                                                                                                 2008           2007
                                                                                                                          HUF million
         Cash and balances with Central Banks                                                                 118 902          86 481
         Treasury bills and bills eligible for refinancing by Central Banks                                    93 783          40 817
         Cash reserves                                                                                        212 685         127 298


      The Group is required to maintain a minimum reserve with the National Bank equivalent to 2% (2007: 5%) of certain deposits.
    The balance of the minimum reserve is based on the period end balance of these deposit accounts and amounted to HUF
    23,327 million as at 31 December 2008. (2007: HUF 58,523 million). At 31 December 2008, cash on hand amounted to HUF
    95,798 million (2007: HUF 52,900 million).
      Treasury bills, categorized as available-for-sale, amounting to HUF 713 million (2007: HUF 735 million) were pledged as collateral
    for stock exchange and credit card transactions and according to the Group accounting policy, are presented also as cash reserve.

7   Loans and advances to banks

                                                                                                                 2008           2007
                                                                                                                          HUF million
         Current and clearing accounts                                                                         29 453          10 357
         Money market placements                                                                               30 429         120 623
         Loans and advances                                                                                    56 768          62 044
         Less specific allowances for impairment                                                                  (39)            (19)
         Loans and advances to banks                                                                          116 611         193 005


         Specific allowances for impairment


         Balance at 1 January                                                                                     (19)           (28)
         Impairment loss for the year:
         Charge for the year                                                                                      (23)               -
         Reversal                                                                                                   5               9
         Effect of foreign currency movements                                                                      (2)               -
         Unwinding of discount                                                                                       -               -
         Write-offs                                                                                                  -               -
         Balance at 31 December                                                                                   (39)            (19)



       From the balance of Current and clearing accounts, HUF 892 million (2007: 796 million) was due from a shareholder with a sig-
    nificant influence and was granted at market rate.




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                                                     C O N S O L I D A T E D         F I N A N C I A L       S T A T E M E N T S




8   Trading assets


                                                                        2008                                    2007
                                                                 Accumulated          Book               Accumulated          Book
                                                            Cost   unrealised         value         Cost   unrealised         value
                                                                       result                                  result
                                                                                                                         HUF million
      Debt and equity instruments
      Government Treasury bills                            3 398            3         3 401          254             -          254
      Government bonds                                    27 508         2 035       29 543       20 221          (80)        20 141
      Hungarian corporate sector bonds                     8 153          470         8 623       10 838          (23)        10 815
      Foreign corporate sector bonds                         114            1          115         2 063         (161)         1 902
      Hungarian equities                                     379           (4)         375            51             -           51
      Foreign equities                                         -             -            -          583             -          583
      Total debt and equity instruments                   39 552        2 505       42 057        34 010        (264)        33 746


      Derivative instruments by type
      FX-based derivatives instruments                         -        11 939       11 939            -       16 602         16 602
      Index-based derivative instruments                       -            8            8             -             -             -
      Interest-based derivative instruments                    -         8 734        8 734            -        5 955          5 955
      Credit default swaps                                     -             -            -                          -             -
      Options                                                487         2 365        2 852          461          263           724
      Total derivative instruments                           487       23 046       23 533          461        22 820        23 281
      Total trading assets                                40 039       25 551       65 590        34 471       22 556        57 027

      Option transactions comprise FX options in the amount of HUF 69 million (2007: HUF 195 million) and CAP/FLOOR options in
    the amount of HUF 2,553 million (2007: 520)




9   Derivative assets held for risk management
                                                                        2008                                    2007
                                                                 Accumulated          Book               Accumulated          Book
                                                            Cost   unrealised         value         Cost   unrealised         value
                                                                       result                                  result
                                                                                                                         HUF million
      FX-based derivatives instruments                         -           68           68             -          795           795
      Interest-based derivative instruments                    -           12           12             -            7             7
      Derivatives held for risk management                     -           80           80             -          802           802



    Fair value hedges of interest rate risk

    The Group uses interest rate swaps to hedge its exposure to changes in the fair value of its fixed rate euro notes and certain
    loans and advances. Interest rate swaps are matched to specific issuances of fixed rate notes or loans. (see Note 4 n,)

    Other derivatives held for risk management

    The Group uses other derivatives, not designated in a qualifying hedge relationship, to manage its exposure to foreign curren-
    cy, interest rate, equity market and credit risks. The instruments used include interest rate swaps, cross-currency interest rate
    swaps, forward contracts, and options. The fair values of those derivatives are shown in the table above.




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       C O N S O L I D A T E D                   F I N A N C I A L   S T A T E M E N T S




10.1 Investments in securities


                                                                                                                       2008                2007
                                                                                                                                    HUF million
            Available-for-sale


            Hungarian Government bonds                                                                                35 990              36 788
            Hungarian corporate sector bonds                                                                            494                  795
            Foreign Government bonds                                                                                   9 766                    -
            Foreign corporate sector bonds                                                                             1 805               1 040
            Hungarian equities                                                                                         2 937               3 013
            Foreign equities                                                                                            252                  230


            Less specific allowances for impairment                                                                    (193)                    -


            Investment in securities                                                                                  51 051             41 866


            Specific allowances for impairment


            Balance at 1 January                                                                                           -                 (16)
            Impairment loss for the year:
            Charge for the year                                                                                        (193)                    -
            Reversal                                                                                                       -                  16
            Effect of foreign currency movements                                                                           -                    -
            Unwinding of discount                                                                                          -                    -
            Write-offs                                                                                                     -                    -
            Balance at 31 December                                                                                     (193)                    -




         At 31 December 2008, HUF 22,278 million (2007: HUF 22,083 million) from the total amount of Investments in securities were
       pledged as collateral for stock exchange and credit card transactions in the ordinary course of business.
         The total effect in the equity comprises HUF 1,050 million loss (2007: HUF 108 million loss) and HUF 159 million deferred tax
       income and HUF 3 million defferred tax expense (2007: HUF 50 million deferred tax income).
         The following table shows the pre-tax profit or loss as though the debt instruments (other than those classified as at FVTPL)
       of the Group had been classified as at fair value through profit or loss (FVTPL) and accounted for at amortized cost:

10.2                                                                         Profit Before Tax      Effect in each             Pre-tax or loss in
                                                                                        actual           scenario                 each scenario
                                                                                         2008                2008                          2008
                                                                                                                                    HUF million
            If all investments in debt instruments had been
            classified as financial assets at FVTPL                                     8 336                 (705)                        7 631


            If all investments in debt instruments
            (other than those classified as at FVTPL) had been
            accounted for at amortised cost                                             8 336                 (629)                        7 707


         As at 31 December 2008, the carrying amount, the fair value and the amortized cost of all investments in debt instruments,
       other than those classified as FVTPL are as follows:
                                                                      Carrying amount            Fair value                     Amortized cost
                                                                                                                                    HUF million
            Investments in debt instruments classified as:
            Loans and receivables                                                   -                     -                                     -
            Held-to-maturity investments                                            -                     -                                     -
            AFS financial assets                                              141 833              141 833                              142 170
            Total                                                            141 833              141 833                               142 170



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                                                     C O N S O L I D A T E D         F I N A N C I A L        S T A T E M E N T S




11   Loans and advances to customers


     Loans and advances to customers at amortised cost


                                                      Gross    Specific allowances    Collective allowances             Carrying
                         2008
                                                    amount        for impairment            for impairment               amount

                                                                                                                      HUF million
       Corporate
       Overdrafts                                     46 605                 (626)                     (19)                45 960
       Trading and industrial                        456 954               (4 789)                    (178)               451 987
       Real estate                                   626 279               (2 269)                    (642)               623 368
       Total corporate                             1 129 838               (7 684)                   (839)              1 121 315


       Small- and medium sized enterprises (SME)
       Overdrafts                                     48 753               (3 640)                    (116)                44 997
       Trading and industrial                        389 823              (38 880)                    (825)               350 118
       Real estate                                    51 045               (4 043)                     (82)                46 920
       Credit card                                     6 648                 (170)                     (17)                 6 461
       Total SME                                    496 269               (46 733)                  (1 040)              448 496


       Retail
       Overdrafts                                     28 629               (5 307)                    (931)                22 391
       Residental mortgage                           464 098                 (325)                  (2 711)               461 062
       Credit card                                    17 051                     -                  (1 377)                15 674
       Personal                                      156 506               (4 262)                  (2 028)               150 216
       Employees                                      11 292                     -                     (73)                11 219
       Trading and industrial                         68 214               (4 774)                  (1 019)                62 421
       Total retail                                 745 790               (14 668)                  (8 139)              722 983
       Loans and advances to customers             2 371 897              (69 085)                 (10 018)             2 292 794


                                                      Gross    Specific allowances    Collective allowances             Carrying
                         2007
                                                    amount        for impairment            for impairment               amount

                                                                                                                      HUF million
       Corporate
       Overdrafts                                     44 509                 (709)                     (53)                43 747
       Trading and industrial                        450 677               (3 761)                    (239)               446 677
       Real estate                                   431 950                 (966)                     (78)               430 906
       Total corporate                              927 136                (5 436)                   (370)               921 330


       Small- and medium sized enterprises (SME)
       Overdrafts                                     51 989               (2 088)                     (71)                49 830
       Trading and industrial                        381 286              (23 488)                    (250)               357 548
       Real estate                                    33 210               (1 785)                     (10)                31 415
       Credit card                                     6 267                     -                    (136)                 6 131
       Total SME                                    472 752               (27 361)                   (467)               444 924


       Retail
       Overdrafts                                     20 842               (3 493)                     (21)                17 328
       Residental mortgage                           311 860                 (114)                  (1 388)               310 358
       Credit card                                    13 934                     -                    (512)                13 422
       Personal                                      157 021               (7 131)                  (1 183)               148 707
       Employees                                       8 575                  (16)                     (66)                 8 493
       Trading and industrial                         42 542               (1 196)                     (10)                41 336
       Total retail                                 554 774               (11 950)                  (3 180)              539 644
       Loans and advances to customers             1 954 662              (44 747)                  (4 017)             1 905 898



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    C O N S O L I D A T E D               F I N A N C I A L     S T A T E M E N T S




11.2 Allowances for impairment


                                                                                        2008           2007
                                                                                                 HUF million
         Specific allowances for impairment on loans and advances to customers
         Balance at 1 January                                                         44 747         30 468
         Impairment loss for the year:
         Charge for the year                                                           68 058         20 276
         Reversal                                                                     (30 965)              -
         Aqiusition of subsidiaries                                                          -            37
         Utilisation                                                                   (7 127)        (8 963)
         Recoveries                                                                       801          1 166
         Effect of foreign currency movements                                             970          (138)
         Unwinding of discount                                                         (1 732)              -
         Reclassification                                                              (4 866)              -
         Restatement                                                                         -         3 067
         Balance at 31 December                                                       69 085         44 747


         Collective allowances for impairment on loans and advances to customers
         Balance at 1 January                                                           4 017           396
         Impairment loss for the year:
         Charge for the year                                                            3 862          3 306
         Reversal                                                                      (1 510)              -
         Recoveries                                                                          -              -
         Utilisation                                                                   (1 787)              -
         Effect of foreign currency movements                                             570               -
         Unwinding of discount                                                               -              -
         Reclassification                                                               4 866               -
         Restatement                                                                         -           315
         Balance at 31 December                                                       10 018           4 017




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                                                      C O N S O L I D A T E D           F I N A N C I A L         S T A T E M E N T S




       The concentration of Loans and advances to customers by industry at 31 December was as follows:
11.3                                                   Gross     Specific allow ances    Collective allowances              Carrying
                    Sector 2008
                                                     amount          for impairment            for impairment                amount

                                                                                                                          HUF million
         Real Estate                                  718 845                (10 751)                     (351)               707 743
         Food + Beverages                             173 812                (14 666)                     (227)               158 919
         Financial services                           101 174                 (1 614)                      (41)                99 519
         Construction                                  92 831                 (9 474)                     (210)                83 147
         Trade and sevices                            120 787                 (1 847)                   (1 082)               117 858
         Logistics                                     68 487                   (956)                      (99)                67 432
         Utilities                                     35 436                 (1 268)                      (26)                34 142
         Automotive                                    47 629                 (1 966)                      (64)                45 599
         Oil and gas                                   18 444                   (176)                     (155)                18 113
         Technology                                    70 527                 (6 377)                      (42)                64 108
         Metals + Mining                               22 834                 (1 215)                      (16)                21 603
         Hotels                                        19 603                 (1 742)                      (62)                17 799
         Non profit organizations                      14 673                    (17)                      (11)                14 645
         Chemicals                                     26 167                 (1 151)                      (18)                24 998
         Manufactoring and Engineering                 40 141                 (2 053)                      (59)                38 029
         Sovereigns                                    15 660                   (156)                      (18)                15 486
         Consumer Durables                             22 544                 (1 995)                      (43)                20 506
         Media                                          9 854                   (875)                      (20)                 8 959
         Telecom                                       17 091                   (850)                      (10)                16 231
         Pharmaceuticals                               14 936                    (69)                      (18)                14 849
         Textiles + Apparel                            14 228                 (2 209)                      (35)                11 984
         Pulp + paper                                  18 076                 (1 648)                      (20)                16 408
         Other                                         81 958                 (1 328)                     (318)                80 312
         Private                                      606 160                 (4 682)                   (7 073)               594 405
         Loans and advances to customers            2 371 897               (69 085)                  (10 018)              2 292 794



                                                       Gross     Specific allow ances    Collective allowances              Carrying
                    Sector 2007
                                                     amount          for impairment            for impairment                amount

                                                                                                                          HUF million
         Real Estate                                  515 176                 (5 565)                     (119)               509 492
         Food + Beverages                             171 299                 (9 171)                     (131)               161 997
         Financial services                            95 249                   (612)                      (35)                94 602
         Construction                                  93 855                 (5 257)                     (230)                88 368
         Trade and sevices                            120 017                 (3 826)                     (106)               116 085
         Logistics                                     61 879                   (930)                      (48)                60 901
         Utilities                                     40 672                   (448)                      (12)                40 212
         Automotive                                    56 374                 (1 960)                      (38)                54 376
         Oil and gas                                   19 513                   (160)                       (6)                19 347
         Technology                                    52 733                 (3 667)                      (31)                49 035
         Metals + Mining                               24 936                 (1 144)                      (24)                23 768
         Hotels                                        37 259                   (928)                       (7)                36 324
         Non profit organizations                      26 037                    (16)                       (3)                26 018
         Chemicals                                     25 804                   (380)                      (16)                25 408
         Manufactoring and Engineering                 29 426                 (1 414)                      (53)                27 959
         Sovereigns                                    14 364                    (36)                      (28)                14 300
         Consumer Durables                             25 223                   (708)                      (83)                24 432
         Media                                          9 963                   (330)                      (16)                 9 617
         Telecom                                       10 287                   (194)                       (2)                10 091
         Pharmaceuticals                               12 738                    (56)                       (5)                12 677
         Textiles + Apparel                            11 794                 (1 048)                      (36)                10 710
         Pulp + paper                                   6 600                   (325)                       (8)                 6 267
         Other                                         22 831                   (823)                      (22)                21 986
         Private                                      470 633                 (5 749)                   (2 958)               461 926
         Loans and advances to customers            1 954 662               (44 747)                   (4 017)              1 905 898


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       C O N S O L I D A T E D               F I N A N C I A L       S T A T E M E N T S




       In 2008, from Loans and advances to customers, the Group has written off HUF 7,426 million (2007: HUF 8,963 million).
       At 31 December 2008 the carrying amount of loans designated as hedged item in a fair value hedge relationship was HUF 51,404
       million, while their amortised cost amounted HUF 53,455 million.

       Finance lease receivables
       As part of its financing activities, the Group enters into finance lease transactions as a lessor. At December 31, 2008 and 2007, the rec-
       onciliation of the Group's gross investment in the lease, and the net present value of minimum lease payments receivable by rele-
       vant remaining maturity periods are as follows:
11.4                        2008                                                 up to 1 year 1 year to 5 years   over 5 years           Total
                                                                                                                                   HUF million
            Gross investment in the lease                                             14 063            32 670         11 035           57 768
            Unearned finance income                                                   (3 166)           (6 325)        (1 680)         (11 171)
            Present value of minimum lease payments                                   10 897            26 345          9 355           46 597


            Accumulated allowance for uncollectible minimum lease payments                  -                 -          (567)           (567)


            Finance leases as per balance sheet date                                  10 897            26 345          8 788          46 030


                            2007                                                 up to 1 year 1 year to 5 years   over 5 years           Total
            Gross investment in the lease                                              8 075            19 736          3 873           31 684
            Unearned finance income                                                   (1 916)           (3 539)          (587)          (6 042)
            Present value of minimum lease payments                                    6 159            16 197          3 286           25 642


            Accumulated allowance for uncollectible
            minimum lease payments                                                          -                 -           (84)             (84)
            Finance leases as per balance sheet date                                   6 159            16 197          3 202          25 558



         In 2008, no contingent rents were recognized in finance income (2007: HUF 7 million), and unguaranteed residual value
       amounted to HUF 394 million (2006: HUF 223 million). At 31 December 31 2008, the accumulated allowance for uncollectible
       minimum lease payments amounted HUF 567 million (2007: HUF 84 million).
         Contracts original maturity ranges from 1 year to 10 years. Most of the leasing agreements are CHF based. The contracts earn
       interest on variable rates linked to the relating BUBOR, LIBOR, EURIBOR. In general hotels, office buildings and vehicles are
       leased. No guaranteed residual value exists.




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                                                      C O N S O L I D A T E D         F I N A N C I A L      S T A T E M E N T S




12   Other assets


                                                                                                               2008           2007
                                                                                                                        HUF million
       Prepayments and other debtors                                                                         10 572         13 127
       Inventory                                                                                              3 284            916
       Corporate income tax refundable                                                                        4 267            832
       Other taxes refundable                                                                                    370         1 251
       Specific allowances for impairment                                                                      (276)           (63)
       Other assets                                                                                          18 217         16 063

       Specific allowances for impairment

       Balance at 1 January                                                                                     (63)           (40)
       Impairment loss for the year:
       Charge for the year                                                                                     (213)           (23)
       Recoveries                                                                                                  -              -
       Effect of foreign currency movements                                                                        -              -
       Unwinding of discount                                                                                       -              -
       Write-offs                                                                                                  -              -
       Balance at 31 December                                                                                 (276)            (63)

       At 31 December 2008, HUF 3,088 million (2007: NIL) from the value of inventory have been acquired through enforcement of
     security over loans and advances.




13   Goodwill

                                                                                                               2008           2007
                                                                                                                        HUF million
       Cost
       Balance at 1 January                                                                                  37 502          30 361

       Acquisitions through business combinations                                                                  -              -
       Acquisition of minority interest                                                                            -         7 181
       Other acquisitions – internally developed                                                                   -              -
       Effect of movements in exchange rates                                                                 (2 800)              -
       Disposal of subsidiaries                                                                                    -           (40)
       Balance at 31 December                                                                                34 702         37 502

       Impairment losses
       Balance at 1 January                                                                                         -             -

       Impairment loss                                                                                        (1 052)             -
       Effect of movements in exchange rates                                                                        -             -
       Balance at 31 December                                                                                (1 052)              -

       Carrying amounts
       As at 1 January                                                                                       37 502         30 361
       At 31 December                                                                                        33 650         37 502



     Impairment testing for cash-generating units:

     For the purpose of impairment testing, goodwill is allocated to the Group’s operating divisions which represent the lowest level
     within the Group at which the goodwill is monitored for internal management purposes.



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       C O N S O L I D A T E D         F I N A N C I A L      S T A T E M E N T S




       The carrying amount of goodwill is allocated to the following cash generating units:
13.2                                                                                                             2008            2007
                                                                                                                          HUF million
            MKB Unionbank AD                                                                                    16 032         16 438
            MKB Romexterra Bank S.A.                                                                            16 767         19 731
            MKB Euroleasing Zrt.                                                                                 5 538           3 674
             -there of subsidiaries                                                                               851             851
            Goodwill                                                                                            38 337         39 843



         MKB Romexterra Bank S.A. contains the Romexterra Group members, and MKB Euroleasing Zrt. contains Euroleasing group
       members.
         MKB Euroleasing Zrt. is consolidated with equity method, and based on this fact the total carrying amount is tested.
         The recoverable amount of each cash-generating units has been calculated based on their value in use.
         Value in use has been calculated by discounting the future cash flows generated from the continuing operation of the cash
       generating unit. By estimating the expected future cash-flows from operation, the Group used the assistance of independent
       valuers. The values assigned to the key assumptions represent management’s assessment of future trends in the Bulgarian,
       Romanian banking industry and in the Hungarian leasing industry and are based on both external sources and internal sources
       (historical data).
         Key assumptions applied in the estimation process were as follows:

       MKB Unionbank AD
       Cash flows were estimated based on actual operating results and a five-year business plan. In each year, a constant growth rate
       of 5 percent has been applied to project cash-flows from operation.
         According to the business plan, income has been estimated to reach HUF 2,767 million in the first year, and it should reach
       HUF 3,985 million by the end of the fifth year. We expect a continuous increase in net interest income from HUF 6,470 million in
       2009 to HUF 8,107 million by the end of 2011. As a parallel effect, the non-interest income is expected to increase from HUF
       2,734 million to HUF 4,801 million. We calculated with a slightly increasing average impairment loss.
         A pre-tax discount rate of 8.2 percent was applied in determining the recoverable amount of MKB Unionbank. The discount
       rate was estimated based on an industry average weighted average cost of capital.
         A decreasing growth rate is used to extrapolate cash flow projections beyond the period covered by the most recent business
       plan for the first five years, and a constant rate is used for the period from 2013.
         As the Bulgarian market has enormous growing potential, we believe that this five-year projection is realistic and faithfully
       reflects our best estimates.
         According to the cash-flow projection, MKB Unionbank has a value in use more than its carrying amount, therefore no impair-
       ment is needed.

       MKB Romexterra Bank S.A.
       Cash flows were estimated based on actual operating results and a five-year business plan. In each year, a constant growth rate
       of 5 percent has been applied to project cash-flows from operation.
         According to the business plan, income has been estimated to reach HUF 905 million in the first year, and it should reach HUF
       3,310 million by the end of the fifth year. We expect a continuous increase in net interest income from HUF 6,388 million in 2009
       to HUF 13,977 million by the end of 2013. As a parallel effect, the non-interest income is expected to increase from HUF 5,611
       million to HUF 12,477 million. We calculated with a slightly increasing average impairment loss.
         A pre-tax discount rate of 9.6 percent was applied in determining the recoverable amount of MKB Romexterra Bank. The dis-
       count rate was estimated based on an industry average weighted average cost of capital.
         A decreasing growth rate is used to extrapolate cash flow projections beyond the period covered by the most recent business
       plan for the first five years, and a constant rate is used for the period from 2013.
         As the Romanian market has enormous growing potential, we believe that this five-year projection is realistic and faithfully
       reflects our best estimates.
         According to the cash-flow projection, MKB Romexterra Bank has a value in use less than its carrying amount, therefore
       impairment is needed which amounted to HUF 1,052 million.




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                                                                C O N S O L I D A T E D          F I N A N C I A L        S T A T E M E N T S




       MKB Euroleasing Zrt.
       Cash flows were estimated based on actual operating results and a five-year business plan. In each year, a constant growth rate
       of 4 percent has been applied to project cash-flows from operation.
         According to the business plan, income has been estimated to reach HUF 3,077 million in the first year, and it should reach
       HUF 2,657 million by the end of the fifth year.
         In line with the continuous fill of the market, we expect a continuous increase in net interest income from 7,793 in 2009 to
       8,088 by the end of 2011. As a parallel effect, the non-interest income is expected to increase from HUF 514 million to HUF 81
       million. We calculated with a slightly increasing average impairment loss.
         A pre-tax discount rate of 10.2 percent was applied in determining the recoverable amount of MKB Euroleasing. The discount
       rate was estimated based on an industry average weighted average cost of capital.
         A decreasing growth rate is used to extrapolate cash flow projections beyond the period covered by the most recent business
       plan for the first 5 years, and a constant rate is used for the period from 2013.
         As MKB Euroleasing is a market leader in the field of car and fleet leasing, we believe that this five-year projection is realistic
       and faithfully reflects our best estimates.
         According to the cash-flow projection, MKB Euroleasing Zrt. has a value in use more than its carrying amount, therefore no
       impairment is needed.


14     Investments in jointly controlled entities and associates

14.1                                                                                                                       2008           2007
                                                                                                                                    HUF million
         Cost                                                                                                              7 867          7 867
         Goodwill arising on acquisition                                                                                   1 528          1 528
         Share of post acquisition reserves                                                                                1 836           551
         Investments in jointly controlled entities and associates                                                        11 231         9 946




         General and financial data of the jointly controlled entities and associates for the years ended 31 December is as follows:

14.2                                                                                                               Pannonhalmi
                                                        MKB              MKB                                                              Euro
                                                                                                                 Borház Termelô
                                                 Euroleasing      Euroleasing    Ercorner Kft.       GIRO Zrt.                         Ingatlan
                                                                                                                  és Szolgáltató
                                                         Zrt.    Autópark Zrt.                                                           Group
                                                                                                                             Kft.
                                                                                                                                    HUF million
         General data
         Ownership (%)                                   50%           49.98%            50%           22.19%             45,50%           60%
         Involvement                                   equity           equity         equity           equity            equity              -


         Financial data
         Current assets                                 1 961            2 107            131            4 305               142         12 407
         Non-current assets                             9 559          12 444           3 875            3 869               931          2 254
         Total assets                                 11 520           14 551           4 006           8 174              1 073        14 661


         Current liabilities                            3 692            3 597          4 220            2 594               194          8 054
         Non-current liabilities                        7 828          10 954            (215)           5 580               880          6 607
         Total liabilities                            11 520           14 551           4 006           8 174              1 073        14 661


         Equity                                        6 720              699           (513)           5 461                555           639


         Revenues                                        973            11 574             10            5 556               224          5 517
         Expenses                                        849            11 353            302            5 145               260          5 721
         Profit/Loss                                     124              221           (292)             411                (36)         (204)




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15   Intangibles, property and equipment


                                                              Intangible   Freehold    Leasehold
                          2008                                    assets   property     property    Equipment           Total

                                                                                                                  HUF million
          Cost or deemed cost
          Balance at 1 January                                   29 502      32 977             -      37 018          99 497

          Acquisitions through business combinations                   -           -            -            -              -
          Additions – internally developed                         8 466      4 095             -        7 023        19 584
          Other additions                                              -         331            -          189            520
          Disposals                                              (6 237)        (23)            -      (2 305)        (8 565)
          Effect of movements in exchange rates                       11       (229)            -        (102)          (320)
          Balance at 31 December                                 31 742      37 151             -      41 823        110 716

          Depreciation and impairment losses
          Balance at 1 January                                     7 432      4 047             -      14 970          26 449

          Acquisitions through business combinations                   -           -            -             -              -
          Depreciation for the year                                2 692        914             -        3 849          7 455
          Impairment loss                                              -           -            -            14            14
          Reversal of impairment loss                                  -           -            -             -              -
          Disposals                                              (2 153)         (1)            -      (1 323)        (3 477)
          Other additions                                              -          60            -          (55)              5
          Effect of movements in exchange rates                        5        (25)            -            19            (1)
          Balance at 31 December                                  7 976       4 995             -      17 474         30 445

          Carrying amounts
          At 1 January                                           22 070      28 930            0       22 048         73 048
          At 31 December                                         23 766      32 156            -       24 349         80 271


                                                              Intangible   Freehold    Leasehold
                          2007                                    assets   property     property    Equipment           Total

                                                                                                                  HUF million
          Cost or deemed cost
          Balance at 1 January                                   25 808      24 741        5 328       23 974          79 851

          Acquisitions through business combinations                   -           -            -            -              -
          Additions – internally developed                       11 552       8 019             -      17 115          36 686
          Other additions                                            962         423            -        4 709          6 094
          Disposals                                              (8 820)       (206)      (5 328)      (8 780)       (23 134)
          Effect of movements in exchange rates                        0           -            -            -              -
          Balance at 31 December                                 29 502      32 977             -      37 018         99 497

          Depreciation and impairment losses
          Balance at 1 January                                    4 479       3 008         939         6 963         15 389

          Acquisitions through business combinations                   -           -           -             -              -
          Depreciation for the year                               1 982       1 013            -         4 373          7 368
          Impairment loss                                              -           -           -             -              -
          Reversal of impairment loss                                  -           -           -             -              -
          Disposals                                                 (28)        (95)       (939)       (1 129)        (2 191)
          Other additions                                           999         121            -         4 763          5 883
          Effect of movements in exchange rates                        0           -           -             0              -
          Balance at 31 December                                  7 432       4 047           0        14 970         26 449

          Carrying amounts
          At 1 January                                           21 329      21 733        4 389       17 011         64 462
          At 31 December                                         22 070      28 930            -       22 048         73 048



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16   Amounts due to other banks


                                                                                                            2008             2007
                                                                                                                       HUF million
       Due on demand                                                                                       5 355            7 579
       Money market deposits                                                                             758 085          199 190
       Borrowings                                                                                        183 669          371 861
       Amounts due to other banks                                                                        947 109          578 630

       As at 31 December 2008, HUF 293,436 million (2007: HUF 85,005 million) from the closing balance of Amounts due to other
     banks was related to contracts with original maturity of more than five years.



17   Current and deposit accounts

                                                                                                            2008             2007
                                                                                                                       HUF million
       From corporate clients                                                                             704 371          775 730
       From retail clients                                                                                563 471          471 406
       Current and deposit accounts                                                                     1 267 842        1 247 136

       As at 31 December 2008, from the amount of current and deposit accounts, HUF 30,057 million (2007: HUF 6,261 million) has
     been measured as a fair value through profit or loss.



18   Trading liabilities

                                                                         2008                                 2007
                                                                  Accumulated      Book                Accumulated          Book
                                                          Cost                                  Cost
                                                                    unrealised     value                 unrealised         value
                                                                        result                               result
                                                                                                                       HUF million
       Derivative instruments by type
       FX-based derivatives instruments                      -         20 668     20 668           -          7 032         7 032
       Index-based derivative instruments                    -             20         20           -          2 817         2 817
       Interest-based derivative instruments                 -          6 545      6 545           -               -            -
       Credit default swaps                                 52            139        191          52            (41)           11
       Options                                             718          2 089      2 807         552            167           719
       Total derivative instruments                        770         29 461     30 231         604          9 975        10 579

       Total trading liabilities                           770         29 461     30 231         604          9 975        10 579




19   Derivative liabilities held for risk management

                                                                         2008                                 2007
                                                                  Accumulated      Book                Accumulated          Book
                                                          Cost                                  Cost
                                                                    unrealised     value                 unrealised         value
                                                                        result                               result
                                                                                                                       HUF million
       FX-based derivatives instruments                       -          1 737     1 737           -             28             28
       Interest-based derivative instruments                  -          1 487     1 487           -          2 106          2 106

       Derivatives held for risk management                   -          3 224     3 224           -          2 134         2 134




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20     Other liabilities and provision


20.1                                                                                                                  2008          2007
                                                                                                                              HUF million
            Accruals and other creditors                                                                            27 608         33 954
            Corporate income tax payable                                                                               180             29
            Other taxes payable                                                                                      1 859          2 062
            Dividends payable                                                                                             -              -
            Provision for guarantees and contingencies                                                               1 957          1 532
            Other liabilities and provisions                                                                        31 604        37 577



20.2   Provision for contingencies and commitments
                                                                                                                      2008          2007
            Balance at 1 January                                                                                     1 532          1 489


            Provisions made during the year                                                                          1 337          1 329
            Provisions used during the year                                                                           (192)         (146)
            Provisions reversed during the year                                                                       (725)        (1 140)
            Effect of foreign currency movements                                                                         4               -
            Unwinding of discount                                                                                         -              -
            Balance at 31 December                                                                                   1 957          1 532


         Provisions of HUF 550 million (2007: HUF 393 million) have been made in respect of costs arising from contingent liabilities
       and contractual commitments (see Note 35), guarantees of HUF 1,075 million (2007: HUF 923 million) and commitments of HUF
       332 million (2007: HUF 216 million)

       Finance leases as a lessee
       As part of its business activities, the Group enters into finance lease transactions as a lessee. At 31 December 2008 and 2007, the
       reconciliation of the Group's future minimum lease payments at the balance sheet date and their present value by relevant
       remaining maturity periods was the following:
20.3
            2008                                                              up to 1 year 1 year to 5 years   over 5 years         Total
            Future minimum lease payments                                             179               357               -           536
            Unearned finance income                                                   (24)              (28)              -           (52)
            Present value of minimum lease payments                                   155               329               -           484
            Finance leases as a lessee                                                155               329               -          484


            2007                                                              up to 1 year 1 year to 5 years   over 5 years         Total
            Future minimum lease payments                                             167               264               -           431
            Unearned finance income                                                   (16)              (18)              -           (34)
            Present value of minimum lease payments                                   151               246               -           397
            Finance leases as a lessee                                                151               246               -          397

         In 2008, no contingent rents were recognized in finance income (2007: HUF NIL). No sublease payments are expected to be
       received at the balance sheet date. The net carrying amount of the leased office equipment amounted to HUF 621 million at the
       balance sheet date (2007: 537).




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       The Group leases some of its branches in the form of operating lease. At 31 December 2008 and 2007, the total amount of future
       minimum lease payments under non-cancellable operating leases by relevant remaining period was the following:
20.4     2008                                                                       up to 1 year 1 year to 5 years          over 5 years            Total
                                                                                                                                              HUF million
         Minimum lease payments                                                            2 216                3 643            21 943            27 802
         Non-cancellable operating leases                                                 2 216                 3 643            21 943           27 802


         2007                                                                       up to 1 year 1 year to 5 years          over 5 years            Total
         Minimum lease payments                                                            1 880                4 331            16 996            23 208
         Non-cancellable operating leases                                                 1 880                 4 331            16 996           23 208

         No sublease payments are expected under these non-cancellable leases.
         In 2008, lease and sublease payments were recognised as an expense in the period amounted to HUF 672 million (2007: HUF
       1 303 million) whereas no contingent rents and sublease payments were recognised.
         The leasing contracts original maturity ranges from 1 year to 10 years. The contracted lease payments are usually linked to the
       customer price index. There are no purchase options or restrictions.



21     Issued debt securities

                                                                                                                                  Carrying      Carrying
                                                                                        First
         Reference                                         Interest    Par value                    Due date            Listed     amount        amount
                                                                                    issuance
                                                                                                                                     2008          2007
         XS0204157035 EUR 250 million                       fix 3.5%     66 195    27.10.2004      27.10.2009             Yes       66 303        61 783
         XS0204157035 EUR 50 million                        fix 3.5%     13 239    26.11.2004      27.10.2009             Yes       13 269        12 375
         XS0232164342 EUR 50 million            3M EURIBOR+18bp          13 239    11.10.2005      11.10.2010             Yes       13 237        12 664
         XS0256867648 EUR 50 million            3M EURIBOR+19bp          13 239    06.09.2006      06.06.2011             Yes       13 230        12 656
         XS0299413194 EUR 100 million          3M EURIBOR+17 bp          26 478    09.05.2007      11.05.2009             No        16 415        15 704
         XS0327731419 EUR 200 million          3M EURIBOR+34 bp          52 956    29.10.2007      29.10.2009             No        41 039        39 260
         XS0311628407 RON 50 million                    3M ROBOR          3 306    19.07.2007      19.07.2010             Yes        3 306         3 516
         XS0330737122 CZK 843 million           Zero Coupon Bond          8 379    23.11.2007      23.11.2009             Yes        8 078         7 409
         XS0330903070 SKK 1000 million          6M BRIBOR + 22bp          8 790    19.11.2007      19.11.2010             Yes        8 790         7 540
         MKB Részvény Index 1. Kötvény      Indexált S&P 500 index          400    12.09.2008      12.09.2012             Yes          400             -
         MKB 20100915 Kötvény                                 fix 9%      3 968    23.07.2008      15.09.2010             Yes        3 350             -
         MKB Relax 1 Kötvény                   Indexált 12%*n/365           556    10.06.2008      10.12.2009             Yes          556             -
         MKB Relax 2 Kötvény                   Indexált 11%*n/365           252    12.08.2008      12.02.2010             Yes          252             -
         MKB II. kötvény                         3M BUBOR+25bp           22 320    10.09.2004      10.09.2009             Yes       19 091        22 245
         MKB III. kötvény                        3M BUBOR+25bp           40 986    09.12.2005      07.02.2011             Yes       35 890        26 836
         MKB FIX + 2010                                   fix 6,75%       3 000    21.10.2005      21.12.2010             Yes        1 092         1 101
         MKB FIX 2013                                     fix 6,75%       3 000    15.02.2006      15.02.2013             Yes          318           315
         MKB FIX 2016                                     fix 6,75%       3 000    15.02.2006      15.02.2016             Yes          107           106
         MKB 2009/A                                         fix 6,5%      1 600    21.11.2007      12.08.2009             Yes          779           677
         MKB D090128                            Zero Coupon Bond          9 500    02.07.2008      28.01.2009             Yes        9 370             -
         MKB D090408                            Zero Coupon Bond          7 560    27.08.2008      08.04.2009             Yes        4 439             -
         MKB D090424                            Zero Coupon Bond          8 200    13.11.2008      24.04.2009             Yes        5 799             -
         Accrued interest of the bonds                                                                                               2 419         1 764

         MKB Unionbank AD                                                  1 354         N.A.            N.A.              No         1 323         2 530
         MKB Romexterra Bank S.A.                                            181         N.A.            N.A.              No           239           207
         Accrued interest of the bonds issued by subsidiaries                                                                            38            73

         MKB Bonds matured in 2008                                                                                                       -        40 298
         Issued debt securities                                    -    311 698             -               -                -     269 129       269 062

       The Group use fair value hedges to hedge interest rate risks and foreign exchange risks of issued bonds with fix interest rate or bonds
       denominated in foreign currency. At 31 December 2008 the carrying amount of hedged own issued bonds amounted to HUF 92,493
       million. The gain (loss) on the hedged bonds attributable to the hedged risk amounted HUF (66) million (2007: HUF 1,905 million).

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22   Subordinated debt


                                                              Amount in
                                                Borrowed                    Original                                               Carrying
                         2008                                   original                        Interest    Due date      Listed
                                                      on                   currency                                                 amount
                                                               currency
                                                                                                                               HUF million
          Subordinated loans from the shareholders
          BAYERISCHE LANDESBANK                 2002-10-30    50 000 000        EUR    6M EURIBOR+3.12%    2017-10-30        No      13 426
          BAYERISCHE LANDESBANK                 2003-12-16    36 000 000        EUR    6M EURIBOR+1.5%     2013-12-16        No       9 533
          BAYERISCHE LANDESBANK                 2005-06-10    45 000 000        EUR    6M EURIBOR+1.5%     2015-06-15        No      11 917
          BAYERISCHE LANDESBANK                 2008-10-21    50 000 000        EUR      6M EURIBOR+5%     2018-10-22        No      13 482
          BAWAG P.S.K.                          2003-12-16     4 000 000        EUR    6M EURIBOR+1.5%     2013-12-16        No       1 059
          BAWAG P.S.K.                          2005-06-16     5 000 000        EUR    6M EURIBOR+1.5%     2015-06-15        No       1 324


          Subordinated notes issued
          BAYERISCHE LANDESBANK                 2006-10-04   120 000 000        EUR    3M EURIBOR+1.01%    2016-10-04Yes (Luxemburg) 32 117
          BAYERISCHE LANDESBANK                 2007-07-31    75 000 000        EUR    3M EURIBOR+0.92%    2017-07-31Yes (Luxemburg) 20 035
          Subordinated debt                          -       385 000 000           -                   -            -          -   102 892


                                                              Amount in
                                                Borrowed                    Original                                               Carrying
                         2007                                   original                        Interest    Due date      Listed
                                                      on                   currency                                                 amount
                                                               currency
                                                                                                                               HUF million
          Subordinated loans from the shareholders
          BAYERISCHE LANDESBANK                 2002-10-30    50 000 000        EUR    6M EURIBOR+1.2%     2017-10-30        No      12 795
          BAYERISCHE LANDESBANK                 2003-12-16    36 000 000        EUR    6M EURIBOR+1.5%     2013-12-16        No       9 122
          BAYERISCHE LANDESBANK                 2005-06-10    45 000 000        EUR    6M EURIBOR+1.5%     2015-06-15        No      11 403
          BAWAG P.S.K.                          2003-12-16     4 000 000        EUR    6M EURIBOR+1.5%     2013-12-16        No       1 014
          BAWAG P.S.K.                          2005-06-16     5 000 000        EUR    6M EURIBOR+1.5%     2015-06-15        No       1 267


          Subordinated notes issued
          BAYERISCHE LANDESBANK                 2006-10-04   120 000 000        EUR    3M EURIBOR+1.01%    2016-10-04Yes (Luxemburg) 30 695
          BAYERISCHE LANDESBANK                 2007-07-31    75 000 000        EUR    3M EURIBOR+0.92%    2017-07-31Yes (Luxemburg) 19 169
          Subordinated debt                          -       335 000 000           -                   -            -          -    85 465


     The above debts are direct, unconditional and unsecured obligations of the Group, and are subordinated to the claims of the
     Group's depositors and other creditors.


23   Share capital


       The Bank’s authorised, issued, called up and fully paid share capital comprises 14,094,483 (2007: 14,094,483) ordinary shares
     of HUF 1,000 (2006: HUF 1,000) each. All issued shares rank pari passu in the event of a winding up.


24   Reserves


     Currency translation reserve
     The currency translation reserve comprises all foreign exchange differences arising from the translation of the financial state-
     ments of foreign operations.

     Capital reserve
     Capital reserve comprises of premiums on share capital issuances.


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     General risk reserve
     Local legislation allows the Group to set aside a general risk reserve up to 1.25% of risk weighted assets and off-balance sheet
     exposures against inherent risk exposures in addition to those losses which have been specifically identified and those poten-
     tial losses which experience indicates are present in the portfolio of loans and advances. Such amounts are treated as an
     expense for statutory purposes and are tax deductible; for IFRS purposes, they form part of retained earnings, net of the relat-
     ed tax effects (see Note 33). The Group made a reserve up to the maximum 1.25% allowed until the end of 2002. From 2003, the
     Group has not set aside such reserves.

     Revaluation reserve
     Revaluation reserve includes the cumulative net change in the fair value of available-for-sale investments until the investment
     is derecognized or impaired.



25   Minority interest

     During 2008 minority interest decreased due to acquisition of further stakes in MKB Romexterra Bank S.A. The ownership of the
     Bank increased from 75.9% up to 80.5%.


26   Deferred tax assets and liabilities

     Deferred tax assets and liabilities are attributable to the following:
                                                                       2008                                         2007
                                                    Assets         Liablities      Net           Assets         Liablities            Net
                                                                                                                              HUF million
       Intangibles, property and equipment            223                228        (5)              2                   28           (26)
       Investments in subs., jointly contr.
       entities and associates                        208                 74       134              70                   73            (3)
       Available-for-sale securities                     -                  -          -           952                992             (40)
       Loans and advances to customers                   -             2 277    (2 277)              1                421           (420)
       Allowances for loan losses                    2 323                  -    2 323            1 188             1 095              93
       Issued debt securities                            -                  -          -              -                   5            (5)
       Provisions (included general risk reserve)      41              1 277    (1 236)             33              1 435          (1 402)
       Derivatives                                       -                  -          -              -                   -              -
       Other items                                    166                317     (151)             171                702           (531)
       Tax loss carry-forwards                        285                   -      285             142                    -           142
       Net tax assets (liabilities)                 3 246              4 173     (927)            2 559             4 751         (2 192)




27   Interest income

                                                                                                                 2008               2007
                                                                                                                              HUF million
       Cash reserves                                                                                            10 684              4 769
       Loans and advances to banks                                                                               9 130              6 869
       Loans and advances to customers                                                                         162 683            132 087
       Derivatives                                                                                              35 962             13 204
       Investments in securities                                                                                 5 348              8 283
       Interest income                                                                                         223 807           165 212

     Included within various captions under interest income for the year ended 31 December 2008 is a total of HUF 1,732 million (2007:
     NIL) accrued on impaired financial assets.

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28   Interest expense


                                                                                                                 2008           2007
                                                                                                                          HUF million
          Amounts due to other banks                                                                            33 928         19 548
          Deposits from customers                                                                               61 873         46 418
          Issued debt securities                                                                                15 787          9 932
          Subordinated liabilities                                                                               5 404          3 958
          Other fees and commisions similar to interest expenses                                                  232           8 717
          Derivatives                                                                                           23 904          4 853
          Interest expense                                                                                    141 128          93 426



       Included within interest income (in the line item corresponding to where the interest expense on the hedged item is recog-
     nised) are fair value changes of HUF 5,661 million on derivatives held in a qualifying fair value hedging relationship, and includ-
     ed within interest expense is HUF 5,511 million representing changes in the fair value of the hedged item attributable to the
     hedged risk.
     The only components of interest income and expense reported above that relate to financial assets or liabilities carried at fair
     value through profit or loss are the income and expense on derivative assets and liabilities held for risk management purposes.


29   Net income from commissions and fees

                                                                                                                 2008           2007
                                                                                                                          HUF million
          Commission and fee income                                                                            27 319         21 223
          Payment and account services                                                                          10 052         10 079
          Credit related fees                                                                                    4 899          3 512
          Card services                                                                                          2 806          2 454
          Brokerage fees and other securities business                                                           3 205          2 161
          Other commission and fee income                                                                        6 357          3 017


          Commission and fee expense                                                                            7 778           8 327
          Payment and account services                                                                           2 518          3 186
          Credit related fees                                                                                    1 980          2 844
          Card services                                                                                           804             868
          Brokerage fees and other securities business                                                            497             255
          Fee paid for car dealers                                                                                913           1 152
          Other commission and fee expense                                                                       1 066             22
          Net income from commissions and fees                                                                 19 541          12 896


     Brokerage fees include fees from trust management and other securities services in the amount of HUF 1,618 million (2007: HUF
     1,564 million). For further information on the Group’s fund management activity, please see Note 40.


30   Other operating income

                                                                                                                 2008           2007
                                                                                                                          HUF million
          Gain on trading securities                                                                             1 546          1 622
          Gain on sale of available-for-sale securities                                                            73           1 111
          Net gain on disposal of group companies                                                                    -             15
          Net gain on trading derivative transactions                                                           18 281         15 887
          Other                                                                                                (1 676)            490
          Other operating income                                                                               18 224          19 125



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31     Impairments and provisions for losses


                                                                                                  Note          2008          2007
                                                                                                                        HUF million
         Impairment loss on
         Loans and advances to banks                                                                 7            18           (44)
         Loans and advances to customers                                                            11         39 445        23 619
         Investments in securities                                                                  10           193           (16)
         Goodwill                                                                                   13          1 052             -
         Other assets                                                                               12           213              -
         Direct write off                                                                                       1472          1 166


         Provision on
         Guarantees and contingencies                                                               35           612            49
         Impairments and provisions for losses                                                                 43 003       24 774




32     Operating expenses

                                                                                                                2008          2007
                                                                                                                        HUF million
         General and administration expenses                                                                   14 381        11 729
         Wages and salaries                                                                                    24 321        20 058
         Compulsory social security obligations                                                                 9 229         7 602
         Occupancy costs                                                                                       12 889        11 239
         Marketing and public relations                                                                         3 317         3 180
         Communication and data processing                                                                      6 223         5 368
         Operating expenses                                                                                    70 360       59 176

       In 2008, the Group's average statistical employee number was 4,313 (2007: 3,805).



33     Income tax

       Income tax expense recognized in the Income Statement
33.1                                                                                                            2008          2007
                                                                                                                        HUF million
         Current tax expense                                                                                    1 671        5 859
         Hungarian corporation tax charge – on current year profit                                              1 468         5 724
         Romanian corporation tax charge – on current year profit                                                   -           69
         Bulgarian corporation tax charge – on current year profit                                               203            66


         Deferred tax expense/(income)                                                                          (495)        1 823
         Origination and reversal of temporary differences                                                      (484)         1 652
         Effect of changes in tax rates                                                                          (11)            3
         Adjustments in respect of prior years                                                                      -          168
         Income tax                                                                                             1 176        4 036

       The Hungarian corporation tax rate applied to MKB Bank and its Hungarian subsidiaries was 16% (2007: 16%) as a corporate
       profit tax charge, and there was an extra tax charge at a rate of 4% which is applied from September 1, 2006 and it is part
       of current tax income. Since the two current income taxes have different tax base, MKB Bank and its Hungarian subsidiaries
       used weighted average tax rate to calculate deferred taxes. The weighted average tax rate for 2008 was 20.6% (2007:
       20.6%). In Romania, the current income tax rate for 2008 was 16% (2007: 16%) and the deferred tax rate used was the same.
       In Bulgaria, the current income tax rate for 2008 was 10%, and the deferred tax rate is the same.


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       Reconciliation of effective tax rate
33.2                                                                                                 2008                         2007
                                                                                               %       HUF million          %       HUF million
            Profit before income tax                                                                         8 336                      20 905
            Income tax using the domestic corporation tax rate                             20.60%             1 717     20.60%           4 306
            Effect of tax rates in foreign jurisdictions                                   -0.93%               (77)     0.09%               20
            Non-deductible expenses                                                         8.52%               710      1.22%              254
            Tax exempt income                                                             -14.07%           (1 173)     -2.60%            (544)
            Recognition of previously unrecognised tax losses                              -0.01%                (1)          -               -
            Over-provided in prior years                                                         -                 -          -               -
            Income tax                                                                    14.11%             1 176     19.30%            4 036
       At 31 December 2008, the Group had unused tax losses amounting to HUF 1,458 million (2007: HUF 736 million) with the follow-
       ing maturity:

33.3                                                                                                                     2008             2007
                                                                                                                                    HUF million
            Without maturity                                                                                             1 286             256
            Mature within 1 year                                                                                            50             107
            Mature between 1 and 5 years                                                                                   122             373
            Corporation tax loss carryforwards                                                                           1 458             736


       In 2008, the Group accounted HUF 209 million deferred tax asset and HUF 3 million deferred tax liability (2007: HUF 50 million
       deferred tax asset) directly against equity.



34     Earnings per share

       The calculation of basic earnings per share at 31 December 2008 was based on the profit attributable to ordinary shareholders of
       HUF 6,449 million (2007: HUF 14,204 million) and a weighted average number of ordinary shares outstanding of 14,094 million
       (2007: 13,579 million)

       The calculation of fully diluted earnings per share was based on the profit attributable to ordinary shareholders and the weighted
       average number of ordinary shares outstanding after any adjustment for the effects of all dilutive potential ordinary shares. In 2008
       and 2007 there were no dilution factor that might cause an adjustment in the weighted average number of ordinary shares, there-
       fore basic and diluted EPS were equivalent.



35     Contingencies and commitments

                                                                                                                         2008             2007
                                                                                                                                    HUF million
            Contingencies
            Guarantees and similar obligations                                                                         228 982         234 494
            Obligations from letters of credit and other short term trade related items                                 15 828          29 333
            Other contingent liablities (including litigation)                                                             548             247
            Total contingencies                                                                                        245 359         264 074

            Commitments
            Undrawn commitments to extend credit                                                                       415 664         419 566
            Total commitments                                                                                          415 664         419 566

       Concerning contingencies and commitments net amounts are disclosed in the table.


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36   Use of estimates and judgements


       Management discusses with the Group Supervisory Board the development, selection and disclosure of the Group’s critical
     accounting policies and estimates, and the application of these policies and estimates.
       These disclosures supplement the commentary on financial risk management (see Note 5).

     Key sources of estimation uncertainty

     Allowances for credit losses
     Assets accounted for at amortised cost are evaluated for impairment on a basis described in accounting policy (see Note 4 i,).
        The specific counterparty component of the total allowances for impairment applies to financial assets evaluated individual-
     ly for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be
     received. In estimating these cash flows, management makes judgements about a counterparty’s financial situation and the net
     realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and esti-
     mate of cash flows considered recoverable are independently approved by the Credit Risk function.
        Collectively assessed impairment allowances cover credit losses inherent in portfolios of loans and advances with similar
     credit risk characteristics when there is objective evidence to suggest that they contain impaired loans and advances but the
     individual impaired items cannot yet be identified. In assessing the need for collective loss allowances, management considers
     factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance,
     assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based
     on historical experience and current economic conditions. The accuracy of the allowances depends on the estimates of future
     cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective
     allowances.

     Determining fair values
     The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use
     of valuation techniques as described in accounting policy. For financial instruments that trade infrequently and have little price
     transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration,
     uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. See also “Valuation of finan-
     cial instruments” below.

     Critical accounting judgements in applying the Group’s accounting policies
     Critical accounting judgements made in applying the Group’s accounting policies include:

     Valuation of financial instruments
     The Group’s accounting policy on fair value measurements is discussed under Note 4 g,.
     The Group measures fair values using the following hierarchy of methods:

     – Quoted market price in an active market for an identical instrument.
     – Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in
       active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or
       other valuation techniques where all significant inputs are directly or indirectly observable from market data.
     – Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation tech-
       nique includes inputs not based on observable data and the unobservable inputs could have a significant effect on the instru-
       ment’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where
       significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

       Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or
     dealer price quotations. For all other financial instruments the Group determines fair values using valuation techniques.
     Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which
     market observable prices exist, Black-Scholes and polynomial option pricing models and other valuation models. Assumptions
     and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used
     in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and
     expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that
     reflects the price of the financial instrument at the reporting date, that would have been determined by market participants act-
     ing at arm’s length.



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   The Group uses widely recognised valuation models for determining the fair value of common and more simple financial
instruments, like interest rate and currency swaps that use only observable market data and require little management judge-
ment and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securi-
ties, exchange traded derivatives and simple over the counter derivatives like interest rate swaps. Availability of observable
market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertain-
ty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the
products and markets and is prone to changes based on specific events and general conditions in the financial markets.
   For more complex instruments, the Group uses proprietary valuation models, which usually are developed from recognised
valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived
from market prices or rates or are estimated based on assumptions. Example of instruments involving significant unobservable
inputs includes certain over the counter structured derivatives and certain loans and securities for which there is no active mar-
ket. Valuation models that employ significant unobservable inputs require a higher degree of management judgement and
estimation in determination of fair value. Management judgement and estimation are usually required for selection of the
appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued,
determination of probability of counterparty default and prepayments and selection of appropriate discount rates.

     The table below analyses financial instruments carried at fair value, by valuation method:

                                                               Note Quoted market         Valuation         Valuation          Total
                                                                           prices in     techniques       techniques
                                                                    active markets     - observable      - significant
                                                                                             inputs    unobservable
                                                                                                               inputs
                                                                                                                         HUF million
     31 December 2008
     Trading assets                                               8          42 057         23 533                   -        65 590
     Derivative assets held for risk management                   9                -              80                 -           80
     Loans and advances to customers                             11                -               -                 -             -


     Current and deposit accounts                                17                -        30 057                   -        30 057
     Trading liabilities                                         18                -        30 231                   -        30 231
     Derivative liabilities held for risk management             19                -          3 224                  -         3 224
     Issued debt securities                                      21                -          1 067                  -         1 067


     31 December 2007
     Trading assets                                               8          33 746         23 281                   -        57 027
     Derivative assets held for risk management                   9                -           802                   -          802
     Loans and advances to customers                             11                -               -                 -             -


     Current and deposit accounts                                17                -        12 856                   -        12 856
     Trading liabilities                                         18                -        10 579                   -        10 579
     Derivative liabilities held for risk management             19                -          2 134                  -         2 134
     Issued debt securities                                      21                -               -                 -             -




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        As part of its trading activities the Group enters into OTC structured derivatives, primarily options indexed to equity prices,
     foreign exchange rates and interest rates, with customers and other banks. Some of these instruments are valued using models
     with significant unobservable inputs, principally expected long-term volatilities and expected correlations between different
     asset prices or foreign currency exchange rates. These inputs are estimated based on extrapolation from observable shorter-
     term volatilities, recent transaction prices, quotes from other market participants and historical data.
        In determining fair values, the Group does not use averages of reasonably possible alternative inputs as averages may not
     represent a price at which a transaction would take place between market participants on the measurement date. When alter-
     native assumptions are available within a wide range, judgements exercised in selecting the most appropriate point in the
     range include evaluation of the quality of the sources of inputs (for example, the experience and expertise of the brokers pro-
     viding different quotes within a range, giving greater weight to a quote from the original broker of the instrument who has the
     most detailed information about the instrument) and the availability of corroborating evidence in respect of some inputs with-
     in the range.



37   Accounting classifications and fair values

        The estimated fair values disclosed below are designated to approximate values at which these instruments could be
     exchanged in an arm’s length transaction. However, many of the financial instruments have no active market and therefore, fair
     values are based on estimates using net present value and other valuation techniques (see Note 4 g, and Note 36), which are
     significantly affected by the assumptions used on the amount and timing of the estimated future cash flows and discount rates.
     In many cases, it would not be possible to realise immediately the estimated fair values given the size of the portfolios meas-
     ured.
        The table below sets out the carrying amounts and fair values of the Group’s financial assets and financial liabilities:

                                                                          Desig-
                                                                          nated       Loans                   Other          Total         Fair
                                                                                                Available
                        2008                             Note   Trading        at        and               amortised      carrying        value
                                                                                                  for sale
                                                                             fair      recei-                   cost      amount
                                                                           value      vables
                                                                                                                                     HUF million
       Financial assets
       Cash reserves                                        6         -         -    118 904      93 782            -      212 686       212 684
       Loans and advances to banks                          7         -         -    116 650            -           -      116 650        96 131
       Measured at fair value                                         -         -      8 551            -           -        8 551
       Measured at amortised cost                                     -         -    108 098            -           -      108 098
       Trading assets                                       8    65 590         -           -           -           -       65 590        65 590
       Derivative assets held for risk management           9       80          -           -           -           -          80            80
       Investments in securities                           10         -         -           -     51 051            -       51 051        51 051
       Loans and advances to customers                     11         -         -   2 371 896           -           -    2 371 896     2 484 098
       Measured at fair value                                         -         -     42 853            -           -       42 853
       Measured at amortised cost                                     -         -   2 329 043           -           -    2 329 043


       Financial liabilities
       Amounts due to other banks                          16         -         -           -           -    947 109       947 109       968 061
       Current and deposit accounts                        17         -   30 057            -           -   1 237 786    1 267 842       919 744
       Measured at fair value                                         -   30 057            -           -           -       30 057
       Measured at amortised cost                                     -         -           -           -   1 237 786    1 237 786
       Trading liabilities                                 18    30 231         -           -           -           -       30 231        30 231
       Derivative liabilities held for risk management     19     3 224         -           -           -           -        3 224         3 224
       Issued debt securities                              21         -    1 067            -           -    268 062       269 129       298 573
       Measured at fair value                                         -    1 067            -           -     92 493        93 560
       Measured at amortised cost                                     -         -           -           -    175 569       175 569
       Subordinated debt                                   22         -         -           -           -    102 892       102 892       126 075




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                                                                        Desig-
                                                                        nated       Loans                   Other        Total          Fair
                                                                                              Available
                      2007                             Note   Trading        at        and               amortised    carrying         value
                                                                                                for sale
                                                                           fair      recei-                   cost    amount
                                                                         value      vables
                                                                                                                                  HUF million
     Financial assets
     Cash reserves                                        6         -         -     86 481      40 817            -    127 298        127 298
     Loans and advances to banks                          7         -         -    193 005            -           -    193 005        194 759
     Measured at fair value                                         -         -           -                       -           -
     Measured at amortised cost                                     -         -    193 005            -           -    193 005
     Trading assets                                       8    57 027         -           -           -           -     57 027         57 027
     Derivative assets held for risk management           9      802          -           -           -           -        802           802
     Investments in securities                           10         -         -           -     41 866            -     41 866         41 866
     Loans and advances to customers                     11         -         -   1 905 898           -           -   1 905 898     1 956 331
     Measured at fair value                                         -         -        350            -           -        350
     Measured at amortised cost                                     -         -   1 905 548           -           -   1 905 548


     Financial liabilities
     Amounts due to other banks                          16         -         -           -           -    578 630     578 630        580 045
     Current and deposit accounts                        17         -    6 235            -           -   1 240 901   1 247 136     1 246 715
     Measured at fair value                                         -    6 235            -           -      2 387       8 622
     Measured at amortised cost                                     -         -           -           -   1 238 514   1 238 514
     Trading liabilities                                 18    10 579         -           -           -           -     10 579         10 579
     Derivative liabilities held for risk management     19     2 134         -           -           -           -      2 134          2 134
     Issued debt securities                              21         -         -           -           -    269 062     269 062        271 539
     Measured at fair value                                         -         -           -           -      7 269       7 269
     Measured at amortised cost                                     -         -           -           -    261 793     261 793
     Subordinated debt                                   22         -         -           -           -     85 465      85 465         86 920



The methods and, when a valuation technique is used, the assumptions applied in determining fair values of financial instru-
ments were as follows:

Cash reserves, Loans and advances to banks and Amounts due to other banks
Due to their short term nature, the carrying amount of Cash reserves and Loans and advances to banks and Amounts due to
other banks is a reasonable approximation of their fair value.

Trading assets and liabilities and Derivative assets and liabilities held for risk management
Fair values of Trading assets and liabilities and Derivative assets and liabilities held for risk management that are traded in active
markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Group determines
fair values using valuation techniques. For further information, please see Note 36.

Investments in securities
The fair values of instruments grouped into Investments in securities are based on quoted market prices, when available. If
quoted market prices are not available, fair value is estimated using quoted market prices of similar securities. For further infor-
mation, please refer to Note 10 and Note 4 l,.

Loans and advances to customers
The fair value of loans and advances is based on observable market transactions, where available. In the absence of observable
market transactions, fair value is estimated using discounted cash flow models. Performing loans are grouped, as far as possi-
ble, into homogeneous pools segregated by coupon rates. In general, contractual cash flows are discounted using the Group’s
best estimate of the discount rate that a market participant would use in valuing instruments with similar repricing and credit


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       risk characteristics. The fair value of a loan portfolio reflects both loan impairments at the balance sheet date and estimates of
       market participants’ expectations of credit losses over the life of the loans.
       For impaired loans, fair value is estimated by discounting the future cash flows over the time period they are expected to be
       recovered.

       Current and deposit accounts
       For the purposes of estimating fair value, Current and deposit accounts are grouped by residual maturity. Fair values are esti-
       mated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities. The fair value of
       a deposit repayable on demand is assumed to be the amount payable on demand at the balance sheet date.

       Issued debt securities and Subordinated debt
       Fair values are determined using quoted market prices at the balance sheet date where available, or by reference to quoted
       market prices for similar instruments.



38     Related parties

       The Group’s related parties include the parent company, associates, joint ventures, Key Management Personnel, close family
       members of Key Management Personnel and entities which are controlled, jointly controlled or significantly influenced, or for
       which significant voting power is held, by Key Management Personnel or their close family members.

       Transactions with related parties

       Related parties have transacted with the Group during the period as follows:

38.1                                               Parent company Non-consolidated Jointly controlled                    Key Management
                                                    and list group  subsidiaries        entities          Associates        Personnel
                                                    2008      2007 2008     2007    2008      2007      2008     2007     2008    2007
                                                                                                                             HUF million
         Assets
         Amounts due from other banks              20 664      5 811       -       -       -       -        -        -         -         -
         Loans and advances to customers                -          -   4 385   3 547   9 132   1 782    4 385   15 769      488       447
         Derivative financial assets                2 409      5 228       -       -       -       -                 -         -         -
         Other assets                                   1          -      5       5        -       -      78         -         -         -


         Liabilities
         Amounts due to other banks               658 863 126 758          -       -       -       -        -        -         -         -
         Current and deposit accounts                852        195    3 078   1 597    144        0    3 078     636          -         -
         Borrowed funds and debt securities        22 040     19 748       -    122        -       -        -        -         -         -
         Subordinated debt                        100 527     84 848       -       -       -       -        -        -         -         -
         Derivative finacial liabilities           14 113      6 712       -       -       -       -        -        -         -         -
         Other liabilities                              -          -       -       -       -       -      23         -         -         -


         Income statement
         Interest income                             160        147     420     211     681       53     991      686        19         7
         Interest expense                          22 237      3 435    148      63       6        0     279       27          -         -
         Other net income / (expense)               5 727       (12)     83      22      24       84     103      (27)   (1 507)   (1 338)


         Contingencies and commitments
         Undrawn commitments to extend credit       2 000      1 050    664    2 006   1 317      43     664     4 117         -         -
         Guarantees                                     -          -               -     86       18        -        -         -         -



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          The amount outstanding from Key Management Personnel represents mortgages and secured loans granted and these loans
       are secured over property of the respective borrowers.
          The above transactions with other than Key Management Personnel were made in the ordinary course of business and
       on substantially the same terms, including interest rates and security, as for comparable transactions with persons of a sim-
       ilar standing. The transactions did not involve more than the normal risk of repayment or present other unfavourable fea-
       tures.
          No impairment losses have been recorded against balances outstanding during the period with related parties, and no spe-
       cific allowance has been made for impairment losses on balances with related parties at the period end.

            Key management personnel compensation for the period comprised:
38.2                                                                                                                      2008                 2007
                                                                                                                                       HUF million
            Short-term employee benefits                                                                                  1 423               1 338
            Other long-term benefits                                                                                         84                   -
                                                                                                                          1 507               1 338




39     Group entities

       The subsidiaries and jointly controlled entities of MKB and their activities are as follows:
                                                          Percentage of Percentage of       Country of                           Brief description
                           Company
                                                          equity owned    voint rights   incorporation                                 of activities
            MKB-Euroleasing Autólízing Szolgáltató Kft.          60.79%           50%         Hungary                          Car finance activity.
            MKB-Euroleasing Autóhitel Zrt.                       65.45%           50%         Hungary        Car and consumer finance activities.
            MKB-Euroleasing Autópark Zrt.                        74.97%           50%         Hungary                          Car finance activity.
            MKB-Euroleasing Zrt.                                 50.98%           50%         Hungary              Holding of Euroleasing group.
            MKB Üzemeltetési Kft.                                 100%           100%         Hungary       Property operation and maintenance.
            MKB Unionbank AD                                        60%           60%          Bulgaria          Fully licenced commercial bank.
            MKB Romexterra Bank S.A.                             80.48%       80.48%          Romania            Fully licenced commercial bank.
            MKB Romexterra Leasing IFN S.A.                      74.74%       92.87%          Romania                          Car finance activity.
            S.C. Corporate Recovery Management S.R.L.            84.48%          100%         Romania            Claims buying/factoring activity.
            MKB Befektetési Alapkezelô Zrt.                       100%           100%         Hungary     Investment fund management activity.
            Resideal Zrt.                                         100%           100%         Hungary         Property investment and valuation.
            Exter-Immo Zrt.                                       100%           100%         Hungary                     Financial leasing activity.




40     Funds management
         The Group manages 22 close-ended (2007: 15) and 10 open-ended (2007: 9) investment fund via MKB Alapkezelô Zrt, a fully
       owned and consolidated subsidiary. However, as the funds themselves are not controlled by the Group, they are not consoli-
       dated. For funds management services provided by the Group, funds should pay certain fees and commission that is presented
       as ”Commission and fee income” (see Note 29). In 2008 and 2007, the volume of the funds, and transactions with the funds
       themselves were as follows:
                                                                                                                          2008                 2007
                                                                                                                                       HUF million
            Managed funds (in HUF million)
            Open-ended funds                                                                                             61 949              61 851
            Close-ended funds                                                                                            57 692              52 131

            Commission and fee income from funds                                                                          1 729               1 637

            Deposits from funds                                                                                          53 853              40 079
            Interest expense on deposits from funds                                                                       3 961               1 941




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41   Segment information


       The following segment information has been prepared in accordance with IFRS 8, “Operating Segments,” which defines
     requirements for the disclosure of financial information of an entity’s operating segments. It follows the “management
     approach”, which requires presentation of the segments on the basis of the internal reports about components of the entity
     which are regularly reviewed by the chief operating decision-maker in order to allocate resources to a segment and to assess its
     performance. Management reporting for the Group is based on IFRS.

     Business segments
     The business segments identified by the Group represent the organizational structure as reflected in its internal management
     reporting systems. The Group is organized into four business lines, each with its own distinct market and products. Each busi-
     ness line has its own set of objectives and targets broken down by operating units, which are consistent with the Group's over-
     all strategic direction. As of 31 December 31 2008, the Group's business segments and their main products were:

     Corporate Banking
     The Group provides trade finance, a wide array of credit, account and deposit products, forfeiting and factoring, letters of cred-
     it, guarantees, international payments, portfolio management, project and structured finance, investment and financial advi-
     sory services to large Hungarian and regional public and private-sector entities through branches and electronic delivery chan-
     nels.

     Institutional Banking
     MKB Group serves financial institutions and financial service companies with nostro and vostro account services, international
     and domestic payments, correspondent banking and participates in bank-to-bank finance, club and syndicated loans.

     Retail and Private Banking
     The Group provides a wide range of deposit and savings instrument, credit and debit cards, portfolio management, and a lim-
     ited number of loan products to high net worth individuals and entrepreneurs through 219 full-service branches and sub-
     branches (2007: 213 branches), ATMs, telephone and electronic channels.

     Money and Capital Markets
     The Group serves domestic institutions with sophisticated cash management and risk mitigation tools through money market
     products and derivative financial instruments, and manages the Group's liquidity, interest rate and foreign exchange positions.
     The Group provides capital market products, custody and asset management, pension fund and investment fund manage-
     ment, collaterised loan finance, and investment and other financial advisory services to large corporations and institutions, and
     manages the Group's own equity market positions.

     Other
     Residual items which can not be directly allocated to business segments (mainly general administration expenses) are includ-
     ed in the Other category.




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                                                                                                 Retail and   Money and
                                                                      Corporate    Institution
                      2008                                   Note                                  Private       Capital      Other          Total
                                                                       Banking       Banking
                                                                                                  Banking       Markets
                                                                                                                                       HUF million
     Assets
     Cash reserves                                                6            -             -            -             -   212 685        212 685
     Loans and advances to banks                                  7            -       93 603             -       23 008           -       116 611
     Trading assets                                               8            -             -            -       65 590           -        65 590
     Derivative assets held for risk management                   9            -             -            -           80           -           80
     Investments in securities                                   10            -             -            -       51 051           -        51 051
     Loans and advances to customers                             11    1 592 439      105 693      593 887           775           -     2 292 794
     Other assets                                                12            -             -            -             -    18 217         18 217
     Goodwill                                                    13            -             -            -             -    33 650         33 650
     Deferred tax assets                                         26            -             -            -             -     3 246          3 246
     Investments in jointly controlled entities and associates   14            -             -            -             -    11 231         11 231
     Intangibles, property and equipment                         15            -             -            -             -    80 271         80 271


                                                                      1 592 439      199 296       593 887      140 504     359 300     2 885 426


     Liabilities
     Amounts due to other banks                                  16            -      915 647             -       31 462           -       947 109
     Current and deposit accounts                                17     656 659        -4 256      615 439              -          -     1 267 842
     Trading liabilities                                         18            -             -            -       30 231           -        30 231
     Derivative liabilities held for risk management             19            -             -            -        3 224           -         3 224
     Other liabilities and provisions                            20            -             -            -             -    31 604         31 604
     Deferred tax liability                                      26            -             -            -             -      4 173         4 173
     Issued debt securities                                      21      21 348       199 585       48 196              -          -       269 129
     Subordinated debt                                           22            -      102 892             -             -          -       102 892
     Shareholders' equity                                23, 24, 25            -             -            -             -   229 222        229 222
                                                                        678 007    1 213 868       663 635        64 917    264 999     2 885 426


     Income statement
     Gross revenue - external customers                                 139 601        11 037       50 470        23 199     37 265        261 572
     Gross revenue - inter-segment                                      (42 435)       26 680       16 935        (1 180)          -             -
     Interest and commission expenditure                                (36 111)      (36 723)     (19 664)      (12 300)   (36 330)     (141 128)
     Impairment and provisions for losses                        31     (33 024)       (1 145)      (8 401)             -      (433)      (43 003)
     Operating costs                                                    (19 546)         (349)     (31 227)       (3 774)   (15 464)      (70 360)
     Share of associates' profit                                               -             -       1 255              -          -         1 255
     Segment result                                                       8 485         (500)        9 368         5 945    (14 962)        8 336


     Other information
     Capital expenditure                                                       -             -            -             -    19 584         19 584
     Depreciation and amortisation                               15       2 471           104        2 895           441       1 555         7 466
     Other non-cash expenses                                                 89           159           87             8         35           378




86
                                                            C O N S O L I D A T E D          F I N A N C I A L         S T A T E M E N T S




                                                                                            Retail and   Money and
                                                                 Corporate    Institution
                 2007                                   Note                                  Private       Capital       Other          Total
                                                                  Banking       Banking
                                                                                             Banking       Markets
                                                                                                                                   HUF million
Assets
Cash reserves                                                6       9 844        68 602             -       33 213      15 639        127 298
Loans and advances to banks                                  7            -      141 968             -       51 037            -       193 005
Trading assets                                               8            -             -            -       57 027            -        57 027
Derivative assets held for risk management                   9            -             -            -          802            -          802
Investments in securities                                   10            -             -            -       41 866            -        41 866
Loans and advances to customers                             11    1 364 166          363      531 638         9 032         699      1 905 898
Other assets                                                12       6 524         1 429          127              -      7 983         16 063
Goodwill                                                    13            -             -            -             -     34 952         34 952
Deferred tax assets                                         26            -             -            -             -      2 559          2 559
Investments in jointly controlled entities and associates   14            -             -            -             -      9 946          9 946
Intangibles, property and equipment                         15            -             -            -             -     73 048         73 048
                                                                 1 380 534      212 362       531 765      192 977      144 826     2 462 464


Liabilities
Amounts due to other banks                                  16      23 817       342 291             -      212 522            -       578 630
Current and deposit accounts                                17     597 639         8 585      598 022        42 890            -     1 247 136
Trading liabilities                                         18            -             -            -       10 579            -        10 579
Derivative liabilities held for risk management             19            -             -            -        2 134            -         2 134
Other liabilities and provisions                            20            -             -            -             -     37 576         37 576
Deferred tax liability                                      26            -             -            -             -      4 751          4 751
Issued debt securities                                      21      54 613        60 294       30 675       123 480            -       269 062
Subordinated debt                                           22            -       85 465             -             -           -        85 465
Shareholders' equity                                23, 24, 25            -             -            -             -    227 131        227 131
                                                                   676 069      496 635       628 697      391 605      269 458     2 462 464


Income statement
Gross revenue - external customers                                  92 469         8 338       57 713        34 051       4 662        197 233
Gross revenue - inter-segment                                      (33 828)       12 631       24 867        (6 654)      2 984              -
Interest and commission expenditure                                 (8 058)      (22 010)     (42 226)      (16 543)     (4 589)      (93 426)
Impairment and provisions for losses                        31     (21 909)             -      (5 074)          (79)      2 288       (24 774)
Operating costs                                                     (9 489)         (844)     (16 021)       (2 707)    (30 115)      (59 176)
Share of associates' profit                                                                                               1 048          1 048
Segment result                                                      19 185       (1 885)       19 259         8 068     (23 722)       20 905


Other information
Capital expenditure                                                       -             -            -             -     36 686         36 686
Depreciation and amortisation                               15            -             -            -             -      7 368          7 368
Other non-cash expenses                                              1 648         1 211        1 532           955         655          6 000




                                                                                                                                                 87
     C O N S O L I D A T E D                 F I N A N C I A L           S T A T E M E N T S




     Measurement of segment profit or loss
     Segment reporting under IFRS 8 requires a presentation of the segment results based on management reporting methods with
     reconciliation between the results of the business segments and the consolidated financial statements. The information pro-
     vided about each segment is based on the internal reports about segment profit or loss, assets and other information which are
     regularly reviewed by the chief operating decision maker.

     Calculation of intersegment revenue
     Intersegment revenues and expenses are calculated on market interest method. In the case of refinanced loans, as well as those
     linked to a deposit, are evaluated against the connected transaction. Revenues and expenses on refinanced loans and loans
     linked to deposit are calculated with reference to the interest of the underlying transaction.
        Since the Group’s business activities are diverse in nature and its operations are integrated, certain estimates and judgments
     have been made to apportion revenue and expense items among the business segments.



42   Changes in accounting policies

     From 1 January, 2008 the Group disclose all the interest income and expenses derived from banking book derivative trans-
     actions as net interest income. The interest of trading book derivatives have been still disclosed as other operating income.

     The effects of this change are the following:
                                                                                2007 as stated in prior year   change    2007 restated
                                                                                                                          HUF million
          Interest income                                                                           153 340     9 117          162 457
          Interest expense                                                                           92 822       604           93 426
          Net interest income                                                                        60 518     8 513          69 031


          Net income from commissions and fees                                                       12 896          -          12 896
          Other operating income                                                                     27 638    (8 513)          19 125
          Impairments and provisions for losses                                                      22 986          -          22 986
          Operating expenses                                                                         59 176          -          59 176
          Share of jointly controlled and associated companies' profit / (loss) before taxation       1 048          -           1 048
          Profit before taxation                                                                     19 938         0          19 938


          Income tax                                                                                  3 837          -           3 837
          Profit for the period                                                                      16 101         0          16 101




     88
                                                                     C O N S O L I D A T E D            F I N A N C I A L       S T A T E M E N T S




43     Disclosure of prior period misstatement


       An entity can not derecognise its financial assets until it has contractual rights to receive the cash flows. However, in 2007 after
       30 days delay in payments the accrued interest relating to loans and advances were derecognised. This effect modified the
       amortised cost and the related impairment.

       The impact of these misstatements was as follows for the year ended 31 December 2007:
43.1                                                                     2007 as stated in prior year               Change             2007 restated
                                                                                                                                        HUF million
         Assets
         Cash reserves                                                                       127 298                        -                127 298
         Loans and advances to banks                                                         193 005                        -                193 005
         Trading assets                                                                       57 027                        -                 57 027
         Derivative assets held for risk management                                              802                        -                   802
         Investments in securities                                                            41 866                        -                 41 866
         Loans and advances to customers                                                   1 902 020                  3 878                1 905 898
         Other assets                                                                         16 063                        -                 16 063
         Goodwill                                                                             37 502                        -                 37 502
         Deferred tax assets                                                                   3 193                  (634)                    2 559
         Investments in jointly controlled entities and associates                             9 946                        -                  9 946
         Intangibles, property and equipment                                                  73 048                        -                 73 048
         Total assets                                                                      2 461 770                 3 244                2 465 014


         Liabilities
         Amounts due to other banks                                                          578 630                        -                578 630
         Current and deposit accounts                                                      1 247 136                        -              1 247 136
         Trading liabilities                                                                  10 579                        -                 10 579
         Derivative liabilities held for risk management                                       2 134                        -                  2 134
         Other liabilities and provisions                                                     37 577                        -                 37 577
         Deferred tax liability                                                                4 199                   552                     4 751
         Issued debt securities                                                              269 062                        -                269 062
         Subordinated debt                                                                    85 465                        -                 85 465
         Total liabilities                                                                 2 234 782                   552                2 235 334


         Equity
         Share capital                                                                        14 094                        -                 14 094
         Reserves                                                                            197 590                  2 356                  199 946
         Total equity attributable to equity holders of the Bank                            211 684                  2 356                  214 040


         Minority interest                                                                    15 304                   336                    15 640
         Total equity                                                                       226 988                  2 692                  229 680


         Total liabilities and equity                                                      2 461 770                 3 244                2 465 014




                                                                                                                                                       89
       C O N S O L I D A T E D                  F I N A N C I A L           S T A T E M E N T S




43.2                                                                        2007 as stated in prior year      change        2007 restated
                                                                                                                             HUF million
            Interest income                                                                     153 340        2 755              156 095
            Interest expense                                                                     92 822            -               92 822
            Net interest income                                                                  60 518        2 755              63 273


            Net income from commissions and fees                                                 12 896            -               12 896
            Other operating income                                                               27 638            -               27 638
            Impairments and provisions for losses                                                22 986        1 788               24 774
            Operating expenses                                                                   59 176            -               59 176
            Share of jointly controlled and associated companies' profit / (loss)
            before taxation                                                                       1 048            -                1 048
            Profit before taxation                                                               19 938          967              20 905


            Income tax                                                                            3 837          199                4 036
            Profit for the period                                                                16 101          768              16 869


            Attributable to:
            Shareholders of the parent                                                           13 820          384               14 204
            Minority interest                                                                     2 281          384                2 665


            Net income available to ordinary shareholders                                        13 820          384               14 204
            Average number of ordinary shares outstanding (thousands)                            13 579            -               13 579


            Earnings per Ordinary Share (in HUF)
            Basic                                                                                  1018           28                1 046
            Fully diluted                                                                          1018           28                1 046
            Dividend per Ordinary Share (in HUF)




44     Events after the balance sheet date

       Share capital was increased by the main shareholder in the amount of HUF 26,500 million in February 2009.




                                                                            Dr. Pál Simák                  Csaba Szekeres



       90
                                                   Management’s
                                            Discussions & Analysis




Sprint canoer Gábor Kucsera, sponsored by MKB Bank, and his partner Zoltán Kammerer
just missed out on the medals at the 2008 Olympic Games in Beijing.
M A N A G E M E N T ’ S    D I S C U S S I O N S         &    A N A L Y S I S




                THE FOLLOWING SECTION OF THE ANNUAL REPORT PROVIDES A DISCUSSION AND ANALYSIS OF THE
                GROUP’S FINANCIAL CONDITION AND RESULTS OF OPERATIONS SO AS TO HELP THE READER TO ASSESS ANY
                CHANGES IN THE FINANCIAL CONDITION AND PROFITS FOR THE YEAR 2008. THE FORTHCOMING ANALYSES
                ARE BASED ON FIGURES REPORTED IN MKB BANK’S CONSOLIDATED FINANCIAL STATEMENTS PREPARED
                UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) AS AT, AND FOR THE FINANCIAL
                YEAR ENDED, DECEMBER 31, 2008 AND AUDITED BY KPMG HUNGÁRIA LTD. CHARTERED ACCOUN-
                TANTS. ON THIS BASIS, THE DISCUSSION FOCUSES ON THE PERFORMANCE OF THE GROUP AS AN ENTITY.
                THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED UNDER IFRS ARE PRESENTED SEPARATELY.




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                                                 M A N A G E M E N T ’ S         D I S C U S S I O N S        &   A N A L Y S I S




OVERVIEW                                                              of 2007. At the end of the year the growth of loans of indivi-
The Group business activities appear in three separate units          duals and companies dropped to 31.2% correlated to 68.7%
and territories, such as Hungarian domestic - MKB, Bulgarian          to the end of the year 2007. The annual growth of client
– MKB Union Bank, and Romanian – MKB Romexterra Group.                deposits slowed down to 7.5% as of the end of 2008 compa-
                                                                      red to 40.9 % for the previous year.
DOMESTIC BUSINESS AREA
The global financial and economic crisis hit the Hungarian eco-       Romanian business area
nomy in a very vulnerable state and its escalation in October         During 2008 the growth of GDP was 7.7% in real term which
affected the domestic banking system adversely. Economic              was slightly higher then the previous-year end level (2007:
growth was quite low already as a result of the austerity mea-        6.5%).
sures when the collapse of the export markets took it close to           The current account deficit reached 12% of GDP in 2008,
zero. The industrial production shrank by 1.1% on average in          down from 14.2% one year earlier. The annual average inflati-
2008, while it decreased by 19.6% in December (yoy). Hence,           on was 7.85% in 2008, which is an increase of three points
real GDP growth was 0.6% in 2008 and only the good agricul-           comparing it to the previous year. Standard & Poor’s has
tural performance kept the figure above zero. Besides, the eco-       lowered Romania’s long- and short-term foreign currency
nomy witnessed a decrease of 2% in the fourth quarter already.        sovereign credit ratings to ‘BB+/B’ and revised its outlook on
The high level of the country’s foreign indebtedness and the          MKB Romexterra Bank SA from stable to negative. Romania’s
extremely high ratio of FX denominated loans only add to the          trade deficit reduced by 26% in November comparing to the
vulnerability of Hungary. However, the improving trade and            same month of 2007 based on the goods import decrease.
C/A balance (4.8% of GDP) and the declining inflation rate            Romanian product exports dropped 9%, meanwhile imports
(6.1% average in 2008, 3.5% at December yoy) are some of the          plunged 17%. The volume of construction works rose 26.9%
positive effects of the crisis. As a result of the austerity measu-   year-on-year. The growth was visible on all sectors (residenti-
res, the central budget balance is also improving (3.3% accor-        al and non residential building and engineering).
ding to ESA, preliminary). The Central Bank is also squeezed             In 2008 MKB Group’s principal long-term financial priorities
from more sides. From one hand, boosting the economy                  aiming at growing and diversified revenues focused on cost
would need a significant decrease in the current policy rate of       discipline, high credit quality and effective balance sheet and
9.5%, but from the other hand, further serious depreciation of        capital management were again manifested in strong busi-
the HUF would hurt the economy badly.                                 ness developments and financial performance. In the year
                                                                      2008, MKB Group continued executing its major strategic and
Bulgarian business area                                               business policy targets and kept strengthening further its
Bulgaria kept on maintaining a high pace of economic deve-            market presence.
lopment. At the end of 2008, GDP reached BGN 48.1 billion in
line, with expectations for a nearly 6.5% real growth year-           FINANCIAL PERFORMANCE
over-year; however, concrete symptoms for the deterioration           In 2008 MKB Group seized business opportunities of domes-
of the country’s economy were evident in the economic pro-            tic and foreign business areas but also faced the negative
cesses at year-end. The industrial sector grew up by 5.4%, cre-       impacts of the world wide macroeconomic environment. The
ating 31.2% of value added in the economy. The services sec-          Group’s total operating income (net interest income plus
tor was enlarged by 6.8%. In December 2008 the consumer               non-interest income) continued growing in 2008 with a year-
price index rose by 7.8% year-on-year and the inflation was           over-year increase of 16.03% to HUF 120,444 million (2007:
over 15% on annual bases as of the first half of the year. The        HUF 103,807 million). The main factor of this growth relates
trend of an increasing current account deficit went on during         to interest bearing items; however, net interest income’s
the past year, with the expectations for the deficit to run           share showed a slight decrease compared to the previous
about 22% of GDP based on the final data for 2008. From one           year (2008: 68.7%, 2007: 69.2%), it contributed HUF 10,893
side, this imbalance is mainly due to the negative trade              million net interest income. The keeping up with the same
balance of payments of EUR 8.2 billion (24% of GDP) in                level of the net interest income derived from the harsher
November. As a result of the global financial shock and the           market competition for the customer deposits besides the
general insecurity on the developing markets, the flow of             significant growth of business expansion on the loan side.
foreign direct investment slowed down in the country. At the             In 2008 the share of net commission and fee income from
end of November 2008 it was 11.5% less compared to the                the total operating income in percentage increased from
same period of 2007 and by the end of the year was expected           12.4% in 2007 to 16.2%, while the total operating income
to reach EUR 5.5 billion. The main slow-down was caused by            grew by 16% to HUF 16,637 million. This increase of net com-
reduction of activities in the civil construction sector, the real    mission and fee income was due to the growth, a result of
estate deals and the financial intermediary transactions. As of       higher income from lending business and other commission
the end of 2008, the banking system assets increased by BGN           income, from among which the main part relates to the sub-
10.5 billion (17.7%) compared to BGN 59.09 billion at the end         sidiary’s business activities.


                                                                                                                                  93
M A N A G E M E N T ’ S               D I S C U S S I O N S       &     A N A L Y S I S




   In 2008 other operating income reflected a 4.7% decrease                loans of small and medium type corporate in the domestic
from HUF 19.1 billion in 2007 to HUF 18.2 billion, mainly due              business area.
to falling of the gain of sale on AFS securities in the domestic              Despite the higher level of impairments and the unfavou-
market.                                                                    rable last quarter’s tendency, the MKB Group was able to pre-
   The profit before taxation of HUF 8,336 million for 2008                serve its own operating profitability regarding the business
was behind the 2007 profit of HUF 20,905 million, as extre-                income, which is reflected in the gross operating margin
me increase of net provision charges could not be counter-                 (gross operating income to average assets) of 4.5% for 2008,
balanced by higher pre provision business income. The                      having the 4.7% of 2007, whereas the relative operating costs
pre-tax return on average equity ratio (ROAE) was 3.3% for                 represented 2.6% in 2008 (2007: 2.7%). This reflected the
2008 (2007: 10.6%), while the pre-tax return on average                    Group’s ambition for the preserving the harmony between
assets ratio (ROAA) was 0.3% in 2008 (2007: 0.9%). The sig-                the business expansion and cost’s increase.
nificant lag of pre-tax ROAE is attributable to the fact that                 Tax charges decreased to HUF 1,176 million (2007: HUF
the profit before tax was realized at lower level compared                 4,036 million), from which consisted HUF 495 million defer-
to previous years’ profit before tax of both MKB and MKB                   red tax income.
Romexterra Bank. The net provision charge became extre-                       On the grounds of profit after taxation of HUF 7,160 million
mely high due to deteriorating exposure of loans and                       for 2008, the Board of Directors proposes nil dividend pay-
advances, which had a material disadvantage to profit                      ment.
before tax. This reflected in the significant rise of relative                The pre-tax return on average equity of Union bank was
net provision charge, which was at 1.9% for 2008 compa-                    significantly over the consolidated level of the Group (3.3%).
red to the 1.2% figure of 2007. Prudent risk management                    The Unionbank was able to increase ROAE, which amounted
process provided a strong coverage to non-performing                       to 12.6% compared to 7.9% of the previous year-end. During


KEY FIGURES 2008
IFRS
HUF million
                                                       MKB           MKB            Romexterra       Leasing     Auxiliaries**      MKB
                                                      Bank      Unionbank               Group         Group*                      Group
                                                    ACTUAL        ACTUAL               ACTUAL        ACTUAL          ACTUAL      ACTUAL
     Total Assets                                   2 656 629      207 689              225 315       128 875          71 896    2 885 426
     Share Capital                                    14 094           8 179             17 953         1 293          64 507      14 094
     Reserves                                        202 752           9 086             (3 564)        9 429           1 357     215 127


     Operating Income                                 97 037           6 688             11 526         4 269          13 144     120 444
     Net interest income                              66 197           5 816              7 343         5 004             804      82 679
     Net commission income                            15 103           1 728              3 238        (1 422)            (13)     19 541
     Other                                            15 737           (856)                945           193          12 353      18 224
     Operating Expenses                               54 358          (4 068)           (10 046)       (1 807)        (11 511)    (70 360)
     Provision Charge                                 35 102           (754)             (5 444)       (1 269)           (138)    (43 003)


     Profit Before Taxation                            7 577           1 866             (3 964)        1 193           1 496       8 336


     Profit After Taxation                             6 584           1 675             (4 114)        1 659           1 231       6 449


     Pre-tax Return on Average Equity (ROAE)            4.6%          12.6%                  na         13.5%            2.4%        3.3%
     Earnings per Average Outstanding Share (EPS)      46.7%          20.5%                  na        128.3%            1.9%       45.8%
     Pre-tax Return on Average Assets (ROAA)            0.3%           1.3%                  na          1.1%            2.3%        0.3%
     Cost-to-income ratio                              56.0%          60.8%              87.2%          42.3%           87.6%       58.4%
     Capital adequacy ratio                             9.7%          13.8%                9.8%            na              na       10.8%

* Autóhitel, Autólízing
**Resideal, MKB Üzemeltetési, Befektetési Alapkezelô, Exter-Immo Kft.


94
                                                    M A N A G E M E N T ’ S       D I S C U S S I O N S         &     A N A L Y S I S




KEY FIGURES 2007
IFRS
HUF million
                                                    MKB           MKB          Romexterra        Leasing    Auxiliaries**       MKB
                                                   Bank      Unionbank             Group          Group*                      Group
                                                 ACTUAL        ACTUAL             ACTUAL         ACTUAL         ACTUAL       ACTUAL
  Total Assets                                   2 236 900      132 912            162 443         92 237           61 357   2 465 014
  Share Capital                                    14 094          5 235            16 590          1 293           59 042     14 094
  Reserves                                        196 687          7 082               852          8 649              42     199 947


  Operating Income                                 83 681          4 955             9 870          5 849           10 179    103 807
  Operating Expenses                              (45 537)        (3 575)           (7 848)       (1 620)        (10 000)     (59 176)
  Provision Charge                                (22 668)         (526)            (1 019)         (512)              (1)    (24 774)


  Profit Before Taxation                           15 477            855             1 003          3 717             178      20 905


  Profit After Taxation                            12 375            788             1 105          3 467             175      16 869


  Pre-tax Return on Average Equity (ROAE)           10.4%          7.9%               6.2%         42.2%               na       10.6%
  Earnings per Average Outstanding Share (EPS)      87.8%         15.1%               7.9%        268.1%               na      100.8%
  Pre-tax Return on Average Assets (ROAA)            0.8%          1.0%               1.2%          4.4%               na        0.9%
  Cost-to-income ratio                              54.4%         72.1%              79.5%         27.7%            98.2%       57.0%
  Capital adequacy ratio                             9.6%         16.1%              15.0%            na               na       10.4%

* Autóhitel, Autólízing
**Resideal, MKB Üzemeltetési Kft.

the business year there was a Core capital increase in an              NET INTEREST INCOME
amount of BGN 20 million paid up capital and BGN 7.9 milli-            Net interest income, the most important component of reve-
on subordinated debt. This business expansion was reflec-              nue, amounted to HUF 82,679 million, 15.2% in excess of HUF
ted in a significant increase (89.8%) of pre provision net ope-        71,786 million in 2007. The average interest earning assets
rating profit amounting HUF 2,620 million (2007: HUF 1,381             significantly increased (by HUF 387.8 billion), while the total
million). The decrease of ROAA reflected a high growth of              average loans and advances grew by HUF 391.6 billion. This
business activity and FX effects on foreign currency exposu-           growth derived the proceeded expand of foreign currency
res in the last quarter of the year, which enlarged the avera-         business exposures. The net margin decreased to 2.15% from
ge assets in a larger scale than the income effect was able to         2.83%, which was explained by higher competition for the
be appeared. Cost to income ratio was over the consolidated            preserve of customer deposit in the inter-bank crisis environ-
level (58.4%) but decreased to 60.8% from the 72.1% for                ment and specifics business in the sectors and currency bea-
2007 as a consequence of applying prudent cost controlling             ring less margin. Interest expenses due to higher refinancing
principles.                                                            cost significantly increased and the Group could not shift
   Regarding Romexterra Group’s ROAE, there was non appli-             these costs to the customers’ loans.
cable due to the negative profit before tax (2007: 6.2%). From            The interest earning assets, which were denominated in
the other side there was a huge shrinking of pre provision net         domestic currency, remained on the previous years’ level.
operating profit, which decreased to HUF 1,480 million by              This also reflected in the domestic market business trend
26.8% due to the significant growth (28%) of operating                 characterized by the customers preferring foreign currency
expenses. This could be explained by macroeconomic envi-               loans due to the lower level of interest rates. Considering
ronment, which comprised a considerable growth of con-                 the business customers’ exposures, the most significant
sumption price index, which indicated the revision of wages            growth was experienced due to real estate exposures in
in the last quarter. This could be reflected in change of CIR          corporate sector, from HUF 399,5 billion up to HUF 498,9 bil-
from 79.5% in 2007 to 87.2% in 2008.                                   lion. The other main component of growing was residential
   The Euroleasing Group showed the key figures over the               mortgage loans in the private sector, increased to an amo-
banking group profitability and cost efficiency. The ROAE              unt of HUF 461.1 billion from HUF 310.4 billion in 2007. The
decreased to 13.5% (2007: 42.2%) and the CIR was 42.3%,                significant part of the business growths derived from the
which was a significant rise compared to the previous year             significant deterioration of domestic currency in the last
level (27.7%).                                                         Quarter, 2008.


                                                                                                                                         95
M A N A G E M E N T ’ S                D I S C U S S I O N S     &      A N A L Y S I S




  Interest income from loans and advances increased by HUF               compared to the previous year which was counter balanced
32.9 billion and amounted to HUF 171.8 billion.                          with increase in 29.5% derived from retail segments.
  The average interest earning liabilities increased by HUF                 Interest expense due to the bank’s deposit increased to
196 billion, that gave coverage for business extension. The              HUF 33.9 billion from HUF 19.5 billion 2007 which reflected
growth of customer deposit was lagging behind expansion                  the enhanced roll of the banking deposits in the Group’s
of customers’ loans and advances which caused the signifi-               financing structure..
cant increase among the long term liabilities from banks. The               The interest income from debt securities significantly increa-
new inter-bank loans from BayernLB had liquidity surcharge,              sed (by HUF 3,626 million) due to the bank’s policy in connecti-
which also reflects on increased refinancing costs. This was             on with compulsory deposit. Due to the stagnated HUF market
derived directly from parent bank. Corporate current and                 the bank increased own securities exposures with HUF liquidity.
deposit accounts sustained at the previous levels which ref-             During December 2008 the condition of the compulsory depo-
lected the reduced circumstances of customer savings.                    sit was changed, which decreased compulsory rate in cash
According to the corporate clients decrease in 15.2% existed             deposit from 5% to 2% and this increased security exposures.



AVERAGE INTEREST ASSET/LIABILITIES BY BUSINESS AREAS
HUF million
                                                        MKB Bank                      MKB Unionbank                MKB Romexterra Bank
                                                    2008       2007                  2008       2007                2008        2007
     Average loans and advances                 1 904 011   1 525 453             142 183        65 666            108 406       73 849
     Average securities                          137 075      134 684                3 828        5 027              6 739       11 829
     Average interest earning assets           2 041 086    1 660 137             146 011       70 693            115 144        85 678
     Average interest rate %                         6.92        6.75                 7.99        12,18              14,03        16,52


     Average customer and deposit accounts      1 049 873     972 295             140 788        77 048            139 052       86 951
     Average issued securities                   384 355      273 302                1 789        2 533                829          789
     Average interest earning liabilities      1 434 228    1 245 596             142 577       79 581            139 880        87 740
     Average interest rate %                         5.24        4.81                 4.28         3.40               7.02         5.61


     Difference between average rate %              1.68        1.94                 3.71         8.78                7.02        10.91




  In 2008 MKB Bank reported a HUF 66,197 million net                     both in the portfolio and the income figure. At the same time,
interest income, a positive result compared to the HUF                   interest-bearing assets denominated in domestic currency
55,469million in the previous year. This moderated increase              reflected a relative decrease (5.7%) caused by shrinking of
of net interest income was related to a reserved growth of               average inter-bank’s exposures in domestic currency and
average interest bearing assets (HUF 2,041.1 billion). This was          stagnating level of average corporate exposures.
caused primarily by the concentration of the growth of busi-                The customer loans increased primarily in the large corpo-
ness portfolios in the last 6 months of the year. Due to the             rate segment, where the return is less effective (HUF 251.7
growing tension of private deposit market, the bank had to               billion average portfolio growth). A considerable increase
give a special premium to private customers in order to pre-             was observed in the average portfolio of private loans, which
serve the previous exposure level. The deposit promotions                are very effective in terms of return (HUF 134.9 billion) but
generated significant additional interest expenses. At the               the average portfolio. The above mentioned factors caused
same time, the increase of the business portfolios was finan-            the considerable decrease of net interest margin that drop-
ced from funds raised on the inter-bank market. This also cau-           ped to 1.68% from previous year level (1.94%).
sed a slight slowdown on the increase of the net interest                   MKB’s average interest earning liability was up to HUF
income.                                                                  1,434.2 billion from HUF 1,245.5 billion in 2007. The two main
  In 2008 the average portfolio of interest-bearing assets               component of increasing were the average customer deposit
grew from HUF 1,660.1 billion in 2007 by 22.9% due to a                  growth by HUF 77.6 billion and increasing average issued
robust 20.4% increase in the currency-based portfolio. The               securities by HUF 111.1 billion because in the first half of the
portfolio increase partly resulted from new transactions, and            year MKB issued huge volume of MKB bonds in domestic cur-
partly from the deteriorating of the HUF, which was reflected            rency.


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    In 2008 the average portfolio of interest bearing assets        NON-INTEREST INCOME
of MKB Unionbank increased from HUF 70.7 billion in 2007            For 2008, the total non-interest income increased by 17.9%
by 106.5% to HUF 146 billion. Increase of the average portfo-       and amounted to HUF 37,765 million (2007: HUF 32,021 milli-
lio resulted from new transactions significantly in private seg-    on), representing 31.4% of gross operating income compared
ment (44.1%). The considerable growth has appeared in cor-          to 30.9% in 2007. The rise in the nominal amount of such inco-
porate sector (143.7%). At the same time average portfolio of       me was the net result of different factors as detailed below.
securities decreased by 23.86% (HUF 1.2 billion).                      Total net commission and fee income of HUF 19,541 milli-
    The vivid increase of average portfolio related to private      on grew by 51.5% from HUF 12,896 million in 2007, reflecting
individuals was mainly denominated in domestic currency             the huge expansion of the Bank’s fee-generating activities.
(BGN) and at higher average interest rate (11%). Structure of       The significant part of increase (HUF 2 billion) can be explai-
corporate segment has slightly changed in 2008. The large           ned by the new reclassification rule, which means that the
corporate segment was increased from HUF 5.3 billion to             loan brokerage fees are to be disclosed among the interest
HUF 22 billion.                                                     expenses due to the fee amortization according to IFRS. The
    The average portfolio of interest bearing liabilities increa-   rest can be related to subsidiaries business activity which
sed from HUF 79.6 billion by 79.16% to 142.6 billion, that          resulted surplus of HUF 1820 million in case of Romexterra
gave the coverage for the growth of lending business exten-         bank and of HUF 578 million in case of Unionbank. The signi-
sion. In 2008 the average deposit portfolio increased by HUF        ficant growth of commission income derived from lending
63.7 billion (82.7%): on one hand the term deposits increased       business in case of both subsidiaries.
by HUF 50.7 billion and reached HUF 100.4 billion level (2007:         Although almost all fee-income elements grew compared
HUF 49.7 billion), on the other view the sight deposits also        to 2007, the income on payment and card services was
sharply increased by HUF 12.9 billion and reached HUF 40.3          slightly below the planned level in the domestic business
level (2007: HUF 27.4 billion). Main customer segments of inc-      area. The most of growth rates in commission income repre-
rease were large corporate (28.8 billion) and private individu-     sented 57.4% in lending fee, 17.1% in brokerage fees. The
als (HUF 35.2 billion). The issued securities slightly decreased    fees from payment services sustained at the previous year
by HUF 0.7 billion (29.4 %) and in December MKB Unionbank           level while the credit related fees showed decrease of HUF
received HUF 1.3 billion subordinated debt. On account of           1,092 million.
the above mentioned factors the net interest margin change             Meanwhile, fees expenses showed a significant decrease
to 3.71%.                                                           (by HUF 548 million) compared to previous years and drop-
    In 2008 average portfolio of interest bearing assets of         ped to HUF 7,778 million from 2007 year-end figure of HUF
MKB Romexterra Bank was over 34.39% (HUF 115,1 billion)             8,326 million. The reason of shrinking of fee expense can be
the total amount of HUF 85,7 billion in 2007. The growth            related to reclassification of loan brokerage fees to the
could be explained by significant increasing average balance        among interest expenses, which meant HUF 2 billion decrea-
of loan portfolio mainly due to SME and micro enterprises by        se. At the same time, fees for car dealer decreased by HUF 239
56,6% to HUF 69.5 billion and private customers by 6.9% to          million due to the less leasing activity in the unfavourable
HUF 31,2 billion. Comparing to 2007 the deterioration of            domestic market.
domestic currency (RON) was higher than was recognisable               Other operating income of HUF 18,224 million for 2008
in case of HUF. Because of this reason more significant FX          was 4.7% under the total amount of HUF 19,125 million for
impact was realised due to foreign currency exposure.               2007. The gain on sale of trading securities sustained at the
    Meanwhile, the average portfolio of interest-bearing liabi-     previous year level meanwhile the trading gains on AFS secu-
lities grew from HUF 87.7 billion in 2007 by 59.43% in relation     rities showed HUF 1038 million decreases compared to 2007.
to a dynamic increase (68.15%) in the term deposits. A consi-       This reflected the general devaluation of Hungarian govern-
derable increase was experienced in the deposits of large           ment bonds which were held in AFS portfolio before. Net
corporate customers (HUF 23.5 billion) and Treasury transac-        gain on derivative transaction increased by 15.1% amounted
tions (HUF 58.2 billion), while HUF 11.2 billion decreasing         to HUF 18,281 million which can be explained by the FX surp-
occurred in connection with average portfolio of retail seg-        lus due to the high volatility of domestic currency rate in the
ment (HUF 11.2 billion).                                            last Quarter. This effect was contra balanced by growth of
    During the business year the macroeconomic environment          other costs of both foreign subsidiaries banks.
was bearing high inflationary pressure (7.85%) Thus the ave-           Within MKB’s non-interest-type income, the HUF 15,103
rage interest rate related to loans and advances (earning           million net fee and commission income in 2008 was higher
assets) was 14 % and average deposit rate (earning liability)       by 23.6% than the HUF 12,216 million income earned last
was 7.2% which seemed to be higher than in CEU region.              year. This growth derived from the above mentioned reclas-
    The above mentioned reasons caused that the net interest        sification of loan brokerage fee expenses. The other opera-
margin decreased to 7.02% level from 10.9% in the previous          ting income was almost the previous year level amounting to
year.                                                               15, 737 million (HUF 15,997 million, 2007). According to ope-
                                                                    rating income the realized gains on securities business


                                                                                                                                97
M A N A G E M E N T ’ S           D I S C U S S I O N S        &    A N A L Y S I S




shrank to HUF 73 million compared to HUF 1,111 million of            As a consequence of the above mentioned factors, occu-
2007. This was caused by the above mentioned negative                pancy and rental costs increased by 14.7% from HUF 11,239
market tendencies of last quarter, which was harmful for mar-        million in 2007 to HUF 12,889 million. Simultaneously, com-
ket price of Hungarian government bonds.                             munication and data processing expenses decreased by HUF
   MKB Unionbank’s net commission and fee income was                 855 million due to the strict budget of IT developments.
up 54% from HUF 919 million in 2007. Significant increasing             The recognized benchmark to measure efficiency in the
eventuated due to extension of lending business (HUF 0.6 bil-        banking industry, the cost-to-income ratio for the year 2008
lion) and growth of other commission income (0.4 billion) as         was 58.4%, 1.4 percentage points over the 57.0% figure of
a consequence of that, the total amount reached HUF 1.4 bil-         2007. This increase compared to last year’s figure reflected
lion at the end of this year. While income from FX based tran-       enlarging sales capacities, revenue growth initiatives and
saction was HUF 0.2 billion profit in 2007, for the year of 2008     unfavourable inflation situation in Romanian market.
Unionbank disclosed HUF 0.3 billion profits mainly due to               MKB Bank’s operating costs amounted to HUF 54,358 mil-
revaluation of currency related transactions.                        lion with a 19.4% nominal increase compared to the HUF
   Romexterra Group’s net commission and fee income                  45,537 million total costs in 2007. In relation to the organic
sharply increased from 1.2 billion in 2007 to HUF 3.2 billion in     growth of MKB Bank in 2008, the headcount figure increased
this year, recognizing more commission and fee income from           by 252 employees during the year. The salaries, wages and
lending business (HUF 1.8 billion), other commission income          other staff-related expenses grew by 23.2% and reached HUF
(HUF 0.4 billion) and foreign commercial banking operations          24,706 million. This increase was related to the opening of
(HUF 0.1 billion) while the income of payment services decre-        new branches and 8-8.5% of the increase was related to the
ased down 36.9% to HUF 0.9 billion. The currency related             inflationary environment and the severance pays that appea-
transactions were growing from HUF 0.9 million in 2007 to            red during the 2008.
1.5 billion due to extension of FX based transactions                   The general administration expenses grew by HUF 1,640
                                                                     million, which mostly derived from increase of other tax
OPERATING COSTS                                                      items and other office costs. Moreover the legal advices cost
Cost discipline remained a priority in 2008 as well, although        increased by HUF 221.7 million.
the Group continued investing in revenue growth initiatives.            The growth in communication and data processing costs
During 2008 operating costs totalled HUF 70,360 million,             (16%) was due primarily to the additional costs of new strate-
18.9% higher than HUF 59,176 million 1 year earlier.                 gic projects launched during the year. Meanwhile, the signifi-
   The nominal growth in operating expenses was driven by            cant IT projects aimed at the implementation of more advan-
the extra expenses of running the Group’s extended sales             ced systems to support customers’ services also continued. In
capacities in the first half of the Business year. Meanwhile, the    this context, the costs of capacity increase required for orga-
most significant IT project related to the core system was           nic expansion, more specifically, IT development and the
implemented at the end of this year. Besides this, more              costs of opening new branches (7 new branches), were the
advanced systems all over the Group to promote customers’            most important items.
services also continued in 2008.                                        The occupancy cost increased significantly by 17.7% (by
   In nominal terms the general and administrative costs inc-        HUF 1.220 million) due to the rental cost of new branches and
reased by 22.6% over 2007 which was mostly caused by hig-            new office for administrative purpose.
her cost level of Romanian market. The increase related to              The Bank’s 56% cost to income ratio indicated some decli-
MKB stand alone figure was only 19.8%. The significant incre-        ne in comparison to the 54.4% in 2007. The Bank introduced
ase of salaries and wages was visible (21.3%) also included          the first part of the strict cost control over MKB Group during
the big effect of Romexterra Group’s change that was 30.2%           the last quarter 2008. Consequently the Bank gave up the
increase compared to previous year. The growth of MKB                taking on of new employees and the free statuses were elimi-
stand alone slightly exceeded the increase of Group’s perso-         nated during the last quarter. The effect of this measure will
nal expenses reaching to 23.2 %, which can be explained by           be perceptible in the change of personal expenses for 2009.
the growth in the total number of full-time equivalent staff            The Bank’s efforts to contain costs in line with business
(additional 252 number of employees) in consequence of the           growth are clearly illustrated by the 2.66% operating expen-
Group’s organic growth abroad and severance pays that                ses to average total assets ratio, which sustained almost at
appeared during 2008 in MKB Bank. During 2008 the Bank               the same level of 2.63% measured in 2008.
continued its Break out strategy that also increased MKB’s              General and administrative cost of MKB Unionbank increa-
general and administrative costs.                                    sed by HUF 0.5 billion from 2007 (HUF 3.6 billion) to 2008
   The costs of the enlarged branch network as well as the           (HUF 4.1 billion). The number of employees grew by 8% to
move into a new temporarily rented office building resulted          782 which can explain by the salaries and wages were up by
in a growth in gas, electricity and property rental expenditu-       5% to HUF 1.8 billion from 2007 to 1.7 billion and other admi-
res. The Group opened 29 new branches in 2008 which see-             nistrative expenses increased from HUF 1.2 billion 2007 to
med to be much lesser growing rate than previous year’s one.         HUF 1.5 billion 2008 (27.3% increasing). Related to administ-


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rative expenses rising could be explained by a higher amount         ness year the additional subordinated loan was EUR 55 milli-
of building cost (HUF 0.7 billion). The above mentioned cost         on within the Group. Beside this, MKB Unionbank needed
increase was indicated by extension of branch network                capital increase in an amount of BGN 20 million.
which caused relative high CIR 60,8%.                                   The inter-bank deposits (HUF 947.1 billion) grew by HUF
   General and administrative cost of MKB Romexterra                 368.5 billion in 2008 since the end of the previous year,
Bank grew by 30.2% from HUF 7.2 billion in the previous year         mainly as a result of currency deposits from the inter-bank
to HUF 9.4 billion. The number of employees grew by 3.4%             market. This increase of the inter-bank deposits significantly
(39 new employees) to 1,076. In the summer period there was          exceeded the budget. This meant a quick answer to stagna-
a vacation bonus. Increasing eventuated due to salaries and          tion of the Hungarian savings market and provided a long-
social security expenses (by HUF 0.9 billion, by 31.9%) and          term response to the shortage of funds on the international
other administration expenses (by HUF 0.9 billion, by 28.9%)         equity markets. The financing derived from the BayernLB
and reached HUF 3.8 billion level for 2008. The continued inf-       according to the group treasury arrangements.
lationary pressure caused the high CIR represented 87.2%.               At the end of 2008 the total assets of MKB Bank were HUF
                                                                     2,656.4 billion, 18.9 % higher than HUF 2.234.9 billion for
BALANCE SHEET MANAGEMENT                                             2007. This organic growth was about as fast as in the previo-
At the end of 2008, the Group’s total assets were up 17.1%           us year (21.3%), resulting primarily from the extensive busi-
from HUF 2,465 billion at previous year-end to HUF 2,885.4           ness policy strategy applied primarily to project financing
billion at 31st December, 2008. Although volume of increase          and retail loans.
of total asset slightly lagged behind the growing in the pre-           Among the assets, the customer loan portfolio grew by
vious year (23.6%), project financing and real estate loans          17.6% in the year, due to the significant efforts taken by the
exposures extended significantly. The share of customer              Bank for retaining the good credit quality of the portfolio.
asset balances was about on the same level (79.5%) as it was         Besides the normal business growth deterioration of HUF
in the previous year-end (77.4%) in the total.                       supported the achievement of planned figures. There was a
   In 2008 growth in total assets was primarily driven by cus-       permanent growth tendency among retail loans, which were
tomer lending whose net volume was up 20.3% from HUF                 increasing continuously.
1,905.9 billion in 2007 to HUF 2,292.8 billion.. The largest indi-      The dominance of the loans denominated in foreign cur-
cator of increase (HUF 386.9 billion) was additional project-        rency to corporate customers remained significant in the
and corporate financing loans that was given to real estate          portfolio, representing 73% (typically EUR loans). Similarly to
sector mainly recognized in the Middle Eastern European              corporate loans, foreign currency loans dominated in the
regio. The other two main sectors the Groups’ exposure are           retail customer segment throughout the year, as a result of
relevant was food and beverages (HUF 158.9 billion) and              which foreign currency loans represent approximately 86%
trade and services (117,8 billion).                                  of the total retail loan portfolio of the Bank. The majority of
   The loans and advances to retail sector were prominent            the new retail currency loans were taken in CHF, mainly in the
due to the increase of residential property and consumption          form of new transactions dominated by real property and
loans in foreign currency at domestic and also foreign busi-         consumption loans. Because of these facts, the high fluctuati-
ness areas. Residential mortgage loans to private clients (inc-      on of FX rates has been reflected on the balance sheet and
reased by HUF 150,7 billion) and real estate loans to corpora-       also on the profit and loss figures.
te segments ( increased by HUF 99, 4 billion) showed a consi-           The customer deposits grew by only 1.1% from HUF
derable growth.                                                      1,075.9 billion in the previous year to HUF 1,087.8 billion. The
   The Bank’s business policy continued placing strong emp-          growth was slower than in 2007, which was also reflected in
hasis on retaining and expanding the customer deposit base           the declining share of the customer deposit portfolio (2008:
in order to fund constantly growing credit volumes. Total            44.6% 2007: 53.1%). The corporate deposit sustained at the
volume of current and deposit accounts held at Group by              previous level amounted to HUF 463.3 million.
corporate and private customers sustained at the previous               Looking at the composition of corporate deposits, we can
year’s level amounted to HUF 1,267.8 billion (2007: HUF              observe a significant increase in the Micro SME segment
1,247.1 billion). The current and deposit account decreased          (28.3% increase in deposits), which was offset with the same
by HUF 11,279 million in case of MKB Romexterra Bank, at the         amount of decrease in the deposits related to other types of
same time the significant growth of HUF 24,346 million appe-         corporate customer.
ared in the customer deposit of MKB Unionbank.                          The deposits placed by other financial intermediaries exce-
   However, during the year, the Group had to pay a lot of           eded HUF 102.8 billion (HUF 83.5 billion in 2007) which deri-
attention to keeping its customer deposits in the strong com-        ved from the Funds business activity.
petition for the shrinking domestic resources on the                    The average portfolio of retail deposits grew to HUF 426.6
Hungarian market. Both foreign bank subsidiaries had to be           billion from HUF 402 billion in the previous year. In terms of
financed by subordinated loan from MKB Bank in order to be           timing of the retail deposits, a major increase was observed in
able to manage the growth of credit volume. During the busi-         the fourth quarter (HUF 21.5 billion) - primarily in relation to


                                                                                                                                  99
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an increase in demand HUF deposits. While the current HUF                It requires active management of both risk-weighted assets
deposit portfolio decrease by HUF 16 billion                             and the capital base.
   The interbank financing derived directly from BayernLB in                Domestic and international guidelines require the Bank to
amount of HUF 534.5 billion deposit. The received long term              maintain certain minimum capital-to-asset ratios. These risk-
deposit exceeded the budget level which was unavoidable                  based ratios are determined by allocating assets and specifi-
solution on the stagnated interbank market during the last               ed off-balance sheet instruments into 4 weighted categories,
Quarter. The share of banking deposit significantly changed              with higher levels of capital being required for categories
from 27.1% of previous year level to 37.5% at the end of cur-            perceived as representing greater risk. Regulatory capital is
rent year.                                                               divided into Tier 1 Capital and Tier 2 Capital. In addition to
   At the end of 2008 MKB Unionbank’s total assets increa-               retained earnings, the Bank may raise regulatory capital by
sed to 56.3% from HUF 132.9 billion at previous year-end to              issuing several types of financial instruments to the public.
HUF 207.7 billion. During 2008 the loans portfolio growth by             These financial instruments are then classified as either Tier 1
57.6% to HUF 148.2 compared to HUF 94.1 billion. The retail              or Tier 2, depending on the types of conditions or covenants
segmentation which contains the small companies & indivi-                they place upon the issuer.
dual clients and households growth by 47.48% to HUF 70.7                    In June 2004, the Basel Committee on Banking Supervision
billion from HUF 47.9 billion. The corporate segmentation                released its report entitled “International Convergence of
was up by 53.9% to HUF 77.5 billion.                                     Capital Measurement and Capital Standards: A Revised
   As a result of the efforts for increasing the deposit base in         Framework” (Basel II). The new framework is designed to
2008, the customer deposit rose by 26.09 % with a net increase           more closely align regulatory capital requirements with
of HUF 24.3 billion. The deposit from retail segment at the end          underlying risks by introducing substantive changes in the
of the year amounted to HUF 60.7 billion. During the reporting           treatment of credit risk. Moreover, an explicit new capital
period the Bank kept on extending its client base. At the end of         charge for operational risk has also been introduced, as well
2008, the Bank’s customers in the retail banking numbered                as increased supervisory review and extended public disclo-
76,570 in which 9,014 are SMEs and 67,556 are individuals.               sure needs. MKB Bank is committed to completing the neces-
   In this financial year total assets of MKB Romexterra                 sary tasks and has launched a comprehensive project aiming
Bank increased to 18.9% from HUF 161,3 billion to 191,8 billi-           at being in a position to implement and meet the new regu-
on. The loan portfolio of MKB Romexterra Bank reached HUF                latory requirements 1st January, 2008.
121,3 billion. The retail segmentation increased by 21.78% to               Tier 1 Capital includes securities with no fixed maturity
HUF 33.5 billion from HUF 27.5 billion. The corporate seg-               date, such as ordinary shares. At December 31, 2008, the
mentation was up by 66.46% to HUF 87.4 billion.                          Group had HUF 164.7 billion (2007: HUF 152.6 billion).
   The current account and deposit balances decreased from                  Tier 2 Capital may include subordinated long-term debt
HUF 80,3 billion to HUF 69,1 billion at the end of year. While           and similar instruments and qualified loan loss reserves. The
the deposit from retail segment growth by 24.83% to HUF                  amount of subordinated long-term debt may not exceed
32,6 billion the corporate segmentation decreased by                     50% of the issuer’s Tier 1 Capital and, in addition, the capital
20.46% to HUF 41.3 billion. At the end of 2008, the Bank’s cus-          treatment accorded subordinated debt is reduced as it app-
tomers in the retail banking numbered 278,035. Due to the                roaches maturity. Qualified general loan loss reserves may be
huge decrease of customer deposit MKB had to provide the                 included in Tier 2 Capital up to 1.25% of risk-weighted assets.
stable liquidity situation for MKB Romexterra Bank during the            Total Tier 2 Capital is limited to 100% of Tier 1 Capital.
second half of this year. This changed the proportion of finan-             In 2008, Tier 2 capital element increased to HUF 104,427
cing structure of the Bank. The intra-group finance occupied             million (2007: HUF 88,055 million), principally due to the
more percentage of total financing with 71.6%. (2007: 32%)               additionally borrowed subordinated debt of EUR 55 million.
                                                                         Another significant part of Tier 2 Capital is the general risk
CAPITAL MANAGEMENT                                                       reserve amounting to HUF 5,449 million (2007: HUF 5,775
MKB Bank’s strong capital base contributes to its safety, pro-           million), net of deferred tax, which is allowed to be set aside
motes customer confidence, supports its high credit rating               for anticipated, yet not identified losses inherent in the asset
and enables it to take advantage of growth opportunities.                portfolio and calculated in accordance with Hungarian ban-
MKB Bank’s policy is to remain well capitalised in order to              king regulations and amounts up to 1.25% of the Bank’s risk
provide adequate business flexibility and to support risks               weighted assets. In 2008, general risk reserve declined HUF
associated with its activities. As capital is a critical resource, it    739 million through utilisations for loan losses.
is actively managed by the Bank. The capital management                     Risk-weighted assets including operational and market risk
processes take into account the changes in balance sheet                 increased by 8.0% over 2007 and amounted to HUF 2,500.6
and risk-adjusted assets, the capital structure and the costs            billion (2007: HUF 2,315.1 billion).
and availability of various types of capital, investment plans              At 2008 year-end, the Group’s level of capital remained
and shareholder returns, while satisfying the requirements of            strong, with capital ratios in excess of regulatory minimum
regulators, rating agencies, financial markets and depositors.           requirements. The Group’s regulatory capital base increased


100
                                             M A N A G E M E N T ’ S        D I S C U S S I O N S      &    A N A L Y S I S




from HUF 240.5 billion in 2007 to HUF 268.9 billion in 2008.     the risk asset decreased by 1.7% amounted to HUF 99,252
Thus the capital adequacy ratio of 10.76% at 2008 year-end       million and capital charge for market risk position decreased
increased from 10.4 % at December 31, 2007. However, the         by 92.34% from HUF 104,038 million in 2007 to HUF 7,973
Group’s capital adequacy ratio safely exceeded the minimum       million. This was explained by the significant decrease of
legal and BIS requirements. The Bank implemented the             capital charge for overall currency position.
ICAAP regulations in own monthly rwa monitoring. The               In frame of Group rwa management the expansion of busi-
Supervisory Regulation makes all banks to meet the pillar 1 -    ness growth in both subsidiaries was harmonized with core
2 (SREP) requirements at the same time.The minimum inter-        capital requirements, which contributed to more efficient
nal limit for SREP is 8.5%.                                      use of allocated capital in the MKB Group.
   The CAR of MKB Unionbank decreased to 13.83% from
15.08% of previous year level. The core capital was HUF
23,475 million which was higher than the previous year-end       Budapest, 23 February, 2009
figure (HUF 17,1510 million) due to the additional subordina-
ted loans derived from MKB Bank HUF 6,443.7 million.
Meanwhile the risk asset increased by 108.9% amounted to
HUF 115,967 million and capital charge for market risk positi-
on decreased by 81.6% from HUF 632.6 million in 2007 to
HUF 116.1 million. This was explained by the significant dec-
rease of capital charge for overall currency position.
   The CAR of MKB Romexterra Bank significantly decrea-
sed to (9.79%) from the previous year-end level (14%). The
core capital was HUF 15,1508 which was higher than the pre-
vious year-end figure (HUF 15,028 million) due to the additio-                           Tamás Erdei
nal subordinated loans derived from MKB Bank. Meanwhile                           Chairman & Chief Executive




                                                                                                                          101
KEY FIGURES
Unconsolidated, HAR
HUF million
                                               2007        2008
  Total Assets                              2 278 387   2 699 402
  Shareholders' equity                        205 571     206 222


  Gross Operating Income                       91 907      83 621
  Operating Expenses                           41 611      49 622
  Provision Charge                             18 446      29 005


  Profit Before Taxation                       28 026        526


  Profit After Taxation                        22 864        524


  Pre-tax Return on Average Equity (ROAE)      15,2%        0,3%
  Capital adequacy ratio                       10,7%        9,7%




102
UNCONSOLIDATED BALANCE SHEET
Hungarian Accounting Rules
HUF million
  No.          Item                                                                                               31. 12. 2007.   31. 12. 2008.
               ASSETS
  1     1.     Cash in hand, balances with central banks                                                               97,158          61,972
  2     2.     Treasury bills                                                                                          80,554         158,083
  3            a) held for dealing                                                                                      80,642         157,135
  4            b) held for investment
  5     2/A    Revaluation difference on treasury bills                                                                    -88             948
  6     3.     Loans and advances to credit institutions                                                              149,823         212,059
  7            a) due on demand                                                                                          9,266          28,010
  8            b) other receivables from financial services                                                            140,413         183,998
  9              ba) maturity up to one year                                                                            95,578         109,058
  10             Of which: – to affiliated undertakings                                                                 15,581          75,939
  11                        – to other undertakings with participating interest
  12                        – to the National Bank of Hungary
  13                        – clearing house                                                                                15              20
  14             bb) maturity over one year                                                                             44,835          74,940
  15             Of which: – to affiliated undertakings                                                                 16,087          69,157
  16                        – to other undertakings with participating interest
  17                        – to the National Bank of Hungary
  18                        – clearing house
  19           c) receivables from investment services                                                                     144               3
  20             Of which: – to affiliated undertakings
  21                        – to other undertakings with participating interest
  22                        – clearing house                                                                               143               3
  23    3/A    Revaluation difference on receivables due from credit institutions                                                           48
  24    4.     Loans and advances to customers                                                                      1,715,266       2,011,338
  25           a) receivables from financial services                                                                1,715,190       2,010,948
  26             aa) maturity up to one year                                                                           605,493         699,202
  27             Of which: – to affiliated undertakings                                                                 35,689          87,377
  28                        – to other undertakings with participating interest
  29             ab) maturity over one year                                                                          1,109,697       1,311,746
  30             Of which: – to affiliated undertakings                                                                 72,128          75,508
  31                        – to other undertakings with participating interest
  32           b) receivables from investment services                                                                      12              89
  33             Of which: – to affiliated undertakings
  34                        – to other undertakings with participating interest
  35             ba) receivables from investment service activities on the stock exchange                                                   38
  36             bb) receivables from over-the-counter investment service activities
  37             bc) receivables from investment services to customers                                                      12              51
  38             bd) receivables from clearing houses
  39             be) other receivables from investment services
  40    4/A    Revaluation difference on receivables due from customers                                                     64             301
  41    5.     Debt securities including fixed-income
               securities                                                                                              51,334          52,426
  42           a) securities issued by local authorities and by other public entities (excluding Treasury bills
               issued by Hungarian state and securities issued by the National Bank of Hungary)                              0               0




                                                                                                                                             103
UNCONSOLIDATED BALANCE SHEET
Hungarian Accounting Rules
HUF million
  43             aa) held for dealing
  44             ab) held for investment
  45           b) securities issued by other entities                                                       51,474    52,465
  46             ba) held for dealing                                                                       51,474    52,465
  47             Of which: – to affiliated undertakings                                                         1         0
  48                        – to other undertakings with participating interest
  49                        – repurchased own debt securities                                               36,168    41,204
  50             bb) held for investment
  51              Of which: – to affiliated undertakings
  52                        – to other undertakings with participating interest
  53   5/A     Revaluation difference on debt securities and fixed-income securities                          -140       -39
  54   6.      Shares and other variable-yield securities                                                    3,121     3,258
  55           a) shares and equity stakes held for dealing                                                   106       484
  56             Of which: – to affiliated undertakings                                                       106       106
  57                        – to other undertakings with participating interest
  58           b) other variable-yield securities                                                            2,749     2,395
  59             aa) held for dealing                                                                        2,749     2,395
  60             bb) held for investment
  61   6/A     Revaluation difference on shares and other variable-yield securities                           266       379
  62   7.      Shares and participating interests held for investment purposes                                256       315
  63           a) shares and participating interests                                                          256       315
  64             Of which: – shares and participating interests in credit institutions
  65           b) revaluation surplus on shares and participating interests
  66             Of which: – shares and participating interests in credit institutions
  67   7/A     Revaluation difference on shares and participating interests held for investment purposes
  68   8.      Shares and participating interests in affiliated undertakings                               121,242   128,585
  69           a) shares and participating interests in affiliated undertakings                            121,242   128,585
  70             Of which: – shares and participating interests in credit institutions                      50,434    52,775
  71           b) revaluation surplus on shares and participating interests in affiliated undertakings
  72             Of which: – shares and participating interests in credit institutions
  73   9.      Intangible assets                                                                            11,470    13,564
  74           a) intangible assets                                                                         11,470    13,564
  75           b) revaluation surplus on intangible assets
  76   10.     Tangible fixed assets                                                                         2,126     2,496
  77           a) tangible fixed assets for financial and investment services                                1,674     2,053
  78             aa) land and buildings                                                                       445       477
  79             ab) technical equipment, fittings and vehicles                                              1,229     1,568
  80             ac) fixed assets in the course of construction                                                           8
  81             ad) advance payments on constructions
  82           b) tangible fixed assets servicing non-financial and non-investment activities                 452       443
  83               ba) land and buildings                                                                      44        35
  84               bb) technical equipment, fittings and vehicles                                             408       408
  85               bc) fixed assets in the course of construction
  86               bd) advance payments on constructions
  87           c) revaluation surplus on tangible fixed assets
  88   11.     Own shares




104
UNCONSOLIDATED BALANCE SHEET
Hungarian Accounting Rules
HUF million
  89    12.    Other assets                                                                                  21,997          30,037
  90           a) stocks (inventories)                                                                            44             314
  91           b) other receivables (from non-financial and non-investment securities)                         1,542           7,314
  92             Of which: – to affiliated undertakings                                                          398              60
  93                          – to other undertakings with participating interest
  94    12/A   Revaluation difference on other receivables
  95    12/B   Positive revaluation difference on derivative transactions                                     20,411          22,409
  96    13.    Prepayments and accrued income                                                                24,040          25,269
  97           a) accrued income                                                                              21,512          23,504
  98           b) prepayments                                                                                  2,528           1,765
  99           c) deferred charges
  100          TOTAL ASSETS                                                                               2,278,387       2,699,402
  101          From this: – CURRENT ASSETS
                              (1+2/a+3/c+3/a+3/ba+4/aa+4/b+5/aa+5/ba+6/a+6/ba+11+12)                         985,132       1,164,896
  102                     – FIXED ASSETS (2/b+3/bb+4/ab+5/ab+5/bb+6/bb+7+8+9+10)                           1,289,626       1,531,646




  No.          Item                                                                                     31. 12. 2007.   31. 12. 2008.
  103          Liabilities:
  104   1.     Liabilities to credit instiutions                                                            544,721         911,782
  105          a) due on demand                                                                                6,111           3,826
  106          b) liabilities from financial services with agreed maturity dates or periods of notice        538,485         907,841
  107            ba) maturity up to one year                                                                 277,328         232,316
  108            Of which: – to affiliated undertakings                                                       69,739         148,202
  109                         – to other undertakings with participating interest
  110                         – to the National Bank of Hungary                                                                5,000
  111                         – clearing house
  112            bb) maturity over one year                                                                  261,157         675,525
  113            Of which: – to affiliated undertakings                                                       60,800         509,512
  114                         – to other undertakings with participating interest
  115                         – to the National Bank of Hungary
  116                         – clearing house
  117          c) liabilities from investment services                                                           130             115
  118            Of which: – to affiliated undertakings                                                            0               0
  119                         – to other undertakings with participating interest
  120                         – clearing house                                                                    22             114
  121   1/A    Revaluation difference on liabilities due to credit institutions                                    -5
  122   2.     Liabilities to customers                                                                   1,068,504       1,079,819
  123          a) saving deposits                                                                              1,314             576
  124            aa) due on demand
  125            ab) maturity up to one year                                                                   1,307             569
  126            ac) maturity over one year                                                                        7               7
  127          b) other liabilities from financial services                                                1,066,986       1,077,876
  128            ba) due on demand                                                                           373,296         346,025
  129            Of which: – to affiliated undertakings                                                        2,687           7,900
  130                         – to other undertakings with participating interest                                 81              38



                                                                                                                                   105
UNCONSOLIDATED BALANCE SHEET
Hungarian Accounting Rules
HUF million
  131            bb) maturity up to one year                                                  670,626   715,931
  132            Of which: – to affiliated undertakings                                         5,991     6,216
  133                       – to other undertakings with participating interest                  989       727
  134            bc) maturity over one year                                                    23,064    15,920
  135            Of which: – to affiliated undertakings
  136                       – to other undertakings with participating interest
  137          c) liabilities from investment services                                           264      1,367
  138            Of which: – to affiliated undertakings                                            0
  139                       – to other undertakings with participating interest                    3
  140            ca) liabilities from investment service activities on the stock exchange          3
  141            cb) liabilities from over-the-counter investment service activities
  142            cc) liabilities to customers from investment services                           261      1,367
  143            cd) liabilities from clearing houses
  144            ce) other liabilities from investment services
  145   2/A    Revaluation difference on liabilities due to customers                             -60
  146   3.     Liabilities from issued debt securities                                        306,393   310,228
  147          a) issued bonds                                                                308,274   310,163
  148            aa) maturity up to one year                                                   46,842   216,983
  149            Of which: – to affiliated undertakings                                         3,000     2,744
  150                       – to other undertakings with participating interest                  736
  151            ab) maturity over one year                                                   261,432    93,180
  152             Of which: – to affiliated undertakings                                        3,801
  153                       – to other undertakings with participating interest                 3,216
  154          b) other debt securities                                                            0         0
  155            ba) maturity up to one year
  156             Of which: – to affiliated undertakings
  157                       – to other undertakings with participating interest
  158            bb) maturity over one year
  159             Of which: – to affiliated undertakings
  160                       – to other undertakings with participating interest
  161          c) Certificates ( qualified as securities according to the Act on Accounting
                 but not definied as such by the Act on Securities)                                0         0
  162            ca) maturity up to one year
  163             Of which: – to affiliated undertakings
  164                       – to other undertakings with participating interest
  165            cb) maturity over one year
  166             Of which: – to affiliated undertakings
  167                       – to other undertakings with participating interest
  168   3/A    Revaluation difference on issued debt securities                                -1,881       65
  169   4.     Other liabilities                                                               39,500    53,720
  170          a) maturity up to one year                                                      26,614    19,125
  171             Of which: – to affiliated undertakings                                         116       114
  172                       – to other undertakings with participating interest                    2        34
  173                       – pecuniary contribution of members at credit cooperatives
  174          b) maturity over one year
  175             Of which: – to affiliated undertakings




106
UNCONSOLIDATED BALANCE SHEET
Hungarian Accounting Rules
HUF million
  176                        – to other undertakings with participating interest
  177   4/A    Negative revaluation difference on derivative transactions                                    12,886          34,595
  178   5.     Accruals and deferred income                                                                 20,796          27,952
  179          a) accrued liabilities                                                                           143              50
  180          b) accrued costs and expenses                                                                 20,630          27,817
  181          c) deferred income                                                                                23              85
  182   6.     Provisions                                                                                     8,030           7,739
  183          a) provisions for pensions and similar obligations                                                20             107
  184          b) risk provisions for off-balance sheet items (for contingent and future labilities)            784           1,145
  185          c) general risk provision                                                                      7,226           6,487
  186          d) other provisions
  187   7.     Subordinated liabilities                                                                     84,872         101,940
  188          a) subordinated borrowings                                                                    84,872         101,940
  189             Of which: – to affiliated undertakings                                                     82,592          99,557
  190                        – to other undertakings with participating interest
  191          b) pecuniary contribution of members at credit cooperatives
  192          c) other subordinated liabilities
  193             Of which: – to affiliated undertakings
  194                        – to other undertakings with participating interest
  195   8.     Subsribed capital                                                                            14,094          14,094
  196             Of which: – repurchased own shares at face value
  197   9.     Subsribed but unpaid capital (–)
  198   10.    Capital reserves                                                                             91,901          91,901
  199          a) share premium                                                                              91,840          91,840
  200          b) other                                                                                          61              61
  201   11.    General reserve                                                                              17,749          17,802
  202   12.    Retained earnings (accumulated profit reserve) (±)                                           57,616          79,278
  203   13.    Legal reserves                                                                                 3,331           2,246
  204   14.    Revaluation reserve                                                                              302             430
  205          a) Value-adjusted reserves
  206          a) Revaluation reserves                                                                          302             430
  207   15.    Profit or loss for the financial year (±)                                                    20,578              471
  208          TOTAL LIABILITIES:                                                                        2,278,387       2,699,402
  209             Of which: – SHORT TERM LIABILITIES
                              (1/a+1/ba+1/c+2/aa+2/ab+2/ba+2/bb+2/c+3/aa+3/ba+3/ca+4/a)                   1,415,339       1,570,852
  210                         – LONG TERM LIABILITIES
                              (1/bb+2/ac+2/bc+3/ab+3/bb+3/cb+4/b+7)                                         630,532         886,572
  211                         – EQUITY (CAPITAL AND RESERVES) (8-9+10+11±12+13+14±15)                       205,571         206,222




               OFF-BALANCE SHEET                                                                       31. 12. 2007.   31. 12. 2008.
               Contingent liabilities:                                                                      812,957         844,174
               Future receivables:                                                                          721,762         470,284
               Future liabilities:                                                                          692,220         430,235
               Control number                                                                             2,226,939       1,744,693




                                                                                                                                  107
UNCONSOLIDATED INCOME STATEMENT
Hungarian Accounting Rules
HUF million
  No.          Item                                                                                              31. 12. 2007.    31. 12. 2008.
  1     1.     Interest receivable and similar income (2+5)                                                             125,812       154,549
  2            a) interest income (receivable)
                 from fixed-income securities                                                                             8,689          8,273
  3              Of which: – to affiliated undertakings
  4                        – to other undertakings with participating interest
  5            b) other interest and similar income                                                                     117,123        146,276
  6              Of which: – to affiliated undertakings                                                                   4,421         11,418
  7                        – to other undertakings with participating interest
  8     2.     Interest payable and similar charges                                                                      80,659       108,518
  9              Of which: – to affiliated undertakings                                                                  12,541         29,608
  10                       – to other undertakings with participating interest                                              62              57
  11           NET INTEREST INCOME (1-8)                                                                                 45,153         46,031
  12    3.     Income from securities (13+14+15)                                                                          1,529          1,706
  13           a) income from shares held for dealing
                 (dividend, profit-sharing)                                                                                  0             115
  14           b) income from shares in affiliated undertakings
                 (dividend, profit-sharing)                                                                               1,403          1,541
  15           c) income from other shares and participating interests                                                     126              50
  16    4.     Commission and fees income (17+20)                                                                        19,276        20,947
  17           a) from other financial services                                                                          17,451         19,101
  18             Of which: – from affiliated undertakings                                                                  121              67
  19                       – from other undertakings with participating interest                                             3               2
  20           b) from investment services (except for income from trading activities)                                    1,825          1,846
  21             Of which: – from affiliated undertakings                                                                 1,026             71
  22                       – from other undertakings with participating interest                                             4               3
  23    5.     Commission and fee expense (24+27)                                                                         6,225          8,959
  24           a) from other financial services                                                                           5,975          8,713
  25             Of which: – to affiliated undertakings                                                                    206             208
  26                       – to other undertakings with participating interest
  27           b) from investment services (except for charges of trading activities)                                      250             246
  28             Of which: – to affiliated undertakings                                                                      2
  29                       – to other undertakings with participating interest
  30    6.     Net profit or net loss on financial operations (31-34+37-41)                                              32,478        23,425
  31           a) income from other financial services                                                                   17,740         33,300
  32             Of which: – from affiliated undertakings
  33                       – from other undertakings with participating interest
  34                       – valuation difference
  35           b) expenses from other financial services                                                                   891           2,081
  36             Of which: – to affiliated undertakings                                                                      6              41
  37                       – to other undertakings with participating interest
  38                       – valuation difference
  39           c) income from investment services (income from trading activities)                                       76,412         95,065
  40             Of which: – from affiliated undertakings
  41                       – from other undertakings with participating interest
  42                       – value re-adjustment (increase) of securities for trade (not more than acquisition value)      330
  43                       – valuation difference                                                                        18,330         30,131



108
UNCONSOLIDATED INCOME STATEMENT
Hungarian Accounting Rules
HUF million
  No.           Item                                                                                              31. 12. 2007.   31. 12. 2008.
  44            d) expenses from investment services (expenses from trading activities)                                  60,783        102,859
  45              Of which: – to affiliated undertakings
  46                        – to other undertakings with participating interest
  47                        – value adjustment (decrease) of securities for trade                                           26             471
  48                        – valuation difference                                                                       10,667         48,653
  49    7.      Other operating income(46+49)                                                                            12,426        11,854
  50            a) incomes from non-financial and non-investment services                                                 5,122          5,118
  51              Of which: – from affiliated undertakings                                                                 175
  52                        – from other undertakings with participating interest
  53            b) other income                                                                                           7,304          6,736
  54              Of which: – from affiliated undertakings                                                                  11
  55                        – from other undertakings with participating interest
  56                        – value re-adjustment (increase) of stocks (inventories) (not more than acquisition value)
  57    8.      General and administrative expenses (54+62)                                                              39,216        47,063
  58            a) Staff costs (55+56+59)                                                                                20,926         25,664
  59             aa) wages and salaries                                                                                  13,552         16,895
  60             ab) other staff costs                                                                                    2,460          2,740
  61             Of which: – social security contributions                                                                 783             919
  62                       – pension costs                                                                                 403             486
  63             ac) contributions on wages                                                                               4,914          6,029
  64             Of which: – social security contributions                                                                4,264          5,228
  65                       – pension costs                                                                                2,979          4,259
  66            b) Other administrative expenses (material-type expenses)                                                18,290         21,399
  67    9.      Depreciation (value adjustments in respect of assets items 9 and 10)                                      2,395          2,559
  68    10.     Other operating expenses (65+68)                                                                         13,843        17,820
  69            a) expenses from non-financial and non-investment services                                                5,145          4,836
  70              Of which: – to affiliated undertakings                                                                     1              19
  71                        – to other undertakings with participating interest                                            352             403
  72            b) other expenses                                                                                         8,698         12,984
  73              Of which: – to affiliated undertakings                                                                     6               2
  74                        – to other undertakings with participating interest
  75                        – value adjustment (decrease) of stocks (inventories)
  76    11.     Value adjustments in respect of loans and advances and provisions
                for contigent liabilities and for commitments (73+74)                                                    30,326        45,504
  77            a) value adjustments (decrease) in respect of loans and advances                                         29,666         44,476
  78            b) provisions for contingent liabilities and commitments                                                   660           1,028
  79    12.     Reversals of value adjustments in respect of loans and advances
                and use of provisions for contingent liabilities and commitments (76+77)                                  8,233        18,805
  80            a) value re-adjustments (increase) in respect of loans and advances                                       7,125         18,134
  81            b) use of provisions for contingent liabilities and commitments                                           1,108            671
  82    12/A.   General risk provision and use                                                                             968             739
  83    13.     Value adjustments in respect of debt securities held for investment purposes,
                shares in affiliated undertakings and participating interests                                                            1,052
  84    14.     Reversals of value adjustments in respect of debt securities held for investment purposes,
                shares in affiliated undertakings and participating interests
  85    15.     Profit or loss on ordinary activities                                                                    28,058            550



                                                                                                                                             109
UNCONSOLIDATED INCOME STATEMENT
Hungarian Accounting Rules
HUF million
  No.          Item                                                                                   31. 12. 2007.   31. 12. 2008.
  86             Of which: – PROFIT OR LOSS OF FINANCIAL AND INVESTMENT SERVICES
                             (1-2+3+4-5±6+7/b-8-9-10/b-11+12+12/A-13+14)                                    28,081             268
  87                       – PROFIT OR LOSS OF NON-FINANCIAL AND NON-INVESTMENT SERVICES (7/a-10/a)            -23             282
        16.    Extraordinary income                                                                              6              11
  89    17.    Extraordinary expense                                                                            38              35
  90    18.    Extraordinary profit or loss (16-17)                                                            -32             -24
  91    19.    Profit or loss before taxation (±15±18)                                                     28,026              526
  92    20.    Tax payable                                                                                   5,162               2
  93    21.    Profit or loss after taxation (±19-20)                                                      22,864              524
  94    22.    Addition to and use of general reserve (±)                                                   -2,286             -53
  95    23.    Retained earnings allocated for dividends
  96    24.    Dividends and profit-shares approved
  97             Of which: – to affiliated undertakings
  98                       – to other undertakings with participating interest
  99    25.    Profit or loss for the financial year (±21±22+23-24)                                        20,578              471




110
MKB Group




      In 2008, the women’s basketball team MKB-Euroleasing Sopron won both the Hungarian Cup
      and the Hungarian Championships, a feat they also achieved in 2007.
    BRANCH NETWORK OF
    THE MKB GROUP




KEY FIGURES OF THE MKB GROUP*
IFRS, EUR million
                                                 MKB           MKB       Romexterra   Leasing   Auxiliaries**    MKB
                                                 Bank       Unionbank      Group      Group*                    Group
  Total Assets                                    10 033          784        851        487          272        10 897
  Loans and advances to customers                 7 623           560        558        462          20          8 658
  Current and deposit accounts                    4 108           444        261         3            -          4 788
  Share Capital                                     53            31         68          5           244          53
  Reserves                                         766            34         (13)        36           5           812


  Operating Income                                 366            25         44          16          50           455
  Operating Expenses                              (205)          (15)        (38)        (7)         (43)        (266)
  Operating profit                                 161            10          6          9            6           189
  Impairments and Provision for losses            (133)           (3)        (21)        (5)         (1)         (162)


  Profit Before Taxation                            29             7         (15)        5            6           31


  Profit After Taxation                             25             6         (16)        6            5           24


  Pre-tax Return on Average Equity (ROAE)         4.6%          12.6%        na        13.5%        2.4%         3.3%
  Pre-tax Return on Average Assets (ROAA)         0.3%           1.3%        na        1.1%         2.3%         0.3%
  Cost-to-income ratio                            56.0%         60.8%      87.2%       42.3%        87.6%       58.4%
  Capital adequacy ratio                          9.7%          13,8%       9,8%        na           na         10.8%


  Corporate clients                              43 000         10 000     16 000      15 000         -         84 000
  Personal banking customers                     288 000        68 000     227 000     74 000         -         657 000
  Pension Fund members                           146 000           -          -          -            -         146 000
  Health Care Fund members                       109 000           -          -          -            -         109 000
  Market shares
    Corporate lending                             14.1%          2.8%       1.3%         -            -            -
     Corporate deposits                           10.0%          2.9%       1.1%         -            -            -
     Loans to Private individuals                 6.1%           1.2%       0.6%         -            -            -
     Deposits of Private individuals              5.4%           1.3%       0.5%         -            -            -
     Investment funds                             5.1%             -          -          -            -            -
  Branches                                         81             58         80          -            -          219
* Autóhitel, Autólízing
**Resideal, MKB Üzemeltetési, Befektetési Alapkezelô, Exter-Immo Kft.
M K B     G R O U P




THE PERFORMANCE OF MKB–EUROLEASING GROUP IN 2008*


MKB-Euroleasing Group, in strategic partner- and ownership                     a market share of 10.3 % in 2008 (2007: 6th position and
with MKB Bank since 2001, comprehensively integrates car                       9.1%) while in terms of new cars reached 2nd position. These
trading, vehicle financing, fleet management and insurance                     results are definite successes in a crisis environment, which
brokerage in a unique way in Hungary, offering complex                         the Group managed to achieve without loosening its very
services to its customers. The Group has been a dominant                       tight admission policy in place in the last couple of years.
participant of the vehicle financing market in Hungary for 18                  Launching the admission scoring system developed together
years now.                                                                     with MKB Bank Zrt. - meeting the Basel II criteria - was a key
                                                                               step towards ensuring a high quality portfolio in the current
                                                                               high risk environment. In 2008 the business line financed a
                                                                               total of 88,700 customers. Co-operation with strategic part-
                                                                               ners – owned 49% TFSH (Toyota) and PSAFH (Peugeot,
                                                                               Citroën) – continues to be important in the profit generation
                                                                               of the business line.

                                                                               FLEET MANAGEMENT
                                                                               MKB-Euroleasing Autópark Zrt. steadily kept its market posi-
                                                                               tions in 2008 financing and managing a total of 7,737 cars
                                                                               slightly up from 7,506 in 2007. This accounted for the 7th
                                                                               largest market share - of 6.9% - in the fleet financing market
                                                                               (2007: 6th position, 6.8%), while a strong 2nd position in the
                                                                               fleet-management only segment (thus, excluding financing).
                                                                               Number of customers reached 390 at the end of 2008. A great
                                                                               success in the last month of the past year was the acquisition
                                                                               of the national police fleet of 1,600 cars.
   The 4.5 % drop in the total number of new cars sold in 2007
was followed in 2008 by a much more significant 10%                            CAR TRADING
decline.                                                                       MKB-Euroleasing has a unique car trading network in the
   Even so the Group’s financing business line increased its                   domestic market. The network comprises more than 28
market share dynamically until the autumn of 2008, while its                   points of sale across the country, selling 11 brands and oper-
portfolio is still of an outstanding quality. The financial and                ating numerous used car lots. Carnet Zrt. – MKB Euroleasing
economic crisis escalated in autumn 2008 created a new situ-                   Group’s vehicle trading subsidiary – was operating success-
ation in both the financing and the car market, to which the                   fully up to the last quarter of 2008 in a shrinking market. The
Group adequately responded by improving its efficiency,                        network sold a total of 12,081 cars in 2008 (2007: 10,141), of
rationalising its expenses and exploring its internal reserves.                which 8,412 were new cars (2007: 6,410), achieving 31.2%
   Financing activity is centralised in the MKB-Euroleasing                    growth and a 5.3% market share (2007: 3.6%) in the gradual-
Autóhitel Zrt. and in affiliated companies. Fleet management                   ly shrinking market of new cars. The economic crisis had a
is performed through MKB-Euroleasing Autópark Zrt. while                       negative effect on the dealers, to which they responded by
insurance brokerage is undertaken by Eurorisk Kft. and                         cost cutting and rationalisation projects towards the end of
Netrisk Kft. Hungary’s largest dealership network and used                     the year.
car dealership network is operated with the Group by Carnet
Zrt.                                                                           INSURANCE BROKERAGE
                                                                                  Vehicle insurance brokerage is performed by the market
VEHICLE FINANCING                                                              leader Eurorisk Kft on the ‘off-line’ market and by the online
The Group’s customer financing business line has continued                     intermediary market leader Netrisk Kft.
to be a dominant participant of the domestic vehicle financ-                      In 2008 a total of 244,000 Casco and mandatory motor third
ing market.                                                                    party liability insurance contracts (2006: 195,000) were writ-
   The Group’s total new lending to customers amounted to                      ten. At the end of 2008 Netrisk Kft. had more than 300,000 cus-
HUF 61.4 billion in 2008 (2007: HUF 63.0 billion). The number                  tomers while Eurorisk had nearly 116,000 clients. Both insur-
of new customer financing contracts increased to 24,955 in                     ance brokerage subsidiaries of the Group are also operating in
2008 from the total of 25,003 in 2007. In terms of total receiv-               other insurance markets besides providing vehicle-related
ables in 2008 - like in 2007 - the Group was the 8th largest                   insurance services (15,000 traveller insurance contracts, 3,453
participant in the market. The intensity of its activity, howev-               real estate insurance contracts, high value property insurance
er, is proven by its 4th position in terms of new lending, with                portfolio).


                  * The Annual Report of the MKB-Euroleasing Group contains the audited and consolidated financials of MKB-Euroleasing. This chapter of MKB
                  Group’s Annual Report shows the business performance of MKB-Euroleasing Group, in addition, it also includes the key financial figures of
                  MKB Euroleasing Autóhitel Zrt. Being as the most significant company in the vehicle financing business lineof the Group. The consolidated
114
                  financial statements of MKB-Euroleasing Group will be available after the edition (and likely the publication) of MKB Bank’s Annual Report.
                                                                           M K B   G R O U P




MKB EUROLEASING AUTÓHITEL ZRT.
Unconsolidated Balance Sheet for the year ended December 31, 2008
International Financial Reporting Standards                                        HUF million
                                                                           2008        2007
  Cash reserves                                                              1,8          8,2
  Government securities                                                      0,0          4,8
  Loans and advances to banks                                            1 460,1       961,1
  Loans and advances to customers                                      104 401,3     60 078,1
  Investments in affiliated companies                                    1 717,4      1 717,4
  Intangible assets                                                         71,2         90,2
  Tangible fixed assets                                                   163,6        103,0
  Other assets                                                           2 242,5      2 818,5
  Accrued items                                                              2,6      1 322,9
  TOTAL ASSETS                                                         110 060,5     67 104,3
  Liabilities to credit institutions                                    98 100,3     56 956,7
  Liabilities to customers                                               1 744,9       301,7
  Other liabilities                                                       750,8        991,6
  Accrued liabilities                                                     546,1        238,9
  SHAREHOLDER'S EQUITY
  Share capital                                                          2 464,7      3 659,7
  Reserves                                                               4 955,6      4 955,6
  Result for the year                                                    1 498,2          0,0
  TOTAL LIABILITIES                                                    110 060,5     67 104,3




MKB EUROLEASING AUTÓHITEL ZRT.
Unconsolidated Income Statement for the year ended December 31, 2008
International Financial Reporting Standards                                        HUF million
                                                                           2008        2007
  Interest income                                                        7 430,7      7 986,8
  Interest expense                                                       3 183,2      2 012,8
  Net interest income                                                    4 247,5      5 974,0
  Net income from commissions and fees                                    -863,8       -431,8
  Other operating income                                                  728,5        641,5
  Impairments and provisions for losses                                  1 033,9       735,3
  Operating expenses                                                     1 482,7      1 284,1
  Extraordinary income                                                    -504,5       -213,9
  Profit before taxation                                                 1 091,2      3 950,3
  Taxation                                                                -407,0       763,1
  Profit after taxation                                                  1 498,2      3 187,2




                                                                                           115
M K B      G R O U P




THE BUSINESS PERFORMANCE AND KEY FIGURES OF
MKB INSURANCE COMPANIES*
In 2007 MKB Bank, in association with BayernLB and                          cally reduced risk-taking attitude has continued to decline ren-
Versicherungskammer Bayern, established two insurance                       dering sale of investment-type products more difficult.
companies in accordance with legal requirements. MKB
Általános Biztosító Zrt (MKB General Insurance) and MKB Élet-               PROPERTY INSURANCE
biztosító Zrt (MKB Life Assurance) started their operation in               In 2008 there was a continued dynamic trend in the sale of the
October 2007. In the sale of insurance products the MKB                     first housing insurance product of MKB Általános Biztosító –
branch network plays an important role, where, at the end of                ’Családi Otthonbiztosítás’ – as a result of which the number of
year 2008 close to 700 financial advisors were authorized to                sales has considerably increased. Apart from the increase in
sell insurance products. Through the foundation of the insur-               the number of contracts, the average premium has also
ance companies the Bank was able to successfully implement                  become higher, demonstrating the increase in the number of
its one-stop-shop bank assurance strategy thus, became fully                coverage granted in the insurance contracts sold. The latter
universal in Hungary.                                                       increase had a favourable impact on premium revenue and
                                                                            enhanced the coverage, and so the satisfaction, of customers.
LIFE ASSURANCE                                                                 In late 2008 the ”non-life” insurance company had a housing
2008 was a determining year in the history of MKB Életbiz-                  insurance portfolio of 7870 contracts and its premium revenue
tosító after its launching. The Company’s premium revenue                   amounted to HUF 133.4 m. From 1 October 2008 a corporate
has reached HUF 1.27 bn by the end of 2008. As a new market                 insurance package named ’Multivédelem’ was introduced
player, in the first complete business year it concluded 5796               targeting primarily small- and medium-sized businesses.
life assurance and pension insurance contracts with continu-                   By introduction of the new product, the sales channels of
ous premium payment, the total average premium of which                     the Company were expanded, penetrating into the inde-
reached HUF 95,000. Focusing on customer demand-driven                      pendent broker’s market. Expansion affects both property
sales resulted in the proportion of retained contracts above                insurance products. Commencement of sale by brokers has
the market average.                                                         brought up new challenges and simultaneously new oppor-
   Taking the opportunities granted by the MKB Group into                   tunities since a much harder competition should be
account, the Company’s range of products has been intro-                    answered. Nevertheless, opening is essential for growth and
duced, in addition to the products launched in October 2007                 the Company would be able to attain more and more cus-
(’MKB Értékmegôrzô’, ’Családi Védôháló’, ’Csoportos Védô-                   tomers for its products by such approach only.
háló’), by two additional new products, in particular: life and                In 2008 675 damage cases were announced by the
pension insurance linked to investment units (’MKB Kincstár’)               Company’s customers in a total value of HUF 37.7 m, of which
since April 2008 and risk life assurance, an innovative product             HUF 20.3 m (591 cases) have already been paid.
on the Hungarian market with risk profit refund (’MKB Életre-
való’), since 1 October. During development, flat-rate low-risk             VEHICLE INSURANCE
family life assurance started previously successfully has been              In July 2008 MKB Általános Biztosító Zrt started selling Motor
extended by a new product.                                                  Vehicle Liability Insurance and Casco Insurance products
   The fact that training of MKB Bank network – a basic pillar              adjusted mostly to the needs of private customers focusing
of sale – has been comprehensively carried out during the                   on the market of cars. When fixing premiums and establish-
year exerted a favourable effect on the Company’s profit                    ing the target market, the Company has widely allowed for
while knowledge updating and enhancing training was also                    the opportunities provided by MKB Group; so in particular
highlighted. Over and above the Bank’s ability to react flexi-              the brands financed by the MKB Euroleasing Group and sold
bly and rapidly owing to its small operating size, the high                 by CarNet vehicle trading network were highlighted.
acceptance of the insurance products by Bank financial advi-                   The sale of vehicle insurance products was launched
sors also contributed to high-standard service of customers.                through a network of independent insurance brokers.
The narrowing lending opportunities and the declining borrow-               Accordingly, cooperation agreements were entered into with
ing appetite are expected to exert a remarkable effect on the               more than one hundred brokerage firms. Eurorisk and Netrisk
2009 business year considering that the contracts concluded in              Kft took an outstanding role in launching brokerage sale. Over
the combined facility programme alloying banking and insur-                 and above the fact that these two brokers, as members of the
ance products by the Company represented a considerable pro-                Group, are strategic partners of the Company, they were
portion. In Hungary, the willingness to save – which was not too            given prominent role as on-line and off-line operators when
high in the retail segment even so far – in addition to the drasti-         motor vehicle insurance products were introduced on the
                                                                            market.




* Although MKB Bank is a minority owner of MKB Insurance Companies, however, this Annual Report includes the highights of the business performance
and key figures of MKB Insurance Companies since their business model largely rely on synergies with the client base and sales network of MKB Bank.


116
                                                                                                                                   M K B   G R O U P




Suspension of MÁV Biztosító Egyesület (MÁV Insurance                              duced in the Eurorisk network. The number of contracts sold
Association) by the Insurance Inspectorate in August was an                       showed a continuous rise despite the year-end decline on the
extraordinary event on the Motor Vehicle Liability Insurance                      car market. Successful introduction creates a good basis for
market. As a consequence, the Company could find itself in an                     further sale of the product on the market by more brokers.
unexpected campaign position which exerted a favourable                           The total premiums of MKB Általános Biztosító Zrt exceeded
impact on sale. The branch sold 1343 contracts in 2008 at an                      HUF 300 m at the end of 2008 and the total annual premiums
average premium above HUF 60 th, i.e. much higher than the                        amounted to HUF 163 m.
market average. The Casco product was successfully intro-




MKB ÉLETBIZTOSÍTÓ ZRT (MKB LIFE ASSURANCE)
Key figures
audited, HUF thousand
  Description                                                                                                                      2007         2008
  Total assets                                                                                                                 1 606 900    2 216 175
  Investments                                                                                                                  1 423 461    1 003 286
  Insurance technical reserves                                                                                                      367       72 342
  Insurance technical reserves for investments for the benefit ot life assurance policyholder bearing the risk of investment          –      858 339
  Equity                                                                                                                       1 410 901     899 093


  Earned premium                                                                                                                  2 687     1 264 846
  Insurance technical profit                                                                                                   -345 779     -577 035
  Profit on non-insurance activities                                                                                           -274 809     -511 809
  Profit before taxation                                                                                                       -274 809     -511 809




MKB ÁLTALÁNOS BIZTOSÍTÓ ZRT (MKB GENERAL INSURANCE)
Key figures
audited, HUF thousand
  Description                                                                                                                      2007         2008
  Total assets                                                                                                                 2 767 199    2 476 590
  Investments                                                                                                                  2 572 461    2 124 394
  Insurance technical reserves                                                                                                    2 131       41 696
  Equity                                                                                                                       2 578 111    2 027 689


  Earned premium                                                                                                                  -2 552      53 836
  Insurance technical profit                                                                                                   -346 789     -736 500
  Profit on non-insurance activities                                                                                           -227 486     -550 407
  Profit before taxation                                                                                                       -227 504     -550 422




                                                                                                                                                   117
M K B     G R O U P




BUSINESS AND FINANCIAL PERFORMANCE OF
MKB ROMEXTERRA BANK
THE ROMANIAN ECONOMY                                               Bank’s market share in retail loans remained unchanged at
GDP growth in 2008 was 7.1% as the global financial and eco-       0.6%, while the share among retail deposits only decreased
nomic crises hit Romania only in the last months of the year.      slightly to 0.54% from 0.6%.
Growth was largely fueled by internal demand as real wages            The Bank successfully increased its business activity, the
grow very dynamically (10.6% real growth yoy). C/A balance         number of clients rose by 15.2% to reach 242,750. The num-
improved somewhat this year, but through the shrinking of          ber of corporate/institutional retail clients reached 290, the
export markets, the crisis might also affect adversely the still   number of midmarket clients was 13,830, the number of
very significant (13% of GDP) gap. FDI covered 54% of the C/A      small enterprises reached 1,500 and the private individual cli-
gap, but there is a risk of decreasing FDI. Average inflation      entele grew to reach 227,130 (from 194,830 in 2007).
rate was 7.9% in 2008 due to real wages growth, excessive             The geographic coverage of the Bank further improved,
government spending and the depreciation of the national           the branch network reached 80 units by the end of 2008. In
currency.                                                          addition, the Bank succeeded in strengthening its position in
  Although the CA balance is improving, low GDP growth             online services. These developments reinforced the Bank’s
rate, high inflation rate, the strong depreciation of RON          strategy to maintain long-term customer relationship, the
(above 10% in 2008) and excessive budget deficit (5.2%             customer acquisition strategy and cross-selling activities at
according to ESA) are expected, posing a threat to the             all levels.
Romanian economy. Exchange rate at year-end 2008 was                  In response to the global financial and economic crisis, the
3.98 RON for one EUR. The NBR policy interest rate was 10% at      bank introduced numerous measures in order to further
early February 2009.                                               strengthen the soundness of its business and operational acti-
                                                                   vity and to be able to serve its valued customers according to
THE ROMANIAN BANKING SECTOR                                        the Bank’s customary high standards and ensuring permanent
In business growth, the trends of the previous year continued      customer confidence. The share capital has been increased by
in the first half of 2008, although with somewhat slower           almost 30% to RON 174.4 million in spring 2008. The Bank rein-
dynamics. Through the increasing costs of external financing       forced the monitoring activity of the loan portfolio and over-
and shrinking export markets, the global financial and econo-      viewed its financing policy to retain high quality growth.
mic crisis hit Romania more seriously in the second half of the
year, leading to deteriorating loan portfolios, shrinking profi-   THE FINANCIAL PERFORMANCE OF
tability, cost cuts and by the end of the year, decreasing         MKB ROMEXTERRA BANK
financing activity.                                                Total assets of MKB Romexterra Bank grew by 46% reaching
   Total loans reached RON 198 billion in 2008 with an increa-     RON 2,900.9 million at year end 2008 (2007: RON 1,985.2 mil-
se of 33.7% from last year. The share of FX lending grew furt-     lion). The net loan portfolio of MKB Romexterra Bank increa-
her in 2008 and accounts for 57.8% of the loan portfolio.          sed by 50.7% reaching RON 1,828.2 million and the current
Banks experienced a deteriorating portfolio as the share of        account and deposit balances reached RON 1,117.7 million.
doubtful and loss loans reached 5.8% from 3.8% a year earlier      The shareholders’ equity amounted to RON 187.4 million.
(November data). The volume of deposits grew by 17.3% to           MKB Bank increased its share through capital raise in MKB
reach RON 151 billion in 2008. The share of RON deposits is        Romexterra Bank from 75.94% to 80.84%.
two thirds of the total. NBR lowered the minimum obligatory           Gross operating income reached RON 153.4 million (2007:
reserves for RON denominated loans to 18% from 20%, lea-           RON 131.2 million), while the operating expenses amounted to
ving the reserve rate for FX loans unchanged at 40% in 2008.       RON 138.1 million in 2008. With the impairments and provision
   The high cost of external financing results in a fierce com-    charges of RON 73.3 million the profit before taxation was a
petition for customer deposits. Shrinking profitability leads      loss of RON 58.0 million (2007: RON 13.2 million). Profit after tax
to possible optimization and restructuring efforts as well as      is RON -59.1 million.
cost cuts among banks. Dealing with the deteriorating loan            Even with the extension of the branch network and its
portfolio will be another major challenge for the Romanian         business activity, the Bank managed to keep the staff growth
banking sector. Business growth of local banks is hugely           under control. At the end of 2008 the staff number totalled at
determined by the financial resources provided by their            1,076 employees which is only a 3.8% increase compared to
parent banks.                                                      the previous year.

THE BUSINESS PERFORMANCE OF                                        SYNERGIES AND HARMONISATION WITH
MKB ROMEXTERRA BANK                                                MKB BANK
  The share of MKB Romexterra Bank’s total assets in the sec-      MKB Romexterra Bank continuously implements new met-
tor reached 0.9% in 2008. The market share of the Bank in cor-     hods and improves its business and operational processes,
porate loans increased from 1.1% in 2007 to 1.3% in                using and adopting BayernLB Group and MKB Group stan-
November 2008. In corporate deposits the market share dec-         dards and know-how, even though the core part of the har-
reased to 1.1% in November 2008 from 1.25% in 2007. The            monization project was concluded.


118
                                                                                                           M K B     G R O U P




   As the portfolio quality deterioration of the Bank might be   um in the region seems to be enduring, keeping the cost of
further threatened by the global financial turmoil, the Bank     financing high, financing from parent banks is constrained.
significantly improved its risk and portfolio management         The adjustments in the long term CEE strategy of foreign
activities and processes. The Bank set up a Fraud Prevention     banks is yet to be seen. Profitability of the banking sector will
Unit, amended its competence regulations, update of the          further decrease in 2009, enforcing efficiency improvement
Credit Risk Management Procedure and overviewed the              and cost cuts. The deteriorating loan portfolio will result in
problematic loan policy. Other IT and risk harmonization is      the fast evolvement of better risk and portfolio management
expected in 2009.                                                practices. As external financing is very restrained, the compe-
                                                                 tition for customer funds expected to be fierce, but can also
OUTLOOK FOR 2009                                                 inspire product innovation.
The GDP growth in real terms will be around 1.5% in 2009.           For MKB Romexterra Bank, internal consolidation and the
Due to shrinking internal demand and the deterioration of        improvement or at least to prevent further deterioration of
the local currency, the C/A gap will significantly improve to    the portfolio quality is a top priority in 2009. Implementing
around 7% of the GDP. The inflationary pressure seems to be      better risk management practices and improving operational
long lasting as further RON depreciation is ahead. Excessive     efficiency is also inevitable in the current financial and econo-
government spending might also strengthen consumer price         mic environment. Taking primary customer funds is also high
dynamics, although the government is up for a 2% deficit tar-    priority for 2009 in all segments, but especially among private
get for 2009, way below this year‘s figure of 5.2%.              individuals. The Bank targets to achieve long term customer
Unemployment rate is expected to further increase as export      relationship and to improve product penetration and cross-
markets shrink.                                                  selling. Increasing customer loyalty by offering high quality
  The external vulnerability of Romania is still very high,      and innovative services is a key issue for the Bank. Fee and
which is also a threat to the banking sector. High CDS premi-    commission income realizing capability is to be improved.




                                                                                                                              119
M K B          G R O U P




MKB ROMEXTERRA BANK BALANCE SHEET
IFRS, unconsolidated                                  RON thousands

                                              2007           2008
                                             Actual         Actual
  ASSETS                                  1 985 153      2 900 913
  Cash balance                              419 484        790 103
  Amounts due from the National Bank           150
  Amounts due from other banks               89 225         11 729
  Securities                                116 361        122 924
  Loans and advances to customers (net)   1 213 022       1 828 205
      Retail                                418 370        506 624
      Corporate                             794 651       1 321 581
  Other assets                               10 749         29 036
  Participations                             59 053         56 958
  Property and equipment                     77 109         61 957


  LIABILITIES                             1 757 259      2 713 558
  Amounts due to the National Bank
  Amounts due to other banks                517 199       1 530 870
  Current and deposit accounts            1 180 579       1 117 684
      Retail                                394 437        440 917
      Corporate                             786 142        676 767
  Certificates of deposit
  Other liabilities and provisions            9 278         15 630
  Deferred tax liability                      2 806          2 375
  Borrowed funds and debt securities
  Subordinated debt                          47 397         47 000


  SHAREHOLDERS' EQUITY                     227 894         187 355
  Share capital                             199 969        239 967
  Reserves                                   27 925         -52 612




MKB ROMEXTERRA BANK INCOME STATEMENT
IFRS, unconsolidated                                  RON thousands

                                              2007           2008
                                             Actual         Actual
  Interest income                           142 650        227 991
  Interest expense                           92 808        143 820
  Net interest income                        59 841         84 170
  Net income from commissions and fees       51 438         44 387
  Other operating income                     19 942         24 855
  Impairments and provisions for losses     -14 631         -73 306
  Operating expenses                        103 393        138 066
  Profit before taxation                     13 198         -57 959
  Taxation                                    1 601          1 136
  Profit after taxation                      11 597         -59 096




120
                                          M K B      G R O U P




MKB ROMEXTERRA BANK KEY FIGURES
IFRS, unconsolidated                              RON thousands

                                          2007           2008
                                         Actual         Actual
  Total Assets                        1 985 153      2 900 913
  Customer loans (net)                1 213 022       1 828 205
  -retail loans                         418 370        506 624
  -corporate loans                      794 651       1 321 581
  Customer accounts and deposits      1 180 579       1 117 684
  -retail deposits                      394 437        440 917
  -corporate deposits                   786 142        676 767


  Shareholders' Equity                 197 129         187 355
  Net interest income                    59 841         84 170
  Net fee & commission income            51 438         44 387
  Other income                           19 942         24 855
  Gross operating income                131 222        153 413
  Operating expenses                    103 393        138 066
  Impairments and provision charges     -14 631         -73 306
  Profit before tax                      13 198         -57 959
  Income tax                              1 601          1 136
  Profit after tax                       11 597         -59 096
  ROAE                                     6,20        -30,15%
  ROAA                                     0,80         -2,37%
  Cost-to-income                          78,80          90,00
  CAR                                     14,00            9,33
  Number of employees                     1 037          1 076




MKB ROMEXTERRA BANK MARKET SHARES

                                          2007           2008
  in %                                   Actual         Actual
                                                     November
  Corporate loans                        1.07%           1.34%
  Retail loans*                          0.59%           0.55%
  Corporate deposits                     1.25%           1.11%
  Retail deposits*                       0.61%           0.54%
  Total assets                           0.77%           0.87%

*Private individuals only.




                                                             121
M K B    G R O U P




BUSINESS AND FINANCIAL PERFORMANCE OF MKB UNIONBANK


THE BULGARIAN ECONOMY                                             for 2008 is expected, marking a 25.8% year-on-year increase
During most of 2008 the Bulgarian economy was charac-             in November. In the past year the total banking sector’s
terised by high growth. At the end of 2008Q3 the Gross            equity increased by BGN 1.5 billion and reached BGN 7.7 bil-
Domestic Product (GDP) reached BGN 48.1 billion, with expec-      lion.
tations for nearly 6.5% real growth year-on-year, although
there are signs of slowdown in Q4 due to the impact of the        THE BUSINESS PERFORMANCE OF MKB
global financial crisis on the Bulgarian economy.                 UNIONBANK
   Similarly to the previous years, foreign investments contin-   In 2008 the Bank displayed a dynamic development and a
ued to play a key role for the successful development of the      business growth in general, with the Bank’s assets increase
Bulgarian economy in 2008. Due to the global financial tur-       by 49.6% to BGN 1,535 million. The Bank’s share in the total
moil and the overall uncertainty on the emerging markets,         banking system assets increased by 0.5% point and reached
however, the inflow of foreign direct investments (FDI) in the    2.2% as of December.
country slowed down with the total amount reaching EUR 5.3           The significant increase in loans and advances to cus-
billion at the end of November 2008, or a decline of 11.5% on     tomers sustained its steady growth in 2008, with a growth of
the same period in a year before. The adverse trend of a          50.8%. The net amount reached BGN 1,094.8 million. The
growing current account deficit sustained and is expected to      credit portfolio growth did not affect its high quality: stan-
be some 22% of GDP. The gross external debt increased fur-        dard loans comprised 97.8% of its volume. As of December
ther, reaching EUR 36.9 billion (108.6% of GDP) in November.      market share of loans to corporate clients improved to 2.8%,
   Following a decline in food and oil product prices on the      and to individuals grew to 1.2%. In 2008 the reduced exter-
international markets in the second half of the year and due      nal funding of the banks in Bulgaria, caused by the global
to the heavy crop the inflation rate slowed down and in           financial crisis, resulted in a higher focus on domestic
November and December a deflation of 0.3% occurred.               deposits. Nevertheless, borrowed funds from clients marked
Unemployment kept its downward trend and at the end of            a growth of 21.5%. As of December the Bank’s market shares
2008 it was at the level of 6.27%.                                in deposits are as follows: 2.9% (2.4% for 2007) from corpo-
   The government raised the deposit guarantee limit to EUR       rate clients, and 1.3% (1.2% for 2007) from individuals.
50,000, and the base rate by 15 bps to 5.38% from 1st                At the end of the year active clients numbered 77,783,
October; highest level since 1998. The National Bank of           increasing by 6.8%. The number of corporate clients has risen
Bulgaria believes that the fixed exchange regime against the      by 1.7%, and the number of individuals has grown by 7.6%.
euro at the current peg will be kept until the country adopts     Consistent work for active selling of bank cards made it pos-
the euro; however, the initial strategy for joining the euro-     sible for the share of bank cards held by individuals who are
zone in 2009-2010 is not feasible anymore. BNB has cut the        clients of the Bank to reach 93%, and the sales of internation-
reserve requirement ratio on the deposit base from 12% to         al cards, incl. credit cards, doubled.
10% as of December and from 10% to 5% on foreign                     Three new retail banking units started operation in 2008.
deposits as of January. Also from January abolished the obli-     At the same time, for the purposes of branch network opti-
gation of commercial banks to hold reserves on government         mization, three small financial centres were merged with big-
funds.                                                            ger ones. At the end of 2008 retail banking financial centres
                                                                  numbered at 58 and regional corporate centres numbered at
THE BULGARIAN BANKING SECTOR                                      6, including two new ones - in the cities of Pleven and Burgas.
In 2008 24 commercial banks and six branches were operat-         In 2008 the headcount rose by 8.3 %, and the number of
ing in the country. At the end of 2008 commercial banks’          employees is 782.
assets amounted to BGN 69.6 billion, but from September a
significant slowdown occurred due the impact of the global        THE FINANCIAL PERFORMANCE OF MKB
financial crisis. At the end of 2008 loans in the banking sys-    UNIONBANK
tem reached a record high level of BGN 49.2 billion, compris-     The Bank’s operating income for 2008 has increased by
ing an annual growth of 32.1%. Despite the reported growth,       43.9%. The reported net interest income (TBGN 45,332) and
at the end of the year the growth slowed down as a result of      the income from fees and commissions (TBGN 13,453) repre-
the banks’ measures for restricting lending.                      sent 74.8% and 22.2% of the total TBGN 60,579. Operating
   In the last months of the year customer deposits were          expenses for 2008 amounted to TBGN 40,073, growing by
volatile and declined, especially corporate deposits. At the      24.9%. Reported provisioning and write-offs amounted to
end of the year the total amount of borrowed funds from           TBGN 5,978.
individuals and companies reached BGN 41.7 billion, mark-           MKB Unionbank ended Y2008 with a pre-tax financial
ing an increase of 7.5%. Foreign owners of Bulgarian banks        result of TBGN 14,528 (an increase of 73.0%) and a net income
continued supporting their subsidiaries. The total amount of      of TBGN 13,039. The efficiency indicators reported for 2008
externally borrowed funds reached BGN 19.4 billion with           based on MKB Bank’s methodology are: return on equity
82.1% yearly increase. A record high banking system profit        (ROAE) of 12.6% (7.9% for 2007); return on assets (ROAA) of


122
                                                                                                         M K B     G R O U P




1.3% (1.0% for 2007) and cost-to-income of 60.8% (72.1% for      OUTLOOK FOR 2009
2007).                                                              Under the impact of the global financial crisis economic
  As of 31 December 2008 the total shareholders’ equity rose     growth in 2009 is expected to shrink to 1.5–2%, and if the cri-
to BGN 128.5 million, growing by 34.9%. The total capital ade-   sis processes are to have a more severe impact a zero or neg-
quacy ratio is 13.8% well above the statutory required 12%.      ative growth might be expected. Unemployment is rising as a
                                                                 result of the weaker economic activity and job cuts. A lower
SYNERGIES AND HARMONISATION WITH                                 volume of foreign investments is expected and their share in
MKB BANK                                                         GDP might decline to 13%. Import and export rates could
MKB Unionbank continuously implements new methods and            slow down as well, which would reduce the current account
improves its business and operational processes, using and       deficit to less than 20% of GDP. In 2009 inflation is expected
adopting BayernLB Group and MKB Group standards and              to fall to 6% on an average annual basis. Despite the expect-
know-how, even though the core part of the harmonization         ed stability of the banking system, the credit portfolios of
project was concluded.                                           some banks might deteriorate as a result of economic diffi-
  In 2008 MKB Bank was the major source of funding the           culties.
Bank’s growth; medium-term finance agreements of EUR 165            MKB Unionbank planned a more moderate business
million were signed. A bilateral loan of EUR 20 million was      growth compared to the previous years. Main priority will be
contracted with BayernLB. The funds provided by                  the deposit collection in each business segments and finan-
MKB/BayernLB more than quadrupled, amounting to EUR              cial stability. The focus will be mainly on the mid-market seg-
230 million at the end of the year. As of 2008 year-end, 20      ment and retail banking, adding up together cca. 90% of the
syndicated transactions with clients were effective, with MKB    credit portfolio. The risk methodology and risk processes
Bank being the arranging bank. The commitments taken by          development will be accomplished this year. The Bank tar-
the Bank on these transactions amounted to EUR 77 million,       gets to maintain long term customer relationship and to
with 72.3% of the funds being utilized. In the past year free    improve product penetration and cross-selling, basically bet-
available foreign currency funds of the Bank in practice were    ter utilization of current customer base. Inner consolidation,
kept entirely on accounts with the Bank Group.                   development of banking processes is also in key focus in
                                                                 2009.




                                                                                                                            123
M K B            G R O U P




MKB UNIONBANK BALANCE SHEET
IFRS as at 31 December 2008                              BGN thousand

                                          2007 Actual     2008 Actual
  ASSETS                                    1 026 299       1 535 053
  Cash balances                                19 671          25 932
  Amounts due from the National Bank           78 498         206 101
  Amounts due from other banks                148 635         169 942
  Securities                                   41 711          25 662
  Loans and advances to customers             726 150       1 094 816
      – retail                                353 996         522 081
      – corporate                             372 154         572 735
  Other assets                                  1 587           2 387
  Participations                                     -               -
  Property and equipment                       10 047          10 213
  LIABILITIES                                 931 041       1 406 571
  Amounts due to the National Bank                   -               -
  Amounts due to other banks                  133 549         458 759
  Current and deposit accounts                704 366         855 939
      – retail                                399 818         448 192
      – corporate                             304 548         407 747
  Certificates of deposit                            -               -
  Other liabilities and provisions              8 483           4 665
  Deferred tax liability                          213             283
  Borrowed funds and debt securities           44 710          39 332
  Subordinated debt                            39 719          47 594
  SHAREHOLDER’S EQUITY                         95 258         128 482
  Share capital                                40 412          60 412
  Reserves                                     54 846          68 070




MKB UNIONBANK INCOME STATEMENT
as at 31 December 2008                             IFRS BGN thousand

                                          2007 Actual     2008 Actual
  Interest income                              54 732          92 840
  Interest expense                            (22 973)        (47 509)
  Net interest income                         31 759          45 332


  Net income from comissions and fees           7 040          13 453
  Other operating income                        3 296           1 794
  Impairments and provisions for losses        (1 607)         (5 978)
  Operating expenses                          (32 091)        (40 073)
  Profit before tax                             8 398         14 528


  Taxation                                      (881)          (1 489)
  Profit after tax                              7 517         13 039




124
                                                          M K B     G R O U P




MKB UNIONBANK KEY FIGURES
IFRS unconsolidated, as at 31 December 2008                       BGN thousand

                                                   2007 Actual     2008 Actual
  Total Assets                                        1 026 299       1 535 053
  Customer loans (net*)                                726 150        1 094 816
   – retail loans                                      353 996         522 081
   – corporate loans                                   372 154         572 735
  Customer accounts and deposits                       704 366         855 939
   – retail deposits                                   399 818         448 192
   – corporate deposits                                304 548         407 747
  Shareholder’s Equity                                  95 258         128 482
  Net interest income                                   31 759          45 332
  Net fee & comission income                             7 040          13 453
  Other income                                           3 296           1 794
  Gross operating income                                42 095          60 579
  Operating expenses                                   (32 091)        (40 073)
  Impairments and provision charges                     (1 607)         (5 978)
  Profit before tax                                      8 398          14 528
  Income tax                                              (881)         (1 489)
  Profit after tax                                       7 517          13 039
  ROAE – pre tax**                                        7.9%           12.6%
  ROAA – pre tax**                                        1.0%            1.3%
  Cost-to-income**                                       72.1%           60.8%
  CAR                                                    15.1%           13.8%
* reduced by provisions
** based on MKB Bank’s methodology




MARKET SHARES

                                                  December 31,    December 31,
          in %
                                                   2007 Actual     2008 Actual
  Corporate loans*                                       2.53%           2.77%
  Retail loans**                                         0.91%           1.23%
  Corporate deposits*                                    2.39%           2.86%
  Retai deposits**                                       1.21%           1.34%
  Total assets                                           1.74%           2.21%
  * Data of Corporate clients from all segments
  ** Data of private Individuals only




                                                                             125
Information




       The world’s second best female kayaker, Dalma Benedek, can be the winner of the
       Olympic Games in London 2012, with MKB Bank’s continuing support.
                                                                                                               I N F O R M A T I O N




THE BOARDS OF MKB BANK ZRT


      SUPERVISORY BOARD

      CHAIRMAN:                                                    Credit and Risk Committee:
      Dr Michael Kemmer (2008)                                     Dr Ralph Schmidt, Chairman
      Chairman                                                     Dr Michael Kemmer
      Bayerische Landesbank                                        Alois Steinbichler

      MEMBERS:                                                     Remuneration Committee:
      Dr Ralph Schmidt (2008)1                                     Dr Michael Kemmer, Chairman
      Member of the Board of Management                            Dr Ralph Schmidt
      Bayerische Landesbank                                        Alois Steinbichler

      Mr Jochen Botterman (2009)2                                  Group Committee for CEE:
      Counsel to the Board of Management                           Erdei Tamás, Chairman
      BAWAG P.S.K.                                                 Dr Michael Kemmer
                                                                   Dr Ralph Schmidt
      Mr Paul Bodensteiner (2003)3
      Ministerialdirigent
      Bavarian Ministry of Finance

      Mr Andreas Dörhöfer (2008)1
      Member of the Board of Management
      Hypo Alpe-Adria Bank International AG

      Ms Lôrincz Ibolya (2008)1
      Deputy Head of Department
      MKB Bank Zrt

      Dr Kotulyák Éva (2007)
      Legal Counsel
      MKB Bank Zrt

      Dr Siegfried Naser (2001)
      Executive Chairman
      Sparkassenverband Bayern

      Mr Alois Steinbichler (2008)4
      Chief Executive Officer
      Kommunalkredit Austria AG

      Mrs Asbóthné Tóth Éva (2007)
      Counsel
      MKB Bank Zrt




      1 Elected as member of the Supervisory Board by the Extraordinary General Meeting of June 19th, 2008
      2 Elected as member of the Supervisory Board by the Annual General Meeting of March 27th, 2009
      3 The membership of Mr Paul Bodensteiner in the Supervisory Board terminated as of March 27th, 2009
      4 Mr Alois Steinbichler resigned from his membership in the Supervisory Board with effect from February 24, 2009



                                                                                                                                 127
I N F O R M A T I O N




BOARD OF DIRECTORS5

CHAIRMAN:
Mr Erdei Tamás (1991)                              Dr Kraudi Adrienne (2008)
Chief Executive                                    Deputy Chief Executive
MKB Bank Zrt                                       MKB Bank Zrt

MEMBERS:                                           Dr Patyi Sándor (2003)
Dr Balogh Imre (2004)                              Deputy Chief Executive
Deputy Chief Executive                             MKB Bank Zrt
MKB Bank Zrt
                                                   Dr Simák Pál (2008)
Mrs Bolla Csilla (2004)6                           Deputy Chief Executive
Deputy Chief Executive                             MKB Bank Zrt
MKB Bank Zrt
                                                   Mr Neil A. Watson (2003)7
                                                   Deputy Chief Executive
                                                   MKB Bank Zrt

                                                   Mr Gáldi György (2009)8
                                                   Deputy Chief Executive
                                                   MKB Bank Zrt


Note: the year in which membership commenced is in parentheses




Elected auditor
KPMG Hungária Könyvvizsgáló, Adó- és Közgazdasági Tanácsadó Kft.
(Chamber of Hungarian Auditors registration No: 000202)

Persons liable for audit
Mr Agócs Gábor chartered auditor (Chamber of Hungarian Auditors membership No: 005600), in case he is prevented Mr Henye
István (Chamber of Hungarian Auditors membership No: 005674)




5 Dr Gerhard Gribkowsky, Dr Ralph Schmidt, Mr Thomas Christian Buchbinder and Mr Jochen Bottermann were recalled from
among the members of the Board of Directors by the Extraordinary General Meeting of June 19th, 2008
6 Ms Bolla Csilla resigned from her membership in the Board of Directors with effect from March 27, 2009
7 Mr Neil A. Watson resigned from his membership in the Board of Directors with effect from October 31, 2008
8 Elected as member of the Board of Directors from April 1, 2009 by the Annual General Meeting of March 27th, 2009



128
                                                                                                    I N F O R M A T I O N




BRANCH NETWORK OF MKB BANK IN BUDAPEST



                                                                                            Telefon                Fax
  Alagút utcai Fiók                                H – 1013 Budapest, Alagút u. 5.     36 (1) 489 5930   36 (1) 489 5940
  Lajos utcai Fiók                                  H – 1023 Budapest, Lajos. u. 2.    36 (1) 336 2430   36 (1) 336 3169
  Mammut Fiók                                      H – 1024 Budapest, Széna tér 4.     36 (1) 315 0690   36 (1) 315 0672
  EuroCenter Fiók                                 H – 1032 Budapest, Bécsi út 154.     36 (1) 439 3000   36 (1) 453 0822
  Békásmegyeri Fiók                    H – 1039 Budapest, Pünkösdfürdő u. 52.-54.      36 (1) 454 7700   36 (1) 454 7699
  Újpesti Fiók                              H – 1045 Budapest, Árpád út 183-185.       36 (1) 272 2444   36 (1) 272 2449
  Szent István téri Fiók                   H – 1051 Budapest, Szent István tér 11.     36 (1) 268 7461   36 (1) 268 7131
  Türr István utcai Fiók                       H – 1052 Budapest, Türr István u. 9.    36 (1) 268 8219   36 (1) 268 7908
  Székház Fiók                                       H – 1056 Budapest, Váci u. 38.    36 (1) 268 8472   36 (1) 268 8079
  Andrássy úti Fiók                            H – 1061 Budapest, Andrássy út 17.      36 (1) 268 7066   36 (1) 268 7067
  WestEnd City Center Fiók                          H – 1062 Budapest, Váci út 1-3.    36 (1) 238 7800   36 (1) 238 7801
  Arena Plaza Fiók                               H – 1087 Budapest, Kerepesi út 9.     36 (1) 323-3870   36 (1) 323-3899
  Duna Ház Fiók                               H – 1093 Budapest, Soroksári út 3/C      36 (1) 216 2991   36 (1) 216 2992
  Árkád Fiók                                 H – 1106 Budapest, Örs vezér tere 25.     36 (1) 434 8110   36 (1) 434 8119
  Fehérvári úti Fiók                           H – 1119 Budapest, Fehérvári út 95.     36 (1) 204 4686   36 (1) 204 4717
  MOM Park Fiók                                  H – 1124 Budapest, Alkotás út 53.     36 (1) 487 5550   36 (1) 487 5551
  Nyugati téri Fiók                              H – 1132 Budapest, Nyugati tér 5.     36 (1) 329 3840   36 (1) 329 3859
  Duna Plaza Fiók                                  H – 1138 Budapest, Váci út 178.     36 (1) 239 5110   36 (1) 239 5084
  Masped Ház Fiók                                   H – 1139 Budapest, Váci út 85.     36 (1) 237 1756   36 (1) 238 0135
  Siemens Ház Fiók                          H – 1143 Budapest, Hungária krt. 130.      36 (1) 422 4140   36 (1) 252 0062
  Rákoskeresztúri Fiók                            H – 1173 Budapest, Pesti út 237.     36 (1) 254 0130   36 (1) 254 0138
  Csepel Plaza Fiók                    H – 1211 Budapest, II. Rákóczi F. út 154-170.   36 (1) 278-5750   36 (1) 278-5769
  Budafoki Fiók                        H – 1221 Budapest, Kossuth Lajos u. 25.-27.     36 (1) 482 2070   36 (1) 482 2089
  Budaörsi Fiók                                H – 2040 Budaörs, Szabadság út 45.      36 (23) 427 700   36 (23) 427 719
  Dunakeszi Fiók                                  H – 2120 Dunakeszi, Fő út 16-18.     36 (27) 548-100   36 (27) 548-119
  Érdi Fiók                                              H – 2030 Érd, Budai út 11.    36 (23) 521 840   36 (23) 521 859
  Gödöllői Fiók                             H – 2100 Gödöllő, Kossuth Lajos u. 13.     36 (28) 525-400   36 (28) 525-419
  Solymári Fiók                              H – 2085 Solymár, Terstyánszky u. 68.     36 (26) 560 650   36 (26) 560 669
  Szentendrei Fiók                       H – 2000 Szentendre, Kossuth Lajos u. 10.     36 (26) 501 400   36 (26) 501 399
  Szigetszentmiklósi fiók                   H – 2310 Szigetszentmiklós, Gyári út 9.    36 (24) 525-660   36 (24) 525-679
  Váci Fiók                                       H – 2600 Vác, Március 15. tér 23.    36 (27) 518 670   36 (27) 518 699




MKB BANK ZRT.
1056 Budapest, Váci utca 38.
Budapest H-1821
MKB TeleBANKár: 06 1 373 333
                       06 40 333 666
Swift: MKKB HU HB
Internet: www.mkb.hu
E-mail: exterbank@mkb.hu




                                                                                                                           129
I N F O R M A T I O N




BRANCH NETWORK OF MKB BANK IN HUNGARY



                                                                               Telefon                Fax
  Baja                                  H – 6500 Baja, Bartók B. u. 10.   36 (79) 521-330   36 (79) 521-359
  Balassagyarmat          H – 2660 Balassagyarmat, Kossuth L. u. 4-6.     36 (35) 501-340   36 (35) 501-359
  Békéscsaba                  H – 5600 Békéscsaba, Szabadság tér 2.       36 (66) 519-360   36 (66) 519-379
  Cegléd                              H – 2700 Cegléd, Kossuth tér 8.     36 (53) 505-800   36 (53) 505-819
  Debrecen                             H – 4024 Debrecen, Vár u. 6/C.     36 (52) 528-110   36 (52) 528-119
  Debrecen Piac u.                     H – 4025 Debrecen, Piac u. 81.     36 (52) 501-650   36 (52) 417-079
  Eger                                      H – 3300 Eger, Érsek u. 6.    36 (36) 514-100   36 (36) 514-129
  Esztergom                H – 2500 Esztergom, Bajcsy-Zsilinszky u. 7.    36 (33) 510-450   36 (33) 510-479
  Gyöngyös                     H – 3200 Gyöngyös, Köztársaság tér 1.      36 (37) 505-460   36 (37) 505-478
  Győr                              H – 9021 Győr, Bécsi kapu tér 12.     36 (96) 548-220   36 (96) 548-259
  Győri Árkád                               H – 9027 Győr, Budai u. 1.    36 (96) 548-236   36 (96) 548-249
  Hatvan                              H – 3000 Hatvan, Kossuth tér 4.     36 (37) 542-120   36 (37) 542-139
  Herend                      H – 8440 Herend, Kossuth Lajos u. 140.      36 (88) 513-610   36 (88) 513-618
  Heves                            H – 3360 Heves, Szerelem A. u. 11.     36 (36) 545-560   36 (36) 545-569
  Hódmezővásárhely        H – 6800 Hódmezővásárhely, Kossuth tér 2.       36 (62) 530-900   36 (62) 530-909
  Jászberény                 H – 5100 Jászberény, Lehel vezér tér 16.     36 (57) 504-840   36 (57) 504-849
  Kalocsa                  H – 6300 Kalocsa, Hunyadi János u. 47-49.      36 (78) 563-830   36 (78) 563-859
  Kaposvár                        H – 7400 Kaposvár, Széchenyi tér 7.     36 (82) 527-940   36 (82) 527-951
  Kazincbarcika               H – 3700 Kazincbarcika, Egressy út 1/c.     36 (48) 510-700   36 (48) 510-719
  Kecskemét                H – 6000 Kecskemét, Katona József tér 1.       36 (76) 504-050   36 (76) 504-053
  Keszthely                  H – 8360 Keszthely, Kossuth Lajos u. 23.     36 (83) 515-520   36 (83) 515-529
  Kiskőrös                             H – 6200 Kiskőrös, Petőfi tér 2.   36 (78) 501-300   36 (78) 501-319
  Kiskunhalas                     H – 6400 Kiskunhalas, Kossuth u. 3.     36 (77) 520-620   36 (77) 520-625
  Kisvárda                        H – 4600 Kisvárda, Szt. László u. 51.   36 (45) 500-680   36 (45) 500-689
  Komárom                          H – 2900 Komárom, Bajcsy-Zs. u.1.      36 (34) 541-060   36 (34) 541-079
  Miskolc                          H – 3530 Miskolc, Széchenyi u. 18.     36 (46) 504-540   36 (46) 504-545
  Miskolc Plaza                    H – 3525 Miskolc, Szentpáli u. 2-6.    36 (46) 504-580   36 (46) 504-589
  Mosonmagyaróvár       H – 9200 Mosonmagyaróvár, Magyar u. 26-28.        36 (96) 577-400   36 (96) 577-409
  Nagykanizsa                   H – 8800 Nagykanizsa, Erzsébet tér 8.     36 (93) 509-650   36 (93) 509-661
  Nyíregyháza                    H – 4400 Nyíregyháza, Szarvas u. 11.     36 (42) 597-610   36 (42) 597-611
  Orosháza                            H – 5900 Orosháza, Könd u. 38.      36 (68) 512-430   36 (68) 512-439
  Paks                                H – 7030 Paks, Dózsa Gy. út 75.     36 (75) 519-660   36 (75) 519-679
  Pápa                                  H – 8500 Pápa, Kossuth u. 13.     36 (89) 511-770   36 (89) 511-799
  Pécs                                     H – 7621 Pécs, Király u. 47.   36 (72) 522-240   36 (72) 522-255
  Salgótarján                          H – 3100 Salgótarján, Fő tér 6.    36 (32) 521-200   36 (32) 521-209
  Siófok                                     H – 8600 Siófok, Sió u. 2.   36 (84) 538-150   36 (84) 538-169
  Sopron                              H – 9400 Sopron, Várkerület 16.     36 (99) 512-920   36 (99) 512-935
  Szeged                               H – 6720 Szeged, Kölcsey u. 8.     36 (62) 592-010   36 (62) 592-029
  Székesfehérvár             H – 8000 Székesfehérvár, Zichy liget 12.     36 (22) 515-260   36 (22) 515-275
  Szekszárd                          H – 7100 Szekszárd, Garay tér 8.     36 (74) 505-860   36 (74) 505-878
  Szolnok                          H – 5000 Szolnok, Baross u. 10-12.     36 (56) 527-510   36 (56) 527-570
  Szombathely              H – 9700 Szombathely, Szent Márton u. 4.       36 (94) 528-380   36 (94) 528-362
  Tata                                H – 2890 Tata, Ady Endre u. 18.     36 (34) 586-730   36 (34) 586-733
  Tatabánya                             H – 2800 Tatabánya, Fő tér 6.     36 (34) 512-920   36 (34) 512-940
  Veszprém                          H – 8200 Veszprém, Óváros tér 3.      36 (88) 576-300   36 (88) 576-302
  Zalaegerszeg            H – 8900 Zalaegerszeg, Kossuth Lajos u. 22.     36 (92) 550-690   36 (92) 550-695




130
                                                                            Sustainability
                                                                                   Report




Within the framework of the Good CSR 2008 programme, a jury consisting of representatives from
Figyelô, Hungarian Business Leaders Forum and Transparency International awarded MKB Bank
the Best Strategic Civil Cooperation prize from among 25 leading Hungarian large corporations.
S U S T A I N A B I L I T Y   R E P O R T




                                            CONTENTS

                                       133 READER’S GUIDE

                                       135 CHAIRMAN’S INTRODUCTION

                                       136 1. 2008 – THE YEAR OF NEW CHALLENGES

                                       137 2. INTRODUCING MKB BANK

                                       142 3. ECONOMIC PERFORMANCE

                                       144 4. SOCIAL PERFORMANCE

                                       167 5. ENVIRONMENTAL PERFORMANCE

                                       169 GRI CONTEXTUAL INDEX




132
                                                                             S U S T A I N A B I L I T Y   R E P O R T




READER’S GUIDE

FOLLOWING THE BRIEF SUSTAINABILITY REPORT FIRST PUBLISHED IN 20071, AS OF 2008 WE ARE HAPPY
TO PRESENT A MUCH MORE DETAILED, TYPE “B” REPORT DESCRIBING MKB BANK’S EFFORTS IN THE INTER-
EST OF SOCIAL, ECONOMIC AND ENVIRONMENTAL SUSTAINABILITY.
WE ALSO INTEND TO PRESENT ANNUAL REPORTS ON OUR CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES IN
THE FUTURE. THERE HAVE BEEN NO SIGNIFICANT CHANGES TO THE SCOPE AND MEASUREMENT METHODS OF
THE FIRST PUBLISHED TYPE “B” REPORT. HOWEVER, WE HAVE STARTED TO ESTABLISH A UNIFIED SUSTAIN-
ABILITY DATABASE ACCORDING TO THE STANDARDS OF GRI, AND COULD THEREFORE USE THE DATA OF
THIS, TOO, WHEN COMPILING THE PRESENT REPORT.
THE PUBLICATION IS LIMITED TO INFORMATION ON MKB BANK’S ACTIVITIES WITHIN THE BORDERS OF THE
COUNTRY DUE TO CONSIDERATIONS OF SECTORAL COMMENSURABILITY AND THE ACCESSIBILITY OF DATA.
AS WE ATTACH EQUAL IMPORTANCE TO EACH AREA WITHIN OUR CSR STRATEGY, THE REPORT PRESENTS
OUR ECONOMIC, SOCIAL AND ENVIRONMENTAL PERFORMANCE. SINCE THE ANNUAL REPORT CONTAINS
DETAILED DATA ABOUT OUR OPERATING ENVIRONMENT AND ECONOMIC RESULTS, HERE WE SHALL ONLY
SUMMARIZE THE MOST IMPORTANT INFORMATION. WE HAVE PRESENTED OUR ECONOMIC DATA ACCORD-
ING TO THE PROVISIONS OF THE ACCOUNTING ACT; THE SOCIAL AND ENVIRONMENTAL DATA HAVE BEEN
SOURCED FROM OUR INTERNAL RECORDS. UNLESS OTHERWISE SPECIFIED, THE DATA ARE BASED ON MEAS-
UREMENTS AND CALCULATIONS. THE REPORT HAS NOT BEEN CERTIFIED BY A THIRD PARTY.
IN THE INTEREST OF COMMENSURABILITY, WHEREVER AVAILABLE WE SHALL ALSO PRESENT THE DATA OF
PAST YEARS. WE HAVE TRIED TO PRESENT MANY MORE AREAS THAN REQUIRED BY THE MINIMUM NUMBER
OF INDICATORS REQUIRED FOR LEVEL “B” ACCORDING TO GRI. IN SEVERAL CASES WE SHALL ALSO PRESENT
INFORMATION ON SECTOR-SPECIFIC INDICATORS FOR THE FINANCIAL SECTOR.
THE REPORT CONTAINS SEVERAL BRIEF QUOTATIONS FROM OUR COLLEAGUES AND EXTERNAL PARTIES IMPACT-
ED BY OUR OPERATION. THIS IS INTENDED TO BETTER REVEAL THE PERSONAL ASPECT OF OUR ACTIVITY.
WE ARE PROUD TO BE ONE OF THE FEW PIONEERS AMONG LOCAL COMPANIES TO INCREASE THE TRANS-
PARENCY OF OUR CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES IN THIS REPORT.
WE SHALL BE GRATEFUL FOR ANY OPINIONS, COMMENTS OR QUESTIONS ABOUT THE REPORT AND AWAIT
THESE VIA THE CONTACTS PROVIDED IN THE COLOPHON.
WE WISH YOU A PLEASANT AND USEFUL READ.

                                                      MARKETING AND COMMUNICATION DIRECTORATE




1 Type “C” report according to reporting guide G3 of the Global Reporting Initiative (GRI) international
  reporting system


                                                                                                                   133
S U S T A I N A B I L I T Y   R E P O R T




                          In 1997, MKB Bank established the “MKB Scholarship Programme” to support talented but social-
                          ly disadvantaged children who have excellent school results. Currently, in cooperation with the
                          National “Safe the Children” Service, 100 children and students receive this support.
                                                                                  S U S T A I N A B I L I T Y          R E P O R T




CHAIRMAN’S INTRODUCTION


Dear Reader,

On the basis of its current position and nearly six decades of         The systematic review of our results has also been helpful
history, MKB Bank is one of the country’s definitive financial      in setting the tasks for future years. The creation of the gov-
institutions. We are proud that both retail and corporate and       ernance system and organizational culture of corporate
institutional customers have rewarded us with their trust           social responsibility activities is an important objective, and
throughout our existence. This is primarily due to our ability      we are already working on the establishment of a sustainabil-
to continuously and successfully adapt to changing circum-          ity database according to the standards of GRI. We strive to
stances. One such important change is that in addition to effi-     further assert the aspects of sustainability in our core activity,
cient and prudent operations, our stakeholders increasingly         increasing the involvement of our stakeholders and stimulat-
expect us to adhere to the principles of sustainable develop-       ing dialogue with them. The enhancement of the transparen-
ment and to adopt a socially responsible attitude.                  cy of our social responsibility activities is related to this, and
   Having recognized and accepted these expectations, on            the publication of our 2008 report also points in this direction.
the basis of the philosophy adopted by our bank long ago –          We shall lay even greater emphasis on our activities in the
we preserve and generate values – we have set no lesser an          interest of the protection of our natural environment.
objective for ourselves than to become one of the most              Together with our colleagues, we have already begun the
exemplary financial institutions in the field of corporate          detailed assessment of further opportunities in the interest of
social responsibility in the medium term. In our business           this. The responsibility of our colleagues is of fundamental
practice we take into account the long-term interests of our        importance to the operation of the Bank, just as the Bank
internal and external stakeholders, as well as the sustainabili-    feels responsible for its employees. This is why we would like
ty of our natural environment. To achieve this objective we         to intensify internal dialogue in the interest of the fine-tuning
build equally on the significant social responsibility traditions   and implementation of our corporate social responsibility
of MKB Bank, the commitment of our colleagues and the               activities. Our support and donation activities that have
state-of-the-art institutional system that is an indispensable      already won recognition will remain important elements of
part of these.                                                      our responsible operation.
   The idea and practice of social responsibility and sustain-         In keeping with the above, and taking a step further, we are
ability are inseparable from our internal culture. Our results      striving to make MKB Bank’s corporate social responsibility
are driven by the enthusiasm, creativity and knowledge of           activities truly exemplary. Therefore, our objectives are not
our colleagues. We are aware that we have already achieved          limited to the implementation of best practices within the
much in the field of social responsibility and, equally, that in    company, but in our roles as clients and owners we wish to
the future we shall do even more for the society in which we        ensure that our principles of responsibility appear in the
operate. We aspire to create predictable, strategic relation-       operations of our partners and our subsidiaries belonging to
ships with our stakeholders based on mutual benefit.                the Group.
   It was this kind of long-term commitment that was recog-            William Clay Ford Jr., chairman of the board of Ford Motor
nized by the jury of the Good CSR Programme in 2008 with            Company, defined the difference between a good company
the Best Strategic Civil Cooperation award presented to MKB         and an outstanding company by saying that a good compa-
Bank from among 25 leading Hungarian corporations.                  ny provides outstanding products and services, while an out-
   This award also binds us to multiplying our social responsi-     standing company does not stop there: it aspires to make the
bility efforts just as in 2008 we took important steps to inte-     world a better place. In good times and – like today – worse
grate the elements of responsible operation into the activi-        times, MKB Bank’s responsibility for its social, economic and
ties of the Bank. We have reviewed the results achieved in          natural environment, and its commitment to sustainability
this field to date and assessed the opportunities before us. A      will remain the same.
tangible manifestation of this is our 2008 Sustainability
Report. Prepared on the basis of the international reporting
system of Global Reporting Initiative (GRI), the present report
describes on Level “B” the successes achieved, i.e. in much
greater detail than last year’s Level “C” Report. Furthermore,
we have also started to elaborate our medium-term corpo-
rate social responsibility strategy.
                                                                                              Tamás Erdei
                                                                                           Chairman and CEO




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1. 2008 – THE YEAR OF NEW CHALLENGES


1.1. THE FINANCIAL–ECONOMIC CRISIS                                  1.3. THE HUNGARIAN BANKING SECTOR
AND ITS IMPACT                                                      IN 2008
In the aggregate, 2008 brought about an unfavourable and            The impact of the global financial crisis and the ensuing
ever-deteriorating operating environment and hit the                recession increased from August 2008, and escalated in
Hungarian economy at a vulnerable moment due to the esca-           October making a major impact on the Hungarian banking
lation and imbalance of the financial and global economic           system as well. On the basis of this, from the perspective of
crisis in October. The still relatively high budgetary deficit,     changes to the major business portfolios, 2008 was charac-
the delayed structural reforms, the growth that had already         terized by two distinctly different phases. Until September
slowed down before the crisis, the loss of relative competi-        the credit demand in the corporate and retail sectors
tiveness, the incapability of the political elite to reach a con-   increased in a relatively balanced way; from October, howev-
sensus, the indebtedness of the private sector along with the       er, due to the intensification of the crisis, the fear of recession
extent of the FX loans resulted in increased and permanent          changed the chances and appetite of the economic players in
vulnerability even in international terms since the economy         terms of securing loans. Subsequently, due to scarce FX liq-
is basically exposed to the availability of external funds from     uidity, several players on the Hungarian banking market ter-
all aspects.                                                        minated the lending of CHF and JPY-based loans, increased
                                                                    interest rates and made the conditions for securing a loan
1.2. CHANGING LEGAL ENVIRONMENT                                     stricter. These steps prevented the further increase of the
Act CXXXVIII of 2007 on Investment Firms and Commodity              portfolios for the rest of the year.
Exchange Service Providers and the Rules for the Licensed              In 2008, the corporate sector used its reserves gradually
Activities Thereof entered into force in February 2008 with the     but to an ever-increasing extent and minimized its liquidity.
purpose of providing investors with standard, high-quality          The growth in retail savings was minimal; the market was
services and interest protection. The legal regulation covers       only reinvigorated by the fierce interest competition that was
the operation of investment firms, the disclosure requirement       a reaction to scarce liquidity at the end of the year. In 2008,
related to financial assets, the rating of customers from the       the market environment was not in favour of alternative sav-
perspective of investor protection, the review of customers in      ings, thus the positive tendencies that had started in the past
terms of compliance and eligibility related to investment           few years, and which reflected a growth in such savings, fal-
products and services and the conclusion of transactions.           tered. In the long run, low levels of savings can be an obstacle
   Furthermore, in 2008 the following legal regulations were        for sustainable growth.
modified or entered into force:                                        Continuing the trend that started in 2006, the performance
   – Act CXII of 1996 on Credit Institutions and Financial          of the banking sector further deteriorated in 2008. The direct
     Enterprises;                                                   (more expensive and scarce refinancing) and indirect (slower
   – Act CXX of 2001 on the Capital Market;                         portfolio growth due to the recession, weakening exchange
   – Act CXXXVIII of 2007 on Investment Firms and                   rates, increased provisioning) impact of the financial crisis
     Commodity Exchange Service Providers and the Rules for         fundamentally determined the performance of the sector.
     the Licensed Activities Thereof;                                  According to data published by the Hungarian Financial
   – Act IV of 1959 on the Civil Code of the Republic of            Supervisory Authority (HFSA), the profit after tax of HUF 381.0
     Hungary;                                                       billion accumulated in the first 9 months of the year fell to
   – Act CIV of 2008 on the Strengthening of the Stability of       HUF 303.2 billion by the end of the year. Last year the after-
     the Financial Mediatory System;                                tax profit of the sector was lower than the 2007 profit of HUF
   – Act CXIX of 1995 on the Handling of Names and                  324.7 billion by 6.6% or HUF 21.5 billion. However, if we take
     Addresses for the Purposes of Research and Direct              into consideration that a net profit of HUF 117 billion from
     Business Sourcing.                                             OTP Bank’s profit was derived from the sale of the OTP
                                                                    Garancia insurance company last year, the after-tax profit of
                                                                    the sector was only HUF 186.2 billion, i.e. 57% of the profit of
                                                                    the previous year. At the end of 2008, the aggregate balance
                                                                    sheet total of the sector amounted to HUF 29,222 billion,
                                                                    which meant a 19.9% growth compared to the end of 2007.
                                                                    The capital position of the credit institutions remains stable.
                                                                    According to preliminary data, at the end of 2008, the aver-
                                                                    age capital adequacy ratio was 11.06% i.e. it was similar to
                                                                    that in the previous year (11.01%).




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                                                                                               S U S T A I N A B I L I T Y   R E P O R T




2. INTRODUCING MKB BANK


2.1. BACKGROUND
The purpose of establishing MKB (Hungarian Foreign Trade
Bank), which was founded in 1950, was to participate in inter-
national payment transactions and to perform banking activ-
ities primarily in relation to foreign trade. During the banking
reform in 1987, when the two-tier banking system was estab-
lished, MKB received a comprehensive commercial banking
licence on the basis of which new business lines were
launched and developed. The provision of complex services
for domestic companies shortly became a major business line
of the bank.
   After the first successful privatization of a large bank, an
internationally renowned and domestically significant finan-                Major data of MKB Bank (31 December 2008)
cial institution that was committed to the development of
                                                                            Balance sheet total                          HUF 2,656.6 billion
MKB Bank in the long term, acquired a majority holding in the
bank’s capital. The Munich-based BayernLB became the                        Pre-tax profit                                   HUF 7.6 billion
                                                                                           2
strategic owner of MKB with a holding of nearly 90%.                        Market share                                               8.1%
   The Bank launched its private banking services along with                Receivables from customers3                  HUF 2,018.4 billion
its money, FX and capital market activities at the end of the               Liabilities to customers4                    HUF 1,087.8 billion
1980s and developed these further significantly at the begin-
                                                                            Operating efficiency5                                    66.9%
ning of the 1990s. By the end of 2001, with the integration of
                                                                            Annual average number of staff                            2,259
the securities trading activity, MKB Bank became a universal
bank. The strategic interests of MKB Bank, i.e. MKB Euroleasing             Number of customers                                    329,000
from 2001 and MKB Insurers from 2007, provide unique and                    Number of branches                                           81
complex services on the vehicle financing and insurance mar-
kets. Through its strategic partners, ie. the MKB Pension Fund
and the MKB Health Fund, MKB has built up an important
position on the pension fund and health fund markets.
   From 2005, MKB Bank has played a dominant role in the
implementation of BayernLB’s expansion strategy in Central
and Eastern Europe. Since 2006, MKB-Unionbank in Bulgaria
(60% MKB share) and MKB Romexterra Bank in Romania
(80.49% MKB share) have been the pillars of this.
   MKB, an institution with a favourable evaluation and long
experience, maintained its financial muscle and position, and
later, due to dynamic development, became one of the lead-
ing banks of the domestic banking system providing univer-
sal services.

  Major shareholders of MKB Bank Zrt. expressed as a percentage
  of the subscribed capital of HUF 14.094 billion (31 December 2008
                                                        Shareholding
  BayernLB                                                     89.62%
  P.S.K. Beteiligungsverwaltung                                  9.88%
  Other                                                          0.50%




2The market share of MKB Bank based on its balance sheet total, according
 to the Hungarian accounting rules and calculated based on non-consoli-
 dated data. Source: NBH
3 Based on non-consolidated IFRS data
4 Based on non-consolidated IFRS data
5 The ratio of operating costs, and net interest and commission income.
 Based on non-consolidated IFRS data

                                                                                                                                         137
S U S T A I N A B I L I T Y            R E P O R T




  Strategic interests (31 December 2008)                                  cial services for our retail, corporate and institutional cus-
  Company name:                                             Activity
                                                                          tomers at any point of their lifecycle, aiming at a mutually
                                                                          beneficial business relationship.
  MKB-Euroleasing Autólízing
                                                                        – Proudly relying on our traditions and focusing on the needs
  Szolgáltató Zrt.                                Vehicle financing       of our customers, we continually develop our products and
  MKB-Euroleasing Autóhitel Zrt.                  Vehicle financing       services.
                                             and consumer lending       – We expand our clientele by offering an ever-widening
  MKB-Euroleasing Zrt.                         Full range of services     range of financial services.
                                                                        – In order to generate and maintain values and in light of our
                                    in connection with vehicle sales
                                                                          responsibility, we increasingly endeavour to assume social
  MKB-Euroleasing Autópark Zrt.                   Vehicle financing
                                                                          corporate responsibility in our narrower and wider commu-
  MKB Befektetési Alapkezelô Zrt.      Investment fund management         nities.
  MKB Általános Biztosító Zrt.                   Property insurance     – We ensure permanent and balanced profitability for our
  MKB Életbiztosító Zrt.                              Life insurance      owners.
  MKB Unionbank AD (Bulgaria)                 Commercial bank with
                                                                        Our vision
                                            a comprehensive licence
                                                                        We preserve and generate values.
  MKB Romexterra Bank S.A. (Romania)          Commercial bank with
                                            a comprehensive licence     Basic values
  Euroingatlan Kft.                          Property development       Commitment to quality
                                                                        – We are aware of the fact that the guarantee for the realiza-
2.2. THE MISSION, VISION AND VALUE                                        tion of our vision is high quality provided on a continuous
OF MKB BANK                                                               and reliable basis.
The nearly 60-year-old MKB Bank has been a dominant play-               Personal service
er in the Hungarian banking system since the beginning. As a            – Our customers are the focus of our activities. We actively
group of universal financial institutions, we have a high                 support them in achieving their financial goals with person-
degree of competency in decision-making. Traditionally, we                al advisory services based on a stable professional platform.
have strong positions among large corporations and institu-             Permanent renewal
tions and in the area of project financing. On the retail market        – Taking the continuous development of our products, serv-
in the segment of micro, small and medium-sized enterprises               ices and service models as a basic requirement, we work on
and in the area of money and capital market services, we are              individual and distinctive solutions.
increasing our market share. We have strategic business                 – We encourage the development of our staff’s readiness for
interests in the areas of insurance, funds and investment                 initiatives.
funds, as well as that of the various complex services related          Integrity, reliability, openness
to project, property, special and vehicle financing.                    – We endeavour to build long-term and mutually beneficial
                                                                          relationships, with integrity and fairness. We keep the
Medium-term strategic objectives of MKB:                                  promises made to our partners and to each other.
– MKB Bank is a dominant universal financial institution on             Respect and tolerance
  the Hungarian banking market.                                         – We treat our partners and each other with respect. We
– In respect of the fullness of product ranges, the quality of            believe that diversity of staff is an advantage.
  services and the intensity of customer relations, it plays a          Co-operation
  dominant role in all customer segments.                               – We work as a team. We approach problems and tensions
– The Bank wishes to maintain its market roles in the large               that inevitably arise during co-operation with understand-
  corporate and institutional business lines and in the area of           ing and empathy.
  project financing.                                                    We esteem our staff
– It strengthens its positions in the micro, small and medium-          – We evaluate our staff on the basis of a strict performance
  sized enterprises segment and in the area of money and                  principle. We esteem their responsibility, discipline and loy-
  capital market services.                                                alty.
– It builds up strategic partnerships and relations in order to         – We support their professional development and individual
  provide the most comprehensive product ranges possible                  careers.
  and to reach more customers.

Our mission
– As a dominant group of universal financial institutions in
  Hungary, we provide wide-ranging, excellent-quality finan-


138
                                                                                  S U S T A I N A B I L I T Y          R E P O R T




2.3. OPERATING STRUCTURE OF THE BANK                               period. The Chairman of the Board holds the office of the
2.3.1. ORGANIZATIONAL STRUCTURE                                    managing director. The chairman and chief executive per-
Last year, the organizational structure of MKB Bank changed        forms their tasks in light of the budgeted medium-term and
substantially. Executive management was eliminated and a           annual figures defined by the General Assembly and the
new, two-pillar system replaced the previous three-pillar          Supervisory Authority.
management and controlling system. The purpose of the                The Board of MKB Bank (31 December 2008)
transformation was to have a clearer separation between
                                                                     Name                   Beginning of membership          Position
daily management activities and the control of shareholders,
in order to enhance the efficiency of business activities. From      Tamás Erdei            (1991)       Chairman and Chief Executive
                                                                     Dr Imre Balogh         (2004)             Deputy Chief Executive
this time onwards, shareholders will only be represented in
                                                                     Csilla Bolla           (2004)             Deputy Chief Executive
the Supervisory Board. In the highly important strategic
                                                                     Dr Sándor Patyi        (2003)             Deputy Chief Executive
issues, the controlling functions of the Supervisory Board
                                                                     Dr Adrienne Kraudi     (2008)             Deputy Chief Executive
were supplemented with discretionary powers.                         Dr Pál Simák           (2008)             Deputy Chief Executive

                                                                   The Statutes provides that the Supervisory Board shall check the
                                                                   company’s management and, as such, it may require reports or
                                                                   information from the members of the Board of Directors or the
                                                                   company’s executive employees and, in the case of the approval
                                                                   of certain board decisions stipulated in the Statutes, it can act as
                                                                   a supervisory board with discretionary power. The Statutes also
                                                                   provides that if, according to the judgement of the Supervisory
                                                                   Authority, the activity of the Board violates any legal regulations,
                                                                   the Statutes or any of the General Assembly’s resolutions, or is in
                                                                   conflict with the Company’s or shareholders’ interests, the
                                                                   Supervisory Board may convene an extraordinary general
                                                                   assembly and may propose its agenda. Shareholders with a
2.3.2. DECISION-MAKING AND                                         control ensuring them a qualified majority delegate represen-
CONTROL                                                            tatives to MKB Bank’s Supervisory Board where a group of the
The main decision-making body of the Bank is the General           shareholders’ representatives (6 out of the 9 members) is able to
Assembly, which consists of all of the shareholders.               pass a resolution on any issues within the Supervisory Board’s
Shareholders may take the floor at the general assembly, view      scope of authority, to be performed by the Board of Directors.
the company’s documents and make decisions within the gen-         According to the Statutes, one third of the members of the
eral assembly’s scope of authority. Shareholders with a control    Supervisory Board (3 out of the 9 members) are employee repre-
ensuring them a qualified majority are able to make resolu-        sentatives delegated by the employees’ council, and the gener-
tions in each and every issue within the general assembly’s        al assembly is obliged to elect them as members of the
scope of authority individually, by themselves, at the assembly.   Supervisory Board except when there is a statutory reason for
The Statutes provides that a group of minority shareholders        exclusion against such delegates. Employee representatives in
representing at least 5% of the votes may request the Board of     the Supervisory Committee have the same rights and obliga-
Directors to include an issue in the assembly’s agenda, specify-   tions as the other members. If the opinion of the employee
ing the reason, within 8 days of receiving the invitation to the   delegates differs from the majority opinion of the Supervisory
General Assembly. The Statutes also provides that all share-       Authority, the employees’ minority opinion has to be read out at
holders are entitled to participate in the general assembly,       the General Assembly.
request information, make comments or proposals, and vote.            The Internal Audit operates under the management of the
The Hungarian corporate law prescribes that in respect of the      Supervisory Board and the Chairman and Chief Executive. Its
subject matter included in the agenda of the general assembly,     activities include the facilitation of the Bank’s statutory oper-
the Board shall give the necessary information to all the share-   ation, the checking of the requirements included in the
holders when debating a given issue from the agenda.               Bank’s internal regulations, and the review of the banking
   The top management body of the Bank is the Board,               activity from the perspective of security, transparency and
which, in 2008, consisted of 6 people who were all employ-         expediency within the framework of comprehensive controls
ees of MKB Bank. The members of the Board of Directors are         and audits. The purpose of the operations of the Internal
elected by the General Assembly for a definite three-year          Audit is to protect customer assets and shareholder interests.




                                                                                                                                   139
S U S T A I N A B I L I T Y            R E P O R T




  The Supervisory Board of MKB Bank (31 December 2008)                    nation of their contract, and in the case of the deputy chief
  Name                     Beginning of membership          Position
                                                                          executives, the approval of the board’s decision in the
                                                                          above issues, are the responsibility of the Remuneration
  Dr Michael Kemmer        (2008) Chairman of Bayerische Landesbank
                                                                          Committee.
  Paul Bodensteiner        (2003) Head of Department at the Bavarian
                                                                        – Conflicts of interests involving Hungarian banks are regu-
                                                  Ministry of Finance
  Dr Éva Kotulyák          (2007)      Legal Counsel to MKB Bank Zrt.
                                                                          lated by law (Section 57 of the Act on Credit Institutions).
  Mrs Asbót (Éva Tóth)     (2007)            Adviser to MKB Bank Zrt.     The members of the Supervisory Board and the Board of
  Alois Steinbichler       (2008)                General Manager of       Directors at banks are approved by the HFSA. A statement
                                                 Kommunalkredit AG        on the non-existence of conflicts of interest and its review
  Dr Ralph Schmidt         (2008)        Board Member at Bayerische       by the HFSA is a requirement in the approval procedure.
                                                         Landesbank       The members of the Bank’s Supervisory Board will be
  Mrs Dudás                                                               informed of their rights and obligations annually. The agen-
  (Ibolya Lôrincz)         (2008)      Deputy Head of Department at       da of the Board of Directors contains the rules relevant for
                                                        MKB Bank Zrt.     conflicts of interest. The leading legal counsel participates
  Andreas Dörhöfer         (2008)   Board Member at Hypo Alpe-Adria       in the meetings of the executive bodies and gives guidance
                                                Bank International AG
                                                                          on any potential conflicts of interest.
  Dr Siegfried Naser       (2001)              Executive Chairman of
                                                                        – For the purposes of the accountability of the executive
                                           Sparkassenverband Bayern
                                                                          body, the traceability of the responsibilities is important
                                                                          and it is determined by a regulation on the employer’s
  Male–female ratio of members of the management bodies
                                                                          rights.
                                                                        – The principle of prudence is fulfilled through preventative,
  Management body                               Male         Female
                                                                          analytical, educational and communicative activities. MKB
  Board of Directors                           66.7%           33.3%      Bank uses significant resources for the evaluation and
  Supervisory Board                            66.7%           33.3%      analysis of the probability that certain events will take
                                                                          place. In the training programmes, employees are prepared
  Ratio of members of the management bodies based on age groups
                                                                          for expected events and necessary reactions through
                                                                          examples of non-desirable events, in all disciplines. The
  Management           Under 40       Between the           Over 50
                                                                          processing of familiar and analysed experiences gives valu-
  body                 years old     ages of 40-50         years old
                                                                          able additions to the results of the fields specialising in pre-
  Board of Directors     17.00%            33.00%            50.00%
                                                                          vention. The regular use of internal communication tools
  Supervisory Board            -                  -         100.00%       and channels ensures the sustainability of prudence.
                                                                        – In respect of the main responsibilities and strategic tasks,
2.3.3. PROCESSES FOR RESPONSIBLE                                          job descriptions specify the following basic requirements:
OPERATION                                                                 expertise, technical knowledge, a specialized degree from a
In addition to the aforementioned functions of decision-mak-              higher education institution, knowledge of a foreign lan-
ing and control, the responsible operation of MKB Bank is                 guage and industrial experience, as well as knowledge and
partly ensured by further organizational functions and partly             application of legal requirements, internal regulations and
by the regulations that determine the operations of the Bank.             budgets, along with practical experience in the given field.
– The Credit Committee is a standing body of MKB which has              – The deputy chief executives in charge of corporate man-
  the highest-level delegated decision-making authority next              agement and marketing communication are responsible
  to the Board and the Supervisory Board. The purpose of its              for the development and implementation of the CSR policy.
  operations is to keep risk assumption in relation to lending
  at the appropriate level.
– The task of the Asset Liability Management Committee
  (ALCO) is to develop the policies for the management of liq-
  uidity, interest, exchange rate (FX and securities) and capi-
  tal adequacy risks, and to propose such policies to the
  Board of Directors.
– The Bank Development Committee is a decision-making
  authority in the area of business policy, product and IT
  developments, projects, programmes and investments,
  and its task is to ensure the harmony of development needs
  and the strategic objectives of the Group.
– The remuneration of the company’s chief executive and the
  decisions related to the conclusion, modification and termi-


140
                                                                                   S U S T A I N A B I L I T Y         R E P O R T




2.4. OUR SOCIAL AND ENVIRONMENTAL                                    Responsibility for our colleagues
RESPONSIBILITY                                                       – we set high requirements for our colleagues, and those
2.4.1. MEDIUM-TERM CSR GOALS                                           who perform well can count on appreciation from MKB
From the very beginning, MKB Bank has set out to be one of           – our colleagues represent the Bank towards our external
the most exemplary financial institutions in the field of cor-         stakeholders, therefore by providing the necessary infor-
porate social responsibility in the medium term. To achieve            mation we ensure that they act responsibly and authenti-
this goal, we have defined the following strategic CSR areas           cally represent the principles of the present strategy
and goals for the period 2008 to 2010.                               Responsibility for the natural environment
                                                                     – MKB has realized its responsibility towards the natural envi-
Development of the responsibility determined by the core activ-        ronment
ity                                                                  – we continuously elaborate programmes to decrease our
– MKB creates value for society by conducting its core activi-         load on the environment
  ties professionally, in a quality manner                           – we support the related individual and group initiatives of
– we are responsible for legal, productive and efficient oper-         our colleagues
  ation, and its continuous development                              Support, donations
– we strive to ensure that the principles of corporate social        – to the best of its abilities MKB supports efforts aimed at
  responsibility appear in our services and permeate our               resolving social problems
  everyday operation                                                 – the support of culture is of special importance to the Bank
The creation of the management structure and organizational          Setting and example in the field of responsibility
culture of corporate social responsibility activity                  – we wish to ensure that MKB’s corporate social responsibili-
– we strive for an increasingly accurate insight into our envi-        ty activities conform to leading principles and practices,
  ronmental, social and economic impacts                               therefore we continuously monitor the work of the financial
– the management of MKB is committed to incorporating the              sector and companies with best practices
  subject and principles of social responsibility into its man-      – in our roles as clients and owners we wish to ensure that
  agement systems                                                      our principles and systems of responsibility appear in the
– we intend to make responsible operation one of the cor-              operation of our partners and our subsidiaries belonging to
  nerstones of MKB’s corporate culture                                 the Group
Our responsibility arising from the relationship with our stake-     Transparent communication
holders                                                              – MKB intends to be accountable to its stakeholders in
– MKB has realized that it has to identify those impacted by           respect of the social, economic and environmental effects
  its actions and has to conduct a dialogue with them on an            of its operations
  equal footing                                                      – to ensure this, the Bank will set up and continuously devel-
                                                                       op its non-financial reporting system




                                  Tamás Erdei – Chairman and CEO, MKB Bank

                                  “In the case of a bank, responsible operation is fundamental to success. During the past
                                  decades and especially during the last few years, the various actors of society have been
                                  increasingly and rightfully demanding that we understand the responsibility of corporations
                                  in a wider context. We all worry about the state of the environment, we are all outraged when
                                  we see human rights violated and, as private individuals, we are often frustrated to find that
                                  alone we are unable to change things. Within a company, as members of an enthusiastic
                                  team, the situation is different. With a strategic outlook we are able to assess the limits of our
                                  possibilities and to set and realize our goals together. This is an uplifting and rewarding task
                                  – even if we know that it is also an infinite task – since every step is an advance which, I
                                  believe, makes the world better, if only a little. Currently we are formulating the elements of
                                  CSR management and it is obvious that we still have much to do. Nevertheless, we have also
                                  received a lot of positive feedback in this phase of the learning process, and we are starting to
                                  get a systemic grasp of what we have done well so far and what tasks lie ahead of us. I believe
                                  both the feedback received and the results justify it: we are on the right track.”
S U S T A I N A B I L I T Y           R E P O R T




3. ECONOMIC PERFORMANCE


3.1. ALLOCATION OF THE ECONOMIC                                    3.2.1. THE CORPORATE BUSINESS LINE
EXCESS VALUE                                                       MKB Bank essentially devoted the year of 2008 to the mainte-
The social benefits of our economic performance are shown          nance of its existing portfolios, as well as to keeping and improv-
by how much the various parties involved receive from the          ing the quality thereof and increasing its own profitability, rather
generated economic excess value.                                   than to the expansion of portfolios. In addition to the collection of
  Allocation of economic excess value in 2008 (IFRS)
                                                                   deposits, in line with its own efforts to implement cross selling and
                                                                   generate fee income, MKB Bank offered liquidity management
  Description                                    MKB HUF million
                                                                   and investment services with open-end investment funds, trading
  Generated direct economic value:                        67,339   account bonds and a wide range of government securities for its
   a ) Income:                                            67,339   corporate customers. In Hungary, growth is more moderate in cer-
  Allocated economic value:                               60,755   tain segments and lending was consciously limited, especially
   b) Operating costs                                     29,062   after October. The gradual deterioration of the domestic econom-
                                                                   ic environment mainly affected the lower end of medium-sized
   c) Employee wages and benefits                         24,519
                                                                   companies, and this process had already started in 2007.
   d) Payments to capital investors                        5,404
                                                                   Therefore, in 2008, the emphasis shifted to the “cleansing” of the
   e) Payments to the state                                 817    existing portfolios instead of business expansion.
   f) Community investments                                 953
  Retained profit:                                         6,584   3.2.2. THE RETAIL BUSINESS LINE
                                                                   The business line achieved several business successes in 2008,
3.2. ECONOMIC PERFORMANCE OF THE                                   strengthening further its positions on the lending and invest-
BUSINESS LINES                                                     ment markets. The dynamics of the sales activity remain strong
In 2008, MKB Bank closed a specifically successful year, the       while its structure shifted closer to products with higher added
major business portfolios showed dynamic expansion, and            value, e.g. investment products. The significance of the results is
MKB and the group maintained or even further increased its         highlighted by the fact that they were achieved by the business
market share in several business lines. Despite the internation-   line in a further deteriorating environment and among
al financial crisis and the recession-burdened global and          unchanged fierce competition.
domestic economic environment, the liquidity and financial            In 2008, the number of the Bank’s retail customers grew by
muscle of MKB Bank reached a stable and secure level during        32,000 to 286,000. In addition to product development, the fur-
the year on a continuous basis, complying with the Bank’s          ther expansion of the branch network, the penetration of the
own, as well as its shareholders’ and supervisory authorities’,    electronic channels showing constantly double-digit dynamics
limits and expectations.                                           and the sudden increase in the number of transactions arranged
   The successful business performance of MKB Bank in 2008 is      electronically, all contributed to the success of the business line
reflected in the Bank’s balance sheet data. The Bank’s balance     while the priority of service quality was not forgotten either.
sheet total as per the International Financial Reporting              Small enterprises were first strategically targeted by the Bank
Standards (IFRS) increased over and above inflation, by 18.8%,     from 2007, and by the end of 2008 the number of customers
to HUF 2,656.6 billion. Compared to 2007, the deteriorating        had reached 29,150. In 2008, the further development of the
economic environment was mainly reflected by the increase in       model, process and risk management system of small enter-
the allocation of provisions by 54.9% to HUF 35.1 billion (2007:   prises started, bearing in mind MKB’s one-stop-shop service
HUF 22.7 billion). This could mainly be tied to the small and      model, which is based on a “Personally for you” concept.
medium-sized segment, while the large corporate and project
portfolios slightly deteriorated and the retail portfolio          3.2.3. MONEY AND CAPITAL MARKET
improved. As a result of these, the Bank’s non-consolidated        In 2008, the business line maintained and further increased its
pre-tax profit for 2008 as per the IFRS diminished by 53.1% to     business activity despite the volatile and negative market and
HUF 7.6 billion (2007: HUF 16.1 billion).                          economic environment, contributing significantly to the real-
                                                                   ization of the Bank’s business performance and strategic goals.
                                                                   The expansion of the offers and portfolios of the investment
                                                                   funds is a highlighted issue in the Bank’s medium-term strat-
                                                                   egy. In 2008, MKB was the only significant fund manager able
                                                                   to expand its portfolio in a sector shrinking by 25%.
                                                                   The role of the business line gradually increased in the diversi-
                                                                   fied deposit collection based on trading-account securities. In
                                                                   2008, as a leading credit institution issuer, MKB Bank issued HUF
                                                                   bonds with a total nominal value of HUF 72.4 billion (a market
                                                                   share of 10.6% in the portfolio including mortgage issuances).
                                                                   The performance of the individual business line is presented
                                                                   in detail in the business report attached to MKB’s 2008
                                                                   Annual Report.
                                                                            S U S T A I N A B I L I T Y   R E P O R T




The photo exhibition Soul and Body from Kertész to Mapplethorpe was held at the Museum of
Fine Arts with MKB Bank sponsorship. The poster shows Brassaï’s famous photograph of Picasso.
S U S T A I N A B I L I T Y         R E P O R T




4. SOCIAL PERFORMANCE


4.1. OUR STAKEHOLDERS
4.1.1. MKB BANK’S STAKEHOLDERS
The corporate social responsibility activity of MKB Bank is
based on the assessment and identification of the Bank’s
stakeholders performed during the elaboration of the CSR
Strategy. During the course of our everyday operation we
strive to assert, with equal weight, the aspects of responsibil-
ity to society, the economy and the environment. Besides our
customers, employees and owners, we regard NGOs and
local communities, our strategic partners, professional
organizations and suppliers as stakeholders of special impor-
tance. Our frameworks of cooperation build on lasting rela-
tionships and long-term, mutual benefits.
   The following chapters describe in detail our relationships
with our stakeholders and the channels of the dialogue with
them.                                                                 Headcount of workforce according to regions (31st December 2008)
                                                                      Region                                       Closing headcount
4.2. OUR COLLEAGUES
4.2.1. THE COLLEAGUES OF MKB BANK                                     Central Hungary                                           1765

By the end of 2008, the number of permanent MKB staff had             Southern Great Plain                                       127
increased to 2259, from 1978 at the end of 2007. Of this, 45          Southern Transdanubia                                       54
people were employed under fixed-term, and 2214 under                 Northern Hungary                                            51
indefinite term work contracts. The number of colleagues in
                                                                      Northern Great Plain                                        82
part-time positions was 47. The number of employees abroad
                                                                      Central Transdanubia                                        96
was 15, the number of employees with disabilities was 8. 67%
of our employees are female, 33% male. The average term of            Western Transdanubia                                        84
service at MKB Bank has decreased to 6.9 years from last              Total                                                    2259
year’s 7.4; the average age of our employees has decreased
to 37.0 years, from 37.4 years in 2007. 52% of our employees          In 2008 the fluctuation of the staff decreased to 15%. As
are graduates (mainly in the relevant field). The composition       regards gender, there are no differences in the composition
of our staff according to age is balanced.                          of those leaving employment. As regards the various age
   The Collective Labour Contract provides for all labour           groups, the proportion of those leaving the Bank/retiring is
issues between the Bank and its employees that are not reg-         highest among the youngest and the oldest age groups.
ulated by legal regulations, and are permitted by law to be         Fluctuation was lower in the Budapest region and the eastern
thus governed. The effect of the Collective Labour Contract         part of the country, while it was higher in the western part.
extends over all employees of the Bank with the exception of
chief executives (i.e. 99.7% of the entire workforce). In respect     Rate of fluctuation according to various aspects
of the effect of the Collective Labour Contract, the chairman-                                          No. of   Closing     % of
CEO and the deputy-CEOs qualify as chief executives with              Aspects                Groups employees headcount employees
whom the Bank has concluded an executive labour contract                                              leaving             leaving
with special conditions.
                                                                      Sex                      Male        112           742    15%
                                                                                             Female        226       1517       15%
  14. Workforce according to type of employment
                                                                      Age group            Under 30        118           631    19%
  Type of                    Full           Part
                                                          Total         Between the ages of 30–40          115           886    13%
  Contract                  time            time
                                                                        Between the ages of 41–50           49           445    11%
  Fixed-term employment
                                                                                             Over 50        56           297    19%
  contract                    43               2             45
                                                                      Region        Central Hungary        231       1765       13%
  Indefinite-term
                                                                                Southern Great Plain        21           127    17%
  employment contract       2169              45          2214
                                                                              Southern Transdanubia         12           54     22%
  Total                     2212              47          2259
                                                                                  Northern Hungary           5            51    10%
                                                                                Northern Great Plain        12           82     15%
                                                                               Central Transdanubia         27           96     28%
                                                                               Western Transdanubia         30           84     36%
                                                                                               Total      338        2259       15%
144
                                                                                   S U S T A I N A B I L I T Y        R E P O R T




                                                                     – Introduction of a competence-based performance
                                                                       assessment system (TÉR): A new, complex assessment
                                                                       system is being introduced for the evaluation of individual
                                                                       performance, which system lays emphasis on the quality
                                                                       aspects of the work of the employees. The new dimension
                                                                       of assessment is provided by the inclusion of personal skills,
                                                                       abilities and competences.
                                                                     – Complex training programme: A complex training pro-
                                                                       gramme has been developed at our Bank, implemented
                                                                       with co-financing from the European Union’s Human
                                                                       Resources Operative Programme (HROP 3.4.1). The pro-
                                                                       gramme was implemented with manifold contents. The
                                                                       topics included skill development, communication and
                                                                       sales trainings, managerial skill development, presentation
                                                                       techniques and training in office software applications.
  Composition of the Bank’s employees according to various aspects
                                                                     – Expert Exchange Programme: Our knowledge-based
                                                                       international exchange programme developed in coopera-
  Aspect                             Groups Number Distribution
                                                                       tion with our parent company is intended to further the
  Sex                                   Male      742     32,80%       exchange and sharing of professional knowledge and
                                     Female      1 517    67,20%       experiences. Within the technical programme we provide
  Type of employment              Blue collar      16      0,70%       the colleagues of the bank group with an opportunity to
                                 White collar    2 243    99,30%       get to know the work culture and professional activities of
                                                                       similar fields abroad. The project is implemented in 2009.
  Citizenship                Foreign citizens      15      0,70%
                                                                     – HR workflow integration project: On the basis of our
                          Hungarian citizens     2 244    99,30%
                                                                       experiences, we support the HR activities of our subsidiaries
  Age group                        Under 30       631     27,90%       – MKB Romexterra Bank and MKB Unionbank – in the inter-
                   Between the ages of 30–40      886     39,20%       est of the standardization and improvement of the efficien-
                   Between the ages of 41–50      445     19,70%       cy indices of HR processes, international cooperation and
                                     Over 50      297     13,20%
                                                                       the smooth exchange of information. Within the frame-
                                                                       work of the project we have handed over those profession-
  Executive/              chairman and CEO          1      0,04%
                                                                       al work processes that contribute to the value generation of
  Non-executive                deputy-CEOs          5      0,22%       human resource management on an international scale.
                          executive directors      21      0,93%
                        middle management         167      7,39%     4.2.2. EMPLOYMENT
                    non-executive employees      2 065    91,41%     An appropriately trained workforce is of crucial importance
                                                                     to the realization of our strategic objective, the high-quality
  Employees with             Employees with
                                                                     provision of services and customer relationships, and we
  disabilities                    disabilities      8      0,40%
                                                                     therefore lay great emphasis on the recruitment and selec-
                            Other employees      2251     99,60%     tion of new colleagues. The “Career Corner” of our website
                                                                     helps job seekers with useful advice, linguistic and personali-
   As it is our colleagues who represent the Bank towards our        ty tests, and test job interviews. The application process is
external stakeholders, we attach special importance to their         supported by the “CV database” and the possibility to moni-
appropriate training, the measurement and recognition of             tor the jobs applied for.
their performance, the creation of appropriate working con-             On the basis of the approved staff size, the heads of the
ditions for them and their feeling of well-being as part of a        organizational units fill vacancies with the help of the HR
community both during and outside working hours. During              Directorate. Recruitment methods include internal (30%) and
2008, our most important HR projects were the following:             external (65%) job advertisements, personnel consultants,
– Development of the applications of the HR administra-              personal recommendations and other channels (5%)1. New
  tion system: The objective of the project is to enhance the        entrants to the company participate in an orientation pro-
  cost-efficiency of classic HR and human resource develop-          gramme. They receive detailed information to facilitate the
  ment processes and, within this, the introduction of elec-         fitting-in process. New colleagues also receive the orienta-
  tronic applications supporting internal work processes and         tion material in print format..
  the preparation for the introduction of an employee self-
  service system.

6 Estimated data

                                                                                                                                 145
S U S T A I N A B I L I T Y        R E P O R T




4.2.3. THE OPINION OF OUR                                          4.2.4. TRAINING AND DEVELOPMENT
COLLEAGUES MATTERS                                                 We attach importance to enabling our colleagues to continu-
We are aware that in order to satisfy our customers we need        ously develop their skills and knowledge to keep up with
satisfied and well performing colleagues. There are many           changing challenges. On the Bank’s side, this ensures a well-
problems – and solutions – that are only encountered by our        trained workforce capable of tackling tasks, and on the
employees. We therefore believe it is important to maintain a      employees’ side, it provides an avenue for individual devel-
real dialogue with colleagues, and continuously try to broad-      opment and promotion. The basic elements of our personnel
en the possible channels of both information provision             development strategy:
beyond direct supervision and feedback.                            – to meet increasing training requirements
– Since October 2006, all our employees have been able to          – career management
  write to the anonymous mailbox available on the intranet         – modular professional education and development
  about any facts or data they have found in relation to risks     – continuous development of sales skills
  related to reputation or operation. The Management moni-         – strengthening of managerial skills
  tors the efficient operation of information reporting and
  uses it during its management work.                              It is in the interest of the realization of these that we have set
– “KommenTár” (“Commentary”) has been in operation as an           up, among other things, our career-support programmes:
  internal information channel since summer 2008. This pro-        – management training programmes
  vides an intranet site accessible to all employees of the        – Talent Programme (management replacement and talent
  Bank for comments and observations, as well as questions            management)
  for the management of the Bank.                                  – Expert Club (development of employees in key positions)
– Taking MKB Café as the example, on 29th September 2008           – career-starter programmes
  we launched the monthly series of events entitled MKB
  Business Café with the intention of increasing the dynamics      in addition to our sales-support programmes:
  of internal communication. While in the case of the former,      – continuous and comprehensive sales development for
  the moderator chats with an external guest, in the case of the     employees in retail and wholesale sales positions
  latter the members of the Board of Directors are interviewed.    – development programme for sales managers.
– The trade union and an employees’ council are also in oper-
  ation at MKB Bank, and the cooperation with these bodies is         The average number of training hours per person per year
  much closer than what is provided for by law. According to       is 42 at the Bank level as a whole. In the retail business line it
  the Statutes, one third of the members of the Supervisory        is 69 hours per person and in the wholesale business line it is
  Board (3 out of the 9 members) are employee representa-          52 hours per person. The estimated distribution of training
  tives delegated by the employees’ council, and the general       programmes by type: professional/technical 70%, linguistic
  assembly is obliged to elect them as members of the              5%, skills development 25%.
  Supervisory Board except when there is a statutory reason           Besides the above, all new employees receive training on
  for exclusion against such delegates. Via the interest group     bank security, money laundering and compliance. At the
  organs, our colleagues also participate in decisions about       Bank security training courses we prepare our colleagues for
  wage rises and the definition of the sphere and extent of        the successful management of crisis situations in the interest
  extra-wage benefits.                                             of their own safety and that of our customers, and describe
– We publish the magazine “Hírmondó” (“Courier”) four times        and analyse recent crimes against financial institutions
  a year, the editorial board of which is composed of employ-      (fraud, robbery forgery, etc.). In respect of money laundering,
  ee representatives. The internal opinion poll conducted to       new experiences are added to the training material every
  define the direction of the further development of the mag-      year. Every year there is a compulsory examination to be
  azine also serves the involvement of our employees.              taken in this field. Our colleagues also receive fire protection
– Within the framework of the Chairman’s Roadshow, the             and work safety training.
  Chairman of the Board of Directors meets colleagues from            In the field of complaint management, selected colleagues
  various business or back office areas every one or two           (with good communication skills, empathy, helpfulness and
  months. Using the Management Bulletins, the manage-              flexibility) receive extra training over and above the regular
  ment provides regular information on the major decisions         communication skills development to become familiar with
  of the Board of Directors on the group website, Intrabank        the communication to be used in crisis situations, to retain
  and via MS Outlook circulars.                                    their logical thinking even in emotionally charged situations,
– When defining the sponsorship activities of the branches,        and to be able to ask questions and make arguments in an
  we take into account the comments and proposals of the           appropriate manner.
  branch managers, who are more familiar with local circum-
  stances and needs.



146
                                                                                 S U S T A I N A B I L I T Y         R E P O R T




OUR CAREER SUPPORT PROGRAMMES                                         The participants of the Talent Programme, the Expert Club
Career-starter programmes                                          and the Career-Starter Programme are selected for participa-
As regards young employees at the start of their careers, we       tion through a multi-step process. The first step for entry into
wish to make them conscious of their roles as employees, to        the programme is the pre-screening phase, which defines the
train them in the exercising of employees’ rights and obliga-      basic qualities and conditions the participants must possess.
tions, and to enhance the ability for independent work.            The first step of the structured selection is the accurate map-
   The programme strengthens communication and the                 ping of the training, qualifications, skills and abilities of the
building of personal relationships among participants. The         pre-screened employees. Following this an online skill and
objectives of the programme also include the further devel-        ability assessment test has to be taken. The third element of
opment of the individual knowledge and skills of colleagues,       the first phase of selection is the opinion and recommenda-
providing a possibility for continuous training and develop-       tion of the candidate’s direct superior, examining the profes-
ment.                                                              sional training, development and leadership potential of the
                                                                   participant. The second phase of selection is primarily based
Talent Programme                                                   on personal interviews which provide a more detailed
The Talent Programme is our Bank’s programme for training          overview of the strengths, weaknesses and personalities of
managers. The objective of the programme is to select tal-         participants. Both during and at the end of the programme,
ented young colleagues that the Bank can count on in the           participants are provided with feedback in various formats
future as potential managers or key employees in positions of      about the knowledge and skill learned. The proportion of
high importance. Colleagues participating in the Talent            employees who regularly receive assessments and career-
Programme receive training preparing them for their future         building reviews on their performance is 5% of the entire
positions and enabling them to participate in projects of          staff of the Bank.
strategic importance.
                                                                   4.2.6. BENEFITS
MKB Expert Club                                                    Benefits have a strong motivational force on employees.
MKB Expert Club offers a development programme primarily           Naturally, we would like to express our commitment towards
for those talented colleagues whose professional work places       our employees by rewarding their work with as broad a
them in a key position in their professional area, and there-      sphere of benefits as possible. MKB Bank offers its employees
fore our Bank counts on their work, as high-level experts, in      the following types of benefits:
the long term.                                                     – as of 1st October 2006, monthly payment of a contribution
   For them we mainly intend to implement programme ele-             to mutual pension fund membership amounting to 4% of
ments to support the management and resolution of situa-             the personal base wage, maximum HUF 32,750 (for full-
tions related to high volume and high level work, such as            time and part-time employees not receiving pensions)
stress management, problem solving and time management.            – a fixed-amount contribution to health fund membership
                                                                     (for all full-time and part-time employees with the exception
4.2.5. PERFORMANCE ASSESSMENT                                        of those who have been on sick-leave or on the unattached
It is important for the individual development and successful        list due to long-term absence on all workdays of the month)
work of our colleagues to provide them with regular feed-
back on their performance. In 2008, we created a new, com-         Furthermore, we provide full-time employees with the fol-
plex assessment system (TÉR) for the evaluation of individual      lowing:
performance, which has been introduced as of 2009. TÉR lays        – meal contribution,
emphasis on the quality aspects of the work of employees.          – transport cost reimbursement,
The new dimension of assessment is provided by the inclu-          – discount account management and bank transactions,
sion of personal skills, abilities and competences. With the       – holiday support,
introduction of the application, our objective is to provide a     – possibility of employer loans.
long-term advantage for the organization and employees
alike. Our goal is to improve individual performance on the          The Bank provides employees in social crisis with a frame
basis of the extremely strong development and motivational         amount for childbirth, schooling, funeral and other social
effect of regular assessments and, thus, to ensure the effi-       costs. In 2008, the average starting salary at the Bank was 3.77
ciency of the organization as a whole. During the project we       times the official minimum wage. The total mutual pension
have created a bank competency model that may also be              fund payments made for employees amounted to HUF
used in several other areas. In the future, the use of the model   485,563,667.
will support and authenticate the selection and recruitment          The basic principle underlying MKB Bank’s wage policy is
process cost effectively and could be of help to personnel         that wages should closely reflect the contribution to corpo-
development, including training and career planning.               rate results, and therefore certain elements of remuneration



                                                                                                                                147
S U S T A I N A B I L I T Y          R E P O R T




are attached to the Hay job evaluation reference levels. We            al units for community events. On a rotating basis our organi-
apply the most widespread position assessment method                   zational units organize team-building events and pro-
used by Hungarian banks based on internationally renowned              grammes 2 or 3 times a year (when there is a change in the
position-assessment methodology. The wage differences                  immediate superior, head of field or when there are other
between the sexes are a result of the different proportions of         personal changes). These are usually 1 or 2-day events held at
sexes in the various job-positions.                                    external sites.


  Ratio of the wages of men and women in the various employee groups
                                                                       PROGRAMMES FOR OUR COLLEAGUES
                                                                       AND THEIR CHILDREN
  Employee group         Ratio between the wages of men/women
                                                                       In relation to our support, our colleagues and their family
  deputy-CEOs                                                    1     members were able to visit the exhibition “The Splendour of
  executive directors                                          1,1     the Medici” free of charge in the Budapest Museum of Fine
  middle management                                            1,3     Arts. In the same museum, they were granted a 50% discount
  non-executive employees                                      1,3     for the “Soul and Body” photo exhibition.
                                                                       On 31st May, our colleagues’ children were able to partici-
                                                                       pate in a special workshop session. They became acquainted
                                                                       with a number of contemporary works of art under the guid-
                                                                       ance of two eminent experts from the Ludwig Museum,
                                                                       Ferenc Sántha, art teacher, and Orsolya Erdôháti, painter and
                                                                       restorer. During the two-hour session the children created a
                                                                       paper composition after seeing Imre Bak’s ‘Tao’ and Gábor
                                                                       Bachmann’s ‘Model of the Museum of Contemporary Art’,
                                                                       and a shadow play based on the figures in A. R. Penck’s paint-
                                                                       ing ‘Metaphysical Passage through a Zebra’. During the ses-
                                                                       sion, the accompanying colleagues were taken on a guided
                                                                       tour of the museum. The participants of the workshop were
                                                                       invited by the Bank to snacks and drinks by way of refresh-
                                                                       ment after the toils of the workshop.
                                                                       The first event in the MKB Café’s Podium Conversations series
                                                                       was held on 24th June in the restaurant of our Kassák Street
                                                                       building. Prominent radio-journalist Júlia Váradi, regular
                                                                       moderator of our soirées, chatted to actor and director Pál
                                                                       Mácsai, a prominent figure in Hungarian theatre life.
                                                                       Following the premiere of the highly successful talk show, on
                                                                       2nd September – after the inevitable summer break – our
                                                                       guest was Miklós Vámos, the popular author also known for
                                                                       his television appearances.
                                                                       Just by visiting the Museum of Fine Arts, they found themselves
                                                                       in ancient Egypt. This is what the children who participated in
                                                                       the free cultural session on the exhibition “Renaissance in the
                                                                       Age of the Pharaohs” on 14th September experienced. The art
                                                                       historians introduced the children to the inexhaustible myster-
                                                                       ies of ancient Egypt through games. The youngest of the 61 fas-
4.2.7. COMMUNITY BUILDING                                              cinated children was just four years old, and among the older
We believe it is important for efficient operation to have our         ones, there were also several secondary school children.
colleagues get to know each other better, to strengthen the            For the first time, in the spring we announced a drawing com-
team spirit through collective experiences and, equally                petition for the children and grandchildren of the employees
importantly, to enhance through this their well-being at the           of our Bank Group. The 48 works we received were judged by
workplace. Therefore we support programmes organized for               a panel of experts including Marcell Jankovics, Kossuth and
our colleagues and their families. In 2008, too, there were sev-       Prima Primissima prize-winning animation film director, and
eral opportunities to spend leisure time together and to get           István Orosz, graphic artist, Meritorious Artist. The winners of
to know each other better.                                             the competitions set for the various age-groups each won a
The so-called small community budget is a fixed amount pro-            one-week stay at a surprise camp, while the others were
vided to each colleague, used by the individual organization-          awarded book tokens.



148
                                                                                  S U S T A I N A B I L I T Y          R E P O R T




4.2.8. WORKING CONDITIONS                                            tems has been successfully used by the police as evidence.
The creation of a healthy, safe, comfortable working environ-        We manage the footage recorded by our video monitoring
ment contributes greatly to the efficient work of our col-           system according to the relevant data protection rules.
leagues. In addition to this, we believe it is important to help   – The fire alarm systems installed ensure that no fire, howev-
our colleagues’ physical and mental recreation and the valu-         er small, goes undetected at any time of the day or night.
able use of their free time. There is no official agreement in     – Thanks to the remote monitoring system that covers all the
effect between the Bank and the Trade Union on workplace             systems mentioned above, our colleagues are able to direct
health and safety; however, MKB Bank also makes every effort         the required emergency service (police, fire brigade, ambu-
in this area, to increase the satisfaction of its employees. In      lance, etc.) to the bank building concerned without delay –
2008, there were a total of 9 workplace accidents, resulting in      on all days of the week.
a total of 284 workdays lost. Thus, the severity index of the      – Naturally, we are aware that even the best technology is
accidents (day/case) is 31.56.                                       insufficient without human supervision, and therefore
– The work environment is developed ergonomically, taking            armed guards continuously monitor the events in the facil-
  individual requirements into account. The furniture, light-        ity and the customer areas in all our buildings.
  ing, and regulation of temperature and humidity ensure           – When designing branches, MKB Bank pays special attention
  optimal working conditions.                                        to ensuring that the design of internal spaces itself serves
– We take into account the requirements of our colleagues in         the safety of customers and employees. Most of our cus-
  the design of the offices.                                         tomer areas are easy to survey from all workplaces, which
– Our branches have been constructed in a handicap accessi-          renders the observation of bank operations with malicious
  ble way and we have also ensured accessibility in our older        intent more difficult and helps our employees and the secu-
  branches.                                                          rity guards notice such activities in time and take action
– We provide a health protection programme, extensive                against them. All customer service workplaces have a board
  health screening programmes, health status checks and a            in front of them indicating the waiting distance, or a line on
  company physician service.                                         the floor with the same purpose.
– We provide our employees with the opportunity to do              – In MKB Bank branches, all cash is stored in safes equipped
  sport: fitness, aerobic and workout rooms, massage, sauna.         with time delay mechanisms. These have been installed to
– We provide our colleagues and their families with regular          prevent robbery and attempted robbery against financial
  recreation programmes.                                             institutions. An analysis of bank robberies committed in
                                                                     Hungary and abroad indicates that the perpetrators are not
Bearing these objectives in mind, MKB Bank makes every               prepared to wait more than 1–2 minutes for the cash to be
effort to create an environment where comfort and quality            handed over, as longer delays greatly increase the risk of
services are easily accessible while ensuring the maximum            being caught.
safety of customers and employees. Each and every MKB              – Regular and recurring bank security training for employees
Bank branch and office building is protected by state-of-the-        is one of the most effective protective mechanisms of finan-
art bank security devices. We take special care of the mainte-       cial institutions; in fact, it may be the most effective. At such
nance of existing equipment and the maintenance of maxi-             courses and training sessions, we prepare our colleagues
mum operational safety. Our Bank Security colleagues are             for the efficient management of emergencies from the
always on the lookout for newly-developed equipment and,             aspect of providing optimum service to our customers and
by using such, keep the installed systems up to date.                bank security. They are provided with methods for accurate
– Intrusion and attack detection systems ensure the compre-          identification, and recognition of counterfeit IDs, company
  hensive electronic protection of the buildings day and night.      and private documents, cash assets and transfer orders, and
– The financial and other banking work areas of the bank             we describe and analyze recent crimes against financial
  buildings are protected from unauthorized entry by a               institutions (fraud, robbery, counterfeiting, etc.)
  nationwide, centrally monitored intrusion protection and         – The Fire Protection Regulation clearly defines the role and
  entry system.                                                      responsibility of the Chairman and CEO and the order of the
– A round-the-clock video monitoring system is in operation          delegation of tasks in respect of fire protection and labour
  in MKB branches that meets even the most stringent                 safety especially important for the security of employees.
  requirements. The customer area, the customer service              The Security Policy describes in detail the Security
  workplaces, the entire cash circulation area and all other         Organization and the spheres of responsibility related to
  strategically important areas are monitored by cameras.            security issues.
  Continuous image recording by all cameras ensures that           – Besides this, the Bank pays special attention through
  we are able to provide the authorities with fully assessable       human protection (personal structural protection) meas-
  footage in cases of crime or attempted crime. In several           ures to the selection, training and supervision of external
  cases the footage provided by our video monitoring sys-            sales and outsourcing partners.



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S U S T A I N A B I L I T Y          R E P O R T




  Our objectives concerning our colleagues for 2009                      regulations. We have also ensured accessibility in the case
                                                                         of our older branches.
  The involvement of our colleagues in the reduction of                – We have developed a special package of services
  the environmental impact of the operation of the Bank –                favourable to pensioners.
  Green Office Programme.                                              – Our service packages “Student”, “Karrier” (“Career”),
  In order to ensure better feedback about the perform-                  “Gondoskodó” (“Caretaker”), “Campus” and “Professzori
  ance of our colleagues and an even higher level of pro-                Klub” (“Professors’ Club”) are products developed to meet
  fessionalism, complaints arising due to administrator                  the special requirements of students, career-starters, par-
  error are incorporated into our incentive system.                      ents wishing to look after their children’s futures, teachers
                                                                         in higher education, and university professors appointed
                                                                         by the President of the Republic.
4.3. OUR CUSTOMERS
4.3.1. MKB BANK CUSTOMERS
The strategic objective of MKB Bank is to play a dominant role in        Kata Kozma – Deputy Head of Department at
all customer segments as regards the quality of the services and         MKB Bank Zrt
the intensity of customer relationships. By the end of 2008, the         “In Hungary, university professors have never received
number of MKB Bank customers had increased to more than                  the appreciation they deserve. This is what we wanted to
329,000 from 294,000 at the end of 2007. At the end of 2008, the         offer them, using our own special means. We offer them a
number of MKB Bank corporate and institutional customers                 uniquely favourable package of services. We provide all
was 3,100. By the end of 2008, the number of SME customers               professors with a personal financial adviser; in this way
reached 40,250. The number of retail customers increased to              they can also manage their bank affairs over the phone.
286,000. Our targeted customer base consists of customers                Their gold cards bear the inscription “Professors’ Club”,
with above average asset and earnings potential.                         entitling them to substantial discounts at several of our
                                                                         partners. Last, but not least, we organize Professors’ Club
                                                                         events in every university town; these consist of cultural
                                                                         programmes and dinner. We are happy to say that the
                                                                         concept turned out to be a success; we have won the
                                                                         confidence of university professors. Over 50% of the pro-
                                                                         fessors have opened accounts at our Bank, which is a
                                                                         great honour and a great responsibility for us. I have
                                                                         always respected people of great erudition, broad out-
                                                                         look and culture. In the case of the professors, these traits
                                                                         are coupled with great modesty and exceptional man-
                                                                         ners. Conversations with them always refresh me, I
                                                                         always learn something new and get something extra –
                                                                         and my colleagues feel the same way, I find. Within the
                                                                         Bank we call them “our Professors”, not out of disrespect,
                                                                         but as an expression of our affection.


4.3.2. EQUAL ACCESS TO SERVICES                                        PROFESSORS’ CLUB
Since we provide our customers with comprehensive bank-                   Ever since its foundation, our Bank has displayed great
ing services, it is essential that our service be accessible to all,   responsibility for the training of the experts of the future. We
irrespective of place of residence, property status or physical        keep an eye on the valuable activities of the professors and
abilities. In order to ensure this, we have made efforts in sev-       staff at the famous institutions of higher education. The pur-
eral areas, from increasing our branch network to accessibili-         pose of our Professors’ Club is to provide a meeting place at
ty and the development of products for target groups with              our annual gatherings held in several university towns for the
special needs.                                                         leaders of university life and the public figures of the town. We
– We further extended our branch network in 2008, too. We              hope we have established a new and worthwhile tradition
  opened new branches in Ajka, Dunaújváros, Gyula, Kiskôrös            with the Professors’ Club. Any university professor appointed
  and Szigetszentmiklós, as well as in Budapest in the                 by the President of the Republic may be a member of our club.
  Campona and Csepel Plaza shopping centres. With this, we                Besides the prestigious bank card and the priority manage-
  have increased the number of our branches to 81 from 74 at           ment of their finances, Club members have access to a per-
  the end of 2007.                                                     sonal financial adviser, who can also be contacted by phone
– All new branches have been built according to accessibility          to help with the management of their finances. Furthermore,


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                                                                                    S U S T A I N A B I L I T Y        R E P O R T




  Prof. Dr János Pusztay – University of Western Hungary
  professor and head of department

  “Friends and acquaintances called my attention to MKB’s Professors’ Club. I did not hesitate
  much before switching banks, though I was not dissatisfied with my previous bank. However,
  I did think it was an important gesture that there is a bank that pays attention to the leading
  stratum of higher education. On the basis of my one or two years’ experience, I have to say that
  the information I got beforehand was no exaggeration. I always enter the bank with the com-
  forting feeing that whatever questions or requests I may have for the colleagues or the branch
  manager, they will find a fast and flexible solution for me. And, finally, a subjective comment:
  it is good to belong to an elite club, good to know that there is a financial–economic institution
  that attaches importance to supporting the elite. Several personal experiences have rein-
  forced this. In 2008, I was awarded the Prima Primissima Award in the Science category. A cou-
  ple of days after the event, I received a warm note of congratulations from Dr Imre Balogh,
  deputy chief executive of MKB. Almost at the same time, the regional reception of MKB
  Professors’ Club was held in Sopron in combination with the traditional cultural show. At this
  event, the regional director of MKB gave me a warm greeting and a gift. This was a pleasant
  surprise for me, as I never thought the Bank paid so much attention to its customers.”



members may use several of our services at a discount. We do         keting communication, the improvement of financial culture
not only serve their needs with a custom package of services,        and informing our customers about risks and opportunities.
but – within the framework of the Professors’ Club – we also            In 2008, we committed no violations against legal provi-
regularly organize social events for them.                           sions or the voluntary norms we have accepted (as, for exam-
  In 2008, too, the Professors’ Club offered its members inter-      ple, the Ethical Codex of the Banking Association or the
esting programmes. Events were held in Budapest,                     Performance Communication and Advertising Norms of the
Debrecen, Gyôr and Mosonmagyaróvár, offering participants            Association of Hungarian Investment Fund and Asset
entertainment with programmes ranging from exhibitions to            Management Companies). On the basis of the Organizational
theatrical performances, musical evenings to dinner parties.         and Operative Rules, our new products are always checked
In our book recommendation feature series launched in                by our Legal and Compliance units to avoid any legal viola-
2008, professors recommend the books of other professors.            tions.
Holders of the MKB Gold Card, which goes with Professors’               We have adhered to the regulations of the Advertising Act
Club membership, receive a 30% discount on the cost of the           and the principles of the Self-Regulatory Body of Advertisers
premium services of Kútvölgyi Clinical Unit. This ensures that       and, furthermore, the directives of the International Code of
our busy customers are able to take due care of their health.        Advertising Practice (ICC) and OECD on multinational compa-
                                                                     nies. We continuously oversee our compliance with the stan-
4.3.3. RESPONSIBLE COMMUNICATION                                     dards and norms we have adopted. We offer no products
We attach primary importance to responsible communication            deemed questionable by either our stakeholders or the pub-
in the relationship with our customers. By responsible commu-        lic. Further training on the regulations in effect is continuous-
nication we mean not only the provision of information about         ly provided to colleagues in the legal and marketing field.
our services according to legal regulations and the various          Our CRM handbook contains the rules and ethical norms of
domestic and international norms, but also responsible mar-          responsible DM activity.


                                  Zsuzsanna Bereczki – MKB Bank, executive director

                                  “Customer education is an especially important factor in the sale of treasury and investment
                                  products. The use of the products presupposes some fairly special technical knowledge. The
                                  formulation of an opinion about the market, i.e. the expected changes in currency and interest
                                  rates, is essential. The eminent speakers invited to the December conference formulated their
                                  thoughts on the subject from several different viewpoints. We were happy to see the activity
                                  of our customers; they asked a lot of questions. We felt that both the choice of topic and the
                                  speakers invited met the expectations. The conference received very positive ratings from
                                  over 200 participants. Customers have referred to what was said there at several negotiations.”



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   We also try to involve our customers in our charity initiatives.
Our Bank, which has been a supporter of the activities of the
National „Save the Chidren” Service for over a decade,
announced a new campaign for its customers this year in con-
nection with the recalling of HUF 1 and 2 coins. Customers
wishing to make a donation could deposit their coins at our
branches; this was used by the organization to help children in
difficult circumstances.

4.3.4 OPINION OF OUR CUSTOMERS
Awareness of our customer’s opinion, the mapping of their
requirements, the investigation of complaints and the provi-
sion of the highest possible quality service on the basis of the
information gathered are of primary importance to our strate-
gic objective: the implementation of high quality, intensive
customer relationships.
– We operate a round-the-clock customer
  service, and an e-mail customer service is also available to
  our customers.
– Our colleagues return customers’ calls from Monday to
  Friday between 8 a.m. and 7 p.m. Requests received after 3
  p.m. are fulfilled on the following day at the latest.
– Naturally, our objective is to communicate with our cus-
  tomers primarily via our quality customer service, but we are
  also open to any worries or complaints formulated by them.
  Our customers may review the methods of oral and written
  complaint management in detail on our homepage.
– In the interests of fast and efficient procedures, we have cre-
  ated a Complaint Form, but naturally we also investigate
  complaints received via “traditional” post.
– We endeavour to answer complaints within 15 days from the
  date of receipt.
– If, for some reason, immediate complaint management fails to
  provide our customer with satisfactory results, our homepage
  provides information on the avenues of legal remedy available.
– Fair procedure with our customers is supported by our
  Complaint Management Regulations.
– The Bank lists and answers frequent questions and problems
  in the “Frequently Asked Questions” section of our homepage.
  This primarily provides responses to the questions and issues
  raised by customers, other people and potential employees.
– No customer satisfaction survey was conducted in 2008, but
  we plan to introduce this systematically as of 2009.

9,748 complaints were closed in 2008; below we provide an
overview of the main data concerning these. The percentage of
the number of complaints in the total number of bank trans-
actions was only about 0.01%. Close to 1% (91) of the total num-
ber of complaints took the form of reports to the Hungarian
Financial Supervisory Authority. About one third of the com-
plaints were received in writing, one third by telephone, and
one third were made in person. About half of the complaints
were attributable to customer agent error and about one fifth
to lack of information and product knowledge on the part of
the customer. Four fifths of the complaints received were
closed within 15 days, 15% within 30 days, and only 6% took
over 30 days to resolve. Following investigation, three quarters
of the complaints were accepted, while one fifth were rejected.
                                                                             S U S T A I N A B I L I T Y   R E P O R T




MKB Bank is one of the founders of the traditional “St. Martin’s Day” event at Pannonhalma, one
of the regular performers being the Ferenc Liszt Chamber Orchestra. The orchestra, which is one
of Hungary’s most distinguished, has been sponsored by MKB Bank for nearly two decades.
S U S T A I N A B I L I T Y           R E P O R T




                                     Ádám Farkas - Head of Department at MKB Bank Zrt

                                     “We attach special importance to complaint management and try to take really substantial
                                     measures. The Complaints Forum regularly discusses the process and system errors behind the
                                     complaints. We have already managed to eliminate the cause of several recurring complaints
                                     through development. As of 2009, complaints made due to administrator error have been
                                     incorporated into the incentive system, which binds us all to a high level of professionalism. Our
                                     objectives are to investigate and answer complaints by the deadlines prescribed by law and our
                                     internal regulations, and to provide reasons for the correct and comprehensive response in a
                                     manner suited to the customer’s level of expertise and communication. All these measures are
                                     taken in order to increase customer satisfaction.”


4.3.5. RESPONSIBLE OPERATION                                            – All new employees receive training on bank security, money
Responsible and prudent operation is essential to the image               laundering and compliance. There is a compulsory anti-
and long-term success of a bank. At MKB Bank we believe that              money-laundering examination each year.
our successes are, to a large extent, based on the fact that we         – As of 29/08/2008, MKB Bank does not fulfil bank card trans-
traditionally integrate these principles into our operation. Our          fer orders initiated with cards issued by the bank, and trans-
business activities, our relationships with our stakeholders and          actions related to Internet-based gambling. These changes
our efforts in the interest of social and environmental causes            serve the security of our customers and have been imple-
also substantiate this. In our rapidly and less predictably               mented primarily to prevent bank card abuse.
changing world it is becoming very important that in addition           – First among Hungarian banks, as of 13/10/2008 MKB Bank
to making profit, companies perform their activities in the               temporarily suspended the acceptance of applications for
interest of the values that are important to themselves and               EUR and CHF denominated retail loans. Due to the substan-
their customers. This is why we believe it is important that the          tial weakening of the Hungarian Forint and the increase of
principle of corporate social responsibility also appear in our           foreign exchange risks, in the interest of our customers we
core activity. It is for this reason that we offer our customers          decided that offering these products in the given period
investment opportunities in the fund consisting of securities of          would not have been responsible, as it would have exposed
companies active in the field of environmental protection. We             our customers to unpredictable risks.
describe the MKB Green Planet Principal Protected Derivative
Fund in the chapter on our environmental performance.                     Naturally, even the best of intentions cannot preclude the
   Obviously, the responsible operation of a financial institu-         occurrence of errors in legal compliance. MKB Bank fully coop-
tion also implies tasks in numerous other areas. The struggle           erates with the relevant authorities in such cases and, if a
against money laundering and insider trading, bank security             judgement is passed condemning a practice of the Bank, we
and compliance are everyday tasks of particular importance.             change that practice. In 2008, a procedure related to anti-
In addition to this, and unfortunately especially during 2008,          competitive behaviour was ongoing. The results of this are
we also have to reckon with the fact that certain banking               not yet known, the procedure is expected to be concluded in
products represent substantial, and sometimes unpredictable             the second quarter of 2009.
risks to customers. In such cases, a responsible financial insti-
tution has to take measures that may be unpopular.
                                                                          Procedures for non-compliance with legal regulations and the
– The privacy and secrecy regulations governed by our                     financial value of fines over HUF 500 000.
  Information Security Policy ensure our responsible attitude                                                                   Amount of
                                                                          Type of Procedure                     Procedure
  towards our customers.                                                                                                        Fine (HUF)
– Our business regulations detail the importance of the fight             Legal violation                Bank supervision
  against insider trading and money laundering. The Bank                  related to                              fine based
  adheres to the provisions of the Act on Money Laundering.               products                                  on ruling    4 500 000
– The rules on employee transactions provide for issues of con-           and services                PSZÁF J-III-B.56/2008
  flicts of interest. All managers submit annual reports on the reli-     Other legal                 Tax fine based on the
  ability of employees. If a manager considers one of their employ-       violations   State Tax Authority’s comprehensive       6 067 000
  ees unreliable, they report this to the compliance officer.                         examination of the period 2004–2005
– In the case of a violation of the regulations on the reporting                                  Default fine based on the
  of conflicts of interest, we launch a topical investigation. In                      State Tax Authority’s comprehensive
  respect of money laundering, new experiences are added to                           examination of the period 2004–2005        3 000 000
  the training material every year.


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                                                                                  S U S T A I N A B I L I T Y        R E P O R T




AWARDS AND RECOGNITION                                              Good CSR 2008: The Best Strategic Cooperation with Civil
In 2008 MKB Bank received several honourable and presti-            Organizations
gious awards. Besides the Bank’s commitment to quality and          Last year the increased CSR (corporate social responsibility)
quality services, these also recognized corporate social            activity of the Bank received a prestigious award. Within the
responsibility to a great extent. At the beginning of the           Good CSR 2008 programme, the jury consisting of represen-
Annual Report we have listed all our awards; here we only           tatives from Figyelô, Hungarian Business Leaders Forum and
describe those related to corporate social responsibility. We       Transparency International awarded MKB Bank the Best
are proud of our awards, as they provide a true picture of our      Strategic Cooperation with Civil Organizations prize . The jury
esteem and justify our efforts.                                     were particularly impressed with the relationship between
                                                                    MKB Bank and the National „Save the Chidren” Service, and
The most efficient branch network and Call Centre                   the Bank’s sponsorship–partnership activities of more than a
According to a survey by the London-based, independent              decade, including, especially, the MKB Scholarship
company Benchmarking, after its 2007 success, the MKB               Programme.
Bank’s branch network and Call Centre surpassed all other
local competitor banks in the quality of its service and its cus-   PRO MUSEO Award
tomer-friendly attitude. The Bank’s performance as regards             The fine arts collection of MKB Bank is of national impor-
operative and sales efficiency is outstanding in the case of        tance. We are aware of the fact that it is when the Bank puts
both the branch network and the Call Centre. MKB’s results          the works of art on display to the general public that our
surpassed those of its competitors                                  acquisition activity takes on real meaning. Every year, in
particularly in respect of the high-                                keeping with this principle, we organize an exhibition of
quality, unified interior design, the                               works by an artist featured in our collection. The exhibition
short waiting times and the sound                                   takes place in the artist’s home town with the collaboration
know-how, kindness and cus-                                         of the local museum, and is accompanied by a beautiful and
tomized service of its administra-                                  informative catalogue. In 2008, we organized an exhibition
tors. The result of the survey is yet                               entitled “The Hungarian Cubist” in memory of János Kmetty.
more proof of the professionalism                                   This was held at the Herman Ottó Museum in Miskolc, and
of our colleagues and their dedica-                                 paintings from public and private collections were borrowed.
tion to our customers and quality.                                  On the centenary of its foundation, the Herman Ottó
                                                                    Museum of Miskolc granted the Pro Museo award, which was
MasterCard – Bank of the Year                                       established in 1989, to MKB Bank for organizing and sponsor-
We were awarded a prestigious third place in the category           ing the exhibition, saying “The excellent conditions they cre-
Socially Responsible Bank of the Year in the Bank of the Year       ated for the exhibition with their sponsorship were unprece-
2008 competition sponsored by MasterCard Worldwide.                 dented in the history of our museum.”



                                  Adriány Kincsô – Hungarian Business Leaders Forum, Managing Director

                                  “As a member of the jury of GoodCSR 2008, the reason I thought the cooperation between
                                  MKB Bank and the National „Save the Chidren” Service was outstanding was because it was
                                  not simply an ad hoc campaign, but a strategic cooperation spanning several years. True
                                  results can only be achieved in the betterment of the quality of life of talented but socially
                                  disadvantaged children if the support provided on the basis of a multi-sectoral coopera-
                                  tion is predictable, consistent, well thought through and long-term. MKB’s cooperation
                                  with the National „Save the Chidren” Service is one such programme. The serious chal-
                                  lenges facing our society and the environment cannot be remedied by individual actions;
                                  serious cooperation is needed, in which the business sector plays a prominent role.
                                  Fortunately, more and more companies are endeavouring to do business in a responsible
                                  manner and paying attention to local communities, and this often has a positive effect on
                                  the life of the companies, too. There are many areas in which local companies still have to
                                  develop: for example, corporate diversity (the balance between work and private life, the
                                  employment of the Roma minority, people with disabilities, etc.); energy efficiency is
                                  important in the field of environmental protection, and is also good for the company and
                                  serves the interests of the country in the long run. And, of course, clear and transparent
                                  company management is also a very important area.”



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S U S T A I N A B I L I T Y           R E P O R T




  Our objectives concerning our customers for 2009                 and legal entities hold securities not expressible as percent-
                                                                   ages (1–60 shares). A group of minority shareholders repre-
  We shall introduce regular customer satisfaction surveys.        senting at least 5% of the votes may request the Board of
  Following on from 2007 and 2008, we shall maintain the           Directors to include an issue in the assembly’s agenda, speci-
  first place awarded to us by Benchmarking for the effi-          fying the reason, within 8 days of receiving the invitation to
  ciency of the branch network and the Call Centre.                the General Assembly. Besides this, all shareholders are enti-
  We shall retain an even higher percentage of existing            tled to participate in the general Assembly, request informa-
  customers and provide them with an even higher quality           tion, make comments or proposals, and vote. Hungarian cor-
  service.                                                         porate law prescribes that in respect of the subject matter
                                                                   included in the agenda of the general Assembly, the Board of
                                                                   Directors shall give the necessary information to all share-
4.4. OUR OWNERS                                                    holders when debating a given issue from the agenda.
Besides the qualified majority stake (89.62%) of BayernLB,
P.S.K Beteiligungsverwaltung GmBH possess 9.88%, other
investors 0.5% of MKB Bank shares, and a further 23 natural
and legal entities hold securities not expressible as percent-       Regional network of BayernLB
ages (1–60 shares).

4.4.1. A BRIEF PRESENTATION OF
BAYERNLB GROUP




BayernLB is Germany’s sixth largest bank. It is the provincial
bank of the Bavarian State and a member of the central bank
of Bavarian savings banks, S-Finazgruppe (the largest credit
institution group in Germany and Europe, with a business
volume of EUR 3,300 billion). It was established in 1972 as a
result of the merger between Landesbodenkreditanstalt and
Bayerische Gemeindebank, and is jointly owned by the
Bavarian State and the Bavarian savings banks. It is one of the
largest issuers of bonds in Germany.


  The Group’s main figures for 2008                                  Interests of BayernLB
                                                     EUR billion
  Balance sheet total                                     421,7
  Own capital                                               23,1


   MKB Bank plays a definitive role in the implementation of
BayernLB’s expansion strategy in Central and Eastern Europe.
As a part of this, we extend professional and owner’s support
to MKB Unionbank, Bulgaria, and MKB Romexterra Bank,
Romania, of which we are majority owners.
   Our qualified majority shareholder (BayernLB) is able to
pass valid resolutions on its own in issues belonging to the
competence of the Company Assembly. The shareholder
with qualified majority has delegated representatives to MKB
Bank’s Supervisory Board, where a group of the shareholder-
s’ representatives (6 out of 9 members) is able to pass a reso-
lution on any issues within the Supervisory Board’s scope of
authority, to be performed by the Board of Directors. Besides
the qualified majority stake of BayernLB, P.S.K
Beteiligungsverwaltung GmBH possesses 9.88%, other
investors 0.5% of MKB Bank shares, and a further 23 natural


156
                                                                                 S U S T A I N A B I L I T Y        R E P O R T




4.5. OUR STRATEGIC PARTNERS                                           MKB Bank participates in the work of over 60 professional
MKB Bank pays special attention to strategic partnerships          organizations. Our colleagues actively hold various profes-
and the conclusion of cooperation agreements. These                sional functions in the operation of several of these. As for
agreements open up new perspectives for us and help real-          any financial institution, the cooperation with the Hungarian
ize the additional potentials inherent to cross-selling. The       Financial Supervisory Authority and the Hungarian
Bank has joint products with MKB Pension Fund (MKB                 Competition Authority is especially important to us. The main
Prémium-Csoport fixed deposit and MKB Pension Fund loan)           target areas of the cooperation with non-governmental
and with the MKB Insurance Companies (MKB “Értékpáros”             organizations are sports, musical culture, fine arts and help
deposit with life insurance and MKB “Értékmegôrzô”                 for disadvantaged children and young people.
Programme).                                                           Besides the close cooperation, constructive dialogue,
                                                                   sponsorship and support, our Bank also strives to contribute
  Products introduced in cooperation with our strategic partners
                                                                   to the preservation and development of the values of our
                                                                   broader environment through investments. As of 2002, MKB
  Deutsche Leasing Hungária
                                                                   Bank has been co-owner of the Pannonhalma Monastery
  Full cooperation for the leasing-
                                                                   Winery, thus contributing to the preservation of the thou-
  financing of mobile production,
  machinery and equipment,
                                                                   sand-year-old world heritage treasure.
  and large commercial
  vehicles                                                         THE PANNONHALMA MONASTERY WINERY
                                                                   The cooperation between Pannonhalma Benedictine
                                                                   Archabbey and MKB Bank has resulted in the rebirth of one of
  Fundamenta
                                                                   Hungary’s oldest wine regions. The capital involvement has
  housing savings
                                                                   also made tender funds accessible, and the building of the
  fund cooperation
                                                                   cellarage together with the expert utilization of the 54-
  T-Mobile                                                         hectare vineyard could commence as of 2002. Besides the
  co-branded credit card                                           required capital, the cooperation of the Bank’s experts also
                                                                   made a significant contribution to the cost effectiveness of
                                                                   the investment and operation, and the adherence to the
                                                                   business plan. MKB Bank decided to participate in the project
                                                                   as co-owner because the character of the investment was in
  Lufthansa                                                        line with the Bank’s system of values and because the Bank
  co-branded credit card                                           had already cooperated successfully with the archabbey as
                                                                   sponsor several times in the past. To date, the winery has
                                                                   planted forty-two hectares of new plot; a further eight
                                                                   hectares are being used as producing plantations and will be
                                                                   replaced in the near future. To process the produce of the
                                                                   plantation, we have erected buildings consisting of a 2,200
  WestEnd-Trigránit Group
  co-branded credit card
                                                                   m2 press house, and a vat and tank ripening and bottling
                                                                   facility. The work of world-famous winegrowers, the grape
                                                                   types selected for the area and the state-of-the-art process-
                                                                   ing technology ensure that bottled wines of exceptional
                                                                   quality are produced. The first harvest was in 2003, resulting
                                                                   in 70 thousand bottles of wine. Currently, 200 thousand bot-
                                                                   tles are produced and by 2014–15, when the entire vineyard
4.6. COMMUNITY RELATIONSHIPS                                       will be productive, this figure is expected to rise to 350 thou-
4.6.1. MKB BANK’S COMMUNITY                                        sand. Interest in the wines has grown rapidly both in Hungary
RELATIONSHIPS                                                      and abroad, and we have won prestigious prizes at several
Beside relationships with our stakeholders directly related to     national and international competitions.
our core activity, we believe it is important to nourish close
relationships with the definitive actors of our broader operat-    4.6.2. STATE INSTITUTIONS
ing environment and, thereby, exert a positive influence on        Within the framework of cooperation with state institutions,
the social, economic and environmental processes surround-         we attach great importance to responsible cooperation with
ing us. Professional organizations, state institutions and non-    our supervisory bodies, the authorities. We endeavour to
governmental organizations are those stakeholders with             adhere fully to the effective legal provisions during the
whom we believe it is essential to maintain dialogue and           course of our work and, if necessary, cooperate in the investi-
cooperation.                                                       gations of the supervisory organizations.


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S U S T A I N A B I L I T Y               R E P O R T




   Our work in professional organizations, the conferences             4.6.3. PROFESSIONAL ORGANIZATIONS
organized and the analyses prepared by us help in the draft-           The economic and financial portfolio and social responsibility
ing of legal regulations. Within the framework of the                  of MKB Bank call for membership in various professional and
Hungarian Banking Association, we participated in the draft-           interest organizations, federations and chambers. A priority
ing of several legal provisions concerning Act CXII of 1996 on         objective of the Bank is to offer professional support to and
Credit Institutions and Financial Enterprises, Act CXX of 2001         play an active role in the work of these organizations in a
on The Capital Market, Act CXXXVIII of 2007 on Investment              regional, nationwide and international context. To this end,
Firms and Commodity Dealers and the Rules of their                     several managers of MKB participate in the work of the presi-
Activities, Act IV of 1959 on The Civil Code of the Hungarian          dency and professional chambers of these organizations.
Republic, Act CIV of 2008 on The Strengthening of the                     Tamás Erdei, Chairman and CEO of the Bank, held the posi-
Stability of the Financial Intermediary System, and Act CXIX           tion of Chairman of the Hungarian Banking Association for 12
of 1995 on The Use of Name and Address Information for                 years until 2008. He is proud to have been elected to this office
Research and Direct Marketing. Conferences organized by us             five times in a row, but now wishes to give others a chance to
frequently have officers of various state organizations as             hold this position in the future. He has also resigned from the
guest speakers.                                                        presidency of the National Sports Federation, but has retained
   Outside strictly professional issues, the Bank does not par-        his post as president of the Supervisory Committee of the
ticipate in the shaping of public politics, is politically neutral     National „Save the Chidren” Service and has accepted mem-
and, consequently, provides no support to political parties,           bership of the Hungarian National Asset Council.
politicians and related institutions.                                     Our Bank adheres to the principles of corporate social
                                                                       responsibility formulated by the Hungarian Business Leaders’
                                                                       Forum and AmCham.


  Membership of professional organizations
  Hungarian and international professional and interest organizations and federations
  BACEE – Banking Association for Central and Eastern Europe                                                      http://www.bacee.hu
  Hungarian Organization of Internal Auditors                                                                         http://www.iia.hu
  Deutsches Ostforum München                                                                             http://www.dom-muenchen.de
  CIS Business Club Hungary                                                                                        http:/rost.hu/cisclub
  Scientific Association for Infocommunications Hungary                                                              http://www.hte.hu
  HBLF – Hungarian Business Leaders Forum                                                                           http://www.hblf.hu
  IIF – Institute of International Finance Washington DC                                                             http://www.iif.com
  ISACA – Information System Audit and Control Association                                                         http://www.isaca.hu
  Joint Venture Association                                                                                 http://www.jointventure.hu
  Hungarian–Bavarian Friendship Society                                                                        http://www.mbbt.org.hu
  Hungarian Banking Association                                                                           http://www.bankszovetseg.hu
  Factors Chain International                                                                             http://www.factors-chain.com
  Hungarian Factoring Association                                                                     http://www.faktoringszovetseg.hu
  Hungarian Forex Society                                                                                    http://www.acihungary.hu
  Association of Hungarian Vehicle Component Manufacturers                                                       http://www.majosz.hu
  Hungarian Jurists’ Society                                                                                http://www.jogaszegylet.hu
  Hungarian Economic Association                                                                                    http://www.mkt.hu
  Hungarian Foreign Trade Association                                                                         http://www.kulkerszov.hu
  National Association of Hungarian Home Builders                                                                http://www.malosz.hu
  Hungarian Society for Logistic, Procurement and Stockpiling                                                  http://www.logisztika.hu
  Hungarian Marketing Association                                                                             http://www.marketing.hu
  Hungarian Association of Accounting Experts                                                        http://www.szamviteli-egyesulet.hu
  MGYOSZ – Confederation of Hungarian Employers and Industrialists                                               http://www.mgyosz.hu
  German Economic Club                                                                                              http://www.dwc.hu
  Hungarian Society of International Companies                                                                 no homepage at present
  John von Neumann Computer Society – Hungarian Smart Card Forum                                                   http://www.hscf.net
  National HR Association                                                                                           http://www.ohe.hu
  SALDO Financial Consulting and IT Co.                                                                            http://www.saldo.hu
  XVII District Local Pride Association                                                                  http://www.lokalpatriotak17.hu
  VOSZ – National Association of Entrepreneurs and Employers                                                        http://www.vosz.hu



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                                                                 S U S T A I N A B I L I T Y     R E P O R T




Chambers of commerce and industry
Hungarian Chamber of Commerce and Industry                                                 http://www.mkik.hu
Budapest Chamber of Commerce and Industry                                                  http://www.bkik.hu
Bács-Kiskun County Chamber of Commerce and Industry                                  http://www.iparkamara.hu
Borsod-Abaúj-Zemplén County Chamber of Commerce and Industry                              http://www.bokik.hu
Békés County Chamber of Commerce and Industry                                            http://www.bmkik.hu
Csongrád County Chamber of Commerce and Industry                                         http://www.csmkik.hu
Fejér County Chamber of Commerce and Industry                                             http://www.fmkik.hu
Gyôr-Moson-Sopron County Chamber of Commerce and Industry                              http://www.gymskik.hu
Hajdú-Bihar County Chamber of Commerce and Industry                                       http://www.hbkik.hu
Heves County Chamber of Commerce and Industry                                              http://www.hkik.hu
Jász-Nagykun-Szolnok County Chamber of Commerce and Industry                           http://www.jnszmkik.hu
Komárom-Esztergom County Chamber of Commerce and Industry                               http://www.kemkik.hu
Nógrád County Chamber of Commerce and Industry                                             http://www.nkik.hu
Pécs-Baranya County Chamber of Commerce and Industry                                      http://www.pbkik.hu
Somogy County Chamber of Commerce and Industry                                             http://www.skik.hu
Sopron Chamber of Commerce and Industry                                         http://www.sopron.hu/kkamara/
Szabolcs-Szatmár-Bereg County Chamber of Commerce and Industry                         http://www.szabkam.hu
Tolna County Chamber of Commerce and Industry                                             http://www.tmkik.hu
Vas County Chamber of Commerce and Industry                                               http://www.vmkik.hu
Veszprém County Chamber of Commerce and Industry                                          http://www.vmkik.hu
Zala County Chamber of Commerce and Industry                                              http://www.zmkik.hu


International mixed chambers in Hungar
American Chamber of Commerce in Hungary                                                http://www.amcham.hu
British Chamber of Commerce in Hungary – BCCH                                            http://www.bcch.com
International Chamber of Commerce – ICC                                                   http://www.icc.co.hu
German–Hungarian Chamber of Industry and Commerce                                         http://www.duihk.hu
Hungarian–Israeli Chamber of Commerce and Industry                                        http://www.mikik.hu
Swedish Chamber of Commerce                                                     http://www.swedishchamber.hu




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S U S T A I N A B I L I T Y         R E P O R T




4.6.4. SUPPORT TO NON-                                                 organizers of important national art exhibitions requesting
GOVERNMENTAL ORGANIZATIONS                                             that we lend some of our works.
As a responsible company, MKB Bank conducts several signif-                Accordingly, the Bank has been represented at several
icant sponsorship and donation activities. Common to these             exhibitions during recent years. The fine arts collection of our
is the commitment to social causes of unquestionable bear-             Bank is also significant on a national level. Our acquisition
ing and purpose. We do this because we are responsible for             activity gains real meaning when MKB Bank is able to put the
the society within which we operate. In keeping with the               works in its collection on display to the wider public. In keep-
practice of previous years, the main target areas of our sup-          ing with this principle, every year together with the local
port activities are sport, musical culture, fine arts and help for     museum we organize an exhibition of works by an artist in
disadvantaged children and young people.                               their hometown, and cooperate as co-organizer. Following
   MKB Bank is famous in the market and among its cus-                 the exhibition of the collected works of Sándor Ziffer in Eger
tomers for being the number one collector and patron of fine           in 2007, we organized an exhibition of the works of János
arts, the bank of culture. The Bank started to compile its own         Kmetty in Miskolc entitled "The Hungarian Cubist” in cooper-
fine arts collection in the 1980s with classics of Hungarian           ation with the Otto Hermann Museum, which awarded our
painting, and now has almost 400 works of art in its collec-           Bank the PRO MUSEO commemorative medal in recognition
tion. The collection is considered exemplary on the                    of our efforts and support.
Hungarian art market and includes such outstanding works                  In addition to the examples already mentioned, our Bank
as Gyula Benczúr’s Still Life with a Bust of Dante, József Rippl       attaches importance to supporting institutions. During
Rónai’s Portrait of Mrs Kunffy, Károly Ferenczy’s Overcast             recent years MKB Bank has extended support to several part-
Landscape, Miklós Barabás’ Travelling Gypsy Family in                  ners in the area of culture. These included the Museum of
Transylvania and Bertalan Székely’s Lovers boating. The two            Fine Arts – annual cooperation focused especially on the art
latter works can be seen in the permanent exhibition of the            of past ages. Cooperation with the Museum started in 2006
Hungarian National Gallery, and they have also featured in             within the framework of the MUSEUM+ Programme. The
several exhibitions abroad, for example in Canada in 2008.             essence of this programme was that once a week the muse-
   Besides the collection of 19th–20th-century Hungarian art,          um extended its opening hours until 10pm to enable those
in 2004 the Bank began looking towards contemporary art,               who could not come at any other time to see the exhibitions.
and has added works by a number of acclaimed contempo-                 In 2008 we were the main sponsor of the exhibition entitled
rary artists to its collection, for example László Fehér, Tamás        Soul and Body from Kertész to Mapplethorpe.
Hencze and Gábor Nagy. We are often contacted by the                      Especially important is our sponsorship of the Ferenc Liszt



  Éva Rubovszky – adviser, MKB Bank

  “The basis of civilization is culture. The behavioural patterns, customs and tastes passed on
  from generation to generation form the bases of human communities. Civilization is built on
  this basis. The operation of a bank is part of civilization in the literal sense, but a civilization
  which does not build on culture becomes empty. History has already taught us that societies
  built on deep-rooted culture are able to recover, like the Phoenix, even from the deepest of
  crises, because they have the foundations to build upon. This is especially relevant today, and
  this is why we believe it is important to preserve this value even during hard times. Of course,
  culture lives in people, so, as well as caring about “high art”, we also have to make an effort to
  ensure that people become recipients of this culture. Our greatest success was seeing how
  the initial surprise and sometimes outrage of our colleagues and customers was transformed
  into an express demand, sometimes in just a few months. This was the case with the contem-
  porary paintings on loan from the Ernst Museum or the concerts of the Ferenc Liszt Chamber
  Orchestra. Often the “rediscovery” of artists who have been unjustly forgotten or neglected is
  a significant step towards the preservation of culture. The purchase of works by István Farkas
  or Róbert Nádler, among many other artists, proved to be a wise decision, as now these works
  are greatly sought after and have multiplied in value. During the coming period and in the
  long term, we would like to expand our collection, currently ranging from the 18th century to
  classic modern art, with works by contemporary artists. Unfortunately, present circumstances
  do not allow any significant expansion of the collection, but we shall continue to organize
  ‘stop-gap’ exhibitions in our branches and in local museums throughout the country, which
  would not be possible without our support.”



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                                                                         S U S T A I N A B I L I T Y   R E P O R T




Within the framework of the cooperation agreement concluded several years ago, the Museum
of Fine Arts has organized several exhibitions and established the MUSEUM+ Programme with
the help of MKB Bank
S U S T A I N A B I L I T Y        R E P O R T




  Dr László Baán – Director, Museum of Fine Arts

  “The cooperation between MKB Bank and the Museum of Fine Arts goes back many years.
  The help and cooperation of the financial institution has contributed greatly to the success of
  the work of the museum, which has recently been undergoing a period of renewal and the
  creation of a new image. Without helpers like MKB Bank this work would be much more diffi-
  cult and much less spectacular. To me, our long-term cooperation suggests that the Bank also
  looks upon the Museum of Fine Arts as a long-term partner. The help the Bank has extended
  and extends to the Museum is important to us not only because of the “tangible”, financial
  support – as in the case of the photo exhibition ‘Soul and Body’ or the recently opened Mucha
  exhibition – but also because the reputation of an institution depends, to a large extent, on
  its partners. The name MKB Bank, its recognition in the financial sector and the satisfaction of
  its customers also cast a positive light on the Museum. As the saying goes, ‘A friend in need is
  a friend indeed’. During the last few months, the lives of financial institutions and actors in the
  cultural scene were focused on the crisis and its management. Unlike many other financial
  institutions, MKB Bank decided that even in these difficult times the Museum of Fine Arts and
  the values it represents are important to the Bank, and it has continued to remain among our
  supporters. The help extended to the organizing of the Mucha exhibition carries a message:
  culture and cultural sponsorship can show a way out of the crisis.”



Chamber Orchestra, a cooperation which began almost 20                the unique performance and the memory of György Kolonics,
years ago. As in 2007, in 2008 we once again supported the            who won all 11 issues of the Rates to date, MKB awarded him
Foundation for the Popularization of the Hungarian Moving             the title of Permanent Champion of the Rates, and established
Picture Treasury. Our support of the Tihany Tourism                   the György Kolonics Second Line Prize, awarded to the best
Association has been ongoing for several years now, and in            competitor or competitors at the end of each year.
2008 we once again supported the Tihany Open Air                         As well as the greats of kayak-canoe, we also tend to the
Performances. In 2008 we supported the Gábor Kovács Art               careers of young talents and have been awarding special
Foundation, thereby contributing to the development of the            prizes to the best of the new generation for 8 years now.
KOGART contemporary art collection. In the theatrical field,          Through the Federation the Bank supports a junior male and
we contributed to the staging of the worldmusical perform-            a junior female competitor in the hope that the attitude, con-
ance of Midsummer Night’s Dream by supporting the Pest                duct and results of these young talents will prove worthy of
Broadway Foundation. We have also extended help to the                our sponsorship. In this sense, world and Europe champions
operation of the National Széchényi Library’s CORVINA                 Dalma Benedek and Gábor Kucsera, already world-class
Foundation, whose primary objective is to acquaint the pub-           kayakers, have been “discovered” by MKB Bank. Beside this,
lic with the cultural treasures of the Hungarian nation.              MKB Bank was a featured sponsor of the 2008 second line
   Since 1996, our Bank has supported kayak-canoe, one of             (U23) kayak-canoe championships held in Szeged.
Hungary’s most successful Olympic sports, and is a featured              MKB Bank was the naming sponsor of the Veszprém hand-
gold sponsor of the Hungarian Kayak-Canoe Federation. In              ball team, which forms the backbone of the Hungarian nation-
2008, after the Beijing Olympics, the Federation and the Bank         al team. Besides winning the national championships for the
renewed their cooperation agreement for another four years,           sixteenth time, in 2008 MKB Veszprém also won the Central
until the London Olympics. We are convinced that, with the            European Cup. As of the 2008/2009 season, MKB Veszprém
support of MKB Bank, Hungarian kayakers and canoeists will            have been delighting their fans with their world-class play in a
achieve similar successes in the future too. The MKB                  new, imposing facility. In the new Veszprém Arena, which
Champions’ Table was created in 1997 and ranks sportsmen              caters for every need, more than 5000 spectators can enjoy
and sportswomen according to their results in the given year          the excitement of both domestic and international matches.
at the end of the championship season. On the basis of the               Since 2004, MKB Bank together with its partner company
Champions’ Table – now called the MKB Kayak-Canoe Rates –             MKB Euroleasing, has been the naming sponsor of the
the Bank awards prizes to the best male and female kayakers           Sopron Women’s Basketball Team, which repeated its double
and canoeists and the most outstanding junior sportsmen and           triumph of 2007 in 2008 too, winning both the Hungarian
women. We are proud to say that the rating has now gained             Championships and the Hungarian Cup.
serious prestige. Rita Kôbán, Katalin Kovács, Natasa Janics,             Our Bank not only ensures the conditions for the successful
Botond Storcz, Ákos Vereczkei and Zoltán Kammerer are just            operation of adult teams, but also enables – and expects –
some of the Hungarian and international stars of the sport            the training of promising juniors. For this, the sponsorship
whose names have made it onto the prestigious list. Saluting          contracts concluded with the clubs provide that a certain

162
                                                                                  S U S T A I N A B I L I T Y             R E P O R T




percentage of the support amount must be dedicated to the             Sport results of MKB Bank’s sponsorees
training of juniors. Competitive sport cannot exist without           Team                     Year                               Result
adequate attention being paid to leisure sport activities.
                                                                      MKB Veszprém KC          2006 Champions League semi-finalists
Therefore MKB Bank looks after the sports opportunities of
                                                                                                                  Hungarian Champions
young talents and enthusiastic amateurs. As co-financer of
the Vasas Pasarét Sports Centre, we help improve the materi-                                   2007              Hungarian Cup winners
al conditions of leisure sport.                                                                2008        European Cup-winners Cup –
   In 2007, MKB Bank joined the Prima Primissima initiative as                                                               winners
co-founder and established the Junior Prima Prize Hungarian                                                       Hungarian Champions
Sport category in order to recognize the achievements of                                                 Winner of the Prima Primissima
young sportsmen and women under the age of 26. In 2008,                                                        Award (sports category)
the prize was awarded to Anita Görbicz, handball player,              MKB Euroleasing Sopron   2005          Hungarian Championships
Dániel Gyurta, swimmer, Tamás Iváncsik, handball player,
                                                                                                                              runners-up
Tamás Kiss, swimmer, Dóra Kisteleki, water polo player,
Danuta Kozák and Gabriella Szabó, kayakers, and Dániel                                                          Hungarian Cup 3rd place

Varga and Dénes Varga, water polo players.                                                     2006          Hungarian Championships
   Golf is about both recreation and immersive game-play. It                                                                  runners-up
has millions of fans all over the world and is a unique experi-                                              Hungarian Cup runners-up
ence to players and spectators alike. The development of
                                                                                               2007               Hungarian Champions
Hungarian golf is dynamic and the number of courses and
                                                                                                                 Hungarian Cup winners
players is continuously growing: some 2,200 registered
golfers use the seven courses in the country. Sensing the                                      2008               Hungarian Champions
ever-increasing demand, MKB Bank began to back the                                                               Hungarian Cup winners
Hungarian Golf Federation. Today we are the gold sponsor of           Hungarian kayak-canoe    1997-Olympics (Sydney, Athens, Beijing):
the Federation and hosts of the MKB Golf Trophy.                                                      9 gold, 4 silver and 4 bronze medals
   Some of our charitable support activities go back many
                                                                                                                 World Championships:
years; the cooperation between certain foundations and MKB
Bank has already become a tradition. In this area, the Bank’s                                                      72 gold, 28 silver and

patronage extends to health and social projects and the sup-                                                          37 bronze medals
port of children. In the field of healthcare and social affairs,                                              European Championships:
our support of the National „Save the Chidren” Service and                                                         72 gold, 67 silver and
the Lake Balaton voluntary first aid project of the Hungarian
                                                                                                                      33 bronze medals
Red Cross (volunteers of the Hungarian Junior Red Cross pro-
                                                                                               2008                    Beijing Olympics:
vided first-aid duty between 2nd July and 19th August 2008
at 26 beaches around Lake Balaton) and the Red Cross pro-                                                             2 gold, 1 silver and
gramme making blood donation more popular are especially                                                                1 bronze medals
worthy of mention.



                                  Dr Adrienne Kraudi – deputy chief executive, MKB Bank

                                  “We are aware that there are problems and challenges that are important to society but
                                  which cannot be resolved exclusively with state funding. The value of support is much
                                  greater than just the financial expenditure. Help that arrives in time or a beautiful experi-
                                  ence are things that can change the course of people’s lives. Also, it is a heart-warming sight
                                  to see the legs of tiny children dangling from the chairs around the huge table in the Mirror
                                  Hall of our Head Office. The management of the Bank has realized that responsible social
                                  undertakings can result in a significant competitive edge: performance becomes better, the
                                  services of the Bank become better known, our reputation strengthens, the Bank becomes
                                  attractive to quality workers and the motivation of the employees is further reinforced. The
                                  surveys conducted by the Bank have confirmed the efforts we have made so far in the inter-
                                  est of society, since MKB Bank’s brand awareness has noticeably increased, especially during
                                  the last couple of years. The financial institution plans long term, so we intend to go on with
                                  the above social responsibility programmes even during the upcoming, leaner times.”



                                                                                                                                       163
S U S T A I N A B I L I T Y         R E P O R T




  Péter Edvi – National „Save the Chidren” Service
  founder and director

  I founded the National „Save the Chidren” Service with some of my partners first in Hanover,
  and then in spring 1990 in Budapest. My personal story goes back to the Christmas of 1989:
  I visited an orphanage in Csegôd, Romania, where I was shocked to see 120 dying children,
  and tried to help them. Our relationship with MKB Bank goes back 13 years and they support
  several of our programmes. Special among these is the MKB Scholarship Programme estab-
  lished in 1997 at the very beginning of our cooperation on the basis of an idea of Mr Erdei.
  Recalling his own years at school, he remembered parents struggling to finance the educa-
  tion of many talented but extremely poor children. Some 100 thousand children are born in
  Hungary each year, and several tens of thousands of these are brought up in extreme pover-
  ty: they have no regular meals or proper clothing and live in unheated houses. It was very
  good to see that a businessman understands that one of the most important investments in
  Hungary is the education of the young. To ensure an opportunity for those living in difficult
  circumstances to break free, so their talents are not lost due to poverty.”



COOPERATION BETWEEN MKB BANK
                                                                     Scholarship but were not awarded it for some reason. The
AND THE NATIONAL „SAVE THE
                                                                     amount for this is HUF 16,000 per applicant.
CHIDREN” SERVICE
                                                                        At the time of its foundation in 1990, the National „Save the
For the twelfth year now, the preparation, organization and          Chidren” Service launched its children’s meal support project
management of all programmes is performed by the National            for nursery, kindergarten and school pupils; MKB Bank joined
„Save the Chidren” Service upon the request of, and in close and     the initiative in 1997. Unfortunately, today in Hungary many
successful cooperation with, MKB Bank. Our mutual goal is to         families face extreme hardship, and an increasing number are
support and help children and young people in need, providing        forced to send their children to school without breakfast or a
them with an opportunity for study, and both physical and            midday snack. All children under the age of 18 living in Hungary
intellectual development.                                            and the parents or institutions (nursery, kindergarten, school)
   MKB Bank has founded a scholarship to support financially         representing them may apply for the support. The major con-
disadvantaged children who are talented and receive excellent        sideration in the decisions about applications is the degree of
grades. The National „Save the Chidren” Service calls for appli-     need. In order to be able to assess this objectively, we request
cations each year for children who have completed the 2nd            opinions and suggestions from the school or kindergarten and
year of primary school, have average grades of over 4.5 (5 is the    proof of income from the applicant’s employer. If, on the basis
highest), and in whose families the monthly income per capita        of the above, the National „Save the Chidren” Service decides to
does not exceed HUF 35,000. MKB Scholarship was launched in          award the support, the cost of the child’s meals is transferred to
1997. Initially 20 children were awarded scholarships, and this      the institution.
number grew from year to year until it reached the 100 it is            On 21st December 2008 the National „Save the Chidren”
today. The 100 children each receive HUF 16,000 per month to         Service organized the MKB Children’s Christmas Gala for the
support their studies. If the child keeps up the good academic       12th time. The programme featured Tchaikovsky’s Nutcracker
results, MKB Bank will provide the scholarship right through to      ballet, a beautiful and enduring Christmas experience for many
the acquisition of a university degree. In 2008, 4 of our scholar-   children. Today it has become a tradition for MKB Bank to invite
ship students graduated from university.                             1,200 children living in difficult circumstances in rural towns
   The Bank also accepts applications for one-time school sup-       and the capital to the Budapest Opera to make their Christmas
ply support. The Bank extends one-time school supply support         more beautiful and unforgettable with the show, a meal and
to students who submitted worthy applications for MKB                presents.




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                                                                             S U S T A I N A B I L I T Y   R E P O R T




On the centenary of its foundation, the Herman Ottó Museum in Miskolc presented the Pro
Museo award, established in 1989, to MKB Bank for organizing a memorial exhibition of works by
the painter János Kmetty.
S U S T A I N A B I L I T Y        R E P O R T




  Other health and social support provided by MKB Bank

  Foundation for Healthy                   the improvement of health and quality of life in cooperation with small settle-
  Settlements                              ments in Hungary

  Surgery Department of                    the technical development of the Budapest Local Self-Government’s Ferenc Jahn
  Ferenc Jahn Southern Pest Hospital       Southern Pest Hospital, support for employees, direct support for patients and the
                                           development of top-quality treatment

  Foundation for the                       contribution to the organization of the Conference on the Diagnostics and Goal-ori-
  Pathology of the Future                  ented Treatment of Breast Cancer held in May 2008 in Visegrád in cooperation with
                                           the Hungarian Division of the International Academy of Pathology

  Foundation Supporting the                contribution to the operating costs of the Centre
  Early Intervention Centre

  Foundation for the                       research of arrhythmia (pulse irregularity), patient care; scientific activity, research
  Research and Treatment of                and education related to the medicinal and non-medicinal treatment of arrhyth-
  Arrhythmia – Semmelweis                  mia and the support of these tasks, professional expert activities, health preserva-
  University of Medicine,                  tion and the prevention of illness, therapeutic and health rehabilitation activities.
  Cardiology Centre                        Support for physicians, researchers and health personnel dealing with this topic,
                                           enabling of their participation at conferences and further training courses and the
                                           supply of modern equipment and tools to enhance the quality of their work. Social
                                           support for patients to enable them to access the required health services

  Budapest Local Government                acquisition of software to ensure the better utilization of the 40-slice CT scanner
  Combined Outpatient Unit of Szent        device
  István and Szent László Hospitals
  and the Foundation for the
  Institutions and Patients of Szent
  István Hospital

  National Institute of Oncology,          the early diagnosis and development of the treatment of malignant tumours, assis-
  Foundation for the Early                 tance for related research, support for the participation of experts at conferences
  and Effective Treatment of Tumours       and the foundation and awarding of scholarships

  Internist Foundation                     support and promotion of the development of Hungarian internal medicine

  Foundation for Healthy Foetus and        acquisition and repair of instruments directly or indirectly serving the health of the
  Baby                                     newborn baby and the mother and the improvement of the conditions of patient
                                           care (replacement of instruments, training)

  Run for Cancer                           18th Charity Run on Margaret Island
  Research Foundation

  Hungarian Maltese                        “A Country from Small Change”: support for the recall programme of HUF 1 and 2
  Charity Service                          coins and the Charitable Wine Auction

  Little Rascals (“Gézengúz”)              support for the maintenance of the Premature Childbirth Programme
  Foundation
  Foundation for Deaf Children             support for the Children’s Day event



  Our objectives concerning our community relationships in 2009
  Our objective is to maintain our long-term strategic relationships in 2009..


166
                                                                                              S U S T A I N A B I L I T Y                 R E P O R T




5. ENVIRONMENTAL PERFORMANCE


5.1. MKB BANK’S ENVIRONMENTAL                                                   Our energy use7
APPROACH                                                                                      Unit         2005      2006        2007        2008
MKB Bank lays great emphasis on the efficient and economic
                                                                                Our direct energy use
use of energy sources and the reduction of the burden on the
                                                                                Mineral gas   m3           1 308 460 1 389 057   1 001 833 1 150 550
environment. To reduce energy consumption, our large                            Total         GJ           44 488    47 228      34 062    39 119
buildings were installed with monitoring systems at the time                    Energy use
of construction, and such systems are being installed in all                                  GJ/m2        0,57      0,59        0,40        0,45
                                                                                per m2
our buildings. Our largest building is equipped with a light-                   Energy use
                                                                                              GJ/capita 26           25          17          17
ing control system. During the procurement of technical                         per capita
equipment we pay special attention to selecting energy-effi-                    Our indirect energy use
cient devices. Our state-of-the-art heating technology sys-                     Electric
                                                                                              kWh          12 045 927 13 283 445 12 503 430 12 4300 00
tems fully meet the strictest international regulations on the                  energy
emission of pollutants. Hazardous waste is destroyed profes-                    District
                                                                                              GJ           2 120     3 383       1 800       1 733
sionally. In our Lajos Kassák Street building we have installed                 heating
                                                                                Total         GJ           45 485    51 203      46 812      46 481
a bicycle storage area to promote environment-friendly
                                                                                Energy use
transportation. We have taken major steps forward in the                                      GJ/m   2
                                                                                                           0,58      0,64        0,56        0,54
                                                                                per m2
reduction of the use of stationery and that of waste. Since
                                                                                Energy use
2008, all our customer information flyers have been printed                                GJ/capita 26              27          23          20
                                                                                per capita
on environment-friendly, recycled paper. We entered the
Green Office Competition organized by the KÖVET
Association. During our activities, 2008 was also a year in
which we committed no violations against environmental
regulations..

5.2. ENERGY AND WATER UTILIZATION
To increase energy efficiency, our facilities with the largest
energy consumption have been built with building monitor-
ing systems, which on average result in 20% energy savings.
Our Lajos Kassák Street office building is equipped with an
intelligent lighting regulation system which enables a saving
of approximately 5% in the use of electricity. The use of state-
of-the-art furnace systems, energy-efficient inverter air-condi-
tioning units and energy-saving lighting equipment result in
an energy saving of approximately 10%.
                                                                                Total water uptake according to source
                                                                                              Unit       2005       2006         2007        2008
                                                                                Water from
                                                                                the public m3            30 164     32 726       24 700      49 893
                                                                                network




     János Serédi – head of department, MKB Maintenance Ltd

     “The environmental protection issue is becoming increasingly important at MKB Bank, too.
     Material and energy savings and the selective collection of waste are, however, not only envi-
     ronmental issues, but also impact the economy of operations. Fortunately, the basic principles
     of environmental protection are part of the private lives of an increasing number of our col-
     leagues: the selective collection of waste, energy saving, the use of environment-friendly
     materials and abstinence from the use of chemicals as much as possible are becoming a part
     of the daily routine for more and more of us. This is very positive, because our colleagues in the
     Bank, too, better recognize the elements of environmental protection and saving. A proof of
     this is that we are receiving an increasing number of suggestions from our colleagues about
     environmental aspects. Taking these into account as well, our objective is to extend environ-
     mental considerations over more and more areas.”


7
    The table and diagram below do not contain the energy consumption of transportation.
                                                                                                                                                      167
S U S T A I N A B I L I T Y              R E P O R T




5.3. USE OF PAPER AND STATIONERY                                          not have adequate statistics to measure our impact on the envi-
We endeavour to minimize the amount of materials used dur-                ronment and to define the possible measures to reduce that
ing our activity as much as possible. Since 2008, all our cus-            impact. The Bank’s automobile fleet is managed by MKB
tomer information flyers have been printed on environment-                Eurolízing Autópark Rt. Our objective is to cooperate with them to
friendly, recycled paper. In 2009, together with our colleagues,          take the necessary measures to assess our impact and possibilities.
we shall complete our systematic programme to create a green                 In 2008, we were already organizing our branch visits in coor-
office, within which we assess the possibilities for reducing the         dination with the technical fields to reduce unnecessary trans-
burden on the environment caused by office work.                          portation requirements. In addition to this, we support the use of
                                                                          bicycles by our colleagues and have built bicycle storage facilities
  Total mass of materials consumed (kg)                                   in our building for the safe storage of bikes.
                                           2007               2008
  Printed material                        220 000            237 000
                                                                          5.6. ENVIRONMENTAL ASPECTS IN THE
                                                                          CORE ACTIVITY OF MKB BANK
  Stationery                               31 000             33 000
                                                                          In the case of a non-productive company such as a financial insti-
  Total                                   251 000            270 000      tution, only part of the environmental impacts is apparent from
                                                                          the energy and material flow related to operation. We are aware
                                                                          that we can also play a significant role in the protection of the
                                                                          environment through our core activity. The recognition of appro-
                                                                          priate investment possibilities and a strong demand from part of
                                                                          our customers led to the Bank’s decision in 2008 to offer invest-
                                                                          ment possibilities to those people who wish to profit from the
                                                                          performance of companies active in the field of environmental
                                                                          protection and to support their activities at the same time.

                                                                          ENVIRONMENTALLY CONSCIOUS
                                                                          COMPANIES – MKB GREEN PLANET
                                                                          PROTECTED DERIVATIVE FUND
                                                                          With MKB Green Planet Principal Protected Derivative Fund,
                                                                          the fund manager offers its customers a unique investment
5.4. GENERATION AND COLLECTION OF WASTE                                   product enabling them to participate in the results of envi-
In parallel with reducing the use of materials, we also pay               ronmentally conscious companies. In line with our expecta-
special attention to reducing the generation of waste.                    tions, the performance of environmentally conscious compa-
Hazardous waste materials are collected separately and                    nies in the various sectors of the economy is more stable
processed according to the effective legal provisions. We col-            than, and in the future will surpass, the performance of their
lect used printer cartridges, which are taken away by a spe-              less environmentally conscious competitors because they
cialized company. We shall assess further possibilities within            operate at lower costs or are more competitive, since their
the framework of our Green Office Programme to be                         services and products result in a decrease in operating costs
launched in 2009.                                                         on the side of their customers.
                                                                             The securities of 15 companies in five industrial sectors
  Breakdown of generated waste according to type (kg)
                                                                          (the agrarian and biofuel sector, integrated electric industry,
                                                                          solar power utilization, water power and purification, and the
                                          2007               2008
                                                                          utilization of wind-power) are included in the portfolio of the
  Paper                                   39 000             41 000       derivative product. MKB Green Planet offers an attractive
  Packaging materials                      3 000              2 800       investment opportunity to all investors who manage their
  Hazardous waste                          1 905              1 320       savings according to conservative, moderately risk-taking
  Used batteries                               158                127     principles, prefer transparent investments and wish to
                                                                          achieve secure earnings with principal protection. During the
  Office machinery                        21 971             12 600
                                                                          subscription period of the Green Planet Fund, MKB Bank pre-
  Waste damaging
                                                                          sented each investor with a flower planted in soil.
  the ozone layer8                        10                 10
  Total                                   66 044             57 857         Our objectives concerning our environmental performance for 2009

                                                                            The implementation of our Green Office Programme with
5.5. EFFECTS OF TRANSPORTATION                                              the involvement of our colleagues, and thereby the reduc-
We are aware that emissions caused by transportation have a sig-            tion of our energy and material use and waste emission
nificant impact on the environment. In this field, however, we do           The assessment of the impact of transportation on the
                                                                            environment and the identification of mitigation measures
          8
              Estimate based on the weight of gases used during repair.     Introduction of the selective collection of paper waste.
168
                                                                                            S U S T A I N A B I L I T Y              R E P O R T




GRI CONTEXTUAL INDEX


Indicator   Brief description                                                                                                    Chapter
1           Strategy and analysis
1.1         Statement on why sustainability is important for the organization and its strategy                              CEO’s introduction
1.2         Presentation of the key effects, risks and opportunities                                                        CEO’s introduction


2           Organizational profile
2.1         Name of organization                                                                                                    2.1
2.2         Core brands, products and/or services                                                                                   3.2
2.3         Operating structure of the organization including main business lines,
            operating companies, subsidiaries and joint ventures                                                                  2.1, 2.3
2.4         Location of the Head Office of the organization                                                             1056 Budapest, Váci u. 38.
2.5         Countries where the company operates                                                                                    2.1
2.6         The nature and legal form of ownership                                                                                  2.1
2.7         Markets served                                                                                                          2.1
2.8         Size of reporting organization: number of employees; net sales; total capitalization
            broken down according to debts and shares; quantity of products manufactured or value of services                       2.1
2.9         Significant changes in the size, structure or ownership structure of the organization during reporting period           2.1
2.10        Awards and prizes received during reporting period                                                                      4.3


3           Parameters of the report
3.1         Definition of the reporting period                                                                                Reader’s Guide
3.2         Date of last report                                                                                               Reader’s Guide
3.3         Definition of the reporting cycle                                                                                 Reader’s Guide
3.4         Contact information for those with questions about the report or its contents                                       Back cover
3.5         Description of process of the definition of the contents of the report                                            Reader’s Guide
3.6         Limits of the report                                                                                              Reader’s Guide
3.7         Description of any restrictions to the scope and limits of the report                                             Reader’s Guide
3.8         Review of aspects on the basis of which the report of the organization covers
            the performance of joint ventures, subsidiaries, leased facilities, outsourced
            activities and other units that significantly influence the comparison of the
            report with previous or subsequent ones and/or the reports of other organizations                                 Reader’s Guide
3.9         Description of data measurement techniques used and bases of calculations                                         Reader’s Guide
3.10        Reasons for the re-publication of information from previous reports and the explanation of its effects              Not relevant
3.11        Significant changes in the scope, limits and measurement methods of the report
            since the previous reporting period                                                                               Reader’s Guide
3.12        GRI contextual index                                                                                            GRI contextual index
3.13        External certification practice                                                                                   Reader’s Guide


4           Management, undertakings and obligations
4.1         Presentation of the governance structure of the organization                                                            2.3
4.2         Does the chairman of the supreme body of governance have executive powers?                                              2.3
4.3         Number of independent members of the supreme body of governance                                                         2.3
4.4         Mechanisms enabling shareholders and employees to make proposals
            for the supreme body of governance                                                                                      2.3
4.5         Relationship between remuneration of the supreme body of governance,
            chief executives and executive directors and the performance of the organization                                        2.3
                                                                                                                        According to the provisions
4.6         Elimination of conflicts of interest at the level of supreme governance                                           of Act IV, 2006,
                                                                                                                         On Business Companies


                                                                                                                                                   169
S U S T A I N A B I L I T Y            R E P O R T




  Indicator   Brief description                                                                                             Chapter
  4.7         Required qualifications and experience of persons defining the strategy                             According to the provisions
              of the organization on economic, environmental and social issues                                          of Act IV, 2006,
                                                                                                                   On Business Companies
  4.8         Internal statements on the mission, values and behavioural norms of the organization                           2.2, 2.4
  4.9         Manner of supervision of the identification and management of economic,
              environmental and social performance by the supreme body of governance of the organization                       2.3
  4.10        Evaluation of supreme body of governance of the organization of its own
              performance with special respect to economic, environmental and social performance                               2.3
  4.11        Manner of assertion of the principle of prudence within the organization                                         2.3
  4.12        Charters, principles or other initiatives of which the organization is a member
              or which are endorsed by the organization                                                                        4.6
  4.13        Membership in associations (e.g. professional/sectoral organizations)
              and/or national/international interest organizations                                                             4.6
  4.14        List of stakeholders with whom the organization maintains any form of dialogue                                   4.1
  4.15        Method and basic principles of stakeholder selection                                                             4.1
  4.16        Description of methods of stakeholder involvement                                                       4.2, 4.3, 4.4, 4.5, 4.6
  4.17        Key issues and questions arising during dialogue with stakeholders                                      4.2, 4.3, 4.4, 4.5, 4.6


  5           Management outlook


  EC          Economic performance indicators
  EC1         Direct economic value generated and appropriated, including revenues,
              operating costs, employee revenues, donations and other community
              investments, retained profit, payments to investors and the state                                                3.1
  EC5         Ratios of average starting wage to local minimum wage at major sites of the organization                         4.2


  LA          Labour practices and fair labour
  LA1         Total number of the workforce by type of employment, work contract and region                                    4.2
  LA2         Fluctuation in total workforce                                                                                   4.2
  LA3         Benefits to full-time and part-time employees                                                                    4.2
  LA4         Proportion of colleagues covered by collective labour contract                                                   4.2
  LA5         Minimum notification time for significant changes in the operation of the organization                     No minimum
              and whether this is provided for by the collective labour contract                                   notification time defined
  LA7         Ratio of injuries, occupational illnesses, lost days and absences, and number of fatal
              workplace accidents by region                                                                                    4.2
  LA9         Official agreements with trade unions related to workplace health and safety                                     4.2
  LA10        Average number of training hours per person per year according to employee categories                            4.2
  LA11        Skill development and lifelong learning programmes                                                               4.2
  LA12        Proportion of employees who regularly receive performance assessments and career building reviews                4.2
  LA13        Composition of the governing bodies and the employees according to gender,
              age, minority group membership and other diversity-indicating factors                                          2.3, 4.2
  LA14        Ratio of basic wages of men and women according to employee categories                                           4.2


  HR          Human rights
  HR1         Proportion, expressed as percentage, and number of significant investment agreements                   There were no such
              containing clauses on human rights or that have been reviewed from the aspect of human rights           clauses or reviews
  HR2         Percentage of major suppliers and subcontractors who have undergone human rights screening              There was no such
              or whose relevant activities have been screened                                                             screening




170
                                                                                             S U S T A I N A B I L I T Y       R E P O R T




Indicator   Brief description                                                                                               Chapter
HR6         Measures taken to eliminate the use of child labour                                                        By adherence to the
            Constitution of the Hungarian Republic
HR7         Measures taken to eliminate forced or compulsory labour                                                    By adherence to the
            Constitution of the Hungarian Republic


PR          Product responsibility
PR3         Types of mandatory information on products and services demanded by various procedures                             4.3
PR5         Practices to achieve customer satisfaction, including results of surveys measuring customer satisfaction           4.3
PR6         Programmes launched in the interest of compliance with legal regulations, standards and voluntary
            norms on marketing communication                                                                                   4.3
PR7         Number of violations against legal regulations or voluntary norms in the field of marketing                There were no such
            communication                                                                                                     cases
PR8         Number of justified complaints about abuse or loss of customers’ personal data                             There were no such
                                                                                                                           complaints
PR9         Extent of violations against legal or other provisions on the safe and prudent use of products
            and services which received significant fines, i.e. monetary value of the fines                                    4.3


SO          Society
SO1         Nature, extent and effectiveness of programmes and practices for assessment and management                 There were no such
            of impacts of the organization’s activity on local communities                                                programmes
SO5         Public policy position, participation in shaping public policy and lobbying                                        4.6
SO6         Total amount of financial support and contributions in kind provided to political parties,
            politicians and related institutions according to individual countries                                             4.6
SO7         Number and outcome of legal procedures related to anti-competitive behaviour and violation
            of anti-trust and anti-monopoly laws                                                                               4.3
SO8         Financial value of major fines for non-compliance with laws and regulations and number of
            non-financial sanctions                                                                                            4.3


EN          Environmental performance indicators
EN1         Total amount of materials consumed expressed as weight or volume                                                   5.3
EN3         Direct energy use according to primary energy sources                                                              5.2
EN4         Indirect energy use according to primary energy sources                                                            5.2
EN5         Amount of energy saved by energy saving and energy efficiency measures implemented                                 5.2
EN7         Initiatives for reduction of indirect energy consumption and energy savings achieved by these                      5.2
EN8         Total water uptake according to source                                                                             5.2
EN22        Total quantity of waste expressed as weight, according to type and method of deposition                            5.4
EN28        Financial value of major fines and number of violations against environmental laws and regulations
            and their non-financial consequences                                                                               5.1


FS          Indicators specific to financial sector
FS14        Initiatives to enable disadvantaged customers to access financial services                                         4.3
FS16        Initiatives for development of financial culture                                                                   4.3




                                                                                                                                             171
MKB Bank’s contact address for corporate social responsibility issues:
E-mail: csr@mkb.hu




We express our thanks to all MKB Bank employees for their help in the preparation of the report. Professional support in the
compilation of the report was provided by the strategic consulting firm, B&P CSR management.


172

				
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