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SEB Annual Report 2010
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Annual Report
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AB SEB BANK
INDEPENDENT AUDITOR'S REPORT
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
AB SEB BANK
TABLE OF CONTENTS
| PAGES | |
|---|---|
| INDEPENDENT AUDITOR'S REPORT | 3 - 4 |
| CONSOLIDATED ANNUAL REPORT | 5 - 16 |
| FINANCIAL STATEMENTS | |
| INCOME STATEMENT | 17 |
| STATEMENT OF COMPREHENSIVE INCOME | 18 |
| STATEMENT OF FINANCIAL POSITION | 19 |
| STATEMENT OF CHANGES IN EQUITY | 20-21 |
| STATEMENT OF CASH FLOWS | 22-23 |
| NOTES TO THE FINANCIAL STATEMENTS | 24-96 |
| APPENDIX 1 | 97 -124 |
Translation note
Financial statements have been prepared in Lithuanian and English languages. In all matters of interpretation of information, views or opinions, the Lithuanian language version of the financial statements takes precedence over the English language version.
Page 2 of 124
pwc
Our report has been prepared in Lithuanian and English languages. In all matters of interpretation of information, views or opinions, the Lithuanian language version of our report takes precedence over the English language version.
Independent Auditor's Report
To the shareholder of AB SEB Bank
Report on the financial statements
We have audited the accompanying stand alone and consolidated financial statements (together 'the Financial statements') of AB SEB Bank ('the Bank') and its subsidiaries (collectively 'the Group') set out on pages 17–96 which comprise the stand alone and consolidated statement of financial position as of 31 December 2010 and the stand alone and consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management's responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these Financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these Financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
PricewaterhouseCoopers UAB, J. Jasinskio 16B, LT-01112 Vilnius, Lithuania
T: +370 (5) 239 2300, F: +370 (5) 239 2301, E-mail: [email protected], www.pwc.com/lt
PricewaterhouseCoopers UAB, company code 111473315, VAT payer's code LT114733113, registered office at J. Jasinskio 16B, LT-01112 Vilnius, is a private company registered with the Legal Entities' Register of the Republic of Lithuania. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
pwc
Opinion
In our opinion, the accompanying Financial statements give a true and fair view of the financial position of the Bank and the Group as of 31 December 2010, and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.
Report on other legal and regulatory requirements
Furthermore, we have read the consolidated Annual Report for the year ended 31 December 2010 set out on pages 5 - 16, including its Appendix 1 set out on pages 97 - 124 and have not noted any material inconsistencies between the financial information included in it and the audited Financial statements for the year ended 31 December 2010.
On behalf of PricewaterhouseCoopers UAB
Christopher C. Butler
Director
Vilnius, Republic of Lithuania
14 March 2011
Rasa Radzevičienė
Auditor's Certificate No.000377
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
1. Reporting period covered by the Consolidated Annual Report
The Report has been drawn up for the year 2010. All amounts are presented as of 31 December 2010, unless otherwise stated.
2. Issuer Group companies, contact details and types of their core activities.
| Issuer's name | AB SEB Bank |
|---|---|
| Authorised capital | LTL 1,034,575,341 |
| Legal address | Gedimino av.12, LT-01103 Vilnius |
| Telephone | (8 5) 2682 800 |
| Facsimile | (8 5) 2682 333 |
| E-mail address | [email protected] |
| Legal form | Public limited company |
| Registration date and place | 29 November 1990, the Bank of Lithuania |
| Company code | 112021238 |
| Company registration number | AB90-4 |
| Website address | www.seb.lt |
AB SEB Bank (hereinafter the 'Bank'), a public limited company, is a credit institution operating on share capital basis and is licensed to engage in such types of activities as acceptance of deposits and other refundable means from non-professional market participants and funds lending, also, it is entitled to engage in offering other financial services and assumes relevant related risks and liability.
At the end of the reporting period, the AB SEB Bank Group in Lithuania (hereinafter the 'Group') consisted of four subsidiary companies: UAB SEB Enskilda, UAB SEB Investicijų Valdymas, AB SEB Lizingas and UAB SEB Venture Capital.
| Name | AB SEB Lizingas |
|---|---|
| Type of core activities | Finance lease |
| Legal form | Private limited company |
| Registration date and place | 19 April 1995, Vilnius |
| Company code | 123051535 |
| Registered and office address | Saltoniškių str. 12, LT-08105 Vilnius |
| Telephone | (8 5) 2390 490 |
| Fax | (8 5) 2390 450 |
| E-mail address | [email protected] |
| Website address | www.elizingas.lt |
| Name | UAB SEB Venture Capital |
| --- | --- |
| Type of core activities | Own asset investment into other companies' equity and asset management on trust basis |
| Legal form | Private limited company |
| Registration date and place | 16 October 1997, Vilnius |
| Company code | 124186219 |
| Registered address | Gedimino av. 12, LT-01103 Vilnius |
| Office address | Jogailos str. 10, LT-01116 Vilnius |
| Telephone | (8 5) 2682 407 |
| Fax | (8 5) 2682 402 |
| E-mail address | [email protected] |
| Website address | http://www.seb.se/venturecapital |
| Name | UAB SEB Enskilda |
| --- | --- |
| Type of core activities | Consultancy services related to business acquisitions, sales and mergers; management buyout (MBO) /leveraged buyout (LBO); increase in own and borrowed equity (including not limited to the initial public offerings (IPOs) and secondary placements; corporate restructuring (mergers, splits, etc.); business or share valuation |
| Legal form | Private limited company |
| Registration date and place | 27 March 1993, Vilnius |
| Company code | 221949450 |
| Registered address | Gedimino av. 12, LT-01103 Vilnius |
| Office address | Islandijos str. 1, LT-01401 Vilnius |
| Telephone | (8 5) 2681 400 |
| Fax | (8 5) 2681 499 |
| E-mail address | [email protected] |
| Website address | www.enskilda.lt |
Page 5 of 124
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
| Name | UAB SEB Investicių Valdymas |
|---|---|
| Type of core activities | Various investment management services, consultancy services |
| Legal / organisational form | Private limited company |
| Registration date and place | 3 May 2000, Vilnius |
| Company code | 125277981 |
| Registered address | Gedimino av. 12, LT-01103 Vilnius |
| Office address | Gedimino av. 20, LT-01103 Vilnius |
| Telephone | (8 5) 2681 594 |
| Fax | (8 5) 2681 575 |
| E-mail address | [email protected] |
| Website address | www.seb.lt |
3. Agreements between the Issuer and securities' public offering agents
The Bank in the process of a public issue of bonds must execute an agreement with the selected public offering agent for the protection of the owners' of any relevant issue of bonds interests in accordance with the procedure established by the Company Law of the Republic of Lithuania.
As of 31 December 2010, the Bank had 39 effective agreements with UAB FMĮ Orion Securities, a brokerage firm (legal entity code 122033915, legal address A. Tumėno str. 4, 9 floor, LT-01109 Vilnius) and 47 agreements with AB Bank Finasta (legal entity code 301502699, legal address Maironio str. 11, LT-01124, Vilnius).
4. Data on trade in the Issuer Group securities in the regulated markets
Shares of SEB Bank are not listed in either the main or secondary list of Nasdaq OMX Vilnius exchange or in trading lists of other regulated markets and listing hereof is not planned in the nearest future.
As of 31 December 2010, none of the securities issues of AB SEB Bank were listed in the debt securities list of Nasdaq OMX Vilnius exchange.
Securities of the Bank subsidiary companies are not traded in the regulated markets.
5. Objective overview of the Issuer Group's financial standing, performance and business development, description of major risks and uncertainties
In 2010, SEB Bank Group Lithuania provided a full range of banking services to private individual and corporate customers as well as financial institutions. The Bank Group in Lithuania consisted of SEB Bank and four companies: SEB Enskilda, SEB Investicijų Valdymas, SEB Lizingas and SEB Venture Capital.
In 2010, with the aim to optimise the activities of international financial group SEB, SEB Bank assigned the shares in its specialised real estate management company Litectus to Warehold B.V., the SEB Group's real estate management company, and those in SEB Gyvybės Draudimas – to SEB Trygg Liv Holding AB, the SEB Group's life insurance company.
In 2010, SEB Bank's major shareholder Skandinaviska Enskilda Banken AB (publ) concluded the mandatory minority shares squeeze-out process which was aimed at acquiring all of the bank's shares, and today SEB Bank Lithuania is wholly owned by Skandinaviska Enskilda Banken AB (publ).
In 2010, the economic situation in Lithuania remained complicated, however, the economic recovery trends enabled SEB Bank Group Lithuania to operate at profit during the second half of 2010 and decrease the provisions made. Net loss sustained by SEB Bank in 2010 was LTL 12.1 million (EUR 3.5 million), and that by SEB Bank Group was LTL 18.0 million (EUR 5.2 million). Net loss sustained by the bank in 2009 was LTL 1,546.2 million (EUR 447.8 million), and that by the bank group was LTL 1,427.5 million (EUR 413.4 million).
Net profit earned by SEB Bank Group over 4Q 2010 was LTL 58.1 million, and that during July – December was LTL 142.9 million. The total positive year 2010 result was adjusted by a write-off of part of the costs for new core banking platform project, the largest one in the bank in the course of three recent years, i.e. LTL 71.8 million.
SEB Bank's year 2010 result includes also profit from sales obtained in 1Q 2010 after assignment of shares in the bank's subsidiary companies SEB Gyvybės Draudimas and Litectus to the SEB Group. The bank group's year 2010 operating result includes Litectus' operating result of January through February. The operating result of SEB Gyvybės Draudimas is not included.
In 2010, the country's macroeconomic situation as well as the standing of the bank's borrowers stabilised, therefore, there was improvement in the quality of the bank's credit portfolio. SEB Bank Group Lithuania made LTL 153.9 million provisions for credit losses (LTL 1,733.4 million in 2009, yoy). SEB Bank's provisions to credit portfolio ratio at the close of 2010 was 8.29 per cent (9.54 per cent in 2009, yoy).
The country's improving economic situation and the bank's operating results were the reason in 2010 for a change in the ratings assigned to SEB Bank by international ratings agency Fitch Ratings – from negative long-term credit outlook to stable, leaving unchanged the bank's long-term liabilities rating A, short-term liabilities rating F1, individual rating D/E and support rating 1.
In 2010, the bank continued strengthening its capital base – its major shareholder Skandinaviska Enskilda Banken AB (publ) (SEB) covered part of SEB Bank Lithuania losses by an additional contribution of LTL 345 million (EUR 100 million). Also, an issue of subordinated demand bonds worth EUR 100 million (LTL 345.28 million) was placed with the aim to strengthen the bank's capital base.
As of 31 December 2010, SEB Bank's equity was LTL 1.8 billion. At the end of 2010, SEB Bank's capital adequacy ratio calculated according to the requirements of the Bank of Lithuania was 16.43 per cent. SEB Bank's end-of-the-year liquidity level was 35.88 per cent.
In 2010, the bank group's operating costs decreased by 11.1 per cent and were LTL 309.08 million (LTL 347.73 million in 2009, yoy).
The Group's year 2010 net interest income shrank by LTL 60.36 million, or by 18.4 per cent, and was LTL 268.43 million (LTL 328.79 million in 2009, yoy).
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AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
Net commission income increased by LTL 13.46 million, or by 8.6 per cent, and was LTL 170.44 million.
In 2010, SEB Bank Group's assets decreased by LTL 4.4 billion, or by 16.3 per cent, and as at 31 December 2010 made LTL 22.6 billion (LTL 27.0 billion at the end of 2009).
At the end of 2010, SEB Bank Group had the largest credit and leasing portfolio, its net value being LTL 17.4 billion, and over a year it decreased by 11.8 per cent (at the end of 2009 it was LTL 19.7 billion).
During the year 2010, the scope of lending decreased further as it did in 2009. The bank's key focus was on its credit portfolio quality and support to problem customers.
Alongside with gradual improvement in economy there was relevant decrease in banking operational risk, and the customer investment portfolio started increasing. Over a year, an increase in SEB Bank Group's total savings and investment portfolio, including deposits and issued debt securities, life insurance and investment as well as pension funds, was 0.9 per cent – from LTL 12.1 billion to LTL 12.2 billion (excluding portfolio of SEB Gyvybes Draudimas). Over a year, there was almost no change in the Group's deposit portfolio – it decreased from LTL 9.7 billion to LTL 9.6 billion. Portfolio of issued debt securities decreased by 5 per cent, or by LTL 34.66 million. As of 31 December 2010, SEB Bank had issued 133 bond issues, worth LTL 1,274 million in total. As at 31 December 2010, according to the nominal value of bonds registered with the central securities depository of Lithuania, the bank's local market share was 67.4 per cent.
In 2010, SEB Bank was the market leader in terms of the total number of securities held in its custody in Lithuania. As of 31 December 2010, the market value of securities held in the custody of SEB Bank was LTL 19.28 billion, and the bank's relevant market share was 30.80 per cent.
Over a year, the number of registered users of SEB Bank Internet banking system increased by 6.3 per cent – from 890 thousand up to 946 thousand. Over a year, the number of payment transactions via the Internet increased by 12 per cent.
In 2010, the bank had 57 customer service subdivisions all over Lithuania. Over a year, SEB Bank increased its ATM network up to 348 ATMs. At present, customers of SEB Bank can use an ATM network that is the largest in Lithuania and includes ATMs of SEB Bank and DnB Nord Bank, i.e. 524 ATMs in 80 cities and towns.
As of 31 December 2010, the bank group (SEB Bank, SEB Enskilda, SEB Investiciju Valdymas, SEB Lizingas, SEB Venture Capital) had 1788 employees (the actual number of employees, excluding those on child care vacation).
In 2010, there were changes in the senior management of SEB Bank: member of the management board Vytautas Sinius was replaced by Virginijus Doveika.
In 2010, SEB Bank successfully rolled out and launched its new core banking system for providing banking services and for the management of its business processes. With the launch of the new core banking system, changes occurred in the functionality of some of the bank's services, and a new procedure for providing them was introduced. The new system opens up for the bank new development perspectives: it enables much more flexibility for a launch of various novelties meant for customers and to accelerate the bank's internal processes.
In 2010, SEB Bank together with DnB Nord Bank placed a seven-year maturity Government bonds in the Euro worth LTL 259 million.
In 2010, SEB Bank Group won significant global awards: Global Finance awarded SEB Bank with the title of the best Internet banking service provider to corporate customers in Lithuania, Metasite Business Solutions – with the title of the best Internet banking service provider in Lithuania. In 2010, Euromoney selected SEB Bank as the best financier of real estate projects, Global Finance awarded it with the title of the best FX trade bank in Lithuania. ACQ Finance selected SEB Enskilda to be Lithuania's best financial adviser, investment bank of the year, adviser of the year in M&A, and adviser of the year in global M&A transactions. SEB was given The Member of the Year in the Baltic Countries title as the most active member of the Baltic stock exchanges – Nasdaq OMX. SEB got the highest grade among custody providers by Global Custodian. The year 2010 survey by business community daily Verslo Zinios and career portal cv. It 2010 showed that SEB Bank is the most attractive employer in Lithuania.
During the period of the economic downturn, SEB Bank aimed to be the most trusted bank in post-crisis Lithuania. In the period when Lithuania was struggling though the economic decline, SEB Bank, being a socially responsible entity, tried to do its utmost in order that private individual customers facing problems and cooperating with the bank would survive the downturn easier and retain their only home. The bank tried to find a compromise if a customer with a mortgage loan had difficulties to repay it, and the family's home was the only one and the customer was willingly cooperating with the bank. During 2010, the bank did not take over any real estate from such customers by finding a way out: by postponing payment of instalments, by extending loan maturity or offering other alternatives. In 2010, the bank made amendments to the terms of agreements with companies and private individuals worth LTL 2.15 billion in total.
In 2010, SEB Bank Group continued its pro-active social activities, especially in the sphere of education for children and entrepreneurship incentive encouragement. Together with its partners SEB Bank continued its long-term social programme 'Teach first!' aimed at attracting the best higher-school graduates to become teachers after graduation at the same time developing their personal leadership skills for their further career in education or any other sphere. Together with television company TV3 the bank organised the Dreams Come True campaign in support to kids in children homes, continued its eighteen-year-long cooperation with the Lithuanian Children Foundation, supported other educational projects, provided conditions to its employees to allocate some of their time for mentorship activities and for other programmes organised by Mentor Lietuva Association, allocated support funds for various sports events.
The SEB Bank Group manages its risks in a centralised way. The main types of risks managed by the bank are credit, liquidity, market risks, which include currency rate fluctuations, interest rate risk and share price risk, as well as operational risk. Risk is managed adhering to the internal and the prudential requirements of the Bank of Lithuania. In 2009, the Bank met all the prudential requirements of the Bank of Lithuania.
Issuer risk. The Bank's obligations against investors are not additionally secured by any guarantee and/or in any other manner, therefore investor accepts the Bank's (operational) risk related to political, economic, technical and technological as well as social factors.
Credit risk. The Group assumes credit risk, i.e., the risk of another counterparty being unable to duly meet its obligations against the Bank.
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AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
The risk is assessed based on credit equivalents calculated depending on the type of a financial deal. The Group Credit Policy is applied adhering to the principle that any lending transaction may be executed only subject to credit analysis. Taking into consideration the complexity of the deal and customer's creditworthiness, various credit risk management measures are applied.
The Group loans are assessed individually as well as in total, taking into account its total portfolio. Assessment of the portfolio of homogeneous loan groups with similar risk characteristics, i.e. natural persons' mortgage loans, consumer loans, payment card account overdraft limits, also, loans to small enterprises, is performed. Special provisions for homogeneous loans are formed by applying statistical methodology based on historical data on any defaults of the borrowers and sustained losses within the corresponding homogeneous loan group. Individually assessed borrowers are assigned to a relevant risk class, based on which special provisions requirement is established. The Group classifies its individually assessed borrowers based on 16 risk classes.
Risks are managed by carrying out regular analysis of the borrower's ability to meet its obligations: to repay the loan and pay interest. The Group establishes credit risk limits per single borrower, a group of borrowers or per economic activities. Borrower credit risk, taking into consideration the risk class assigned to the borrower, is revised on a regular basis, no less than once a year. Analysis of the borrower, borrower group and industry sector risks is also performed on regular basis.
Applied credit portfolio concentration risk limits are as follows:
- maximum exposure per single borrower must not exceed 25 per cent of the Bank's/ Group's equity, and the total amount of large exposures may not exceed 800 per cent of the Bank's/ Group's equity;
- total loans issued by the bank to other subsidiary companies of the parent company or the bank's subsidiary companies per single borrower may not exceed 75 per cent of the bank's equity, if the Bank of Lithuania performs consolidated supervision of the entire financial group. If the Bank of Lithuania does not perform any consolidated supervision of the entire financial group, the maximum exposure per each SEB Group company may not exceed 25 per cent of the bank's equity.
Below is the information on the Bank's individually assessed credit losses, on changes in the total value and the ratio to the credit portfolio over periods of historic financial information.
| 31.12.2008* | 31.12.2009** | 31.12.2010** | |
|---|---|---|---|
| Individually assessed client credits, which value has impaired, gross amount (impaired loans), in LTL'000 | 634,915 | 2,586,697 | 2,936,736 |
| Client credit portfolio (without special provisions), in LTL'000 | 20,599,799 | 18,653,351 | 17,144,657 |
| Ratio (in per cent) | 3.08 % | 13.87 % | 17.13 % |
- According to the Report on Changes in Loan Portfolio Value, approved by Resolution of the Bank of Lithuania No. 114, dated 28 July 2005.
** According to Official Letter of the Credit Institutions Supervision Department of the Bank of Lithuania No. 1203-310, dated 10 June 2008
Impairment losses on loan portfolio (LTL'000) according to the IFRS:
| 31.12.2008 | 31.12.2009 | 31.12.2010 | |
|---|---|---|---|
| Impairment losses on loans to customers (special provisions) | 311,830 | 1,459,262 | 1,463,927 |
| Impairment losses on loans to credit and financial institutions as of year end (special provisions) | - | 391,048 | 40 |
| Balance of impairment losses on loans to credit and financial institutions as of year end (special provisions) | 311,830 | 1,850,310 | 1,463,967 |
| Special provisions to loan portfolio ratio | 1.45 % | 9.54 % | 8.29 % |
Market risk. It is the risk of a loss of future net income due to changes in interest rates, foreign exchange rates and share prices (including the price risk in case of sales of assets or closing of positions).
Interest rate risk is managed by forecasting market interest rates and making relevant adjustments so that there is no mismatch in the assets and liabilities within the revaluation periods. The Bank applies interest rate risk management methodologies that help to measure the Group's sensitivity to interest rate changes by computing the impact to yearly net interest income (ΔNII) and net effect on the market value of shareholders equity (delta 1%) in case of a parallel shift by one percentage point in the yield curve.
Foreign exchange risk exposure is defined by two measures: single open foreign currency position against the and aggregate open currency position - the larger one of all summed-up long and short open currency positions. Foreign exchange risk measures include net exposure of spot and forward positions, FX futures, including gold, the delta equivalent position of FX options and other balance sheet items. The currency risk control is ensured by monitoring the risk exposure against the limits established for single open currency position. The bank adheres to the open currency position limits established by the Bank of Lithuania: 1) maximum open single currency position may not exceed 15 per cent of equity; 2) maximum total open position may not exceed 25 per cent of equity.
Changes in the Group's maximum open position during the recent years is shown in the table below.
| The Group | 31.12.2008 | 31.12.2009 | 31.12.2010 |
|---|---|---|---|
| Maximum open single currency position | 12.97 % | 103.53 % | 83.87 % |
| Maximum aggregate open currency position | 13.22 % | 1.78 % | 0.36 % |
Share price risk is managed by establishing limits that describe acceptable share price risk, taking into consideration any possible losses related to market price volatility, by establishing the structure of the share portfolio.
Page 8 of 124
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
Liquidity risk. Liquidity risk is the risk that the bank may be unable to timely meet its financial obligations and/or, aiming to meet them, it may have to sell its financial assets and/or close positions and will sustain losses due to a lack of liquidity in the market.
The Group adheres to conservative liquidity risk management policy that ensures adequate fulfilment of its current financial obligations, the level of obligatory reserves with the Bank of Lithuania, liquidity ratio higher than that established by the Bank of Lithuania and solvency capacity under unforeseen unfavourable circumstances. The liquidity risk management system is based on the analysis of actual and forecasted cash flows.
Changes in the Bank's liquidity ratio over recent years are shown in the table below.
| Ratio | Bank | ||
|---|---|---|---|
| 31.12.2008 | 31.12.2009 | 31.12.2010 | |
| Liquidity ratio (at least 30%) | 38.99 % | 60.31 % | 35.88 % |
In 2007, the Bank of Lithuania eliminated the Group's liquidity report.
Operational risk. Operating risk is defined as the risk of loss due to external events (natural disasters, external crime, etc) or internal factors (e.g. breakdown of IT systems, mistakes, fraud, non-compliance with external and internal rules, other deficiencies in internal controls).
The Bank has got the permission from the regulators to use an AMA (Advanced Measurement Approach) model in operational risk assessment process and for the regulatory capital calculation for operational risk starting from the beginning of 2008.
The Bank has developed the several operational risk management tools: Operational risk policy, ORSA (Operational Risk Self Assessment) RTSA (Rogue Trading Self Assessment) instructions, Insurance policy, Contingency plans, mechanism of Internal Controls, New Product Approval Process to minimize the operational risks in all bank units and activities.
Bank has implemented SEB Group wide IT solution called ORMIS designed to identify, analyze, report and mitigate the risk. Operational risk self assessments (ORSA, RTSA and internal controls) are performed in business units and major business processes on a regular basis. Operational risk management system enables all staff of the Group to register all operational risk incidents and the management at all levels is able to assess, monitor and mitigate risks and compile prompt and timely reports.
Two other systems - NAMIS and LDRPS - help with managing operational risk in respectively areas like New Product Approval and Business Continuity Planning.
In addition to that there is Operational risk committee which ensures cooperation between Risk managers (1st line-of-defense) and 2nd line-of-defense units (audit, risk control, security, compliance, legal). Board members every quarter are introduced with report about new identified risks and follow-up on earlier identified issues.
Business risk. It is the risk of a decrease in income due to any unforeseen shortage of regular income that is usually determined by a drop in business volumes, price pressure or competition. Business risk also includes reputation risk, which is a risk of a decrease in income from ordinary activities and which may arise due to any adverse rumours about the bank or about the banking sector generally.
Strategy risk. It is the risk caused by unfavourable or erroneous business solutions, improper implementation of decisions or insufficient response to any political changes or changes in the regulatory acts or the banking sector.
Capital adequacy. Lithuanian banks are required to maintain capital adequacy ratio (capital base compared to risk-weighted assets). During the internal capital adequacy assessment process for 2010 the target capital adequacy ratio was set at close to 11 per cent.
On 26 July 2007, the Board of the Bank of Lithuania allowed SEB Bank to include into its Tier II capital a subordinated loan of EUR 45,000,000 (which is equal to LTL 155,376,000) obtained after Swedish bank Skandinaviska Enskilda Banken AB paid up SEB Bank's issued subordinated debt bonds. After the subordinated loan was included in the Bank's eligible capital, there was a 0.75 percentage point improvement in the Bank's capital adequacy ratio - it was 9.45 per cent, and the Group's capital adequacy ratio improved by 0.87 percentage points and was 10.41 per cent.
On 15 May 2008, the Board of the Bank of Lithuania allowed SEB Bank to prepay, that is to repay before maturity fixed under subordinated loan agreement dated 30 June 2000, namely, on 30 June 2008, a subordinated loan of EUR 15,000,000 (which is equal to LTL 51,792,000) obtained from Skandinaviska Enskilda Banken AB. SEB Bank availed of the possibility to terminate the agreement aiming at cutting the Bank's borrowing costs and maintaining the Bank's capital adequacy level. After the repayment of the loan, the Bank's capital adequacy ratio was 11.98 per cent and that of the Group was 10.48 per cent.
The SEB Group strengthened SEB Bank's capital base in October and December 2009 and March 2010, covering losses through additional contributions of shareholders.
On March 2010 the Board of the Bank of Lithuania granted a permission to SEB Bank to include the issue of undated subordinated notes worth EUR 100,000,000 (LTL 345,280,000) into the bank's Tier II capital. The issue of undated subordinated notes has been acquired by SEB Bank's parent bank Skandinaviska Enskilda Banken AB (publ).
Changes in the bank and the Group capital adequacy ratios during recent years are presented in the table below.
| Group | Ratio | Bank | ||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | 2010 | 2008 | 2009 | 2010 | |
| 10.55 % | 11.58 % | 15.95 % | Capital adequacy ratio | 12.09 % | 12.94 % | 16.43 % |
Securities. As of 31 December 2010, the number of effective issues of securities of SEB Bank was 133, their total nominal value being LTL 1,274 million.
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AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
6. Analysis of the Issuer Group financial and non-financial activity results
Volume and changes of the Bank Group activity are partially reflected by the data below based on the financial position and income statements prepared in accordance with the International Financial Reporting Standards (IFRS):
| LTL million | 31 December 2008 | 31 December 2009 | 31 December 2010 |
|---|---|---|---|
| Loans | 20,320 | 17,205 | 15,725 |
| Investment | 2,245 | 1,847 | 1,884 |
| Lease receivables | 4,224 | 2,504 | 1,695 |
| Deposits | 10,203 | 9,670 | 9,643 |
| Amounts owed to credit and financial institutions | 15,157 | 13,651 | 9,296 |
| Equity | 2,244 | 1,525 | 1,859 |
| Assets | 29,525 | 26,952 | 22,558 |
The Bank Group's income structure during the recent years was as follows:
| LTL million | 31 December 2008 | 31 December 2009 | 31 December 2010 |
|---|---|---|---|
| Net interest income (loss) after impairment losses | 395.5 | (1,404.6) | 114.5 |
| Other income before operating expenses, net | 163.9 | 210.3 | 250.4 |
| Result before operating expenses | 559.4 | (1,194.3) | 364.9 |
| Operating expenses | (369.8) | (347.7) | (309) |
| Net life insurance income | 108.7 | - | - |
| Impairment losses on intangible assets | - | (169.6) | (71.8) |
| Profit (loss) before profit tax from continues activities | 298.3 | (1,711.6) | (15.9) |
| Net profit (loss) from continues activities | 257.8 | (1,445.5) | (17.8) |
Main ratios of the bank activities are included in the below table:
| Group | Ratio | Bank | ||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | 2010 | 2008 | 2009 | 2010 | |
| 10.55% | 11.58% | 15.95 % | Capital adequacy ratio | 12.09% | 12.94% | 16.43 % |
| 0.89% | (4.99%) | (0.07 %) | Return on Assets | 1.38% | (6.12%) | (0.05 %) |
| 11.82% | (76.06%) | (1.04 %) | Return on Equity | 16.23% | (79.55%) | (0.73 %) |
| n. a.* | n. a.* | n. a.* | Bank liquidity ratio | 38.99% | 60.31% | 35.88 % |
| 16.69 | (93.61) | (1.15) | Earnings per share, LTL | 22.52 | (100.13) | (0.78) |
| 145.30 | 98.75 | 120.40 | Book value per share, LTL | 146.26 | 92.03 | 114.06 |
- The Bank of Lithuania revoked the liquidity report requirement for the Group in 2007.
7. References and additional comments on data included in the consolidated financial statements
All key financial data is included in the consolidated financial statements of the Bank.
8. Major events since the end of previous financial year
On 12 January 2011, the Bank announced that Aušra Matusevičienė, the member of the management board of SEB Bank, to take new position in SEB Group. She will be responsible for Baltic IT and Operations, as well as for coordination and development of SEB branches in Riga and Vilnius in SEB Group Operations and IT. She will take her new position from March 15, 2011. Accordingly, A. Matusevičienė will no longer be a member of the management board of SEB Bank from the said date.
On 4 February 2011, the Bank announced that According to preliminary data, unaudited net loss suffered over the year 2010 by SEB Bank is LTL 12,1 million (EUR 3,5 million) and by SEB Bank Group - LTL 18,0 million (EUR 5,2 million). The result has been calculated in accordance with the requirements set by the acts of the Bank of Lithuania and legal acts of the Republic of Lithuania. Over the year 2009, audited net loss suffered by the Bank totaled LTL 1 546,2 million (EUR 447,8 million) and by the Group - LTL 1 427,5 million (EUR 413,43 million). The result of the year 2010 of SEB Bank includes sale profit resulting from the transfer of shares of the Bank's subsidiary companies SEB Gyvybės Draudimas and Litectus to SEB Group concluded in the first quarter of 2010. The result of the year 2010 of SEB Bank Group includes the result of Litectus in January and February; the result of SEB Gyvybės Draudimas is not included.
On 3 March 2011, the Bank announced that has transferred 100 % of the shares of its subsidiary company SEB Enskilda UAB, company code 221949450, address Gedimino av. 12, Vilnius, to the parent company of SEB Bank Skandinaviska Enskilda Banken AB (publ). Taking in consideration that SEB Enskila UAB has a licence for securities brokerage and according article 10 of the Law on Markets of Financial Instruments of Republic of Lithuania prior to the transfer of shares the approval of Securities Commission of Republic of Lithuania has been received. The shares of SEB Enskilda (Latvia) and SEB Enskilda (Estonia) were transferred simultaneously. The reason of the share transfer is the intention to integrate all investment banking services in the Merchant Banking division of Skandinaviska Enskilda Banken AB (publ). It is expected that integration will improve uniform handling and coordination of the activities in the international SEB group. This change will not affect the clients of SEB Enskilda UAB.
Page 10 of 124
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
9. Issuer Group activity plans and forecasts
The main focus of the SEB Bank Group in Lithuania will remain customer excellence. By offering modern services in a convenient and professional way, trying to satisfy each customer's needs, the Group will further implement its goal of becoming the most trusted bank in after crisis world.
The SEB Bank's Group seeking to implement the above vision and taking into consideration the SEB Group's goals will follow the below main trends:
- Risk management. In this area the bank has performed a significant number of actions: improved current processes and procedures; organized risk assessment training for client executives. In future, the bank plans pay greater attention to this field, by using accumulated experience and by giving an opportunity for its employees to continuously improve.
-
Operational efficiency restoration. Seeking to retain operational efficiency and competitive edge, the bank will focus on the below major areas:
-
prevention of income downward trend by using target marketing: clearly define competitive advantages in various client segments and prepare growth plans,
-
precise assessment of costs necessary for implementation of selected goals.
-
Customer loyalty improvement. The bank's goal in this area is to become the Home bank (the main bank) for its clients by retaining the existing customer base and to attracting new customers:
-
by offering flexible solutions to customers facing financial difficulties that may survive during the decline with the bank's assistance,
-
by developing new, attractive concepts, services and products for successfully operating customers so that they feel the bank's attention.
-
The best employer's image retention. The bank will continue creating the environment of trust and respect in which employees may improve their skills and use every possibility.
The bank expects that proper solutions in each the above specified area will increase client and employee satisfaction as well as their loyalty to the organisation.
10. Financial risk management objectives
The Group manages its financial risks as described in the consolidated annual financial statements. Financial risk management objectives, transaction risk hedging measures, the Group credit risk and market risk volume are also described in the above-mentioned documents.
11. Data on the acquisition of own shares by the Issuer
During the year 2010, SEB Bank did not acquire or redeem its own shares. The Bank's subsidiary companies have not acquired the Bank's shares. During the reporting period, the Bank and its subsidiary companies did not redeem or sell their own shares.
12. Information on the Issuer branches and representative offices
As of 31 December 2010, the Bank had a customer service network of 57 branch offices (7 branches and 50 branch offices) all over Lithuania.
13. The Issuer's authorised capital
Authorised capital registered with the Enterprise Register (amount, structure by share type and class, total nominal value) is as follows:
| Type of shares | ISIN code | Number of shares | Nominal value (LTL) | Total nominal value | Share within authorized capital (in per cent) |
|---|---|---|---|---|---|
| Ordinary registered shares | LT0000101347 | 15,441,423 | 67 | 1,034,575,341 | 100.00 |
| Total | - | 15,441,423 | - | 1,034,575,341 | 100.00 |
All shares of SEB Bank are paid up and there are no restrictions assigned for transfer of securities.
14. Shareholders
On 19 November 2010, the squeeze-out procedure of SEB Bank's shares was finalized. 100 % of shares of SEB Bank is owned by company Skandinaviska Enskilda Banken AB (publ), registered in the Kingdom of Sweden.
Page 11 of 124
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
15. Employees
As of 31 December 2010, the SEB Bank Group in Lithuania (AB SEB Bank, UAB SEB Enskilda, UAB SEB Investicijų Valdymas, AB SEB Lizingas and UAB SEB Venture Capital), had 2,078 regular employees (working under labour contracts with and without a fixed term, including those on maternity/paternity leave), or 5.5 percent less comparing to the year 2009, when the Group had 2,198 employees. As of 31 December 2010, the number of actually working employees (excluding those on maternity/paternity leave) was 1,788, i. e. by 8.6 per cent less than at the end of 2009, when the number of the Group's actually working employees was 1,957. The number of employees has decreased as UAB SEB Gyvybės Draudimas and UAB Litectus employees are not included in the calculation since both subsidiaries were sold to International SEB Group during the year 2010.
The number of SEB Bank regular employees (working under labour contracts with and without a fixed term, including those on maternity/paternity leave) alone decreased by 1 per cent, from 2,029 to 2,009, and the number of SEB Bank's actually working employees (excluding those on maternity/paternity leave) was 1,730, i. e. 4.5 per cent less than in 2009, when their number was 1,811.
During the reporting period, the average number of actually working bank's employees (excluding those on maternity/paternity leave) was 1,748 employees (2009: 1,940).
| The Bank | The Group | |||||
|---|---|---|---|---|---|---|
| 31 12 2008 | 31 12 2009 | 31 12 2010 | 31 12 2008 | 31 12 2009 | 31 12 2010 | |
| Regular employees (working under labour contracts with and without a fixed term, including those on maternity/paternity leave) | 2,147 | 2,029 | 2,009 | 2,379 | 2,198 | 2,078 |
| Actually working employees (excluding those on maternity/paternity leave) | 1,995 | 1,811 | 1,730 | 2,209 | 1,957 | 1,788 |
Tables below contain information on the Bank's employees' educational background and average monthly wages (before tax).
| Number of employees | Average monthly wages (in LTL) | |||||
|---|---|---|---|---|---|---|
| 31 12 2008 | 31 12 2009 | 31 12 2010 | 31 12 2008 | 31 12 2009 | 31 12 2010 | |
| Senior management staff | 301 | 279 | 275 | 9,619 | 10,245 | 9,921 |
| Specialists | 1,835 | 1,741 | 1,726 | 4,357 | 3,569 | 3,341 |
| Service staff | 10 | 9 | 8 | 1,920 | 1,994 | 2,069 |
| In total | 2,146 | 2,029 | 2,009 | - | - | - |
| Number of employees | University education | College education | Secondary education | |||
| --- | --- | --- | --- | --- | --- | --- |
| number | per cent | number | per cent | number | ||
| Senior management staff | 275 | 263 | 95.6 | 6 | 2.18 | 6 |
| Specialists | 1,726 | 1,313 | 76.07 | 121 | 7.01 | 292 |
| Service staff | 8 | 4 | 50.0 | 1 | 12.05 | 3 |
| In total | 2,009 | 1,580 | 78.65 | 128 | 6.37 | 301 |
Policy for the establishment of variable remuneration for the Bank and the bank group employees
In 2010, the remuneration policy approved by SEB Bank's Supervisory Council on 30 April 2010 was abided by within SEB Bank.
According to said policy, the variable remuneration package consists of extras and bonuses, the amount of which depends on an employee's individual input into the results of his/her subdivision and the entire group. The aim of the variable remuneration system is to motivate employees towards achieving the group's set long-term objectives and rewarding them for the results achieved.
Motivation of employees of the Bank's branches and sub-branches by quarterly extras for the results of sales by a relevant sub-branch or a relevant individual employee is regulated by resolutions of the Management Board of SEB Bank and by the performance and development requirements for the branches and employees.
With the aim to acknowledge each employee's input towards the achievement of the group's long-term objectives, annual bonuses may be paid for positive results, however, only in case if the bank's financial standing is sustainable. The amount of an employee's bonus depends on the achievement of the group's overall objectives, on the performance of the subdivision in which the employee works and on the annual performance and development appraisal results. For an objective appraisal of an employee's activities and for his/her fair relevant reward, it is not only the objectives achieved that are taken into account, but also the employee's attitude and ethics. Appraisal during the annual PDD includes appraisal whether the employee's personal competence is in line with the requirements for his/her function, whether the employee in his/her activities adheres to SEB values, ethics, etc. The bonus is not a guaranteed payment.
It is aimed to determine the variable remuneration taking relevant risk level into account. In case employees who can assume significant risk in the name of the group and have a major effect on decision-taking, 60% of their salary is deferred for a three-year period. The group may refrain from paying part or all of the variable salary, if the activities of a relevant person, business subdivision or the group are at a loss.
Page 12 of 124
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
16. Procedure for amending the Issuer Articles of Association
The Company Law of the Republic of Lithuania establishes that amendment of articles of association is an exclusive right of the annual meeting of shareholders. A 2/3 qualified majority of votes of the general meeting of shareholders participating at the meeting is required for adopting a resolution on amending the articles of association.
The Bank Law of the Republic of Lithuania establishes that the amendment of a bank's articles of association regarding i) the bank's name or domicile, ii) the amount of the authorised (share) capital, iii) the number of shares, the number of shares by their class, nominal value as well as the rights granted, iv) the competence of the Bank's management bodies as well as the method of electing and revoking the management bodies, can be registered with the Enterprise Register exclusively after the permission of a supervisory authority, i.e. the Bank of Lithuania, has been obtained.
17. Management bodies of the Issuer
- The General Meeting of Shareholders of the bank (hereinafter referred to as the 'Meeting')
- The Supervisory Council of the Bank (hereinafter referred to as the 'Council')
- The Management Board of the Bank (hereinafter referred to as the 'Management Board')
- Head of the Bank administration (President) (hereinafter referred to as the 'President')
The Board and the President are the bank's management bodies.
The Council is a collegiate supervisory body carrying out the function of supervision over the bank's activities. The Council consisting of 5 members is elected by the Meeting. The Council elects the Management Board members and revokes them from their positions, supervises over the activities of the Management Board and the President and has other rights and duties attributed to its competence by acts of law of the Republic of Lithuania and Articles of Association of the bank.
The Management Board is a collegiate management body of the bank consisting of 5 members and is elected by the Council. The Management Board manages the bank, handles daily matters, represents the Bank's interests and is liable for the financial services according to the procedure established by law. The Management Board elects (appoints) and revokes the President and his deputies and has other rights and duties attributed to its competence by acts of law of the Republic of Lithuania and Articles of Association of the bank.
The President acts in the name of the bank, organizes the bank's day-to-day activities and has other rights and duties attributed to its competence by acts of law of the Republic of Lithuania and Articles of Association of the bank.
18. Information on members of collegiate bodies, Chief Executive Office and Chief Financial Officer of the company
THE BANK SUPERVISORY COUNCIL (as of 31 December 2010)
KNUT JONAS MARTIN JOHANSSON
Head of SEB Baltic Division. Education: university degree, specialisation – economics. No shares of the Bank are hold by the Member.
Member of the Supervisory Council elected by an extraordinary meeting of shareholders of SEB Bank held on 29 October 2009, Chairman of the Supervisory Council since 13 November 2009.
MARK BARRY PAYNE
Head of Finance of SEB Baltic Division. Education: university degree, specialisation – economics. No shares of the Bank are hold by the Member.
Member of the Supervisory Council elected by an extraordinary meeting of shareholders of SEB Bank held on 29 October 2009.
CARL STEFAN DAVILL
Head of Human Resources of SEB Baltic Division. Education: university degree, specialisation – economics. No shares of the Bank are hold by the Member.
Member of the Supervisory Council elected by an extraordinary meeting of shareholders of SEB Bank held on 29 October 2009.
STEFAN STIGNÄS
Head of Corporate Banking of SEB Baltic Division. Education: university degree, specialisation – economics. No shares of the Bank are hold by the Member.
Member of the Supervisory Council elected by an extraordinary meeting of shareholders of SEB Bank held on 29 October 2009.
TED TONY KYLBERG
Head of Legal of SEB Baltic Division. Education: university degree, specialisation – law. No shares of the Bank are hold by the Member.
Member of the Supervisory Council elected by an annual general meeting of shareholders of SEB Bank held on 25 March 2010.
The term office of all Supervisory Council Members expires on 29 October 2013.
Page 13 of 124
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
THE BANK MANAGEMENT BOARD (31 December 2010)
RAIMONDAS KVEDARAS
Chairman of the Management Board and President of SEB Bank since 19 October 2009. Elected to the Management Board as its Member of on 4 February 2004. Education: higher, specialisation – international finance. No shares of the Bank are hold by the Member.
AIVARAS ČIČELIS
Vice President and Head of Corporate Banking Division of SEB Bank. Member of the Management Board since 19 October 2009. Education: higher, specialisation – economics. No shares of the Bank are hold by the Member.
ROBERTS BERNIS
Vice President and Head of Credit and Risk Management Division of SEB Bank. Member of the Management Board since 19 October 2009. Education: higher, specialisation – engineering. No shares of the Bank are hold by the Member.
VIRGINIJUS DOVEIKA
Vice President and Head of Retail Banking Division of SEB Bank. Elected to the Management Board as its member on 8 June 2010. Education: higher, specialisation – business administration. No shares of the Bank are hold by the Member.
AUŠRA MATUSEVIČIENĖ
Vice President and Head of Business Support Division and Chief Financial Officer of SEB Bank.
Member of the Management Board since 1 February 2006. Education: higher, specialisation – finances. No shares of the Bank are hold by the Member.
The term office of all Members of the Management Board expires on 4 February 2012.
CHIEF EXECUTIVE OFFICER
RAIMONDAS KVEDARAS – Chairman of the Management Board and President of SEB Bank since 19 October 2009. Elected to the Management Board as its member on 4 February 2004.
CHIEF FINANCIAL OFFICER
AUŠRA MATUSEVIČIENĖ – Vice President and Head of Business Support Division and Chief Financial Officer of SEB Bank. Member of the Management Board since 1 February 2006.
Information on disbursements to members of the Management Board during the reporting period is provided in the bale below.
| Amounts calculated over a year in connection with employment relations | Property assigned gratis | guarantees issued in the name of the company | |
|---|---|---|---|
| Amounts calculated for all members of the Management Board (LTL'000), before taxes, in total of which: | 3,520 | - | - |
| amounts in connection with employment relations (LTL'000) | 2,692 | - | - |
| Annual bonus for the year 2009 (LTL'000) | - | - | - |
| Employer's social security contributions (LTL'000) | 828 | - | - |
| Other disbursements, including the employer's social security contributions (LTL'000)**: | 1,241 | - | - |
| Per member of the Management Board on average (LTL'000) before taxes: * | 704 | - | - |
| Amounts in connection with employment relations (LTL'000) | 538 | - | - |
| Annual bonus for the previous year (LTL'000) | - | - | - |
| Employer's social security contributions (LTL'000) | 166 | - | - |
- The bank Management Board consists of 5 members.
** Employment termination compensation and one-off payment due to new core banking system roll-out project implementation.
19. Significant arrangements, the Issuer being a party thereto, which arrangements, in case of any effective changes in the Issuer's controlling stake, would change or terminate
Such significant arrangements are envisaged under loan agreements; however, the contracting parties and relevant terms and conditions are deemed confidential information with regard to both the bank and other parties.
Page 14 of 124
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
20. Agreements between the Issuer and its management bodies or employees
On 11 February 2010, the administration of SEB Bank and representatives of the bank employees signed a two-year collective bargaining agreement. The collective bargaining agreement regulates labour relations as well as terms and conditions, defines mutual obligations of the employer and the employees, additional incentive measures for the employees as well as other labour relations terms and conditions on which the employees and the employer have mutually agreed, for instance, on a sum-total working hours time, calculation of the employment record, additional vacations, etc. The collective bargaining agreement has been signed by and between the administration of SEB Bank and representative of the Labour Council with a two-year tenure. The Labour Council of SEB Bank consists of 15 employees of the bank elected by secret vote holding different positions at the bank. The collective bargaining agreement includes the terms and conditions of work and the aspects on which it may be directly agreed with the employer.
One of the main activities of the Labour Council is consultations with the Bank's management. During these activities members of the Labour Council were introduced with the new remuneration system for 2010, additional disbursements were discussed. The Labour Council periodically meets with the President of the Bank. During the meetings implementation of collective bargaining agreement, future changes, employees' questions and reviews are discussed.
21. Information on compliance with the Corporate Governance Code
SEB Bank in substance adheres to the recommendatory-character Corporate Governance Code on the management of companies listed by Vilnius Securities Exchange (see Annex 1).
22. Data on information in public domain
The Issuer, whose securities are admitted for trading the regulated market of the Republic of Lithuania, provides the operator of the regulated market, where the Issuer's securities are traded in, i.e. Nasdaq OXM Vilnius, as well as the Lithuanian Securities Commission with the information on each material event in accordance with the procedure established by the Lithuanian Securities Commission. Information on each material event has to be made publicly available and provided to the central database of regulated information.
Over the reporting period, the bank announced the following information on material events:
On 10 February 2010, the Bank announced that, according to preliminary data, unaudited net loss suffered over the year 2009 by SEB Bank is LTL 1 546.2 million (EUR 447.8 million) and by SEB Bank Group - LTL 1 427.5 million (EUR 413.43 million). The result has been calculated in accordance with the requirements set by the acts of the Bank of Lithuania and legal acts of the Republic of Lithuania. Over the year 2008, audited net profit earned by the Bank totalled LTL 347.7 million (EUR 100.7 million) and by the group - LTL 257.8 million (EUR 74.7 million).
On 23 February 2010, the Bank announced about the Annual General Meeting of Shareholders initiated and to be convened by the Board of SEB Bank on 25 March 2010.
On 26 February 2010, SEB Bank has transferred 100 % of shares of its subsidiary company Litectus fully held by SEB Bank to company Warehold B.V., a member of the international SEB Group. Shares of the real estate management companies of the three SEB Baltic banks are assigned to Warehold B.V., which is fully owned by the SEB Group. This share acquisition is an internal optimization within SEB's Baltic operations in order to facilitate closer cooperation of real estate management activities at SEB Group level.
On 8 March, 2010 ratings agency Fitch Ratings changed SEB Bank's long-term issuer's default rating outlook from negative to stable whereas Bank's long-term issuer's default rating A, short-term issuer's default rating F1, individual rating D/E and support rating 1 remained unchanged.
On 15 March 2010 the Board of SEB Bank approved the draft decisions of the Annual General Meeting of the Shareholders of SEB Bank that will take place on 25 March 2010.
On 10 March 2010, the Board of the Bank of Lithuania granted a permission to SEB Bank to include the issue of undated subordinated notes worth EUR 100,000,000 (LTL 345, 280,000) into the bank's Tier II capital. The issue of undated subordinated notes has been acquired by SEB Bank's parent bank Skandinaviska Enskilda Banken AB (publ).
On 25 March 2010, at 10 a.m., on Gedimino 12, Vilnius, Room 511, an Annual General Meeting of Shareholders of SEB Bank (having registered office on Gedimino 12, LT-01103 Vilnius, company code 112021238) took place and decisions on all issues on the agenda were adopted: 1. Consolidated Annual Report of SEB Bank has been familiarized with; 2. Report of the auditor of SEB Bank has been heard; 3. Comments and Proposals of the Supervisory Council of SEB Bank have been heard; 4. Year 2009 Consolidated Financial Statements of SEB Bank were approved (enclosed); 5. Resolution was adopted to cover part of the losses of SEB Bank by additional contributions of shareholders in an amount no less than LTL 345,280,000 (EUR 100,000,000); 6. Distribution of the year 2009 losses of SEB Bank was approved (enclosed); 7. PricewaterhouseCoopers UAB was elected an audit company for checking SEB Bank's current-year and no more than 2 (two) further financial years' annual financial statements and President of SEB Bank was directed to execute an agreement with the audit company specifying terms and conditions for payment in consideration for its services; 8. Ted Tony Kylberg was elected to the Supervisory Council of SEB Bank as its Member until expiry of the tenure of the present Supervisory Council.
Page 15 of 124
AB SEB BANK
CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousand, unless indicated otherwise)
On 28 April 2010, the Bank announced that according to preliminary data, unaudited net loss sustained over the first quarter of the year 2010 by SEB Bank is LTL 59,4 million (EUR 17,2 million) and that by SEB Bank Group is LTL 80,3 million (EUR 23,3 million). The result has been calculated in accordance with the requirements set by relevant acts of the Bank of Lithuania as well as legal acts of the Republic of Lithuania. Over the first quarter of the year 2009, unaudited net profit earned by the Bank totalled LTL 26.6 million (EUR 7.7 million) and that by the group - LTL 16.2 million (EUR 4.7 million). The result of the first quarter of the year 2010 of the Bank includes sale profit resulting from transfer of shares of the Bank's subsidiary companies SEB Gyvybės Draudimas and Litectus to the SEB Group. The result of the first quarter of the year 2010 of the SEB Bank Group includes the result of Litectus in January and February; the result of SEB Gyvybės Draudimas is not included.
On 8 June 2010, the Supervisory Council of the SEB Bank resolved to accept the resignation from Vytautas Sinius from the Management Board of the SEB Bank and appointed a new Board member Virginijus Doveika. Virginijus Doveika will take his new position as member of the Management Board of the SEB Bank upon approval by the Bank of Lithuania.
On 13 July 2010, the Bank announced that according to preliminary data, unaudited net loss suffered over the first half-year of 2010 by SEB Bank is LTL 77.0 million (EUR 22.3 million) and by SEB Bank Group - LTL 160.9 million (EUR 46.6 million). The result has been calculated in accordance with the requirements set by the acts of the Bank of Lithuania and legal acts of the Republic of Lithuania. Over the first half-year of 2009, audited net loss suffered by the Bank totalled LTL 168.5 million (EUR 48,8 million) and by the Group - LTL 224,9 million (EUR 65,1 million). The result of the first half-year of 2010 of the SEB Bank includes sale profit resulting from transfer of shares of the Bank's subsidiary companies SEB Gyvybės Draudimas and Litectus to SEB Group concluded in the first quarter of 2010. The result of the first half-year of 2010 of the SEB Bank Group includes the result of Litectus in January and February; the result of SEB Gyvybės Draudimas is not included.
On 28 October 2010, the Bank announced that according to preliminary data, unaudited net loss suffered over the three quarters of 2010 by SEB Bank is LTL 112.1 million (EUR 32.5 million) and by SEB Bank Group - LTL 76.1 million (EUR 22.0 million). The result has been calculated in accordance with the requirements set by the acts of the Bank of Lithuania and legal acts of the Republic of Lithuania. Over the three quarters of 2009, unaudited net loss suffered by the Bank totalled LTL 626.4 million (EUR 181.4 million) and by the Group - LTL 942.8 million (EUR 273.0 million). The result of the three quarters of 2010 of SEB Bank includes sale profit resulting from the transfer of shares of the Bank's subsidiary companies SEB Gyvybės Draudimas and Litectus to SEB Group concluded in the first quarter of 2010. The result of the three quarters of 2010 of SEB Bank Group includes the result of Litectus in January and February; the result of SEB Gyvybės Draudimas is not included.
On 22 November 2010, the Bank announced that on 19 November 2010, the squeeze-out procedure of SEB Bank's shares was finalized. 100 % of shares of SEB Bank is owned by company Skandinaviska Enskilda Banken AB (publ), registered in the Kingdom of Sweden.
Over the reporting period the bank also made 22 announcements of additional (as per Item 5 of Article 25 of the Law of the Republic of Lithuania on Securities) and 5 announcements of period information (as per Article 20 of the Law of the Republic of Lithuania on Securities).
President of SEB Bank
Head of Business Support Division and Chief Financial Officer of SEB Bank
Director of Finance Department of SEB Bank
Vilnius
10 March 2011
Page 16 of 124
Page 17 of 124
AB SEB BANK
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
| The Group | Note | The Bank | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| 767,186 | 1,150,118 | Interest income | 692,681 | 1,039,925 | |
| (498,759) | (821,331) | Interest expenses | (459,219) | (734,983) | |
| 268,427 | 328,787 | Net Interest income | 6 | 233,462 | 304,942 |
| (119,346) | (1,161,949) | Impairment losses on loans | 7 | 271,654 | (1,551,449) |
| (41,350) | (552,477) | Impairment losses on lease portfolio | 7 | ||
| 6,793 | (17,010) | Provisions for guarantees | 6,793 | (17,010) | |
| (2) | (1,922) | Other impairment losses | (1) | 3 | |
| (153,905) | (1,733,358) | Total impairment losses | 278,446 | (1,568,456) | |
| 114,522 | (1,404,571) | Net interest income after impairment losses | 511,908 | (1,263,514) | |
| 235,046 | 224,559 | Fee and commission income | 8 | 218,792 | 206,922 |
| (64,605) | (67,581) | Fee and commission expenses | 8 | (62,365) | (64,512) |
| 170,441 | 156,978 | Net fee and commission income | 156,427 | 142,410 | |
| (31,116) | (24,450) | Net gain (losses) on operations with debt securities and derivative financial instruments | 10 | (31,116) | (24,450) |
| 2,788 | 9,741 | Net gain (loss) on investment securities | 3,061 | 10,720 | |
| - | (14,712) | Impairment loss on investment securities available for sale | - | (14,712) | |
| 30,137 | - | Net gain on disposal of subsidiaries | 25 | 58,238 | - |
| - | - | Dividend income from subsidiaries | 9 | 3,734 | 4,816 |
| 59,519 | 72,883 | Net foreign exchange gain | 11 | 59,490 | 73,592 |
| 18,633 | 9,858 | Other income, net | 16,102 | 6,549 | |
| 79,961 | 53,320 | Net investment activities | 109,509 | 56,515 | |
| (131,201) | (156,954) | Staff costs | 12 | (122,909) | (144,247) |
| (177,874) | (190,777) | Other administrative expenses | 13 | (159,072) | (177,136) |
| 55,849 | (1,542,004) | Operating (loss) profit | 495,863 | (1,385,972) | |
| (71,755) | (169,550) | Impairment loss on intangible assets | 26 | (71,755) | (169,550) |
| - | - | Impairment loss on investment in subsidiaries | 25 | (450,529) | (175,105) |
| (15,906) | (1,711,554) | (Loss) Profit before income tax | (26,421) | (1,730,627) | |
| (1,900) | 266,041 | Income tax benefit (expenses) | 14 | 14,363 | 184,442 |
| (17,806) | (1,445,513) | (Loss) Profit for the year from continuing operations | (12,058) | (1,546,185) | |
| (189) | 18,058 | (Loss) Profit for the year from discontinued operations | - | - | |
| (17,995) | (1,427,455) | Net (loss) profit for the year | (12,058) | (1,546,185) | |
| Attributable to: | |||||
| (17,995) | (1,427,455) | Equity holders of the parent | (12,058) | (1,546,185) | |
| (17,806) | (1,445,513) | (Loss) Profit for the year from continuing operations | (12,058) | (1,546,185) | |
| (189) | 18,058 | (Loss) Profit for the year from discontinued operations | 44 | - | - |
| - | - | Non controlling interest | - | - | |
| - | - | (Loss) Profit for the year from continuing operations | - | - | |
| - | - | (Loss) Profit for the year from discontinued operations | - | - | |
| (17,995) | (1,427,455) | (12,058) | (1,546,185) |
The accompanying notes on pages 24 to 96 are an integral part of these financial statements.
The financial statements were approved by the Board of the Bank on 10 March 2011 and signed by:
Page 18 of 124
AB SEB BANK
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| The Group | The Bank | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | Note | 2010 | 2009 | |
| (17,995) | (1,427,455) | Net (loss) income for the year | (12,058) | (1,546,185) | |
| Other comprehensive income: | |||||
| 3,956 | 20,362 | Net gain on available for sale assets | 36 | 3,956 | 20,362 |
| 3,956 | 5,650 | - Net gain, before taxes | 3,956 | 5,650 | |
| - Impairment loss on investment in available for sale securities recognised in income statement, before taxes | 36 | - | 14,712 | ||
| - | 14,712 | Amortisation of financial assets revaluation reserve | |||
| 3,025 | 2,937 | of reclassified financial assets | 36 | 3,025 | 2,937 |
| Income tax relating to the components of other comprehensive income | 14 | (1,050) | (5,521) | ||
| (1,050) | (5,521) | 5,931 | 17,778 | ||
| 5,931 | 17,778 | Total other comprehensive income | |||
| (12,064) | (1,409,677) | Total comprehensive income | (6,127) | (1,528,407) |
The accompanying notes on pages 24 to 96 are an integral part of these financial statements.
The financial statements were approved by the Board of the Bank on 10 March 2011 and signed by:
AB SEB BANK
STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| The Group | Note | The Bank | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| Assets | |||||
| 428,427 | 420,403 | Cash on hand | 428,427 | 420,403 | |
| 527,258 | 384,981 | Balances with the Central Bank | 16 | 527,258 | 384,981 |
| 1,177,833 | 3,118,698 | Due from banks, net | 17 | 1,177,833 | 3,118,698 |
| 164,895 | 65,818 | Government securities available for sale | 18 | 164,272 | 65,194 |
| Financial assets at fair value through profit and loss | 19 | 45,733 | 19,203 | ||
| 75,058 | 48,203 | Derivative financial instruments | 20 | 233,911 | 153,483 |
| 233,911 | 153,483 | Loans to credit and financial institutions, net of impairment losses | 21 | 506,636 | 348,856 |
| 55,399 | 20,069 | Loans to customers, net of impairment losses | 7, 22 | 15,680,730 | 17,194,089 |
| 15,669,307 | 17,185,394 | Finance lease receivable, net of impairment losses | 23 | - | - |
| 1,694,691 | 2,503,885 | Investment securities: | |||
| 1,629,290 | 1,719,512 | - loans and receivables | 24 | 1,629,290 | 1,719,512 |
| 1,276 | 337 | - available for sale | 24 | 1,276 | 337 |
| 13,832 | 12,748 | - held to maturity | 24 | 13,832 | 12,748 |
| - | - | Investments in subsidiaries | 25 | 121,616 | 38,616 |
| 148,733 | 169,046 | Intangible fixed assets | 26 | 148,554 | 168,764 |
| 46,004 | 56,509 | Property, plant and equipment | 27 | 45,289 | 55,847 |
| 2,581 | 4,275 | Assets under operating lease | 28 | - | - |
| 47,623 | 67,201 | Non-current assets held for sale | 44 | 29 | - |
| 51,474 | 62,231 | Investment property | 29 | 1,535 | 1,599 |
| 273,661 | 277,245 | Deferred tax asset | 14 | 192,654 | 179,444 |
| 316,576 | 266,644 | Other assets, net of impairment losses | 30 | 109,387 | 156,991 |
| 22,557,829 | 26,536,682 | 21,028,262 | 24,038,765 | ||
| - | 415,635 | Assets classified as held for sale and discontinued operations | 44 | - | 13,825 |
| 22,557,829 | 26,952,317 | Total assets | 21,028,262 | 24,052,590 | |
| Liabilities | |||||
| 38 | 31 | Amounts owed to the Central Bank | 38 | 31 | |
| 9,295,615 | 13,650,723 | Amounts owed to credit and financial institutions | 31 | 7,915,364 | 11,259,609 |
| 334,427 | 303,643 | Derivative financial instruments | 20 | 334,427 | 303,643 |
| 9,643,341 | 9,669,789 | Deposits from public | 32 | 9,644,674 | 9,673,732 |
| 29,873 | 44,029 | Accrued expenses and deferred income | 35 | 26,190 | 41,758 |
| - | 185 | Income tax payable | - | - | |
| 597,172 | 597,195 | Subordinated loans | 33 | 597,172 | 597,195 |
| 663,177 | 697,841 | Debt securities in issue | 34 | 663,177 | 699,854 |
| 135,008 | 78,639 | Other liabilities and provisions | 35 | 85,968 | 55,738 |
| 20,698,651 | 25,042,075 | 19,267,010 | 22,631,560 | ||
| - | 385,347 | Liabilities included in assets classified as held for sale and discontinued operations | 44 | - | - |
| 20,698,651 | 25,427,422 | Total liabilities | 19,267,010 | 22,631,560 | |
| Equity | |||||
| Equity attributable to equity holder of the parent | |||||
| 1,034,575 | 1,034,575 | Share capital | 1,034,575 | 1,034,575 | |
| 1,034 | 1,034 | Reserve capital | 2,200 | 2,200 | |
| (8,850) | (14,781) | Financial assets revaluation reserve | (8,850) | (14,781) | |
| 165,425 | 135,160 | Legal reserve | 163,221 | 133,151 | |
| 10,846 | 9,778 | General and other reserves | 10,846 | 9,778 | |
| 656,148 | 359,129 | Retained earnings | 559,260 | 256,107 | |
| 1,859,178 | 1,524,895 | 1,761,252 | 1,421,030 | ||
| - | - | Non controlling interest in equity | - | - | |
| 1,859,178 | 1,524,895 | Total equity | 1,761,252 | 1,421,030 | |
| 22,557,829 | 26,952,317 | Total liabilities and equity | 21,028,262 | 24,052,590 |
The accompanying notes on pages 24 to 96 are an integral part of these financial statements.
The financial statements were approved by the Board of the Bank on 10 March 2011 and signed by:
Page 20 of 124
AB SEB BANK
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
The Group
31 December 2008
Net change in available for sale investments, net of deferred tax
Amortisation of financial assets revaluation reserve of reclassified financial assets
Net profit for the year
Total comprehensive income
Shareholder's contribution
Share-based compensation
Transfers to reserves
31 December 2009
Net change in available for sale investments, net of deferred tax
Amortisation of financial assets revaluation reserve of reclassified financial assets
Net profit for the year
Total comprehensive income
Shareholder's contribution
Share-based compensation
Transfers to reserves
31 December 2010
| Equity attributable to equity holder of the parent | |||||||
|---|---|---|---|---|---|---|---|
| Share capital | Reserve capital | Financial assets revaluation reserve | Legal reserve | General and other reserves | Retained earnings | Total before noncontrolling interest | Non controlling interest |
| 1,034,575 | 1,034 | (32,559) | 77,394 | 9,338 | 1,153,790 | 2,243,572 | - |
| - | - | 14,841 | - | - | - | 14,841 | - |
| - | - | 2,937 | - | - | - | 2,937 | - |
| - | - | - | - | - | (1,427,455) | (1,427,455) | - |
| - | - | 17,778 | - | - | (1,427,455) | (1,409,677) | - |
| - | - | - | - | - | 690,560 | 690,560 | - |
| - | - | - | - | 440 | - | 440 | - |
| - | - | - | 57,766 | - | (57,766) | - | - |
| 1,034,575 | 1,034 | (14,781) | 135,160 | 9,778 | 359,129 | 1,524,895 | - |
| - | - | 2,906 | - | - | - | 2,906 | - |
| - | - | 3,025 | - | - | - | 3,025 | - |
| - | - | - | - | - | (17,995) | (17,995) | - |
| - | - | 5,931 | - | - | (17,995) | (12,064) | - |
| - | - | - | - | - | 345,280 | 345,280 | - |
| - | - | - | - | 1,068 | - | 1,068 | - |
| - | - | - | 30,265 | - | (30,265) | - | - |
| 1,034,575 | 1,034 | (8,850) | 165,425 | 10,846 | 656,148 | 1,859,178 | - |
The accompanying notes on pages 24 to 96 are an integral part of these financial statements.
The financial statements were approved by the Board of the Bank on 10 March 2011 and signed by:
Page 21 of 124
AB SEB BANK
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| The Bank | Share capital | Reserve capital | Financial assets revaluation reserve | Legal reserve | General and other reserves | Retained earnings | Total Equity |
|---|---|---|---|---|---|---|---|
| 31 December 2008 | 1,034,575 | 2,200 | (32,559) | 74,639 | 9,338 | 1,170,244 | 2,258,437 |
| Net change in available for sale investments, net of deferred tax | - | - | 14,841 | - | - | - | 14,841 |
| Amortisation of financial assets revaluation reserve of reclassified financial assets | - | - | 2,937 | - | - | - | 2,937 |
| Net profit for the year | - | - | - | - | - | (1,546,185) | (1,546,185) |
| Total comprehensive income | - | - | 17,778 | - | - | (1,546,185) | (1,528,407) |
| Shareholder's contribution | - | - | - | - | - | 690,560 | 690,560 |
| Share-based compensation | - | - | - | - | 440 | - | 440 |
| Transfers to reserves | - | - | - | 58,512 | - | (58,512) | - |
| 31 December 2009 | 1,034,575 | 2,200 | (14,781) | 133,151 | 9,778 | 256,107 | 1,421,030 |
| Net change in available for sale investments, net of deferred tax | - | - | 2,906 | - | - | - | 2,906 |
| Amortisation of financial assets revaluation reserve of reclassified financial assets | - | - | 3,025 | - | - | - | 3,025 |
| Net profit for the year | - | - | - | - | - | (12,058) | (12,058) |
| Total comprehensive income | - | - | 5,931 | - | - | (12,058) | (6,127) |
| Shareholder's contribution | - | - | - | - | - | 345,280 | 345,280 |
| Share-based compensation | - | - | - | - | 1,068 | - | 1,068 |
| Transfers to reserves | - | - | - | 30,070 | - | (30,070) | - |
| 31 December 2010 | 1,034,575 | 2,200 | (8,850) | 163,221 | 10,846 | 559,260 | 1,761,252 |
The accompanying notes on pages 24 to 96 are an integral part of these financial statements.
The financial statements were approved by the Board of the Bank on 10 March 2011 and signed by:
AB SEB BANK
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
| The Group | The Bank | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | Note | 2010 | 2009 | |
| Cash from operating activities | |||||
| 774,280 | 1,134,206 | Interest income received | 698,308 | 1,049,800 | |
| (555,293) | (900,562) | Interest expenses paid | (511,401) | (781,454) | |
| 41,787 | 68,393 | Net foreign currency exchange gain | 41,795 | 69,025 | |
| 17,732 | 4,214 | Unrealised translation gain | 17,695 | 4,567 | |
| (31,116) | (24,450) | Net gain (loss) in securities trading and financial instruments | (31,116) | (24,450) | |
| 189,188 | 166,836 | Net commission and service income | 172,648 | 148,959 | |
| - | 142,157 | Life insurance operations | - | - | |
| (132,153) | (162,974) | Staff costs | (123,306) | (144,247) | |
| (158,339) | (151,786) | Other payments | (142,851) | (132,997) | |
| 146,086 | 276,034 | Net cash from operating activities before change in operating assets | 121,772 | 189,203 | |
| Changes in operating assets | |||||
| (11,145) | 66,835 | (Increase) decrease in compulsory balances with the Central Bank | (11,145) | 66,836 | |
| 990,178 | (1,147,849) | Decrease (increase) in due from banks and loans to credit and financial institutions | 725,199 | (1,134,837) | |
| 1,392,874 | 1,947,370 | Decrease in loans to customers | 1,389,873 | 1,922,063 | |
| 728,733 | 1,130,435 | Decrease of finance lease receivable | - | - | |
| 18,951 | (99,652) | Decrease (increase) in other current assets | 48,534 | 3,768 | |
| 3,119,591 | 1,897,139 | Net change in operating assets | 2,152,461 | 857,830 | |
| Changes in operating liabilities | |||||
| (27,655) | (554,413) | (Decrease) in deposits from public | (30,265) | (556,370) | |
| 57,405 | (40,371) | Increase (decrease) in accrued expenses, deferred income and other liabilities | 34,090 | (18,393) | |
| 29,750 | (594,784) | Net change in operating liabilities | 3,825 | (574,763) | |
| 3,295,427 | 1,578,389 | Net cash from (to) operating activities before income tax | 2,278,058 | 472,270 | |
| (222) | (36,299) | Income tax paid | - | (34,394) | |
| 3,295,205 | 1,542,090 | Net cash from (to) operating activities after income tax | 2,278,058 | 437,876 |
(Continued)
The accompanying notes on pages 24 to 96 are an integral part of these financial statements.
Page 22 of 124
AB SEB BANK
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| The Group | The Bank | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | Note | 2010 | 2009 | |
| (65,554) | (115,641) | Cash flow (to) from investing activities | |||
| (Purchase) of tangible and intangible fixed assets, net | (65,972) | (117,393) | |||
| (92,160) | 36,017 | (Increase) decrease in Government securities available for sale | (92,160) | 38,153 | |
| 65,068 | - | Disposal of subsidiaries, net of cash disposed | 25 | 72,063 | - |
| - | - | Dividends received from subsidiaries | 3,734 | 4,816 | |
| 10,268 | (57,907) | (Decrease) increase of investment in other securities and derivatives | 10,593 | 66,693 | |
| (82,378) | (137,531) | Cash used in investing activities | (71,742) | (7,731) | |
| 345,280 | 690,560 | Cash flow (to) from financing activities | |||
| Shareholders' contributions | 345,280 | 690,560 | |||
| 7 | 7 | Increase (decrease) in amounts owed to the Central Bank | 7 | 7 | |
| (4,320,558) | (1,412,971) | (Decrease) increase in amounts owed to credit and financial institutions | (3,314,047) | (439,380) | |
| - | (5,992) | Decrease in subordinated loans | - | (5,992) | |
| (13,764) | 90,048 | Debt securities issued, net | (13,764) | 91,278 | |
| (3,989,035) | (638,348) | Cash (used in) received from financing activities | (2,982,524) | 336,473 | |
| (776,208) | 766,211 | Net (decrease) increase in cash | (776,208) | 766,618 | |
| 2,299,863 | 1,533,652 | Cash 1 January | 2,299,863 | 1,533,245 | |
| 1,523,655 | 2,299,863 | Cash 31 December | 1,523,655 | 2,299,863 | |
| Specified as follows: | |||||
| 131,133 | - | Balance available for withdrawal with the Central Bank | 16 | 131,133 | - |
| 395,858 | 125,677 | Overnight deposits | 395,858 | 125,677 | |
| 428,427 | 420,403 | Cash on hand | 428,427 | 420,403 | |
| 568,237 | 1,753,783 | Current accounts with other banks | 568,237 | 1,753,783 | |
| 1,523,655 | 2,299,863 | 1,523,655 | 2,299,863 |
The accompanying notes on pages 24 to 96 are an integral part of these financial statements.
The financial statements were approved by the Board of the Bank on 10 March 2011 and signed by:
(Concluded)
Page 23 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 1 GENERAL INFORMATION
AB SEB Bank (hereinafter - the Bank) was registered as a public company in the Enterprise Register of the Republic of Lithuania on 2 March 1990. The Bank is licensed by the Bank of Lithuania to perform all banking operations provided for in the Law on Banks of the Republic of Lithuania and the Statutes of the Bank. On the 21st of January, 2008 SEB Vilniaus bankas has changed its name into SEB Bank – the Register of Legal Entities of the Republic of Lithuania has registered a new version of the Articles of Association of SEB Bank, approved by the Extraordinary General Shareholders Meeting that took place on the 15th of November, 2007, and has issued the new Registration Certificate.
The Head Office of the Bank is located at Gedimino pr. 12, Vilnius. As of 31 December 2010 the Bank had 57 customer service branches (as of 31 December 2009 - 57).
As of 31 December 2010 AB SEB Bank had 4 subsidiaries (as of 31 December 2009 - 6). The Bank and its subsidiaries thereafter are referred as the Group.
The Bank accepts deposits, issues loans, makes money transfers and documentary settlements, exchanges currencies for its clients, issues and processes debit and credit cards, is engaged in trade finance and is investing and trading in securities as well as performs other activities set in the Law on Banks (except for operations with precious metals). Activities of subsidiaries are explained in note 25.
The Bank's shares are not included in the main or secondary listing lists of the Nasdaq OMX Vilnius. As it is further disclosed in Note 36, the only shareholder is Skandinaviska Enskilda Banken AB (publ), owning 100 percent of the Bank's shares.
These consolidated financial statements have been approved by the Board of the Bank on 10 March 2011. Neither the Bank's shareholders nor others have the power to amend the financial statements after issue.
NOTE 2 ADOPTION OF NEW AND REVISED STANDARDS
In the current year, the Group and the Bank has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) and endorsed by EU, that are relevant to the Group and the Bank operations and effective for accounting periods beginning on 1 January 2010.
The Group adopted amendment to IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. This amendment to IFRS 5 is part of the IASB's annual improvements project published in May 2008. The amendment clarifies that an entity committed to a sale plan involving loss of control of a subsidiary would classify the subsidiary's assets and liabilities as held for sale. The revised guidance should be applied prospectively from the date at which the entity first applied IFRS 5.
The Group also adopted improvements to International Financial Reporting Standards, issued in April 2009 (amendments to IFRS 2, IAS 38, IFRIC 9, IFRIC 16, IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: clarification that contributions of businesses in common control transactions and formation of joint ventures are not within the scope of IFRS 2; clarification of disclosure requirements set by IFRS 5 and other standards for non-current assets (or disposal groups) classified as held for sale or discontinued operations; requiring to report a measure of total assets and liabilities for each reportable segment under IFRS 8 only if such amounts are regularly provided to the chief operating decision maker; amending IAS 1 to allow classification of certain liabilities settled by entity's own equity instruments as non-current; changing IAS 7 such that only expenditures that result in a recognised asset are eligible for classification as investing activities; allowing classification of certain long-term land leases as finance leases under IAS 17 even without transfer of ownership of the land at the end of the lease; providing additional guidance in IAS 18 for determining whether an entity acts as a principal or an agent; clarification in IAS 36 that a cash generating unit shall not be larger than an operating segment before aggregation; supplementing IAS 38 regarding measurement of fair value of intangible assets acquired in a business combination; amending IAS 39 (i) to include in its scope option contracts that could result in business combinations, (ii) to clarify the period of reclassifying gains or losses on cash flow hedging instruments from equity to profit or loss for the year and (iii) to state that a prepayment option is closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender; amending IFRIC 9 to state that embedded derivatives in contracts acquired in common control transactions and formation of joint ventures are not within its scope; and removing the restriction in IFRIC 16 that hedging instruments may not be held by the foreign operation that itself is being hedged. The amendments did not have a material impact on these financial statements.
a) Amendments to existing standards and interpretations effective in 2010 but not relevant
The following amendments to existing standards and interpretations to published standards as adopted by EU are mandatory for accounting periods beginning on or after 1 January 2010 but are not relevant to the Group's and the Bank's operations:
- IFRIC 12 'Service Concession Arrangements' (effective for annual periods beginning on or after 30 March 2009);
- IFRIC 16 'Hedges of a Net Investment in a Foreign Operation' (effective for annual periods beginning after 30 June 2009)
- IFRIC 15 'Agreements for the Construction of Real Estate' (effective for annual periods beginning after 31 December 2009);
Page 24 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 2 ADOPTION OF NEW AND REVISED STANDARDS (CONTINUED)
a) Amendments to existing standards and interpretations effective in 2010 but not relevant (continued)
- Amendments to IFRIC 9 and IAS 39 'Embedded Derivatives' (effective for annual periods beginning after 31 December 2009);
- IFRIC 17 'Distributions of Non-Cash Assets to Owners' (effective for annual periods beginning after 31 October 2009);
- IFRIC 18 'Transfers of Assets from Customers' (effective for annual periods beginning after 31 October 2009);
- IAS 27 (revised) 'Consolidated and Separate Financial Statements' (effective for annual periods beginning on or after 1 July 2009);
- IFRS 3 (revised) 'Business Combinations' (effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009);
- Amendment to IAS 39 'Eligible Hedged Items' (effective with retrospective application for annual periods beginning on or after 1 July 2009);
- IFRS 1 (revised) 'First-time Adoption of International Financial Reporting Standards' (effective for the first IFRS financial statements for a period beginning on or after 1 July 2009; restructured IFRS 1 as adopted by the EU is effective for annual periods beginning after 31 December 2009).
- Amendments to IFRS 2 'Group Cash-settled Share-based Payment Transactions' (effective for annual periods beginning on or after 1 January 2010);
- Amendments to IFRS 1 'Additional Exemptions for First-time Adopters' (effective for annual periods beginning on or after 1 January 2010);
b) Standards and amendments to existing standards that are not yet effective, endorsed by EU and have not been early adopted by the Group and the Bank.
The following standards and amendments to existing standards have been published and are mandatory for the Group's and the Bank's accounting periods beginning on or after 1 January 2011 or later periods, but the Group and the Bank have not early adopted them:
- Amendment to IAS 32 'Classification of Rights Issues' (effective for annual periods beginning on or after 1 February 2010);
- Amendment to IAS 24 'Related Party Disclosures' (effective for annual periods beginning on or after 1 January 2011);
- IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments' (effective for annual periods beginning on or after 1 July 2010);
- Amendment to IFRIC 14 'Prepayments of a Minimum Funding Requirement' (effective for annual periods beginning on or after 1 January 2011);
- Amendment to IFRS 1, limited exemption from comparative IFRS 7 disclosures for first-time adopters (effective for annual periods beginning on or after 1 July 2010);
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
These financial statements are presented in national currency of Lithuania, Litas (LTL). Amounts are presented in thousand LTL, unless otherwise stated.
The books and records of the Group and the Bank companies are maintained in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union (EU).
The financial statements are prepared under the historical cost convention as modified by the revaluation of available for sale financial assets, financial assets and liabilities designated at fair value, held for trading and all derivative contracts.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current event and actions, actual results ultimately may differ from those estimates.
b) Basis of Accounting
The financial statements have been prepared in accordance with and comply with IFRS, adopted in the EU. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Page 25 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c) Consolidated Subsidiaries and Associates
Subsidiaries are all entities, over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Investments in subsidiaries in the Bank's stand alone financial statements are accounted for by the cost method of accounting and are initially recognized at cost.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Associates. Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Investments that are held as part of the Group's investment portfolio are carried in the balance sheet at fair value even though the Group may have significant influence over those companies. This treatment is permitted by IAS 28 Investment in Associates, which requires investments held by venture capital organisations to be excluded from its scope where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IAS 39, with changes in fair value recognised in the income statement in the period of the change. The Group has no interests in associates through which it carries on its business.
d) Foreign Currency Translation
Items included in the financial statements of each of the Group's and the Bank's entities are measured using the currency of the primary economic environment in which the entity operates. The consolidated financial statements are presented in Litas, which is the Bank's functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
The results and financial position of all the Group and the Bank entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at average exchange rates;
(iii) all resulting exchange differences are recognised as a separate component of equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
When a foreign operation is disposed of, or partially disposed of, such exchange differences are recognised in the income statement as part of the gain or loss on sale.
e) Income Recognition
Interest income and expense are recognised for all interest bearing instruments on an accrual basis using the effective interest rate method based on the actual purchase price.
Commission and other income is recognised at the time of the related transaction. Commissions incurred in respect of long-term funding provided by financial institutions are deferred and recognised as an adjustment to the effective yield on the loan. All fees that are an integral part of the effective interest rate are amortised using effective interest rate.
Asset management fees related to investment funds are recognised as commissions, i.e. at the time of the related transaction or rateably over the period the service is provided, dependently on fees' substance. The rateable principle is applied for custody services that are continuously provided over an extended period of time.
Page 26 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f) Taxation
Income tax payable on profits, based on the applicable tax law in each jurisdiction, is recognised as an expense in the period in which profits arise. The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax related to fair value re-measurement of available for sale investments, which are charged directly to equity, is also charged directly to comprehensive income and is subsequently recognised in the income statement together with the deferred gain or loss.
g) Share-based Payments
Group company employees receive compensation through share-based incentive programmes. The compensation consists of employee stock options (equity instruments), entitling the holder to subscribe for shares in the parent company at a future date and at a predetermined price. The total value of issued stock options is amortised over the vesting period. The vesting period is comprised of the period from the date on which the options are issued until the stipulated vesting conditions are satisfied. The total value of issued stock options equals the fair value per option, multiplied by the number of options that are expected to become exercisable, taking the vesting conditions into consideration. The allocation of this amount implies that profit and loss are impacted at the same time as the corresponding increase in equity is recognised. At each balance sheet date an assessment is made to determine if the vesting conditions will be fulfilled and the extent to which they will be fulfilled. If the conclusion of this assessment is that a lower number of options are expected to be vested during the vesting period, then the previously expensed amounts are reversed through profit or loss. This implies that in cases in which the vesting conditions are not fulfilled, no costs will be reported in profit or loss, seen over the entire vesting period.
h) Dividend Income
Dividends are recognised in the income statement when the Group's and the Bank's right to receive payment is established.
i) Cash and Cash Equivalents
Cash, overnight deposits, correspondent accounts with the Central Banks and correspondent accounts with other banks, due to their high liquidity are accounted for as cash and cash equivalents in the statements of cash flows.
j) Financial Assets
The Group and the Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the classification of its investments at initial recognition.
Financial assets at fair value through profit or loss represents two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if it is acquired principally for selling or repurchasing in the near term. Derivatives are also categorised as held for trading unless they are designated as hedges. Financial asset are designated at fair value through profit or loss when certain investments, that are managed and evaluated on a fair value basis in accordance with a documented risk strategy management and reported to key management on that basis, are designated at fair valued through profit or loss. Interest income on these financial assets is reflected in 'Interest income'.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group and the Bank provides money, goods or services directly to a debtor with no intention of trading the receivable.
Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's and the Bank's management has the positive intention and ability to hold to maturity. Were the Group and the Bank to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available for sale.
Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.
Page 27 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
j) Financial assets (continued)
All regular way purchases and sales of financial assets are recognised at settlement date, which is the date that an asset is delivered to or by the Group and the Bank. Otherwise such transactions are treated as derivatives until settlement occurs. Loans are recognised when cash is advanced to the borrowers. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group and the Bank has transferred substantially all risks and rewards of ownership.
Available for sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held to maturity investments are carried at amortised cost using the effective interest method. Gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of available for sale financial assets are recognised directly in equity, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity should be recognised in profit or loss. However, interest calculated using the effective interest method is recognised in the income statement. Dividends on available for sale equity instruments are recognised in the income statement when the entity's right to receive payment is established.
The fair values of quoted investments in active markets are based on current bid prices.
Offsetting financial instruments. Financial assets and 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 settle the liability simultaneously.
k) Recognition of Deferred Day One Profit and Loss
The best evidence of fair value at initial recognition is the transaction price, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets.
The Group and the Bank has entered into transactions, some of which will mature after more than one year, where fair value is determined using valuation models for which not all inputs are market observable prices or rates. Such a financial instrument is initially recognised at the transaction price, which is the best indicator of fair value, although the value obtained from the relevant valuation model may differ. The difference between the transaction price and the model value, commonly referred to as 'day one profit and loss', is recognised immediately in income statement.
l) Derivative Financial Instruments
Derivative financial instruments including foreign exchange contracts, currency swaps and other derivative financial instruments are initially recognised in the statement of financial position at fair value net of transaction costs and subsequently are remeasured at their fair value. Fair values are obtained from quoted market prices or discounted cash flow models as appropriate (except for pricing options). All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
Changes in the fair value of derivatives held for trading are included in 'net gain (losses) on derivative financial instruments'.
The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group and the Bank designates certain derivatives as hedges of the fair value of recognised assets (fair value hedge).
Hedge accounting is used for derivatives designated in this way provided certain criteria are met. The Group and the Bank documents, at the inception of the transaction, the relationship between hedged items and hedging instruments, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group and the Bank also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The Bank has fair value hedge relationship where hedging instrument is interest rate swap and hedged item Lithuanian Government Eurobonds (accounted for as available for sale investments until 1 July 2008 and vast majority being reclassified to loans and receivables category starting from 1 July 2008). Hedged risk is the change in fair value of the bonds due to market interest rate volatility. After the reclassification to loans and receivables category fair value hedge relationships were continued.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset that are attributable to the hedged risk. Effective changes in fair value of interest rate swaps and related hedged items are reflected in 'interest income', 'net gain (losses) on derivative financial instruments'. Any ineffectiveness is recorded in "net gain (losses) on derivative financial instruments".
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity.
Page 28 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
m) Impairment of Financial Assets
Assets carried at amortised cost: the Group and the Bank assesses at each financial position date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The Group and the Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group and the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on loans and receivables or held to maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the income statement.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Group and the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Group and the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the income statement.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. The amount of the reversal is recognised in the income statement.
Provision rates for homogeneous credit groups are settled not only by applying statistical methods based on historical data, but also using expert judgement adjustments. Probability of default (PD) and loss given default (LGD) parameters are set once per year. Expert judgement parameters can be updated more frequently depending on objective evidences of portfolio quality development and other particularities of credit portfolio, that are not taken into consideration by quantitative assessment of risk parameters based on historical data.
Assets carried at fair value: The Group and the Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the income statement.
Page 29 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
n) Finance Lease Receivable
Fixed assets under finance lease are recorded as finance lease receivables at the amount that is equal to the present value of the minimum lease payments. The difference between the gross receivables and the present value of the receivable is recognised as unearned lease income.
The rights and obligations arising from finance leases are recognised at the date of transfer of the asset to the lessee. Until that day, the payment from the prospective lessee is considered as a prepayment. The lease receivable is the amount financed in respect of the leased property less the amount of the prepaid first instalment.
Interest income from leasing activities is recognised based on contractual lease terms commencing from the date of delivery of the leased assets and is based on a pattern reflecting a constant periodic rate of return on the net investment outstanding. Revenues from administration fees are recognised during the contract period.
o) Operating Lease – the Group/the Bank as a Lessor
Assets leased out under operating lease are depreciated over their expected useful lives using straight-line method on the basis consistent with similar owned tangible fixed assets.
When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
p) Operating Lease – the Group/the Bank as a Lessee
To date, the leases entered by the Group and the Bank are operating leases. The total payments made under operating leases are charged to the income statement on straight-line basis over the period of the lease.
q) Fixed Assets
In the balance sheet fixed assets are recorded at cost less accumulated depreciation and any accumulated impairment losses. Property, plant and equipment with a value less than the equivalent of LTL 900 and intangible fixed assets with a value less than the equivalent of LTL 5,000 are expensed.
Gains and losses on disposal of fixed assets are determined by reference to their carrying amount and are taken into account in determining result before income tax. Repairs are charged to the income statement when the expenditure is incurred.
Depreciation and amortisation is calculated using the straight-line method of depreciation based on the estimated useful life of the asset. All amortisation and depreciation charges for the year are included in other administrative expenses. Useful lives of assets and their residual values are reviewed at each balance sheet date.
The following amortisation and depreciation rates are applied in the Group and the Bank for the respective asset category:
| Asset category | Depreciation/ amortisation period (years) |
|---|---|
| Software | 3-8 |
| Other intangible fixed assets | 3-5 |
| Buildings | 25-50 |
| Vehicles | 5 |
| Computer hardware and cash counting equipment | 3-5 |
| Office equipment | 5 |
| Other property, plant and equipment | 5 |
r) Investment Property
Investments in properties held in order to receive rental income and/or for capital appreciation are reported as investment properties. Investment property is initially measured at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at historical cost less accumulated depreciation and impairment losses. Expected useful lives of the investment property groups:
| Asset category | Depreciation period (years) |
|---|---|
| Buildings | 25-50 |
Page 30 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
s) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's the Bank's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in 'intangible assets'. Useful life of goodwill is indefinite. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing.
t) Non-Current Assets Held for Sale
The Group classifies a non-current asset (or disposal group) as held for sale when assets carrying amount will be recovered principally through a sale transaction, the management is committed to sell the asset and an active programme to locate a buyer have been initiated, the asset (or disposal group) is actively marketed for sale at a price that is reasonable in relation to its current fair value and it is expected to complete sale within one year from the date of classification. Assets that meet the criteria to be classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell, and depreciation on such assets is ceased.
u) Impairment of Non-Financial Assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
v) Borrowings
Borrowings are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. Subsequently borrowings are stated at amortised cost and any difference between net proceeds and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.
Securities borrowing and lending transactions are entered into on a collateralised basis. Fair value of securities received or delivered is monitored on a daily basis to require or provide additional collateral. Cash collateral delivered is derecognised with a corresponding receivable and cash collateral received is recognized with a corresponding obligation to return it. Securities lent remain on the balance sheet and are reported as pledged assets. Borrowed securities are not recognised as assets. When borrowed securities are sold (short position), an amount corresponding to the fair value of the securities is entered as a liability.
w) Provisions
Provisions are measured at the present value of expenditures expected to be required to settle the obligation using pre-tax rate that reflects current market assessments of the time value of money and the risks specified to the obligation.
x) Debt Securities in Issue
Issued debt securities are classified as financial liabilities, which are repurchased as one amount or in instalments under a certain repayment schedule. Issued debt securities are recognized initially at fair value, being their issue proceeds net of transaction costs incurred. They are measured at amortized cost using the effective interest rate approach. Debt securities placed prior to specified issue date are accounted as other liabilities. If the Group and the Bank purchases its own debt, it is removed from the balance sheet, and the difference between the carrying amount of a liability and the consideration paid is included in net trading income.
y) Employee Benefits
Termination benefits are payable whenever an employee's employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group and the Bank recognizes termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.
Social security contributions are paid by the Group and the Bank to the state Social Security Fund (the Fund) on behalf of its employees based on the defined contribution plan in accordance with the local legal requirements. A defined contribution plan is a plan under which the Group and the Bank pays fixed contributions into the Fund and will have no legal obligations to pay further contributions if the Fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior period. The social security contributions are recognized as an expense on an accrual basis and are included within staff costs.
Page 31 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
z) Fair Values
The table below summarises the carrying amounts and fair values of those financial assets and liabilities presented on the Group's statement of financial position at amortized cost:
| 2010 | 2009 | |||
|---|---|---|---|---|
| Book value | Fair value | Book value | Fair value | |
| Balances with the Central Bank | 527,258 | 527,251 | 384,981 | 384,953 |
| Due from banks, net | 1,177,833 | 1,177,920 | 3,118,698 | 3,128,916 |
| Loans to credit and financial institutions, net of impairment losses | 55,399 | 54,602 | 20,069 | 20,407 |
| Loans to customers, net of impairment losses | ||||
| Public sector | 492,855 | 470,255 | 547,358 | 530,915 |
| Corporate | 7,749,076 | 7,694,722 | 8,732,455 | 8,740,787 |
| Private individuals | 7,427,376 | 7,192,266 | 7,905,581 | 7,535,343 |
| Investment securities - loans and receivables | 1,629,290 | 1,614,197 | 1,719,512 | 1,630,544 |
| Finance lease receivable, net of impairment losses | 1,694,691 | 1,675,471 | 2,503,885 | 2,491,486 |
| Investment securities - held to maturity | 13,832 | 12,336 | 12,748 | 11,252 |
| Total financial assets valued at amortised cost | 20,767,610 | 20,419,020 | 24,945,287 | 24,474,603 |
| Amounts owed to the Central Bank | 38 | 38 | 31 | 31 |
| Amounts owed to credit and financial institutions | 9,295,615 | 9,493,476 | 13,650,723 | 13,780,030 |
| Current and demand deposits | 6,514,840 | 6,514,840 | 4,767,893 | 4,767,893 |
| Term deposits from the public | 3,128,501 | 3,116,559 | 4,901,896 | 4,992,161 |
| Subordinated loans | 597,172 | 578,632 | 597,195 | 583,806 |
| Debt securities in issue | 663,177 | 667,769 | 697,841 | 685,452 |
| Total financial liabilities valued at amortised cost | 20,199,343 | 20,371,314 | 24,615,579 | 24,809,373 |
The table below summarises the carrying amounts and fair values of those financial assets and liabilities presented on the Bank's statement of financial position at amortized cost:
| 2010 | 2009 | |||
|---|---|---|---|---|
| Book value | Fair value | Book value | Fair value | |
| Balances with the Central Bank | 527,258 | 527,251 | 384,981 | 384,953 |
| Due from banks, net | 1,177,833 | 1,177,920 | 3,118,698 | 3,128,916 |
| Loans to credit and financial institutions, net of impairment losses | 506,636 | 489,236 | 348,856 | 342,055 |
| Loans to customers, net of impairment losses | ||||
| Public sector | 492,855 | 470,255 | 547,358 | 530,915 |
| Corporate | 7,760,499 | 7,706,094 | 8,741,150 | 8,750,173 |
| Private individuals | 7,427,376 | 7,192,266 | 7,905,581 | 7,535,343 |
| Investment securities - loans and receivables | 1,629,290 | 1,614,197 | 1,719,512 | 1,630,544 |
| Investment securities - held to maturity | 13,832 | 12,336 | 12,748 | 11,252 |
| Total financial assets valued at amortised cost | 19,535,579 | 19,189,555 | 22,778,884 | 22,314,150 |
| Amounts owed to the Central Bank | 38 | 38 | 31 | 31 |
| Amounts owed to credit and financial institutions | 7,915,364 | 8,093,612 | 11,259,609 | 11,361,053 |
| Current and demand deposits | 6,516,173 | 6,516,173 | 4,768,336 | 4,768,336 |
| Term deposits from the public | 3,128,501 | 3,116,559 | 4,905,396 | 4,995,668 |
| Subordinated loans | 597,172 | 578,632 | 597,195 | 583,806 |
| Debt securities in issue | 663,177 | 667,769 | 699,854 | 687,465 |
| Total financial liabilities valued at amortised cost | 18,820,425 | 18,972,783 | 22,230,421 | 22,396,359 |
Page 32 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
z) Fair Values (continued)
Loans to credit and financial institutions, net of impairment losses, balances with the Central Bank and other due from banks, net The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity.
Loans to customers and finance lease receivable, net of impairment losses are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value.
Investment securities include only interest-bearing assets held to maturity; assets classified as available for sale are measured at fair value. Fair value for held to maturity assets is based on market prices.
Amounts owed to the Central Bank, credit and financial institutions The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand.
Deposits from public The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity.
Subordinated loans, debt securities in issue The discounted cash flow model is used based on discounted cash flows using interest rates for new debts with similar remaining maturity.
The table below summarises the hierarchy of fair value measurement of asset and liabilities presented on the Group's statement of financial position at fair value:
| 31 December 2010 | Fair value measurement at the end of reporting period based on: | ||
|---|---|---|---|
| Quoted price in active markets for the same instrument | Valuation techniques for which all significant inputs are based on observable market data | Valuation techniques for which any significant input is not based on observable market data | |
| Government securities available for sale | 164,895 | - | - |
| Financial assets at fair value through profit and loss | 45,733 | - | 29,325 |
| Derivative financial instruments (assets) | - | 233,911 | - |
| Investment securities – available for sale | - | - | 1,276 |
| Derivative financial instruments (liabilities) | - | (334,427) | - |
| Total | 210,628 | (100,516) | 30,601 |
| 31 December 2009 | Fair value measurement at the end of reporting period based on: | ||
| --- | --- | --- | --- |
| Quoted price in active markets for the same instrument | Valuation techniques for which all significant inputs are based on observable market data | Valuation techniques for which any significant input is not based on observable market data | |
| Government securities available for sale | 65,818 | - | - |
| Financial assets at fair value through profit and loss | 19,203 | - | 29,000 |
| Derivative financial instruments (assets) | - | 153,483 | - |
| Investment securities – available for sale | 137 | - | 200 |
| Derivative financial instruments (liabilities) | - | (303,643) | - |
| Total | 85,158 | (150,160) | 29,200 |
Page 33 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
z) Fair Values (continued)
The table below summarises the hierarchy of fair value measurement of asset and liabilities presented on the Bank's statement of financial position at fair value:
| 31 December 2010 | Fair value measurement at the end of reporting period based on: | ||
|---|---|---|---|
| Quoted price in active markets for the same instrument | Valuation techniques for which all significant inputs are based on observable market data | Valuation techniques for which any significant input is not based on observable market data | |
| Government securities available for sale | 164,272 | - | - |
| Financial assets at fair value through profit and loss | 45,733 | - | - |
| Derivative financial instruments (assets) | - | 233,911 | - |
| Investment securities – available for sale | - | - | 1,276 |
| Derivative financial instruments (liabilities) | - | (334,427) | - |
| Total | 210,005 | (100,516) | 1,276 |
| 31 December 2009 | Fair value measurement at the end of reporting period based on: | ||
| --- | --- | --- | --- |
| Quoted price in active markets for the same instrument | Valuation techniques for which all significant inputs are based on observable market data | Valuation techniques for which any significant input is not based on observable market data | |
| Government securities available for sale | 65,194 | - | - |
| Financial assets at fair value through profit and loss | 19,203 | - | - |
| Derivative financial instruments (assets) | - | 153,483 | - |
| Investment securities – available for sale | 137 | - | 200 |
| Derivative financial instruments (liabilities) | - | (303,643) | - |
| Total | 84,534 | (150,160) | 200 |
aa) Fiduciary Activities
The Group and the Bank commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group.
bb) Insurance Activities
Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. The Group defines as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least 5 percent more than the benefits payable if the insured event did not occur.
Investment contracts are those contracts that transfer financial risk with no significant insurance risk. These are accounted for under 'borrowings' accounting principles and presented under 'liabilities to investment contract holders' in the balance sheet.
Premiums Written and Outward Reinsurance Premiums
Unit-linked premiums are recognized on cash basis. Other insurance premiums written consist of premiums, written during the year according to the payment schedule provided by the policy. Premiums earned comprise premiums attributable to the reporting period. Outward reinsurance premiums represent reinsurance premiums attributable to the period in accordance with reinsurance contracts.
Page 34 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
bb) Insurance Activities (continued)
Claims Paid and Claims Handling Costs
Claims paid comprise claims actually paid during the period. Direct claims handling costs represent salaries paid to employees for claims handling and other directly related expenses.
Acquisition Costs
Commissions to intermediaries are recognised as expenses over the period of the policies they relate to. For unit-linked insurance products 12 regulations commissions are recognised as expenses over one year. Acquisition costs, which relate to the periods subsequent to the accounting period, are included in deferred acquisition costs. No additional deferred acquisition cost asset is created for policies, for which Zillmer adjustment is used in calculating insurance reserves.
Technical Insurance Reserves
The unearned premiums reserve represents the part of premiums written which relates to the period of risk subsequent to the accounting period.
The reserves for claims represent amounts provided at the end of the accounting period in respect of estimated losses incurred but not yet paid including related claims handling costs. The reserve for claims incurred but unreported calculated by Chain – ladder method.
The life insurance reserve is the total value of the Group's net liabilities related to the life insurance contracts. Mortality coefficients, used for the insurance portfolio of UAB SEB Gyvybès Draudimas, are presented in the mortality table of Lithuania (according to the Lithuanian statistical data for 1989 and 1990). Maximum technical interest rate established by Insurance Supervisory Commission or guarantee rate of interest (which is lower) is used for reserve.
Life insurance reserve is calculated using prospective net premium method for each policy individually. Under the prospective net premium method the value of liabilities is taken as the present value of the future benefit less the present value of future net premiums. For endowment and scholarship policies Zillmer adjustment used for creating deferred acquisition costs, which reduce life insurance reserve.
For unit-linked insurance products, unit-linked insurance reserve is established. This reserve represents the accumulated amount of total insurance premiums paid by the policyholder reduced by risk premiums and administration fees and adjusted by the loss/gain on the linked investments.
For investment life insurance 12 regulations actuarial funding is used to reduce the unit-linked insurance reserve by the amount of acquisition costs.
Technical provisions of insurance portfolio may be split in two groups:
- Traditional insurance portfolio – the growth rate of this portfolio is guaranteed by UAB SEB Gyvybès Draudimas (rules: 01, 02, 04, 05, 06, 09, 14, 07, 08, 15);
- Unit-linked insurance portfolio – profit or loss from the underlying asset depends to insurer (rules: 03, 11, 12).
Fluctuation of unit-linked insurance portfolio does not have any impact on company profit/loss.
Company calculates traditional insurance provisions using the maximum technical interest rate established by Insurance Supervisory Commission or guaranteed interest rate (which is lower). Decrease of maximum technical interest rate in 0.6% call requirement of additional asset to cover technical provisions increase in 8%. For the customers of traditional insurance, loss on investment may be covered in case when an insurance undertaking has gain/return on mortality or costs.
Technical reserve for bonuses and rebates is calculated according to the results of the Group's activity or the insurance class for the traditional life insurance contracts (endowment with additional benefits, except Hermio asmens draudimo contracts, an endowment mortgage, and scholarship insurance).
Liability adequacy tests are performed for traditional and unit-linked businesses at each balance sheet date. In case any deficiency is identified it is charged immediately to income statement.
Insurance risk arises due to variance of assumptions used in calculation of insurance premiums in terms of probability of occurrence and timing of insured events, and expected amounts of claims paid with actual situation.
Mortality, morbidity and disability risks arise due to the fact that assumptions used in calculation of insurance premiums in terms of future mortality, morbidity or disability are too optimistic and future insurance premiums become insufficient to cover future claims of death, critical disease, permanent disablement or disability.
Page 35 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
bb) Insurance Activities (continued)
In addition to possible criteria definition risk, there are other factors that may cause increase in mortality and morbidity– epidemic (e.g. AIDS) or changes in overall lifestyle (e.g. changes in nutrition, smoking or movement habits), which might result in a higher number or earlier instances of death and diseases.
Since the Company has been engaged in its activities for a relatively short period of time and does not have reliable statistical data on mortality and morbidity, the criteria definition risk is managed through use of mortality tables of Lithuanian residents in assessment of death premium prices, and use of morbidity tables prepared by reinsurers with significant experience in analogous activities in assessment of critical disease or permanent disablement risks. Reinsurers approved disability tables prepared by UAB SEB gyvybės draudimas. Since reinsurers assume a part of these risks, they are concerned about assessing sufficient premium prices. Concentrate risk in portfolio is not reinsured, it covers only 2% of risk portfolio.
In addition, to manage mortality, morbidity and disability risk the Company uses medical examination practice before signing an insurance policy. Such practice is to ensure that premium payable by a policyholder corresponds to health condition of the insured.
When statistical data certifying some changes in mortality, morbidity or disability level are available, an insurance undertaking is able to mitigate mortality or morbidity risk in accordance with the procedure defined in the rules by changing the price of premiums for future and current customers.
For the customers of traditional insurance, loss on mortality may be covered on distribution of profit to policyholders, provided that an insurance undertaking has gain/return on investment or costs.
The impact of risk is reduced in non-life portfolio; there are only short term (one year) contracts. Under the necessary it is possible to change tariffs every year.
cc) Financial Guarantees Contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies.
Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the bank's liabilities under such guarantees are measured at the higher of the initial measurement, less amortisation calculated to recognise in the income statement the fee income earned on a straight line basis over the life of the guarantee and the best estimate of the expenditure required to settle any financial obligation arising at the balance sheet date. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgment of Management.
Any increase in the liability relating to guarantees is taken to the income statement under 'provisions for guarantees'.
dd) Return on Average Shareholders' Equity and Assets
Return on average shareholders' equity and assets are computed by dividing net income by average annual equity and assets respectively. Average annual amount is calculated using January 1st, March 31st, June 30th, September 30th, December 31st respective balances.
ee) Comparative Information
Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.
ff) Segment Reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns different from those of segments operating in other economic environments.
Page 36 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy
Definition of Risk
SEB Bank Group defines the risk as the possibility of a negative deviation from an expected financial outcome. One consequence of risk-taking is the occurrence of losses, which can be broken into expected and unexpected losses. The "normal level" of losses (measured as expected losses) is considered as a cost of doing business from a risk point of view, and is covered through transaction pricing and risk reserves. The Group and the Bank shall make appropriate efforts to minimise expected losses through ensuring sound internal practices and good internal controls. The unusual, large and unexpected losses are not foreseen to be completely absorbed by day to day transaction profits. The primary protections against such losses are sound internal practices, good internal controls, insurance policies and earnings. The last loss-absorbing resource for unexpected losses is the capital of the Bank.
Credit Risk
The Group and the Bank takes on exposure to credit risk which is the risk that a counterpart will be unable to pay amounts in full when due. The credit exposure is measured in credit equivalents calculated taking into account the type of financial transaction.
The Group's and the Bank's credit policy is based on the principal that any lending transaction must be based on credit analysis. Various credit security instruments are applied depending on the complexity of a transaction and trustworthiness of a customer.
Credit Risk Classification
The Bank has got the permission from the regulators to use an IRB (Internal Ratings Based Approach, according to Basel II methodology) models in credit risk assessment process and for the regulatory capital calculation starting from the beginning of 2008 to be applied for the main credit portfolio segments: Corporate (Non-retail), Financial Institutions (Non-retail), Small Corporate (Retail) and Private Individuals (Retail). The Group uses different risk classification systems applicable for particular portfolio segment. The same expert judgment based risk classification systems are used for credit risk assessment of Non-retail credit exposures in all parts of SEB Group. Credits that exceed 1 million LTL and/or entities's turnover exceed 10 million LTL are classified as Non-retail positions. The Bank uses the master scale of 16 risk classes classifying the credit risk of Non-Retail borrowers with 1 representing the lowest default probability and 16 representing the default. Risk classes 1-7 are considered "investment grade. The borrowers falling into the range of risk class 1-10 are treated as normal business loans. The borrowers of risk class 11 and 12 are defined as 'restricted business' and 'special observation' respectively, while the borrowers in risk classes 13-16 are classified as 'watch list'. Risk classes are used as important parameters in the credit policy, the credit approval process, credit risk measurement and management, monitoring and reporting of credit risk. The credit risk assessment is based on analysis of Non-retail borrower's ability to meet interest and principal amount repayment obligations, covering business and financial risk. Financial ratios and peer group comparison are used in the risk assessment. The credit risk of the Non-retail borrowers is reviewed on regular basis at least once per year depending on the risk class assigned to the borrower. High-risk exposures are subject to more frequent reviews. The objective is to identify at an early stage, credit exposures with increased risk for loss, and work together with the customer towards a constructive solution that enables the Group and the Bank to reduce or avoid credit losses as well as maintain long term relationship with the customer.
Scoring models are used in credit risk assessment process of Retail exposures, i.e small enterprises and private individuals. The application scoring models are used for the assessment of counterparty risk (Probability of Default) and transaction risk (Loss Given Default) during customer credit application phase. Due to the fact that credit worthiness of the clients changes over time the Retail exposures are re-scored quarterly by using the behavioural scoring models.
Page 37 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy (continued)
The information on distribution of individually appraised loans and leasing portfolio (in LTL million) by risk class is as follows:
December '09
December '10
*SE – small enterprise
The analysis in the table above did not include private individuals LTL 7,836 million (2009: LTL 8,235 million), accrued interest LTL 15 million (2009: LTL 21 million) and provisions for impairment losses LTL 1,851 million (2009: LTL 1,904 million).
Impairment Losses on Loans and Advances
The Group's and the Bank credit risk exposures are assessed on an individual and portfolio basis. In case of individually assessed loans, a specific provision should be made for the probable credit loss on an identified impaired loan. A loan is classified as impaired if there is objective evidence that one or several loss events have occurred and if the effects of those events impact estimated future cash flows, for instance, if the customer is in significant financial difficulty or defaults on the payment of interest or principal. Loans are not classified as impaired if the value of collateral covers principal and interest with satisfactory margin. The criteria that the Group and the Bank uses to determine that there is objective evidence of an impairment loss include:
- Downgrading to internal risk class 16;
- Proceeds of the loan without a prior consent of the bank are used for the purposes other than stipulated in the loan agreement and this event has a negative impact on the credit risk of the borrower;
- Breach of investment project covenants having a negative impact on the credit risk of the borrower;
- Related persons of the borrower are in default and this is having impact on the credit risk of the borrower;
- Deterioration of active market for debt securities due to financial distress;
- Deterioration in value of collateral, in cases where repayment conditions are directly related to the value of collateral and earnings method was applied for establishing such collateral value;
- Suspension or withdrawal of license for the borrowers that carry licensed activities (for example trade of oil products, utilities, etc.) and this event has a negative impact on the credit risk of the borrower.
- Declaration of bankruptcy.
To identify impairment loss correctly and on time, the Group and the Bank reviews loan portfolio: risk class 8 or higher – at least once per year; risk class 9-10 – on half year basis; risk class 11-16 – on quarterly basis; A review of exposure should be made in credit committee after the borrower has been in arrears for more than 30 days or any of the above mentioned impairment criteria have been met. All cases meeting the impairment criteria have to be presented to the respective Credit Committee as soon as possible. Corporate exposures that belong to industries of higher risk are reviewed on quarterly basis regardless of the assigned risk class. After reviews loss events and impairments can be assessed.
A collective provision or reserve is made on loans that have not been deemed to be impaired on individual basis, that is, impairments which are incurred but not yet identified (IBNI). Loans with similar credit risk characteristics are grouped together and assessed collectively for impairment. The Group's internal Non-retail risk classification system constitutes one of the components forming the basis for determining the total amount of collective provision. The collective provisions represent an interim step, pending the identification of specific losses on individual loans.
Page 38 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy (continued)
The portfolio based assessment is applied to the following homogeneous credit groups having the similar risk characteristics: mortgage loans, consumer loans, credit cards, small corporate loans. The collective provisions for the homogeneous credit groups are formed by applying statistical methods based on historical data about the observed default frequencies of the borrowers (PD) and the suffered losses (LGD) within the corresponding homogeneous credit group and expert judgment adjustments considering historical experience of adequacy of provisioning levels, objective evidences of portfolio quality development, adequacy of security of particular portfolio and other particularities of credit portfolio, that are not taken into consideration by quantitative assessment.
An impairment loss is reported as a write off, if it is deemed impossible to collect the contractual amounts due that have not been paid and/or are expected to remain unpaid, or if it is deemed impossible to recover the acquisition cost by selling any collateral provided. In other cases, a specific provision is recorded in an allowance account. As soon as the non-collectible amount can be determined and the asset is written off, the amount reported in the allowance account is dissolved. Similarly, the provision in the allowance account is reversed if the estimated recovery value exceeds the carrying amount.
Credit Risk Limits and Monitoring
The Group and the Bank structures the levels of credit portfolio risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and industry segments. The credit risk exposure to a single borrower or borrowers' groups and the industries are monitored on a regular basis. Credit concentration exposure limits (on balance and off balance) are established by Assets and liability management committee (ALCO) and regularly monitored by risk control function. As of 31 December 2010, credit exposures are in compliance with limits set by ALCO. The table below represents the development of credit exposures within particular industries.
Page 39 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy (continued)
Maximum Exposure to Credit Risk Before Collateral Held or Other Credit Enhancements
The below table represents a worse case scenario of credit risk exposure to the Group and the Bank as of 31 December 2010 and 2009, without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the balance sheet.
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 1,177,833 | 3,118,698 | Due from banks, net | 1,177,833 | 3,118,698 |
| 164,895 | 65,818 | Government securities available for sale | 164,272 | 65,194 |
| 75,058 | 48,203 | Financial assets at fair value through profit and loss | 45,733 | 19,203 |
| 233,911 | 153,483 | Derivative financial instruments | 233,911 | 153,483 |
| Loans to credit and financial institutions, | ||||
| 55,399 | 20,069 | net of impairment losses | 506,636 | 348,856 |
| Loans to customers, net of impairment losses | ||||
| 3,237,688 | 3,375,584 | Property management | 3,237,688 | 3,375,584 |
| 4,511,388 | 5,356,871 | Other corporate | 4,522,811 | 5,365,566 |
| 492,855 | 547,358 | Public | 492,855 | 547,358 |
| 6,321,266 | 6,564,974 | Mortgage loans | 6,321,266 | 6,564,974 |
| 1,106,110 | 1,340,607 | Other private individuals | 1,106,110 | 1,340,607 |
| Finance lease receivable, net of impairment losses | ||||
| 1,565,048 | 2,317,348 | Corporate | - | - |
| 104,762 | 150,763 | Private individuals | - | - |
| 24,881 | 35,774 | Other | - | - |
| Investment securities: | ||||
| 1,629,290 | 1,719,512 | - loans and receivables | 1,629,290 | 1,719,512 |
| 1,276 | 337 | - available for sale | 1,276 | 337 |
| 13,832 | 12,748 | - held to maturity | 13,832 | 12,748 |
| Other financial assets, net of impairment losses | 78,566 | 89,183 | ||
| 85,092 | 185,550 | |||
| Credit risk exposures relating to off-balance sheet items | 2,742,945 | 2,854,101 | ||
| 2,791,151 | 2,944,828 | |||
| 23,591,735 | 27,958,525 | Total as of 31 December | 22,275,024 | 25,575,404 |
Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Group and the Bank resulting from both its loan and advances portfolio and debt securities. For information on loan ratings see Credit risk management note information above. 100% of investments in Government securities compose of Government debt securities that have an investing rating.
Market Risk
Market risk is defined as the risk of a loss or reduction of future net income following changes in interest rates, foreign exchange and equity prices, including price risk in connection with the sale of assets or closing of positions.
A particular distinction shall be made between trading book related market risks and structural market and net interest income risks, i.e. non-trading risk. The overall market risk exposure (trading and non-trading) is measured using Value-at-Risk (VaR) model based on variance/covariance method that express the maximum potential loss that can arise at a chosen level of probability during a certain period of time.
Trading risk is measured on daily basis using 99 percent probability level and 10 days time horizon. VaR exposure for non-trading positions is calculated on monthly basis using 10 days time horizon and the same probability level. Historical data are based on 90 days for estimation of volatility and correlation. Additionally the Bank uses the sensitivity measures applied for risk assessment of specific market risk type/portfolio/position: delta 1 p.p. is applied for interest rate sensitive portfolios/positions, delta/gama/vega measures - for options, etc. Value at Risk assessment results on the total portfolio positions are shown in Note 41.
Page 40 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy (continued)
Capital Adequacy
Capital adequacy is assessed by capital adequacy ratio – capital base compared to risk weighted assets.
General Regulations for the Internal Capital Adequacy Assessment Process (ICAAP) came into effect as from 1 January 2007. In accordance to these regulations, banks' should identify all risks, not only the ones assessed in capital adequacy calculation, to select risk assessment models, estimate it, choose tools for risks management, and to set a goal for limits. Accordingly, the Bank set a goal to achieve ICAAP result and continuously have capital adequacy higher than 11 per cent during 2010.
The Bank's and the Financial Group capital adequacy ratios during 2010 were as follows:
| 31 March 2010 | 30 June 2010 | 30 September 2010 | 31 December 2010 | |
|---|---|---|---|---|
| The Bank | 16.54% | 15.70% | 15.50% | 16.43% |
| The Financial Group | 14.99% | 14.15% | 14.71% | 15.95% |
For further information see Note 39.
Currency Risk
Foreign Exchange Risk exposure is defined by two measures: single open currency position against LTL and aggregated general open currency - the bigger one of summarized long and short open currency positions. The foreign exchange risk measure contains the net exposure of spot and forward positions, FX futures including gold, the delta equivalent position of FX options plus other balance sheet items. The currency risk control is ensured by monitoring the risk exposure against the limits established for single open currency position.
The net positions of assets and liabilities denominated in foreign currencies as of 31 December 2010 and 2009 are presented in Note 40.
Interest Rate Risk
Interest rate risk is managed by forecasting the market interest rates and managing the mismatches between assets and liabilities by re-pricing maturities. The Bank applies the interest rate risk management methods allowing to measure the Group's sensitivity to interest rate changes by computing the impact to yearly net interest income (called $\Delta \mathrm{NII}$) and the net effect to the market value of shareholders' equity (called delta $1\%$) in case of parallel shift by percentage point in the yield curve.
The interest rate risk management as of 31 December 2010 and 2009 is presented in Note 41.
Liquidity Risk
Liquidity risk is the risk that the Group and the Bank may be unable to timely fulfil its payment obligations or to finance or realize its assets over the certain period at an acceptable price. The Group and the Bank adheres to a conservative liquidity risk management policy that ensures adequate fulfilment of current financial obligations, the level of obligatory reserves with the Central Bank, liquidity ratio higher than that established by the Bank of Lithuania and payment capacity under unforeseen unfavourable circumstances. The liquidity risk management system is based on the analysis of actual cash flows.
The table below presents the cash flows payable by the Group and the Bank under financial liabilities by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Group and the Bank manages the inherent liquidity risk based on expected undiscounted cash inflows.
Page 41 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy (continued)
The Group's undiscounted non-derivative financial liability analysis as of 31 December 2010:
| Maturity | Up to 3 month | 3–6 months | 6–12 months | 1–3 years | Over 3 years | Total |
|---|---|---|---|---|---|---|
| Amounts owed to credit and financial institutions | 785,309 | 61,611 | 755,976 | 7,493,447 | 712,497 | 9,808,839 |
| Deposits from public | 8,197,232 | 732,008 | 637,761 | 63,772 | 28,825 | 9,659,597 |
| Debt securities in issue and subordinated loans | 82,088 | 23,068 | 34,309 | 149,999 | 1,086,632 | 1,376,097 |
| Other financial liabilities | 59,702 | 11,198 | 6,220 | 3,871 | 13,984 | 94,975 |
| Total undiscounted non-derivative financial liabilities | 9,124,331 | 827,884 | 1,434,266 | 7,711,089 | 1,841,938 | 20,939,508 |
| Off balance sheet commitments related to lending | 1,789,212 | 356,810 | 109,001 | 150,099 | 126,160 | 2,531,282 |
| Rental off balance sheet commitments | 8,527 | 8,027 | 15,708 | 72,261 | 63,938 | 168,461 |
| Capital commitments | 256,018 | 3,839 | - | - | - | 259,857 |
Rental off balance sheet commitments for the period 1 – 5 years are LTL 87,913 thousand; for the period over 5 years LTL 48,286 thousand.
The Group's undiscounted non-derivative financial liability analysis as of 31 December 2009:
| Maturity | Up to 3 month | 3–6 months | 6–12 months | 1–3 years | Over 3 years | Total |
|---|---|---|---|---|---|---|
| Amounts owed to credit and financial institutions | 1,632,520 | 310,207 | 731,835 | 9,371,997 | 2,325,817 | 14,372,376 |
| Deposits from public | 7,604,530 | 1,202,899 | 822,070 | 74,520 | 47,639 | 9,751,658 |
| Debt securities in issue and subordinated loans | 146,712 | 64,211 | 347,702 | 157,417 | 715,400 | 1,431,442 |
| Other financial liabilities | 16,469 | 4,690 | 9,865 | 5,248 | 10,759 | 47,031 |
| Total undiscounted non-derivative financial liabilities | 9,400,231 | 1,582,007 | 1,911,472 | 9,609,182 | 3,099,615 | 25,602,507 |
| Off balance sheet commitments related to lending | 1,245,429 | 264,576 | 402,189 | 194,367 | 531,211 | 2,637,772 |
| Rental off balance sheet commitments | 25,809 | 25,559 | 50,077 | 68,564 | 69,878 | 239,886 |
| Capital commitments | 102,654 | 142 | 387 | 203,482 | - | 306,665 |
Page 42 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy (continued)
The Bank's undiscounted non-derivative financial liability analysis as of 31 December 2010:
| Maturity | Up to 3 month | 3-6 months | 6-12 months | 1-3 years | Over 3 years | Total |
|---|---|---|---|---|---|---|
| Amounts owed to credit and financial institutions | 901,921 | 52,005 | 612,650 | 6,073,696 | 712,497 | 8,352,769 |
| Deposits from public | 8,198,565 | 732,008 | 637,761 | 63,772 | 28,825 | 9,660,931 |
| Debt securities in issue and subordinated loans | 82,088 | 23,068 | 34,309 | 149,999 | 1,086,632 | 1,376,096 |
| Other financial liabilities | 33,812 | 8,984 | 1,875 | 304 | 11,392 | 56,367 |
| Total undiscounted non-derivative financial liabilities | 9,216,386 | 816,065 | 1,286,595 | 6,287,771 | 1,839,346 | 19,446,163 |
| Off balance sheet commitments related to lending | 2,189,801 | 154,571 | 110,122 | 162,109 | 126,330 | 2,742,933 |
| Rental off balance sheet commitments | 8,376 | 7,855 | 15,363 | 71,895 | 63,777 | 167,266 |
Rental off balance sheet commitments for the period 1 – 5 years are LTL 87,386 thousand; for the period over 5 years LTL 48,286 thousand.
The Bank's undiscounted non-derivative financial liability analysis as of 31 December 2009:
| Maturity | Up to 3 month | 3-6 months | 6-12 months | 1-3 years | Over 3 years | Total |
|---|---|---|---|---|---|---|
| Amounts owed to credit and financial institutions | 1,816,103 | 416,595 | 288,516 | 7,450,023 | 1,868,778 | 11,840,015 |
| Deposits from public | 7,608,482 | 1,202,899 | 822,070 | 74,520 | 47,639 | 9,755,610 |
| Debt securities in issue and subordinated loans | 147,501 | 64,211 | 348,991 | 157,417 | 715,400 | 1,433,520 |
| Other financial liabilities | 16,370 | 2,574 | 6,323 | 1,338 | 8,287 | 34,892 |
| Total undiscounted non-derivative financial liabilities | 9,588,456 | 1,686,279 | 1,465,900 | 7,683,298 | 2,640,104 | 23,064,037 |
| Off balance sheet commitments related to lending | 1,246,181 | 264,591 | 523,722 | 206,031 | 613,185 | 2,853,710 |
| Rental off balance sheet commitments | 8,669 | 8,419 | 15,798 | 68,117 | 69,717 | 170,720 |
Undiscounted derivative instruments analysis for the Group and the Bank as of 31 December 2010:
| Maturity | Up to 3 month | 3-6 months | 6-12 months | 1-3 years | Over 3 years | Total |
|---|---|---|---|---|---|---|
| Outflows: | ||||||
| IRS | 101,522 | 79,261 | 112,098 | 527,012 | 841,940 | 1,661,833 |
| FX forwards | 14,370 | 3,983 | 1,021 | - | - | 19,374 |
| FX swaps | 411,841 | 18,278 | 32,480 | - | - | 462,599 |
| Equity options | 299 | 509 | 1,175 | 7,641 | 722 | 10,346 |
| Interest rate options | 1,367 | 1,204 | 2,697 | 8,047 | 1 | 13,316 |
| Currency options | 6,396 | 683 | 2,289 | - | - | 9,368 |
| Total outflows | 535,795 | 103,918 | 151,760 | 542,700 | 842,663 | 2,176,836 |
| Inflows: | ||||||
| IRS | 90,289 | 26,472 | 125,408 | 471,336 | 856,241 | 1,569,746 |
| FX forwards | 14,392 | 3,869 | 1,067 | - | - | 19,328 |
| FX swaps | 410,932 | 18,429 | 32,510 | - | - | 461,871 |
| Equity options | 299 | 509 | 1,175 | 7,641 | 722 | 10,346 |
| Interest rate options | 1,367 | 1,204 | 2,697 | 8,047 | 1 | 13,316 |
| Currency options | 6,396 | 683 | 2,289 | - | - | 9,368 |
| Total inflows | 523,675 | 51,166 | 165,146 | 487,024 | 856,964 | 2,083,975 |
Page 43 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy (continued)
Undiscounted derivative instruments analysis for the Group and the Bank as of 31 December 2009:
| Maturity | Up to 3 month | 3-6 months | 6-12 months | 1-3 years | Over 3 years | Total |
|---|---|---|---|---|---|---|
| Outflows: | ||||||
| IRS | 60,720 | 75,185 | 90,850 | 524,163 | 639,147 | 1,390,065 |
| FX forwards | 17,645 | 3,546 | 49,149 | - | - | 70,340 |
| FX swaps | 632,220 | 207,477 | 165,857 | - | - | 1,005,554 |
| Equity options | - | 1,588 | - | 87 | - | 1,675 |
| Interest rate options | 7,661 | 370 | 805 | 3,114 | 860 | 12,810 |
| Currency options | 1,140 | 845 | 1,208 | 885 | - | 4,078 |
| Forward rate agreements | - | - | - | 81,831 | - | 81,831 |
| Total outflows | 719,386 | 289,011 | 307,869 | 610,080 | 640,007 | 2,566,353 |
| Inflows: | ||||||
| IRS | 47,924 | 21,316 | 99,714 | 419,118 | 629,991 | 1,218,063 |
| FX forwards | 12,618 | 3,235 | 47,105 | - | - | 62,958 |
| FX swaps | 635,438 | 208,776 | 167,464 | - | - | 1,011,678 |
| Equity options | - | 1,588 | - | 87 | - | 1,675 |
| Interest rate options | 7,333 | 80 | 246 | 1,852 | 662 | 10,173 |
| Currency options | 1,213 | 1,641 | 2,384 | 183 | - | 5,421 |
| Forward rate agreements | - | - | - | 6,298 | 103,824 | 110,122 |
| Total inflows | 704,526 | 236,636 | 316,913 | 427,538 | 734,477 | 2,420,090 |
In the tables above net-settled derivatives are included in the analysis only if they have a negative fair value at the balance sheet date (if they are liabilities at that date). However all gross-settled derivatives are included in the analysis whether their fair value is negative or positive at balance sheet date. Pay leg of such derivatives is presented as outflow and receive leg as inflow. The maturity of the Group's and Bank's assets and liabilities is presented in Note 38 and shows the remaining period from the balance sheet date to the contractual maturity.
The maturity of the leasing portfolio is presented in Note 38 and shows the remaining period from the balance sheet date to the contractual maturity.
Operational Risk
Operating risk is defined as the risk of loss due to external events (natural disasters, external crime, etc) or internal factors (e.g. breakdown of IT systems, mistakes, fraud, non-compliance with external and internal rules, other deficiencies in internal controls).
The Bank has got the permission from the regulators to use an AMA (Advanced Measurement Approach) model in operational risk assessment process and for the regulatory capital calculation for operational risk starting from the beginning of 2008.
The Bank has developed several operational risk management tools: Operational risk policy, ORSA (Operational Risk Self Assessment) and RTSA (Rogue Trading Self Assessment) instructions, Insurance policy, Contingency plans, mechanism of Internal Controls, New Product Approval Process to minimize the operational risks in all bank units and activities.
Bank has implemented SEB Group wide IT solution called ORMIS designed to identify, analyze, report and mitigate the risk. Operational risk self assessments (ORSA, RTSA and internal controls) are performed in business units and major business processes on a regular basis. Operational risk management system enables all staff of the Group to register all operational risk incidents and the management at all levels is able to assess, monitor and mitigate risks and compile prompt and timely reports.
Two other systems - NAMIS and LDRPS - help with managing operational risk in respectively areas like New Product Approval and Business Continuity Planning.
In addition to that there is Operational risk committee which ensures cooperation between Risk managers (1st line-of-defense) and 2nd line-of-defense units (audit, risk control, security, compliance, legal). Board members every quarter are introduced with report about new identified risks and follow-up on earlier identified issues.
Page 44 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy (continued)
Stress Testing
Stress tests and scenario analysis are widely used to identify high-risk areas and relationships including concentration risks, its risk drivers and to evaluate the combined effect of shocks in the market. Stress tests provide an indication of the potential size of losses that could arise in extreme conditions. The stress tests carried out by Risk Control include the risk factor stress testing, where stress movements are applied to each risk category: market, credit, liquidity and operational risk. The ultimate goal of the analysis is to estimate net effect of the stress scenarios to the capital of the Bank and the Group and prepare the action plan ensuring that the business operations shall be secured in case the worst case scenario occurs. The comprehensive scenario based stress testing covering all appropriate risk types is conducted at least annually and reported to the Asset Liability Management Committee (ALCO). Due to the fact that global credit crisis continued during the year 2010 the stress testing exercises were performed more frequently. The stress testing of the Group is part of Internal Capital Assessment Process (ICAAP).
Internal Control
Management of the Bank and heads of subsidiaries has a responsibility to ensure that the appropriate organisation, procedures and support systems are implemented to ensure that a sufficient system of internal controls, such as reconciliation to position systems and accounting ledgers, segregation of duties, confirmations, daily bookkeeping, market valuations, limits and limit follow-up, etc., is implemented. Limits shall be one way to manage risks where applicable and possible. A system for limiting and following up the amount of risk to be taken is implemented. The Board of Directors of SEB sets the overall limits in terms of risk in SEB. SEB Group ALCO sets the overall limits to SEB Bank at the proposal of ALCO of SEB Bank. Decisions on the limits must be documented in written form. The compliance with the risk limits applicable for the Bank and/or the Group are controlled by Risk Control function of the Bank.
Impairment Losses on Loans and Advances
The Group reviews its loan portfolios to assess impairment regularly, but at least once per year.
To identify impairment loss correctly and on time, the Group reviews loan portfolio: risk class 8 or higher - at least once per year; risk class 9-10 - on half year basis; risk class 11-16 - on quarterly basis; homogeneous groups (small corporate loans, mortgage loans, consumer loans and credit cards) credit reviews are performed automatically on quarterly basis. Corporate exposures that belong to industries of higher risk are reviewed on quarterly basis regardless of the assigned risk class. After reviews loss events and impairments can be assessed. In determining whether an impairment loss should be recorded in the income statement, the Group and the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the Group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
The criteria that the Group and the Bank uses to determine that there is objective evidence of an impairment loss include:
- Downgrading to internal risk class 16;
- Proceeds of the loan without a prior consent of the bank are used for the purposes other that stipulated in the loan agreement ant this event has a negative impact on the credit risk of the borrower;
- Breach of investment project covenants having a negative impact on the credit risk of the borrower;
- Related persons of the borrower are in default and this is having impact on the credit risk of the borrower;
- Deterioration of active market for debt securities due to financial distress;
- Deterioration in value of collateral, in cases where repayment conditions are directly related to the value of collateral and earnings method was applied for establishing such collateral value;
- Suspension or withdrawal of license for the borrowers that carry licensed activities (for example trade of oil products, utilities, etc.) and this event has a negative impact on the credit risk of the borrower.
- Declaration of bankruptcy.
A review of exposure should be made in credit committee after the borrower has been in arrears for more than 30 days or any of the above mentioned impairment criteria have been met. All cases meeting the impairment criteria has to be presented to the respective Credit Committee before 15th day of each month.
An impairment loss is reported as a write off, if it is deemed impossible to collect the contractual amounts due that have not been paid and/or are expected to remain unpaid, or if it is deemed impossible to recover the acquisition cost by selling any collateral provided. In other cases, a specific provision is recorded in an allowance account. As soon as the non-collectible amount can be determined and the asset is written off, the amount reported in the allowance account is dissolved. Similarly, the provision in the allowance account is reversed if the estimated recovery value exceeds the carrying amount.
Page 45 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gg) Financial Risk Management Policy (continued)
Recent Volatility in Global Financial Markets
The ongoing global credit crisis which continued during the year 2009 has resulted in, among other things, lower liquidity of clients' financial standing, a lower level of capital market funding and a high volatility in stock markets. In addition, the global market for many types of real estate has been severely affected by the recent volatility in global financial markets. The lower levels of liquidity and volatility in the banking sector have translated into a general weakening of market sentiment towards real estate and the number of real estate transactions has significantly reduced. Management believes it is taking all the necessary measures to support the sustainability and growth of the Group's and the Bank's business in the current circumstances.
hh) Critical Accounting Estimates, and Judgements in Applying Accounting Policies
Unit-linked Contracts
The policyholders in unit-linked contracts choose to invest in a variety of funds. The insurance company providing unit-linked products invests in the funds chosen by the customers. By doing so the Group and the Bank might, in some cases, hold more than 50 per cent of the funds, which it holds on behalf of the customers for whom it acts as investment manager. Due to the legislation regarding fund operations, the Group and the Bank considers that it does not have the power to govern the financial and operating policies of such investment funds to obtain benefits. This applies irrespective of whether the funds held on behalf of customers are greater or less than 50 percent of a fund. It is the policyholders who carry the investment risk, not the Group and the Bank. Consequently, the policyholders are entitled to all of the returns generated by the funds. The Group and the Bank only charges fees, on market conditions, for managing the funds. The Group has come to the conclusion that the funds which it manages should not be consolidated.
Impairment Losses on Loans and Advances
The Bank and the Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Group and the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by $+/-5\%$, the provision would be estimated higher or lower by LTL 73,198 thousand (2009: LTL 73,320 thousand), of which LTL 58,485 thousand (2009: 67,579 LTL thousand) coming from loans and advances assessed individually and LTL 14,713 thousand (2009: LTL 5,741 thousand) from loans and advances assessed on pool basis.
Renegotiated loans are no longer considered to be past due unless further renegotiations.
Initial Recognition of Related Party Transactions
In the normal course of business the Group and the Bank enters into transactions with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgment is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgment is pricing for similar types of transactions with unrelated parties and effective interest rate analysis.
Finance Leases and Derecognition of Financial Assets
Management applies judgment to determine if substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to counterparties, in particular which risks and rewards are the most significant and what constitutes substantially all risks and rewards. The Group considers that risks and rewards are substantially transferred if present value of minimal lease payments constitutes not less than $90\%$ of acquisition value of the asset leased; the lease transfers ownership of the asset to the lessee by the end of the lease term; the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; the lease term is for at least $75\%$ of the economic life of the asset even if title is not transferred; and the leased assets are of such a specialized nature that only the lessee can use them without major modifications.
Goodwill
Recoverable amount of goodwill was estimated based on value in use calculation.
Fair Value of Derivatives
The fair values of financial derivatives that are not quoted in active markets are determined by using valuation techniques. All such not quoted derivative financial transactions are entered with SEB group. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. For pricing of options Black-Scholes model is used, with only observable market data (eg. historical volatility, market interest rates, market prices).
Page 46 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 4 GROUP'S STRUCTURE AND OPERATIONS
Organizational structure of AB SEB Bank Group as of 31 December 2010 was as follows:
On 19 April 2010 UAB SEB Lizingas changed its legal status to AB SEB Lizingas.
On 13 January 2010 UAB SEB Gyvybès Draudimas (Life insurance) was sold to SEB Trygg Liv Holding AB, which is a part of SEB Group Companies in Sweden.
On 26 February 2010 UAB Litecus was sold to Baltectus BV, which is a part of SEB Group Companies in Sweden.
As of 31 December 2009 both subsidiaries (UAB SEB Gyvybès Draudimas and UAB Litecus) were accounted for as discontinued operations on the Group's and the Bank's Statement of Financial Position.
For more information see note 25.
NOTE 5 SEGMENT INFORMATION
Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors of the Bank. The Board of Directors is responsible for resources allocation and performance assessment of the operating segments and has been identified as the chief operating decision maker.
All transactions between business segments are conducted on an arm's length basis, with intra-segment revenue and costs being eliminated. Income and expenses directly associated with each segment are included in determining business segment performance.
For management and reporting purposes, the Group is organised into the following business groupings:
Baltic Division has overall responsibility for providing retail services to the all types of companies and individuals. Baltic division offers it's clients solutions in the areas of:
- Lending;
- Leasing and factoring products;
- Liquidity management and payment services;
- Private Banking – which serves the higher end of the private individual segment with wealth management services and advisory services.
All depreciation and amortization expenses (except for Asset Management) are attributed to this segment.
The Merchant Banking division has overall responsibility for servicing large and medium-sized companies, financial institutions, banks, and commercial real estate clients. Merchant Banking offers its clients integrated investment and corporate banking solutions, including the investment banking activities. Merchant Banking's main areas of activity include:
- Lending and debt capital markets;
- Trading in equities, currencies, fixed income, derivatives and futures;
- Advisory services, brokerage, research and trading strategies within equity, fixed income and foreign exchange markets;
- Cash management;
- Custody and fund services;
- Venture capital.
Page 47 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 5 SEGMENT INFORMATION (CONTINUED)
The Asset Management division main business area is Institutional Clients division – which provides asset management services to institutions, foundations and life insurance companies and is responsible for the investment management, marketing and sales of SEB’s mutual funds.
The division offers a full spectrum of asset management and advisory services and its product range includes equity and fixed income, private equity, real estate and hedge fund management.
The Life Insurance division is responsible for all of Group’s life insurance operations. The operations comprise insurance products within the area of investments and social security for private individuals and companies. In January 2010 the Group has transferred it’s Life Insurance segment to the SEB Group’s company in Sweden, SEB Trygg Liv.
The Treasury division has overall responsible for cash management, liquidity management and internal financing between the Group divisions.
Operations and IT divisions are the Group’s internal segments responsible for providing operations support and processing, as well as information technologies services for all Group’s divisions. In addition, Operations divisions handles bookings, confirmations, payments and reconciliations, and customer service and support.
Staff Functions division have dedicated responsibilities in order to support the business units within own area of expertise: HR, finance, marketing and communication, credits and risk control, security, procurement and real estate, compliance, internal audit.
A geographical segment means a constituent part of the business participating in provision of services within certain economic environment the risk and returns whereof are different from other constituent parts operating in other economic environments.
The geographical segments are not defined by the Group. All activities of the Group are performed on the territory of Republic of Lithuania. Revenues and expenses related to major non resident customers services is immaterial for the purpose of these financial statements and are not presented to the chief operating decision maker.
Page 48 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
Business segments of the Group for the year ended 31 December 2010 were as follows:
NOTE 5 SEGMENT INFORMATION (CONTINUED)
| Baltic Division | Merchant Banking | Asset Management | Treasury | Operations | Staff Functions | Information Technologies | Eliminations | Total Group | |
|---|---|---|---|---|---|---|---|---|---|
| Net interest income | 253,909 | 8,079 | 166 | (52,420) | - | - | - | (23) | 209,711 |
| - Internal | (273,902) | 5,997 | 139 | 267,789 | - | - | - | (23) | - |
| - External | 527,811 | 2,082 | 27 | (320,209) | - | - | - | - | 209,711 |
| Net commission income | 147,497 | 14,134 | 10,257 | (1,221) | - | - | - | - | 170,667 |
| - Internal | 7,888 | 2,742 | (9,504) | (1,126) | - | - | - | - | - |
| - External | 139,609 | 11,392 | 19,761 | (95) | - | - | - | - | 170,667 |
| Net financial income | 14,031 | 71,499 | - | 12 | - | - | - | - | 85,542 |
| Net other income | 35,609 | 4,896 | 26 | 11 | - | - | 50,014 | (50,158) | 40,398 |
| Net operating income | 451,046 | 98,608 | 10,449 | (53,618) | - | - | 50,014 | (50,181) | 506,318 |
| Total staff costs and other administrative expenses | (341,964) | (20,746) | (4,458) | (483) | 92 | (328) | (50,815) | 50,181 | (368,521) |
| Capital losses | 11 | - | - | - | - | - | - | - | 11 |
| Total impairment losses | (153,934) | - | - | - | - | - | - | - | (153,934) |
| Loss before income tax | (44,841) | 77,862 | 5,991 | (54,101) | 92 | (328) | (801) | - | (16,126) |
| Income tax benefit | (2,666) | 405 | 392 | - | - | - | - | - | (1,869) |
| Net (loss) for the year | (47,507) | 78,267 | 6,383 | (54,101) | 92 | (328) | (801) | - | (17,995) |
| Total Assets | 18,667,937 | 439,140 | 22,039 | 10,414,063 | - | - | - | (6,985,350) | 22,557,829 |
| Total Liabilities | 16,831,065 | 360,873 | 15,049 | 10,477,014 | - | - | - | (6,985,350) | 20,698,651 |
| Acquisition of intangible assets and property, plant and equipment | 66,797 | - | 42 | - | - | - | - | - | 66,839 |
Page 49 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 5 SEGMENT INFORMATION (CONTINUED)
For the year ended, 31 December 2010 reconciliation between Group's Segment reporting and financial statements is presented below:
| Segment Reporting | Eliminations | ||||
|---|---|---|---|---|---|
| Interest income from Hedged L&R | Life Insurance and Litectus Adjustments | Other reconciling entries | Financial Statements | ||
| Net interest income | 209,711 | 60,431 | - | (1,715) | 268,427 |
| Net commission income | 170,667 | - | - | (226) | 170,441 |
| Net financial income | 85,542 | (60,431) | 30,137 | 24,713 | 79,961 |
| Net other income | 40,398 | - | (30,137) | (10,261) | - |
| Net operating income | 506,318 | - | - | 12,511 | 518,829 |
| Total staff costs and other administrative expenses | (368,521) | - | 220 | (12,529) | (380,830) |
| Capital losses | 11 | - | - | (11) | - |
| Total impairment losses | (153,934) | - | - | 29 | (153,905) |
| Loss before income tax | (16,126) | - | 220 | - | (15,906) |
| Income tax benefit | (1,869) | - | (31) | - | (1,900) |
| Profit for the year from discontinued operations | - | - | (189) | - | (189) |
| Net (loss) for the year | (17,995) | - | - | - | (17,995) |
Page 50 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 5 SEGMENT INFORMATION (CONTINUED)
Business segments of the Group for the year ended 31 December 2009 were as follows:
| Baltic Division | Merchant Banking | Life insurance | Asset Management | Treasury | Operations | Staff Functions | Information Technologies | Eliminations | Total Group | |
|---|---|---|---|---|---|---|---|---|---|---|
| Net interest income | 279,254 | 15,273 | - | 418 | (258) | - | - | - | 281 | 294,968 |
| - Internal | (490,673) | 11,527 | - | 391 | 478,474 | - | - | - | 281 | - |
| - External | 769,927 | 3,746 | - | 27 | (478,732) | - | - | - | - | 294,968 |
| Net commission income | 132,021 | 19,925 | - | 10,529 | (1,200) | - | - | - | (3,254) | 158,021 |
| - Internal | 9,419 | 2,449 | - | (7,414) | (1,200) | - | - | - | (3,254) | - |
| - External | 122,602 | 17,476 | - | 17,943 | - | - | - | - | - | 158,021 |
| Net financial income | 20,941 | 71,301 | - | - | (19,802) | - | - | - | - | 72,440 |
| Net life insurance income | 31,546 | - | - | - | - | - | (296) | 31,250 | ||
| Net other income | 7,833 | (2,106) | - | - | 1,357 | - | 1,613 | 39,638 | (43,352) | 4,983 |
| Net operating income | 440,049 | 104,393 | 31,546 | 10,947 | (19,903) | - | 1,613 | 39,638 | (46,621) | 561,662 |
| Total staff costs and other administrative expenses | (479,198) | (22,563) | (18,545) | (5,707) | (399) | 1,393 | 2,026 | (41,852) | 46,621 | (518,224) |
| Capital (losses) | (5,403) | - | - | - | - | - | - | - | - | (5,403) |
| Total impairment losses | (1,729,866) | (1,500) | - | - | - | - | - | - | - | (1,731,366) |
| Profit before income tax | (1,774,418) | 80,330 | 13,001 | 5,240 | (20,302) | 1,393 | 3,639 | (2,214) | - | (1,693,331) |
| Income tax expense | 267,050 | 75 | (210) | (1,039) | - | - | - | - | - | 265,876 |
| Net profit for the year | (1,507,368) | 80,405 | 12,791 | 4,201 | (20,302) | 1,393 | 3,639 | (2,214) | - | (1,427,455) |
| Total Assets | 21,016,135 | 478,116 | 424,559 | 17,876 | 14,933,713 | - | - | - | (9,918,082) | 26,952,317 |
| Total Liabilities | 19,557,733 | 397,711 | 396,022 | 13,264 | 14,968,796 | - | - | - | (9,906,104) | 25,427,422 |
| Acquisition of intangible assets and property, plant and equipment | 123,343 | - | 189 | 30 | - | - | - | - | - | 123,562 |
For the year ended 31 December 2009 net result of Life insurance segment in the Group's income statement are presented as 'Profit for the year from discontinued operations'.
Page 51 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 5 SEGMENT INFORMATION (CONTINUED)
For the year ended, 31 December 2009 reconciliation between Group's Segment reporting and financial statements is presented below:
| Segment Reporting | Eliminations | ||||||
|---|---|---|---|---|---|---|---|
| Interest income from Hedged L&R | Life Insurance and Litectus Adjustments | Lease Provisions Adjustment | Grouping Reclassifi-cation | Other reconciling entries | Financial Statements | ||
| Net interest income | 294,968 | 29,272 | - | - | - | 4,547 | 328,787 |
| Net commission income | 158,021 | - | - | - | - | (1,043) | 156,978 |
| Net financial income | 72,440 | (29,272) | - | - | - | 10,152 | 53,320 |
| Net life insurance income | 31,250 | - | (31,250) | - | - | - | - |
| Net other income | 4,983 | - | - | - | (4,983) | - | - |
| Net operating income | 561,662 | - | (31,250) | - | (4,983) | 13,656 | 539,085 |
| Total staff costs and other administrative expenses | (518,224) | - | 13,027 | 1,992 | (420) | (13,656) | (517,281) |
| Capital losses | (5,403) | - | - | - | 5,403 | - | - |
| Total impairment losses | (1,731,366) | - | - | (1,992) | - | - | (1,733,358) |
| Profit before income tax | (1,693,331) | - | (18,223) | - | - | - | (1,711,554) |
| Income tax expense | 265,876 | - | 165 | - | - | - | 266,041 |
| Profit for the year from discontinued operations | - | - | 18,058 | - | - | - | 18,058 |
| Net profit for the year | (1,427,455) | - | - | - | - | - | (1,427,455) |
Page 52 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 6 NET INTEREST INCOME
| The Group | ||
|---|---|---|
| 2010 | 2009 | |
| 767,186 | 1,150,118 | Interest income: |
| 2,132 | 3,033 | on balances with Central Banks |
| 14,861 | 13,446 | on loans and advances to credit institutions |
| 586,740 | 905,012 | on loans and advances to customers |
| 81,611 | 83,713 | on government securities - loans and receivables |
| 77,187 | 133,400 | on finance leasing portfolio |
| 3,196 | 8,111 | on debt securities available for sale |
| 1,459 | 3,403 | on debt securities, designated at fair value |
| (498,759) | (821,331) | Interest expenses: |
| (271,256) | (487,104) | on amounts owed to credit and financial institutions |
| (132,167) | (259,555) | on deposits from the public |
| (54,107) | (30,520) | on debt securities |
| (41,229) | (44,152) | deposits insurance expenses |
| 268,427 | 328,787 | Total net interest income |
| The Bank | ||
| --- | --- | |
| 2010 | 2009 | |
| 692,681 | 1,039,925 | |
| 2,132 | 3,033 | |
| 21,549 | 41,545 | |
| 582,761 | 900,147 | |
| 81,611 | 83,713 | |
| - | - | |
| 3,169 | 8,084 | |
| 1,459 | 3,403 | |
| (459,219) | (734,983) | |
| (231,712) | (400,769) | |
| (132,171) | (259,555) | |
| (54,107) | (30,507) | |
| (41,229) | (44,152) | |
| 233,462 | 304,942 |
NOTE 7 IMPAIRMENT LOSSES ON LOANS, FINANCE LEASING RECEIVABLE AND OTHER ASSETS
| The Group | ||
|---|---|---|
| 2010 | 2009 | |
| 8 | (48) | Impairment losses on loans to credit and financial institutions |
| charge for the year, net | ||
| (119,487) | (1,162,037) | Impairment losses on loans to customers charge for |
| the year, net | ||
| 133 | 136 | Recovered written off loans |
| (119,346) | (1,161,949) | Impairment losses on loans, net |
| The Bank | ||
| --- | --- | |
| 2010 | 2009 | |
| 391,008 | (391,048) | |
| (119,487) | (1,160,537) | |
| 133 | 136 | |
| 271,654 | (1,551,449) |
Changes in impairment losses during the year 2010 were as follows:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 1,460,762 | 311,830 | Impairment losses on loans as of 1 January | ||
| (note 22) | 1,459,262 | 311,830 | ||
| 119,487 | 1,162,037 | Impairment losses charged to income statement by | ||
| customer category, net: | 119,487 | 1,160,537 | ||
| (1,182) | 369,714 | Other corporate | (1,182) | 368,214 |
| (1,393) | 683,634 | Property management | (1,393) | 683,634 |
| 92,909 | 62,781 | Mortgage | 92,909 | 62,781 |
| 29,153 | 45,908 | Other private individuals | 29,153 | 45,908 |
| - | (6,043) | Provisions for accrued interest adjustment | - | (6,043) |
| - | (1,878) | Other corporate | - | (1,878) |
| - | (4,165) | Property management | - | (4,165) |
| 2,232 | - | Loans recovered to balance sheet | 2,232 | - |
| 1,641 | - | Other corporate | 1,641 | - |
| 591 | - | Property management | 591 | - |
| (117,855) | (7,140) | Loans written off: | (117,855) | (7,140) |
| (86,178) | (1,017) | Other corporate | (86,178) | (1,017) |
| (31,432) | - | Property management | (31,432) | - |
| (245) | (6,123) | Private individuals | (245) | (6,123) |
| 801 | 78 | Effect of change in exchange rate | 801 | 78 |
| Impairment losses on loans as of | ||||
| 31 December | ||||
| 1,465,427 | 1,460,762 | 1,463,927 | 1,459,262 |
Impairment losses on loans relate to loans to customers are specified in Note 22.
As of 31 December 2010 the Bank had LTL 2,936,145 thousand of individually impaired loans, gross of impairment losses and deferred administration fee (2009: LTL 2,583,781 thousand). As of 31 December 2010 accrued interest on these loans amounted to LTL 1,544 thousand (2009: LTL 4,428 thousand). Accordingly, individually impaired loans to credit and financial institution amounted to LTL 361 thousand (no accrued interest) gross of impairment losses and deferred administration fee (2009: LTL 412,537 thousand (no accrued interest)). Deferred administration fee amounted to LTL 953 thousand for individually impaired loans to customers and LTL 1 thousand for loans to credit and financial institution.
Page 53 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 7 IMPAIRMENT LOSSES ON LOANS, FINANCE LEASING RECEIVABLE AND OTHER ASSETS (CONTINUED)
Interest income on these loans for the year ended 31 December 2010 amounted to LTL 43,303 thousand (2009: LTL 8,979 thousand). Impaired loans referred to above are identified in accordance with the Bank's Credit Loss Instructions.
The Group and the Bank accounted for the following impairment losses for finance lease portfolio and other assets:
| The Group | The Bank | ||
|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 |
| 383,526 | 444,704 | Impairment losses on finance lease portfolio | - |
| 36 | 4,464 | Impairment losses on other assets | 36 |
| 383,562 | 449,168 | Impairment losses on finance lease portfolio and other assets as of 31 December | 36 |
Changes in impairment losses for finance lease portfolio for the year ended 31 December 2009 were as follows:
| The Group | The Bank | ||
|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 |
| 67,351 | 453,464 | Impairment losses on finance lease portfolio charged to income statement | - |
| (400) | 30,579 | Investment property impairment loss | - |
| (16,029) | 36,628 | Impairment losses on foreclosed assets | - |
| (9,572) | 31,806 | Result from sales of foreclosed assets according to terminated lease portfolio agreements | - |
| 41,350 | 552,477 | Impairment losses on finance lease portfolio, net | - |
| The Group | The Bank | ||
| --- | --- | --- | --- |
| 2010 | 2009 | 2010 | 2009 |
| 444,704 | 115,468 | Impairment losses on finance lease portfolio as of 1 January (note 23) | - |
| 67,351 | 453,464 | Impairment losses charged to income statement, net: | - |
| 64,862 | 455,015 | Corporate | - |
| 2,489 | (1,536) | Private individuals | - |
| - | (15) | Other | - |
| - | (6,213) | Provisions for accrued interest adjustment | - |
| (128,529) | (118,015) | Finance leasing receivable written off | - |
| (128,146) | (115,959) | Corporate | - |
| (383) | (2,056) | Private individuals | - |
| 383,526 | 444,704 | Impairment losses on finance lease portfolio as of 31 December | - |
Impairment losses on finance lease receivable are specified in Note 23.
NOTE 8 NET FEE AND COMMISSION INCOME
| The Group | The Bank | ||
|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 |
| 62,101 | 59,756 | For money transfer operations | 62,101 |
| 86,673 | 85,366 | For payment cards services | 86,673 |
| 11,014 | 9,519 | For operations with securities | 11,014 |
| 75,258 | 69,918 | Other income on services and commissions | 59,004 |
| 235,046 | 224,559 | Income on services and commissions | 218,792 |
| (1,859) | (2,112) | For money transfer operations | (1,859) |
| (44,827) | (45,610) | For payment cards services | (44,827) |
| (2,484) | (2,883) | For operations with securities | (2,484) |
| (15,435) | (16,976) | Other expenses on services and commissions | (13,195) |
| (64,605) | (67,581) | Expenses on services and commissions | (62,365) |
Page 54 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 9 DIVIDEND INCOME FROM SUBSIDIARIES
| 2010 | 2009 | |
|---|---|---|
| UAB SEB Investicių Valdymas | 3,734 | 4,816 |
| Total dividend income | 3,734 | 4,816 |
NOTE 10 NET LOSSES ON FINANCIAL ASSETS AND DERIVATIVE INSTRUMENTS ACCOUNTED FOR AT FAIR VALUE
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 6,306 | 6,855 | Realised result from operations with debt securities in trading portfolio | 6,306 | 6,855 |
| 393 | 831 | Unrealised result from operations with debt securities in trading portfolio | 393 | 831 |
| 1,139 | 831 | Result of available for sale portfolio designated for fair value hedge | 1,139 | 831 |
| (22,406) | 8,942 | Government securities - loans and receivables, designated for fair value hedge | (22,406) | 8,942 |
| (34,119) | (54,942) | Result of interest rate swap designated as hedging instrument | (34,119) | (54,942) |
| 20,016 | 11,562 | Result of other derivatives | 20,016 | 11,562 |
| (2,445) | 1,471 | Result from other trading securities | (2,445) | 1,471 |
| (31,116) | (24,450) | Net losses on financial assets and derivative instruments accounted for at fair value | (31,116) | (24,450) |
NOTE 11 NET FOREIGN EXCHANGE GAIN
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 41,787 | 68,669 | Gain from foreign exchange trading | 41,795 | 69,025 |
| 17,732 | 4,214 | Unrealised translation gain | 17,695 | 4,567 |
| 59,519 | 72,883 | Net gain on foreign exchange | 59,490 | 73,592 |
NOTE 12 STAFF COSTS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 97,053 | 114,229 | Salaries and wages | 90,746 | 104,526 |
| 34,148 | 42,725 | Social security expenses | 32,163 | 39,721 |
| 131,201 | 156,954 | Total staff costs | 122,909 | 144,247 |
The following numbers of full-time personnel were employed by the Group's companies as of 31 December 2010 and 2009:
| 2010 | 2009 | |
|---|---|---|
| AB SEB bankas | 2,009 | 2,029 |
| UAB SEB Gyvybės Draudimas | n/a | 72 |
| UAB SEB Lizingas | 45 | 69 |
| UAB SEB Investicių Valdymas | 13 | 14 |
| UAB SEB Enskilda | 9 | 9 |
| UAB SEB Venture Capital | 2 | 2 |
| UAB Litectus | n/a | 3 |
| Total employees | 2,078 | 2,198 |
Several employees of the Bank are also employed by subsidiary companies.
Page 55 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 13 OTHER ADMINISTRATIVE EXPENSES
| The Group | ||
|---|---|---|
| 2010 | 2009 | |
| 47,802 | 55,785 | Rent and maintenance of premises |
| 18,360 | 21,849 | Depreciation property, plant and equipment |
| 13,574 | 18,730 | Audit and consulting expenses |
| 20,747 | 17,218 | Office equipment maintenance |
| 12,568 | 12,907 | Communication expenses |
| 17,856 | 9,372 | Payments for servicing organizations |
| 7,100 | 7,386 | Transport expenses |
| 6,267 | 6,646 | Advertising and promotion expenses |
| 7,133 | 4,766 | Amortisation of intangible assets |
| 4,640 | 3,092 | Other than income taxes |
| 1,324 | 1,984 | Depreciation of assets under operating lease |
| 2,238 | 1,788 | Employees training expenses |
| 1,776 | 1,315 | Insurance of banking operations |
| 444 | 633 | Charity and sponsorship |
| 16,045 | 27,306 | Other expenses |
| 177,874 | 190,777 | Total other administrative expenses |
| The Bank | ||
| --- | --- | |
| 2010 | 2009 | |
| 46,948 | 54,801 | |
| 18,032 | 21,405 | |
| 13,099 | 18,541 | |
| 19,984 | 16,449 | |
| 11,986 | 12,345 | |
| 16,415 | 8,374 | |
| 6,613 | 6,661 | |
| 5,904 | 6,537 | |
| 6,988 | 4,637 | |
| 1,535 | 2,031 | |
| - | - | |
| 2,119 | 1,686 | |
| 1,776 | 1,315 | |
| 444 | 633 | |
| 7,229 | 21,721 | |
| 159,072 | 177,136 |
NOTE 14 INCOME TAX EXPENSE
| The Group | ||
|---|---|---|
| 2010 | 2009 | |
| - | 1,090 | Current year tax charge |
| (634) | 672 | Previous years related tax charge |
| 2,534 | (267,803) | Deferred tax credit |
| 1,900 | (266,041) | Total income tax charge |
| The Bank | ||
| --- | --- | |
| 2010 | 2009 | |
| - | - | |
| (103) | 926 | |
| (14,260) | (185,368) | |
| (14,363) | (184,442) |
Previous years related tax charge accounted for in 2010 LTL (634) thousand for the Group and LTL (103) thousand for the Bank (2009: LTL 672 thousand for the Group and LTL 926 thousand for the Bank) represents adjustment updating profit tax payable figure estimated at year end.
The tax on the Group's the Bank's profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows:
| The Group | ||
|---|---|---|
| 2010 | 2009 | |
| (15,906) | (1,711,554) | Profit (loss) before tax |
| (2,386) | (342,310) | Tax calculated at a tax rate of 15% (2009: 20%) |
| (14,600) | (24,176) | Income not subject for tax |
| 19,520 | 8,216 | Expenses not deductible for tax purposes |
| - | 91,557 | Tax effect related to changes in tax rate |
| (634) | 672 | Correction of previous period income tax |
| - | - | Current year tax losses |
| 1,900 | (266,041) | Total income tax charge |
| The Bank | ||
| --- | --- | |
| 2010 | 2009 | |
| (26,421) | (1,730,627) | |
| (3,963) | (346,125) | |
| (18,582) | (21,821) | |
| 8,285 | 123,621 | |
| - | 58,957 | |
| (103) | 926 | |
| - | - | |
| (14,363) | (184,442) |
For 2009 the income tax rate in Lithuania was 20 percent. For the year 2010 the income tax rate used is 15 percent.
Page 56 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 14 INCOME TAX EXPENSE (CONTINUED)
Deferred tax
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 277,245 | 15,279 | Assets at 1 January | 179,444 | (403) |
| (2,534) | 267,803 | Income statement charge | 14,260 | 185,368 |
| - | (316) | Deferred tax change on discounting operations | - | - |
| (1,050) | (5,521) | Recognized in shareholder's equity | (1,050) | (5,521) |
| 273,661 | 277,245 | Asset (liability) at 31 December | 192,654 | 179,444 |
As of 31 December 2010 and 2009 deferred income tax was calculated using 15 percent income tax rate.
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Deferred tax assets | ||||
| Revaluation of available for sales securities through equity | ||||
| 1,524 | 2,573 | Revaluation of securities | 1,524 | 2,573 |
| 41 | 382 | Amortisation of securities | - | 382 |
| 40,019 | 33,313 | Amortisation and depreciation | 24,072 | 16,302 |
| 174 | 142 | Accrued expense | - | - |
| 44,252 | 73,055 | Allowances | 2,762 | 3,379 |
| 19 | 194 | Deferred income | - | - |
| 201,668 | 180,823 | Tax loss carried forward | 178,332 | 170,045 |
| 287,697 | 290,482 | Deferred tax assets, net | 206,690 | 192,681 |
| Deferred tax liability | ||||
| Revaluation of available for sale securities through income statement | ||||
| 9,012 | 10,376 | Revaluation of trade securities | 9,012 | 10,376 |
| 15 | - | Revaluation of trade securities | 15 | - |
| 5,009 | 2,861 | Revaluation of derivatives | 5,009 | 2,861 |
| 14,036 | 13,237 | Deferred tax liability, net | 14,036 | 13,237 |
As of 31 December 2010 the deferred tax asset recognised by the Bank is LTL 178,332 thousands of which LTL 7,945 thousands related to taxable losses from transactions with securities and derivatives. Deferred tax assets accounted for in the Group's financial statements are: in the amount of LTL 22,438 thousand is related to tax losses of subsidiary AB SEB Lizingas; in the amount of LTL 186 thousand is related to tax losses of subsidiary UAB SEB Enskilda; in the amount of LTL 712 thousand is related to tax losses of subsidiary UAB SEB Venture capital, out of which taxable losses from transactions with securities and derivatives are LTL 267 thousands. Tax losses could be offset with taxable profits for unlimited time.
In the Management opinion the whole amount of the Group's and the Bank's deferred tax asset will be recovered after more than 12 months from the date of these financial statements.
The amount of unused tax losses carried forward for the Group and the Bank is as follows:
| 2010 | 2009 | 2010 | 2009 | |
|---|---|---|---|---|
| Unused tax losses | ||||
| 1,344,461 | 1,205,488 | Tax loss carried forward, unlimited use | 1,188,884 | 1,133,636 |
| 1,344,461 | 1,205,488 | Total unused tax losses | 1,188,884 | 1,133,636 |
As of 31 December 2010 and 2009 income tax effect relating to components of other comprehensive income was as follows:
| 2010 | 2009 | 2010 | 2009 | |
|---|---|---|---|---|
| Fair value gains on available for sale investment securities before tax amount | 3,956 | 20,362 | ||
| 3,956 | 20,362 | Tax (expenses) benefit | (1,050) | (5,521) |
| (1,050) | (5,521) | |||
| Fair value gains on available for sale investment securities, net of tax amount | 2,906 | 14,841 | ||
| 2,906 | 14,841 |
Page 57 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 15 EARNINGS PER SHARE
| The Group | ||
|---|---|---|
| 2010 | 2009 | |
| Net (loss) profit from continuing operations attributable to the shareholders | (17,806) | (1,445,513) |
| Weighted average number of shares (000s) | 15,441 | 15,441 |
| Basic and diluted earnings per share (LTL) | (1.15) | (93.62) |
| The Group | ||
| 2010 | 2009 | |
| Net profit from discontinued operations attributable to the shareholders | (189) | 18,058 |
| Weighted average number of shares (000s) | 15,441 | 15,441 |
| Basic and diluted earnings per share (LTL) | (0.01) | 1.17 |
Basic earnings per ordinary share is calculated by dividing net income attributable to equity holders by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated by dividing net income by the weighted average number of ordinary shares in issue during the year to assume conversion of all dilutive potential ordinary shares. The Group has no dilutive potential ordinary shares.
NOTE 16 BALANCES WITH THE CENTRAL BANKS
| The Group | ||
|---|---|---|
| 2010 | 2009 | |
| 396,125 | 384,981 | Obligatory reserves |
| 131,133 | - | Balance available for withdrawal |
| 527,258 | 384,981 | Total balances with the Central Bank |
| The Bank | ||
| --- | --- | |
| 2010 | 2009 | |
| 396,125 | 384,981 | |
| 131,133 | - | |
| 527,258 | 384,981 |
One third of obligatory reserves and the balance available for withdrawal are non-interest bearing according to Central Bank of Lithuania regulations. Obligatory reserves comprise 4 percent (4 percent in 2009) of average balance of deposits from public of previous month.
NOTE 17 DUE FROM BANKS
| The Group | ||
|---|---|---|
| 2010 | 2009 | |
| 568,237 | 1,753,783 | Current accounts |
| 395,858 | 125,677 | Overnight deposits |
| 213,738 | 1,239,238 | Term deposits |
| 1,177,833 | 3,118,698 | Total |
| The Bank | ||
| --- | --- | |
| 2010 | 2009 | |
| 568,237 | 1,753,783 | |
| 395,858 | 125,677 | |
| 213,738 | 1,239,238 | |
| 1,177,833 | 3,118,698 |
Page 58 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 18 GOVERNMENT SECURITIES AVAILABLE FOR SALE
| The Group | The Bank | |
|---|---|---|
| 63,612 | As of 1 January 2009 | 62,987 |
| 15,920 | Additions | 15,920 |
| (24,376) | Disposals | (24,348) |
| 3,595 | Interest income | 3,568 |
| 7,067 | Change in revaluation reserve in equity | 7,067 |
| 65,818 | As of 1 January 2010 | 65,194 |
| 110,636 | Additions | 110,636 |
| (19,787) | Disposals | (19,759) |
| 3,196 | Interest income | 3,169 |
| 1,139 | Result of available for sale portfolio designated for fair value hedge | 1,139 |
| 3,893 | Change in revaluation reserve in equity | 3,893 |
| 164,895 | As of 31 December 2010 | 164,272 |
Vast majority of government securities are debt securities issued by the Government of the Republic of Lithuania for the terms of six months, one year or longer.
NOTE 19 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
| 2010 | 2009 | 2010 | 2009 | |
|---|---|---|---|---|
| 493 | 649 | Financial assets held for trading - equity instruments | 493 | 649 |
| 45,240 | 18,554 | Financial assets held for trading - securities of Government of Republic of Lithuania | 45,240 | 18,554 |
| 29,325 | 29,000 | Financial assets designated at fair value (at initial recognition): venture capital investments in associates | - | - |
| 75,058 | 48,203 | Total financial assets designated at fair value | 45,733 | 19,203 |
The table below presents an analysis of trading debt securities by rating agency designation at 31 December 2010, based on Standard & Poor's ratings or their equivalent:
| Securities of Government of Republic of Lithuania | |
|---|---|
| A- to A+ | - |
| Lower than A- | 45,240 |
| Unrated | - |
| Total | 45,240 |
Page 59 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 20 DERIVATIVE FINANCIAL INSTRUMENTS
The Bank utilises the following derivative instruments for both hedging and non-hedging purposes. Hedging relationship is properly documented. The hedging practices and accounting treatment is described in Accounting policy note.
| 31 December 2010 | Notional amount | Fair value | ||
|---|---|---|---|---|
| Purchase | Sale | Assets | Liabilities | |
| Foreign exchange derivatives | ||||
| Currency forwards | 114,075 | 113,069 | 1,730 | 1,382 |
| Currency swaps | 461,871 | 462,599 | 668 | 1,705 |
| Put options | 32,917 | 32,588 | 786 | 531 |
| Call options | 2,951 | 3,144 | 230 | 129 |
| Interest rate derivatives | ||||
| Futures | 8,632 | 8,632 | 1 | - |
| Interest rate swaps | 4,137,150 | 4,137,150 | 120,456 | 120,834 |
| Interest rate swaps for hedging purposes | 1,387,925 | 1,387,925 | - | 130,707 |
| Currency interest rate swaps | 4,066,470 | 4,066,470 | 31,100 | - |
| Interest rate options | 596,937 | 596,937 | 3,201 | 3,201 |
| Equity derivatives | ||||
| Index linked debt securities option | 299,095 | 299,095 | 72,607 | 72,911 |
| Derivative part of index linked deposit | - | - | 105 | - |
| Other derivatives | ||||
| Commodity options | 20,297 | 20,297 | 3,027 | 3,027 |
| Total derivatives assets/liabilities | 11,128,320 | 11,127,906 | 233,911 | 334,427 |
| 31 December 2009 | Notional amount | Fair value | ||
| --- | --- | --- | --- | --- |
| Purchase | Sale | Assets | Liabilities | |
| Foreign exchange derivatives | ||||
| Currency forwards | 381,353 | 388,403 | 1,479 | 6,600 |
| Currency swaps | 1,011,679 | 1,005,554 | 7,120 | 3,018 |
| Put options | 19,215 | 19,034 | 466 | 213 |
| Call options | 2,301 | 2,470 | 44 | 2 |
| Interest rate derivatives | ||||
| Forward deposit | - | 81,831 | - | - |
| Futures | - | - | - | - |
| Interest rate swaps | 3,095,111 | 3,095,111 | 104,660 | 104,657 |
| Interest rate swaps for hedging purposes | 1,387,925 | 1,387,925 | - | 157,053 |
| Currency interest rate swaps | 1,669,250 | 1,669,250 | 7,904 | - |
| Interest rate options | 2,677,398 | 2,677,398 | 10,362 | 10,362 |
| Equity derivatives | ||||
| Index linked debt securities option | 877,950 | 877,950 | 10,505 | 10,915 |
| Derivative part of index linked deposit | - | - | 104 | - |
| Other derivatives | ||||
| Commodity options | 46,272 | 46,272 | 10,839 | 10,823 |
| Total derivatives assets/liabilities | 11,168,454 | 11,251,198 | 153,483 | 303,643 |
Page 60 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 21 LOANS TO CREDIT AND FINANCIAL INSTITUTIONS
The table below presents loans to credit and financial institutions split by counterparty country.
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 41,009 | 8,552 | Lithuania | 492,246 | 728,339 |
| 9,031 | 2,936 | Belarus | 9,031 | 2,936 |
| 2,588 | - | Portugal | 2,588 | - |
| 1,634 | 372 | Great Britain | 1,634 | 372 |
| 435 | 909 | Croatia | 435 | 909 |
| 260 | - | Czech Republic | 260 | - |
| 259 | - | France | 259 | - |
| 175 | - | JAE | 175 | - |
| 36 | 59 | Germany | 36 | 59 |
| 4 | - | Denmark | 4 | - |
| 3 | - | Sweden | 3 | - |
| 3 | - | United States of America | 3 | - |
| 1 | 1,537 | Italy | 1 | 1,537 |
| 1 | - | Luxemburg | 1 | - |
| - | 2,232 | Russia | - | 2,232 |
| - | 1,675 | Netherlands | - | 1,675 |
| - | 1,224 | Austria | - | 1,224 |
| - | 517 | Finland | - | 517 |
| - | 104 | Bosnia And Herzegovina | - | 104 |
| 55,439 | 20,117 | Total loans to credit and financial institutions | 506,676 | 739,904 |
| (40) | (48) | Less impairment losses on loans | (40) | (391,048) |
| 55,399 | 20,069 | Loans to credit and financial institutions, net | 506,636 | 348,856 |
Vast majority of loans to credit and financial institutions are not secured by any collateral. As of 31 December 2010 individually impaired loans amounted to LTL 360 thousand gross of impairment losses (no accrued interest). LTL 6 thousand were past due more than 60 days (2009: nill). The rest of the loans to credit and financial institutions are neither past due, nor impaired.
NOTE 22 LOANS TO CUSTOMERS
The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for loans granted, which is common practice. The Group implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are presented below.
Page 61 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 22 LOANS TO CUSTOMERS (CONTINUED)
As of 31 December 2010 and 2009 loans to customers against collateral type were as follows:
| 31 December 2010 | Public | Property management | Other corporate | Mortgage loans | Other private individuals | Total |
|---|---|---|---|---|---|---|
| Loans secured by mortgage, real property | - | 1,905,660 | 1,283,735 | 5,588,679 | 692,630 | 9,470,704 |
| Loans secured by deposits and securities | - | 134,824 | 97,473 | 14,057 | 59,597 | 305,951 |
| Loans secured by guarantees of government and banks | - | 35,584 | 249,112 | - | 2,689 | 287,385 |
| Accounts receivable and debtors | 9,238 | 1,325,622 | 1,237,979 | 4,244 | 6,565 | 2,583,648 |
| Inventories and equipment | - | 3,332 | 553,007 | 64 | 9 | 556,412 |
| Other collateral | - | 493,784 | 746,812 | 839,140 | 41,581 | 2,121,317 |
| Unsecured loans | 483,617 | 82,576 | 774,921 | 74,414 | 403,712 | 1,819,240 |
| Total loans to customers | 492,855 | 3,981,382 | 4,943,039 | 6,520,598 | 1,206,783 | 17,144,657 |
| 31 December 2009 | ||||||
| Loans secured by mortgage, real property | - | 2,181,445 | 1,669,466 | 5,870,155 | 740,230 | 10,461,296 |
| Loans secured by deposits and securities | - | 112,343 | 89,250 | 13,049 | 78,927 | 293,569 |
| Loans secured by guarantees of government and banks | - | 37,420 | 335,893 | - | 2,745 | 376,058 |
| Accounts receivable and debtors | 10,950 | 1,145,505 | 1,186,584 | 3,739 | 10,260 | 2,357,038 |
| Inventories and equipment | - | 8,429 | 671,108 | 42 | 21 | 679,600 |
| Other collateral | - | 626,391 | 951,490 | 728,357 | 35,415 | 2,341,653 |
| Unsecured loans | 536,408 | 40,100 | 967,416 | 56,027 | 544,186 | 2,144,137 |
| Total loans to customers | 547,358 | 4,151,633 | 5,871,207 | 6,671,369 | 1,411,784 | 18,653,351 |
Loan's amount was split proportionally to collateral value, if there were several types of collateral pledged for the same loan.
As of 31 December 2010 loan with floating interest rate exceeded 68 percent of Bank's loan portfolio (2009: 74 percent).
As of 31 December 2010 included in the above amounts of loans secured by deposits and securities is reversed repo transactions equal to LTL 36,631 thousand (of which LTL 227 thousand of accrued interest) with securities in amount of LTL 53,819 thousand (2009: LTL 45,333 thousand and LTL 62,527 thousand respectively), which includes: equity (LTL 19,412 thousand), funds (LTL 2,478 thousand) bonds (LTL 23,846 thousand) and indexed linked bonds (LTL 7,033 thousand), SEB bonds (LTL 1,050 thousand) issued by the Bank.
Page 62 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 22 LOANS TO CUSTOMERS (CONTINUED)
As of 31 December 2010 and 2009 the Bank's loans to customers by customer category were as follows:
| 2010 | 2009 | |
|---|---|---|
| Neither past due nor impaired: | ||
| Property management | 1,784,165 | 1,723,746 |
| Other corporate | 3,857,906 | 4,331,228 |
| Public | 492,855 | 479,659 |
| Mortgage loans | 5,816,666 | 6,074,639 |
| Other private individuals | 952,249 | 1,142,069 |
| Total neither past due nor impaired | 12,903,841 | 13,751,341 |
| Past due but not impaired: | ||
| Property management | 144,902 | 684,131 |
| Other corporate | 254,547 | 720,716 |
| Public | - | 67,699 |
| Mortgage loans | 689,367 | 596,730 |
| Other private individuals | 215,264 | 246,037 |
| Total past due but not impaired | 1,304,080 | 2,315,313 |
| Impaired loans: | ||
| Property management | 2,052,315 | 1,743,756 |
| Other corporate | 830,586 | 819,263 |
| Public | - | - |
| Mortgage loans | 14,565 | - |
| Other private individuals | 39,270 | 23,678 |
| Total impaired loans | 2,936,736 | 2,586,697 |
| Total loans by customer category: | ||
| Property management | 3,981,382 | 4,151,633 |
| Other corporate | 4,943,039 | 5,871,207 |
| Public | 492,855 | 547,358 |
| Mortgage loans | 6,520,598 | 6,671,369 |
| Other private individuals | 1,206,783 | 1,411,784 |
| Total loans by customer category | 17,144,657 | 18,653,351 |
| Less impairment losses on loans: | ||
| Property management | (743,694) | (776,049) |
| Other corporate | (420,228) | (505,641) |
| Public | - | - |
| Mortgage loans | (199,332) | (106,395) |
| Other private individuals | (100,673) | (71,177) |
| Total impairment losses on loans by customer category | (1,463,927) | (1,459,262) |
| Loans to customers, net | 15,680,730 | 17,194,089 |
Page 63 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 22 LOANS TO CUSTOMERS (CONTINUED)
The credit quality of the portfolio of loans to customers that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Group. The analysis of the Bank's loans to customers by classes is as follows:
| Public | Property management | Other corporate | Mortgage loans | Other private individuals | Total | |
|---|---|---|---|---|---|---|
| 31 December 2010 | ||||||
| 3 – 7 risk classes | 10,524 | 33,986 | 389,631 | - | - | 434,141 |
| 8 risk class | 417,843 | 294,456 | 582,329 | - | - | 1,294,628 |
| 9 risk class | 62,788 | 219,433 | 492,556 | - | - | 774,777 |
| 10 risk class | 1,683 | 243,372 | 1,125,960 | - | - | 1,371,015 |
| 11 risk class | 17 | 181,566 | 282,501 | - | - | 464,084 |
| 12 risk class | - | 491,200 | 377,573 | - | - | 868,773 |
| 13 – 16 risk class | - | 313,808 | 449,134 | - | - | 762,942 |
| Homogeneous credits groups | - | 6,344 | 158,222 | 5,816,666 | 952,249 | 6,933,481 |
| Total neither past due nor impaired | 492,855 | 1,784,165 | 3,857,906 | 5,816,666 | 952,249 | 12,903,841 |
| 31 December 2009 | ||||||
| 3 – 7 risk classes | 203,858 | 36,668 | 257,386 | - | - | 497,912 |
| 8 risk class | 251,562 | 293,684 | 746,823 | - | - | 1,292,069 |
| 9 risk class | 20,658 | 232,022 | 676,809 | - | - | 929,489 |
| 10 risk class | 612 | 417,597 | 1,379,903 | - | - | 1,798,112 |
| 11 risk class | 2,969 | 161,349 | 438,646 | - | - | 602,964 |
| 12 risk class | - | 444,988 | 296,056 | - | - | 741,044 |
| 13 – 16 risk class | - | 130,938 | 367,106 | - | - | 498,044 |
| Homogeneous credits groups | - | 6,500 | 168,499 | 6,074,639 | 1,142,069 | 7,391,707 |
| Total neither past due nor impaired | 479,659 | 1,723,746 | 4,331,228 | 6,074,639 | 1,142,069 | 13,751,341 |
The Group's loans differ from the Bank's loans to customers by loans granted by venture capital subsidiary. These loans as of 31 December 2010 amounted to LTL 2,577 thousand (2009: LTL 2,305 thousand), of which LTL 1,500 thousand are impaired. Other loans granted by venture capital subsidiary are classified as neither past due nor impaired loans granted to other corporate and these are not secured.
The carrying amount of credits, that would otherwise be past due or impaired whose terms have been renegotiated, as of 31 December 2010 in the Bank was LTL 123,467 thousand (mortgage loans) and LTL 21,447 thousands (other private loans) (2009: LTL 94,025 thousand and LTL 26,589 thousand).
There are the following homogeneous groups used by the Group: mortgage loans, consumer loans, small corporate loans and credit cards). Loans to private individuals (consumer and mortgage backed loans) and small corporate are assessed using scoring methods at the moment loan is granted. Afterwards they are monitored according to their overdue status. Therefore, for credit risk management purposes, loans to private individuals neither past due nor impaired are viewed as standard loans.
Page 64 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 22 LOANS TO CUSTOMERS (CONTINUED)
As of 31 December 2010 and 2009 loans to customers past due but not impaired and fair value of collateral were as follows:
| Public | Property management | Other corporate | Mortgage loans | Other private individuals | Total | |
|---|---|---|---|---|---|---|
| 31 December 2010 | ||||||
| Loans past due but not impaired: | ||||||
| past due up to 7 days | - | 15,549 | 79,889 | 133,862 | 26,155 | 255,455 |
| past due 8-30 days | - | 888 | 19,946 | 112,315 | 21,101 | 154,250 |
| past due 31 - 60 days | - | 7,608 | 15,727 | 83,994 | 13,206 | 120,535 |
| past due over 60 days | - | 120,857 | 138,985 | 359,196 | 154,802 | 773,840 |
| Total past due but not impaired | - | 144,902 | 254,547 | 689,367 | 215,264 | 1,304,080 |
| Fair value of collateral pledged | - | 145,916 | 161,827 | 606,933 | 112,372 | 1,027,048 |
| 31 December 2009 | ||||||
| Loans past due but not impaired: | ||||||
| past due up to 7 days | 58,865 | 410,415 | 452,899 | 152,241 | 63,121 | 1,137,541 |
| past due 8-30 days | 8,834 | 43,025 | 15,776 | 151,618 | 47,557 | 266,810 |
| past due 31-60 days | - | 36,900 | 68,968 | 79,118 | 19,772 | 204,758 |
| past due over 60 days | - | 193,791 | 183,073 | 213,753 | 115,587 | 706,204 |
| Total past due but not impaired | 67,699 | 684,131 | 720,716 | 596,730 | 246,037 | 2,315,313 |
| Fair value of collateral pledged | - | 665,234 | 605,508 | 587,665 | 150,841 | 2,009,248 |
The major part of loans past due up to 7 days are past due because of technical reasons and do not indicate difficulties to fulfil financial obligations to the Bank. Loans, that 31 December 2010 were past due up to 7 days and instalments were paid during January 2011, amount LTL 215,353 thousand (2009: LTL 1,042,762 thousand), of which: public sector - the whole amount for year 2009, property management - LTL 11,195 thousand (2009: LTL 389,846 thousand), other corporate - LTL 75,555 thousand (2009: LTL 409,018 thousand), mortgage loans - LTL 107,555 thousand (2009: LTL 129,453 thousand), other private individuals - LTL 21,048 thousand (2009: LTL 55,580 thousand).
As of 31 December 2010 and 2009 impaired loans to customers and fair value of collateral were as follows:
| Public | Property management | Other corporate | Mortgage loans | Other private individuals | Total | |
|---|---|---|---|---|---|---|
| 31 December 2010 | ||||||
| Impaired loans | - | 2,052,315 | 830,586 | 14,565 | 39,270 | 2,936,736 |
| Fair value of collateral pledged | - | 1,248,704 | 388,546 | 3,765 | 22,594 | 1,663,609 |
| 31 December 2009 | ||||||
| Impaired loans | - | 1,743,756 | 819,263 | - | 23,678 | 2,586,697 |
| Fair value of collateral pledged | - | 983,429 | 328,329 | - | 4,924 | 1,316,682 |
The Bank considers a loan in a homogeneous group to which impairment has been allocated on a collective basis as not being impaired for the purposes of IFRS 7 disclosures until the loss can be specifically identified with the loan.
Page 65 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 23 FINANCE LEASE RECEIVABLE
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Gross finance lease receivable | ||||
| 848,237 | 1,071,877 | -Falling due within one year | - | - |
| 1,121,779 | 1,687,355 | -Falling due from one to five years | - | - |
| 251,233 | 424,270 | -Falling due after five years | - | - |
| 2,221,249 | 3,183,502 | Total gross finance lease receivable | - | - |
| Unearned finance income | ||||
| (55,823) | (82,757) | -Falling due within one year | - | - |
| (76,979) | (127,531) | -Falling due from one to five years | - | - |
| (10,230) | (24,625) | -Falling due after five years | - | - |
| (143,032) | (234,913) | Total unearned finance income | - | - |
| (383,526) | (444,704) | Less impairment losses on finance lease receivable | - | - |
| 1,694,691 | 2,503,885 | Total finance lease receivable, net | - | - |
As of 31 December 2010 unguaranteed residual values amounted to LTL 1,922 thousand (2009: LTL 3,966 thousand).
As of 31 December 2010 finance lease contracts with floating interest rate reached 87.37 percent of leasing portfolio (2009: 86.22 percent).
As of 31 December 2010 and 2009 finance lease receivable by customer category were as follows:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Neither past due nor impaired: | ||||
| 1,132,272 | 1,517,531 | Corporate | - | - |
| 87,985 | 130,712 | Private individuals | - | - |
| 24,790 | 35,435 | Other | - | - |
| 1,245,047 | 1,683,678 | Total neither past due nor impaired | - | - |
| Past due but not impaired: | ||||
| 157,098 | 250,938 | Corporate | - | - |
| 17,757 | 21,201 | Private individuals | - | - |
| 91 | 339 | Other | - | - |
| 174,946 | 272,478 | Total past due but not impaired | - | - |
| Impaired finance lease receivable: | ||||
| 655,724 | 992,209 | Corporate | - | - |
| 2,500 | 224 | Private individuals | - | - |
| - | - | Other | - | - |
| 658,224 | 992,433 | Total impaired finance lease receivable | - | - |
| Total finance lease receivable by customer category: | ||||
| 1,945,094 | 2,760,678 | Corporate | - | - |
| 108,242 | 152,137 | Private individuals | - | - |
| 24,881 | 35,774 | Other | - | - |
| 2,078,217 | 2,948,589 | Total finance lease receivable by customer category | - | - |
| Less impairment losses on finance lease receivable: | ||||
| (380,046) | (443,330) | Corporate | - | - |
| (3,480) | (1,374) | Private individuals | - | - |
| - | - | Other | - | - |
| (383,526) | (444,704) | Total impairment losses on finance lease receivable | - | - |
| 1,694,691 | 2,503,885 | Finance lease receivable, net | - | - |
Page 66 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 23 FINANCE LEASE RECEIVABLE (CONTINUED)
The credit quality of the finance lease receivable portfolio that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Group.
| Corporate | Private individuals | Other | Total | |
|---|---|---|---|---|
| 31 December 2010 | ||||
| 4 – 7 risk classes | 2,683 | - | 18,037 | 20,720 |
| 8 risk class | 48,909 | - | 522 | 49,431 |
| 9 risk class | 111,468 | - | - | 111,468 |
| 10 risk class | 230,218 | 919 | 1,351 | 232,488 |
| 11 risk class | 230,571 | 566 | 1,931 | 233,068 |
| 12 risk class | 209,310 | 926 | 2,341 | 212,577 |
| 13-16 risk class | 111,130 | 2,037 | 490 | 113,657 |
| Homogeneous credits groups | 187,983 | 83,537 | 118 | 271,638 |
| Total neither past due nor impaired | 1,132,272 | 87,985 | 24,790 | 1,245,047 |
| 31 December 2009 | ||||
| 4 – 7 risk classes | 2,485 | - | 23,955 | 26,440 |
| 8 risk class | 67,202 | - | 1,574 | 68,776 |
| 9 risk class | 163,540 | - | - | 163,540 |
| 10 risk class | 369,724 | 593 | 3,456 | 373,773 |
| 11 risk class | 279,721 | 1,193 | 3,065 | 283,979 |
| 12 risk class | 207,064 | 108 | 1,846 | 209,018 |
| 13-16 risk class | 156,402 | 2,208 | 1,503 | 160,113 |
| Homogeneous credits groups | 271,393 | 126,610 | 36 | 398,039 |
| Total neither past due nor impaired | 1,517,531 | 130,712 | 35,435 | 1,683,678 |
The carrying amount of lease receivable, that would otherwise be past due or impaired whose terms have been renegotiated, as of 31 December 2010 in the Group was LTL 25,646 thousand (2009: nil).
As of 31 December 2010 and 2009 finance lease receivable past due but not impaired and fair value of collateral were as follows:
| Corporate | Private | Other | Total | |
|---|---|---|---|---|
| 31 December 2010 | ||||
| Loans past due but not impaired: | ||||
| past due up to 30 days | 119,297 | 8,858 | 91 | 128,246 |
| past due 31 - 60 days | 10,373 | 3,402 | - | 13,775 |
| past due over 60 days | 27,428 | 5,497 | - | 32,925 |
| Total past due but not impaired | 157,098 | 17,757 | 91 | 174,946 |
| Fair value of collateral pledged | 84,833 | 9,589 | 50 | 94,472 |
| 31 December 2009 | ||||
| Loans past due but not impaired: | ||||
| past due up to 30 days | 155,276 | 10,517 | 339 | 166,132 |
| past due 31 - 60 days | 26,815 | 3,864 | - | 30,679 |
| past due over 60 days | 68,847 | 6,820 | - | 75,667 |
| Total past due but not impaired | 250,938 | 21,201 | 339 | 272,478 |
| Fair value of collateral pledged | 250,247 | 21,143 | 338 | 271,728 |
The management believes that net finance lease receivable amount is the best conservative estimate of collateral for the finance lease receivable as the leasing subsidiary is entitled to the assets leased, except for real estate that is estimated at fair value.
Page 67 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 23 FINANCE LEASE RECEIVABLE (CONTINUED)
Impaired finance leases receivable amounts and fair value of collateral as of 31 December 2010 and 2009:
| Corporate | Private | Other | Total | |
|---|---|---|---|---|
| 31 December 2010 | ||||
| Impaired loans | 655,724 | 2,500 | - | 658,224 |
| Fair value of collateral pledged | 354,091 | - | - | 354,091 |
| 31 December 2009 | ||||
| Impaired loans | 992,209 | 224 | - | 992,433 |
| Fair value of collateral pledged | 821,773 | 260 | - | 822,033 |
Finance lease receivable concentration exposure by type of collateralised leased assets per financial class category is presented in the table below:
| Corporate | Private | Other | Total | |
|---|---|---|---|---|
| 31 December 2010 | ||||
| Trucks and other vehicles | 639,793 | 231 | 117 | 640,141 |
| Real estate | 645,239 | 8,855 | 378 | 654,472 |
| Cars and mini-vans | 272,072 | 98,295 | 23,977 | 394,344 |
| Manufacturing equipment | 223,341 | 30 | - | 223,371 |
| Shop equipment | 8,185 | 9 | - | 8,194 |
| Construction equipment | 69,891 | 97 | - | 69,988 |
| Agricultural equipment | 14,276 | 533 | - | 14,809 |
| Office equipment | 9,759 | - | - | 9,759 |
| Medical equipment | 5,089 | 148 | 378 | 5,615 |
| Railway wagons and containers | 51,681 | - | - | 51,681 |
| Water transport means | 683 | - | - | 683 |
| Other assets | 5,085 | 44 | 31 | 5,160 |
| Total finance lease receivable by type of collateral | 1,945,094 | 108,242 | 24,881 | 2,078,217 |
| 31 December 2009 | ||||
| Trucks and other vehicles | 977,249 | 408 | 273 | 977,930 |
| Real estate | 833,315 | 7,225 | 481 | 841,021 |
| Cars and mini-vans | 414,626 | 143,309 | 34,179 | 592,114 |
| Manufacturing equipment | 268,561 | 103 | - | 268,664 |
| Shop equipment | 18,163 | 14 | - | 18,177 |
| Construction equipment | 127,866 | 286 | - | 128,152 |
| Agricultural equipment | 28,064 | 499 | - | 28,563 |
| Office equipment | 17,925 | 6 | 44 | 17,975 |
| Medical equipment | 7,884 | 211 | 797 | 8,892 |
| Railway wagons and containers | 50,986 | - | - | 50,986 |
| Water transport means | 1,409 | - | - | 1,409 |
| Other assets | 14,630 | 76 | - | 14,706 |
| Total finance lease receivable by type of collateral | 2,760,678 | 152,137 | 35,774 | 2,948,589 |
Page 68 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 24 INVESTMENT SECURITIES
Loans and Receivable Reclassification
On 31 October 2008, the management of the Bank, based on amendments of IAS 39 and IFRS 7, decided to reclassify fixed interest income securities into loans and receivables category. Carrying value of the securities as of 31 Dec 2010 amounted to LTL 1,629,290 thousand, fair value is disclosed in table in Accounting policies part Fair values.
As of 31 December 2010 and for the year ended 31 December 2010 if the Group and the Bank had not reclassified financial assets to loans and receivables, revaluation reserve of financial assets in equity would have been lower by LTL 26.4 million (2009: LTL 120 million), and result from revaluation of securities in income statement would have been lower by LTL 2 million (2009: LTL 20 million) respectively.
Available for Sale, Held to Maturity and Loans and Receivables
The breakdown of the investment securities – available for sale, held to maturity and loans and receivables may be summarised as follows:
| The Group | ||
|---|---|---|
| 2010 | 2009 | |
| Securities available for sale: | ||
| 200 | 200 | AB Panevezio Energija |
| 1,076 | 137 | SEB Equity Fund Ukraine |
| 1,276 | 337 | Total investment securities available for sale |
| The Bank | ||
| --- | --- | |
| 2010 | 2009 | |
| 200 | 200 | |
| 1,076 | 137 | |
| 1,276 | 337 |
Above securities are not rated.
The changes in investment securities for the year 2010 were as follows:
| The Group | |||
|---|---|---|---|
| Available-for-sale | Held to maturity | Loans and receivables | |
| 18,468 | 12,989 | 1,750,534 | 1 January 2009 |
| (11) | (241) | Foreign exchange differences on monetary assets | |
| 351,138 | - | - | Additions |
| (379,317) | - | (43,717) | Disposal |
| 4,516 | - | 1,494 | Interest income |
| - | - | 11,201 | Recognised result in income statement |
| 5,543 | - | - | Change in revaluation reserve in equity |
| 337 | 12,748 | 1,719,512 | 1 January 2010 |
| 10 | 1,084 | - | Foreign exchange differences on monetary assets |
| 866 | - | - | Additions |
| - | - | (61,329) | Disposal |
| - | - | (1,496) | Interest income |
| - | - | (27,397) | Recognised result in income statement |
| 63 | - | - | Change in revaluation reserve in equity |
| 1,276 | 13,832 | 1,629,290 | 31 December 2010 |
| The Bank | |||
| --- | --- | --- | |
| Available-for-sale | Held to maturity | Loans and receivables | |
| 18,467 | 12,989 | 1,750,534 | |
| (11) | (241) | - | |
| 351,138 | - | - | |
| (379,316) | - | (43,717) | |
| 4,516 | - | 1,494 | |
| - | - | 11,201 | |
| 5,543 | - | - | |
| 337 | 12,748 | 1,719,512 | |
| 10 | 1,084 | - | |
| 866 | - | - | |
| - | - | (61,329) | |
| - | - | (1,496) | |
| - | - | (27,397) | |
| 63 | - | - | |
| 1,276 | 13,832 | 1,629,290 |
NOTE 25 INVESTMENTS IN SUBSIDIARIES
| The Group | |
|---|---|
| 2010 | 2009 |
| Securities accounted for under cost method: | |
| - | - UAB SEB Venture Capital |
| - | - UAB SEB Investiciţu Valdymas |
| - | - UAB SEB Enskilda |
| - | - AB SEB Lizingas |
| - | - Total investments in subsidiaries |
| The Bank | |
| --- | --- |
| 2010 | 2009 |
| 25,000 | 25,000 |
| 9,900 | 9,900 |
| 3,716 | 3,716 |
| 83,000 | - |
| 121,616 | 38,616 |
Page 69 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 25 INVESTMENTS IN SUBSIDIARIES (CONTINUED)
AB SEB Lizingas is engaged in the leasing activities. The Bank owns 100 percent of the shares of AB SEB Lizingas, which is consolidated in the Bank's financial statements.
Continued losses of AB SEB Lizingas triggered impairment tests of cost of investment into this subsidiary. As of 31 December 2010, recoverable amount was estimated using fair value less cost calculations. Net assets of AB SEB Lizingas were adjusted by fair value adjustments of subsidiary's assets that are not carried at fair value, having deducted related costs to sell. The test showed that recoverable amount of investment into leasing operations is LTL 83,000 thousand. No value-in-use calculations were performed because could not be estimated reliably.
As of 31 December 2009, net assets of this subsidiary were negative and cost of investment was reduced to zero value.
Changes of investment in AB SEB Lizingas are presented below:
| | Investment in
AB SEB Lizingas |
| --- | --- |
| As of 31 December 2008: | |
| Total cost of investment | 10,000 |
| Capitalised loans to cover losses in 2009 | 165,105 |
| Impairment loss in 2009 | (175,105) |
| As of 31 December 2009: | |
| Total cost of investment, before impairment | 175,105 |
| Total impairment | (175,105) |
| Total cost of investment, after impairment | - |
| Capitalised loans to cover losses in 2010 | 533,529 |
| Impairment loss in 2010 | (450,529) |
| As of 31 December 2010: | |
| Total cost of investment, before impairment | 708,634 |
| Total impairment | (625,634) |
| Total cost of investment, after impairment | 83,000 |
UAB SEB Venture Capital is a fully owned subsidiary involved in venture capital activities. Financial statements of UAB SEB Venture Capital for the year ended 31 December 2010 are consolidated in these financial statements.
UAB SEB Enskilda is engaged in provision of corporate finance services. It is fully owned subsidiary of the Bank. Financial statements of UAB SEB Enskilda for the year ended 31 December 2010 are consolidated in these financial statements.
UAB SEB Investicių Valdymas is a fully owned subsidiary of the Bank, engaged in provision of investments' management services. Financial statements of this entity are consolidated in these financial statements.
The audited financial statements of subsidiaries are available at the Bank and the respective subsidiary.
Page 70 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 25 INVESTMENTS IN SUBSIDIARIES (CONTINUED)
On 13 January 2010 100% of subsidiary shares UAB SEB Gyvybès Draudimas were sold to SEB Trygg Liv Holding AB, which is a part of SEB Group Companies in Sweden, for the amount of LTL 69,000 thousand.
UAB SEB Gyvbybès Draudimas
Net cash flow from disposal of subsidiary
| 31 December 2009 | |
|---|---|
| Total assets of the disposal group (Note 44) | 415,565 |
| Consolidation adjustments | 8,995 |
| current deposits held in the Bank | 4,076 |
| term deposits held in the Bank | 2,763 |
| issued bonds of AB SEB Bank acquired by UAB SEB Gyvybès Draudimas | 2,013 |
| other assets | 143 |
| Total liabilities of the disposal group (Note 44) | 385,335 |
| Consolidation adjustments | 362 |
| Fair value of net assets | 38,863 |
| Sales price | 69,000 |
| Profit from disposal of subsidiary | 30,137 |
| Cash and cash equivalents in subsidiary being sold | 4,296 |
| Net cash flow from disposal of subsidiary | 64,704 |
On 26 February 2010 100% of subsidiary shares UAB Litec tus were sold to Warehold B.V., which is a part of SEB Group Companies in Sweden, for the amount of LTL 3,063 thousands.
UAB Litec tus
Net cash flow from disposal of subsidiary
| 26 February 2010 | |
|---|---|
| Property, plant and equipment | 13 |
| Other assets, net of impairment losses | 3,070 |
| Other liabilities and provisions | 20 |
| Net assets of the disposal group | 3,063 |
| Sales price | 3,063 |
| Profit on disposal of subsidiary | - |
| Cash and cash equivalents in subsidiary being sold | 2,699 |
| Net cash flow from disposal of subsidiary | 364 |
Page 71 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 26 INTANGIBLE FIXED ASSETS
As of 31 December 2010 and 2009 intangible assets of the Group and the Bank consisted of the following:
| Goodwill | The Group | The Bank | ||||
|---|---|---|---|---|---|---|
| Software and other intangible fixed assets | Total intangible | Goodwill | Software and other intangible fixed assets | Total intangible fixed assets | ||
| Cost | ||||||
| 169,550 | 123,565 | 293,115 | 31 December 2008 | 169,550 | 119,427 | 288,977 |
| - | 103,671 | 103,671 | Additions | - | 103,372 | 103,372 |
| - | (4,925) | (4,925) | Disposals | - | (4,331) | (4,331) |
| (2,537) | (2,537) | Transfer to disposable group classified as held for sale | ||||
| 169,550 | 219,774 | 389,324 | 31 December 2009 | 169,550 | 218,468 | 388,018 |
| Accumulated amortisation | ||||||
| - | 52,877 | 52,877 | 31 December 2008 | - | 49,399 | 49,399 |
| - | 4,766 | 4,766 | Charge for the year | - | 4,637 | 4,637 |
| - | (4,926) | (4,926) | Amortisation of disposals | |||
| 169,550 | - | 169,550 | Impairment charge for the year | 169,550 | - | 169,550 |
| Transfer to disposable group classified as held for sale | - | (4,332) | (4,332) | |||
| 169,550 | 50,728 | 220,278 | 31 December 2009 | 169,550 | 49,704 | 219,254 |
| Costs | ||||||
| - | 58,575 | 58,575 | Additions | - | 58,533 | 58,533 |
| - | (4,669) | (4,669) | Disposals | - | (4,669) | (4,669) |
| 169,550 | 273,680 | 443,230 | 31 December 2010 | 169,550 | 272,332 | 441,882 |
| Accumulated amortisation and impairment | ||||||
| - | 7,133 | 7,133 | Charge for the year | - | 6,988 | 6,988 |
| - | (4,669) | (4,669) | Amortisation of disposals | - | (4,669) | (4,669) |
| - | 71,755 | 71,755 | Impairment charge for the year | - | 71,755 | 71,755 |
| 169,550 | 124,947 | 294,497 | 31 December 2010 | 169,550 | 123,778 | 293,328 |
| Net book value | ||||||
| - | 169,046 | 169,046 | 31 December 2009 | - | 168,764 | 168,764 |
| - | 148,733 | 148,733 | 31 December 2010 | - | 148,554 | 148,554 |
Goodwill is allocated to Baltic Division segment. When testing for impairment, the recoverable amount of a cash-generating unit is determined based on value-in-use calculations. These calculations use cash flow projections based on most recent financial forecasts approved by management covering a three-year period. Cash flows beyond the three-year period are extrapolated using the estimated growth rates stated below.
As of 30 June 2009 the key assumptions used for value-in-use calculations to test the recoverability of goodwill: management projections for following three years approximately 5 percent growth and sustainable growth at the rate 3 percent; discount rate used - 13 percent. Due to significant decline in the Bank's projections of the upcoming three-year period the goodwill net present value calculated using discounted cash flow method was lower than net book value of goodwill as of 30 June 2009 and as a result impairment of goodwill was determined.
As of 30 June 2009 the Management of the Bank made a decision to recognised impairment loss of goodwill in the amount of LTL 169,550 thousands. The full amount of impairment loss on goodwill is recognised in the Income statement for the year ended 31 December 2009.
The new core banking platform was introduced in 2010 at cost of LTL 219,638 thousand. Estimated amortisation period for the asset is 8 years.
The ongoing global crisis had continued impact on Bank's and Group's results in 2010. This has triggered testing of PP&E and intangible assets for impairment. Impairment has been tested on the Baltic Division segment level. Recoverable amount estimated using value-in-use calculations. The following assumptions used: weighted average cost of capital (post tax) of $11.80\%$, average growth of segment's operating income for the 2011-2013 of $9\%$, and sustainable growth rate of $2\%$. Results show that write down of LTL 71,755 thousand is needed. All amount of impairment has been allocated to intangible asset (new core banking platform), as management is confident that fair values of PP&E would be approximated by their carrying amounts. Should discount rate fall to $11.40\%$, ceteris paribus, no impairment charge would be needed. Should growth rate to perpetuity increase up to $2.7\%$, ceteris paribus, no impairment charge would be needed.
Page 72 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 27 PROPERTY, PLANT AND EQUIPMENT
As of 31 December 2010 and 2009 property, plant and equipment of the Group consisted of the following:
| The Group | ||||
|---|---|---|---|---|
| Buildings and other real estate | Computer equipment | Office equipment and other PPE | Total property, plant and equipment | |
| Cost | ||||
| 31 December 2008 | 14,991 | 128,663 | 64,186 | 207,840 |
| Additions | 1,379 | 14,071 | 4,238 | 19,688 |
| Disposals, write-offs and reclassifications | (4,734) | (23,512) | (12,847) | (41,093) |
| Transfer to disposable group classified as held for sale | - | (744) | (107) | (851) |
| 31 December 2009 | 11,636 | 118,478 | 55,470 | 185,584 |
| Accumulated depreciation | ||||
| 31 December 2008 | 4,873 | 98,722 | 39,244 | 142,839 |
| Charge for the year | 2,389 | 10,523 | 8,937 | 21,849 |
| Transfer to disposable group classified as held for sale | (2,435) | (23,006) | (9,515) | (34,956) |
| Depreciation of disposals, write-offs and reclassifications | - | (587) | (70) | (657) |
| 31 December 2009 | 4,827 | 85,652 | 38,596 | 129,075 |
| Cost | ||||
| Additions | - | 4,933 | 3,331 | 8,264 |
| Disposals, write-offs and reclassifications | - | (25,910) | (7,844) | (33,754) |
| Transfer to disposable group classified as held for sale | - | - | - | - |
| 31 December 2010 | 11,636 | 97,501 | 50,957 | 160,094 |
| Accumulated depreciation | ||||
| Charge for the year | 1,528 | 9,744 | 7,088 | 18,360 |
| Depreciation of disposals, write-offs and reclassifications | - | (25,867) | (7,478) | (33,345) |
| 31 December 2010 | 6,355 | 69,529 | 38,206 | 114,090 |
| Net book value | ||||
| 31 December 2009 | 6,809 | 32,826 | 16,874 | 56,509 |
| 31 December 2010 | 5,281 | 27,972 | 12,751 | 46,004 |
Page 73 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 27 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
As of 31 December 2010 and 2009 property, plant and equipment of the Bank consisted of the following:
| The Bank | ||||
|---|---|---|---|---|
| Buildings and other real estate | Computer equipment | Office equipment and other PPE | Total property, plant and equipment | |
| Cost | ||||
| 31 December 2008 | 14,991 | 126,849 | 62,154 | 203,994 |
| Additions | 1,379 | 14,023 | 4,094 | 19,496 |
| Disposals, write-offs and reclassifications | (4,734) | (23,081) | (11,712) | (39,527) |
| 31 December 2009 | 11,636 | 117,791 | 54,536 | 183,963 |
| Accumulated depreciation | ||||
| 31 December 2008 | 4,873 | 97,399 | 38,490 | 140,762 |
| Charge for the year | 2,389 | 10,345 | 8,671 | 21,405 |
| Depreciation of disposals, write-offs and reclassifications | (2,435) | (22,595) | (9,021) | (34,051) |
| 31 December 2009 | 4,827 | 85,149 | 38,140 | 128,116 |
| Cost | ||||
| Additions | - | 4,799 | 2,961 | 7,760 |
| Disposals, write-offs and reclassifications | - | (25,715) | (7,541) | (33,256) |
| 31 December 2010 | 11,636 | 96,875 | 49,956 | 158,467 |
| Accumulated depreciation | ||||
| Charge for the year | 1,528 | 9,641 | 6,863 | 18,032 |
| Depreciation of disposals, write-offs and reclassifications | - | (25,686) | (7,284) | (32,970) |
| 31 December 2010 | 6,355 | 69,104 | 37,719 | 113,178 |
| Net book value | ||||
| 31 December 2009 | 6,809 | 32,642 | 16,396 | 55,847 |
| 31 December 2010 | 5,281 | 27,771 | 12,237 | 45,289 |
Page 74 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 28 ASSETS UNDER OPERATING LEASE
As of 31 December 2010 and 2009 assets under operating lease of the Group consisted of the following:
| The Group | |||
|---|---|---|---|
| Vehicles | Office equipment and other | Total assets under operating lease | |
| Cost | |||
| 31 December 2009 | 10,016 | 432 | 10,448 |
| Additions | - | - | - |
| Disposals | (2,867) | (340) | (3,207) |
| Transfer (to) leasing portfolio | (82) | 32 | (50) |
| 31 December 2010 | 7,067 | 124 | 7,191 |
| Accumulated depreciation | |||
| 31 December 2009 | 5,741 | 432 | 6,173 |
| Charge for the year | 1,321 | 3 | 1,324 |
| Depreciation of disposals | (2,559) | (328) | (2,887) |
| Depreciation of transfers (to) leasing portfolio | - | - | - |
| 31 December 2010 | 4,503 | 107 | 4,610 |
| Impairment | |||
| 31 December 2009 | - | - | - |
| Impairment charge (reversal) | - | - | - |
| 31 December 2010 | - | - | - |
| Net book value | |||
| 31 December 2009 | 4,275 | - | 4,275 |
| 31 December 2010 | 2,564 | 17 | 2,581 |
NOTE 29 INVESTMENT PROPERTY
As of 31 December 2010 and 2009 investment property of the Group and the Bank consisted of the following:
| The Group | The Bank | |
|---|---|---|
| Costs | ||
| 147,281 | 31 December 2009 | 1,599 |
| (61,715) | Transfers (to) foreclosed assets | - |
| 39,984 | Transfers from foreclosed assets | - |
| 2 | Additions | - |
| (30,069) | Disposals | - |
| 95,483 | 31 December 2010 | 1,599 |
| Accumulated depreciation and impairment | ||
| 136 | 31 December 2009 | - |
| 506 | Depreciation for the year | 64 |
| (69) | Disposals | - |
| 573 | 31 December 2010 | 64 |
| Impairment loss | ||
| 84,914 | 31 December 2009 | - |
| (400) | Reversal of impairment loss in the income statement | - |
| (14,425) | Reversal of impairment loss attributable to disposed assets | - |
| (44,192) | Impairment loss on of transfers to foreclosed assets | - |
| 17,539 | Impairment loss on of transfers from foreclosed assets | - |
| 43,436 | 31 December 2010 | - |
| Net book value | ||
| 62,231 | 31 December 2009 | 1,599 |
| 51,474 | 31 December 2010 | 1,535 |
The major amount of investment property are foreclosed assets (land and buildings) taken over from the clients by AB SEB Lizingas.
Page 75 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 30 OTHER ASSETS, NET
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Financial other assets | ||||
| 775 | 87,205 | Advances paid for assets to be leased | - | - |
| 2,131 | 18,682 | Amounts receivable for cash exported | 2,131 | 18,682 |
| Amounts of executed bank transfers not yet settled against | ||||
| 66,908 | 62,613 | customers' accounts | 66,908 | 62,613 |
| 475 | 1,198 | Amounts outstanding for clearance | 475 | 1,198 |
| 11,905 | 13,010 | Accrued income | 6,918 | 4,659 |
| 764 | 811 | Current lease receivable | - | - |
| 2,134 | 2,031 | Other financial assets | 2,134 | 2,031 |
| 85,092 | 185,550 | Total other financial assets | 78,566 | 89,183 |
| Non financial other assets | ||||
| 199,486 | 4,180 | Assets not yet leased | - | - |
| 11,790 | 13,149 | Deferred expenses | 11,519 | 12,805 |
| 10,540 | 49,277 | Tax receivables | 8,690 | 40,702 |
| 9,668 | 14,488 | Other assets, net of impairment allowances | 10,612 | 14,301 |
| 231,484 | 81,094 | Total non financial other assets | 30,821 | 67,808 |
| 316,576 | 266,644 | Total other assets, net | 109,387 | 156,991 |
NOTE 31 AMOUNTS OWED TO CREDIT AND FINANCIAL INSTITUTIONS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 1,587,715 | 2,655,888 | Falling due within one year | 1,554,056 | 2,509,094 |
| 7,707,900 | 10,994,835 | Falling due after one year | 6,361,308 | 8,750,515 |
| 9,295,615 | 13,650,723 | Total amounts owed to credit and financial institutions | 7,915,364 | 11,259,609 |
NOTE 32 DEPOSITS FROM THE PUBLIC
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 6,514,840 | 4,767,893 | Current and demand deposits | 6,516,173 | 4,768,336 |
| 3,039,878 | 4,799,281 | Term deposits falling due within one year | 3,039,878 | 4,802,781 |
| 88,623 | 102,615 | Term deposits falling due after one year | 88,623 | 102,615 |
| 9,643,341 | 9,669,789 | Total deposits from the public | 9,644,674 | 9,673,732 |
| The Group | The Bank | |||
| --- | --- | --- | --- | --- |
| 2010 | 2009 | 2010 | 2009 | |
| 4,111,230 | 3,887,476 | Corporate customers' deposits and accounts | 4,112,563 | 3,891,419 |
| 5,532,111 | 5,782,313 | Individual customers' deposits and accounts | 5,532,111 | 5,782,313 |
| 9,643,341 | 9,669,789 | Total deposits from the public | 9,644,674 | 9,673,732 |
According to current requirement of Deposit Insurance Fund all banks in Lithuania have to make annual deposit insurance fund payments of 0.45 percent for deposits of private individuals and corporate customers nominated in LTL, USD, EUR and other EU countries' currencies.
As of 31 December 2010 the Group has pledged own issued securities amounting to LTL 20 million (2009: LTL 84 million) as security in borrowings transactions and LTL 70 thousand (2009: LTL 45 thousand) equity securities.
Page 76 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 33 SUBORDINATED LOANS
| The Group | Interest rate % | The Bank | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| 86,474 | 86,398 | EUR 25 m subordinated loan due 2015 | EURIBOR+2.3% | 86,474 | 86,398 |
| 138,639 | 138,580 | EUR 40 m subordinated loan due 2016 | EURIBOR+0.8% | 138,639 | 138,580 |
| 69,129 | 69,116 | EUR 20 m subordinated loan due 2016 | EURIBOR+0.75% | 69,129 | 69,116 |
| 145,903 | 145,833 | EUR 42 m subordinated loan due 2016 | EURIBOR+0.75% | 145,903 | 145,833 |
| 157,027 | 157,268 | EUR 45 m subordinated loan due 2017 | EURIBOR+0.75% | 157,027 | 157,268 |
| 597,172 | 597,195 | Total subordinated loans | 597,172 | 597,195 |
The subordinated loans received from the parent bank. No specific covenants are included in the agreements.
NOTE 34 DEBT SECURITIES IN ISSUE
| The Group | Interest rate % | The Bank | ||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |
| Debt securities in issue: | ||||||
| Debt securities issued in 2006: | ||||||
| - | 23,799 | index linked debt securities due 2010 | - | - | - | 23,799 |
| Debt securities issued in 2007: | ||||||
| - | 235,720 | index linked debt securities due 2010 | - | - | - | 235,720 |
| 44,607 | 44,965 | index linked debt securities due 2011 | - | - | 44,607 | 45,748 |
| Debt securities issued in 2008: | ||||||
| - | 18,564 | 2 year debt securities due 2010 | - | 6.4 | - | 18,564 |
| - | 21,417 | index linked debt securities due 2010 | - | - | - | 21,417 |
| 48,486 | 48,507 | index linked debt securities due 2011 | - | - | 48,486 | 48,507 |
| 924 | 822 | index linked debt securities due 2012 | - | - | 924 | 822 |
| Debt securities issued in 2009: | ||||||
| - | 1,545 | 1 year debt securities due 2010 | - | 9 | - | 1,545 |
| - | 41,601 | 1 year debt securities due 2010 | - | 8.7 | - | 42,831 |
| - | 630 | 1 year debt securities due 2010 | - | 8.5 | - | 630 |
| - | 9,086 | 1 year debt securities due 2010 | - | 10 | - | 9,086 |
| - | 55,451 | 1 year debt securities due 2010 | - | 9.8 | - | 55,451 |
| - | 59,760 | 1 year debt securities due 2010 | - | 9.5 | - | 59,760 |
| - | 73,442 | 1 year debt securities due 2010 | - | 9.1 | - | 73,442 |
| 9,994 | 4,592 | 2 year debt securities due 2011 | 8 | 8 | 9,994 | 4,592 |
| 1,653 | 1,522 | index linked debt securities due 2011 | - | - | 1,653 | 1,522 |
| 38,939 | 37,778 | index linked debt securities due 2012 | - | - | 38,939 | 37,778 |
| 20,153 | 18,640 | index linked debt securities due 2013 | - | - | 20,153 | 18,640 |
| Debt securities issued in 2010: | ||||||
| 565 | - | 2 year debt securities due 2011 | 2 | - | 565 | - |
| 5,071 | - | 2 year debt securities due 2011 | 2.1 | - | 5,071 | - |
| 2,061 | - | 2 year debt securities due 2011 | 2.6 | - | 2,061 | - |
| 9,910 | - | 2 year debt securities due 2011 | 3.95 | - | 9,910 | - |
| 9,926 | - | 2 year debt securities due 2011 | 5.5 | - | 9,926 | - |
| 3,395 | - | index linked debt securities due 2011 | - | - | 3,395 | - |
| 8,800 | - | index linked debt securities due 2012 | - | - | 8,800 | - |
| 77,345 | - | index linked debt securities due 2013 | - | - | 77,345 | - |
| 20,013 | - | index linked debt securities due 2014 | - | - | 20,013 | - |
| 361,335 | - | undated subordinated notes | 5.546 | - | 361,335 | - |
| 663,177 | 697,841 | Total debt securities in issue | 663,177 | 699,854 |
On 10 March 2010, the Board of the Bank of Lithuania granted a permission to the Bank to include the issue of undated subordinated notes worth EUR 100 million (LTL 345.28 million) into the bank's Tier II capital. The issue of undated subordinated notes has been acquired by the parent bank.
Page 77 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 35 ACCRUED EXPENSES, DEFERRED INCOME, OTHER LIABILITIES AND PROVISIONS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Other financial liabilities | ||||
| 11,616 | 12,023 | Amounts outstanding for clearance | 11,616 | 12,023 |
| 10,806 | 7,945 | Prepayments for finance lease | - | - |
| 27,802 | 4,194 | Accounts payable for assets purchased under finance lease | - | - |
| 13,925 | - | Amounts of executed bank transfers not yet settled against customers' accounts | 13,925 | - |
| 14,332 | 21,088 | Provisions for off balance sheet items | 14,332 | 21,088 |
| 12,756 | - | Factoring payables | 12,756 | - |
| 3,738 | 1,781 | Other financial liabilities | 3,738 | 1,781 |
| 94,975 | 47,031 | Total other financial liabilities | 56,367 | 34,892 |
| Non financial liabilities | ||||
| 3,967 | 1,675 | Accrued taxes | 952 | - |
| 19,330 | 16,436 | Vacation reserve accrual | 18,638 | 15,448 |
| 6,368 | 8,100 | Prepayments for operating lease | - | - |
| 10,368 | 5,397 | Other liabilities | 10,011 | 5,398 |
| 40,033 | 31,608 | Total other non financial liabilities | 29,601 | 20,846 |
| 135,008 | 78,639 | Total other liabilities and provisions | 85,968 | 55,738 |
Provisions for off balance sheet items have been made in respect of costs arising from contingent liabilities and contractual commitments, including guarantees and credit commitments. Change in the provisions reflected in income statement.
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Accrued financial liabilities | ||||
| 28,877 | 42,428 | Accrued expenses | 25,194 | 40,157 |
| Deferred non financial liabilities | ||||
| 996 | 1,601 | Deferred income | 996 | 1,601 |
NOTE 36 SHAREHOLDERS' EQUITY
As of 31 December 2010 the share capital of the Bank consisted of 15,441,423 ordinary shares with par value LTL 67 each (2009: LTL 67). All issued shares are fully paid. Reserve capital, which as of 31 December 2010 amounted to LTL 2,200 thousand (2009: LTL 2,200 thousand) for the Bank and LTL 1,034 thousand (2009: LTL 1,034 thousand) for the Group in accordance with the legislation for banks operating in Lithuania can only be offset with the future losses or used for the increase of share capital.
In December 2006 SEB started squeeze-out process in order to purchase the outstanding shares in the bank for the price of LTL 266.95 per share, the price been approved by Securities commission in November 2006. On 22 November 2010, the Bank announced that on 19 November 2010, the squeeze-out procedure was finalized. 100 percent of shares of the Bank is owned by company Skandinaviska Enskilda Banken AB (publ), registered in the Kingdom of Sweden.
As of 31 December 2010 legal reserve was LTL 163,221 thousand (2009: LTL 133,151 thousand) for the Bank and LTL 165,425 thousand (2009: LTL 135,160 thousand) for the Group, in accordance with the legislation for banks operating in Lithuania can only be offset with the future losses.
Page 78 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 36 SHAREHOLDERS' EQUITY (CONTINUED)
Financial assets revaluation reserve represents available for sale securities revaluation gain. The financial assets reserve movement in 2010 amount consists of the following:
| The Group | The Bank | |
|---|---|---|
| Government securities – change in revaluation reserve (note 18) | 3,893 | 3,893 |
| Government securities - amortization of revaluation reserve to income statement | 3,025 | 3,025 |
| Equity securities – change in revaluation reserve (note 24) | 63 | 63 |
| Tax recognised in equity (note 14) | (1,050) | (1,050) |
| Net change in available for sale investments, net of deferred tax | 5,931 | 5,931 |
As of 31 December 2010 general and other reserves represent general reserve for possible losses in amount of LTL 9,338 thousand (2009: LTL 9,338 thousand), that can only be offset with the current losses and share based compensation reserve in amount of LTL 1,508 thousand (2009: LTL 440 thousand), that will be paid in the share capital equivalent of Skandinaviska Enskilda Banken AB (publ) Class A shares to employees participating in the share based premium program.
The Share Savings Programme concerns all employees of the Group and the Bank and is designed to support "One SEB" and create a long-term commitment to SEB. The employees have been offered to purchase Class A-shares for an amount corresponding to five per cent of their gross base salary and for the amount, at current stock exchange rate. Purchases are made during four periods, following the publication of the Bank's quarterly reports. If the shares are retained by the employee for three years from the investment date and the participant remains with SEB during this time, the Bank will give the employee one SEB share (Class A-share) for each retained share.
As of 31 December 2010 the major shareholder is as follows:
| Name of shareholder | Number of shares held | Percentage in total |
|---|---|---|
| Skandinaviska Enskilda Banken AB (publ) | 15,441,423 | 100.00 |
| Total | 15,441,423 | 100.00 |
NOTE 37 ASSETS UNDER MANAGEMENT
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Private individuals and corporate customers' assets | ||||
| 752,300 | 483,155 | under management | - | - |
| 204,399 | 195,885 | Pillar two conservative pension fund (SEB Pension 1) | - | - |
| 853,877 | 726,568 | Pillar two balanced pension fund (SEB Pension 2) | - | - |
| 114,298 | 79,217 | Pillar two equity pension fund (SEB Pension 3) | - | - |
| Conservative voluntary pension fund | ||||
| 13,826 | 12,817 | (SEB Pension 1 Plus) | - | - |
| Balanced voluntary pension fund | ||||
| 51,205 | 41,175 | (SEB Pension 2 Plus) | - | - |
| - | - | CIS equity fund | - | - |
| - | - | CIS bond fund | - | - |
| 134,632 | 110,854 | World market fund of funds | - | - |
| 112,394 | 90,810 | SEB equity fund of funds | - | - |
| 2,236,931 | 1,740,481 | Total assets under management | - | - |
All assets management services are performed by UAB SEB Investicju Valdymas. For the year ended 31 December 2010 the management fee for funds management amounted to LTL 13,244 thousand (2009: LTL 11,370 thousand) and it is included in 'Other income, net' line in the income statement.
Page 79 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 38 ASSETS AND LIABILITIES STRUCTURE BY TERM TO MATURITY
The relationship between the maturity of assets and liabilities is indicative of liquidity risk and the extent to which it may be necessary to raise funds to meet outstanding obligations. The table below allocates assets and liabilities to maturity groups based on the time remaining from the balance sheet date to the contractual maturity or actual maturity, if known earlier. The Bank's liquidity analysis as of 31 December 2010:
| Maturity | Up to 3 months | 3 - 6 months | 6 - 12 months | 1 - 3 years | Over 3 years | Unclear maturity | Total |
|---|---|---|---|---|---|---|---|
| Assets | |||||||
| Cash in hand | 428,427 | - | - | - | - | - | 428,427 |
| Balances with the Central Banks | 527,258 | - | - | - | - | - | 527,258 |
| Financial instruments - available for sale, designated at fair value, loans and receivables | 22,776 | 92,116 | 983 | 1,478,522 | 244,405 | 493 | 1,839,295 |
| Derivative financial instruments | 35,755 | 8,596 | 13,778 | 50,037 | 125,745 | - | 233,911 |
| Loans to credit and financial institutions and due from banks, net | 1,171,926 | 7,742 | 213,501 | 20,232 | 271,064 | 4 | 1,684,469 |
| Loans to customers, net | 931,200 | 1,030,296 | 1,941,013 | 2,758,440 | 7,976,869 | 1,042,912 | 15,680,730 |
| Investment securities - available for sale | - | - | - | - | - | 1,276 | 1,276 |
| Investment securities - held to maturity | - | - | - | - | 13,832 | - | 13,832 |
| Investments in subsidiaries | - | - | - | - | - | 121,616 | 121,616 |
| Intangible fixed assets | - | - | - | - | - | 148,554 | 148,554 |
| Property, plant and equipment | - | - | - | - | - | 45,289 | 45,289 |
| Investment property | - | - | - | - | - | 1,535 | 1,535 |
| Other assets, net | 542 | 7 | 29 | 2 | - | 301,490 | 302,070 |
| Assets classified as held for sale and discontinued operations | - | - | - | - | - | - | - |
| Total assets | 3,117,884 | 1,138,757 | 2,169,304 | 4,307,233 | 8,631,915 | 1,663,169 | 21,028,262 |
| Liabilities and shareholders' equity | |||||||
| Amounts owed to the Central Banks | 38 | - | - | - | - | - | 38 |
| Amounts owed to credit and financial institutions | 901,376 | 51,777 | 600,903 | 5,760,722 | 600,586 | - | 7,915,364 |
| Derivative financial instruments | 34,233 | 9,999 | 13,818 | 158,375 | 118,002 | - | 334,427 |
| Deposits from the public | 8,196,476 | 728,282 | 631,293 | 62,113 | 26,510 | - | 9,644,674 |
| Subordinated loans | - | 2,405 | 885 | - | 593,882 | - | 597,172 |
| Debt securities in issue | 81,976 | 20,570 | 33,121 | 146,162 | 20,013 | 361,335 | 663,177 |
| Other liabilities and provisions | 89,603 | 8,984 | 1,875 | 304 | 11,392 | - | 112,158 |
| Equity | - | - | - | - | - | 1,761,252 | 1,761,252 |
| Total liabilities and shareholders' equity | 9,303,702 | 822,017 | 1,281,895 | 6,127,676 | 1,370,385 | 2,122,587 | 21,028,262 |
| Net assets (liabilities) before off balance sheet items | (6,185,818) | 316,740 | 887,409 | (1,820,443) | 7,261,530 | (459,418) | - |
| Off balance sheet items (net) | 2,045,322 | 69,754 | 32,696 | 39,701 | 53,592 | 1,538 | 2,242,603 |
| Net assets (liabilities) | (8,231,140) | 246,986 | 854,713 | (1,860,144) | 7,207,938 | (460,956) | (2,242,603) |
The Bank's liquidity analysis as of 31 December 2009:
| Maturity | Up to 3 months | 3 - 6 months | 6 - 12 months | 1 - 3 years | Over 3 years | Unclear maturity | Total |
|---|---|---|---|---|---|---|---|
| Total assets | 5,571,601 | 1,354,878 | 1,803,423 | 4,089,554 | 9,737,279 | 1,495,855 | 24,052,590 |
| Total liabilities and shareholders' equity | 9,654,341 | 1,671,910 | 1,419,027 | 7,447,415 | 2,435,126 | 1,424,771 | 24,052,590 |
| Off balance sheet items (net) | 1,089,110 | 163,642 | 407,431 | 86,415 | 293,528 | 233,568 | 2,273,694 |
| Net assets (liabilities) | (5,171,850) | (480,674) | (23,035) | (3,444,276) | 7,008,625 | (162,484) | (2,273,694) |
Page 80 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 38 ASSETS AND LIABILITIES STRUCTURE BY TERM TO MATURITY (CONTINUED)
The Group's liquidity analysis as of 31 December 2010:
| Maturity | Up to 3 months | 3 – 6 months | 6 – 12 months | 1 – 3 years | Over 3 years | Unclear maturity | Total |
|---|---|---|---|---|---|---|---|
| Assets | |||||||
| Cash in hand | 428,427 | - | - | - | - | - | 428,427 |
| Balances with the Central Banks | 527,258 | - | - | - | - | - | 527,258 |
| Financial instruments – available for sale, designated at fair value, loans and receivables | 22,776 | 92,116 | 1,280 | 1,478,847 | 244,406 | 29,818 | 1,869,243 |
| Derivative financial instruments | 35,755 | 8,596 | 13,778 | 50,037 | 125,745 | 233,911 | |
| Loans to credit and financial institutions and due from banks, net | 1,163,120 | 7,742 | 42,020 | 20,232 | 118 | - | 1,233,232 |
| Loans to customers, net | 931,197 | 1,030,296 | 1,929,589 | 2,758,440 | 7,976,869 | 1,042,916 | 15,669,307 |
| Financial lease receivables, net of impairment losses | 234,072 | 150,232 | 262,729 | 644,076 | 403,582 | - | 1,694,691 |
| Investment securities – available for sale | - | - | - | - | - | 1,276 | 1,276 |
| Investment securities – held to maturity | - | - | - | - | 13,832 | - | 13,832 |
| Intangible fixed assets | - | - | - | - | - | 148,733 | 148,733 |
| Property, plant and equipment | - | - | - | - | - | 48,585 | 48,585 |
| Investment property | - | - | - | - | - | 51,474 | 51,474 |
| Other assets, net | 201,151 | 2,887 | 1,738 | 132 | 43 | 431,909 | 637,860 |
| Assets classified as held for sale and discontinued operations | - | - | - | - | - | - | - |
| Total assets | 3,543,756 | 1,291,869 | 2,251,134 | 4,951,764 | 8,764,595 | 1,754,711 | 22,557,829 |
| Liabilities and shareholders’ equity | |||||||
| Amounts owed to the Central Banks | 38 | - | - | - | - | - | 38 |
| Amounts owed to credit and financial institutions | 784,871 | 61,383 | 741,461 | 7,107,314 | 600,586 | - | 9,295,615 |
| Derivative financial instruments | 34,233 | 9,999 | 13,818 | 158,375 | 118,002 | - | 334,427 |
| Deposits from the public | 8,195,143 | 728,282 | 631,293 | 62,113 | 26,510 | - | 9,643,341 |
| Subordinated loans | - | 2,405 | 885 | - | 593,882 | - | 597,172 |
| Debt securities in issue | 81,976 | 20,570 | 33,121 | 146,162 | 20,013 | 361,335 | 663,177 |
| Other liabilities and provisions | 129,608 | 11,198 | 6,220 | 3,871 | 11,418 | 2,566 | 164,881 |
| Equity | - | - | - | - | - | 1,859,178 | 1,859,178 |
| Total liabilities and shareholders’ equity | 9,225,869 | 833,837 | 1,426,798 | 7,477,835 | 1,370,411 | 2,223,079 | 22,557,829 |
| Net assets (liabilities) before off balance sheet items | (5,682,113) | 458,032 | 824,336 | (2,526,071) | 7,394,184 | (468,368) | - |
| Off balance sheet items (net) | 1,900,780 | 275,832 | 32,696 | 39,701 | 53,592 | 1,538 | 2,304,139 |
| Net assets (liabilities) | (7,582,893) | 182,200 | 791,640 | (2,565,772) | 7,340,592 | (469,906) | (2,304,139) |
The Group's liquidity analysis as of 31 December 2009:
| Maturity | Up to 3 months | 3 – 6 months | 6 – 12 months | 1 – 3 years | Over 3 years | Unclear maturity | Total |
|---|---|---|---|---|---|---|---|
| Total assets | 6,197,996 | 1,591,833 | 2,170,085 | 5,016,625 | 10,251,355 | 1,724,423 | 26,952,317 |
| Total liabilities and shareholders’ equity | 9,865,248 | 1,568,611 | 1,856,579 | 9,281,309 | 2,849,462 | 1,531,108 | 26,952,317 |
| Off balance sheet items (net) | 1,191,638 | 163,784 | 286,408 | 289,897 | 211,697 | 233,568 | 2,376,992 |
| Net assets (liabilities) | (4,858,890) | (140,562) | 27,098 | (4,554,581) | 7,190,196 | (40,253) | (2,376,992) |
| The Group | The Bank | ||||||
| --- | --- | --- | --- | --- | |||
| 2010 | 2009 | 2010 | 2009 | ||||
| Liquidity ratio | 37.36% | 64.02% | 35.88% | 60.31% |
Liquidity ratio is calculated according to requirements of the Central Bank of Lithuania.
As of 31 December 2010 and 2009 the Group's and the Bank's liquidity ratio exceeded the statutory minimum required by the Bank of Lithuania (30 percent).
Page 81 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 38 ASSETS AND LIABILITIES STRUCTURE BY TERM TO MATURITY (CONTINUED)
Tables above show contractual/actual maturities. By managing liquidity, ALCO estimates expected maturities based on historical evidence (e.g. in respect of current deposits from public). Based on this data, also taking into account liquidity reserve which is available from the Parent (credit line facility), liquidity is manageable within the 12 months from the balance sheet date.
NOTE 39 CAPITAL ADEQUACY
The Group's regulatory capital as managed by its central Group Treasury is divided into two tiers:
- Tier 1 capital: share capital (net of any book values of the treasury shares), reserve capital, retained earnings;
- Tier 2 capital: qualifying subordinated loan capital, general and other reserves, qualifying current year profit;
- Deductible amounts: the book value of intangible assets; investments in credit and financial institutions above 10 percent; and IRB provision shortfall.
The risk-weighted assets are measured by using two methods – Standardized and Internal Ratings Based Approach (IRB). According to Standardized method assets are divided into 16 asset classes, IRB – seven. Considering the method used asset class, eligible collateral or guarantees, risk classes, scoring pools, country of the counterparty and other factors risk weight to every exposure is assigned.
The table below summarises the components of capital adequacy calculation and the ratios of the Group and the Bank for the years ended 31 December 2010:
| The Group | The Bank | |
|---|---|---|
| Tier 1 capital (less intangible assets) | 1,713,220 | 1,611,190 |
| Tier 2 capital | 997,473 | 956,219 |
| of which IRB provision excess | 75,575 | 34,321 |
| Less deductible investments | - | (76,734) |
| Less IRB provision shortfall | - | - |
| Risk weighted assets | 16,989,990 | 15,162,370 |
| of which risk weighted assets due to transitional capital requirements | - | |
| Capital adequacy ratio before transitional capital requirements according to Basel II requirements as of 31 December 2010 | 15.95% | 16.43% |
| Capital adequacy ratio according to Basel II requirements as of 31 December 2010 | 15.95% | 16.43% |
The table below summarises the components of capital adequacy calculation and the ratios of the Group and the Bank for the years ended 31 December 2009:
| The Group | The Bank | |
|---|---|---|
| Tier 1 capital (less intangible assets) | 1,358,258 | 1,251,826 |
| Tier 2 capital | 669,409 | 656,751 |
| of which IRB provision excess | 75,527 | 62,869 |
| Less deductible investments | - | (21,436) |
| Less IRB provision shortfall | - | - |
| Risk weighted assets | 17,515,212 | 14,585,462 |
| of which risk weighted assets due to transitional capital requirements | - | - |
| Capital adequacy ratio before transitional capital requirements according to Basel II requirements as of 31 December 2009 | 11.58% | 12.94% |
| Capital adequacy ratio according to Basel II requirements as of 31 December 2009 | 11.58% | 12.94% |
Page 82 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 40 NET FOREIGN CURRENCY POSITION
The following table presents the equivalent amount in thousands of LTL of the net position of assets and liabilities denominated in currencies other than LTL and EUR as of 31 December 2010:
| The Group | Currency | Rates | The Bank | |||
|---|---|---|---|---|---|---|
| Position | Percentage of capital | Position | Percentage of capital | |||
| 2,273,444 | 83.87 | EUR | 3.4528 | 2,448,428 | 98.30 | |
| (738) | (0.03) | U.S. Dollars (USD) | 2.6099 | (835) | (0.03) | |
| 23 | - | Canadian Dollars (CAD) | 2.6108 | 23 | - | |
| (45) | - | Russian Rubles (RUB) | 0.08554 | (45) | - | |
| 3,991 | 0.15 | Estonian Crone (EEK) | 0.22067 | 3,991 | 0.16 | |
| 5,682 | 0.21 | The remaining long positions | N/A | 5,152 | 0.21 | |
| (4,222) | (0.16) | The remaining short positions | N/A | (4,269) | (0.17) | |
| 9,696 | 0.36 | Open long position | N/A | 9,166 | 0.37 |
As of 31 December 2009:
| The Group | Currency | Rates | The Bank | |||
|---|---|---|---|---|---|---|
| Position | Percentage of capital | Position | Percentage of capital | |||
| 2,099,150 | 103.53 | EUR | 3.4528 | 2,038,827 | 108.04 | |
| (35,888) | (1.77) | U.S. Dollars (USD) | 2.4052 | (36,440) | (1.93) | |
| 28 | - | Canadian Dollars (CAD) | 2.2955 | 28 | 0.01 | |
| 415 | 0.02 | Russian Rubles (RUB) | 0.79465 | 415 | 0.02 | |
| 1,488 | 0.07 | Estonian Crone (EEK) | 0.22067 | 1,488 | 0.08 | |
| 4,244 | 0.21 | The remaining long positions | N/A | 3,192 | 0.16 | |
| (259) | (0.01) | The remaining short positions | N/A | (259) | (0.02) | |
| 36,147 | 1.78 | Open short position | N/A | 36,699 | 1.95 |
Based on requirements of the Bank of Lithuania, starting from 1 December 2004 EUR currency position was not included when calculating foreign currency open position.
As of 31 December 2010 and 2009 the Group complied with the foreign currency open position requirements set forth by the Bank of Lithuania.
NOTE 41 INTEREST RATE RISK MANAGEMENT
The Group's interest rate sensitivity in case of parallel shift by 1 p.p. in the yield curve, in LTL million is presented in the table below:
| Interest rate sensitivity | 2010 | 2009 |
|---|---|---|
| Effect to net interest income (ΔNII) | 57.9 | 27.3 |
| Effect to the market value of shareholders equity (delta 1%) | 22.6 | 38.3 |
| Off balance sheet credit commitments sensitivity to interest rate changes (delta 1%) (the Bank) | 2.3 | 10.7 |
| Off balance sheet credit commitments sensitivity to interest rate changes (delta 1%) (the Group) | 2.1 | 10 |
The Bank performs the interest rate risk management on the Group via provision of financing for its subsidiaries, and uses derivatives for hedging of interest rate risk.
Page 83 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
Value at Risk assessment results on total portfolios positions, in LTL thousand:
NOTE 41 INTEREST RATE RISK MANAGEMENT (CONTINUED)
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 8,314 | 31,534 | Interest rate risk (stand-alone) | 8,073 | 31,713 |
| 25 | 1,486 | Foreign exchange risk (stand-alone) | 25 | 1,500 |
| 149 | 220 | Equity price risk (stand-alone) | 149 | 220 |
| (173) | (1,882) | Diversification effect | (172) | (1,905) |
| 8,315 | 31,358 | Total | 8,075 | 31,528 |
VaR figures in table above include both banking and trading books.
Market risk exposure (VaR) significantly decreased in 2010 due to lower volatility of market parameters (interest rates, share prices, currency rates), lower business volumes and decrease in foreign currency positions.
The table below provides the Group's interest rate gap analysis as of 31 December 2010:
| Maturity | Up to 1 year | 1 - 3 year | Over 3 years | Total |
|---|---|---|---|---|
| Assets | ||||
| Net loans | 12,397,453 | 432,682 | 2,927,891 | 15,758,026 |
| Finance lease receivable, net | 1,617,423 | 64,021 | 10,920 | 1,692,364 |
| Debt securities | 115,874 | 1,479,146 | 258,237 | 1,853,257 |
| Interbank deposits and net loans | 622,221 | - | - | 622,221 |
| Other assets | - | - | - | - |
| Off balance sheet assets | 3,792,969 | 1,499,722 | 4,904,423 | 10,197,114 |
| Total interest rate sensitive assets | 18,545,940 | 3,475,571 | 8,101,471 | 30,122,982 |
| Liabilities | ||||
| Term deposits | 3,062,770 | 58,577 | 27,168 | 3,148,515 |
| Interbank deposits and loans | 2,195,713 | 5,864,306 | 1,124,353 | 9,184,372 |
| Other liabilities | 465,606 | 138,383 | 19,968 | 623,957 |
| Off balance sheet liabilities | 2,357,324 | 2,690,217 | 5,149,573 | 10,197,114 |
| Total interest rate sensitive liabilities | 8,081,413 | 8,751,483 | 6,321,062 | 23,153,958 |
| Gap | 10,464,527 | (5,275,912) | 1,780,409 | 6,969,024 |
| Assets, non sensitive to interest rate | 2,631,961 | |||
| Liabilities and equity, non sensitive to interest rate | 9,600,985 |
The table below provides the Group's interest rate gap analysis as of 31 December 2009:
| Maturity | Up to 1 year | 1 - 3 year | Over 3 years | Total |
|---|---|---|---|---|
| Assets | ||||
| Net loans | 13,316,373 | 560,512 | 3,274,206 | 17,151,091 |
| Finance lease receivable, net | 2,358,224 | 112,238 | 27,141 | 2,497,603 |
| Debt securities | 19,501 | 1,257,237 | 495,548 | 1,772,286 |
| Interbank deposits and net loans | 1,381,625 | - | - | 1,381,625 |
| Other assets | 17,356 | 11,637 | 24,402 | 53,395 |
| Off balance sheet assets | 4,819,619 | 962,632 | 3,047,433 | 8,829,684 |
| Total interest rate sensitive assets | 21,912,698 | 2,904,256 | 6,868,730 | 31,685,684 |
| Liabilities | ||||
| Term deposits | 4,918,720 | 67,575 | 19,805 | 5,006,100 |
| Interbank deposits and loans | 9,487,216 | 2,883,088 | 1,156,688 | 13,526,992 |
| Other liabilities | 506,841 | 126,338 | 18,584 | 651,763 |
| Off balance sheet liabilities | 3,513,526 | 1,946,580 | 3,451,409 | 8,911,515 |
| Total interest rate sensitive liabilities | 18,426,303 | 5,023,581 | 4,646,486 | 28,096,370 |
| Gap | 3,486,395 | (2,119,325) | 2,222,244 | 3,589,314 |
| Assets, non sensitive to interest rate | 4,096,317 | |||
| Liabilities and equity, non sensitive to interest rate | 7,767,462 |
Page 84 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 41 INTEREST RATE RISK MANAGEMENT (CONTINUED)
The table below provides the Bank's interest rate gap analysis as of 31 December 2010:
| Maturity | Up to 1 year | 1 - 3 year | Over 3 years | Total |
|---|---|---|---|---|
| Assets | ||||
| Net loans | 12,860,441 | 432,682 | 2,927,891 | 16,221,014 |
| Debt securities | 115,874 | 1,478,523 | 258,237 | 1,852,634 |
| Interbank deposits and net loans | 622,221 | - | - | 622,221 |
| Other assets | - | - | - | - |
| Off balance sheet assets | 3,792,969 | 1,499,722 | 4,904,423 | 10,197,114 |
| Total interest rate sensitive assets | 17,391,505 | 3,410,927 | 8,090,551 | 28,892,983 |
| Liabilities | ||||
| Term deposits | 3,160,187 | 58,577 | 27,168 | 3,245,932 |
| Interbank deposits and loans | 1,021,761 | 5,553,554 | 1,124,353 | 7,699,668 |
| Other liabilities | 465,606 | 138,383 | 19,968 | 623,957 |
| Off balance sheet liabilities | 2,357,324 | 2,690,217 | 5,149,573 | 10,197,114 |
| Total interest rate sensitive liabilities | 7,004,878 | 8,440,731 | 6,321,062 | 21,766,671 |
| Gap | 10,386,627 | (5,029,804) | 1,769,489 | 7,126,312 |
| Assets, non sensitive to interest rate | 2,332,393 | |||
| Liabilities and equity, non sensitive to interest rate | 9,458,705 |
The table below provides the Bank's interest rate gap analysis as of 31 December 2009:
| Maturity | Up to 1 year | 1 - 3 year | Over 3 years | Total |
|---|---|---|---|---|
| Assets | ||||
| Net loans | 13,588,921 | 625,512 | 3,274,206 | 17,488,639 |
| Debt securities | 19,501 | 1,256,613 | 495,548 | 1,771,662 |
| Interbank deposits and net loans | 1,381,625 | - | - | 1,381,625 |
| Other assets | - | - | - | - |
| Off balance sheet assets | 4,819,619 | 962,632 | 3,047,433 | 8,829,684 |
| Total interest rate sensitive assets | 19,809,666 | 2,844,757 | 6,817,187 | 29,471,610 |
| Liabilities | ||||
| Term deposits | 5,335,518 | 67,575 | 19,805 | 5,422,898 |
| Interbank deposits and loans | 7,208,368 | 2,572,336 | 949,520 | 10,730,224 |
| Other liabilities | 506,841 | 128,351 | 18,584 | 653,776 |
| Off balance sheet liabilities | 3,513,526 | 1,946,580 | 3,451,409 | 8,911,515 |
| Total interest rate sensitive liabilities | 16,564,253 | 4,714,842 | 4,439,318 | 25,718,413 |
| Gap | 3,245,413 | (1,870,085) | 2,377,869 | 3,753,197 |
| Assets, non sensitive to interest rate | 3,410,664 | |||
| Liabilities and equity, non sensitive to interest rate | 7,245,692 |
Page 85 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 42 COMPLIANCE WITH REGULATORY REQUIREMENTS
As of 31 December 2010 both the Group and the Bank were in compliance with the maximum lending to one customer, large exposure, related party lending, investment and open foreign currency position limits established by the Central Banks. During the year neither the Group nor the Bank received any sanctions from the Bank of Lithuania.
The local legislation require banks to prepare consolidated accounts for group entities engaged in financial services activities without consolidation of entities involved in other activities. To comply with this requirement the Bank consolidated all its subsidiaries except for UAB SEB Venture Capital, venture capital company, and UAB Litectus, foreclosed asset management company, and presents this information in this note.
Income Statement of the Group excluding UAB SEB Venture Capital and UAB Litectus entities for the year ended 31 December 2010 and 2009
| 2010 | 2009 | |
|---|---|---|
| Interest income | 767,825 | 1,150,152 |
| Interest expenses | (498,763) | (821,514) |
| Net interest income | 269,062 | 328,638 |
| Impairment losses on loans | (119,346) | (1,162,047) |
| Impairment losses on lease portfolio | (41,350) | (552,477) |
| Provisions for guarantees | 6,793 | (17,010) |
| Other impairment losses | (2) | (323) |
| Total impairment losses | (153,905) | (1,731,857) |
| Net interest income after provisions | 115,157 | (1,403,219) |
| Net service charges and other income | 189,122 | 166,861 |
| Net gain on equity investments | 3,061 | 10,741 |
| Net gain on operations with debt securities and financial instruments | (31,116) | (24,450) |
| Net gain on disposal of subsidiaries | 29,700 | - |
| Net foreign exchange gain | 59,522 | 72,884 |
| Impairment loss on investment in available for sale securities | - | (14,712) |
| Staff costs | (130,564) | (156,333) |
| Other administrative expenses | (177,493) | (190,568) |
| Operating (loss) profit | 57,389 | (1,538,796) |
| Impairment loss on intangible assets | (71,755) | (169,550) |
| Profit before income tax | (14,366) | (1,708,346) |
| Income tax | (2,196) | 265,949 |
| (Loss) Profit for the year from continuing operations | (16,562) | (1,442,397) |
| Profit for the year from discontinued operations | - | 18,463 |
| Net (loss) income | (16,562) | (1,423,934) |
| Attributable to: | ||
| Equity holders of the parent | (16,562) | (1,423,934) |
| (Loss) Profit for the year from continuing operations | (16,562) | (1,442,397) |
| Profit for the year from discontinued operations | - | 18,463 |
| Non controlling interest | - | - |
| (Loss) Profit for the year from continuing operations | - | - |
| (Loss) Profit for the year from discontinued operations | - | - |
| (16,562) | (1,423,934) | |
| Earnings per share, attributable to equity holders of the parent (LTL): | ||
| Basic | (1.07) | (93.41) |
| Diluted | (1.07) | (93.41) |
Page 86 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 42 COMPLIANCE WITH REGULATORY REQUIREMENTS (CONTINUED)
Statement of Comprehensive Income for the Group excluding UAB SEB Venture Capital and UAB Litec tus entities for the year ended 31 December 2010 and 2009
| 2010 | 2009 | |
|---|---|---|
| Net (loss) income for the year | (16,562) | (1,423,934) |
| Other comprehensive income: | ||
| Net gain on available for sale assets | 3,956 | 20,362 |
| - Net gain, before taxes | 3,956 | 5,650 |
| - Impairment loss on investment in available for sale securities recognised in income statement, before taxes | - | 14,712 |
| Amortisation of financial assets revaluation reserve of reclassified financial assets | 3,025 | 2,937 |
| Income tax relating to the components of other comprehensive income | (1,050) | (5,521) |
| Total other comprehensive income | 5,931 | 17,778 |
| Total comprehensive income | (10,631) | (1,406,156) |
Page 87 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 42 COMPLIANCE WITH REGULATORY REQUIREMENTS (CONTINUED)
Statement of Financial Position of the Group excluding UAB SEB Venture Capital and UAB Litecus entities as of 31 December 2010 and 2009
| 2010 | 2009 | |
|---|---|---|
| Assets | ||
| Cash in hand | 428,427 | 420,403 |
| Balances with the Central Banks | 527,258 | 384,981 |
| Due from banks, net | 1,177,833 | 3,118,698 |
| Government securities available for sale | 164,895 | 65,818 |
| Financial assets at fair value through profit and loss | 45,733 | 19,203 |
| Derivative financial instruments | 233,911 | 153,483 |
| Loans to credit and financial institutions, net | 55,399 | 20,069 |
| Loans to customers, net | 15,680,730 | 17,194,089 |
| Finance lease receivable, net | 1,694,691 | 2,503,885 |
| Investment securities: | ||
| - loans and receivables | 1,629,290 | 1,719,512 |
| - available for sale | 1,276 | 337 |
| - held to maturity | 13,832 | 12,748 |
| Investments in subsidiaries | 25,000 | 25,000 |
| Intangible fixed assets | 148,733 | 169,046 |
| Property, plant and equipment | 45,988 | 56,505 |
| Assets under operating lease | 2,581 | 4,275 |
| Investment property | 51,474 | 62,231 |
| Deferred tax asset | 272,900 | 276,781 |
| Other assets, net | 363,393 | 332,885 |
| Assets classified as held for sale and discontinued operations | - | 419,065 |
| Total assets | 22,563,344 | 26,959,014 |
| Liabilities | ||
| Amounts owed to the Central Banks | 38 | 31 |
| Amounts owed to credit and financial institutions | 9,295,615 | 13,650,723 |
| Derivative financial instruments | 334,427 | 303,643 |
| Deposits from the public | 9,644,674 | 9,673,732 |
| Accrued expenses and deferred income | 29,824 | 44,009 |
| Income tax payable | - | 185 |
| Subordinated loans | 597,172 | 597,195 |
| Debt securities in issue | 663,177 | 697,841 |
| Other liabilities and provisions | 134,956 | 78,576 |
| Liabilities included in assets classified as held for sale and discontinued operations | - | 385,335 |
| Total liabilities | 20,699,883 | 25,431,270 |
| Equity | ||
| Equity attributable to equity holder of the parent | ||
| Paid in capital | 1,034,575 | 1,034,575 |
| Reserve capital | 1,034 | 1,034 |
| Financial assets revaluation reserve | (8,850) | (14,781) |
| Legal reserves | 164,540 | 134,273 |
| General and other reserves | 10,846 | 9,778 |
| Net income for the period and retained earnings | 661,316 | 362,865 |
| 1,863,461 | 1,527,744 | |
| Non controlling interest | - | - |
| Total equity | 1,863,461 | 1,527,744 |
| Total liabilities and equity | 22,563,344 | 26,959,014 |
Page 88 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 42 COMPLIANCE WITH REGULATORY REQUIREMENTS (CONTINUED)
Statement of Changes in Equity of the Group excluding UAB SEB Venture Capital and UAB Litecus entities for the year ended 31 December 2010 and 2009
| Equity attributable to equity holder of the parent | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Share capital | Reserve capital | Financial assets revaluation reserve | Legal reserve | General and other reserves | Retained earnings | Total before non controlling interest | Non controlling interest | Total | |
| 31 December 2008 | 1,034,575 | 1,034 | (32,559) | 76,508 | 9,338 | 1,154,004 | 2,242,900 | - | 2,242,900 |
| Net change in available for sale investments, net of deferred tax | - | - | 14,841 | - | - | - | 14,841 | - | 14,841 |
| Amortisation of financial assets revaluation reserve of reclassified financial assets | - | - | 2,937 | - | - | - | 2,937 | - | 2,937 |
| Net income for the period | - | - | - | - | - | (1,423,934) | (1,423,934) | (1,423,934) | |
| Net income recognized directly in equity | - | - | 17,778 | - | - | (1,423,934) | (1,406,156) | - | (1,406,156) |
| Shareholder's contribution | - | - | - | - | - | 690,560 | 690,560 | - | 690,560 |
| Share-based compensation | - | - | - | - | 440 | - | 440 | - | 440 |
| Transfer to reserves | - | - | - | 57,766 | - | (57,766) | - | - | - |
| 31 December 2009 | 1,034,575 | 1,034 | (14,781) | 134,273 | 9,778 | 362,865 | 1,527,744 | - | 1,527,744 |
| Net change in available for sale investments, net of deferred tax | - | - | 2,906 | - | - | - | 2,906 | - | 2,906 |
| Amortisation of financial assets revaluation reserve of reclassified financial assets | - | - | 3,025 | - | - | - | 3,025 | - | 3,025 |
| Net income for the period | - | - | - | - | - | (16,562) | (16,562) | (16,562) | |
| Net income recognized directly in equity | - | - | 5,931 | - | - | (16,562) | (10,631) | - | (10,631) |
| Shareholder's contribution | - | - | - | - | - | 345,280 | 345,280 | - | 345,280 |
| Share-based compensation | - | - | - | - | 1,068 | - | 1,068 | - | 1,068 |
| Transfer to reserves | - | - | - | 30,265 | - | (30,265) | - | - | - |
| 31 December 2010 | 1,034,575 | 1,034 | (8,850) | 164,540 | 10,846 | 661,316 | 1,863,461 | - | 1,863,461 |
Page 89 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 42 COMPLIANCE WITH REGULATORY REQUIREMENTS (CONTINUED)
Statement of Cash Flows of the Group excluding UAB SEB Venture Capital and UAB Litecus entities for the year ended 31 December 2010 and 2009
| 2010 | 2009 | |
|---|---|---|
| Cash from operating activities | ||
| Interest income received | 774,919 | 1,134,173 |
| Interest expenses paid | (555,297) | (900,748) |
| Net foreign currency exchange gain | 41,790 | 68,394 |
| Unrealised translation gain | 17,732 | 4,214 |
| Net gain (loss) in securities trading and financial instruments | (31,116) | (24,450) |
| Net commission and service income | 189,236 | 166,861 |
| Life insurance operations | - | 142,157 |
| Staff costs | (131,540) | (161,976) |
| Other payments | (157,687) | (150,510) |
| Net cash from operating activities before change in operating assets | 148,037 | 278,115 |
| Changes in operating assets | ||
| (Increase) decrease in compulsory balances with the Central Bank | (11,145) | 66,835 |
| Decrease (increase) in due from banks and loans to credit and financial institutions | 990,178 | (1,147,849) |
| Decrease in loans to customers | 1,390,146 | 1,946,319 |
| Decrease of finance lease receivable | 728,733 | 1,130,435 |
| (Increase) decrease in other current assets | 18,798 | (98,474) |
| Net change in operating assets | 3,116,710 | 1,897,266 |
| Changes in operating liabilities | ||
| (Decrease) in deposits from public | (30,265) | (556,369) |
| Increase (decrease) in accrued expenses, deferred income and other liabilities | 57,903 | (37,824) |
| Net change in operating liabilities | 27,638 | (594,193) |
| Net cash (to) from operating activities before income tax | 3,292,385 | 1,581,188 |
| Income tax paid | (222) | (35,537) |
| Net cash (to) from operating activities after income tax | 3,292,163 | 1,545,651 |
| Cash flow from (to) investing activities | ||
| Purchase of tangible and intangible fixed assets, net | (65,536) | (115,630) |
| (Increase) decrease in Government securities available for sale | (92,160) | 33,444 |
| Disposal of subsidiaries, net of cash disposed | 67,767 | - |
| (Decrease) increase of investment in other securities and derivatives | 10,593 | (58,906) |
| Net gain on sale non-current asset held for disposal | - | - |
| Cash used in (to) investing activities | (79,336) | (141,092) |
| Cash flow from (to) financing activities | ||
| Shareholder contributions | 345,280 | 690,560 |
| Increase (decrease) in amounts owed to the Central Banks | 7 | 7 |
| Increase (decrease) in amounts owed to credit and financial institutions | (4,320,558) | (1,412,971) |
| Decrease (increase) in subordinated loans | - | (5,992) |
| Debt securities issued, net | (13,764) | 90,048 |
| Cash received (used in) financing activities | (3,989,035) | (638,348) |
| Net increase (decrease) in cash | (776,208) | 766,211 |
| Cash 1 January | 2,299,863 | 1,533,652 |
| Cash 31 December | 1,523,655 | 2,299,863 |
| Specified as follows: | ||
| Balance available for withdrawal with the Central Banks | 131,133 | - |
| Overnight deposits | 395,858 | 125,677 |
| Cash on hand | 428,427 | 420,403 |
| Current accounts with other banks | 568,237 | 1,753,783 |
| 1,523,655 | 2,299,863 |
Page 90 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 43 RELATED PARTIES
A number of banking transactions are entered into with related parties in the normal course of business. The transactions with top parent company include loans, deposits and debt instrument transactions. Transactions with SEB group (including parent bank) during the year can be specified as follows:
| The Group | Interest rate % | The Bank | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| 1,139,291 | 3,071,547 | Outstanding loan amount at year end | 0.22-2.86 | 1,138,822 | 3,071,409 |
| 73,984 | 29,186 | Derivative financial instruments at the year ended | - | 73,984 | 29,186 |
| 2,958 | 4,150 | Other assets at the year end | - | 2,182 | 1,708 |
| Outstanding deposit amount at the year end | 0.1-5.5 | 7,729,838 | 10,537,685 | ||
| 9,230,130 | 13,354,393 | Other liabilities at the year end | - | 652,883 | 307,622 |
| 655,616 | 307,622 | Commitments to grant loans at the year end | - | 2,362 | 12,420 |
| 2,532 | 12,420 | Guarantees issued at the year end | - | 7,269 | 20,787 |
| 7,269 | 20,787 | Guarantees received at the year end | - | 82,946 | 99,468 |
| 82,946 | - | Guarantees received at the year end | - | 9,854 | 13,060 |
| 9,870 | 13,216 | Interest income | - | (305,216) | (415,793) |
| (346,995) | (503,446) | Interest expense | - | - | - |
| Other services received and cost incurred from SEB group, net | - | (15,594) | (13,929) |
Transactions with parent bank during the year can be specified as follows:
| The Group | Interest rate % | The Bank | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| 1,113,577 | 3,052,852 | Outstanding loan amount at the year end | 0.22-2.12 | 1,113,473 | 3,052,714 |
| 73,984 | 29,186 | Derivative financial instruments at the year ended | - | 73,984 | 29,186 |
| 738 | 2,696 | Other assets at the year end | - | 150 | 345 |
| Outstanding deposit amount at the year end | 0.29-5.5 | 7,672,638 | 10,526,690 | ||
| 9,172,930 | 13,343,398 | Other liabilities at year end | - | 651,176 | 307,467 |
| 651,245 | 307,467 | Unused granted overdraft facilities | - | 29 | 8,417 |
| 199 | 8,417 | Guarantees issued at the year end | - | - | 4,708 |
| - | 4,708 | Guarantees received at the year end | - | 3,216 | 5,033 |
| 3,216 | 5,033 | Interest income | - | 9,348 | 12,689 |
| 9,352 | 12,694 | Interest expense | - | (305,078) | (415,714) |
| (346,857) | (503,367) | Other services received and cost incurred from SEB group, net | - | (11,320) | (10,072) |
Page 91 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 43 RELATED PARTIES (CONTINUED)
Transactions between the Bank and its subsidiaries during the year can be specified as follows:
| Interest rate % | The Bank | ||
|---|---|---|---|
| 2010 | 2009 | ||
| Off-balance sheet commitments as of 31 December: | |||
| Agreements to grant loans | - | 197,569 | 203,367 |
| Guarantees issued | - | 13,330 | 12,571 |
| Letters of credit issued | - | 752 | - |
| Outstanding loan amounts at year end: | |||
| AB SEB Lizingas | 0.247-1.24 | 451,237 | 719,787 |
| UAB SEB Venture Capital | 2.64 | 14,001 | 11,000 |
| Outstanding deposit amounts at year end: | |||
| UAB SEB Venture Capital | 0.1 | 1,333 | 749 |
| UAB SEB Investiciţu Valdymas | 0.05-0.1 | 17,774 | 14,153 |
| UAB SEB Enskilda | 0.05-0.75 | 9,325 | 10,402 |
| UAB SEB Gyvybes Draudimas | - | n/a | 6,839 |
| UAB Litec tus | - | n/a | 3,194 |
| AB SEB Lizingas | 0.05-0.68 | 92,942 | 394,200 |
| Other assets at year end | - | 2,361 | 2,377 |
| Issued debt securities purchased by subsidiaries | - | - | 2,013 |
| Other liabilities at year end | - | 7 | - |
| Interest income | - | 6,688 | 28,005 |
| Interest expense | - | (2,241) | (1,309) |
| Dividend income | - | 3,734 | 4,816 |
| Other services received and cost incurred from subsidiaries, net | - | 12,970 | 16,220 |
| Impairment losses for loan outstanding from AB SEB Lizingas | 391,000 | (391,000) |
As of 31 December 2009 the Bank has accounted for a provision for the loan receivable from subsidiary AB SEB Lizingas in the amount of LTL 391,000 thousand, that were reversed in 2010, when several loans where capitalised to cover AB SEB Lizingas losses (see note 25).
For the year 2010 the Bank disbursed LTL 374,091 thousand (2009: LTL 499,362 thousand) to AB SEB Lizingas according lending agreements.
Transactions with venture capital associate during the year can be specified as follows:
| The Group | Interest rate % | The Bank | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| 7,600 | 8,233 | Outstanding loan amount at the year end | 3.01-5.8 | 3,879 | 4,144 |
| 91 | 11 | Outstanding deposit amount at the year end | - | 91 | 11 |
| 202 | 114 | Agreements to grant loans and other off balance commitments | - | 202 | 114 |
| 689 | 750 | Interest income | - | 365 | 33 |
| (2) | - | Interest expense | - | (2) | - |
| 29 | - | Other services received and cost incurred, net | - | 27 | - |
Page 92 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 43 RELATED PARTIES (CONTINUED)
The loans issued to directors and other key management personnel (and close family members) are repayable on a regular basis over the period of loan. Transactions with key management (the Board members) during the year can be specified as follows:
| The Group | Interest rate % | The Bank | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| Outstanding loan amount | |||||
| 4,846 | 4,706 | at the year end | 3 | 4,846 | 4,706 |
| 1 | 4 | Finance lease receivable | 3 | - | - |
| 40 | 4 | Other assets | - | 40 | 4 |
| Outstanding deposit amount | |||||
| 774 | 1,130 | at the year end | 0.05-0.7 | 774 | 1,130 |
| Commitments to grant loans | |||||
| 81 | - | at the year end | - | 81 | - |
| 2,692 | 3,008 | Payroll | - | 2,692 | 3,008 |
| - | - | Bonuses | - | - | - |
| 828 | 936 | Social security | - | 828 | 936 |
| 1,241 | 3,294 | Other payments (incl. social security) | - | 1,241 | 3,294 |
| 148 | 252 | Interest income | - | 148 | 249 |
| (11) | (84) | Interest expense | - | (11) | (84) |
| 2 | - | Other income, net | - | 2 | - |
NOTE 44 ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS
As of 31 December 2009 assets classified as held for sale and discontinued operations accounted by the Bank were as follows:
| 2009 | |
|---|---|
| Shares of UAB SEB Gyvybes Draudimas | 10,325 |
| Shares UAB Litecus | 3,500 |
| Total assets classified as held for sale and discontinued operations | 13,825 |
The assets and liabilities related to the companies UAB SEB Gyvybes Draudimas and UAB Litecus that are a part of Life insurance and Baltic Division segments have been presented as held for sale following the approval of the Group's management and shareholders. The transactions held place correspondently on 13 January 2010 and 26 February 2010.
As of 31 December 2009 assets and liabilities of disposal group classified as held for sales by the Group were as follows:
UAB SEB Gyvybes Draudimas
| Assets | 2009 |
|---|---|
| Due from banks, net | 220 |
| Financial assets designated at fair value | 404,419 |
| Intangible fixed assets | 214 |
| Property, plant and equipment | 113 |
| Other assets, net of impairment losses | 10,599 |
| Total assets | 415,565 |
| Liabilities | |
| Liabilities in life insurance operations and to investment contract holders | 379,034 |
| Accrued expenses and deferred income | 1,187 |
| Other liabilities and provisions | 5,114 |
| Total liabilities | 385,335 |
| Net assets of the disposal group | 30,230 |
Page 93 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 44 ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS (CONTINUED)
UAB Litec tus
| Assets | 2009 |
|---|---|
| Property, plant and equipment | 13 |
| Other assets, net of impairment losses | 57 |
| Total assets | 70 |
| Liabilities | |
| Accrued expenses and deferred income | 1 |
| Other liabilities and provisions | 11 |
| Total liabilities | 12 |
| Net assets of the disposal group | 58 |
For the year ended 31 December 2009 profit (losses) from discontinued operations of the Group were as follows:
UAB SEB Gyvybes Draudimas
| 2009 | |
|---|---|
| Revenues | 162,770 |
| Expenses | (134,432) |
| Operating profit | 28,338 |
| Other income and expenses | (276) |
| Administrative expenses | (9,389) |
| Profit before tax of discontinued operations | 18,673 |
| Income tax benefit (expense) | (210) |
| Profit from discontinued operations | 18,463 |
UAB Litec tus
| 2009 | |
|---|---|
| Revenues | - |
| Expenses | - |
| Operating profit | - |
| Other income and expenses | - |
| Administrative expenses | (449) |
| Profit before tax of discontinued operations | (449) |
| Income tax benefit (expense) | 44 |
| Profit from discontinued operations | (405) |
For the year ended 31 December 2009 cash flows from discontinued operations of the Group were as follows:
| 2009 | |
|---|---|
| Net cash flow from operating activities | 35,396 |
| Net cash flow from investing activities | (39,439) |
| Net cash flow from financing activities | 3,500 |
As of 31 December 2010 and 2009 major amount of the Group's non-current assets held for sale comprise of UAB SEB lizingas foreclosed assets held for sale (mainly trucks and other vehicles), that are expected to be sold in one year.
Page 94 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 44 ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS (CONTINUED)
Assets foreclosed or returned after termination of lease agreements are presented in the table below:
| Net value as of 31 December 2009 | Foreclosed or returned | Sold | Net value as of 31 December 2010 | |
|---|---|---|---|---|
| Cars and mini-vans | 5,763 | 44,619 | 47,974 | 2,408 |
| Trucks | 49,890 | 34,826 | 74,702 | 10,014 |
| Manufacturing equipment | 4,600 | 4,275 | 4,876 | 3,999 |
| Construction equipment | 2,162 | 7,554 | 6,121 | 3,595 |
| Agricultural equipment | 403 | 152 | 507 | 48 |
| Real estate | 3,922 | 40,674 | 18,749 | 25,847 |
| Other assets | 461 | 2,661 | 1,439 | 1,683 |
| 67,201 | 134,761 | 154,368 | 47,594 |
Net assets classified as held for sale are presented in the table below:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Foreclosed assets or assets returned after | ||||
| 133,357 | 114,575 | termination of agreements | 29 | - |
| (85,734) | (47,374) | Impairment losses | - | - |
| Foreclosed assets or assets returned after | ||||
| 47,623 | 67,201 | termination of agreements, net | 29 | - |
NOTE 45 APPROPRIATION OF PROFIT AND TRANSFERS OF RESERVES
The following Bank's loss appropriations and transfers of reserves were proposed to annual shareholders meeting:
| Legal reserve | Net loss for the period | Retained earnings | |
|---|---|---|---|
| 31 December 2010 | 163,221 | (12,058) | 571,318 |
| Profit (loss) appropriation to Legal reserve | 27,963 | - | (27,963) |
| Profit (loss) appropriation to Retained earnings | - | 12,058 | (12,058) |
| 31 December 2010 after appropriation of profit and transfers to reserves | 191,184 | - | 531,297 |
Profit (loss) appropriation of other Group companies will be approved during shareholders meetings of each subsidiary separately.
NOTE 46 OFF BALANCE SHEET ITEMS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 1,937,253 | 1,983,430 | Agreements to grant loans | 2,134,822 | 2,186,797 |
| 491,480 | 564,861 | Guarantees issued | 504,810 | 577,432 |
| 102,511 | 89,458 | Letters of credit issued | 103,263 | 89,458 |
| Commitments to purchase assets and other commitments | ||||
| 259,857 | 306,665 | - | - | |
| 12 | 391 | Commitments to sell securities | 12 | 391 |
| 38 | 23 | Customs guarantees collateralised by deposits | 38 | 23 |
Legal proceedings
There were several proceedings outstanding against the Group and the Bank at 31 December 2010 and 2009. No provision has been made as professional advice indicates that it is unlikely that any significant loss will arise.
Page 95 of 124
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
(All amounts in LTL thousand unless otherwise stated)
NOTE 46 OFF BALANCE SHEET ITEMS (CONTINUED)
As of 31 December 2009 rental off balance sheet commitments of the Group amounted to LTL 168,461 thousand (2009: LTL 239,886 thousand) and rental off balance sheet commitments of the Bank amounted to LTL 167,266 thousand (2009: LTL 170,720 thousand). All non-cancellable commitments fall into the period within ten years.
The future lease rental payments receivable under non-cancellable operating lease can be specified as follows:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| 945 | 1,497 | Short term deferred income (up to 1 year) | 3 | - |
| 1,639 | 1,164 | Long term deferred income (up to 5 years) | - | - |
| Total future lease and rental payments under non-cancellable operating lease | 3 | - | ||
| 2,584 | 2,661 |
The Bank has signed an agreement with European Investment Fund for financing micro and medium enterprises according to JEREMIE program. Under the agreement, the maximum loan amount available from EIF is LTL 184,034 thousand, as of 31 Dec 2010 LTL 17,264 thousand was obtained. Respectively the Bank pledged to EIF current and future funds in the accounts opened for EIF deposits in the maximum amount of LTL 184,034 thousand. As of 31 December 2010, LTL 17,099 thousand were placed in the accounts and pledged.
NOTE 47 POST BALANCE SHEET EVENTS
On 28 February 2011 the Bank has signed an agreement to dispose 100% its subsidiary UAB SEB Enskilda. On 3 March 2011 100% of subsidiary shares were sold to Skandinaviska Enskilda Banken AB (publ), for the amount of LTL 10,092 thousand.
After the balance sheet date the Bank successfully completed 11 debt securities issues with the nominal value of LTL 22.23 million.
The Bank started 3 debt securities issues after 31 December 2010, which have not been completed yet. As of 9 March 2010 they amounted to LTL 7,540 thousand and were accounted for in 'other liabilities and provisions' line in the balance sheet.
After the balance sheet date 21 debt securities issue with the nominal value of LTL 578,071 thousand were redeemed.
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Disclosure form concerning the compliance with the Governance Code for the companies listed on the regulated market
The public company „Name of Issuer“, following Article 21 paragraph 3 of the Law on Securities of the Republic of Lithuania and item 24.5 of the Listing Rules of NASDAQ OMX Vilnius, discloses its compliance with the Governance Code, approved by the VSE for the companies listed on the regulated market, and its specific provisions. In the event of non-compliance with the Code or with certain provisions thereof, it must be specified which provisions are not complied with and the reasons of non-compliance.
| PRINCIPLES/ RECOMMENDATIONS | YES/NO /NOT APPLICABLE | COMMENTARY |
|---|---|---|
| Principle I: Basic Provisions | ||
| The overriding objective of a company should be to operate in common interests of all the shareholders by optimizing over time shareholder value. | ||
| 1.1. A company should adopt and make public the company's development strategy and objectives by clearly declaring how the company intends to meet the interests of its shareholders and optimize shareholder value. | YES | |
| 1.2. All management bodies of a company should act in furtherance of the declared strategic objectives in view of the need to optimize shareholder value. | YES | |
| 1.3. A company's supervisory and management bodies should act in close co-operation in order to attain maximum benefit for the company and its shareholders. | YES | |
| 1.4. A company's supervisory and management bodies should ensure that the rights and interests of persons other than the company's shareholders (e.g. employees, creditors, suppliers, clients, local community), participating in or connected with the company's operation, are duly respected. | YES |
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| Principle II: The corporate governance framework The corporate governance framework should ensure the strategic guidance of the company, the effective oversight of the company's management bodies, an appropriate balance and distribution of functions between the company's bodies, protection of the shareholders' interests. | ||
|---|---|---|
| 2.1. Besides obligatory bodies provided for in the Law on Companies of the Republic of Lithuania - a general shareholders' meeting and the chief executive officer, it is recommended that a company should set up both a collegial supervisory body and a collegial management body. The setting up of collegial bodies for supervision and management facilitates clear separation of management and supervisory functions in the company, accountability and control on the part of the chief executive officer, which, in its turn, facilitate a more efficient and transparent management process. | YES | |
| 2.2. A collegial management body is responsible for the strategic management of the company and performs other key functions of corporate governance. A collegial supervisory body is responsible for the effective supervision of the company's management bodies. | YES | |
| 2.3. Where a company chooses to form only one collegial body, it is recommended that it should be a supervisory body, i.e. the supervisory board. In such a case, the supervisory board is responsible for the effective monitoring of the functions performed by the company's chief executive officer. | IRRELEVANT | |
| 2.4. The collegial supervisory body to be elected by the general shareholders' meeting should be set up and should act in the manner defined in Principles III and IV. Where a company should decide not to set up a collegial supervisory body but rather a collegial management body, i.e. the board, Principles III and IV should apply to the board as long as that does not contradict the essence and purpose of this body.¹ | NO | Not all of these principles recommendations/provisions are adhered to a full extent (comments at each recommendation/provision) |
¹ Provisions of Principles III and IV are more applicable to those instances when the general shareholders' meeting elects the supervisory board, i.e. a body that is essentially formed to ensure oversight of the company's board and the chief executive officer and to represent the company's shareholders. However, in case the company does not form the supervisory board but rather the board, most of the recommendations set out in Principles III and IV become important and applicable to the board as well. Furthermore, it should be noted that certain recommendations, which are in their essence and nature applicable exclusively to the supervisory board, should not be applied to the board, as the competence and functions of these bodies according to the Law on Companies of the Republic of Lithuania (Official Gazette, 2003, No 123-5574) are different. For instance, item 3.1 of the Code concerning oversight of the management bodies applies to the extent it concerns the oversight of the chief executive officer of the company, but not of the board itself; item 4.1 of the Code concerning recommendations to the management bodies applies to the extent it relates to the provision of recommendations to the company's chief executive officer; item 4.4 of the Code concerning independence of the collegial body elected by the general meeting from the company's management bodies is applied to the extent it concerns independence from the chief executive officer.
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| 2.5. Company's management and supervisory bodies should comprise such number of board (executive directors) and supervisory (non-executive directors) board members that no individual or small group of individuals can dominate decision-making on the part of these bodies.² | YES | The board (executives directors) consists of 5 (five) members.
The supervisory council consists of 5 (five) members. |
| --- | --- | --- |
| 2.6. Non-executive directors or members of the supervisory board should be appointed for specified terms subject to individual re-election, at maximum intervals provided for in the Lithuanian legislation with a view to ensuring necessary development of professional experience and sufficiently frequent reconfirmation of their status. A possibility to remove them should also be stipulated however this procedure should not be easier than the removal procedure for an executive director or a member of the management board. | YES | Members of the supervisory council are appointed for a four year tenure. Abiding by the bank's Articles of Association and according to its practice, a member of the supervisory council may be re-elected for another tenure. The number of tenures for members of the supervisory council is unlimited. |
| 2.7. Chairman of the collegial body elected by the general shareholders' meeting may be a person whose current or past office constitutes no obstacle to conduct independent and impartial supervision. Where a company should decide not to set up a supervisory board but rather the board, it is recommended that the chairman of the board and chief executive officer of the company should be a different person. Former company's chief executive officer should not be immediately nominated as the chairman of the collegial body elected by the general shareholders' meeting. When a company chooses to departure from these recommendations, it should furnish information on the measures it has taken to ensure impartiality of the supervision. | YES | Chairman of the bank's supervisory council has never been the chief executive of the bank. |
| Principle III: The order of the formation of a collegial body to be elected by a general shareholders' meeting
The order of the formation a collegial body to be elected by a general shareholders' meeting should ensure representation of minority shareholders, accountability of this body to the shareholders and objective monitoring of the company's operation and its management bodies.³ | | |
| 3.1. The mechanism of the formation of a collegial body to be elected by a general shareholders' meeting (hereinafter in this Principle referred to as the 'collegial body') should ensure objective and fair monitoring of the company's management bodies as well as representation of minority shareholders. | YES | Provisions of the present recommendation are implemented by disclosing information to shareholders on candidates to the Supervisory Council of the Bank, by filling out a detailed questionnaire approved by the Bank of Lithuania on an individual's qualifications, |
² Definitions 'executive director' and 'non-executive director' are used in cases when a company has only one collegial body.
³ Attention should be drawn to the fact that in the situation where the collegial body elected by the general shareholders' meeting is the board, it is natural that being a management body it should ensure oversight not of all management bodies of the company, but only of the single-person body of management, i.e. the company's chief executive officer. This note shall apply in respect of item 3.1 as well.
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| expertise etc.; statements of the candidates to the Supervisory Council members on their current position with the Bank or with its subsidiary companies group; prior to electing any person to the Supervisory Council as its member, a permit of the Bank of Lithuania is obtained, etc. | ||
|---|---|---|
| 3.2. Names and surnames of the candidates to become members of a collegial body, information about their education, qualification, professional background, positions taken and potential conflicts of interest should be disclosed early enough before the general shareholders' meeting so that the shareholders would have sufficient time to make an informed voting decision. All factors affecting the candidate's independence, the sample list of which is set out in Recommendation 3.7, should be also disclosed. The collegial body should also be informed on any subsequent changes in the provided information. The collegial body should, on yearly basis, collect data provided in this item on its members and disclose this in the company's annual report. | NO | No provision on informing a collegial body on any subsequent changes in the provided information is adhered to. |
| 3.3. Should a person be nominated for members of a collegial body, such nomination should be followed by the disclosure of information on candidate's particular competences relevant to his/her service on the collegial body. In order shareholders and investors are able to ascertain whether member's competence is further relevant, the collegial body should, in its annual report, disclose the information on its composition and particular competences of individual members which are relevant to their service on the collegial body. | YES | |
| 3.4. In order to maintain a proper balance in terms of the current qualifications possessed by its members, the collegial body should determine its desired composition with regard to the company's structure and activities, and have this periodically evaluated. The collegial body should ensure that it is composed of members who, as a whole, have the required diversity of knowledge, judgment and experience to complete their tasks properly. The members of the audit committee, collectively, should have a recent knowledge and relevant experience in the fields of finance, accounting and/or audit for the stock exchange listed companies. | NO | The Supervisory Council does not determine its desired composition and does not have it periodically evaluated, as it is elected by shareholders, and the candidates as well as their qualifications are approved by the Bank's supervisory authority, namely, the Bank of Lithuania, by issuing a permit to elect a person to the Supervisory Council as its member, therefore, in our opinion, this is sufficient in order to maintain a balance of qualifications of members of the collegiate body. Provisions number two and three are met. |
| 3.5. All new members of the collegial body should be offered a tailored program focused on introducing a member with his/her duties, corporate organization and activities. The collegial body should | NO | Candidates to the collegiate body as its members are approved by the Bank's supervisory authority, namely, the Bank of Lithuania, by issuing a permit to elect a |
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| conduct an annual review to identify fields where its members need to update their skills and knowledge. | person to the Supervisory Council as its member, also, the Bank of Lithuania is kept informed on changes in the data (including changes in qualifications) of the members, therefore, in our opinion, this is sufficient to ensure that that the bank's collegiate body would consist of only individuals with adequate qualifications, knowledge and skills. For these reasons, no individual programmes or annual reviews are conducted. | |
|---|---|---|
| 3.6. In order to ensure that all material conflicts of interest related with a member of the collegial body are resolved properly, the collegial body should comprise a sufficient^{4} number of independent^{5} members. | NOT APPLICABLE | The Bank has a single shareholder. |
| 3.7. A member of the collegial body should be considered to be independent only if he is free of any business, family or other relationship with the company, its controlling shareholder or the management of either, that creates a conflict of interest such as to impair his judgment. Since all cases when member of the collegial body is likely to become dependant are impossible to list, moreover, relationships and circumstances associated with the determination of independence may vary amongst companies and the best practices of solving this problem are yet to evolve in the course of time, assessment of independence of a member of the collegial body should be based on the contents of the relationship and circumstances rather than their form. The key criteria for identifying whether a member of the collegial body can be considered to be independent are the following: | ||
| 1) He/she is not an executive director or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) of the company or any associated company and has not been such during the last five years; | ||
| 2) He/she is not an employee of the company or some any company and has not been such during the last three years, except for cases when a member of the collegial body | NOT APPLICABLE | The Bank has a single shareholder. |
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| does not belong to the senior management and was elected to the collegial body as a representative of the employees; | ||
|---|---|---|
| 3) He/she is not receiving or has been not receiving significant additional remuneration from the company or associated company other than remuneration for the office in the collegial body. Such additional remuneration includes participation in share options or some other performance based pay systems; it does not include compensation payments for the previous office in the company (provided that such payment is no way related with later position) as per pension plans (inclusive of deferred compensations); | ||
| 4) He/she is not a controlling shareholder or representative of such shareholder (control as defined in the Council Directive 83/349/EEC Article 1 Part 1); | ||
| 5) He/she does not have and did not have any material business relations with the company or associated company within the past year directly or as a partner, shareholder, director or superior employee of the subject having such relationship. A subject is considered to have business relations when it is a major supplier or service provider (inclusive of financial, legal, counseling and consulting services), major client or organization receiving significant payments from the company or its group; | ||
| 6) He/she is not and has not been, during the last three years, partner or employee of the current or former external audit company of the company or associated company; | ||
| 7) He/she is not an executive director or member of the board in some other company where executive director of the company or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) is non-executive director or member of the supervisory board, he/she may not also have any other material relationships with executive directors of the company that arise from their participation in activities of other companies or bodies; |
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| 8) He/she has not been in the position of a member of the collegial body for over than 12 years;
9) He/she is not a close relative to an executive director or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) or to any person listed in above items 1 to 8. Close relative is considered to be a spouse (common-law spouse), children and parents. | NO | Up to now Supervisory Counsel Members were not |
| --- | --- | --- |
| 3.8. The determination of what constitutes independence is fundamentally an issue for the collegial body itself to determine. The collegial body may decide that, despite a particular member meets all the criteria of independence laid down in this Code, he cannot be considered independent due to special personal or company-related circumstances. | NO | Comment at 3.7 |
| 3.9. Necessary information on conclusions the collegial body has come to in its determination of whether a particular member of the body should be considered to be independent should be disclosed. When a person is nominated to become a member of the collegial body, the company should disclose whether it considers the person to be independent. When a particular member of the collegial body does not meet one or more criteria of independence set out in this Code, the company should disclose its reasons for nevertheless considering the member to be independent. In addition, the company should annually disclose which members of the collegial body it considers to be independent. | NO | Comment at 3.7 |
| 3.10. When one or more criteria of independence set out in this Code has not been met throughout the year, the company should disclose its reasons for considering a particular member of the collegial body to be independent. To ensure accuracy of the information disclosed in relation with the independence of the members of the collegial body, the company should require independent members to have their independence periodically re-confirmed. | NO | Comment at 3.7 |
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| 3.11. In order to remunerate members of a collegial body for their work and participation in the meetings of the collegial body, they may be remunerated from the company's funds.^{6}. The general shareholders' meeting should approve the amount of such remuneration. | IRRELEVANT | |
|---|---|---|
| Principle IV: The duties and liabilities of a collegial body elected by the general shareholders' meeting | ||
| The corporate governance framework should ensure proper and effective functioning of the collegial body elected by the general shareholders' meeting, and the powers granted to the collegial body should ensure effective monitoring^{7} of the company's management bodies and protection of interests of all the company's shareholders. | ||
| 4.1. The collegial body elected by the general shareholders' meeting (hereinafter in this Principle referred to as the 'collegial body') should ensure integrity and transparency of the company's financial statements and the control system. The collegial body should issue recommendations to the company's management bodies and monitor and control the company's management performance.^{8} | YES | The Supervisory Council provides the general annual meeting of shareholders with comments and proposals regarding the company's annual financial reporting, draft profit allocation, the company's annual report, also, it performs other functions of supervising the activities of the Bank and its managing bodies attributed to the competence of the Supervisory Council. |
| 4.2. Members of the collegial body should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders with due regard to the interests of employees and public welfare. Independent members of the collegial body should (a) under all circumstances maintain independence of their analysis, decision-making and actions (b) do not seek and accept any unjustified privileges that might compromise their independence, and (c) clearly express their objections should a member consider that decision of the collegial body is against the interests of the company. Should a collegial body have passed decisions independent member has serious doubts about, the member should make adequate conclusions. Should an independent member resign from his office, he should explain the reasons in a letter addressed to the collegial body or audit committee and, if necessary, respective company-not-pertaining body (institution). | NO | According to the data available to the Bank, each member of the Supervisory Council acts in good faith with regard to the company, abiding by the interests of the company and not those of his/her own or any third party, aiming to maintain his/her independence. However, the provision regarding independent members of the Supervisory Council is not observed as there are no such independent members. |
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| 4.3. Each member should devote sufficient time and attention to perform his duties as a member of the collegial body. Each member of the collegial body should limit other professional obligations of his (in particular any directorships held in other companies) in such a manner they do not interfere with proper performance of duties of a member of the collegial body. In the event a member of the collegial body should be present in less than a half⁹ of the meetings of the collegial body throughout the financial year of the company, shareholders of the company should be notified. | YES | Each member of the Supervisory Council performs his/her duties in a proper manner: by actively participating in the meeting of the collegiate body and by devoting sufficient time of his/her own for the performance of his/her functions as a member of the collegiate body. |
|---|---|---|
| 4.4. Where decisions of a collegial body may have a different effect on the company's shareholders, the collegial body should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed on the company's affairs, strategies, risk management and resolution of conflicts of interest. The company should have a clearly established role of members of the collegial body when communicating with and committing to shareholders. | YES | |
| 4.5. It is recommended that transactions (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions), concluded between the company and its shareholders, members of the supervisory or managing bodies or other natural or legal persons that exert or may exert influence on the company's management should be subject to approval of the collegial body. The decision concerning approval of such transactions should be deemed adopted only provided the majority of the independent members of the collegial body voted for such a decision. | NO | YES - the Supervisory Council approves the terms and conditions as well as the procedure for lending to the Bank's senior management and to persons, who are in close family relations or in-law relations with the Bank's senior management, establishes maximum limits for of such lending. However, the provision of the majority vote of independent members is not observed, because, as it has already been mentioned above, there are no independent members in the Supervisory Council. |
⁹ It is notable that companies can make this requirement more stringent and provide that shareholders should be informed about failure to participate at the meetings of the collegial body if, for instance, a member of the collegial body participated at less than 2/3 or 3/4 of the meetings. Such measures, which ensure active participation in the meetings of the collegial body, are encouraged and will constitute an example of more suitable corporate governance.
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| 4.6. The collegial body should be independent in passing decisions that are significant for the company's operations and strategy. Taken separately, the collegial body should be independent of the company's management bodies^{10}. Members of the collegial body should act and pass decisions without an outside influence from the persons who have elected it. Companies should ensure that the collegial body and its committees are provided with sufficient administrative and financial resources to discharge their duties, including the right to obtain, in particular from employees of the company, all the necessary information or to seek independent legal, accounting or any other advice on issues pertaining to the competence of the collegial body and its committees. | YES | |
|---|---|---|
| 4.7. Activities of the collegial body should be organized in a manner that independent members of the collegial body could have major influence in relevant areas where chances of occurrence of conflicts of interest are very high. Such areas to be considered as highly relevant are issues of nomination of company's directors, determination of directors' remuneration and control and assessment of company's audit. Therefore when the mentioned issues are attributable to the competence of the collegial body, it is recommended that the collegial body should establish nomination, remuneration, and audit committees. Companies should ensure that the functions attributable to the nomination, remuneration, and audit committees are carried out. However they may decide to merge these functions and set up less than three committees. In such case a company should explain in detail reasons behind the selection of alternative approach and how the selected approach complies with the objectives set forth for the three different committees. Should the collegial body of the company comprise small number of members, the functions assigned to the three committees may be performed by the collegial body itself, provided that it meets composition requirements advocated for the committees and that adequate information is provided in this respect. In such case provisions of this Code relating to the committees of the collegial body (in particular with respect to their role, operation, and transparency) should apply, where relevant, to the collegial body as a whole. | NO | There are no independent members. Only the audit committee is formed in the Bank. |
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| 4.8. The key objective of the committees is to increase efficiency of the activities of the collegial body by ensuring that decisions are based on due consideration, and to help organize its work with a view to ensuring that the decisions it takes are free of material conflicts of interest. Committees should present the collegial body with recommendations concerning the decisions of the collegial body. Nevertheless the final decision shall be adopted by the collegial body. The recommendation on creation of committees is not intended, in principle, to constrict the competence of the collegial body or to remove the matters considered from the purview of the collegial body itself, which remains fully responsible for the decisions taken in its field of competence. | YES | The recommendation applies to the audit committee. |
|---|---|---|
| 4.9. Committees established by the collegial body should normally be composed of at least three members. In companies with small number of members of the collegial body, they could exceptionally be composed of two members. Majority of the members of each committee should be constituted from independent members of the collegial body. In cases when the company chooses not to set up a supervisory board, remuneration and audit committees should be entirely comprised of non-executive directors. Chairmanship and membership of the committees should be decided with due regard to the need to ensure that committee membership is refreshed and that undue reliance is not placed on particular individuals. | NO | The audit committee is not composed of independent members of the Supervisory Council, as there are no such members in the Supervisory Council at all. The provision regarding the minimum number of committee members is met. |
| 4.10. Authority of each of the committees should be determined by the collegial body. Committees should perform their duties in line with authority delegated to them and inform the collegial body on their activities and performance on regular basis. Authority of every committee stipulating the role and rights and duties of the committee should be made public at least once a year (as part of the information disclosed by the company annually on its corporate governance structures and practices). Companies should also make public annually a statement by existing committees on their composition, number of meetings and attendance over the year, and their main activities. Audit committee should confirm that it is satisfied with the independence of the audit process and describe briefly the actions it has taken to reach this conclusion. | NO | YES - the audit committee functions in accordance with the regulations approved by the Supervisory Council that establish the authority of the committee. |
| NO - the annual report does not include information on the composition of committees, their meetings, trends of activities, etc. |
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| 4.11. In order to ensure independence and impartiality of the committees, members of the collegial body that are not members of the committee should commonly have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or demand participation in the meeting of particular officers or experts. Chairman of each of the committees should have a possibility to maintain direct communication with the shareholders. Events when such are to be performed should be specified in the regulations for committee activities. | NO | YES - both members of the Supervisory Council and some other staff members or experts have a right to participate in the audit committee meetings, chairman of the committee approves the list of invited persons based on the audit committee regulations. NO - the rules regulating the committee activities do not specify any events when the chairman of committee has a possibility to maintain communication with shareholders. |
|---|---|---|
| 4.12. Nomination Committee. | ||
| 4.12.1. Key functions of the nomination committee should be the following: | ||
| • Identify and recommend, for the approval of the collegial body, candidates to fill board vacancies. The nomination committee should evaluate the balance of skills, knowledge and experience on the management body, prepare a description of the roles and capabilities required to assume a particular office, and assess the time commitment expected. Nomination committee can also consider candidates to members of the collegial body delegated by the shareholders of the company; | ||
| • Assess on regular basis the structure, size, composition and performance of the supervisory and management bodies, and make recommendations to the collegial body regarding the means of achieving necessary changes; | ||
| • Assess on regular basis the skills, knowledge and experience of individual directors and report on this to the collegial body; | ||
| • Properly consider issues related to succession planning; | ||
| • Review the policy of the management bodies for selection and appointment of senior management. | ||
| 4.12.2. Nomination committee should consider proposals by other parties, including management and shareholders. When dealing with issues related to executive directors or members of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) and senior management, chief executive officer of the company should be consulted by, and entitled to submit proposals to the nomination committee. | NO | Nomination Committee does not exist. |
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| 4.13. Remuneration Committee. | NO | Remuneration Committee does not exist (planned to be established). |
|---|---|---|
| 4.13.1. Key functions of the remuneration committee should be the following: | ||
| • Make proposals, for the approval of the collegial body, on the remuneration policy for members of management bodies and executive directors. Such policy should address all forms of compensation, including the fixed remuneration, performance-based remuneration schemes, pension arrangements, and termination payments. Proposals considering performance-based remuneration schemes should be accompanied with recommendations on the related objectives and evaluation criteria, with a view to properly aligning the pay of executive director and members of the management bodies with the long-term interests of the shareholders and the objectives set by the collegial body; | ||
| • Make proposals to the collegial body on the individual remuneration for executive directors and member of management bodies in order their remunerations are consistent with company's remuneration policy and the evaluation of the performance of these persons concerned. In doing so, the committee should be properly informed on the total compensation obtained by executive directors and members of the management bodies from the affiliated companies; | ||
| • Make proposals to the collegial body on suitable forms of contracts for executive directors and members of the management bodies; | ||
| • Assist the collegial body in overseeing how the company complies with applicable provisions regarding the remuneration-related information disclosure (in particular the remuneration policy applied and individual remuneration of directors); | ||
| • Make general recommendations to the executive directors and members of the management bodies on the level and structure of remuneration for senior management (as defined by the collegial body) with regard to the respective information provided by the executive directors and members of the management bodies. | ||
| 4.13.2. With respect to stock options and other share-based incentives which may be granted to directors or other employees, the committee should: | ||
| • Consider general policy regarding the granting of the above mentioned schemes, in particular stock options, and make any related proposals to the collegial body; | ||
| • Examine the related information that is given in the company's annual report and documents intended for the use during the shareholders meeting; | ||
| • Make proposals to the collegial body regarding the |
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| choice between granting options to subscribe shares or granting options to purchase shares, specifying the reasons for its choice as well as the consequences that this choice has.
4.13.3. Upon resolution of the issues attributable to the competence of the remuneration committee, the committee should at least address the chairman of the collegial body and/or chief executive officer of the company for their opinion on the remuneration of other executive directors or members of the management bodies. | | |
| --- | --- | --- |
| 4.14. Audit Committee.
4.14.1. Key functions of the audit committee should be the following:
• Observe the integrity of the financial information provided by the company, in particular by reviewing the relevance and consistency of the accounting methods used by the company and its group (including the criteria for the consolidation of the accounts of companies in the group);
• At least once a year review the systems of internal control and risk management to ensure that the key risks (inclusive of the risks in relation with compliance with existing laws and regulations) are properly identified, managed and reflected in the information provided;
• Ensure the efficiency of the internal audit function, among other things, by making recommendations on the selection, appointment, reappointment and removal of the head of the internal audit department and on the budget of the department, and by monitoring the responsiveness of the management to its findings and recommendations. Should there be no internal audit authority in the company, the need for one should be reviewed at least annually;
• Make recommendations to the collegial body related with selection, appointment, reappointment and removal of the external auditor (to be done by the general shareholders’ meeting) and with the terms and conditions of his engagement. The committee should investigate situations that lead to a resignation of the audit company or auditor and make recommendations on required actions in such situations;
• Monitor independence and impartiality of the external auditor, in particular by reviewing the audit company’s compliance with applicable guidance relating to the rotation of audit partners, the level of fees paid by the company, and similar issues. In order to prevent occurrence of material conflicts of interest, the committee, based on the auditor’s disclosed inter alia data on all remunerations paid by the company to the auditor and network, should | YES
YES
YES
YES
YES
YES | The Audit Committee discusses, on regular basis, the external auditors’ comments, including the consistency of accounting methods.
Once a quarter, the audit committee discusses the internal audit and compliance reports that highlight the main drawbacks in the internal control and risk management, including risks related to the observance of the existing legal acts.
In the quarterly internal audit report the Audit Committee is provided with information on the status of implementation of the internal audit recommendations. During a meeting reasons are discussed due to which the recommendations have not been implemented in due time.
Audit company is selected at the SEB Group level. There were no situations leading the audit company to resign.
According to the audit services agreement, the audit company ensures the rotation of partners in accordance with the laws.
The SEB Group has a uniform SEB External Audit Policy, approved by SEB’s Audit and Compliance Committees defining the independence of external auditors, providing of services to the SEB Group companies and purchase of other than audit services from |
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| at all times monitor nature and extent of the non-audit services. Having regard to the principals and guidelines established in the 16 May 2002 Commission Recommendation 2002/590/EC, the committee should determine and apply a formal policy establishing types of non-audit services that are (a) excluded, (b) permissible only after review by the committee, and (c) permissible without referral to the committee; | YES | external audit. |
|---|---|---|
| • Review efficiency of the external audit process and responsiveness of management to recommendations made in the external auditor's management letter. | ||
| 4.14.2. All members of the committee should be furnished with complete information on particulars of accounting, financial and other operations of the company. Company's management should inform the audit committee of the methods used to account for significant and unusual transactions where the accounting treatment may be open to different approaches. In such case a special consideration should be given to company's operations in offshore centers and/or activities carried out through special purpose vehicles (organizations) and justification of such operations. | YES | The Audit Committee discusses comments provided by external audit provided in a letter to the senior management as well as the comments of the Bank's senior management. Note: The Bank does not carry on activities in any off-shore centres. |
| 4.14.3. The audit committee should decide whether participation of the chairman of the collegial body, chief executive officer of the company, chief financial officer (or superior employees in charge of finances, treasury and accounting), or internal and external auditors in the meetings of the committee is required (if required, when). The committee should be entitled, when needed, to meet with any relevant person without executive directors and members of the management bodies present. | YES | The Audit Committee meetings are always participated by the President of the Bank and Head of the Internal Audit Department. External auditors are always invited to the meetings. |
| 4.14.4. Internal and external auditors should be secured with not only effective working relationship with management, but also with free access to the collegial body. For this purpose the audit committee should act as the principal contact person for the internal and external auditors. | YES | The regulations of the Internal Audit Committee and its work plans are approved by the Audit Committee. According to the regulations, the Internal Audit Department is directly reporting to the Chairman of the Supervisory Council, which fact ensures a possibility to directly turn to the Audit Committee and/or the Council. |
| 4.14.5. The audit committee should be informed of the internal auditor's work program, and should be furnished with internal audit's reports or periodic summaries. The audit committee should also be informed of the work program of the external auditor and should be furnished with report disclosing all relationships between the independent auditor and the company and its group. The committee should be timely furnished information | YES | The Audit Committee is provided with quarterly internal audit set-format reports. The annual audit plan is approved by the Audit Committee. External auditors inform the Audit Committee on regular basis about the audit plans and audit services provided under an agreement. |
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| on all issues arising from the audit. | NO | There is no set formal procedure. |
|---|---|---|
| 4.14.6. The audit committee should examine whether the company is following applicable provisions regarding the possibility for employees to report alleged significant irregularities in the company, by way of complaints or through anonymous submissions (normally to an independent member of the collegial body), and should ensure that there is a procedure established for proportionate and independent investigation of these issues and for appropriate follow-up action. | YES | The Supervisory Council is provided for familiarisation with the entire documentation discussed by the Audit Committee. |
| 4.14.7. The audit committee should report on its activities to the collegial body at least once in every six months, at the time the yearly and half-yearly statements are approved. | ||
| 4.15. Every year the collegial body should conduct the assessment of its activities. The assessment should include evaluation of collegial body's structure, work organization and ability to act as a group, evaluation of each of the collegial body member's and committee's competence and work efficiency and assessment whether the collegial body has achieved its objectives. The collegial body should, at least once a year, make public (as part of the information the company annually discloses on its management structures and practices) respective information on its internal organization and working procedures, and specify what material changes were made as a result of the assessment of the collegial body of its own activities. | NO | The provision regarding information on the internal organisation and announcement of activity procedures is not observed. |
| Principle V: The working procedure of the company's collegial bodies | ||
| The working procedure of supervisory and management bodies established in the company should ensure efficient operation of these bodies and decision-making and encourage active co-operation between the company's bodies. | ||
| 5.1. The company's supervisory and management bodies (hereinafter in this Principle the concept 'collegial bodies' covers both the collegial bodies of supervision and the collegial bodies of management) should be chaired by chairpersons of these bodies. The chairperson of a collegial body is responsible for proper convocation of the collegial body meetings. The chairperson should ensure that information about the meeting being convened and its agenda are communicated to all members of the body. The chairperson of a collegial body should ensure appropriate conducting of the meetings of the collegial body. The chairperson should ensure order and working atmosphere during the meeting. | YES | The meetings of both the Board and the Supervisory Council are chaired, convened and appropriate conducting of the meetings is ensured, respectively, by the Chairman of the Supervisory Council and the Chairman of the Board. |
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| 5.2. It is recommended that meetings of the company's collegial bodies should be carried out according to the schedule approved in advance at certain intervals of time. Each company is free to decide how often to convene meetings of the collegial bodies, but it is recommended that these meetings should be convened at such intervals, which would guarantee an interrupted resolution of the essential corporate governance issues. Meetings of the company's supervisory board should be convened at least once in a quarter, and the company's board should meet at least once a month^{11}. | YES | Based on the work regulations of the Supervisory Council of the Bank, the Supervisory Council meetings are convened no less than once a quarter (in practice, they are convened more often), and based on the wok regulations of the Board of the Bank, meetings are convened no less than once a month (in practice, they are convened once a week). |
|---|---|---|
| 5.3. Members of a collegial body should be notified about the meeting being convened in advance in order to allow sufficient time for proper preparation for the issues on the agenda of the meeting and to ensure fruitful discussion and adoption of appropriate decisions. Alongside with the notice about the meeting being convened, all the documents relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body are present or certain issues of great importance to the company require immediate resolution. | YES | Members of the Board of the Bank are familiarised with the material no less than two banking days prior to the planned meeting of the board; members of the Bank's Supervisory Council – no later than 5 calendar days in advance, and in urgent cases – no later than 2 calendar days in advance. |
| 5.4. In order to co-ordinate operation of the company's collegial bodies and ensure effective decision-making process, chairpersons of the company's collegial bodies of supervision and management should closely co-operate by co-coordinating dates of the meetings, their agendas and resolving other issues of corporate governance. Members of the company's board should be free to attend meetings of the company's supervisory board, especially where issues concerning removal of the board members, their liability or remuneration are discussed. | YES |
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| Principle VI: The equitable treatment of shareholders and shareholder rights The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. The corporate governance framework should protect the rights of the shareholders. | ||
|---|---|---|
| 6.1. It is recommended that the company's capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all their holders. | YES | The Bank's authorised capital consists of ordinary registered shares granting equal voting rights to all holders of the Bank's shares. |
| 6.2. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares. | IRRELEVANT | The Bank effects public placement of bonds only. |
| 6.3. Transactions that are important to the company and its shareholders, such as transfer, investment, and pledge of the company's assets or any other type of encumbrance should be subject to approval of the general shareholders' meeting.12 All shareholders should be furnished with equal opportunity to familiarize with and participate in the decision-making process when significant corporate issues, including approval of transactions referred to above, are discussed. | NO | The Bank's Articles of Association do not establish criteria for major transactions based on which criteria transactions would be selected that require an approval of the general shareholders' meeting. |
| 6.4. Procedures of convening and conducting a general shareholders' meeting should ensure equal opportunities for the shareholders to effectively participate at the meetings and should not prejudice the rights and interests of the shareholders. The venue, date, and time of the shareholders' meeting should not hinder wide attendance of the shareholders. Prior to the shareholders' meeting, the company's supervisory and management bodies should enable the shareholders to lodge questions on issues on the agenda of the general shareholders' meeting and receive answers to them. | YES | General shareholders meetings are usually conducted at the Bank's domicile on the Bank's business days and ensuring, in a timely manner, equal opportunities for shareholders to attend the meeting, to lodge questions to members of the management bodies and receive answers to them. |
12 The Law on Companies of the Republic of Lithuania (Official Gazette, 2003, No 123-5574) no longer assigns resolutions concerning the investment, transfer, lease, mortgage or acquisition of the long-terms assets accounting for more than 1/20 of the company's authorised capital to the competence of the general shareholders' meeting. However, transactions that are important and material for the company's activity should be considered and approved by the general shareholders' meeting. The Law on Companies contains no prohibition to this effect either. Yet, in order not to encumber the company's activity and escape an unreasonably frequent consideration of transactions at the meetings, companies are free to establish their own criteria of material transactions, which are subject to the approval of the meeting. While establishing these criteria of material transactions, companies may follow the criteria set out in items 3, 4, 5 and 6 of paragraph 4 of Article 34 of the Law on Companies or derogate from them in view of the specific nature of their operation and their attempt to ensure uninterrupted, efficient functioning of the company.
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| 6.5. It is recommended that documents on the course of the general shareholders' meeting, including draft resolutions of the meeting, should be placed on the publicly accessible website of the company in advance^{13}. It is recommended that the minutes of the general shareholders' meeting after signing them and/or adopted resolutions should be also placed on the publicly accessible website of the company. Seeking to ensure the right of foreigners to familiarize with the information, whenever feasible, documents referred to in this recommendation should be published in English and/or other foreign languages. Documents referred to in this recommendation may be published on the publicly accessible website of the company to the extent that publishing of these documents is not detrimental to the company or the company's commercial secrets are not revealed. | NO | Documents of the general shareholders' meeting including the minutes, are not publicly accessible, they are, abiding by the laws of the Republic of Lithuania, provided to shareholders for familiarisation and respectively to other persons that have attended the meeting. |
|---|---|---|
| 6.6. Shareholders should be furnished with the opportunity to vote in the general shareholders' meeting in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot. | YES | The Bank's shareholders may implement the right to attend the general shareholders' meeting both in person and via a proxy, if a person has a required authorisation or if a proxy agreement has been executed with such person pursuant to the procedure established by law, also, the Bank enables shareholders to vote by completing the general voting ballot, as provided for by the Company Law of the Republic of Lithuania. |
| 6.7. With a view to increasing the shareholders' opportunities to participate effectively at shareholders' meetings, the companies are recommended to expand use of modern technologies in voting processes by allowing the shareholders to vote in general meetings via terminal equipment of telecommunications. In such cases security of telecommunication equipment, text protection and a possibility to identify the signature of the voting person should be guaranteed. Moreover, companies could furnish its shareholders, especially foreigners, with the opportunity to watch shareholder meetings by means of modern technologies. | NO | The provision is not adhered to its full extent: so far, no necessity has occurred to use terminal equipment of telecommunications at the general shareholders' meetings. |
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| Principle VII: The avoidance of conflicts of interest and their disclosure The corporate governance framework should encourage members of the corporate bodies to avoid conflicts of interest and assure transparent and effective mechanism of disclosure of conflicts of interest regarding members of the corporate bodies. | ||
|---|---|---|
| 7.1. Any member of the company's supervisory and management body should avoid a situation, in which his/her personal interests are in conflict or may be in conflict with the company's interests. In case such a situation did occur, a member of the company's supervisory and management body should, within reasonable time, inform other members of the same collegial body or the company's body that has elected him/her, or to the company's shareholders about a situation of a conflict of interest, indicate the nature of the conflict and value, where possible. | YES | Members of the Supervisory Council and the Board of the Bank adhere to the provisions contained in these recommendations. Regarding recommendation 7.3: a decision on lending to a person related to the Bank is taken by the Board by no less than 2/3 of votes of the Board members attending the meeting. |
| 7.2. Any member of the company's supervisory and management body may not mix the company's assets, the use of which has not been mutually agreed upon, with his/her personal assets or use them or the information which he/she learns by virtue of his/her position as a member of a corporate body for his/her personal benefit or for the benefit of any third person without a prior agreement of the general shareholders' meeting or any other corporate body authorized by the meeting. | YES | |
| 7.3. Any member of the company's supervisory and management body may conclude a transaction with the company, a member of a corporate body of which he/she is. Such a transaction (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions) must be immediately reported in writing or orally, by recording this in the minutes of the meeting, to other members of the same corporate body or to the corporate body that has elected him/her or to the company's shareholders. Transactions specified in this recommendation are also subject to recommendation 4.5. | YES | |
| 7.4. Any member of the company's supervisory and management body should abstain from voting when decisions concerning transactions or other issues of personal or business interest are voted on. | YES | When decisions are taken concerning transactions or other issues of personal or business interest to a person, such person abstains from voting. |
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| Principle VIII: Company's remuneration policy
Remuneration policy and procedure for approval, revision and disclosure of directors' remuneration established in the company should prevent potential conflicts of interest and abuse in determining remuneration of directors, in addition it should ensure publicity and transparency both of company's remuneration policy and remuneration of directors. | | |
| --- | --- | --- |
| 8.1. A company should make a public statement of the company's remuneration policy (hereinafter the remuneration statement). This statement should be part of the company's annual accounts. Remuneration statement should also be posted on the company's website. | YES | |
| 8.2. Remuneration statement should mainly focus on directors' remuneration policy for the following year and, if appropriate, the subsequent years. The statement should contain a summary of the implementation of the remuneration policy in the previous financial year. Special attention should be given to any significant changes in company's remuneration policy as compared to the previous financial year. | NO | NO - Remuneration statement does not focus on remuneration policy for the following year.
YES - The remuneration policy establishes the remuneration principles not only to the directors, but also to all employees. In order to maintain the competitiveness of the remuneration level among financial institution in Lithuania, remuneration for the Bank staff is revised taking into consideration the Lithuanian remuneration market survey data. |
| 8.3. Remuneration statement should leastwise include the following information:
• Explanation of the relative importance of the variable and non-variable components of directors' remuneration;
• Sufficient information on performance criteria that entitles directors to share options, shares or variable components of remuneration;
• Sufficient information on the linkage between the remuneration and performance;
• The main parameters and rationale for any annual bonus scheme and any other non-cash benefits;
• A description of the main characteristics of supplementary pension or early retirement schemes for directors. | NO | Remuneration statement includes only information required by the legal acts, and other information in bank's opinion, is not to be placed in public domain from a commercial point of view. |
| 8.4. Remuneration statement should also summarize and explain company's policy regarding the terms of the contracts executed with executive directors and members of the management bodies. It should include, inter alia, information on the duration of contracts with executive directors and members of the management bodies, the applicable notice periods and details of provisions for termination payments linked to early termination under contracts for executive directors and members of the management bodies. | NO | Remuneration statement includes only information required by the legal acts, and other information in bank's opinion, is not to be placed in public domain from a commercial point of view. |
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| 8.5. The information on preparatory and decision-making processes, during which a policy of remuneration of directors is being established, should also be disclosed. Information should include data, if applicable, on authorities and composition of the remuneration committee, names and surnames of external consultants whose services have been used in determination of the remuneration policy as well as the role of shareholders’ annual general meeting. | NO | There is no Remuneration committee (planned to be established). |
|---|---|---|
| 8.6. Without prejudice to the role and organization of the relevant bodies responsible for setting directors’ remunerations, the remuneration policy or any other significant change in remuneration policy should be included into the agenda of the shareholders’ annual general meeting. Remuneration statement should be put for voting in shareholders’ annual general meeting. The vote may be either mandatory or advisory. | NO | There is no such practice. |
| 8.7. Remuneration statement should also contain detailed information on the entire amount of remuneration, inclusive of other benefits, that was paid to individual directors over the relevant financial year. This document should list at least the information set out in items 8.7.1 to 8.7.4 for each person who has served as a director of the company at any time during the relevant financial year. | ||
| 8.7.1. The following remuneration and/or emoluments-related information should be disclosed: | ||
| • The total amount of remuneration paid or due to the director for services performed during the relevant financial year, inclusive of, where relevant, attendance fees fixed by the annual general shareholders meeting; | ||
| • The remuneration and advantages received from any undertaking belonging to the same group; | ||
| • The remuneration paid in the form of profit sharing and/or bonus payments and the reasons why such bonus payments and/or profit sharing were granted; | ||
| • If permissible by the law, any significant additional remuneration paid to directors for special services outside the scope of the usual functions of a director; | ||
| • Compensation receivable or paid to each former executive director or member of the management body as a result of his resignation from the office during the previous financial year; | ||
| • Total estimated value of non-cash benefits considered as remuneration, other than the items covered in the above points. | ||
| 8.7.2. As regards shares and/or rights to acquire | NO | Remuneration statement includes only information required by the legal acts, and other information in bank's opinion, is not to be placed in public domain from a commercial point of view. The overall employees’ incentive policy is placed in the internal database only. |
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| share options and/or all other share-incentive schemes, the following information should be disclosed: • The number of share options offered or shares granted by the company during the relevant financial year and their conditions of application; • The number of shares options exercised during the relevant financial year and, for each of them, the number of shares involved and the exercise price or the value of the interest in the share incentive scheme at the end of the financial year; • The number of share options unexercised at the end of the financial year; their exercise price, the exercise date and the main conditions for the exercise of the rights; • All changes in the terms and conditions of existing share options occurring during the financial year. 8.7.3. The following supplementary pension schemes-related information should be disclosed: • When the pension scheme is a defined-benefit scheme, changes in the directors' accrued benefits under that scheme during the relevant financial year; • When the pension scheme is defined-contribution scheme, detailed information on contributions paid or payable by the company in respect of that director during the relevant financial year. 8.7.4. The statement should also state amounts that the company or any subsidiary company or entity included in the consolidated annual financial statements of the company has paid to each person who has served as a director in the company at any time during the relevant financial year in the form of loans, advance payments or guarantees, including the amount outstanding and the interest rate. | ||
|---|---|---|
| 8.8. Schemes anticipating remuneration of directors in shares, share options or any other right to purchase shares or be remunerated on the basis of share price movements should be subject to the prior approval of shareholders' annual general meeting by way of a resolution prior to their adoption. The approval of scheme should be related with the scheme itself and not to the grant of such share-based benefits under that scheme to individual directors. All significant changes in scheme provisions should also be subject to shareholders' approval prior to their adoption; the approval decision should be made in shareholders' annual general meeting. In such case shareholders should be notified on all terms of suggested changes and get an explanation on the impact of the suggested changes. | NO | There is no such practice. |
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| 8.9. The following issues should be subject to approval by the shareholders' annual general meeting: • Grant of share-based schemes, including share options, to directors; • Determination of maximum number of shares and main conditions of share granting; • The term within which options can be exercised; • The conditions for any subsequent change in the exercise of the options, if permissible by law; • All other long-term incentive schemes for which directors are eligible and which are not available to other employees of the company under similar terms. Annual general meeting should also set the deadline within which the body responsible for remuneration of directors may award compensations listed in this article to individual directors. | NO | There is no such practice. |
|---|---|---|
| 8.10. Should national law or company's Articles of Association allow, any discounted option arrangement under which any rights are granted to subscribe to shares at a price lower than the market value of the share prevailing on the day of the price determination, or the average of the market values over a number of days preceding the date when the exercise price is determined, should also be subject to the shareholders' approval. | NO | There is no such practice. |
| 8.11. Provisions of Articles 8.8 and 8.9 should not be applicable to schemes allowing for participation under similar conditions to company's employees or employees of any subsidiary company whose employees are eligible to participate in the scheme and which has been approved in the shareholders' annual general meeting. | NO | There is no such practice. |
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| 8.12. Prior to the annual general meeting that is intended to consider decision stipulated in Article 8.8, the shareholders must be provided an opportunity to familiarize with draft resolution and project-related notice (the documents should be posted on the company's website). The notice should contain the full text of the share-based remuneration schemes or a description of their key terms, as well as full names of the participants in the schemes. Notice should also specify the relationship of the schemes and the overall remuneration policy of the directors. Draft resolution must have a clear reference to the scheme itself or to the summary of its key terms. Shareholders must also be presented with information on how the company intends to provide for the shares required to meet its obligations under incentive schemes. It should be clearly stated whether the company intends to buy shares in the market, hold the shares in reserve or issue new ones. There should also be a summary on scheme-related expenses the company will suffer due to the anticipated application of the scheme. All information given in this article must be posted on the company's website. | NO | There is no such practice. |
|---|---|---|
| Principle IX: The role of stakeholders in corporate governance | ||
| The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active co-operation between companies and stakeholders in creating the company value, jobs and financial sustainability. For the purposes of this Principle, the concept "stakeholders" includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interest in the company concerned. | ||
| 9.1. The corporate governance framework should assure that the rights of stakeholders that are protected by law are respected. | YES | |
| 9.2. The corporate governance framework should create conditions for the stakeholders to participate in corporate governance in the manner prescribed by law. Examples of mechanisms of stakeholder participation in corporate governance include: employee participation in adoption of certain key decisions for the company; consulting the employees on corporate governance and other important issues; employee participation in the company's share capital; creditor involvement in governance in the context of the company's insolvency, etc. | ||
| 9.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. |
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| Principle X: Information disclosure and transparency
The corporate governance framework should ensure that timely and accurate disclosure is made on all material information regarding the company, including the financial situation, performance and governance of the company. | | |
| --- | --- | --- |
| 10.1. The company should disclose information on:
• The financial and operating results of the company;
• Company objectives;
• Persons holding by the right of ownership or in control of a block of shares in the company;
• Members of the company's supervisory and management bodies, chief executive officer of the company and their remuneration;
• Material foreseeable risk factors;
• Transactions between the company and connected persons, as well as transactions concluded outside the course of the company's regular operations;
• Material issues regarding employees and other stakeholders;
• Governance structures and strategy.
This list should be deemed as a minimum recommendation, while the companies are encouraged not to limit themselves to disclosure of the information specified in this list. | NE | The Company does adhere to provision 6 under recommendation 10.1 because it is not required by the legal acts and is not important for the Company.
All other information is announced by the Company via different communication channels: on its website, announcements on major events in mass media, press releases, press conferences. |
| 10.2. It is recommended that consolidated results of the whole group to which the company belongs should be disclosed when information specified in item 1 of Recommendation 10.1 is under disclosure. | YES | |
| 10.3. It is recommended that information on the professional background, qualifications of the members of supervisory and management bodies, chief executive officer of the company should be disclosed as well as potential conflicts of interest that may have an effect on their decisions when information specified in item 4 of Recommendation 10.1 about the members of the company's supervisory and management bodies is under disclosure. It is also recommended that information about the amount of remuneration received from the company and other income should be disclosed with regard to members of the company's supervisory and management bodies and chief executive officer as per Principle VIII. | YES | |
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| 10.4. It is recommended that information about the links between the company and its stakeholders, including employees, creditors, suppliers, local community, as well as the company's policy with regard to human resources, employee participation schemes in the company's share capital, etc. should be disclosed when information specified in item 7 of Recommendation 10.1 is under disclosure. | NO | To a certain extent the Company does not adhere to recommendations 10.4, as in the Company's opinion the information on the relations between the Company and persons with an interest in it, such as employees, creditors, suppliers, local community, including the Company's policy regarding human resources, programmes for employee participation in the Company's equity, etc. is information not to be placed in public domain. |
|---|---|---|
| 10.5. Information should be disclosed in such a way that neither shareholders nor investors are discriminated with regard to the manner or scope of access to information. Information should be disclosed to all simultaneously. It is recommended that notices about material events should be announced before or after a trading session on the Vilnius Stock Exchange, so that all the company's shareholders and investors should have equal access to the information and make informed investing decisions. | YES | Website, press releases, press conferences, announcements on major events. |
| 10.6. Channels for disseminating information should provide for fair, timely and cost-efficient access to relevant information by users. It is recommended that information technologies should be employed for wider dissemination of information, for instance, by placing the information on the company's website. It is recommended that information should be published and placed on the company's website not only in Lithuanian, but also in English, and, whenever possible and necessary, in other languages as well. | YES | Website, press releases, press conferences, announcements on major events. |
| Information on services is available at any subdivision of the Bank, other information that must be published is available at the Bank's website. | ||
| Those willing to familiarise with relevant information are provided with such information by the Bank staff at customer service outlets or at the Call Centre at 1528. | ||
| Languages: Lithuanian and English | ||
| 10.7. It is recommended that the company's annual reports and other periodical accounts prepared by the company should be placed on the company's website. It is recommended that the company should announce information about material events and changes in the price of the company's shares on the Stock Exchange on the company's website too. | YES | Taking into account that the Bank is issuer of listed debt securities |
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AB SEB BANK
APPENDIX 1 TO CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2010
(All amounts in LTL thousands unless otherwise stated)
| Principle XI: The selection of the company's auditor The mechanism of the selection of the company's auditor should ensure independence of the firm of auditor's conclusion and opinion. | ||
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| 11.1. An annual audit of the company's financial statements and report should be conducted by an independent firm of auditors in order to provide an external and objective opinion on the company's financial statements. | YES | Independent audit company conducts audit of the Company's interim financial reporting, the Company's annual financial reporting and its annual report. |
| 11.2. It is recommended that the company's supervisory board and, where it is not set up, the company's board should propose a candidate firm of auditors to the general shareholders' meeting. | NO | A candidate firm of auditors is proposed to the general shareholders' meeting by the Board of the Bank. |
| 11.3. It is recommended that the company should disclose to its shareholders the level of fees paid to the firm of auditors for non-audit services rendered to the company. This information should be also known to the company's supervisory board and, where it is not formed, the company's board upon their consideration which firm of auditors to propose for the general shareholders' meeting. | IRRELEVANT | The audit company has not rendered any significant non-audit services to the Bank. |
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