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SEB Annual Report 2011
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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 2011
AB SEB BANK
TABLE OF CONTENTS
| PAGES | |
|---|---|
| INDEPENDENT AUDITOR'S REPORT | 3 - 4 |
| CONSOLIDATED ANNUAL REPORT | 5 - 22 |
| FINANCIAL STATEMENTS | |
| INCOME STATEMENT | 23 |
| STATEMENT OF COMPREHENSIVE INCOME | 24 |
| STATEMENT OF FINANCIAL POSITION | 25 |
| STATEMENT OF CHANGES IN EQUITY | 26-27 |
| STATEMENT OF CASH FLOWS | 28-29 |
| NOTES TO THE FINANCIAL STATEMENTS | 30-102 |
| APPENDIX 1 | 103 -131 |
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 131
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 23-102 which comprise the stand alone and consolidated statement of financial position as of 31 December 2011 and the stand alone and consolidated income statement, 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 2011, 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 2011 set out on pages 5-22, including its Appendix 1 set out on pages 103 - 131 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 2011.
On behalf of PricewaterhouseCoopers UAB
Christopher C. Butler
Director
Vilnius, Republic of Lithuania
12 March 2012
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
CONSOLIDATED ANNUAL REPORT OF SEB BANK FOR THE YEAR 2011
1. Reporting period covered by the Consolidated Annual Report
This Consolidated Annual Report (hereinafter the Report) has been prepared for the year ended 31 December 2011. All numbers presented are as of 31 December 2011 or for the year then ended, unless specified otherwise.
2. Issuer Group companies, contact details and types of their core activities.
| Issuer's name | SEB Bank |
|---|---|
| Authorised capital | LTL 1,034,575,341 |
| Legal address | Gedimino pr. 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 |
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 close of the reporting period, the SEB Bank Group in Lithuania (hereinafter the 'Group') consisted of SEB Bank and three subsidiary companies: SEB Investicijų Valdymas, SEB Lizingas and SEB Venture Capital.
| Name | 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 g. 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 | 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 |
| Domicile address | Gedimino pr. 12, LT-01103 Vilnius |
| Office address | Jogailos g. 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 | SEB Investicijų 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 |
| Domicile address | Gedimino pr. 12, LT-01103 Vilnius |
| Office address | Gedimino pr. 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 interests of the owners of any relevant issue of bonds.
As of 31 December 2011, SEB Bank had 13 agreements executed with financial brokerage company Orion Securities UAB (legal entity code 122033915, address A. Tumėno g. 4, 9th floor, LT-01109 Vilnius) and 48 agreements with AB Bank Finasta (legal entity code 301502699, address Maironio g. 11, LT-01124 Vilnius).
Page 5 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
4. Data on trade in securities of the Issuer Group companies in the regulated markets
Shares of SEB Bank are not included in either the main or secondary list of Nasdaq OMX Vilnius exchange or in trading lists of other regulated markets and their listing is not planned in the nearest future.
As of 31 December 2011, three non-equity securities issues of SEB Bank were included in the trading list of the debt securities list of Nasdaq OMX Vilnius exchange:
| Parameters | Issue |
|---|---|
| ISIN code | LT0000431025 |
| Number of securities issued (units) | 31,850 |
| Nominal value per unit (LTL) | 100.00 |
| Total nominal value (LTL) | 3,185,000.00 |
| Effective date of the issue | 21 December 2010 |
| Redemption date | 23 January 2014 |
| Parameters | Issue |
| --- | --- |
| ISIN code | LT0000431157 |
| Number of securities issued (units) | 37,257 |
| Nominal value per unit (LTL) | 100.00 |
| Total nominal value (LTL) | 3,725,700.00 |
| Effective date of the issue | 21 December 2010 |
| Redemption date | 23 January 2014 |
| Parameters | Issue |
| --- | --- |
| ISIN code | LT0000405060 |
| Number of securities issued (units) | 46,575 |
| Nominal value per unit (LTL) | 100.00 |
| Total nominal value (LTL) | 4,657,500.00 |
| Effective date of the issue | 17 May 2011 |
| Redemption date | 13 June 2016 |
Securities of the Bank subsidiary companies are not traded in the regulated markets.
5. Objective overview of the issuer group status, activities and development, description of the main risk types and uncertainties
In 2011, SEB Bank Group Lithuania provided a full range of financial services to private individual, corporate customers and financial institutions. SEB Group Lithuania consisted of public limited company SEB Bank and three subsidiaries: SEB investicijų Valdymas, SEB Lizingas and SEB Venture Capital. In March 2011, with the aim to optimise the activities of international financial group SEB, the Bank in Lithuania sold all shares in its subsidiary company SEB Enskilda to the international SEB Group.
Lithuanian economy recovery and stronger financial standing of customers in 2011 contributed towards improvement the Group's financial result. Taking a responsible attitude in assessing business risk the Bank financed new business projects, issued loans to private individuals and offered new banking services that meet up-to-date needs. The Bank further decreased its provisions for impaired loans, also measures aimed at increasing operational efficiency had a positive impact on the Bank's operating result.
Despite increasing uncertainty in the Euro zone and in the global markets in the second half of 2011, the expectations of Lithuanian businesses were better compared to 2010, therefore, opportunities emerged to enhance the development of banking business in the segment of large corporate customers, there were positive changes also in the sector of small and medium companies.
In 2011, net profit earned by SEB Bank was LTL 379.8 billion (EUR 110.0 million), and that earned by the SEB Bank Group was LTL 469.7 million (EUR 136.0 million). The result has been calculated in accordance with the requirements set by relevant documents of the Bank of Lithuania and by the legal acts of the Republic of Lithuania. In 2010, audited net loss sustained by the Bank was LTL 12.1 million (EUR 3.5 million), and that of the Bank Group was LTL 18.0 million (EUR 5.2 million). The Bank's year 2011 result includes profit from sales after assignment of shares of the Bank's subsidiary company SEB Enskilda to the SEB Group.
As of 31 December 2011, the assets of the SEB Bank Group were LTL 26.6 billion (as of 31 December 2010 they were LTL 22.6 billion), i.e. an increase of 18.1 per cent. As of 31 December 2011, the SEB Bank Group's equity was worth LTL 2.3 billion (as of 31 December 2010, it was LTL 1.9 billion), i.e. an increase of 25.4 per cent. As of 31 December 2011, the SEB Bank Group's capital adequacy ratio, calculated according to the requirements of the Bank of Lithuania was 13.59 per cent (the required minimum is met), and the Bank's liquidity ratio as of 31 December 2011 was 46.12 per cent (the required minimum is 30.0 per cent).
In 2011, the number of the Group's customers was growing and the bank's deposit portfolio increased. Such growth was mainly caused by changes that took place in the Lithuanian banking market in the last quarter of 2011, when the operation of Bank Snoras AB was suspended. As a result of state enterprise Indėlių ir Investicijų Draudimas ('Deposit and Investment Insurance Fund') selecting SEB Bank for payment of insurance compensations to Bank Snoras' depositors (private individuals and companies within Vilnius County), the Bank's stable standing and the resulting customer trust and choice, the Bank's deposit portfolio increased. Since 31 December 2010 until 31 December 2011, the Bank's deposit portfolio increased from LTL 9,6 billion to LTL 12.2 billion, i.e. by 26 per cent.
During 2011, the Group's operating expenses increased by 11 per cent and were LTL 343.7 million (in 2010, they were LTL 309.1 million).
In 2011, the Group's net interest income increased by LTL 84.72 million, or by 31.56 per cent, and was LTL 353.15 million.
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SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
As of 31 December 2011, the number of the bank's effective bond issues was 106, their total nominal value being LTL 576 million. As of 31 December 2011, according to the nominal value of effective bonds registered with the Lithuanian Central Securities Depository, the Bank's local market share was 35.9 per cent.
During 2011, the number of registered users of SEB Bank Internet banking system increased by 7 per cent – from 946 thousand to 1.013 million. In 2011, the number of payment transactions via the Internet increased by 9.5 per cent. As of 31 December 2011, the Bank had 55 customer service subdivisions all over Lithuania. Within the year 2011, the Bank increased its ATM network up to 365. At present, customers of SEB Bank can use an ATM network that is the largest one in Lithuania and includes ATMs of SEB and DNB, i.e. 541 ATMs in 82 towns, large and small.
As of 31 December 2011, the number of the SEB Bank Group employees (excluding the employees on maternity/paternity leave) was 1,731, i. e. by 3.2 per cent less as compared to 31 December 2010, when the actual number of the Group's employees was 1,788. A decrease in the number of employees was determined by the fact that in 2011 this number no longer included employees of SEB Enskilda, whose shares in March 2011 were assigned by the Bank to the international SEB Group, also, due to the Group's reduced number of employees as a result of the implementation of measures for enhancing operational efficiency.
In 2011, there were changes in the senior management of SEB Bank: member of the management board Aušra Matusevičienė was replaced by Jonas Iržikevičius.
In 2011, SEB Bank successfully completed integration of its payment cards and core banking system roll-out. With its upgraded IT systems the Bank offers more possibilities to debit card holders – the Bank's debit cards were linked to bank accounts, and now debit card holders may execute the same banking transactions as the ones they can execute in a bank account.
In 2011, the Bank was further aiming at the implementation of its strategy to be the Home Bank for its customers. As a long-term relationship bank, SEB Bank offered modern universal banking services, provided them in a professional and convenient way, aiming to get an in-depth understanding of each customer's needs and expectations.
The Bank was the first in the Lithuanian banking market to offer financial service plans to private individuals at a fixed monthly fee, continuously improved its banking services that customers may use on their own – by a mobile phone or via the Internet, also expanded its network of cash dispensing ATMs throughout country, offered a possibility for private individual and corporate customers to receive their renewed debit card by mail directly at their private or office address.
In 2011, state enterprise Indėlių ir Investicijų Draudimas selected SEB Bank for payment of insurance compensations to former depositors of Bank Snoras – private individuals and companies within Vilnius County. Before the close of 2011, SEB Bank had paid out major portion – more than LTL 3 million – of said insurance compensations.
In 2011, the SEB Bank Group won major global awards: SEB Bank Lithuania was awarded with the title of the Bank of the Year in the EEC Region (ACQ Finance), the Best Private Bank in Lithuania (Euromoney), SEB Investicijų Valdymas' pension fund SEB Pensija 2 was selected the Best Pension Fund in Central and Eastern Europe (Investment & Pensions Europe). Also, SEB Bank won the title of the Best Bank for Real Estate (RE) sector in Lithuania (Euromoney) and the Best Trade Bank in Lithuania (Global Finance). A survey in 2011 by business daily Verslo Žinios and career portal cv.lt 2011 showed that SEB Bank is the most attractive employer in Lithuania.
In 2011, implementing its corporate social responsibility policy, the SEB Bank Group implemented many initiatives and projects within the following the SEB Bank Group's 8 corporate social responsibility model areas: responsible sales and marketing, financial crimes prevention, responsible management, environment impact reduction, sustainable financing and investments, accessibility of financial services, best place to work, investment in communities.
Issuer risk. The Bank's obligations against investors are not additionally secured by any guarantee and/or in any other manner, the Bank's obligation to redeem non-equity securities is not insured by state enterprise Indėlių ir Investicijų Draudimas, therefore, the investor assumes banking (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. Counterparty 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 account 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 homogenous 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.
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SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
Presented 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.
| 31-12-2009* | 31-12-2010* | 31-12-2011* | |
|---|---|---|---|
| Individually assessed client credits, which value has impaired, gross amount (impaired loans), in LTL'000 | 2,586,697 | 2,936,736 | 2,178,332 |
| Client credit portfolio (without special provisions), in LTL'000 | 18,653,351 | 17,144,657 | 16,886,116 |
| Ratio (in per cent) | 13.87 per cent | 17.13 per cent | 12.90 per cent |
- According to Official Letter of the Credit Institutions Supervision Department of the Bank of Lithuania No. 1203-310, dated 10 June 2008.
The Bank's Impairment losses on loan portfolio (LTL'000) according to the IFRS:
| 31-12-2009 | 31-12-2010 | 31-12-2011 | |
|---|---|---|---|
| Impairment losses on loans to customers (special provisions) | 1,459,262 | 1,463,927 | 1,207,686 |
| Impairment losses on loans to credit and financial institutions as of year end (special provisions) | 391,048 | 40 | 31 |
| Balance of impairment losses on loans to credit and financial institutions as of year end (special provisions) | 1,850,310 | 1,463,967 | 1,207,717 |
| Special provisions to loan portfolio ratio | 9.54 per cent | 8.29 per cent | 6.97 per cent |
Market risk. It is the risk of losses or 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: the single open foreign currency position and the 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 as a percent of the Group's total equity during the recent years is shown in the table below.
| The Group | 31-12-2009 | 31-12-2010 | 31-12-2011 |
|---|---|---|---|
| Maximum open single currency position | 103.53 per cent | 83.87 per cent | 105.63 per cent |
| Maximum aggregate open currency position | 1.78 per cent | 0.36 per cent | 0.34 per cent |
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.
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 and the Group's liquidity ratio over recent years are shown in the table below.
| The Group | Ratio | The Bank | ||||
|---|---|---|---|---|---|---|
| 31-12-2009 | 31-12-2010 | 31-12-2011 | 31-12-2009 | 31-12-2010 | 31-12-2011 | |
| n. a.* | 37.36 per cent | 46.80 per cent | Liquidity ratio (at least 30%) | 60.31 per cent | 35.88 per cent | 46.12 per cent |
- In the period from 2007 to 2009, the Bank of Lithuania had eliminated the Group's liquidity report.
Operational risk. Operational 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).
On 1 January 2008, the regulators issued a permission to the Bank to use the AMA (Advanced Measurement Approach) model in the operational risk assessment process for the calculation of regulatory capital for the operational risk.
The Bank has developed and continuously upgrades and improves its operational risk management tools: operational risk policy, ORSA (Operational Risk Self Assessment) and RTSA (Rogue Trading Self Assessment) methodologies, insurance policy, activities continuity planning requirements and continuity plans, internal controls mechanisms and the New Product and Services Approval Process.
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SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
Bank has launched and continuously uses its operation risk management system ORMIS, which is a Group wide IT solution. The operational risk management system enables each employee of the Group to register all operational risk incidents and the management at all levels - to assess, monitor and control risks and compile various reports. With the aim to achieve as detailed as possible assessment of the operational risk, ORSA and RTSA (Rouge Trading Self-Assessment) methodologies are applied, internal controls are undertaken, regular assessment of subdivision and process risks is performed.
Another two systems related to operational risk management are used for the development of new products and/or services (NAMIS) and for the formation of activity continuity plans for subdivisions LDRPS (Living Disaster Recovery Planing System).
The Bank has the Operational Risk Committee, which is aimed at improving the operational risk management and ensure appropriate cooperation between risk managers (1st line-of-defence) and control units (2nd line-of-defence).
The management board is provided with quarterly operational risk reports, which contain a review of new operational risk cases, efficiency of the application of the operational risk management measures as well as other risks.
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.
Business and strategy risk management at the Bank is delegated to relevant responsible units, which based on business plans and their implementation control, identify such risks and manage/mitigate them. Said units continuously monitor the set ratios. In case any decline is found, relevant information is provided to the management board and/or other responsible persons. Also, the Bank has approved activity continuity plans.
Capital adequacy. Lithuanian banks are required to maintain capital adequacy ratio, which is calculated as the capital base to risk-weighted assets ratio. During the internal capital adequacy assessment process for 2011, the target capital adequacy ratio was set at close to 12 per cent.
In October 2009 and in December 2010, the SEB Group was strengthening its capital base by covering losses through additional contributions of its shareholders.
In March 2010, the Board of the Bank of Lithuania gave permission to the Bank to include the issue of non-redeemable subordinated loan bonds worth EUR 100,000,000 (LTL 345,280,000) into the Bank's Tier II capital. The issue of non-redeemable subordinated loan bonds was acquired by the Bank's parent bank Skandinaviska Enskilda Banken AB (publ).
In 2011, on three occasions the Board of the Bank of Lithuania gave permission to the Bank to prepay, before maturity established under loan agreements, i.e. on 26 April, 13 June and 22 September 2011, the subordinated loans obtained from Skandinaviska Enskilda Banken AB (publ) under subordinated loan agreements dated 26 April, 13 June and 22 September 2011 worth in total EUR 102,000,000 (LTL 352,180,000). SEB Bank availed of the possibility to terminate the agreement with the aim to cut the Bank's borrowing costs and maintain the Bank's capital adequacy level. After the repayment of the loan, the Bank's capital adequacy ratio was 12.94 per cent and that of the Group was 13.59 per cent.
Changes in the bank and the Group capital adequacy ratios during recent years are presented in the table below.
| The Group | Ratio | The Bank | ||||
|---|---|---|---|---|---|---|
| 31-12-2009 | 31-12-2010 | 31-12-2011 | 31-12-2009 | 31-12-2010 | 31-12-2011 | |
| 11.58 per cent | 15.95 per cent | 13.59 per cent | Capital adequacy ratio | 12.94 per cent | 16.43 per cent | 12.94 per cent |
6. Analysis of the Issuer Group's financial and non-financial activity results
Volume and changes of the Group's activities are partially reflected by the below data of the balance sheet and profit and loss statements drafted in accordance with the International Financial Reporting Standards (IFRS):
| LTL million | 31-12-2009 | 31-12-2010 | 13-12-2011 |
|---|---|---|---|
| Loans | 17,205 | 15,725 | 15,662 |
| Investment | 1,847 | 1,884 | 1,726 |
| Lease receivables | 2,504 | 1,695 | 1,673 |
| Deposits | 9,670 | 9,643 | 12,153 |
| Amounts owed to credit and financial institutions | 13,651 | 9,296 | 10,136 |
| Equity | 1,525 | 1,859 | 2,331 |
| Assets | 26,952 | 22,558 | 26,642 |
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SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
The Group's income structure during recent years was as follows:
| LTL million | 2009 | 2010 | 2011 |
|---|---|---|---|
| Net interest income (loss) after impairment losses | (1,404.6) | 114.5 | 684.7 |
| Other income before operating expenses, net | 210.3 | 250.4 | 188.8 |
| Result before operating expenses | (1,194.3) | 364.9 | 873.5 |
| Operating expenses | (347.7) | (309) | (343.7) |
| Impairment losses on intangible assets | (169.6) | (71.8) | - |
| Profit (loss) before profit tax from continues activities | (1,711.6) | (15.9) | 529.8 |
| Net profit (loss) from continued activities | (1,445.5) | (17.8) | 469.7 |
Key ratios of the Group and the Bank activities are included in the table below:
| The Group | Ratio | The Bank | ||||
|---|---|---|---|---|---|---|
| 2009 | 2010 | 2011 | 2009 | 2010 | 2011 | |
| 11.58 per cent | 15.95 per cent | 13.59 per cent | Capital adequacy ratio | 12.94 per cent | 16.43 per cent | 12.94 per cent |
| (4.99 per cent) | (0.07 per cent) | 1.99 per cent | Return on Assets | (6.12 per cent) | (0.05 per cent) | 1.72 per cent |
| (76.06 per cent) | (1.04 per cent) | 21.86 per cent | Return on Equity | (79.55 per cent) | (0.73 per cent) | 19.50 per cent |
| n. a.* | 37.36 per cent | 4.80 per cent | Liquidity ratio | 60.31 per cent | 35.88 per cent | 46.12 per cent |
| (93.61) | (1.15) | 30.42 | Earnings per share, LTL | (100.13) | (0.78) | 24.59 |
| 98.75 | 120.40 | 150.94 | Book value per share, LTL | 92.03 | 114.06 | 138.70 |
- The Bank of Lithuania had revoked the liquidity report requirement for the Group in the period from 2007 to 2009.
7. References and additional comments on data included in the consolidated financial statements
All key financial data are included in the consolidated financial statements of the Group.
The Group must ensure the implementation of appropriate organisational measures, procedures and business process support IT systems, the entirety of which would ensure the implementation of adequate internal control system, which, in its turn, would enable providing reliable financial reporting data. The following key elements of the Group's internal control should be mentioned: checking the data on transactions executed in primary systems against transaction data in the accounting system; clear organisational structure and proper segregation of functions, daily accounting of the Group's transactions and relevant reports, based on actual market data, established risk restricting limits and regular control of whether the risk is in line with such limits, internal control elements integrated in business and business support processes as well as other control measures.
8. Major events since the end of previous financial year
On 8 February 2012, the Supervisory Council of SEB Bank AB took a decision on re-electing the Management Board of SEB Bank for a new four-year tenure. The following members of the Management Board were approved as members of the management board of the new tenure: Raimondas Kvedaras, Jonas Iržikevičius, Roberts Bernis, Aivaras Čičelis and Virginijus Doveika. The management board was re-elected upon expiry of the four-year tenure established for the Management Board of SEB Bank. On 8 February 2012, the meeting of the Management Board of SEB Bank elected Raimondas Kvedaras to the position of the Chairman of the Management Board of SEB Bank.
On 7 February 2012, the Bank announced that according to preliminary data, unaudited net profit earned by SEB Bank in 2011 was LTL 379.8 million (EUR 110.0 million), and that of the SEB Bank Group was LTL 469.7 million (EUR 136.0). 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 2010, audited net loss sustained by the Bank totalled LTL 12.1 million (EUR 3.5 million) and that by the bank Group - LTL 18.0 million (EUR 5.2 million). The year 2011 result of the Bank includes profit from sales obtained upon assignment of shares in the Bank's subsidiary company SEB Enskilda to the SEB Group. The operating result of SEB Enskilda is not included the SEB Bank Group's year 2011 operating result.
9. Issuer Group's activity plans and forecasts
The SEB Bank Group in Lithuania aims at long-term and mutually beneficial relations with all customers of the Group. For this purpose, the Bank implements its strategy to be the Home Bank for its customers, where their daily financial matters are managed. As a relationship bank, SEB Bank offers modern and universal banking services and provides them in a professional and convenient way with in-depth understanding of each customer's needs and expectations.
Page 10 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
The SEB Bank Group, seeking to implement its said strategy and aiming to maintain long-term relations with its customers, also, taking into account the objectives of the SEB Group, envisages the following key trends of activities:
-
Risk management. This area is constantly in the focus of attention of the Group – internal rules and procedures are improved, trainings on risk assessment are arranged for specialists of the Group, etc. In future it is planned to maintain this area in the focus of attention by availing of the experience already gained and by developing the employees’ competence and knowledge on risk management;
-
Increasing the operational efficiency. Seeking to retain operational efficiency and competitive edge, the Bank plans to:
-
increase income by applying target marketing: to clearly define competitive advantages in various client segments and, based on it, develop new growth plans;
-
duly assess the demand for costs aiming at achievement of the selected goals;
-
Customer loyalty strengthening. Aiming to become the Home Bank for its customers, the Bank plans to retain the existing customers and to attract new ones:
-
by offering flexible solutions to customers facing financial problems, who, with the help of the Bank would be able to survive the hard times;
- by creating new attractive services and products for customers successfully developing their business, so that they would feel the Bank’s steady attention;
-
by ensuring a possibility for its customers to be serviced by the Bank in a convenient, fast and safe way using various modern means (the Internet, mobile phone, self-service areas, etc.);
-
The best employer image retention. The Group will further aim at creating both the atmosphere of trust and respect, in which employees may work and develop, and environment, which would help to attract and develop competent specialists and encourage employees to aim at the achievement of top results.
The Group expects that proper solutions in each the above specified area will increase client and employee satisfaction as well as their loyalty to the Group.
The development of the Group’s activities is described under Article 5 of the present Report. In 2011, the Group carried out customer satisfaction surveys as well as customer and general public opinion polls to find out their opinion about the Group – its services, image and reputation.
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 document.
11. Data on the Issuer’s acquisition/assignment of own shares, powers of the Issuer’s bodies to issue and buy up the Issuer’s shares.
The Bank has none and during the year 2010 did not acquire its own shares. Also, the Bank’s subsidiary companies have not acquired the Bank’s shares. During the reporting period, the Bank and its subsidiary companies did not buy or sell their own shares.
The general meeting of the Bank’s shareholders has the exclusive right to set the class, number, nominal value and minimum issue price of shares issued by the company and take a decision for the Bank to acquire its own shares.
12. Information on the Issuer’s branches and representative offices
As of 31 December 2011, the Bank had 3 branches: SEB Bank’s Eastern Region (code 112053613, address: Savanoriu pr. 1, LT-03116 Vilnius), SEB Bank’s Middle Region (code 112052511, address: Laisvės al. 82/ Maironio g. 17, LT-44250 Kaunas), and SEB Bank’s Western Region (code 112052479, address: Taikos pr.32, LT-91246 Klaipėda).
The branches consisted of a network of 55 customer service units (7 branches and 48 sub-branches) all over Lithuania.
13. The Issuer’s authorised capital
The Bank’s authorised capital registered with the Register of Legal Entities (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 %) |
|---|---|---|---|---|---|
| Ordinary registered shares | LT0000101347 | 15 441 423 | 67 | 1 034 575 341 | 100,00 |
| In total | - | 15 441 423 | - | 1 034 575 341 | 100,00 |
All shares of the Bank are paid up and are not subject to any restrictions in terms of securities assignment.
14. Shareholders
On 19 November 2010, the squeeze-out procedure of SEB Bank’s shares was finalized. A 100 % stake in SEB Bank represented by its 15,441,423 ordinary registered shares is owned by bank Skandinaviska Enskilda Banken AB (publ) registered with the Enterprise Register of Sweden, its legal form: a public limited company, legal entity number: 502032-9081, domicile address: Kungsträdgårdsgatan 8, Stockholm, the Kingdom of Sweden.
Page 11 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
15. Major investments made over the reporting period
The Group's investments over the year 2011 into fixed tangible and intangible assets have been described in notes 26 and 27 of the consolidated annual financial statements and made no more than 10 per cent of the authorised capital.
16. Employees
As of 31 December 2011, the SEB Bank Group in Lithuania (SEB Bank, SEB Investicijų Valdymas, SEB Lizingas and SEB Venture Capital) had 2,023 employees (working under labour contracts with and without a fixed term, including those on maternity/paternity leave), i.e. by 2.6 per cent less compared to the end of 2010, when the Group had 2,078 employees. As of 31 December 2011, the number of actually working employees (excluding those on maternity/paternity leave) was 1,731, i.e. 3.2 per cent less than at the end of 2010, when the actual number of the Group's employees was 1,788. A decrease in the number of employees was determined by the fact that in 2011 this number no longer included employees of SEB Enskilda, whose shares in March 2011 were assigned by the Bank to the international SEB Group, also, by a decrease in the number of employees due to the Group's implemented operational efficiency enhancement measures.
During the year 2011, the number of employees of the Bank alone (working under labour contracts with and without a fixed term, including those on maternity/paternity leave) dropped by 2 per cent – from 2,009 to 1,968, and the number of the Bank's actually employed employees (excluding those on maternity/paternity leave) was 1,686, i.e. 2.5 per cent less than at the end of 2010, when their number was 1,730.
In 2011, the average actual number (excluding the number of employees on maternity/paternity leave) was 1,689 employees (in 2010, it was 1,748 employees).
| The Bank | The Group | |||||
|---|---|---|---|---|---|---|
| 31-12-2009 | 31-12-2010 | 31-12-2011 | 31 12 2009 | 31 12 2010 | 31-12-2011 | |
| Regular employees (working under labour contracts with and without a fixed term, including those on maternity/paternity leave) | 2,029 | 2,009 | 1,968 | 2,198 | 2,078 | 2,023 |
| Actually number of employees (excluding those on maternity/paternity leave) | 1,811 | 1,730 | 1,686 | 1,957 | 1,788 | 1,731 |
Tables below contain information on the Bank's employees' educational background and average monthly wages (before taxes). Labour contracts or collective bargaining agreements do not provide for any special rights or duties of the issuer's employees or of some of them.
| Number of employees | Average monthly wages (in LTL) | |||||
|---|---|---|---|---|---|---|
| 31-12-2009 | 31-12-2010 | 31-12-2011 | 31-12-2009 | 31-12-2010 | 31-12-2011 | |
| Senior management staff | 279 | 275 | 256 | 10,245 | 9,921 | 10,612 |
| Specialists | 1,741 | 1,726 | 1,704 | 3,569 | 3,341 | 3,445 |
| Service staff | 9 | 8 | 8 | 1,994 | 2,069 | 2,119 |
| In total | 2,029 | 2,009 | 1,968 | - | - | - |
| Number of employees | University education | College education | Secondary education | |||
| --- | --- | --- | --- | --- | --- | --- |
| number | per cent | number | per cent | number | ||
| Senior management staff | 256 | 242 | 94.5 | 5 | 2.0 | 9 |
| Specialists | 1,704 | 1,322 | 77.6 | 124 | 7.3 | 258 |
| Service staff | 8 | 5 | 62.5 | 1 | 12.5 | 2 |
| In total | 1,968 | 1,569 | 79.8 | 130 | 6.6 | 269 |
17. The Group's information on the remuneration policy and its implementation
The information has been drawn up and announced implementing the requirements of Item 25 of Resolution of the Board of the Bank of Lithuania 'Regarding an amendment to the Board of the Bank of Lithuania Resolution 'Regarding minimum requirements for policies of remuneration to credit institution employees' No. 228, dated 10 December 2010', No. 03-175, dated 10 December 2009, also, Resolution of the Securities Commission of the Republic of Lithuania 'On approving the requirements for remuneration policies of financial brokerage companies, management companies and investment companies' No. 1K-9, dated 3 February 2011.
The Group has its approved remuneration policy, which aligned with the remuneration policy of SEB, the Bank's shareholder. Also, the remuneration policy implements legal acts of the Board of the Bank of Lithuania and of the Securities Commission of the Republic of Lithuania regulating the requirements for the remuneration policy.
Page 12 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
The Group's remuneration policy creates and promotes an internal culture that long-term steers in the benefit of the customers and thus over time will give its shareholders the best return. The competence and commitment of the Group's employees are crucial to the Group's development. The Group encourages to aim at the achievement of top results, adhere to the code values and assume well weighted and balanced risk in line with the expectations of customers and shareholders. Also, the Group aims that the remuneration to its employees is competitive in the markets and segments where the Group operates in order to motivate high performing employees.
- Information on the remuneration policy decision-taking process in establishing and revising the remuneration policy principles, including information on the remuneration committee (composition and powers), external advisers, if their services were resorted to when developing the policy
The Group abides by the remuneration policy that was approved by the Bank's supervisory council on 27 April 2011. All of the Group companies have implemented the remuneration policy requirements. When developing said remuneration policy, no services of external advisers were resorted to.
The Bank's Human Resources Department together with the Compliance Unit, annually reviews the Group's remuneration policy and submits proposals on the policy changes. The remuneration policy is approved by the Bank's supervisory council, upon approval of the Group's remuneration committee. The management board of the Bank is responsible for the implementation of the remuneration policy.
On 27 April 2011, the Group's remuneration committee was established, consisting of:
- Chairman of the committee – Head of SEB Business Support (Knut Jonas Martin Johansson);
- Member of the committee – Head of Finance of SEB Baltic Division (Mark Barry Payne);
- Member of the committee – Head of Legal of SEB Baltic Division (Ted Tony Kylberg);
- Member of the committee – Head of Human Relations of SEB Baltic Division (Anna Maria Erika Hamstedt).
Candidates to members of the remuneration committee are approved by the supervisory council of the Bank. Persons related to the Bank or its subsidiary companies by labour relations as well as members of the Bank's management board may not be elected chairman or members of the remuneration committee. None of the members of the remuneration committee has shares in the Bank.
The competence of the remuneration committee and its rules of procedure are established by the remuneration committee regulations approved by the supervisory council of the Bank.
The remuneration committee, at the proposal of the president of the Bank, takes decisions on:
- Establishing individual remuneration by position (including pension saving plans) to senior managers, other than members of the board, directly reporting to the president of the Bank;
- allocation of short-term incentive programmes to certain employee groups;
- allocation of the amount of the short-term incentive programme.
The remuneration committee drafts and submits to the Bank's supervisory council for approval:
- the Bank's remuneration policy, any amendments thereto and a list of risk-takers and any amendments thereto;
- remuneration by position to the president, board members of the Bank, heads of the Internal Audit Department, Compliance Unit and Risk Control Unit;
- long-term incentive programmes applied to the group employees;
- pension saving plans applied to the president and board members of the Bank;
- proposals regarding employee individual remuneration by position, if their amount is equal or exceeds the minimum amount of individual remuneration by position of a board member.
Also, the remuneration committee performs other functions delegated to it by the Bank's supervisory and provided for by the remuneration committee regulations and relevant legal acts.
Information on the relation between the remuneration and performance results
Principles of establishing remuneration are related to the Group employees' performance appraisal results. It means that when establishing remuneration, the appraisal of an employee's performance is taken into account.
The Group employees' remuneration consist of the following three elements:
- remuneration by position (or hourly rate);
- variable remuneration, which may be allocated according to the following programmes:
- short-term incentive programme;
- long-term incentive programme;
- additional benefits.
Remuneration by position (or hourly rate) – it is the wages (base pay) established in an employee's labour contract.
Variable remuneration – it is a variable portion of remuneration, which may be paid to employees as an extra to the remuneration by position – in bonuses, pension saving contributions, rights to the Bank's shares, equity-linked financial instruments, other financial or non-cash instruments, and the amount of which depends on an individual employee's input to the performance of his/her subdivision or of the Group.
Page 13 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
Variable remuneration is established so that it would encourage the achievement of not only short-term, but also long-term results of the Group's continued activities, and would encourage to search for long-term strategic solutions that would ensure sustainability of the Group's business development. The whole amount of the variable remuneration paid for a certain period of time is established taking into account the performance during several months and must not threaten the Group's ability to achieve the Group's total positive result over the entire business cycle.
Additional benefit – it includes additional health insurance, saving endowment insurance, additional annual vacation, additional paid vacation to students.
- The main remuneration policy structure elements, including information on the criteria used for performance appraisal and for risk assessment, risk-based remuneration adjustment, remuneration allocation criteria and deferral principles
The remuneration policy structure consists of:
- remuneration concept and remuneration package elements;
- remuneration by position;
- variable remuneration;
- additional benefit;
- remuneration policy management and control;
- information disclosure;
- description of the Group's risk-takers and their attribution to said category.
The remuneration policy establishes that principles for the determination and payment of variable remuneration to risk-takers must be in line with the Group's long-term continued activities interests, business strategy, objectives, values, and would encourage reliable and effective risk management, and employees would not be encouraged to take risk that is excessive and unacceptable to the Group.
At the beginning of each year, annual activity objectives are established for the Group, subdivision and an employee, based on which the performance over a relevant year is appraised. SEB applies a uniform group-wide process for the appraisal and documentation of an employee's performance and behaviour, where the achievement of individual qualitative and quantitative objectives serves for the determination of a relevant remuneration.
Remuneration is related to performance, therefore, the whole amount of the remuneration is based on the overall appraisal of performance of an individual, a subdivision and the Group. The appraisal of each employee's personal input includes not only the employee's input towards the achievement of financial results (quantitative objectives), but also non-financial (qualitative) criteria (for instance, observance of internal rules and procedures as well as standards of the relations with customers and investors).
Variable remuneration to the Group's employees whose professional activities and/or decisions taken may have a significant impact on the risks assumed by the Group is established according to the impact of their decisions on risk. An employee is considered to be able to take decisions that have a significant impact on the risk assumed by the Group (i.e. a risk-taker), if the employee meets at least one of the following criteria:
- employees with leading strategic positions in the Group;
- employees with risk control functions;
- employees empowered to take decisions, which may have a material impact on the Group's performance;
- employees whose remuneration is equal or exceeds the remuneration of the Group's employees in leading strategic positions.
Remuneration for said employees is calculated based on the appraisal of a relevant employee's performance over no less than three to five years, and the actual variable remuneration is paid in portions – over a period that matches the Group's operation cycle and operational risk. No less than 50 per cent of the remuneration to such employees must consist of shares or any other financial instruments.
Variable remuneration may not make more than a 100 per cent of the annual remuneration by position.
Payment (in cash or in non-cash instruments) of a portion of variable remuneration calculated for a risk-taker is deferred for a three to five years' period, if the calculated variable remuneration portion over a year is significantly large (a definite amount is indicated in the Remuneration Policy).
The deferred variable remuneration portion is allocated proportionately over the entire deferral period, and its payment is started no earlier than after one year since the end of a relevant employee's performance appraisal and shall be effected no more than once a year.
In case of financial instruments that constitute a portion of the variable remuneration, a no less than 12 months' deferral period is applied. Such period is reckoned since the time of granting the rights to the financial instruments. This provision applies both to the deferred variable remuneration portion and to the variable remuneration portion that is not subject to deferral.
- Performance appraisal criteria, which are the basis for the right to the Bank's shares, equity-linked financial instruments and to other composite parts of the variable remuneration
Variable remuneration to risk-takers may be disbursed taking into account the following terms:
- sustainability of the Bank's and/or the Group's financial standing;
- implemented annual objectives of an employee, also, adherence to the requirements of the internal legal acts.
Page 14 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
Prior to the disbursement of each deferred portion of the variable remuneration and in each case related to its disbursement the above-indicated terms are assessed.
General quantitative information on remuneration by business areas
The tables below contain information on amount before taxes. The information is provided for the year 2011 according to the data as of 9 March 2012.
| The Group companies | Base remuneration (LTL '000) | Variable remuneration (LTL '000) | Number of employees |
|---|---|---|---|
| SEB Bank | 91,531 | 8,692 | 1,968 |
| SEB investicju Valdymas | 1,214 | 89 | 13 |
| SEB Lizingas | 2,352 | 222 | 40 |
| SEB Venture Capital | 480 | 1 | 2 |
| In total | 95,577 | 9,004 | 2,023 |
General quantitative information on remuneration to employees, excluding the senior management of the Bank:
o financial year annual wage amounts, split into base and variable remuneration portion and the number of individuals thus remunerated:
| The Bank | Base remuneration (LTL '000) | Variable remuneration (LTL '000) | Number of individuals thus remunerated |
|---|---|---|---|
| The management board | 2,632 | 848 | 5 |
| Risk-takers of the Group, excluding members of the management board | 7,416 | 832 | 37 |
| Employees | 81,483 | 7,012 | 1,926 |
| In total | 91,531 | 8,692 | 1,968 |
| The Group | Base remuneration (LTL '000) | Variable remuneration (LTL '000) | Number of individuals thus remunerated |
| --- | --- | --- | --- |
| The management board | 4,235 | 989 | 12 |
| The Group's risk-takers, excluding members of the management board | 7,422 | 832 | 39 |
| Employees | 83,920 | 7,183 | 1,972 |
| In total | 95,577 | 9,004 | 2,023 |
o amounts of the variable remuneration split into payment in cash, pension contributions, shares of the Bank, equity-linked financial instruments and other financial or non-cash instruments:
| The Bank | Variable remuneration paid in cash (LTL '000) | Pension contributions (LTL '000) | Shares of the Bank (LTL '000) | Equity-linked financial instruments (LTL '000) |
|---|---|---|---|---|
| The management board | 192 | 0 | 0 | 656 |
| The Group's risk-takers, excluding members of the management board | 603 | 0 | 0 | 242 |
| Employees | 6,960 | 0 | 0 | 39 |
| In total | 7,755 | 0 | 0 | 937 |
| The Group | Variable remuneration paid in cash (LTL '000) | Pension contributions (LTL '000) | Shares of the Bank (LTL '000) | Equity-linked financial instruments (LTL '000) |
| --- | --- | --- | --- | --- |
| The management board | 265 | 0 | 0 | 725 |
| The Group's risk-takers, excluding members of the management board | 604 | 0 | 0 | 242 |
| Employees | 7,129 | 0 | 0 | 39 |
| In total | 7,998 | 0 | 0 | 1,006 |
o amounts of the outstanding deferred remuneration split into allocated and non-allocated portions:
Page 15 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
| The Bank | Deferred variable remuneration (LTL '000) | Allocated deferred variable remuneration (LTL '000) | Non-allocated deferred variable remuneration (LTL '000) |
|---|---|---|---|
| The management board | 656 | 164 | 492 |
| The Group's risk-takers, excluding members of the management board | 339 | 145 | 194 |
| Employees | 0 | 0 | 0 |
| In total | 994 | 309 | 685 |
| The Group | Deferred variable remuneration (LTL '000) | Allocated deferred variable remuneration (LTL '000) | Non-allocated deferred variable remuneration (LTL '000) |
| --- | --- | --- | --- |
| The management board | 724 | 181 | 543 |
| The Group's risk-takers, excluding members of the management board | 339 | 145 | 194 |
| Employees | 0 | 0 | 0 |
| In total | 1,063 | 326 | 737 |
o amounts of the deferred variable remuneration, allocated over a financial year, paid and adjusted taking into account the performance results:
In 2011, there were no such amounts in the Bank and the Group.
o amount of the guaranteed variable remuneration envisaged under new agreements and the number of individuals thus remunerated:
In 2011, no guaranteed variable remuneration was paid by the Bank and the Group.
o amounts related to termination of labour relations allocated over the financial year, the number of individuals thus remunerated and maximum amount allocated to a single individual:
| The Bank | Number of individuals paid the severance pay | Total amount of severance pays paid upon termination of labour contracts* (LTL '000) | Maximum amount allocated per single individual (LTL '000)* |
|---|---|---|---|
| 252 | 4,034 | 164 |
- including pays for unused vacation, taxes.
| The Group | Number of individuals paid the severance pay | Total amount of severance pays paid upon termination of labour contracts* (LTL '000) | Maximum amount allocated per single individual (LTL '000)* |
|---|---|---|---|
| 275 | 4,324 | 164 |
-
including pays for unused vacation, taxes.
-
Reasons and criteria for allocation of the variable remuneration portions and all other non-cash benefits
For employees of the Group only the base remuneration - remuneration by position - is established in advance.
Remuneration establishment principles are related to the results of employee performance results. It means that individual remunerations by positions and variable remuneration is established taking into account the employees' performance appraisal.
The Group aims that remuneration for its employees would be competitive in the banking market by establishing an appropriate proportion: (1) between the remuneration by position and variable remuneration, and (II) between long-term and short-term reward. The Group also aims that the total remuneration would reflect the integrity of the employee activities, commitment and leadership qualities required for any definite position, also that it would be established taking into account the appraisal of an individual employee's activities.
Page 16 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
18. Procedure for amending the Issuer's articles of association, rules regulating the election of members to the management board
The Bank's articles of association are amended according to the procedure established by the Company Law of the Republic of Lithuania and by the Law on the Republic of Lithuania on Banks. The Company Law of the Republic of Lithuania establishes that the right to amend the Bank's articles of association is exclusively vested in the general meeting of shareholders. When taking a decision on amending the articles of association, a 2/3 qualified majority of votes of general meeting of shareholders present at the general meeting of shareholders is required.
The Law on the Republic of Lithuania on Banks establishes that amended articles of association, in case of amending the provisions of the articles of association regarding 1) the name of the Bank; 2) the amount of the Bank's authorised (paid-in) capital; 3) the number of shares, also, their number by classes, their nominal value as well as the rights vested; 4) the competence of the Bank's management bodies, the procedure for the election and revocation of their members, may registered with the Register of Legal Entities only subject to a relevant permission of the supervisory authority, i.e. the Bank of Lithuania.
The Bank's management board is elected by the Bank's supervisory council for a 4 year tenure. If individual members of the board are elected, they are elected only until expiry of the tenure of the existing management board. A decision of the supervisory council to revoke any member from the management board may be adopted, if no less than 2/3 of the supervisory council members present at the meeting vote for it. The number of tenures of a management board member is unlimited. The chairman of the board is elected by the management board from among its members.
19. The Issuer's bodies
The articles of association of SEB Bank establish that the bodies of the Bank are as follows:
- The General Meeting of Shareholders of the Bank (hereinafter the 'Meeting')
- The Supervisory Council of the Bank (hereinafter the 'Council')
- The Management Board of the Bank (hereinafter the 'Management Board')
- Head of the Bank's administration (president) (hereinafter the 'President').
The competence of the General Meeting of Shareholders and shareholders' rights and their exercising are provided for by the laws of the Republic of Lithuania.
The Management 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 the 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 its daily matters, represents the Bank's interests and is liable for the financial services of the Bank as prescribed 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 the articles of association of the Bank. Individual members of the Management Board have no powers granted to them as members of the Management Board, they act jointly as a collegiate body and separately as directors of relevant divisions of SEB Bank.
The President acts in the name of the Bank, organizes the Bank's day-to-day activities and has other functions attributed to his competence by laws of the Republic of Lithuania and the articles of association of the Bank.
20. Information on the composition of the management and supervisory bodies and of their committees, their areas of activities as well as those of the head of the company and on the Chief Financial Officer
THE SUPERVISORY COUNCIL OF THE BANK (31 December 2011)
KNUT JONAS MARTIN JOHANSSON
Head of Business Support Division of Swedish bank SEB. Education: university degree, specialisation – economics. No shares of the Bank are held 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 held 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 held by the Member.
Member of the Supervisory Council elected by an extraordinary meeting of shareholders of SEB Bank held on 29 October 2009.
Page 17 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
STEFAN STIGNÁS
Head of Corporate Banking of SEB Baltic Division. Education: university degree, specialisation – economics. No shares of the Bank are held 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 held 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 tenure of all members of the Supervisory Council expires on 29 October 2013.
THE MANAGEMENT BOARD OF THE BANK
(31 December 2011)
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 held 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 held 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 held 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 14 June 2010. Education: higher, specialisation – business administration and management. No shares of the Bank are held by the Member.
JONAS IRŽIKEVIČIUS
Vice President and Head of Business Support Division and Chief Financial Officer of SEB Bank. Member of the Management Board since 11 April 2011. Education: higher, specialisation – business administration. No shares of the Bank are held by the Member.
The tenure of all members of the Management Board expires on 7 February 2016 (on 8 February 2012, the Supervisory Council of the Bank took a decision to re-elect the Management Board of the Bank for a new four-year tenure).
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
JONAS IRŽIKEVIČIUS – Vice President and Head of Business Support Division and Chief Financial Officer of SEB Bank. Member of the Management Board and Chief Financial Officer since 11 April 2011.
Over the reporting period, there were no disbursements to members of the Supervisory Council of the Bank.
Information on disbursements over the reporting period to the Management Board members holding also other positions in the Bank is provided in the table below. Variable remuneration portion to members of the Management Board over the year 2011 has been allocated in 2012 – relevant information is provided under Article 17 of the present Report.
Page 18 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
| Amounts in connection with labour relations | Property assigned gratis | Guarantees issued in the name of the company | |
|---|---|---|---|
| In total to all members of the Management Board (LTL '000) before taxes, of which: | 3 435 | - | - |
| amounts based on a labour contract (LTL'000) | 2 632 | - | - |
| employer's social security contributions (LTL'000) | 803 | - | - |
| Other disbursements, including the employer's social security contributions (LTL'000)**: | 363 | - | - |
| Per member of the Management Board on average (LTL'000) before taxes: * | 687 | - | - |
| amounts based on a labour contract (LTL'000) | 526 | - | - |
| employer's social security contributions (LTL'000) | 161 | - | - |
| During the year 2011 calculated amounts to the Company's Chief Executive Officer and Chief Financial Officer (LTL'000) before taxes: | |||
| amounts calculated to the Company's Chief Executive Officer during the year 2011 based on labour contract (LTL'000) | 652 | - | - |
| amounts calculated to the Company's Chief Financial Officer during the year 2011 based on labour contract (LTL'000) | 431 | - | - |
- The Management Board consists of 5 members.
** Severance pays, daily allowances exceeded the set standard.
On 4 October 2011, the Bank's supervisory council approved a new composition of the Bank's audit and compliance committee The committee is an advisory body to the Bank's supervisory council / management board in of accounting, compliance, audit, risk management, internal audit and control as well as in other areas of the audit committee competence as provided for by relevant existing documents.
The purpose and activities of the committee are to monitor, supervise and to provide recommendations and proposals to the supervisory council / management board regarding:
- efficiency of the Bank's internal audit, risk management and its internal audit systems;
- drafting of financial reports;
- implementation of audit and internal audit processes, independence and effectiveness of the internal audit, information provided by the internal audit on the reviews carried out, on the elimination of any drawbacks found and on the implementation of internal audit plans;
- appointing, repeated appointing and dismissal of the head of internal audit;
- audit of annual reports and consolidated annual reports;
- comprehensiveness of data of financial statements;
- appointing, repeated appointing and dismissal of the Bank's external auditor;
- establishing terms and remuneration to an external auditor;
- observance of the principles of independence and fairness by an auditor and an audit company performing an audit, annual assessment of their qualifications, experience, resources and efficiency;
- formation of policy related to non-audit services provided by an external auditor with the aim to ensure that rendering of said services would have no impact on the independence of such external auditor;
- internal audit regulations, current-year plan of the internal audit, lists of persons to whom any audit report or its summary version is provided and rules for providing a report;
- ensuring the resources allocated for the internal audit required for the implementation of set objectives and due qualifications of the internal audit employees for the fulfilment of their functions;
- enhancing the efficiency of the Bank's processes;
- meeting the requirements of legal acts and implementation of the principles of good practice of professional activities, initiation of periodical reviews with the aim to assess whether the Bank's activities are in line with the requirements of national laws, legal acts of supervisory authorities as well as any other legal acts or with the provisions of the Bank's the statute (articles of association) and of the Bank's activities strategy;
- approving the general audit plan of the work of the Bank's internal audit subdivision;
- other issues that fall within the competence of the committee according to the requirements of laws and legal acts as well as according to the policy and instructions of the Bank and/or the entire Group.
Page 19 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
AUDIT AND COMPLIANCE COMMITTEE (31 December 2011)
MARK BARRY PAYNE
Chairman of the Committee. Employer: Skandinaviska Enskilda Banken AB (publ). No shares of the Bank held.
GÖRAN RASPE
External auditor. No shares of the Bank are held by the external auditor.
AUŠRA MATUSEVIČIENĖ
Employer: Skandinaviska Enskilda Banken AB, Vilnius Branch. No shares of the Bank held.
BEN WILSON
Employer: Skandinaviska Enskilda Banken AB (publ). No shares of the Bank held.
ARNOLDS ČULKSTENS
Employer: Skandinaviska Enskilda Banken AB, Vilnius Branch. No shares of the Bank held.
Since 27 April 2011, the Bank has a Remuneration Committee. Information on its composition and areas of activities is provided under Article 17 of the present Report.
21. Significant arrangements, the Issuer being a party thereto, which in case of any changes in the Issuer's controlling stake would take effect, change or discontinue
Such significant arrangements are envisaged under the Bank's loan agreements, however, parties thereto and relevant terms and conditions contained therein are deemed to be confidential information with regard to both the Bank and other parties, therefore, their disclosure could render major damage to the Bank.
22. Arrangements between the Issuer and members of its bodies or employees
On 10 February 2012, the administration of the Bank and representatives of the Bank employees signed an updated collective bargaining agreement at a two-year effective period. 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 representatives of the labour council. The labour council of the 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.
Consultations with the Bank's administration is one of the main areas activities of the labour council. During the consultations, in 2011 a new remuneration system was presented to the members of the labour council. The labour council periodically meets with the president of the Bank. At such meetings, implementation of the provisions of the collective bargaining agreement, future changes, also questions as well as observations from employees to members of the labour council are discussed.
There are no separate arrangements regarding severance pays executed with the Issuer's bodies, members of committees or employees, should they resign or be dismissed without a motivated reason.
23. Information on compliance with the Corporate Governance Code
The Bank, as an issuer of non-equity securities, abides by the recommendatory-character Corporate Governance Code on the management of companies listed NASDAQ OMX Vilnius, to which it adheres in substance. Reasons for the provisions that it does not adhere to are indicated in the Corporate Governance Code (see Annex 1). The Corporate Governance Code and other information on the practice of the governance of SEB Bank is announced at the Bank's website www.seb.lt and at the central database of regulated information of the market operator (Nasdaq OMX Vilnius stock exchange).
24. Information on detrimental transactions executed in the name of the Issuer over the reporting period
Over the reporting period, there were no detrimental transactions (that are not in line with the objectives of the company, the existing regular market conditions, in violation of the interests of shareholders or any other groups of persons, etc.) executed in the name of the Issuer that have had or that may in future have an adverse effect on the Issuer's activities or its performance, nor any transactions executed in conflict of interest of the duties of the Issuer's senior managers, controlling shareholders or of any other related persons against the Issuer with their private interests and/or other duties.
25. 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.
Page 20 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
Over the reporting period, the Bank announced the following information on its material events:
On 12 January 2011, the Bank announced that member of the management board of SEB Bank Aušra Matusevičienė will take a new position in the SEB Group – at the Group's Operations and IT, she will be responsible for the IT and operations area in the Baltic countries and for the coordination and development of SEB branches in Riga and in Vilnius. She will start in her new position on 15 March 2011. Taking this into account, since the above-indicated date A. Matusevičienė will no longer hold the position of a member of the Management Board of SEB Bank.
On 4 February 2011, the Bank announced that, according to preliminary data, unaudited net loss sustained by SEB Bank in 2010 was LTL 12.1 million (EUR 3.5 million), and that by the SEB Bank Group – LTL 18.0 million (EUR 5.2 million). The result is calculated in accordance with the requirements set by the documents of the Bank of Lithuania and legal acts of the Republic of Lithuania. In 2009, audited net loss sustained by the Bank was LTL 1,546.2 million (EUR 447.8 million), and that by the Bank Group – LTL 1,427.5 million (EUR 413.43 million). SEB Bank's year 2011 result includes profit from sales earned in the first quarter of 2010 after assignment of shares of the Bank's subsidiary companies SEB Gyvybės Draudimas and Litectus to the SEB Group. The Bank Group's year 2010 result includes the operating result of Litectus in January and February, whereas the operating result of SEB Gyvybės Draudimas is not included.
On 3 March 2011, the Bank announced that it assigned a 100 per cent stake in its subsidiary company SEB Enskilda to SEB Bank's parent company Skandinaviska Enskilda Banken AB (publ). Taking into account that SEB Enskilda is licensed as a financial brokerage company and abiding by the provisions of Article 10 of the Law of the Republic of Lithuania on Markets in Financial Instruments, prior to the assignment of the shares an approval of the Securities Commission of the Republic of Lithuania to assign the shares was obtained. At the same time, shares in SEB Enskilda Latvia and SEB Enskilda Estonia were assigned. Such assignment of shares is aimed at concentrating investment banking services at the Merchant Banking Division of Skandinaviska Enskilda Banken AB (publ). This is expected to strengthen uniform management and coordination of activities within the international SEB Group. Said change will have no impact on customers of SEB Enskilda.
On 14 March 2011, the Bank announced about adjustment in the information announced on 12 January 2011 about the date of a change in the position of member of the Management Board of SEB Bank Aušra Matusevičienė – she will start in her new position within the SEB Group on 11 April 2011. At the SEB Group's Operations and IT, A. Matusevičienė will be responsible for the IT and operations area in the Baltic countries and for the coordination and development of SEB branches in Riga and in Vilnius. Taking this into account, A. Matusevičienė will hold the position of a member of the Management Board of SEB Bank until 8 April 2011 (previously announced date was 15 March 2011).
On 17 March 2011, the Bank announced that on 30 March 2011 a general annual meeting of shareholders will be convened. The shareholders meeting is initiated and convened by the management board of the Bank. The Bank is wholly owned by Skandinaviska Enskilda Banken AB (publ). The announced agenda of the meeting:
- regarding the Bank's annual report;
- regarding the opinion of the Bank's auditor;
- regarding comments and proposals of the Bank's supervisory council;
- regarding approving the collection of the Bank's year 2010 consolidated financial statements;
- regarding distribution of the Bank's year 2010 profit (loss).
Also, the management board of the Bank approved draft resolutions of the Bank's general annual meeting of shareholders.
On 25 March 2011, the Bank announced that its supervisory council has taken a decision to appoint, starting from 11 April 2011, Jonas Iržikevičius a new ember of the Management Board of SEB Bank. Jonas Iržikevičius will start holding the position of a member of the management board only after a relevant permission of the Bank of Lithuania is obtained.
On 31 March 2011, the Bank announced that on 30 March 2011 SEB Bank's shareholders meeting took place, which adopted resolutions on all the issues on the agenda:
- it familiarised with SEB Bank's consolidated annual report;
- it familiarised with the report of SEB Bank's auditor;
- it familiarised with the comments and proposals of the Supervisory Council of SEB Bank;
- it approved the collection of SEB Bank's and the SEB Bank Group's year 2010 consolidated financial statements;
- it approved distribution of the Bank's year 2010 profit (loss).
On 3 May 2011, the Bank announced that according to preliminary data, unaudited net profit earned by SEB Bank over the first quarter of 2011 was LTL 97.6 million (EUR 28.3 million), and that by the SEB Bank Group – LTL 174.1 million (EUR 50.4 million). The result is calculated according to the requirements set by the documents of the Bank of Lithuania and by relevant legal acts of the Republic of Lithuania. Over the first quarter of 2010, unaudited net loss sustained by the Bank was LTL 59.4 million (EUR 17.2 million), and that sustained by the Bank's Group – LTL 80.3 million (EUR 23.3 million). The Bank's result of the first quarter 2011 includes profit from sales of the Bank's subsidiary company SEB Enskilda after assignment of its shares to the SEB Group. The result of the first quarter of 2011 of the SEB Bank Group does not include the operating result of SEB Enskilda.
On 14 July 2011, the Bank announced that according to preliminary data unaudited net profit earned by SEB Bank over the first half-year of 2011 was LTL 199.5 million (EUR 57.8 million), and that earned by the SEB Bank Group – LTL 356.5 million (EUR 103.2 million). The result is calculated according to the requirements set by the documents of the Bank of Lithuania and by relevant legal acts of the Republic of Lithuania. Audited net loss sustained over the first half-year of 2010 by the Bank was LTL 77.0 million (EUR 22.3 million), and that sustained by the Bank Group – LTL 160.9 million (EUR 46.6 million). The Bank's result over the first half-year of 2011 includes profit from sales of the Bank's
Page 21 of 131
SEB BANK
THE YEAR 2011 CONSOLIDATED ANNUAL REPORT
(all amounts in LTL thousand, unless indicated otherwise)
subsidiary company SEB Enskilda after assignment of its shares to the SEB Group. The result of the first half-year of 2011 of the SEB Bank Group does not include the operating result of SEB Enskilda.
On 27 October 2011, the Bank announced that, according to preliminary data, unaudited net profit earned by SEB Bank over three quarters of 2011 was LTL 246.7 million (EUR 71.4 million), and that earned by the SEB Bank Group - LTL 431.5 million (EUR 125.0 million). The result is calculated according to the requirements set by the documents of the Bank of Lithuania and by relevant legal acts of the Republic of Lithuania. Unaudited net loss sustained by the Bank over three quarters of 2010 was LTL 112.1 million (EUR 32.5 million), and that sustained by the Bank group - LTL 76.1 million (EUR 22.0 million). The Bank's result over three quarters of 2011 includes profit from sales of the Bank's subsidiary company SEB Enskilda after assignment of its shares to the SEB Group. The result of the three quarters of 2011 of the SEB Bank Group does not include the operating result of SEB Enskilda.
On 29 November 2011, the Bank announced that on 28 November 2011 state enterprise Indělių ir Investicijų Draudimas ('Deposits and Investments Insurance Fund') announced that insurance compensations to private individuals who had deposits with Bank Snoras will be paid via SEB Bank. SEB Bank is also appointed for payment of insurance compensations to legal entities within Vilnius County. An agreement on payment of insurance compensations between SEB Bank and state enterprise Indělių ir Investicijų Draudimas has not yet been executed, coordination of the terms and conditions of the agreement and preparatory work is in progress.
Also, over the reporting period the Bank made 14 public announcements of additional information (as per paragraph 5 of Article 25 of the Law of the Republic of Lithuania on Securities) and 5 public announcements of periodic 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,
12 March 2011
Page 22 of 131
AB SEB BANK
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
| The Group | The Bank | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | Note | 2011 | 2010 | |
| 751,997 | 767,186 | Interest income | 680,314 | 692,681 | |
| (398,850) | (498,759) | Interest expenses | (364,335) | (459,219) | |
| 353,147 | 268,427 | Net interest income | 6 | 315,979 | 233,462 |
| 124,092 | (119,346) | Impairment (losses) reversals on loans | 7 | 124,092 | 271,654 |
| 201,630 | (41,350) | Impairment (losses) reversals on lease portfolio | 7 | - | - |
| 5,789 | 6,793 | Provisions for guarantees and other off balance sheet items | 5,789 | 6,793 | |
| - | (2) | Other impairment (losses) | - | (1) | |
| 331,511 | (153,905) | Total impairment (losses) reversals | 129,881 | 278,446 | |
| 684,658 | 114,522 | Net interest income after impairment losses | 445,860 | 511,908 | |
| 229,013 | 235,046 | Fee and commission income | 8 | 218,227 | 218,792 |
| (61,948) | (64,605) | Fee and commission expenses | 8 | (61,431) | (62,365) |
| 167,065 | 170,441 | Net fee and commission income | 156,796 | 156,427 | |
| (38,671) | (31,116) | Net losses on operations with debt securities | |||
| and derivative financial instruments | 10 | (38,671) | (31,116) | ||
| 1,121 | 2,788 | Net gain on investment securities | 1,399 | 3,061 | |
| (390) | - | Impairment loss on investment securities | |||
| available for sale | (390) | - | |||
| (1,166) | 30,137 | Net gain (loss) on disposal of subsidiaries | 25 | 6,376 | 58,238 |
| - | - | Dividend income from subsidiaries | 9 | 6,064 | 3,734 |
| 54,738 | 59,519 | Net foreign exchange gain | 11 | 54,778 | 59,490 |
| 6,113 | 18,633 | Other income, net | 5,020 | 16,102 | |
| 21,745 | 79,961 | Net investment activities | 34,576 | 109,509 | |
| (140,201) | (131,201) | Staff costs | 12 | (134,415) | (122,909) |
| (203,477) | (177,874) | Other administrative expenses | 13 | (194,547) | (159,072) |
| 529,790 | 55,849 | Operating profit | 308,270 | 495,863 | |
| - | (71,755) | Impairment loss on intangible assets | 26 | - | (71,755) |
| - | - | Impairment (loss)/reversal on investment in subsidiaries | 25 | 107,000 | (450,529) |
| 529,790 | (15,906) | Profit (loss) before income tax | 415,270 | (26,421) | |
| (60,139) | (1,900) | Income tax benefit (expenses) | 14 | (35,508) | 14,363 |
| 469,651 | (17,806) | Profit (loss) for the year from continuing operations | |||
| (Loss)for the year from discontinued operations | 379,762 | (12,058) | |||
| - | (189) | ||||
| 469,651 | (17,995) | Net profit (loss) for the year | 379,762 | (12,058) | |
| Attributable to: | |||||
| 469,651 | (17,995) | Equity holders of the parent | 379,762 | (12,058) | |
| 469,651 | (17,806) | (Loss) Profit for the year from continuing operations | 379,762 | (12,058) | |
| - | (189) | (Loss) Profit for the year from discontinued operations | - | - | |
| - | - | Non controlling interest | - | - | |
| - | - | (Loss) Profit for the year from continuing operations | - | - | |
| - | - | (Loss) Profit for the year from discontinued operations | - | - | |
| 469,651 | (17,995) | 379,762 | (12,058) |
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 12 March 2012 and signed by:
Page 23 of 131
Page 24 of 131
AB SEB BANK
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
| The Group | The Bank | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | Note | 2011 | 2010 | |
| 469,651 | (17,995) | Net gain (loss) income for the year | |||
| Other comprehensive income: | 379,762 | (12,058) | |||
| (4,157) | 3,956 | Net loss (gain) on available for sale assets | 36 | (4,157) | 3,956 |
| (4,157) | 3,956 | - Net (loss) gain, before taxes | (4,157) | 3,956 | |
| Amortisation of financial assets revaluation reserve | |||||
| 3,075 | 3,025 | of reclassified financial assets | 36 | 3,075 | 3,025 |
| Income tax relating to the components of other | |||||
| 195 | (1,050) | comprehensive income | 14 | 195 | (1,050) |
| (887) | 5,931 | Total other comprehensive income | (887) | 5,931 | |
| 468,764 | (12,064) | Total comprehensive income | 378,875 | (6,127) |
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 12 March 2012 and signed by:
AB SEB BANK
STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
| The Group | The Bank | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | Note | 2011 | 2010 | |
| Assets | |||||
| 634,922 | 428,427 | Cash on hand | 634,922 | 428,427 | |
| 3,438,209 | 527,258 | Balances with the Central Bank | 16 | 3,438,209 | 527,258 |
| 2,718,507 | 1,177,833 | Due from banks, net | 17 | 2,718,507 | 1,177,833 |
| 52,911 | 164,895 | Government securities available for sale | 18 | 51,921 | 164,272 |
| Financial assets at fair value through | |||||
| 69,881 | 75,058 | profit and loss | 19 | 28,376 | 45,733 |
| 193,054 | 233,911 | Derivative financial instruments | 20 | 193,054 | 233,911 |
| Loans to credit and financial institutions, | |||||
| 12,706 | 55,399 | net of impairment losses | 21 | 439,302 | 506,636 |
| 15,649,121 | 15,669,307 | Loans to customers, net of impairment losses | 7, 22 | 15,678,432 | 15,680,730 |
| Finance lease receivable, net of impairment | |||||
| 1,673,486 | 1,694,691 | losses | 23 | - | - |
| Investment securities: | |||||
| 1,588,260 | 1,629,290 | - loans and receivables | 24 | 1,588,260 | 1,629,290 |
| 376 | 1,276 | - available for sale | 24 | 376 | 1,276 |
| 14,148 | 13,832 | - held to maturity | 24 | 14,148 | 13,832 |
| - | - | Investments in subsidiaries | 25 | 224,900 | 121,616 |
| 132,970 | 148,733 | Intangible fixed assets | 26 | 132,730 | 148,554 |
| 33,121 | 46,004 | Property, plant and equipment | 27 | 32,357 | 45,289 |
| 841 | 2,581 | Assets under operating lease | 28 | - | - |
| 27,960 | 47,623 | Non-current assets held for sale | 44 | 29 | 29 |
| 40,702 | 51,474 | Investment property | 29 | 1,471 | 1,535 |
| 213,596 | 273,661 | Deferred tax asset | 14 | 157,440 | 192,654 |
| 147,390 | 316,576 | Other assets, net of impairment losses | 30 | 143,139 | 109,387 |
| 26,642,161 | 22,557,829 | Total assets | 25,477,573 | 21,028,262 | |
| Liabilities | |||||
| 32 | 38 | Amounts owed to the Central Bank | 32 | 38 | |
| 10,135,681 | 9,295,615 | Amounts owed to credit and financial institutions | 31 | 9,176,873 | 7,915,364 |
| 239,686 | 334,427 | Derivative financial instruments | 20 | 239,686 | 334,427 |
| 12,152,999 | 9,643,341 | Deposits from public | 32 | 12,158,994 | 9,644,674 |
| 36,016 | 29,873 | Accrued expenses and deferred income | 35 | 33,659 | 26,190 |
| - | - | Income tax payable | |||
| 244,218 | 597,172 | Subordinated loans | 33 | 244,218 | 597,172 |
| 565,598 | 663,177 | Debt securities in issue | 34 | 565,598 | 663,177 |
| 937,172 | 135,008 | Other liabilities and provisions | 35 | 916,735 | 85,968 |
| 24,311,402 | 20,698,651 | 23,335,795 | 19,267,010 | ||
| 24,311,402 | 20,698,651 | Total liabilities | 23,335,795 | 19,267,010 | |
| Equity | |||||
| Equity attributable to equity holder of the parent | |||||
| 1,034,575 | 1,034,575 | Share capital | 1,034,575 | 1,034,575 | |
| 2,200 | 1,034 | Reserve capital | 2,200 | 2,200 | |
| (9,737) | (8,850) | Financial assets revaluation reserve | (9,737) | (8,850) | |
| 194,708 | 165,425 | Legal reserve | 191,184 | 163,221 | |
| 12,497 | 10,846 | General and other reserves | 12,497 | 10,846 | |
| 1,096,516 | 656,148 | Retained earnings | 911,059 | 559,260 | |
| 2,330,759 | 1,859,178 | 2,141,778 | 1,761,252 | ||
| - | - | Non controlling interest in equity | - | - | |
| 2,330,759 | 1,859,178 | Total equity | 2,141,778 | 1,761,252 | |
| 26,642,161 | 22,557,829 | Total liabilities and equity | 25,477,573 | 21,028,262 |
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 12 March 2012 and signed by:
AB SEB BANK
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
| The Group | Equity attributable to equity holder of the parent | Total before noncontrolling Interest | Non controlling Interest | Total Equity | |||||
|---|---|---|---|---|---|---|---|---|---|
| Share capital | Reserve capital | Financial assets revaluation reserve (deficit) | Legal reserve | General and other reserves | Retained earnings | ||||
| 31 December 2009 | 1,034,575 | 1,034 | (14,781) | 135,160 | 9,778 | 359,129 | 1,524,895 | - | 1,524,895 |
| 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 profit for the year | - | - | - | - | - | (17,995) | (17,995) | - | (17,995) |
| Total comprehensive income | - | - | 5,931 | - | - | (17,995) | (12,064) | - | (12,064) |
| Shareholder's contribution | - | - | - | - | - | 345,280 | 345,280 | - | 345,280 |
| Share-based compensation | - | - | - | - | 1,068 | - | 1,068 | - | 1,068 |
| Transfers to reserves | - | - | - | 30,265 | - | (30,265) | - | - | - |
| 31 December 2010 | 1,034,575 | 1,034 | (8,850) | 165,425 | 10,846 | 656,148 | 1,859,178 | - | 1,859,178 |
| Net change in available for sale investments, net of deferred tax | - | - | (3,962) | - | - | - | (3,962) | - | (3,962) |
| Amortisation of financial assets revaluation reserve of reclassified financial assets | - | - | 3,075 | - | - | - | 3,075 | - | 3,075 |
| Net profit for the year | - | - | - | - | - | 469,651 | 469,651 | - | 469,651 |
| Total comprehensive income | - | - | (887) | - | - | 469,651 | 468,764 | - | 468,764 |
| Sales of UAB SEB Enskilda | - | 1,166 | - | - | - | - | 1,166 | - | 1,166 |
| Share-based compensation | - | - | - | - | 1,651 | - | 1,651 | - | 1,651 |
| Transfers to reserves | - | - | - | 29,283 | - | (29,283) | - | - | - |
| 31 December 2011 | 1,034,575 | 2,200 | (9,737) | 194,708 | 12,497 | 1,096,516 | 2,330,759 | - | 2,330,759 |
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 12 March 2012 and signed by:
Page 26 of 131
Page 27 of 131
AB SEB BANK
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
| The Bank | Share capital | Reserve capital | Financial assets revaluation reserve (deficit) | Legal reserve | General and other reserves | Retained earnings | Total Equity |
|---|---|---|---|---|---|---|---|
| 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 |
| Net change in available for sale investments, net of deferred tax | - | - | (3,962) | - | - | - | (3,962) |
| Amortisation of financial assets revaluation reserve of reclassified financial assets | - | - | 3,075 | - | - | - | 3,075 |
| Net profit for the year | - | - | - | - | - | 379,762 | 379,762 |
| Total comprehensive income | - | - | (887) | - | - | 379,762 | 378,875 |
| Shareholder's contribution | - | - | - | - | - | - | - |
| Share-based compensation | - | - | - | - | 1,651 | - | 1,651 |
| Transfers to reserves | - | - | - | 27,963 | - | (27,963) | - |
| 31 December 2011 | 1,034,575 | 2,200 | (9,737) | 191,184 | 12,497 | 911,059 | 2,141,778 |
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 12 March 2012 and signed by:
AB SEB BANK
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
| The Group | The Bank | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | Note | 2011 | 2010 | |
| Cash from operating activities | |||||
| 734,432 | 774,794 | Interest income received | 662,593 | 698,822 | |
| (414,519) | (542,060) | Interest expenses paid | (378,033) | (498,168) | |
| 40,423 | 41,787 | Net foreign currency exchange gain | 40,372 | 41,795 | |
| 14,315 | 17,732 | Unrealised translation gain | 14,406 | 17,695 | |
| 4,638 | 25 | Net gain in securities trading and financial instruments | 4,638 | 25 | |
| (43,507) | 7,972 | Net (loss) gain in derivatives trading | (43,507) | 7,971 | |
| 174,596 | 189,188 | Net commission and service income | 163,234 | 172,648 | |
| (136,884) | (132,153) | Staff costs | (130,792) | (123,306) | |
| (154,084) | (158,066) | Other payments | (149,371) | (142,851) | |
| 219,410 | 199,219 | Net cash from operating activities before change in operating assets | 183,540 | 174,631 | |
| Changes in operating assets | |||||
| (857,489) | (11,145) | (Increase) in compulsory balances with the Central Bank | (857,489) | (11,145) | |
| (1,885,165) | 990,178 | (Increase) decrease in due from banks and loans to credit and financial institutions | (1,860,524) | 725,199 | |
| 160,481 | 1,392,874 | Decrease in loans to customers | 142,099 | 1,389,873 | |
| 450,914 | 728,733 | Decrease of finance lease receivable | - | - | |
| (31,461) | 18,951 | (Increase) decrease in other current assets | (35,227) | 48,534 | |
| (2,162,720) | 3,119,591 | Net change in operating assets | (2,611,141) | 2,152,461 | |
| Changes in operating liabilities | |||||
| 2,515,269 | (27,655) | Increase (decrease) in deposits from public | 2,519,931 | (30,265) | |
| 796,584 | 57,405 | Increase in accrued expenses, deferred income and other liabilities | 836,236 | 34,090 | |
| 3,311,853 | 29,750 | Net change in operating liabilities | 3,356,167 | 3,825 | |
| 1,368,543 | 3,348,560 | Net cash from operating activities before income tax | 928,566 | 2,330,917 | |
| - | (222) | Income tax paid | - | - | |
| 1,368,543 | 3,348,338 | Net cash from operating activities after income tax | 928,566 | 2,330,917 |
(Continued)
The accompanying notes on pages 24 to 96 are an integral part of these financial statements.
Page 28 of 131
AB SEB BANK
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2011
(Ail amounts in LTL thousand unless otherwise stated)
| The Group | The Bank | ||||
|---|---|---|---|---|---|
| 2011 | 2010 | Note | 2011 | 2010 | |
| Cash flow from investing activities | |||||
| (8,883) | (65,554) | Acquisition of tangible and intangible fixed assets, net | (9,182) | (65,972) | |
| (44,763) | (110,636) | Acquisition of Government securities available for sale | (44,763) | (110,636) | |
| 156,011 | 18,476 | Sale of Government securities available for sale | 156,379 | 18,476 | |
| 8,194 | 65,068 | Disposal of subsidiaries, net of cash disposed | 25 | 10,092 | 72,063 |
| - | - | Dividends received from subsidiaries | 6,064 | 3,734 | |
| (4,156,970) | (2,713,832) | Acquisition of investment in other securities | (4,144,497) | (2,713,233) | |
| 4,166,431 | 2,756,106 | Sale of investment in other securities | 4,166,431 | 2,756,106 | |
| 120,020 | (50,372) | Cash generated from (to) investing activities | 140,524 | (39,462) | |
| Cash flow from (to) financing activities | |||||
| - | 345,280 | Shareholders' contributions | - | 345,280 | |
| (6) | 7 | (Decrease) increase in amounts owed to the Central Bank | (6) | 7 | |
| 840,400 | (4,320,558) | Increase (decrease) in amounts owed to credit and financial institutions | 1,259,873 | (3,314,046) | |
| (352,186) | - | Decrease in subordinated loans | (352,186) | - | |
| (11,872) | (13,233) | Interest paid on subordinated loans | (11,872) | (13,233) | |
| - | (85,670) | Debt securities issued, net | - | (85,671) | |
| 76,698 | - | Proceeds from own issued debt securities | 76,698 | - | |
| (162,706) | - | Repurchased own issued debt securities | (162,706) | - | |
| (6,128) | - | Interest paid for own issued debt securities | (6,128) | - | |
| 384,200 | (4,074,174) | Cash received from (used in) financing activities | 803,673 | (3,067,663) | |
| 1,872,763 | (776,208) | Net increase (decrease) in cash | 1,872,763 | (776,208) | |
| 1,523,655 | 2,299,863 | Cash 1 January | 1,523,655 | 2,299,863 | |
| 3,396,418 | 1,523,655 | Cash 31 December | 3,396,418 | 1,523,655 | |
| Specified as follows: | |||||
| 2,184,595 | 131,133 | Balance available for withdrawal with the Central Bank | 16 | 2,184,595 | 131,133 |
| 29,812 | 395,858 | Overnight deposits | 29,812 | 395,858 | |
| 634,922 | 428,427 | Cash on hand | 634,922 | 428,427 | |
| 547,089 | 568,237 | Current accounts with other banks | 547,089 | 568,237 | |
| 3,396,418 | 1,523,655 | 3,396,418 | 1,523,655 |
(Concluded)
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 12 March 2012 and signed by:
Page 29 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(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 2011 the Bank had 55 customer service branches (as of 31 December 2010 – 57).
As of 31 December 2011 AB SEB Bank had 3 subsidiaries (as of 31 December 2010 – 4). The Bank and its subsidiaries thereafter are referred to 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 listings of the Nasdaq OMX Vilnius. As it is further disclosed in Note 36, the only shareholder and ultimate parent is Skandinaviska Enskilda Banken AB (publ), owning 100 percent of the Bank's shares.
These consolidated and stand-alone financial statements have been approved by the Board of the Bank on 12 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
a) Amendments to existing standards and interpretations effective in 2011
During the reporting financial year, the Bank and the Group adopted the following newly announced and amended IFRS and IFRIC interpretations:
IAS 24 'Related Party Disclosures' (amended November 2009, effective for annual periods beginning on or after 1 January 2011). IAS 24 was revised in 2009 by: (a) simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition and by (b) providing a partial exemption from the disclosure requirements for government-related entities. As a result of the revised standard, the Bank and the Group now also discloses contractual commitments to purchase and sell goods or services to its related parties.
Improvements to International Financial Reporting Standards, issued in May 2010 – amendment to IFRS 7 (effective for annual periods beginning on or after 1 January 2011). IFRS 7 was amended to clarify certain disclosure requirements, in particular (i) by adding an explicit emphasis on the interaction between qualitative and quantitative disclosures about the nature and extent of financial risks, (ii) by removing the requirement to disclose carrying amount of renegotiated financial assets that would otherwise be past due or impaired, (iii) by replacing the requirement to disclose fair value of collateral by a more general requirement to disclose its financial effect, and (iv) by clarifying that an entity should disclose the amount of foreclosed collateral held at the reporting date, and not the amount obtained during the reporting period.
b) Amendments to existing standards and interpretations effective in 2011, but not relevant to the Bank and the Group
The following amendments to existing standards and interpretations have been adopted by the European Union (EU) and are mandatory for accounting periods beginning on or after 1 January 2011, but are not currently relevant to the Bank and the Group's operations:
IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010). This IFRIC clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished through the debtor issuing its own equity instruments to the creditor. A gain or loss is recognised in the profit and loss account based on the fair value of the equity instruments compared to the carrying amount of the debt.
Prepayments of a Minimum Funding Requirement – Amendment to IFRIC 14 (effective for annual periods beginning on or after 1 January 2011). This amendment will have a limited impact as it applies only to companies that are required to make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement.
Classification of Rights Issues – Amendment to IAS 32 'Financial Instruments: Presentation' (effective for annual periods beginning on or after 1 February 2010). The amendment exempts certain rights issues of shares with proceeds denominated in foreign currencies from classification as financial derivatives.
Page 30 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 2 ADOPTION OF NEW AND REVISED STANDARDS (CONTINUED)
Limited Exemption From Comparative IFRS 7 Disclosures for First-time Adopters - Amendment to IFRS 1 (effective for annual periods beginning on or after 1 July 2010). Existing IFRS preparers were granted relief from presenting comparative information for the new disclosures required by the March 2009 amendments to IFRS 7 'Financial Instruments: Disclosures'. This amendment to IFRS 1 provides first-time adopters with the same transition provisions as included in the amendment to IFRS 7.
Improvements to International Financial Reporting Standards, issued in May 2010 (effective dates vary standard by standard, most improvements are effective for annual periods beginning on or after 1 January 2011). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: IFRS 1, IFRS 3, IAS 1, to IAS 21, IAS 28, IAS 31, IAS 32, IAS 34, IAS 39 and IFRIC 13.
c) Standards and amendments to existing standards that are not yet effective and have not been early adopted by the Bank and the Group
The following standards and amendments to existing standards have been published:
IFRS 9, Financial Instruments Part 1: Classification and Measurement (effective for annual periods beginning on or after 1 January 2015; not yet adopted by the EU). IFRS 9 replaces those parts of IAS 39 relating to the classification and measurement of financial instruments.
IFRS 10, Consolidated Financial Statements (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), replaces all of the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities; not yet adopted by the EU.
IFRS 11, Joint Arrangements, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities—Non-Monetary Contributions by Ventures; not yet adopted by the EU.
IFRS 12, Disclosure of Interest in Other Entities, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replaces the disclosure requirements currently found in IAS 28 Investments in Associates; not yet adopted by the EU.
IFRS 13, Fair Value Measurement, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), aims to improve consistency and reduce complexity by providing a revised definition of fair value, and a single source of fair value measurement and disclosure requirements for use across IFRSs; not yet adopted by the EU.
IAS 27, Separate Financial Statements, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013), was changed and its objective is now to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The guidance on control and consolidated financial statements was replaced by IFRS 10, Consolidated Financial Statements; not yet adopted by the EU.
IAS 28, Investments in Associates and Joint Ventures, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment of IAS 28 resulted from the Board's project on joint ventures; not yet adopted by the EU.
Disclosures - Transfers of Financial Assets - Amendments to IFRS 7 (effective for annual periods beginning on or after 1 July 2011). The amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity's balance sheet. The amendment is not expected to have impact on the Bank and the Group's financial statements.
Amendments to IAS 1, Presentation of Financial Statements (issued June 2011, effective for annual periods beginning on or after 1 July 2012), changes the disclosure of items presented in other comprehensive income; not yet adopted by the EU.
Amended IAS 19, Employee Benefits (issued in June 2011, effective for periods beginning on or after 1 January 2013), makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits; not yet adopted by the EU.
IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, (issued in October 2011 and effective for annual periods beginning on or after 1 January 2013). The interpretation clarifies that benefits from the stripping activity are accounted for in accordance with the principles of IAS 2, Inventories, to the extent that they are realised in the form of inventory produced; not yet adopted by the EU.
Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identified in applying some of the offsetting criteria; not yet adopted by the EU.
Page 31 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 2 ADOPTION OF NEW AND REVISED STANDARDS (CONTINUED)
Disclosures – Offsetting Financial Assets and Financial Liabilities – Amendments to IFRS 7 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment requires disclosures that will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off; not yet adopted by the EU.
Recovery of Underlying Assets – Amendment to IAS 12 (effective for annual periods beginning on or after 1 January 2012). The amendment introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value; not yet adopted by the EU.
Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters – Amendment to IFRS 1 (effective for annual periods beginning on or after 1 July 2011). The amendments will provide relief for first-time adopters of IFRSs from having to reconstruct transactions that occurred before their date of transition to IFRSs, and guidance for entities emerging from severe hyperinflation either to resume presenting IFRS financial statements or to present IFRS financial statements for the first time; not yet adopted by the EU.
The Bank and the Group is yet to assess the full impact of the above newly issued standards and amendments.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES
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. Since 2 February 2002 the exchange rate of the Litas was pegged to Euro at a rate of 3.4528 LTL = 1 EUR.
The books and records of the Group companies and the Bank 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.
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 using the cost method less impairment 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 non-controlling 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.
Page 32 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
c) Consolidated Subsidiaries and Associates (continued)
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.
e) Income Recognition
Interest income and expense are recognised for all interest bearing instruments on an accrual basis using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
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 on pro-rata basis over the period the service is provided, depending on fees' substance. The pro-rata principle is applied for custody services that are continuously provided over an extended period of time.
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 and stand-alone 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 other comprehensive income and is subsequently recognised in the income statement together with the deferred gain or loss.
Deferred tax assets and liabilities are offset only if the Bank and the Group has a legally enforceable right to set off current tax assets against current tax liabilities and only if the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority.
Page 33 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
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
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 in the statement 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 assets 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.
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 in other comprehensive income, 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.
Page 34 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
j) Financial Assets (continued)
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 (see note 20) 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 (see note 10).
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.
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.
Page 35 of 131
Page 36 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
m) Impairment of Financial Assets (continued)
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.
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.
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
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 |
| Buildings | 8-25 |
| Vehicles | 5 |
| Computer hardware and cash counting equipment | 3-8 |
| 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 |
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.
Page 37 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
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.
z) 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.
aa) 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.
Page 38 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
a) Financial Guarantees Contracts (continued)
Any increase in the liability relating to guarantees is taken to the income statement under 'provisions for guarantees'. Income from financial guarantees is recognised in income statement as fee and commission income.
bb) 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.
cc) Comparative information
Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.
dd) Segment Reporting
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.
ee) Critical Accounting Estimates and Judgements in Applying Accounting Policies
Impairment Losses on Loans and Advances
The Bank and the Group review their 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 make 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 for the Bank would be estimated higher or lower by LTL 60,386 thousand (2010: LTL 73,198 thousand), of which LTL 45,049 thousand (2010: 58,485 LTL thousand) coming from loans and advances assessed individually and LTL 15,337 thousand (2010: LTL 14,713 thousand) from loans and advances assessed on pool basis. The provision for the Group would be estimated higher or lower by LTL 68,971 thousand of which LTL 50,824 thousand coming from loans and advances assessed individually and LTL 18,147 thousand from loans and advances assessed on pool basis.
Renegotiated loans are no longer considered to be past due.
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 amounts to at least substantially all of acquisition value of the asset leased at the inception of the lease; the leasor 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 substantially 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 the major part of the economic life of the asset even if title is not transferred; or the leased assets are of such a specialized nature that only the lessee can use them without major modifications.
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 39 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
ee) Critical Accounting Estimates and Judgements in Applying Accounting Policies (continued)
Impairment testing of investments into Bank's subsidiaries
Continuing losses of AB SEB Lizingas triggered impairment tests of cost of investment into this subsidiary during previous years. As of December 2009, net assets of this subsidiary were negative and cost of investment was reduced to zero value. However impairment tests carried at the end of the years 2010 and 2011 revealed the need of impairment loss reversals amounting to LTL 83,000 thousand and LTL 107,000 thousand respectively.
When calculating recoverable amount of this investment as at 31 December 2011 value in use method has been used. Key management assumptions in calculating value in use included:
- Cash flow projections for years 2012-2014 has been based on budgets approved by the Group's management;
- Cash flow projections for years 2015-2020 has been based on best estimate of Lithuanian economic and financial sector development;
- Discount rate has been established as cost of equity from independent experts of Nomura bank and equalled 12.2 per cent. Change in discount rate by 1bp would result in change of recoverable amount by LTL 1.8 million.
Value in use method has been used due to uncertainties in estimating fair value of the leasing business because:
- there is no active market for proper leasing market price estimation;
- current economical situation influenced low liquidity of finance sector;
- on selling such an asset instability in the market might require liquidity discount which is difficult to estimate.
Tax and deferred tax
The Tax Authorities may at any time during 5 successive years after the end of the reporting tax year carry out an inspection of the Bank's and Group's books and accounting records and impose additional taxes or fines. The Bank's and the Group's management is not aware of any circumstances that might result in a potential material liability in this respect.
The deferred tax assets recognised at 31 December 2011 have been based on future profitability assumptions of the Bank and the Group over a five year horizon. In the event of changes to these profitability assumptions, the tax assets recognised may be adjusted.
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:
| 2011 | 2010 | |||
|---|---|---|---|---|
| Book value | Fair value | Book value | Fair value | |
| Balances with the Central Bank | 3,438,209 | 3,438,037 | 527,258 | 527,251 |
| Due from banks, net | 2,718,507 | 2,708,805 | 1,177,833 | 1,177,920 |
| Loans to credit and financial institutions, net of impairment losses | 12,706 | 12,667 | 55,399 | 54,602 |
| Loans to customers, net of impairment losses | ||||
| Public sector | 455,600 | 428,242 | 492,855 | 470,255 |
| Corporate | 8,103,020 | 7,965,640 | 7,749,076 | 7,694,722 |
| Private individuals | 7,090,501 | 6,655,766 | 7,427,376 | 7,192,266 |
| Investment securities - loans and receivables | 1,588,260 | 1,569,535 | 1,629,290 | 1,614,197 |
| Finance lease receivable, net of impairment losses | 1,673,486 | 1,642,735 | 1,694,691 | 1,675,471 |
| Investment securities - held to maturity | 14,148 | 12,792 | 13,832 | 12,336 |
| Total financial assets valued at amortised cost | 25,094,437 | 24,434,219 | 20,767,610 | 20,419,020 |
| Amounts owed to the Central Bank | 32 | 32 | 38 | 38 |
| Amounts owed to credit and financial institutions | 10,135,681 | 10,245,995 | 9,295,615 | 9,493,476 |
| Current and demand deposits | 7,922,423 | 7,922,421 | 6,514,840 | 6,514,840 |
| Term deposits from the public | 4,230,576 | 4,192,154 | 3,128,501 | 3,116,559 |
| Subordinated loans | 244,218 | 239,979 | 597,172 | 578,632 |
| Debt securities in issue | 565,598 | 578,622 | 663,177 | 667,769 |
| Total financial liabilities valued at amortised cost | 23,098,528 | 23,179,203 | 20,199,343 | 20,371,314 |
Page 40 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Fair Values (continued)
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:
| 2011 | 2010 | |||
|---|---|---|---|---|
| Book value | Fair value | Book value | Fair value | |
| Balances with the Central Bank | 3,438,209 | 3,438,037 | 527,258 | 527,251 |
| Due from banks, net | 2,718,507 | 2,708,805 | 1,177,833 | 1,177,920 |
| Loans to credit and financial institutions, net of impairment losses | 439,302 | 415,665 | 506,636 | 489,236 |
| Loans to customers, net of impairment losses | ||||
| Public sector | 455,600 | 428,242 | 492,855 | 470,255 |
| Corporate | 8,132,331 | 7,994,622 | 7,760,499 | 7,706,094 |
| Private individuals | 7,090,501 | 6,655,766 | 7,427,376 | 7,192,266 |
| Investment securities - loans and receivables | 1,588,260 | 1,569,535 | 1,629,290 | 1,614,197 |
| Investment securities - held to maturity | 14,148 | 12,792 | 13,832 | 12,336 |
| Total financial assets valued at amortised cost | 23,876,858 | 23,223,464 | 19,535,579 | 19,189,555 |
| Amounts owed to the Central Bank | 32 | 32 | 38 | 38 |
| Amounts owed to credit and financial institutions | 9,176,873 | 9,275,805 | 7,915,364 | 8,093,612 |
| Current and demand deposits | 7,928,418 | 7,928,418 | 6,516,173 | 6,516,173 |
| Term deposits from the public | 4,230,576 | 4,192,154 | 3,128,501 | 3,116,559 |
| Subordinated loans | 244,218 | 239,979 | 597,172 | 578,632 |
| Debt securities in issue | 565,598 | 578,622 | 663,177 | 667,769 |
| Total financial liabilities valued at amortised cost | 22,145,715 | 22,215,010 | 18,820,425 | 18,972,783 |
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.
Page 41 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Fair Values (continued)
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 2011 | 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 | 52,911 | - | - |
| Financial assets at fair value through profit and loss | 28,376 | - | 41,505 |
| Derivative financial instruments (assets) | - | 193,054 | - |
| Investment securities – available for sale | 176 | - | 200 |
| Derivative financial instruments (liabilities) | - | (239,686) | - |
| Total | 81,463 | (46,632) | 41,705 |
| 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 | 1,076 | - | 200 |
| Derivative financial instruments (liabilities) | - | (334,427) | - |
| Total | 211,704 | (100,516) | 29,525 |
Page 42 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
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 2011 | 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 | 51,921 | - | - |
| Financial assets at fair value through profit and loss | 28,376 | - | - |
| Derivative financial instruments (assets) | - | 193,054 | - |
| Investment securities – available for sale | 176 | - | 200 |
| Derivative financial instruments (liabilities) | - | (239,686) | - |
| Total | 80,473 | (46,632) | 200 |
| 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 | 1,076 | - | 200 |
| Derivative financial instruments (liabilities) | - | (334,427) | - |
| Total | 211,081 | (100,516) | 200 |
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 definition of credit risk also encompasses so called counterparty's country risk which arises due to the risk of settlements between parties according to trading operations.
The Group's and the Bank's credit policy is based on the principle 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.
Page 43 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Financial Risk Management Policy (continued)
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.
The information on distribution of individually appraised loans and leasing portfolio (in LTL million) by risk class is as follows:
*SC – small corporates
The analysis in the table above did not include private individuals LTL 7,482 million (2010: LTL 7,836 million), accrued interest LTL 15 million (2010: LTL 15 million) and provisions for impairment losses LTL 1,380 million (2010: LTL 1,851 million).
Page 44 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Financial Risk Management Policy (continued)
Impairment Losses on Loans and Advances
The Group, aiming at fair and timely assessment of credit impairment, performs regular credit revision: corporate loans within risk class 8 and higher are revised no less than once a year; revisions of 9—10 risk class corporate loans are performed no less than once a half-year; corporate loans within risk class 11—16, no less than once a quarter; revisions within homogeneous groups (loans to small enterprises, mortgage loans, consumer loans, debts to credit institution) are performed automatically on quarterly basis. Revisions in case of corporate loans within the bank's established increased risk economy sectors, irrespective of the established borrower risk class, are performed not less than once a quarter. After loan assessment at the established frequency, relevant loss events are identified and relevant loan impairment is assessed. When assessing whether a loss due to impairment must be included in the profit (loss) account, the Group assesses, whether before the determination of the loan impairment there exist any data in proof that it is possible to establish a decrease in forecasted future cash flows of a company within the credit portfolio. The following data are assessed: whether there has or has not been a material deterioration in the borrower's financial standing as well as information related to the assessment of business perspective. A borrower's cash flows are forecasted using a conservative approach, and loan security measures are taken into account – probable adverse change in the assets value, previously sustained losses as well as objective evidence of impairment of the loans within the portfolio.
Methodology and presumptions used in the forecast of future cash flows and time with the aim to reduce a mismatch between forecasted and actual losses are revised on regular basis.
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 parties 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.
The Credit Committee has to carry out an extraordinary credit revision, if the borrower is more than 14 days in delay to repay the loan or pay interest or in case at least one of the above-referred criteria indicating a possible decrease in the loan value is applicable to the borrower/loan. In case loan impairment is found, individual provisions must be formed for a potential credit loss. A loan is classified as an impaired loan, if there is objective evidence that one or more loss events have occurred, and if, as an effect of such events, there has been a change in the estimated future cash flows, for instance, the customer has significant financial problems, fails to pay interest or the principal when due. Loans are not classified as impaired loans, if the collateral value covers the loan and interest.
Provisions for portfolio corporate loans are formed for loans, in case of which no individual impairment has been found, however, a probability exists that impairment will occur, but no such fact has been found yet. Loans with similar risk characteristics are classified taking into account the main factors that have an impact on a borrower's – legal entity's – credit risk, and impairment provisions for them are formed taking into account the default probability within relevant classes.
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 carrying amount 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 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Financial Risk Management Policy (continued)
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 are established by Assets and liability management committee (ALCO) and regularly monitored by risk control function. As of 31 December 2011, credit exposures are in compliance with limits set by ALCO. The table below represents the development of credit exposures within particular industries.
Page 46 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
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 2011 and 2010, 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 | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 3,438,209 | 527,258 | Balances with the Central Bank | 3,438,209 | 527,258 |
| 2,718,507 | 1,177,833 | Due from banks, net | 2,718,507 | 1,177,833 |
| 52,911 | 164,895 | Government securities available for sale | 51,921 | 164,272 |
| 28,376 | 45,733 | Financial assets at fair value through profit and loss | 28,376 | 45,733 |
| 193,054 | 233,911 | Derivative financial instruments | 193,054 | 233,911 |
| Loans to credit and financial institutions, net of impairment losses | 439,302 | 506,636 | ||
| 12,706 | 55,399 | Loans to customers, net of impairment losses | ||
| 3,122,070 | 3,237,688 | Property management | 3,122,070 | 3,237,688 |
| 4,980,950 | 4,511,388 | Other corporate | 5,010,261 | 4,522,811 |
| 455,600 | 492,855 | Public | 455,600 | 492,855 |
| 6,148,727 | 6,321,266 | Mortgage loans | 6,148,727 | 6,321,266 |
| 941,774 | 1,106,110 | Other private individuals | 941,774 | 1,106,110 |
| Finance lease receivable, net of impairment losses | ||||
| 1,585,463 | 1,565,048 | Corporate | - | - |
| 72,101 | 104,762 | Private individuals | - | - |
| 15,922 | 24,881 | Other | - | - |
| Investment securities: | ||||
| 1,588,260 | 1,629,290 | - loans and receivables | 1,588,260 | 1,629,290 |
| 14,148 | 13,832 | - held to maturity | 14,148 | 13,832 |
| Other financial assets, net of impairment losses | 118,601 | 78,566 | ||
| 119,889 | 85,092 | |||
| Credit risk exposures relating to off-balance sheet items | 2,918,903 | 2,742,945 | ||
| 2,840,055 | 2,791,151 | |||
| 28,328,722 | 24,088,392 | Total as of 31 December | 27,187,713 | 22,801,006 |
Maximum Exposure to Credit Risk Before Collateral Held or Other Credit Enhancements (continued)
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 historical simulation 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 a daily basis using 1 day's assessment evaluation period and 99 percent probability level. Historical data are based on 250 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 47 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Financial Risk Management Policy (continued)
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 2011 and 2010 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 $\Delta NII$) 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 2011 and 2010 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 48 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Financial Risk Management Policy (continued)
Liquidity Risk (continued)
The Group's undiscounted non-derivative financial liability analysis as of 31 December 2011:
| 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 | 1,412,087 | 846,738 | 1,666,900 | 5,611,275 | 1,104,408 | 10,641,409 |
| Deposits from public | 9,727,539 | 1,066,383 | 1,239,171 | 121,964 | 22,325 | 12,177,382 |
| Debt securities in issue and subordinated loans | 9,462 | 17,228 | 27,826 | 176,344 | 916,253 | 1,147,113 |
| Other financial liabilities | 856,151 | 18,394 | 3,577 | 5,362 | 8,181 | 891,665 |
| Total undiscounted non-derivative financial liabilities | 12,005,239 | 1,948,743 | 2,937,473 | 5,914,945 | 2,051,168 | 24,857,569 |
| Off balance sheet commitments related to lending | 2,440,543 | 92,390 | 106,870 | 160,854 | 14,532 | 2,815,189 |
| Rental off balance sheet commitments | 8,580 | 8,488 | 16,692 | 70,123 | 58,395 | 162,278 |
| Capital commitments | 18,374 | 5,482 | 1,010 | 24,866 |
Rental off balance sheet commitments for the period 1 - 5 years are LTL 86,894 thousand; for the period over 5 years LTL 41,624 thousand.
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 |
Page 49 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Financial Risk Management Policy (continued)
The Bank's undiscounted non-derivative financial liability analysis as of 31 December 2011:
| 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 | 1,495,963 | 840,181 | 1,031,988 | 5,172,673 | 1,104,408 | 9,645,213 |
| Deposits from public | 9,733,534 | 1,066,383 | 1,239,171 | 121,964 | 22,325 | 12,183,376 |
| Debt securities in issue and subordinated loans | 9,462 | 17,228 | 27,826 | 176,344 | 916,253 | 1,147,113 |
| Other financial liabilities | 856,403 | 15,718 | 1,386 | 634 | 6,563 | 880,704 |
| Total undiscounted non-derivative financial liabilities | 12,095,362 | 1,939,510 | 2,300,370 | 5,471,614 | 2,049,550 | 23,856,406 |
| Off balance sheet commitments related to lending | 2,544,256 | 92,390 | 106,870 | 160,854 | 14,533 | 2,918,903 |
| Rental off balance sheet commitments | 8,468 | 8,376 | 16,469 | 69,191 | 58,395 | 160,899 |
Rental off balance sheet commitments for the period 1 - 5 years are LTL 85,962 thousand; for the period over 5 years LTL 41,624 thousand.
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 |
Undiscounted derivative instruments analysis for the Group and the Bank as of 31 December 2011:
| Maturity | Up to 3 month | 3-6 months | 6-12 months | 1-3 years | Over 3 years | Total |
|---|---|---|---|---|---|---|
| Outflows: | ||||||
| IRS | 186,389 | 67,804 | 198,954 | 723,327 | 1,165,486 | 2,341,960 |
| FX forwards | 16,297 | 1,502 | 3,370 | 451 | - | 21,620 |
| FX swaps | 577,223 | 257,008 | 7,039 | 515 | - | 841,785 |
| Equity options | 73 | 1,360 | 1,116 | 4,060 | 608 | 7,217 |
| Interest rate options | 632 | 2,008 | 2,925 | 1,166 | 211 | 6,942 |
| Currency options | - | 1 | 78 | - | - | 79 |
| Total outflows | 780,614 | 329,683 | 213,482 | 729,519 | 1,166,305 | 3,219,603 |
| Inflows: | ||||||
| IRS | 177,051 | 29,719 | 204,140 | 712,908 | 1,167,608 | 2,291,426 |
| FX forwards | 16,413 | 1,468 | 3,471 | 445 | - | 21,797 |
| FX swaps | 572,266 | 255,068 | 6,581 | 532 | - | 834,447 |
| Equity options | 73 | 1,360 | 1,116 | 4,060 | 608 | 7,217 |
| Interest rate options | 632 | 2,008 | 2,925 | 1,166 | 211 | 6,942 |
| Currency options | - | 1 | 78 | - | - | 79 |
| Total inflows | 766,435 | 289,624 | 218,311 | 719,111 | 1,168,427 | 3,161,908 |
Page 50 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Financial Risk Management Policy (continued)
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 |
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.
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 had capital adequacy higher than 12 per cent during 2011.
The Bank's and the Financial Group's capital adequacy ratios during 2011 were as follows:
| 31 March 2011 | 30 June 2011 | 30 September 2011 | 31 December 2011 | |
|---|---|---|---|---|
| The Bank | 16.58% | 14.64% | 13.79% | 12.94% |
| The Financial Group | 16.25% | 14.21% | 13.43% | 13.59% |
For further information see Note 39.
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, requirements for Contingency planning and Contingency plan, mechanism of Internal Controls, New Product Approval Process.
Page 51 of 131
Page 52 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL RISK MANAGEMENT AND FAIR VALUE DISCLOSURES (CONTINUED)
Financial Risk Management Policy (continued)
Operational Risk (continued)
The Bank has launched and continuously uses SEB Group-wide operational risk management system ORMIS. In the Operational Risk Management System, each employee can register operational risk cases, and heads at all levels can assess, monitor and manage risks and produce various reports. With the aim to achieve a most comprehensive operational risk assessment, ORSA and RTSA methodologies are applied, internal controls are undertaken, unit and process risks are assessed on regular basis.
Other two systems related to the SEB Group's operational risk management – NAMIS and LDRPS – are used in the development of new products and/or services as well as in the formation of activities continuity plans of the subdivisions.
The Bank has its Operational Risk Commission aimed at improving the operational risk management and at ensuring proper cooperation among risk managers and subdivisions with control functions.
The Bank's management board is provided with quarterly operational risk reports containing an overview of new operational risk cases found, efficiency of the operational risk management instruments used as well as other risks.
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 2011 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.
Recent Volatility in Global Financial Markets
The world economy is still characterised by great uncertainty. The European debt crisis continues to unfold. Rescue measures undertaken so far have not been enough to restore confidence. Necessary austerity programmes are being implemented in various countries, yet mistrust and the resulting high borrowing costs remain. Meanwhile the banking system is under pressure due to higher capital requirements and write-downs of assets.
Despite the uncertainty in the Eurozone and in the global markets expectations among Lithuanian businesses were better compared to 2010.
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.
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(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 2011 was as follows:
On 3 March 2011 100% of subsidiary UAB SEB Enskilda shares were sold to the Bank's parent company Skandinaviska Enskilda Banken AB (publ), for the amount of LTL 10,092 thousand.
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.
Chief operating decision maker analyses the Group's profit (loss), total assets and total liabilities using the same measures as presented for the financial reporting purposes.
Eliminations from total segments' assets and liabilities amounting to LTL 3,209,052 thousand relate to elimination of intra-segment financing amounts.
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.
Information about revenues from external customers for each product and service delivered by the Bank and the Group is not disclosed as such information is not analysed on the Group level and therefore it is not available and the cost to develop it would be excessive.
For management and reporting purposes, the Group is organised into the following business groupings:
Baltic Division has overall responsibility for providing retail services to all types of companies and individuals. Baltic division offers its 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 53 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 5 SEGMENT INFORMATION (CONTINUED)
The Asset Management division's 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 Treasury division is 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.
The geographical areas are not defined by the Group. All activities of the Group are performed on the territory of Republic of Lithuania. Revenues and expenses for services related to major non resident customers are immaterial for the purpose of these financial statements and are not presented to the chief operating decision maker.
Page 54 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 5 SEGMENT INFORMATION (CONTINUED)
Business segments of the Group for the year ended 31 December 2011 were as follows:
| Baltic Division | Merchant Banking | Asset Management | Treasury | Operations | Staff Functions | Information Technologies | Eliminations | Total Group | |
|---|---|---|---|---|---|---|---|---|---|
| Interest income | 764,548 | 901 | 150 | 508,729 | - | - | - | (519,944) | 754,384 |
| - Internal | 120,336 | 5 | 124 | 399,479 | - | - | - | (519,944) | - |
| - External | 644,212 | 896 | 26 | 109,250 | - | - | - | - | 754,384 |
| Interest expense | (467,830) | (813) | (7) | (503,384) | - | - | - | 519,944 | (452,090) |
| - Internal | (399,608) | (813) | (7) | (119,516) | - | - | - | 519,944 | - |
| - External | (68,222) | - | - | (383,868) | - | - | - | - | (452,090) |
| Net commission income | 154,122 | 44 | 11,952 | (1,226) | - | - | - | - | 164,892 |
| - Internal | 9,265 | (1) | (8,138) | (1,126) | - | - | - | - | - |
| - External | 144,857 | 45 | 20,090 | (100) | - | - | - | - | 164,892 |
| Net financial income | 69,108 | (296) | (3) | 533 | - | - | - | - | 69,342 |
| Net other income | (4,675) | - | 52 | 365 | (3) | (29) | - | - | (4,290) |
| Net operating income | 515,273 | (164) | 12,144 | 5,017 | (3) | (29) | - | - | 532,238 |
| Total staff costs and other administrative expenses | (298,293) | (988) | (3,586) | (623) | 1,078 | 2,750 | 5,180 | (294,482) | |
| Depreciation and amortisation | (32,150) | (44) | (128) | (3) | (999) | (968) | (5,180) | (39,472) | |
| Capital losses | (5) | - | - | - | - | - | - | - | (5) |
| Total reversal of impairment losses | 331,511 | - | - | - | - | - | - | - | 331,511 |
| Profit before income tax | 516,336 | (1,196) | 8,430 | 4,391 | 76 | 1,753 | - | - | 529,790 |
| Income tax benefit (expenses) | (60,288) | 172 | (23) | - | - | - | - | - | (60,139) |
| Net profit for the year | 456,048 | (1,024) | 8,407 | 4,391 | 76 | 1,753 | - | - | 469,651 |
| Total Assets | 18,833,394 | 52,199 | 22,166 | 10,943,454 | - | - | - | (3,209,052) | 26,642,161 |
| Total Liabilities | 16,505,598 | 53,223 | 12,832 | 10,948,800 | - | - | - | (3,209,051) | 24,311,402 |
| Acquisition of intangible assets and property, plant and equipment | 17,102 | - | 8 | - | - | - | - | - | 17,110 |
Page 55 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 5 SEGMENT INFORMATION (CONTINUED)
For the year ended, 31 December 2011 reconciliation between Group's Segment reporting and financial statements is presented below:
| Eliminations | ||||
|---|---|---|---|---|
| Segment Reporting | Interest income from Hedged L&R | Other reconciling entries | Financial Statements | |
| Interest income | 754,384 | (2,387) | 751,997 | |
| Interest expence | (452,090) | 52,339 | 901 | (398,850) |
| Net commission income | 164,892 | - | 2,173 | 167,065 |
| Net financial income | 69,342 | (52,339) | (558) | 16,445 |
| Net other income | (4,290) | - | 9,590 | 5,300 |
| Net operating income | 532,238 | - | 9,719 | 541,957 |
| Total staff costs and other administrative expenses | (294,482) | - | (8,822) | (303,304) |
| Depreciation and amortisation | (39,472) | (897) | (40,369) | |
| Capital losses | (5) | - | (5) | |
| Total reversal of impairment losses | 331,511 | - | 331,511 | |
| Profit before income tax | 529,790 | - | - | 529,790 |
| Income tax benefit (expenses) | (60,139) | - | (60,139) | |
| Profit for the year from discontinued operations | - | - | ||
| Net profit for the year | 469,651 | - | - | 469,651 |
Page 56 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 5 SEGMENT INFORMATION (CONTINUED)
Business segments of the Group for the year ended 31 December 2010 were as follows:
| Baltic Division | Merchant Banking | Asset Management | Treasury | Operations | Staff Functions | Information Technologies | Eliminations | Total Group | |
|---|---|---|---|---|---|---|---|---|---|
| Interest income | 808,689 | 15,528 | 166 | 511,283 | - | - | - | (565,436) | 770,230 |
| - Internal | 141,034 | 8,116 | 139 | 416,147 | - | - | - | (565,436) | - |
| - External | 667,655 | 7,412 | 27 | 95,136 | - | - | - | - | 770,230 |
| Interest expense | (554,780) | (7,449) | - | (563,703) | - | - | - | 565,413 | (560,519) |
| - Internal | (414,936) | (2,119) | - | (148,358) | - | - | - | 565,413 | - |
| - External | (139,844) | (5,330) | - | (415,345) | - | - | - | - | (560,519) |
| 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 | (255,084) | (19,685) | (4,374) | (480) | 937 | 1,241 | (43,339) | 50,181 | (270,603) |
| Depreciation and amortisation | (86,880) | (1,061) | (84) | (3) | (845) | (1,569) | (7,476) | - | (97,918) |
| 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 (expenses) | (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 57 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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:
| Eliminations | |||||
|---|---|---|---|---|---|
| Segment Reporting | Interest income from Hedged L&R | Life Insurance and Litectus Adjustments | Other reconciling entries | Financial Statements | |
| Interest income | 770,230 | - | - | (3,044) | 767,186 |
| Interest expense | (560,519) | 60,431 | - | 1,329 | (498,759) |
| 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 | (270,603) | - | 220 | (11,205) | (281,588) |
| Depreciation and amortisation | (97,918) | (1,324) | (99,242) | ||
| Capital losses | 11 | - | (11) | - | |
| Total impairment losses | (153,934) | - | - | 29 | (153,905) |
| Loss before income tax | (16,126) | - | 220 | - | (15,906) |
| Income tax benefit (expenses) | (1,869) | - | (31) | - | (1,900) |
| Profit for the year from discontinued operations | - | - | (189) | - | (189) |
| Net loss for the year | (17,995) | - | - | - | (17,995) |
Page 58 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 6 NET INTEREST INCOME
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 751,997 | 767,186 | Interest income: | 680,314 | 692,681 |
| 2,788 | 2,132 | on balances with Central Banks | 2,788 | 2,132 |
| 14,998 | 14,861 | on loans and advances to credit institutions | 20,092 | 21,549 |
| 577,744 | 586,740 | on loans and advances to customers | 573,915 | 582,761 |
| 78,908 | 81,611 | on government securities - loans and receivables | 78,908 | 81,611 |
| 72,922 | 77,187 | on finance leasing portfolio | - | - |
| 3,279 | 3,196 | on debt securities available for sale | 3,253 | 3,169 |
| 1,358 | 1,459 | on debt securities, designated at fair value | 1,358 | 1,459 |
| (398,850) | (498,759) | Interest expenses: | (364,335) | (459,219) |
| (249,947) | (243,303) | on amounts owed to credit and financial institutions | (215,432) | (203,759) |
| (42,446) | (132,167) | on deposits from the public | (42,446) | (132,171) |
| (32,883) | (54,107) | on debt securities | (32,883) | (54,107) |
| (31,545) | (27,953) | on subordinated loans | (31,545) | (27,953) |
| (42,029) | (41,229) | deposits insurance expenses | (42,029) | (41,229) |
| 353,147 | 268,427 | Total net interest income | 315,979 | 233,462 |
NOTE 7 IMPAIRMENT LOSSES ON LOANS, FINANCE LEASING RECEIVABLE AND OTHER ASSETS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Impairment losses on loans to credit and financial institutions | ||||
| 9 | 8 | charge for the year, net | 9 | 391,008 |
| Impairment losses on loans to customers charge for | ||||
| 124,038 | (119,487) | the year, net | 124,038 | (119,487) |
| 45 | 133 | Recovered written off loans | 45 | 133 |
| 124,092 | (119,346) | Impairment losses on loans, net | 124,092 | 271,654 |
Changes in impairment losses during the year 2011 were as follows:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 1,465,427 | 1,460,762 | Impairment losses on loans as of 1 January (note 22) | 1,463,927 | 1,459,262 |
| (124,038) | 119,487 | Impairment losses charged to income statement by customer category, net: | (124,038) | 119,487 |
| (64,254) | (1,182) | (64,254) | (1,182) | |
| (76,075) | (1,393) | Property management | (76,075) | (1,393) |
| 21,025 | 92,909 | Mortgage | 21,025 | 92,909 |
| (4,734) | 29,153 | Other private individuals | (4,734) | 29,153 |
| - | 2,232 | Loans recovered to balance sheet | - | 2,232 |
| - | 1,641 | Other corporate | - | 1,641 |
| - | 591 | Property management | - | 591 |
| (132,223) | (117,855) | Loans written off: | (132,223) | (117,855) |
| (71,299) | (86,178) | Other corporate | (71,299) | (86,178) |
| (60,419) | (31,432) | Property management | (60,419) | (31,432) |
| (505) | (245) | Private individuals | (505) | (245) |
| 20 | 801 | Effect of change in exchange rate | 20 | 801 |
| 1,209,186 | 1,465,427 | Impairment losses on loans as of 31 December | 1,207,686 | 1,463,927 |
Impairment losses on loans relate to loans to customers are specified in Note 22.
As of 31 December 2011 the Bank had LTL 2,178,180 thousand of individually impaired loans, gross of impairment losses and deferred administration fee (2010: LTL 2,936,145 thousand). As of 31 December 2011 accrued interest on these loans amounted to LTL 614 thousand (2010: LTL 1,544 thousand). Accordingly, individually impaired loans to credit and financial institution amounted to LTL 285 thousand (no accrued interest) gross of impairment losses and deferred administration fee (2010: LTL 361 thousand (no accrued interest)). Deferred administration fee amounted to LTL 463 thousand for individually impaired loans to customers and LTL 1 thousand for loans to credit and financial institution.
Page 59 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 2011 amounted to LTL 34,774 thousand (2010: LTL 43,303 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 | ||
|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 |
| 170,216 | 383,526 | - | - |
| 35 | 36 | 35 | 36 |
| 170,251 | 383,562 | 35 | 36 |
Changes in impairment losses for finance lease portfolio and other assets related to lease portfolio for the year ended 31 December 2011 and 2010 were as follows:
| The Group | The Bank | ||
|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 |
| (182,060) | 67,351 | - | - |
| (2,495) | (400) | - | - |
| 2,022 | (16,029) | - | - |
| (19,097) | (9,572) | - | - |
| (201,630) | 41,350 | - | - |
| The Group | The Bank | ||
| --- | --- | --- | --- |
| 2011 | 2010 | 2011 | 2010 |
| 383,526 | 444,704 | - | - |
| (182,060) | 67,351 | - | - |
| (181,765) | 64,862 | - | - |
| (295) | 2,489 | - | - |
| (31,250) | (128,529) | - | - |
| (31,247) | (128,146) | - | - |
| (3) | (383) | - | - |
| 170,216 | 383,526 | - | - |
Impairment losses on finance lease portfolio as of 1 January (note 23)
Impairment losses charged to income statement, net:
Corporate
Private individuals
Finance leasing receivable written off
Corporate
Private individuals
Impairment losses on finance lease portfolio as of 31 December
| The Bank | |
|---|---|
| 2011 | 2010 |
| - | - |
| - | - |
| - | - |
| - | - |
| - | - |
Impairment losses on finance lease portfolio as of 31 December
NOTE 8 NET FEE AND COMMISSION INCOME
| The Group | The Bank | ||
|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 |
| 68,019 | 62,101 | For money transfer operations | 68,019 |
| 90,176 | 86,673 | For payment cards services | 90,176 |
| 8,838 | 11,014 | For operations with securities | 8,838 |
| 61,980 | 75,258 | Other income on services and commissions | 51,194 |
| 229,013 | 235,046 | Income on services and commissions | 218,227 |
| (1,988) | (1,859) | For money transfer operations | (1,904) |
| (44,791) | (44,827) | For payment cards services | (44,791) |
| (2,613) | (2,484) | For operations with securities | (2,613) |
| (12,556) | (15,435) | Other expenses on services and commissions | (12,123) |
| (61,948) | (64,605) | Expenses on services and commissions | (61,431) |
Page 60 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 9 DIVIDEND INCOME FROM SUBSIDIARIES
| 2011 | 2010 | |
|---|---|---|
| UAB SEB Investicių Valdymas | 6,064 | 3,734 |
| Total dividend income | 6,064 | 3,734 |
NOTE 10 NET LOSSES ON FINANCIAL ASSETS AND DERIVATIVE INSTRUMENTS ACCOUNTED FOR AT FAIR VALUE
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 4,483 | 6,306 | Realised result from operations with debt securities in trading portfolio | 4,483 | 6,306 |
| 93 | 393 | Unrealised result from operations with debt securities in trading portfolio | 93 | 393 |
| 2,319 | 1,139 | Result of available for sale portfolio designated for fair value hedge | 2,319 | 1,139 |
| (40,558) | (22,406) | Government securities - loans and receivables, designated for fair value hedge | (40,558) | (22,406) |
| (13,520) | (34,119) | Result of interest rate swap designated as hedging instrument | (13,520) | (34,119) |
| (11,591) | 20,016 | Result of other derivatives | (11,591) | 20,016 |
| 20,103 | (2,445) | Result from other trading securities | 20,103 | (2,445) |
| (38,671) | (31,116) | Net losses on financial assets and derivative instruments accounted for at fair value | (38,671) | (31,116) |
NOTE 11 NET FOREIGN EXCHANGE GAIN
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 40,423 | 41,787 | Gain from foreign exchange trading | 40,372 | 41,795 |
| 14,315 | 17,732 | Unrealised translation gain | 14,406 | 17,695 |
| 54,738 | 59,519 | Net gain on foreign exchange | 54,778 | 59,490 |
NOTE 12 STAFF COSTS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 104,933 | 97,053 | Salaries and wages | 100,533 | 90,746 |
| 35,268 | 34,148 | Social security expenses (defined contribution plan cost) | 33,882 | 32,163 |
| 140,201 | 131,201 | Total staff costs | 134,415 | 122,909 |
The following numbers of full-time personnel were employed by the Group's companies as of 31 December 2011 and 2010:
| 2011 | 2010 | |
|---|---|---|
| AB SEB bankas | 1,968 | 2,009 |
| UAB SEB Lizingas | 40 | 45 |
| UAB SEB Investicių Valdymas | 13 | 13 |
| UAB SEB Enskilda | n/a | 9 |
| UAB SEB Venture Capital | 2 | 2 |
| Total employees | 2,023 | 2,078 |
Several employees of the Bank are also employed by subsidiary companies and vice versa.
Page 61 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 13 OTHER ADMINISTRATIVE EXPENSES
| The Group | ||
|---|---|---|
| 2011 | 2010 | |
| 42,888 | 47,802 | Rent and maintenance of premises |
| 17,098 | 18,360 | Depreciation property, plant and equipment |
| 1,100 | 506 | Depreciation of investment property |
| 21,185 | 13,574 | Audit and consulting expenses |
| 35,113 | 20,747 | Office equipment maintenance |
| 10,808 | 12,568 | Communication expenses |
| 20,550 | 17,856 | Payments for servicing organizations |
| 7,439 | 7,100 | Transport expenses |
| 7,336 | 6,267 | Advertising and promotion expenses |
| 21,273 | 7,133 | Amortisation of intangible assets |
| 1,383 | 4,640 | Other than income taxes |
| 898 | 1,324 | Depreciation of assets under operating lease |
| 1,576 | 2,238 | Employees training expenses |
| 2,102 | 1,776 | Insurance of banking operations |
| 300 | 444 | Charity and sponsorship |
| 12,428 | 15,539 | Other expenses |
| 203,477 | 177,874 | Total other administrative expenses |
| The Bank | ||
| --- | --- | |
| 2011 | 2010 | |
| 41,936 | 46,948 | |
| 16,812 | 18,032 | |
| 64 | 64 | |
| 20,954 | 13,099 | |
| 34,419 | 19,984 | |
| 10,515 | 11,986 | |
| 19,446 | 16,415 | |
| 7,091 | 6,613 | |
| 7,190 | 5,904 | |
| 21,126 | 6,988 | |
| 1,078 | 1,535 | |
| - | - | |
| 1,542 | 2,119 | |
| 2,102 | 1,776 | |
| 300 | 444 | |
| 9,972 | 7,165 | |
| 194,547 | 159,072 |
NOTE 14 INCOME TAX EXPENSE
| The Group | ||
|---|---|---|
| 2011 | 2010 | |
| - | - | Current year tax charge |
| 99 | (634) | Previous years related tax charge |
| 60,040 | 2,534 | Deferred tax credit |
| 60,139 | 1,900 | Total income tax charge |
| The Bank | ||
| --- | --- | |
| 2011 | 2010 | |
| - | - | |
| 99 | (103) | |
| 35,409 | (14,260) | |
| 35,508 | (14,363) |
Previous years related tax charge accounted for in 2011 LTL 99 thousand for the Group and the Bank (2010: LTL (634) thousand for the Group and LTL (103) 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 | ||
|---|---|---|
| 2011 | 2010 | |
| 529,790 | (15,906) | Profit (loss) before tax |
| 79,469 | (2,386) | Tax calculated at a tax rate of 15% |
| (83,017) | (14,600) | Income not subject for tax |
| 63,588 | 19,520 | Expenses not deductible for tax purposes |
| 99 | (634) | Correction of previous period income tax |
| 60,139 | 1,900 | Total income tax charge |
| The Bank | ||
| --- | --- | |
| 2011 | 2010 | |
| 415,270 | (26,421) | |
| 62,291 | (3,963) | |
| (65,777) | (18,582) | |
| 38,895 | 8,285 | |
| 99 | (103) | |
| 35,508 | (14,363) |
Starting from the year 2010 income tax rate in Lithuania is 15 percent.
Deferred tax
| The Group | ||
|---|---|---|
| 2011 | 2010 | |
| 273,661 | 277,245 | Assets at 1 January |
| (60,040) | (2,534) | Income statement charge |
| (220) | - | Deferred tax related to disposed subsidiary |
| 195 | (1,050) | Other comprehensive income |
| 213,596 | 273,661 | Asset (liability) at 31 December |
| The Bank | ||
| --- | --- | |
| 2011 | 2010 | |
| 192,654 | 179,444 | |
| (35,409) | 14,260 | |
| - | - | |
| 195 | (1,050) | |
| 157,440 | 192,654 |
Page 62 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 14 INCOME TAX EXPENSE (CONTINUED)
As of 31 December 2011 and 2010 deferred income tax was calculated using 15 percent income tax rate.
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Deferred tax assets | ||||
| 1,718 | 1,524 | Revaluation of available for sales securities through equity | 1,718 | 1,524 |
| 156 | 41 | Revaluation of securities | 71 | - |
| 24,392 | 40,019 | Amortisation and depreciation | 13,965 | 24,072 |
| 3,258 | 3,041 | Accrued expense | 2,939 | 2,762 |
| 27,390 | 41,385 | Impairment losses | 7,800 | - |
| 19 | Deferred income | - | - | |
| 167,829 | 201,668 | Tax loss carried forward | 142,094 | 178,332 |
| 224,743 | 287,697 | Deferred tax assets, net | 168,587 | 206,690 |
| Deferred tax liability | ||||
| 5,795 | 9,012 | Revaluation of available for sale securities through income statement | 5,795 | 9,012 |
| 15 | Revaluation of trade securities | 15 | ||
| 5,352 | 5,009 | Revaluation of derivatives | 5,352 | 5,009 |
| 11,147 | 14,036 | Deferred tax liability, net | 11,147 | 14,036 |
As of 31 December 2011 the deferred tax asset related to tax losses recognised by the Bank is LTL 142,094 thousand of which LTL 6,829 thousand 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 24,896 thousand is related to tax losses of subsidiary AB SEB Lizingas; in the amount of LTL 839 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 thousand. Tax losses could be offset with taxable profits for unlimited time except for losses from transactions with securities and derivatives (non financial institutions). Losses from transactions with securities and derivatives can be offset with analogous taxable profit during 5 years.
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:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Unused tax losses | ||||
| 1,118,856 | 1,344,461 | Tax loss carried forward, unlimited use | 947,291 | 1,188,884 |
| 1,118,856 | 1,344,461 | Total unused tax losses | 947,291 | 1,188,884 |
As of 31 December 2011 and 2010 income tax effect relating to components of other comprehensive income was as follows:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Fair value gains (losses) on available for sale investment securities before tax amount | (4,157) | 3,956 | ||
| (4,157) | 3,956 | 195 | (1,050) | |
| 195 | (1,050) | Tax (expenses) benefit | ||
| Fair value gains on available for sale investment securities, net of tax amount | (3,962) | 2,906 | ||
| (3,962) | 2,906 |
Page 63 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 15 EARNINGS PER SHARE
| The Group | ||
|---|---|---|
| 2011 | 2010 | |
| Net (loss) profit from continuing operations attributable to the shareholders | 469,651 | (17,806) |
| Weighted average number of shares (000s) | 15,441 | 15,441 |
| Basic and diluted earnings per share (LTL) | 30.42 | (1.15) |
| The Group | ||
| 2011 | 2010 | |
| Net profit from discontinued operations attributable to the shareholders | - | (189) |
| Weighted average number of shares (000s) | 15,441 | 15,441 |
| Basic and diluted earnings per share (LTL) | - | (0.01) |
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 | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 489,624 | 396,125 | Obligatory reserves | 489,624 | 396,125 |
| 763,990 | - | Target deposits | 763,990 | - |
| 2,184,595 | 131,133 | Balance available for withdrawal | 2,184,595 | 131,133 |
| 3,438,209 | 527,258 | Total balances with the Central Bank | 3,438,209 | 527,258 |
Half of obligatory reserves and the rest of balance, available for withdrawal, are non-interest bearing according to Central Bank of Lithuania regulations. Obligatory reserves comprise 4 percent (4 percent in 2010) of balance of public deposits with tenors not longer than 2 years calculated using data from the last day of the previous month.
NOTE 17 DUE FROM BANKS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 547,089 | 568,237 | Current accounts | 547,089 | 568,237 |
| 29,812 | 395,858 | Overnight deposits | 29,812 | 395,858 |
| 2,141,606 | 213,738 | Term deposits | 2,141,606 | 213,738 |
| 2,718,507 | 1,177,833 | Total | 2,718,507 | 1,177,833 |
Page 64 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 18 GOVERNMENT SECURITIES AVAILABLE FOR SALE
| The Group | The Bank | |
|---|---|---|
| 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 1 January 2011 | 164,272 |
| 45,427 | Additions | 44,763 |
| (159,199) | Disposals | (158,876) |
| 3,279 | Interest income | 3,253 |
| 2,319 | Result of available for sale portfolio designated for fair value hedge | 2,319 |
| (3,810) | Change in revaluation reserve in equity | (3,810) |
| 52,911 | As of 31 December 2011 | 51,921 |
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
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 919 | 493 | Financial assets held for trading - equity instruments | 919 | 493 |
| 27,457 | 45,240 | Financial assets held for trading - securities of Government of Republic of Lithuania | 27,457 | 45,240 |
| 41,505 | 29,325 | Financial assets designated at fair value (at initial recognition): venture capital investments in associates | - | - |
| 69,881 | 75,058 | Total financial assets designated at fair value | 28,376 | 45,733 |
Financial assets designated at fair value (at initial recognition) represent AB SEB bank subsidiary's UAB SEB Venture capital investments in associates. Upon initial recognition it is designated as at fair value through profit or loss because this investment is managed and it's performance is evaluated on a fair value basis in accordance with investment strategy. UAB SEB Venture capital business is oriented to short and middle term profit from increase in fair value of investments.
The table below presents movement of financial assets designated at fair value.
| The Group | The Bank | |
|---|---|---|
| 28,999 | As of 1 January 2010 | - |
| 599 | Additions | - |
| - | Disposals | - |
| (273) | Revaluation | - |
| 29,325 | As of 1 January 2011 | - |
| 12,473 | Additions | - |
| - | Disposals | - |
| (293) | Revaluation | - |
| 41,505 | As of 31 December 2011 | - |
The revaluation result on designated at fair value financial assets is accounted in income statement under net gain (loss) on investment securities.
Page 65 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 19 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
The table below presents an analysis of trading debt securities by rating agency designation at 31 December 2011, based on Standard & Poor's ratings or their equivalent:
| Securities of Government of Republic of Lithuania | |
|---|---|
| BBB | 27,457 |
| Total | 27,457 |
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 note 3 (l).
| 31 December 2011 | Notional amount | Fair value | ||
|---|---|---|---|---|
| Purchase | Sale | Assets | Liabilities | |
| Foreign exchange derivatives | ||||
| Currency forwards | 182,629 | 179,584 | 11,080 | 187 |
| Currency swaps | 834,447 | 834,447 | 1,103 | 8,684 |
| Put options | 2,173 | 2,173 | 61 | 62 |
| Call options | ||||
| Interest rate derivatives | ||||
| Futures | 6,560 | - | - | 76 |
| Interest rate swaps | 4,525,058 | 4,525,058 | 148,644 | 149,255 |
| Interest rate swaps for hedging purposes | 1,149,682 | 1,149,682 | - | 77,471 |
| Currency interest rate swaps | 4,114,249 | 4,114,249 | 28,088 | - |
| Interest rate options | 552,382 | 552,382 | (3,020) | (3,020) |
| Equity derivatives | ||||
| Index linked debt securities option | 185,506 | 185,506 | 5,383 | 5,347 |
| Derivative part of index linked deposit | - | - | 82 | - |
| Other derivatives | ||||
| Commodity options | 22,584 | 22,584 | 1,633 | 1,624 |
| Total derivatives assets/liabilities | 11,575,270 | 11,565,665 | 193,054 | 239,686 |
| Notional amount | Fair value | |||
| 31 December 2010 | 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 |
Page 66 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 21 LOANS TO CREDIT AND FINANCIAL INSTITUTIONS
Receivable for interest rate and currency interest rate swaps amounting to LTL 148,272 thousand are due from the counterparties with internal risk classes that fall under the range from 7 till 14. The rest LTL 28,460 thousand of interest rate and currency interest rate swaps are due from the Parent company with internal risk class 2.
The table below presents loans to credit and financial institutions split by counterparty country.
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 393 | 41,009 | Lithuania | 426,989 | 492,246 |
| 2,977 | 175 | JAE | 2,977 | 175 |
| 2,625 | 3 | Sweden | 2,625 | 3 |
| 1,694 | 2,588 | Portugal | 1,694 | 2,588 |
| 1,440 | - | Russia | 1,440 | - |
| 1,439 | 9,031 | Belarus | 1,439 | 9,031 |
| 992 | - | Azerbaijan | 992 | - |
| 849 | 1,634 | Great Britain | 849 | 1,634 |
| 318 | 260 | Czech Republic | 318 | 260 |
| 4 | 3 | United States of America | 4 | 3 |
| 2 | 36 | Germany | 2 | 36 |
| 2 | 1 | Luxemburg | 2 | 1 |
| 2 | - | Canada | 2 | - |
| - | 435 | Croatia | - | 435 |
| - | 259 | France | - | 259 |
| - | 4 | Denmark | - | 4 |
| - | 1 | Italy | - | 1 |
| 12,737 | 55,439 | Total loans to credit and financial institutions | 439,333 | 506,676 |
| (31) | (40) | Less impairment losses on loans | (31) | (40) |
| 12,706 | 55,399 | Loans to credit and financial institutions, net | 439,302 | 506,636 |
Vast majority of loans to credit and financial institutions are not secured by any collateral. As of 31 December 2011 individually impaired loans amounted to LTL 284 thousand gross of impairment losses (no accrued interest). LTL 2,625 thousand were past due till 7 days, LT 2 thousands 8-30 days (as of 31 December 2010 LTL 6 thousands were past due more than 60 days). The rest of the loans to credit and financial institutions are neither past due, nor impaired.
The table below presents an analysis of loans to credit and financial institutions, net by rating agency designation at 31 December 2011, based on Standard & Poor's ratings or their equivalent:
| Loans to credit and financial institutions, net | |
|---|---|
| CCC+ | 99 |
| AAA | 154 |
| A | 319 |
| AA- | 696 |
| A- | 1,269 |
| B- | 1,340 |
| BBB+ | 1,707 |
| A+ | 2,628 |
| BB | 4,125 |
| Not available | 369 |
| 12,706 |
Page 67 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
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 collateral 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.
As of 31 December 2011 and 2010 loans to customers against collateral type were as follows:
| 31 December 2011 | Public | Property management | Other corporate | Mortgage loans | Other private individuals | Total |
|---|---|---|---|---|---|---|
| Loans secured by mortgage, real property | - | 1,670,065 | 1,139,153 | 5,526,938 | 643,617 | 8,979,773 |
| Loans secured by deposits and securities | - | 116,135 | 88,641 | 13,029 | 39,937 | 257,742 |
| Loans secured by guarantees of government and banks | - | 2,628 | 77,811 | 91 | - | 80,530 |
| Accounts receivable and debtors | 8,329 | 1,324,880 | 1,379,014 | 3,967 | 4,267 | 2,720,457 |
| Inventories and equipment | 412 | 4,939 | 560,384 | 7 | 9 | 565,751 |
| Other collateral | - | 511,949 | 799,489 | 767,024 | 38,374 | 2,116,836 |
| Unsecured loans | 446,859 | 98,686 | 1,250,450 | 57,807 | 311,227 | 2,165,029 |
| Total loans to customers | 455,600 | 3,729,282 | 5,294,942 | 6,368,863 | 1,037,431 | 16,886,118 |
| 31 December 2010 | ||||||
| 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 |
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 2011 loan with floating interest rate exceeded 70,79 percent of Bank's loan portfolio (2010: 68 percent).
As of 31 December 2011 included in the above amounts of loans secured by deposits and securities is reversed repo transactions equal to LTL 14,965 thousand (of which LTL 127 thousand of accrued interest) with securities in amount of LTL 23,825 thousand (2010: LTL 36,631 thousand and LTL 53,819 thousand respectively), which includes: equity (LTL 11,053 thousand), funds (LTL 1,458 thousand), bonds (LTL 8,349 thousand) and equity linked debt securities (LTL 2,837 thousand).
Page 68 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 22 LOANS TO CUSTOMERS (CONTINUED)
As of 31 December 2011 and 2010 the Bank's loans to customers by customer category were as follows:
| 2011 | 2010 | |
|---|---|---|
| Neither past due nor impaired: | ||
| Property management | 1,904,633 | 1,784,165 |
| Other corporate | 4,469,140 | 3,857,906 |
| Public | 438,330 | 492,855 |
| Mortgage loans | 5,635,993 | 5,816,666 |
| Other private individuals | 788,023 | 952,249 |
| Total neither past due nor impaired | 13,236,119 | 12,903,841 |
| Past due but not impaired: | ||
| Property management | 262,759 | 144,902 |
| Other corporate | 254,553 | 254,547 |
| Public | 17,270 | - |
| Mortgage loans | 716,444 | 689,367 |
| Other private individuals | 220,641 | 215,264 |
| Total past due but not impaired | 1,471,667 | 1,304,080 |
| Impaired loans: | ||
| Property management | 1,561,890 | 2,052,315 |
| Other corporate | 571,249 | 830,586 |
| Public | - | - |
| Mortgage loans | 16,426 | 14,565 |
| Other private individuals | 28,767 | 39,270 |
| Total impaired loans | 2,178,332 | 2,936,736 |
| Total loans by customer category: | ||
| Property management | 3,729,282 | 3,981,382 |
| Other corporate | 5,294,942 | 4,943,039 |
| Public | 455,600 | 492,855 |
| Mortgage loans | 6,368,863 | 6,520,598 |
| Other private individuals | 1,037,431 | 1,206,783 |
| Total loans by customer category | 16,886,118 | 17,144,657 |
| Less impairment losses on loans: | ||
| Property management | (607,212) | (743,694) |
| Other corporate | (284,681) | (420,228) |
| Public | - | - |
| Mortgage loans | (220,136) | (199,332) |
| Other private individuals | (95,657) | (100,673) |
| Total impairment losses on loans by customer category | (1,207,686) | (1,463,927) |
| Loans to customers, net | 15,678,432 | 15,680,730 |
Page 69 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 22 LOANS TO CUSTOMERS (CONTINUED)
The table below presents analysis of impaired individually assessed loans as of 31 December 2011 and 2010:
| 2011 | 2010 | |
|---|---|---|
| Impaired individually assessed loans: | ||
| Property management | 1,561,890 | 2,052,315 |
| Other corporate | 571,249 | 830,586 |
| Public | - | - |
| Mortgage loans | 16,426 | 14,565 |
| Other private individuals | 28,767 | 39,270 |
| Total impaired individually assessed loans | 2,178,332 | 2,936,736 |
| Less impairment losses on individually assessed loans: | ||
| Property management | (576,547) | (637,271) |
| Other corporate | (249,932) | (424,815) |
| Public | - | - |
| Mortgage loans | (11,645) | (10,796) |
| Other private individuals | (10,824) | (11,784) |
| Total impairment losses on individually assessed loans | (848,948) | (1,084,666) |
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 2011 | ||||||
| 3 – 7 risk classes | 6,586 | 32,014 | 414,928 | - | - | 453,528 |
| 8 risk class | 236,218 | 260,692 | 665,424 | - | - | 1,162,334 |
| 9 risk class | 186,232 | 139,788 | 1,144,277 | - | - | 1,470,297 |
| 10 risk class | 2,711 | 302,658 | 1,112,910 | - | - | 1,418,279 |
| 11 risk class | 6,583 | 427,422 | 395,255 | - | - | 829,260 |
| 12 risk class | - | 471,544 | 165,715 | - | - | 637,259 |
| 13 – 16 risk class | - | 265,468 | 401,133 | - | - | 666,601 |
| Homogeneous credits groups | - | 5,047 | 169,498 | 5,635,993 | 788,023 | 6,598,561 |
| Total neither past due nor impaired | 438,330 | 1,904,633 | 4,469,140 | 5,635,993 | 788,023 | 13,236,119 |
| 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 |
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 2011 amounted to LTL 10,694 thousand (2010: LTL 2,577 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 2011 in the Bank was LTL 121,422 thousand (mortgage loans) and LTL 17,268 thousand (other private loans) (2010: LTL 123,467 thousand and LTL 21,447 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 70 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 22 LOANS TO CUSTOMERS (CONTINUED)
As of 31 December 2011 and 2010 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 2011 | ||||||
| Loans past due but not impaired: | ||||||
| past due up to 7 days | 13,308 | 49,627 | 75,870 | 114,891 | 18,382 | 272,078 |
| past due 8-30 days | 3,962 | 3,402 | 74,319 | 125,384 | 25,358 | 232,425 |
| past due 31 - 60 days | - | 25,500 | 8,553 | 76,423 | 13,656 | 124,132 |
| past due over 60 days | - | 184,230 | 95,811 | 399,746 | 163,245 | 843,032 |
| Total past due but not impaired | 17,270 | 262,759 | 254,553 | 716,444 | 220,641 | 1,471,667 |
| Fair value of collateral pledged | - | 261,565 | 127,725 | 642,229 | 127,814 | 1,159,333 |
| 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 |
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 2011 were past due up to 7 days and instalments were paid during January 2012, amount LTL 219,328 thousand (2010: LTL 215,353 thousand), of which: public sector - the whole amount for year 2011, property management - LTL 44,818 thousand (2010: LTL 11,195 thousand), other corporate - LTL 55,549 thousand (2010: LTL 75,555 thousand), mortgage loans - LTL 92,623 thousand (2010: LTL 107,555 thousand), other private individuals - LTL 13,030 thousand (2010: LTL 21,048 thousand).
As of 31 December 2011 and 2010 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 2011 | ||||||
| Impaired loans | - | 1,561,890 | 571,249 | 16,426 | 28,767 | 2,178,332 |
| Fair value of collateral pledged | - | 917,653 | 280,559 | 4,773 | 14,727 | 1,217,712 |
| 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 |
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 71 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 23 FINANCE LEASE RECEIVABLE
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Gross finance lease receivable | ||||
| 675,996 | 848,237 | -Falling due within one year | - | - |
| 982,417 | 1,121,779 | -Falling due from one to five years | - | - |
| 357,093 | 251,233 | -Falling due after five years | - | - |
| 2,015,506 | 2,221,249 | Total gross finance lease receivable | - | - |
| Unearned finance income | ||||
| (56,422) | (55,823) | -Falling due within one year | - | - |
| (90,478) | (76,979) | -Falling due from one to five years | - | - |
| (24,904) | (10,230) | -Falling due after five years | - | - |
| (171,804) | (143,032) | Total unearned finance income | - | - |
| (170,216) | (383,526) | Less impairment losses on finance lease receivable | - | - |
| 1,673,486 | 1,694,691 | Total finance lease receivable, net | - | - |
As of 31 December 2011 unguaranteed residual values amounted to LTL 479 thousand (2010: LTL 1,922 thousand).
As of 31 December 2011 finance lease contracts with floating interest rate reached 89.22 percent of leasing portfolio (2010: 87.37 percent).
As of 31 December 2011 and 2010 finance lease receivable by customer category were as follows:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Neither past due nor impaired: | ||||
| 1,302,022 | 1,132,272 | Corporate | - | - |
| 66,048 | 87,985 | Private individuals | - | - |
| 15,836 | 24,790 | Other | - | - |
| 1,383,906 | 1,245,047 | Total neither past due nor impaired | - | - |
| Past due but not impaired: | ||||
| 85,524 | 157,098 | Corporate | - | - |
| 6,735 | 17,757 | Private individuals | - | - |
| 86 | 91 | Other | - | - |
| 92,345 | 174,946 | Total past due but not impaired | - | - |
| Impaired finance lease receivable: | ||||
| 364,951 | 655,724 | Corporate | - | - |
| 2,500 | 2,500 | Private individuals | - | - |
| - | - | Other | - | - |
| 367,451 | 658,224 | Total impaired finance lease receivable | - | - |
| Total finance lease receivable by customer category: | ||||
| 1,752,497 | 1,945,094 | Corporate | - | - |
| 75,283 | 108,242 | Private individuals | - | - |
| 15,922 | 24,881 | Other | - | - |
| 1,843,702 | 2,078,217 | Total finance lease receivable by customer category | - | - |
| Less impairment losses on finance lease receivable: | ||||
| (167,034) | (380,046) | Corporate | - | - |
| (3,182) | (3,480) | Private individuals | - | - |
| - | - | Other | - | - |
| (170,216) | (383,526) | Total impairment losses on finance lease receivable | - | - |
| 1,673,486 | 1,694,691 | Finance lease receivable, net | - | - |
Page 72 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 2011 | ||||
| 4 – 7 risk classes | 5,089 | - | 12,340 | 17,429 |
| 8 risk class | 59,215 | - | 652 | 59,867 |
| 9 risk class | 167,720 | - | - | 167,720 |
| 10 risk class | 423,837 | 530 | 757 | 425,124 |
| 11 risk class | 224,885 | 685 | 860 | 226,430 |
| 12 risk class | 141,201 | 526 | 657 | 142,384 |
| 13-16 risk class | 133,277 | 996 | 44 | 134,317 |
| Homogeneous credits groups | 146,798 | 63,311 | 526 | 210,635 |
| Total neither past due nor impaired | 1,302,022 | 66,048 | 15,836 | 1,383,906 |
| 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 |
The carrying amount of lease receivable, that would otherwise be past due or impaired whose terms have been renegotiated, as of 31 December 2011 in the Group was LTL 20,940 thousand (2010: 25,646).
As of 31 December 2011 and 2010 finance lease receivable past due but not impaired and fair value of collateral were as follows:
| Corporate | Private | Other | Total | |
|---|---|---|---|---|
| 31 December 2011 | ||||
| Loans past due but not impaired: | ||||
| past due up to 30 days | 36,624 | 3,281 | 86 | 39,991 |
| past due 31 - 60 days | 15,318 | 855 | - | 16,173 |
| past due over 60 days | 33,582 | 2,599 | - | 36,181 |
| Total past due but not impaired | 85,524 | 6,735 | 86 | 92,345 |
| Fair value of collateral pledged | 102,674 | 8,085 | 103 | 110,862 |
| 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 |
Page 73 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 2011 and 2010:
| Corporate | Private | Other | Total | |
|---|---|---|---|---|
| 31 December 2011 | ||||
| Impaired loans | 364,951 | 2,500 | - | 367,451 |
| Fair value of collateral pledged | 231,977 | - | - | 231,977 |
| 31 December 2010 | ||||
| Impaired loans | 655,724 | 2,500 | - | 658,224 |
| Fair value of collateral pledged | 354,091 | - | - | 354,091 |
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 2011 | ||||
| Trucks and other vehicles | 511,356 | 93 | 297 | 511,746 |
| Real estate | 599,770 | 6,516 | 263 | 606,549 |
| Cars and mini-vans | 241,404 | 68,399 | 15,323 | 325,126 |
| Manufacturing equipment | 286,646 | 17 | - | 286,663 |
| Shop equipment | 4,008 | - | - | 4,008 |
| Construction equipment | 43,688 | 1 | - | 43,689 |
| Agricultural equipment | 12,101 | 160 | - | 12,261 |
| Office equipment | 4,077 | - | - | 4,077 |
| Medical equipment | 3,502 | 97 | 30 | 3,629 |
| Railway wagons and containers | 42,480 | - | - | 42,480 |
| Water transport means | 90 | - | - | 90 |
| Other assets | 3,375 | - | 9 | 3,384 |
| Total finance lease receivable by type of collateral | 1,752,497 | 75,283 | 15,922 | 1,843,702 |
| 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 |
Page 74 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 2011 amounted to LTL 1,588,259 thousand, fair value is disclosed in table in Accounting policies part Fair values.
As of 31 December 2011 and for the year ended 31 December 2011 if the Group and the Bank had not reclassified financial assets to loans and receivables, revaluation reserve (deficit) of financial assets in equity would have been lower by LTL 30 million (2010: LTL 26.4 million), and result from revaluation of securities in income statement would have been lower by LTL 0.5 million (2010: LTL 2 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 | ||
|---|---|---|
| 2011 | 2010 | |
| Securities available for sale: | ||
| 200 | 200 | AB Panevezio Energija |
| 176 | 1,076 | SEB Equity Fund Ukraine |
| 376 | 1,276 | Total investment securities available for sale |
| The Bank | ||
| --- | --- | |
| 2011 | 2010 | |
| 200 | 200 | |
| 176 | 1,076 | |
| 376 | 1,276 |
The above securities are not rated.
The changes in investment securities for the year 2011 were as follows:
| The Group | |||
|---|---|---|---|
| Available-for-sale | Held to maturity | Loans and receivables | |
| 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 | 1 January 2011 |
| 14 | 316 | - | Foreign exchange differences on monetary assets |
| 3 | - | - | Additions |
| - | - | - | Disposal |
| - | - | 500 | Interest income |
| - | - | (41,530) | Recognised result in income statement |
| (526) | - | - | Change in revaluation reserve in equity |
| (390) | Impairment loss on investment in AFS securities | ||
| 376 | 14,148 | 1,588,260 | 31 December 2011 |
| The Bank | |||
| --- | --- | --- | |
| Available-for-sale | Held to maturity | Loans and receivables | |
| 337 | 12,748 | 1,719,512 | |
| 10 | 1,084 | - | |
| 866 | - | - | |
| - | - | (61,329) | |
| - | - | (1,496) | |
| - | - | (27,397) | |
| 63 | - | - | |
| 1,276 | 13,832 | 1,629,290 | |
| 14 | 316 | - | |
| 3 | - | - | |
| - | - | - | |
| - | - | 500 | |
| - | - | (41,530) | |
| (526) | - | - | |
| (390) | |||
| 376 | 14,148 | 1,588,260 |
All loans and receivables presented in the table above are subject to fair value hedge as described in note 3(i). Recognised result in income statement amounting to LTL 41,530 thousand (2010: LTL 27,397 thousand) relates to fair value hedge impact accounted through income statement and recognised in net losses on financial assets and derivative instruments accounted for at fair value (see note 10).
The table below presents an analysis of credit quality of Bank's investment securities accounted as Held-to-maturity and loans and receivables by rating agency designation at 31 December 2011, based on Standard & Poor's ratings or their equivalent:
| Held to maturity | Loans and receivables | |
|---|---|---|
| BBB+ | 14,148 | |
| BBB | 1,588,260 | |
| 14,148 | 1,588,260 |
Page 75 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 25 INVESTMENTS IN SUBSIDIARIES
| The Group | The Bank | ||
|---|---|---|---|
| 2011 | 2009 | 2011 | 2010 |
| Securities accounted for under cost method: | |||
| - | - | 25,000 | 25,000 |
| - | - | 9,900 | 9,900 |
| - | - | - | 3,716 |
| - | - | 190,000 | 83,000 |
| - | - | 224,900 | 121,616 |
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 Group's financial statements.
Continued losses of AB SEB Lizingas triggered impairment tests of cost of investment into this subsidiary. As of 31 December 2009, net assets of this subsidiary were negative and cost of investment was reduced to zero value. As of 31 December 2010 impairment tests showed that previously recognized impairment loss should be reversed for the amount of LTL 83,000 thousand.
Impairment tests carried for this subsidiary for the year 2011 indicated that recoverable amount is LTL 190,000 thousand. Recoverable amount was estimated using value in use method. Discount rate applied: 12,2% (for further consideration pls. see Note 3 Significant management judgements). Thus previously recognized impairment loss has been additionally reversed for the amount LTL 107,000.
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 |
| Impairment loss reversal in 2011 | 107,000 |
| As of 31 December 2011: | |
| Total cost of investment, before impairment | 708,634 |
| Total impairment | (518,634) |
| Total cost of investment, after impairment | 190,000 |
UAB SEB Venture Capital is a fully owned subsidiary involved in venture capital activities.
UAB SEB Investicių Valdymas is a fully owned subsidiary of the Bank, engaged in provision of investments' management services.
The audited financial statements of subsidiaries are available at the Bank and the respective subsidiary.
On 3 March 2011 100% of subsidiary shares UAB SEB Enskilda were sold to the Bank's parent company Skandinaviska Enskilda Banken AB (publ), for the amount of LTL 10,092 thousand.
Page 76 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 25 INVESTMENTS IN SUBSIDIARIES (CONTINUED)
UAB SEB Enskilda
Net cash flow from disposal of subsidiary
| 31 December 2010 | |
|---|---|
| Due from banks, net | 1,898 |
| Term deposits | 7,417 |
| Property, plant and equipment | 222 |
| Other assets, net of impairment losses | 909 |
| Accrued expenses and deferred income | 21 |
| Other liabilities and provisions | 333 |
| Net assets | 10,092 |
| Sales price | 10,092 |
| Adjustment due to acquisition cost of investment | (1,166) |
| Loss from disposal of subsidiary | (1,166) |
| Cash and cash equivalents in subsidiary being sold | 1,898 |
| Net cash flow from disposal of subsidiary | 8,194 |
NOTE 26 INTANGIBLE FIXED ASSETS
As of 31 December 2011 and 2010 intangible assets of the Group and the Bank consisted of the following:
| The Group | The Bank | |||
|---|---|---|---|---|
| Software and other intangible fixed assets | Total intangible | Software and other intangible fixed assets | Total intangible fixed assets | |
| Cost | ||||
| 219,774 | 219,774 | 31 December 2009 | 218,468 | 218,468 |
| 58,575 | 58,575 | Additions | 58,533 | 58,533 |
| (4,669) | (4,669) | Disposals | (4,669) | (4,669) |
| 273,680 | 273,680 | 31 December 2010 | 272,332 | 272,332 |
| Accumulated amortisation and impairment | ||||
| 50,728 | 50,728 | 31 December 2009 | 49,704 | 49,704 |
| 7,133 | 7,133 | Charge for the year | 6,988 | 6,988 |
| (4,669) | (4,669) | Amortisation of disposals | (4,669) | |
| 71,755 | 71,755 | Impairment charge for the year | 71,755 | 71,755 |
| 124,947 | 124,947 | 31 December 2010 | 123,778 | 123,778 |
| Costs | ||||
| 273,680 | 273,680 | 31 December 2010 | 272,332 | 272,332 |
| 12,262 | 12,262 | Additions | 12,054 | 12,054 |
| (6,897) | (6,897) | Disposals | (6,897) | (6,897) |
| 279,045 | 279,045 | 31 December 2011 | 277,489 | 277,489 |
| Accumulated amortisation and impairment | ||||
| 124,947 | 124,947 | 31 December 2010 | 123,778 | 123,778 |
| 21,273 | 21,273 | Charge for the year | 21,126 | 21,126 |
| (145) | (145) | Amortisation of disposals | (145) | (145) |
| 146,075 | 146,075 | 31 December 2011 | 144,759 | 144,759 |
| Net book value | ||||
| 148,733 | 148,733 | 31 December 2010 | 148,554 | 148,554 |
| 132,970 | 132,970 | 31 December 2011 | 132,730 | 132,730 |
Page 77 of 131
Page 78 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 26 INTANGIBLE FIXED ASSETS (CONTINUED)
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.
Impairment tests have been carried for the year 2011 as well using value-in-use calculations. The following assumptions used: weighted average cost of capital (post tax) of 11.30%, sustainable growth rate of 3%. Results showed that no impairment charge were needed.
NOTE 27 PROPERTY, PLANT AND EQUIPMENT
As of 31 December 2011 and 2010 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 2009 | 11,636 | 118,478 | 55,470 | 185,584 |
| Additions | - | 4,933 | 3,331 | 8,264 |
| Disposals, write-offs and reclassifications | - | (25,910) | (7,844) | (33,754) |
| 31 December 2010 | 11,636 | 97,501 | 50,957 | 160,094 |
| Accumulated depreciation | ||||
| 31 December 2009 | 4,827 | 85,652 | 38,596 | 129,075 |
| 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 |
| Cost | ||||
| Additions | - | 3,256 | 1,592 | 4,848 |
| Disposals, write-offs and reclassifications | - | (3,812) | (842) | (4,654) |
| Transfer to disposable group classified as held for sale | - | (54) | (254) | (308) |
| 31 December 2011 | 11,636 | 96,891 | 51,453 | 159,980 |
| Accumulated depreciation | ||||
| Charge for the year | 1,281 | 10,239 | 5,578 | 17,098 |
| Depreciation of disposals, write-offs and reclassifications | - | (3,782) | (460) | (4,242) |
| Transfer to disposable group classified as held for sale | (27) | (60) | ||
| 31 December 2011 | 7,636 | 75,959 | 43,264 | 126,859 |
| Net book value | ||||
| 31 December 2010 | 5,281 | 27,972 | 12,751 | 46,004 |
| 31 December 2011 | 4,000 | 20,932 | 8,189 | 33,121 |
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 27 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
As of 31 December 2011 and 2010 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 2009 | 11,636 | 117,791 | 54,536 | 183,963 |
| 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 | ||||
| 31 December 2009 | 4,827 | 85,149 | 38,140 | 128,116 |
| 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 |
| Cost | ||||
| Additions | - | 3,237 | 681 | 3,918 |
| Disposals, write-offs and reclassifications | - | (3,653) | (279) | (3,932) |
| 31 December 2011 | 11,636 | 96,459 | 50,358 | 158,453 |
| Accumulated depreciation | ||||
| Charge for the year | 1,281 | 10,162 | 5,369 | 16,812 |
| Depreciation of disposals, write-offs and reclassifications | - | (3,632) | (262) | (3,894) |
| 31 December 2011 | 7,636 | 75,634 | 42,826 | 126,096 |
| Net book value | ||||
| 31 December 2010 | 5,281 | 27,771 | 12,237 | 45,289 |
| 31 December 2011 | 4,000 | 20,825 | 7,532 | 32,357 |
Page 79 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 28 ASSETS UNDER OPERATING LEASE
As of 31 December 2011 and 2010 assets leased 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 2010 | 7,067 | 124 | 7,191 |
| Additions | - | - | - |
| Disposals | (4,729) | (415) | (5,144) |
| Transfer (to) leasing portfolio | - | 488 | 488 |
| 31 December 2011 | 2,338 | 197 | 2,535 |
| Accumulated depreciation | |||
| 31 December 2010 | 4,503 | 107 | 4,610 |
| Charge for the year | 884 | 14 | 898 |
| Depreciation of disposals | (3,709) | (105) | (3,814) |
| Depreciation of transfers (to) leasing portfolio | - | - | - |
| 31 December 2011 | 1,678 | 16 | 1,694 |
| Net book value | |||
| 31 December 2010 | 2,564 | 17 | 2,581 |
| 31 December 2011 | 660 | 181 | 841 |
Income from operating lease is classified as net other income in the Income Statement.
Page 80 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 29 INVESTMENT PROPERTY
As of 31 December 2011 and 2010 investment property of the Group and the Bank consisted of the following:
| The Group | The Bank | |
|---|---|---|
| Costs | ||
| 95,483 | 31 December 2010 | 1,599 |
| 7,334 | Taken over/Additions | - |
| 5,227 | Assets reclassified from other asset groups' | - |
| (44,321) | Disposals | - |
| 63,723 | 31 December 2011 | 1,599 |
| Accumulated depreciation and impairment | ||
| 573 | 31 December 2010 | 64 |
| 1,100 | Depreciation for the year | 64 |
| (442) | Disposals | - |
| 1,231 | 31 December 2011 | 128 |
| Impairment loss | ||
| 43,436 | 31 December 2010 | - |
| (2,495) | Reversal of impairment loss in the income statement | - |
| (24,260) | Reversal of impairment loss attributable to disposed assets | - |
| 2,329 | Impairment loss on assets taken over | - |
| 2,780 | Impairment loss on assets reclassified from other asset groups' | - |
| 21,790 | 31 December 2011 | - |
| Net book value | ||
| 51,474 | 31 December 2010 | 1,535 |
| 40,702 | 31 December 2011 | 1,471 |
The fair value of investment property was established in compliance with the procedures adopted within the SEB group. The valuation of real estate was carried out by SEB Bankas experts from Corporate Customers and Industry Analysis Department (ICA) using discounted cash flow model. The fair value of investment property does not differ materially from its book value as at 31 December 2011 and 31 December 2010.
The major amount of investment property are foreclosed assets (land and buildings) taken over from the clients by AB SEB Lizingas.
Page 81 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 30 OTHER ASSETS, NET
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Financial other assets | ||||
| 171 | 775 | Advances paid for assets to be leased | - | - |
| - | 2,131 | Amounts receivable for cash exported | - | 2,131 |
| Amounts of executed bank transfers not yet settled against | ||||
| 111,640 | 66,908 | customers' accounts | 111,640 | 66,908 |
| 737 | 475 | Amounts outstanding for clearance | 737 | 475 |
| 5,464 | 11,905 | Accrued income | 5,005 | 6,918 |
| 658 | 764 | Current lease receivable | - | - |
| 1,219 | 2,134 | Other financial assets | 1,219 | 2,134 |
| 119,889 | 85,092 | Total other financial assets | 118,601 | 78,566 |
| Non financial other assets | ||||
| 93 | 199,486 | Assets not yet leased | - | - |
| 14,464 | 11,790 | Deferred expenses | 14,252 | 11,519 |
| 1,335 | 10,540 | Tax receivables | 78 | 8,690 |
| 11,609 | 9,668 | Other assets, net of impairment allowances | 10,208 | 10,612 |
| 27,501 | 231,484 | Total non financial other assets | 24,538 | 30,821 |
| 147,390 | 316,576 | Total other assets, net | 143,139 | 109,387 |
NOTE 31 AMOUNTS OWED TO CREDIT AND FINANCIAL INSTITUTIONS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 3,879,536 | 1,587,715 | Falling due within one year | 3,335,064 | 1,554,056 |
| 6,256,145 | 7,707,900 | Falling due after one year | 5,841,809 | 6,361,308 |
| 10,135,681 | 9,295,615 | Total amounts owed to credit and financial institutions | 9,176,873 | 7,915,364 |
NOTE 32 DEPOSITS FROM THE PUBLIC
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 4,643,460 | 4,111,230 | Corporate customers' deposits and accounts | 4,649,455 | 4,112,563 |
| 7,509,539 | 5,532,111 | Individual customers' deposits and accounts | 7,509,539 | 5,532,111 |
| 12,152,999 | 9,643,341 | Total deposits from the public | 12,158,994 | 9,644,674 |
| The Group | The Bank | |||
| --- | --- | --- | --- | --- |
| 2011 | 2010 | 2011 | 2010 | |
| 4,643,460 | 4,111,230 | Corporate customers' deposits and accounts | 4,649,455 | 4,112,563 |
| 7,509,539 | 5,532,111 | Individual customers' deposits and accounts | 7,509,539 | 5,532,111 |
| 12,152,999 | 9,643,341 | Total deposits from the public | 12,158,994 | 9,644,674 |
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 as security in borrowings transactions and LTL 70 thousand equity securities. As of 31 December 2011 the Group did not have pledged own issued securities.
Page 82 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 33 SUBORDINATED LOANS
| The Group | Interest rate % | The Bank | ||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 86,491 | 86,474 | EUR 25 m subordinated loan due 2015 | 86,491 | 86,474 |
| - | 138,639 | EUR 40 m subordinated loan due 2016 | - | 138,639 |
| - | 69,129 | EUR 20 m subordinated loan due 2016 | - | 69,129 |
| - | 145,903 | EUR 42 m subordinated loan due 2016 | - | 145,903 |
| 157,727 | 157,027 | EUR 45 m subordinated loan due 2017 | 157,727 | 157,027 |
| 244,218 | 597,172 | Total subordinated loans | 244,218 | 597,172 |
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 | ||||
|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| Debt securities in issue: | ||||||
| Debt securities issued in 2007: | ||||||
| - | 44,607 | index linked debt securities due 2011 | - | - | - | 44,607 |
| Debt securities issued in 2008: | ||||||
| - | 48,486 | index linked debt securities due 2011 | - | - | - | 48,486 |
| 1,026 | 924 | index linked debt securities due 2012 | - | - | 1,026 | 924 |
| Debt securities issued in 2009: | ||||||
| - | 9,994 | 2 year debt securities due 2011 | - | 8 | - | 9,994 |
| - | 1,653 | index linked debt securities due 2011 | - | - | - | 1,653 |
| 40,659 | 38,939 | index linked debt securities due 2012 | - | - | 40,659 | 38,939 |
| 20,450 | 20,153 | index linked debt securities due 2013 | - | - | 20,450 | 20,153 |
| 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 |
| 8,947 | 8,800 | index linked debt securities due 2012 | - | - | 8,947 | 8,800 |
| 78,527 | 77,345 | index linked debt securities due 2013 | - | - | 78,527 | 77,345 |
| 20,340 | 20,013 | index linked debt securities due 2014 | - | - | 20,340 | 20,013 |
| 347,737 | 361,335 | undated subordinated notes | 5.958 | 5.546 | 347,737 | 361,335 |
| Debt securities issued in 2011 | ||||||
| 10,201 | - | index linked debt securities due 2013 | - | - | 10,201 | - |
| 28,855 | - | index linked debt securities due 2014 | - | - | 28,855 | - |
| 1,366 | - | index linked debt securities due 2015 | - | - | 1,366 | - |
| 3,939 | - | index linked debt securities due 2016 | - | - | 3,939 | - |
| 3,551 | - | index linked debt securities due 2017 | - | - | 3,551 | - |
| 565,598 | 663,177 | Total debt securities in issue | 565,598 | 663,177 |
Page 83 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 35 ACCRUED EXPENSES, DEFERRED INCOME, OTHER LIABILITIES AND PROVISIONS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Other financial liabilities | ||||
| 11,836 | 11,616 | Amounts outstanding for clearance | 11,836 | 11,616 |
| 762,617 | - | Deposit Insurance Fund amounts owed to Snoras depositors | 762,617 | - |
| 5,077 | 10,806 | Prepayments for finance lease | - | - |
| 5,884 | 27,802 | Accounts payable for assets purchased under finance lease | - | - |
| 72,803 | 13,925 | Amounts of executed bank transfers not yet settled against customers' accounts | 72,803 | 13,925 |
| 8,529 | 14,332 | Provisions for off balance sheet items | 8,529 | 14,332 |
| 23,078 | 12,756 | Factoring payables | 23,078 | 12,756 |
| 1,841 | 3,738 | Other financial liabilities | 1,841 | 3,738 |
| 891,665 | 94,975 | Total other financial liabilities | 880,704 | 56,367 |
| Non financial liabilities | ||||
| 2,993 | 3,967 | Accrued taxes | 2,290 | 952 |
| 19,416 | 19,330 | Vacation reserve accrual | 18,942 | 18,638 |
| 8,083 | 6,368 | Prepayments for operating lease | - | - |
| 15,015 | 10,368 | Other liabilities | 14,799 | 10,011 |
| 45,507 | 40,033 | Total other non financial liabilities | 36,031 | 29,601 |
| 937,172 | 135,008 | Total other liabilities and provisions | 916,735 | 85,968 |
After the collapse of Bank Snoras in the fourth quarter of 2011 the state enterprise Indéliq ir Investicju Draudimas ('Deposit and Investment Insurance Fund') selected SEB Bank for payment of insurance compensations to the depositors (private individuals and Vilnius region enterprises) of Bank Snoras. Amount of LTL 762,617 thousand represent funds received from the state enterprise Indéliq ir Investicju Draudimas but not yet distributed to the Bank Snoras depositors.
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 are reflected in income statement.
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Accrued financial liabilities | ||||
| 35,005 | 28,877 | Accrued expenses | 32,648 | 25,194 |
| Deferred non financial liabilities | ||||
| 1,011 | 996 | Deferred income | 1,011 | 996 |
| 36,016 | 29,873 | Total accrued expenses and deferred income | 33,659 | 26,190 |
NOTE 36 SHAREHOLDERS' EQUITY
As of 31 December 2011 the share capital of the Bank consisted of 15,441,423 ordinary shares with par value LTL 67 each (2010: LTL 67). All issued shares are fully paid. Reserve capital, which as of 31 December 2011 amounted to LTL 2,200 thousand (2010: LTL 2,200 thousand) for the Bank and LTL 2,200 thousand (2010: 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 2011 legal reserve was LTL 191,184 thousand (2010: LTL 163,221 thousand) for the Bank and LTL 194,708 thousand (2010: LTL 165,425 thousand) for the Group, in accordance with the legislation for banks operating in Lithuania can only be offset with the future losses.
Page 84 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 36 SHAREHOLDERS' EQUITY (CONTINUED)
Financial assets revaluation reserve (deficit) represents available for sale securities revaluation gain (loss). The financial assets reserve (deficit) movement in 2011 amount consists of the following:
| The Group | The Bank | |
|---|---|---|
| Government securities – change in revaluation reserve (note 18) | (3,810) | (3,810) |
| Government securities - amortization of revaluation reserve to income statement | 3,075 | 3,075 |
| Equity securities – change in revaluation reserve (note 24) | (526) | (526) |
| Tax recognised in equity (note 14) | 195 | 195 |
| Equity securities – change in revaluation reserve - previous years correction | 179 | 179 |
| Net change in available for sale investments, net of deferred tax | (887) | (887) |
As of 31 December 2011 general and other reserves represent general reserve for possible losses in amount of LTL 9,338 thousand (2010: LTL 9,338 thousand), that can only be offset with the current losses and share based compensation reserve in amount of LTL 3,159 thousand (2010: LTL 1508 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.
The costs of Share Savings Programme incurred by the Group during the year 2011 were LTL 1,651 thousand (2010: LTL 1,069 thousand) accounted in other administrative expenses in the income statement. Related social security costs were LTL 511 thousand for the year 2011 and (2010: LTL 331 thousand) accounted in staff cost in the income statement.
The above described share-based payments are treated as equity-settled because the Group has no obligation to settle the transactions related to the Share Savings Programme.
On annual AB SEB bank shareholder's meeting held on 25 March 2010 decision has been taken to approve shareholder's contribution amounting to EUR 100,000 thousand (LTL 345,280 thousand) to cover losses indicated in the AB SEB Bank annual financial statements for the year ended 31 December 2009.
As of 31 December 2011 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 | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Private individuals and corporate customers' assets under management | ||||
| 504,964 | 752,300 | - | - | |
| 218,060 | 204,399 | Pillar two conservative pension fund (SEB Pension 1) | - | - |
| 863,312 | 853,877 | Pillar two balanced pension fund (SEB Pension 2) | - | - |
| 116,285 | 114,298 | Pillar two equity pension fund (SEB Pension 3) | - | - |
| Conservative voluntary pension fund (SEB Pension 1 Plus) | - | - | ||
| 13,818 | 13,826 | Balanced voluntary pension fund (SEB Pension 2 Plus) | - | - |
| 43,947 | 51,205 | SEB Actively Managed Fund Portfolio 60 | - | - |
| 122,965 | 134,632 | SEB Actively Managed Fund Portfolio 100 | - | - |
| 96,169 | 112,394 | - | - | |
| 1,979,520 | 2,236,931 | Total assets under management | - | - |
Page 85 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 37 ASSETS UNDER MANAGEMENT (CONTINUED)
All assets management services are performed by UAB SEB Investiciju Valdymas. For the year ended 31 December 2011 the management fee for funds management amounted to LTL 13,894 thousand (2010: LTL 13,244 thousand) and it is included in 'Other income, net' line in the income statement.
Starting from 30 June 2011 SEB World market fund of funds has been renamed to SEB Actively Managed Fund Portfolio 60 and SEB equity fund of funds has been renamed to SEB Actively Managed Fund Portfolio 100.
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 2011:
| Maturity | Up to 3 months | 3 - 6 months | 6 - 12 months | 1 - 3 years | Over 3 years | Unclear maturity | Total |
|---|---|---|---|---|---|---|---|
| Assets | |||||||
| Cash in hand | 634,922 | - | - | - | - | - | 634,922 |
| Balances with the Central Banks | 3,438,209 | - | - | - | - | - | 3,438,209 |
| Financial instruments - available for sale, designated at fair value, loans and receivables | 51,068 | 1,154,391 | 430 | 217,609 | 244,140 | 919 | 1,668,557 |
| Derivative financial instruments | 6,699 | 5,481 | 4,883 | 18,503 | 157,488 | - | 193,054 |
| Loans to credit and financial institutions and due from banks, net | 1,850,889 | 454,899 | 563,170 | 28,616 | 260,229 | 6 | 3,157,809 |
| Loans to customers, net | 904,410 | 928,720 | 1,961,656 | 2,932,535 | 7,859,347 | 1,091,764 | 15,678,432 |
| Investment securities - available for sale | - | - | - | - | - | 376 | 376 |
| Investment securities - held to maturity | - | - | - | - | 14,148 | - | 14,148 |
| Investments in subsidiaries | - | - | - | - | - | 224,900 | 224,900 |
| Intangible fixed assets | - | - | - | - | - | 132,730 | 132,730 |
| Property, plant and equipment | - | - | - | - | - | 32,357 | 32,357 |
| Investment property | - | - | - | - | - | 1,471 | 1,471 |
| Other assets, net | 768 | 2 | 2 | 29 | 1 | 299,806 | 300,608 |
| Total assets | 6,886,965 | 2,543,493 | 2,530,141 | 3,197,292 | 8,535,353 | 1,784,329 | 25,477,573 |
| Liabilities and shareholders' equity | |||||||
| Amounts owed to the Central Banks | 32 | - | - | - | - | - | 32 |
| Amounts owed to credit and financial institutions | 1,492,882 | 831,575 | 1,010,607 | 4,886,485 | 955,324 | - | 9,176,873 |
| Derivative financial instruments | 5,875 | 41,541 | 3,504 | 28,857 | 159,909 | - | 239,686 |
| Deposits from the public | 9,731,343 | 1,061,104 | 1,226,891 | 118,799 | 20,857 | - | 12,158,994 |
| Subordinated loans | - | 2,522 | - | - | 241,696 | - | 244,218 |
| Debt securities in issue | 9,432 | 14,419 | 26,781 | 158,373 | 8,856 | 347,737 | 565,598 |
| Other liabilities and provisions | 926,093 | 15,718 | 1,386 | 634 | 6,563 | - | 950,394 |
| Equity | - | - | - | - | - | 2,141,778 | 2,141,778 |
| Total liabilities and shareholders' equity | 12,165,657 | 1,966,879 | 2,269,169 | 5,193,148 | 1,393,205 | 2,489,515 | 25,477,573 |
| Net assets (liabilities) before off balance sheet items | (5,278,692) | 576,614 | 260,972 | (1,995,856) | 7,142,148 | (705,186) | - |
| Off balance sheet items (net) | 2,028,219 | 92,386 | 109,383 | 173,341 | 7,167 | 803 | 2,411,299 |
| Net assets (liabilities) | (7,306,911) | 484,228 | 151,589 | (2,169,197) | 7,134,981 | (705,989) | (2,411,299) |
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 |
|---|---|---|---|---|---|---|---|
| Total assets | 3,117,884 | 1,138,757 | 2,169,304 | 4,307,233 | 8,631,915 | 1,663,169 | 21,028,262 |
| 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 |
| 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) |
Page 86 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 2011:
| Maturity | Up to 3 months | 3 – 6 months | 6 – 12 months | 1 – 3 years | Over 3 years | Unclear maturity | Total |
|---|---|---|---|---|---|---|---|
| Assets | |||||||
| Cash in hand | 634,922 | - | - | - | - | - | 634,922 |
| Balances with the Central Banks | 3,438,209 | - | - | - | - | - | 3,438,209 |
| Financial instruments – available for sale, designated at fair value, loans and receivables | 51,392 | 1,154,391 | 430 | 217,943 | 244,472 | 42,424 | 1,711,052 |
| Derivative financial instruments | 6,699 | 5,481 | 4,883 | 18,503 | 157,488 | - | 193,054 |
| Loans to credit and financial institutions and due from banks, net | 1,837,539 | 454,899 | 421,306 | 17,418 | 51 | - | 2,731,213 |
| Loans to customers, net | 904,407 | 928,720 | 1,921,652 | 2,932,535 | 7,870,041 | 1,091,766 | 15,649,121 |
| Financial lease receivables, net of impairment losses | 189,186 | 165,076 | 238,706 | 584,961 | 495,557 | - | 1,673,486 |
| Investment securities – available for sale | - | - | - | - | - | 376 | 376 |
| Investment securities – held to maturity | - | - | - | - | 14,148 | - | 14,148 |
| Intangible fixed assets | - | - | - | - | - | 132,970 | 132,970 |
| Property, plant and equipment | - | - | - | - | - | 33,962 | 33,962 |
| Investment property | - | - | - | - | - | 40,702 | 40,702 |
| Other assets, net | 13,000 | 76 | 765 | 139 | 1 | 374,965 | 388,946 |
| Total assets | 7,075,354 | 2,708,643 | 2,587,742 | 3,771,499 | 8,781,758 | 1,717,165 | 26,642,161 |
| Liabilities and shareholders’ equity | |||||||
| Amounts owed to the Central Banks | 32 | - | - | - | - | - | 32 |
| Amounts owed to credit and financial institutions | 1,409,293 | 838,132 | 1,632,111 | 5,300,821 | 955,324 | - | 10,135,681 |
| Derivative financial instruments | 5,875 | 41,541 | 3,504 | 28,857 | 159,909 | - | 239,686 |
| Deposits from the public | 9,725,349 | 1,061,103 | 1,226,891 | 118,799 | 20,857 | - | 12,152,999 |
| Subordinated loans | - | 2,522 | - | - | 241,696 | - | 244,218 |
| Debt securities in issue | 9,432 | 14,419 | 26,781 | 158,373 | 8,856 | 347,737 | 565,598 |
| Other liabilities and provisions | 937,674 | 18,394 | 3,577 | 5,362 | 6,563 | 1,618 | 973,188 |
| Equity | - | - | - | - | - | 2,330,759 | 2,330,759 |
| Total liabilities and shareholders’ equity | 12,087,655 | 1,976,111 | 2,892,864 | 5,612,212 | 1,393,205 | 2,680,114 | 26,642,161 |
| Net assets (liabilities) before off balance sheet items | (5,012,301) | 732,532 | (305,122) | (1,840,713) | 7,388,553 | (962,949) | - |
| Off balance sheet items (net) | 1,944,667 | 97,868 | 110,393 | 173,341 | 7,167 | 802 | 2,334,238 |
| Net assets (liabilities) | (6,956,968) | 634,664 | (415,515) | (2,014,054) | 7,381,386 | (963,751) | (2,334,238) |
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 |
|---|---|---|---|---|---|---|---|
| Total assets | 3,543,756 | 1,291,869 | 2,251,134 | 4,951,764 | 8,764,595 | 1,754,711 | 22,557,829 |
| 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 |
| 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 | The Bank | ||||||
| --- | --- | --- | --- | --- | |||
| 2011 | 2010 | 2011 | 2010 | ||||
| Liquidity ratio | 46.80% | 37.36% | 46.12% | 35.88% |
Liquidity ratio is calculated according to requirements of the Central Bank of Lithuania.
As of 31 December 2011 and 2010 and during these years the Group's and the Bank's liquidity ratio exceeded the statutory minimum required by the Bank of Lithuania (30 percent).
Page 87 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 38 ASSETS AND LIABILITIES STRUCTURE BY TERM TO MATURITY (CONTINUED)
Tables above show assets and liabilities structure by contractual/actual maturities. When managing liquidity, the bank is using expected maturities, which are based on historical evidence (e.g. in respect of current deposits from public portfolio staying on balance sheet much longer than 3 months). Based on this data and also taking into account credit line facility from the Parent as available liquidity reserve, 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 of their equity; 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 – 7. 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 2011:
| The Group | The Bank | |
|---|---|---|
| Tier 1 capital (less intangible assets) | 1,729,262 | 1,626,127 |
| Tier 2 capital | 597,044 | 556,941 |
| of which IRB provision excess | 44,596 | 4,493 |
| Less deductible investments | - | (165,768) |
| Less IRB provision shortfall | - | - |
| Risk weighted assets | 17,113,800 | 15,590,963 |
| of which risk weighted assets due to transitional capital requirements | - | - |
| Capital adequacy ratio before adjustment of capital requirements according to Basel II requirements as of 31 December 2011 | 13.59% | 12.94% |
| Capital adequacy ratio according to Basel II requirements as of 31 December 2011 | 13.59% | 12.94% |
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 adjustment of 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% |
Page 88 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 as of 31 December 2011:
| The Group | Currency | Rates | The Bank | ||
|---|---|---|---|---|---|
| Position | Percentage of capital | Position | Percentage of capital | ||
| 2,457,283 | 105.63 | EUR | 3.4528 | 2,385,155 | 118.24 |
| 1,377 | 0.06 | U.S. Dollars (USD) | 2.6694 | 1,106 | 0.05 |
| (55) | - | Canadian Dollars (CAD) | 2.6088 | (55) | - |
| 610 | 0.03 | Russian Rubles (RUB) | 0.08333 | 610 | 0.03 |
| Estonian Crone (EEK) | |||||
| 5,875 | 0.25 | The remaining long positions | N/A | 5,433 | 0.27 |
| (383) | (0.02) | The remaining short positions | N/A | (418) | (0.17) |
| 7,862 | 0.34 | Open long position | N/A | 7,149 | 0.35 |
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 |
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 2011 and 2010 the Group complied with the foreign currency open position requirements set forth by the Bank of Lithuania.
Foreign exchange risk has also been measured by using Value at Risk model, see note 41.
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 | 2011 | 2010 |
|---|---|---|
| Effect to net interest income (ΔNII) | 57.4 | 57.9 |
| Effect to the market value of shareholders equity (delta 1%) | 24.5 | 22.6 |
| Off balance sheet credit commitments sensitivity to interest rate changes (delta 1%) (the Bank) | 2.4 | 2.3 |
| Off balance sheet credit commitments sensitivity to interest rate changes (delta 1%) (the Group) | 2.4 | 2.1 |
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 89 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 41 INTEREST RATE RISK MANAGEMENT (CONTINUED)
Value at Risk assessment results on total portfolios positions, in LTL thousand:
| The Group | ||
|---|---|---|
| 2011 | 2010 | |
| 12,082 | 21,246 | Interest rate risk (stand-alone) |
| 8,556 | 31,020 | Credit spread risk (stand-alone) |
| 63 | 100 | Foreign exchange risk (stand-alone) |
| 233 | 312 | Equity price risk (stand-alone) |
| (631) | (347) | Diversification effect |
| 20,304 | 52,332 | Total |
| The Bank | ||
| --- | --- | |
| 2011 | 2010 | |
| 12,043 | 20,795 | |
| 8,556 | 31,020 | |
| 63 | 100 | |
| 233 | 312 | |
| (631) | (344) | |
| 20,265 | 51,884 |
VaR figures in table above include both banking and trading books.
In 2011, for the purpose of risk calculation, a new VaR model was launched. The new historic simulation model enables a more conservative risk assessment approach in troubled times, also, the model takes into consideration new risk factors, which previously had not been taken into account – in debt securities' risk assessment, it is not only base interest rate volatility, but also the issuer's credit spread that is taken into account. In 2011, market risk VaR as against that in 2010 decreased due to lower volatility of market factors (market interest rates, credit spread, share prices, FX rates) and due to shorter maturity of debt securities.
The table below provides the Group's interest rate gap analysis as of 31 December 2011:
| Maturity | Up to 1 year | 1 - 3 year | Over 3 years | Total |
|---|---|---|---|---|
| Assets | ||||
| Net loans | 12,606,451 | 371,988 | 2,678,491 | 15,656,930 |
| Finance lease receivable, net | 1,611,397 | 48,782 | 10,006 | 1,670,185 |
| Debt securities | 1,206,214 | 217,943 | 258,619 | 1,682,776 |
| Interbank deposits and net loans | 2,175,022 | - | - | 2,175,022 |
| Other assets | - | - | - | - |
| Off balance sheet assets | 4,337,157 | 933,808 | 5,076,966 | 10,347,931 |
| Total interest rate sensitive assets | 21,936,241 | 1,572,521 | 8,024,082 | 31,532,844 |
| Liabilities | ||||
| Term deposits | 4,164,660 | 117,862 | 20,552 | 4,303,074 |
| Interbank deposits and loans | 7,276,289 | 1,760,602 | 644,573 | 9,681,464 |
| Other liabilities | 390,665 | 151,111 | 8,758 | 550,534 |
| Off balance sheet liabilities | 3,912,809 | 1,106,448 | 5,322,114 | 10,341,371 |
| Total interest rate sensitive liabilities | 15,744,423 | 3,136,023 | 5,995,997 | 24,876,443 |
| Gap | 6,191,818 | (1,563,502) | 2,028,085 | 6,656,401 |
| Assets, non sensitive to interest rate | 5,457,248 | |||
| Liabilities and equity, non sensitive to interest rate | 12,107,089 |
Page 90 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 41 INTEREST RATE RISK MANAGEMENT (CONTINUED)
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 Bank's interest rate gap analysis as of 31 December 2011:
| Maturity | Up to 1 year | 1 - 3 year | Over 3 years | Total |
|---|---|---|---|---|
| Assets | ||||
| Net loans | 13,073,027 | 371,988 | 2,668,291 | 16,113,306 |
| Debt securities | 1,205,890 | 217,609 | 258,287 | 1,681,786 |
| Interbank deposits and net loans | 2,175,022 | - | - | 2,175,022 |
| Other assets | - | - | - | - |
| Off balance sheet assets | 4,337,157 | 933,808 | 5,076,966 | 10,347,931 |
| Total interest rate sensitive assets | 20,791,096 | 1,523,405 | 8,003,544 | 30,318,045 |
| Liabilities | ||||
| Term deposits | 4,348,660 | 117,862 | 20,552 | 4,487,074 |
| Interbank deposits and loans | 6,344,033 | 1,553,434 | 644,573 | 8,542,040 |
| Other liabilities | 390,665 | 151,111 | 8,758 | 550,534 |
| Off balance sheet liabilities | 3,912,809 | 1,106,448 | 5,322,114 | 10,341,371 |
| Total interest rate sensitive liabilities | 14,996,167 | 2,928,855 | 5,995,997 | 23,921,019 |
| Gap | 5,794,929 | (1,405,450) | 2,007,547 | 6,397,026 |
Page 91 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 |
Page 92 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 42 COMPLIANCE WITH REGULATORY REQUIREMENTS
As of 31 December 2011 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 presents this information in this note.
Income Statement of the Group excluding UAB SEB Venture Capital entity for the year ended 31 December 2011 and 2010
| 2011 | 2010 | |
|---|---|---|
| Interest income | 751,914 | 767,825 |
| Interest expenses | (398,857) | (498,763) |
| Net interest income | 353,057 | 269,062 |
| Impairment (losses)/reversals on loans | 124,092 | (119,346) |
| Impairment (losses)/reversals on lease portfolio | 201,630 | (41,350) |
| Provisions for guarantees and other off balance sheet items | 5,789 | 6,793 |
| Other impairment losses | - | (2) |
| Total impairment losses | 331,511 | (153,905) |
| Net interest income after provisions | 684,568 | 115,157 |
| Net service charges and other income | 173,133 | 189,122 |
| Net gain on equity investments | 1,415 | 3,061 |
| Net loss on operations with debt securities and financial instruments | (38,671) | (31,116) |
| Net (loss) gain on disposal of subsidiaries | (1,166) | 29,700 |
| Net foreign exchange gain | 54,741 | 59,522 |
| Impairment loss on investment in available for sale securities | (390) | - |
| Staff costs | (139,497) | (130,564) |
| Other administrative expenses | (203,190) | (177,493) |
| Operating (loss) profit | 530,943 | 57,389 |
| Impairment loss on intangible assets | - | (71,755) |
| Profit before income tax | 530,943 | (14,366) |
| Income tax | (60,312) | (2,196) |
| (Loss) Profit for the year from continuing operations | 470,631 | (16,562) |
| Profit for the year from discontinued operations | - | - |
| Net (loss) income | 470,631 | (16,562) |
| Attributable to: | ||
| Equity holders of the parent | 470,631 | (16,562) |
| (Loss) Profit for the year from continuing operations | 470,631 | (16,562) |
| Profit for the year from discontinued operations | - | - |
| Non controlling interest | - | - |
| (Loss) Profit for the year from continuing operations | - | - |
| (Loss) Profit for the year from discontinued operations | - | - |
| 470,631 | (16,562) |
Page 93 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 entity
for the year ended 31 December 2011 and 2010
| 2011 | 2010 | |
|---|---|---|
| Net gain (loss) income for the year | 470,631 | (16,562) |
| Other comprehensive income: | ||
| Net gain on available for sale assets | (4,157) | 3,956 |
| - Net (loss) gain, before taxes | (4,157) | 3,956 |
| Amortisation of financial assets revaluation reserve of reclassified financial assets | 3,075 | 3,025 |
| Income tax relating to the components of other comprehensive income | 195 | (1,050) |
| Total other comprehensive income | (887) | 5,931 |
| Total comprehensive income | 469,744 | (10,631) |
Page 94 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 entity as of 31 December 2011 and 2010
| 2011 | 2010 | |
|---|---|---|
| Assets | ||
| Cash in hand | 634,922 | 428,427 |
| Balances with the Central Banks | 3,438,209 | 527,258 |
| Due from banks, net | 2,718,507 | 1,177,833 |
| Government securities available for sale | 52,911 | 164,895 |
| Financial assets at fair value through profit and loss | 28,376 | 45,733 |
| Derivative financial instruments | 193,054 | 233,911 |
| Loans to credit and financial institutions, net | 12,706 | 55,399 |
| Loans to customers, net | 15,678,432 | 15,680,730 |
| Finance lease receivable, net | 1,673,632 | 1,694,691 |
| Investment securities: | ||
| - loans and receivables | 1,588,260 | 1,629,290 |
| - available for sale | 376 | 1,276 |
| - held to maturity | 14,148 | 13,832 |
| Investments in subsidiaries | 25,000 | 25,000 |
| Intangible fixed assets | 132,970 | 148,733 |
| Property, plant and equipment | 32,960 | 45,988 |
| Assets under operating lease | 841 | 2,581 |
| Investment property | 40,702 | 51,474 |
| Deferred tax asset | 212,663 | 272,900 |
| Other assets, net | 174,578 | 363,393 |
| Total assets | 26,653,247 | 22,563,344 |
| Liabilities | ||
| Amounts owed to the Central Banks | 32 | 38 |
| Amounts owed to credit and financial institutions | 10,135,681 | 9,295,615 |
| Derivative financial instruments | 239,686 | 334,427 |
| Deposits from the public | 12,158,994 | 9,644,674 |
| Accrued expenses and deferred income | 35,907 | 29,824 |
| Income tax payable | - | - |
| Subordinated loans | 244,218 | 597,172 |
| Debt securities in issue | 565,598 | 663,177 |
| Other liabilities and provisions | 937,109 | 134,956 |
| Total liabilities | 24,317,225 | 20,699,883 |
| Equity | ||
| Equity attributable to equity holder of the parent | ||
| Paid in capital | 1,034,575 | 1,034,575 |
| Reserve capital | 2,200 | 1,034 |
| Financial assets revaluation reserve | (9,737) | (8,850) |
| Legal reserves | 193,822 | 164,540 |
| General and other reserves | 12,497 | 10,846 |
| Net income for the period and retained earnings | 1,102,665 | 661,316 |
| 2,336,022 | 1,863,461 | |
| Non controlling interest | - | - |
| Total equity | 2,336,022 | 1,863,461 |
| Total liabilities and equity | 26,653,247 | 22,563,344 |
Page 95 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 entity for the year ended 31 December 2011 and 2010
| Equity attributable to equity holder of the parent | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Share capital | Reserve capital | Financial assets revaluation reserve (deficit) | Legal reserve | General and other reserves | Retained earnings | Total before non controlling interest | Non controlling interest | Total | |
| 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 loss for the period | - | - | - | - | - | (16,562) | (16,562) | (16,562) | |
| Net income (loss) 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 |
| Net change in available for sale investments, net of deferred tax | - | - | (3,962) | - | - | - | (3,962) | - | (3,962) |
| Amortisation of financial assets revaluation reserve of reclassified financial assets | - | - | 3,075 | - | - | - | 3,075 | - | 3,075 |
| Net income for the period | - | - | - | - | - | 470,631 | 470,631 | 470,631 | |
| Net income recognized directly in equity | - | - | (887) | - | - | 470,631 | 469,744 | - | 469,744 |
| Sales of UAB SEB Enskilda | - | 1,166 | - | - | - | - | 1,166 | - | 1,166 |
| Share-based compensation | - | - | - | - | 1,651 | - | 1,651 | - | 1,651 |
| Transfer to reserves | - | - | - | 29,283 | - | (29,283) | - | - | - |
| 31 December 2011 | 1,034,575 | 2,200 | (9,737) | 193,822 | 12,497 | 1,102,665 | 2,336,022 | - | 2,336,022 |
Page 96 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 entity for the year ended 31 December 2011 and 2010
| 2011 | 2010 | |
|---|---|---|
| Cash from operating activities | ||
| Interest income received | 734,432 | 775,400 |
| Interest expenses paid | (414,519) | (542,064) |
| Net foreign currency exchange gain | 40,423 | 41,790 |
| Unrealised translation gain | 14,315 | 17,732 |
| Net gain in securities trading and financial instruments | 4,638 | 25 |
| Net (loss) gain in derivatives trading | (43,507) | 7,972 |
| Net commission and service income | 174,596 | 189,236 |
| Staff costs | (136,884) | (131,540) |
| Other payments | (154,084) | (157,687) |
| Net cash from operating activities before change in operating assets | 219,410 | 200,864 |
| Changes in operating assets | ||
| Increase in compulsory balances with the Central Bank | (857,489) | (11,145) |
| (Increase) decrease in due from banks and loans to credit and financial institutions | (1,885,165) | 990,178 |
| Decrease in loans to customers | 160,481 | 1,390,178 |
| Decrease of finance lease receivable | 450,914 | 728,733 |
| (Increase) decrease in other current assets | (31,461) | 18,798 |
| Net change in operating assets | (2,162,720) | 3,116,742 |
| Changes in operating liabilities | ||
| Increase (decrease) in deposits from public | 2,515,269 | (30,265) |
| Increasein accrued expenses, deferred income and other liabilities | 796,584 | 57,903 |
| Net change in operating liabilities | 3,311,853 | 27,638 |
| Net cash (to) from operating activities before income tax | 1,368,543 | 3,345,244 |
| Income tax paid | - | (222) |
| Net cash (to) from operating activities after income tax | 1,368,543 | 3,345,022 |
| Cash flow from (to) investing activities | ||
| Acquisition of tangible and intangible fixed assets, net | (8,883) | (65,536) |
| Acquisition of Government securities available for sale | (44,763) | (110,636) |
| Sale of Government securities available for sale | 156,011 | 18,476 |
| Disposal of subsidiaries, net of cash disposed | 8,194 | 67,767 |
| Acquisition of other investment securities | (4,156,970) | (2,713,233) |
| Sale of other investment securities | 4,166,431 | 2,756,106 |
| Cash used in (to) investing activities | 120,020 | (47,056) |
| Cash flow from (to) financing activities | ||
| Shareholder contributions | - | 345,280 |
| Increase (decrease) in amounts owed to the Central Banks | (6) | 7 |
| (Decrease) increase in amounts owed to credit and financial institutions | 840,400 | (4,320,558) |
| Decrease in subordinated loans | (352,186) | - |
| Interest paid on subordinated loans | (11,872) | (13,233) |
| Debt securities issued, net | (85,670) | |
| Proceeds from own issued debt securities | 76,698 | - |
| Repurchased own issued debt securities | (162,706) | - |
| Interest paid for own issued debt securities | (6,128) | - |
| Cash received (used in) financing activities | 384,200 | (4,074,174) |
| Net increase (decrease) in cash | 1,872,763 | (776,208) |
| Cash 1 January | 1,523,655 | 2,299,863 |
| Cash 31 December | 3,396,418 | 1,523,655 |
| Specified as follows: | ||
| Balance available for withdrawal with the Central Banks | 2,184,595 | 131,133 |
| Overnight deposits | 29,812 | 395,858 |
| Cash on hand | 634,922 | 428,427 |
| Current accounts with other banks | 547,089 | 568,237 |
| 3,396,418 | 1,523,655 |
Page 97 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 the parent bank include loans, deposits and debt instrument transactions. Transactions within AB SEB bankas group (excluding the parent bank) during the year can be specified as follows:
| The Group | Interest rate % | The Bank | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Outstanding loan amount | 0.45- | ||||
| 89,093 | 25,714 | at the year end | 3.345 | 88,552 | 25,349 |
| Derivative financial instruments | |||||
| - | - | at the year ended | - | - | |
| 2,421 | 2,220 | Other assets at the year end | 2,352 | 2,032 | |
| Outstanding deposit amount | |||||
| 55,265 | 57,200 | at the year end | 0.1-0.45 | 55,265 | 57,200 |
| 13,977 | 4,371 | Other liabilities at year end | 13,392 | 1,707 | |
| Unused granted overdraft facilities | 55 | 2,333 | |||
| 55 | 2,333 | Guarantees issued at the year end | 5,973 | 7,269 | |
| 5,973 | 7,269 | Guarantees received at the year end | 70,926 | 79,730 | |
| 70,926 | 79,730 | - | - | ||
| - | - | ||||
| 679 | 518 | Interest income | 657 | 506 | |
| (311) | (138) | Interest expense | (311) | (138) | |
| (10,450) | (3,530) | Other services received and cost incurred from SEB group, net | (11,206) | (4,274) |
Transactions with parent bank during the year can be specified as follows:
| The Group | Interest rate % | The Bank | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Outstanding loan amount | |||||
| 2,538,753 | 1,113,577 | at the year end | 0.45-3.00 | 2,538,342 | 1,113,473 |
| Derivative financial instruments | - | ||||
| 35,153 | 73,984 | at the year ended | 35,153 | 73,984 | |
| 498 | 738 | Other assets at the year end | - | 38 | 150 |
| Outstanding deposit amount | |||||
| 9,378,204 | 9,172,930 | at the year end | 0.52-5.5 | 8,224,866 | 7,672,638 |
| 597,936 | 651,245 | Other liabilities at year end | - | 597,936 | 651,176 |
| 17 | 199 | Unused granted overdraft facilities | - | 17 | 29 |
| 464 | - | Guarantees issued at the year end | - | 464 | - |
| 3,218 | 3,216 | Guarantees received at the year end | - | 3,218 | 3,216 |
| 22,865 | 9,352 | Interest income | - | 22,852 | 9,348 |
| (346,920) | (346,857) | Interest expense | (310,956) | (305,078) | |
| Other services received and cost | |||||
| (8,201) | (4,273) | incurred from SEB group, net | - | (13,802) | (11,320) |
Page 98 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 | ||
|---|---|---|---|
| 2011 | 2010 | ||
| Off-balance sheet commitments as of 31 December: | |||
| Agreements to grant loans | - | 101,927 | 197,569 |
| Guarantees issued | - | 1,787 | 13,330 |
| Letters of credit issued | - | - | 752 |
| Outstanding loan amounts at year end: | |||
| AB SEB Lizingas | 0.304-1.757 | 426,596 | 451,237 |
| UAB SEB Venture Capital | 3.417 | 40,004 | 14,001 |
| Outstanding deposit amounts at year end: | |||
| UAB SEB Venture Capital | 0.1 | 5,995 | 1,333 |
| UAB SEB Investiciţu Valdymas | 0.05-1.8 | 18,344 | 17,774 |
| UAB SEB Enskilda | - | n/a | 9,325 |
| AB SEB Lizingas | 0.1-1.55 | 176,185 | 92,942 |
| Other assets at year end | - | 1,916 | 2,361 |
| Other liabilities at year end | - | 9 | 7 |
| Interest income | - | 5,094 | 6,688 |
| Interest expense | - | (1,446) | (2,241) |
| Dividend income | - | 6,064 | 3,734 |
| Other services received and cost incurred from subsidiaries, net | - | 11,849 | (46,560) |
| Impairment losses for loan outstanding from AB SEB Lizingas | - | - | 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 2011 the Bank disbursed LTL 245,854 thousand (2010: LTL 374,091 thousand) to AB SEB Lizingas according lending agreements.
Transactions with venture capital associates during the year can be specified as follows:
| The Group | Interest rate % | The Bank | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Outstanding loan amount | |||||
| 51,774 | 7,600 | at the year end | 3.59-6.76 | 40,618 | 3,879 |
| Outstanding deposit amount | |||||
| 441 | 91 | at the year end | - | 441 | 91 |
| Agreements to grant loans and other off | |||||
| - | 202 | balance commitments | - | - | 202 |
| 1,743 | 689 | Interest income | - | 809 | 365 |
| (5) | (2) | Interest expense | - | (5) | (2) |
| Other services received and cost | |||||
| 76 | 29 | incurred, net | - | 76 | 27 |
Page 99 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(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 | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Outstanding loan amount | |||||
| 4,279 | 4,846 | at the year end | 3 | 4,279 | 4,846 |
| - | 1 | Finance lease receivable | - | - | - |
| 12 | 40 | Other assets | - | 12 | 40 |
| Outstanding deposit amount | |||||
| 1,109 | 774 | at the year end | 0.05-0.9 | 1,109 | 774 |
| Commitments to grant loans | |||||
| - | 81 | at the year end | - | - | 81 |
| 2,632 | 2,692 | Payroll | - | 2,632 | 2,692 |
| 803 | 828 | Social security | - | 803 | 828 |
| 315 | 1,241 | Other payments (incl. social security) | - | 315 | 1,241 |
| 133 | 148 | Interest income | - | 133 | 148 |
| (3) | (11) | Interest expense | - | (3) | (11) |
| 10 | 2 | Other income, net | - | 10 | 2 |
NOTE 44 ASSETS CLASSIFIED AS HELD FOR SALE
As of 31 December 2011 and 2010 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. These assets are classified as non-current assets held for sale as they have been accounted as finance lease portfolio before foreclosure and as of the balance sheet date these assets are ready for immediate sale and the Group's management is committed to a plan to sell these assets..
Assets foreclosed or returned after termination of lease agreements are presented in the table below:
| Asset group | Net value as of 31 December 2010 | Foreclosed or returned | Reclassified to investment property | Decrease in value | Sold | Net value as of 31 December 2011 |
|---|---|---|---|---|---|---|
| Cars and mini-vans | 2,408 | 43,286 | - | - | 44,667 | 1,027 |
| Trucks | 10,014 | 9,811 | - | - | 17,268 | 2,557 |
| Manufacturing equipment | 3,999 | 2,030 | - | 178 | 2,291 | 3,560 |
| Construction equipment | 3,595 | 2,467 | - | 310 | 5,605 | 147 |
| Agricultural equipment | 48 | 449 | - | - | 162 | 335 |
| Real estate | 25,847 | 546 | 2,022 | 2,445 | 2,977 | 18,949 |
| Other assets | 1,683 | 1,786 | - | - | 2,113 | 1,356 |
| 47,594 | 60,375 | 2,022 | 2,933 | 75,083 | 27,931 |
Net assets classified as held for sale are presented in the table below:
| The Group | The Bank | ||
|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 |
| 93,129 | 133,357 | Foreclosed assets or assets returned after termination of agreements | 29 |
| (65,169) | (85,734) | Impairment losses | - |
| 27,960 | 47,623 | Foreclosed assets or assets returned after termination of agreements, net | 29 |
Page 100 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 45 APPROPRIATION OF PROFIT AND TRANSFERS OF RESERVES
The following Bank's loss appropriations and transfers of reserves will be proposed to annual shareholders meeting:
| Legal reserve | Net profit for the period | Retained earnings | |
|---|---|---|---|
| 31 December 2011 | 191,184 | 379,762 | 531,297 |
| Profit (loss) appropriation to Legal reserve | 45,553 | - | (45,553) |
| Profit (loss) appropriation to Retained earnings | - | (379,762) | 379,762 |
| 31 December 2011 after appropriation of profit and transfers to reserves | 236,737 | - | 865,506 |
Profit (loss) appropriation of other Group companies will be approved during shareholders meetings of each subsidiary separately.
NOTE 46 CONTINGENCIES AND COMMITMENTS
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 2,089,755 | 1,937,253 | Agreements to grant loans | 2,191,682 | 2,134,822 |
| 512,979 | 491,480 | Guarantees issued | 514,766 | 504,810 |
| 212,417 | 102,511 | Letters of credit issued | 212,417 | 103,263 |
| Commitments to purchase assets and other commitments | ||||
| 24,866 | 259,857 | - | - | |
| - | 12 | Commitments to sell securities | 12 | |
| 38 | 38 | Customs guarantees collateralised by deposits | 38 | 38 |
Legal proceedings
There were several proceedings outstanding against the Group and the Bank at 31 December 2011 and 2010. No provision has been made as professional advice indicates that it is unlikely that any significant loss will arise.
As of 31 December 2011 rental off balance sheet commitments of the Group amounted to LTL 162,278 thousand (2010: LTL 168,461 thousand) and rental off balance sheet commitments of the Bank amounted to LTL 160,899 thousand (2010: LTL 167,266 thousand). All non-cancellable commitments fall into the period within ten years.
The table below presents operating lease amounts for the year 2011 when the Group and the Bank is lessee:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | The total of future minimum lease payments under non-cancellable operating leases: | 2011 | 2010 |
| 33,761 | 32,263 | up to 1 year | 33,314 | 31,595 |
| 102,457 | 87,913 | 1-5 years | 101,525 | 87,386 |
| 26,060 | 48,285 | Over 5 years | 26,060 | 48,285 |
| (2,836) | (2,492) | The total of future minimum sublease payments to be received under non-cancellable subleases | (2,821) | (2,357) |
| Lease and sublease payments recognised in the income statement: | ||||
| 35,051 | 37,620 | minimum lease payments | 34,373 | 36,963 |
| - | - | contingent rents | - | - |
| (2,746) | (1,864) | sublease payments | (2,553) | (1,685) |
During the year 2011 the Group incurred rent expense amounting to LTL 32,795 thousand while AB SEB bank - LTL 32,020 thousand (for the year 2010 respectively: LTL 37,705 thousand and LTL 36,963 thousand).
Page 101 of 131
AB SEB BANK
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
(All amounts in LTL thousand unless otherwise stated)
NOTE 46 CONTINGENCIES AND COMMITMENTS (CONTINUED)
The future lease rental payments receivable under non-cancellable operating lease can be specified as follows:
| The Group | The Bank | |||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| 1,913 | 945 | Short term deferred income (up to 1 year) | 1,513 | 3 |
| 160 | 1,639 | Long term deferred income (up to 5 years) | - | - |
| Total future lease and rental payments under | ||||
| 2,073 | 2,584 | non-cancellable operating lease | 1,513 | 3 |
NOTE 47 POST BALANCE SHEET EVENTS
After the balance sheet date the Bank successfully completed 5 debt securities issues with the nominal value of LTL 2,491 thousand.
After the balance sheet date the Bank successfully redeemed 7 debt securities issues with the nominal value of LTL 6,323 thousand.
After the balance sheet date the Bank started placing 4 debt securities issues that should be completed on 2nd of April
Page 102 of 131
AB SEB BANK
APPENDIX 1 TO CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2011
(All amounts in LTL thousands unless otherwise stated)
Disclosure form concerning the compliance with the Corporate Governance Code for the Companies Listed on NASDAQ OMX Vilnius
The public company AB SEB Bank, following Article 21 paragraph 3 of the Law on Securities of the Republic of Lithuania and item 24.5 of the Listing Rules of AB NASDAQ OMX Vilnius, discloses its compliance with the Corporate Governance Code for the Companies Listed on NASDAQ OMX Vilnius, 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 | |
| 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. | | |
Page 103 of 131
AB SEB BANK
APPENDIX 1 TO CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2011
(All amounts in LTL thousands unless otherwise stated)
| 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. | NOT APPLICABLE | |
| 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 recommendations/ provisions of these principles are adhered to at full extent (comments at each recommendation/ provision). |
| 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. |
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 (e.g. formation of the committees), 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.
² Definitions ‘executive director’ and ‘non-executive director’ are used in cases when a company has only one collegial body.
Page 104 of 131
AB SEB BANK
APPENDIX 1 TO CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2011
(All amounts in LTL thousands unless otherwise stated)
| 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 the 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, 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. |
Page 105 of 131
AB SEB BANK
APPENDIX 1 TO CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2011
(All amounts in LTL thousands unless otherwise stated)
| 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 desired composition of the collegial body shall be determined 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. At least one of the members of the remuneration committee should have knowledge of and experience in the field of remuneration policy. | 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, three and four 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 conduct an annual review to identify fields where its members need to update their skills and knowledge. | 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 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 |
Page 106 of 131
AB SEB BANK
APPENDIX 1 TO CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2011
(All amounts in LTL thousands unless otherwise stated)
| 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: | NOT APPLICABLE | The Bank has a single shareholder. |
| 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 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 |
Page 107 of 131
4 The Code does not provide for a concrete number of independent members to comprise a collegial body. Many codes in foreign countries fix a concrete number of independent members (e.g. at least 1/3 or 1/2 of the members of the collegial body) to comprise the collegial body. However, having regard to the novelty of the institution of independent members in Lithuania and potential problems in finding and electing a concrete number of independent members, the Code provides for a more flexible wording and allows the companies themselves to decide what number of independent members is sufficient. Of course, a larger number of independent members in a collegial body is encouraged and will constitute an example of more suitable corporate governance.
5 It is notable that in some companies all members of the collegial body may, due to a very small number of minority shareholders, be elected by the votes of the majority shareholder or a few major shareholders. But even a member of the collegial body elected by the majority shareholders may be considered independent if he/she meets the independence criteria set out in the Code.
AB SEB BANK
APPENDIX 1 TO CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2011
(All amounts in LTL thousands unless otherwise stated)
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;
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.
Page 108 of 131
AB SEB BANK
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| 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 | Up to now Supervisory Council members were not. |
|---|---|---|
| 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. |
| 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. | NOT APPLICABLE | |
| 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 monitoring7 of the company's management bodies and protection of interests of all the company's shareholders. |
6 It is notable that currently it is not yet completely clear, in what form members of the supervisory board or the board may be remunerated for their work in these bodies. The Law on Companies of the Republic of Lithuania (Official Gazette, 2003, No 123-5574) provides that members of the supervisory board or the board may be remunerated for their work in the supervisory board or the board by payment of annual bonuses (tantiems) in the manner prescribed by Article 59 of this Law, i.e. from the company's profit. The current wording, contrary to the wording effective before 1 January 2004, eliminates the exclusive requirement that annual bonuses (tantiems) should be the only form of the company's compensation to members of the supervisory board or the board. So it seems that the Law contains no prohibition to remunerate members of the supervisory board or the board for their work in other forms, besides bonuses, although this possibility is not expressly stated either.
7 See Footnote 3.
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| 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. |
| 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 half^{9} 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. |
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| 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. |
| 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. When using the services of a consultant with a view to obtaining information on market standards for remuneration systems, the remuneration committee should ensure that the consultant concerned does not at the same time advice the human resources department, executive directors or collegial management organs of the company concerned. | YES |
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| 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^{11}. 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 and Remuneration committees are formed in the Bank. There is one independent member in the Audit Committee. |
|---|---|---|
| 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 exercise independent judgement and integrity when exercising its functions as well as 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 and Remuneration committees. |
| 4.9. Committees established by the collegial body should normally be composed of at least three | NO | The provision regarding the minimum number of committee members is met. The Audit and |
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| 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. 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. | Remuneration committees are not composed of independent members of the Supervisory Council, as there are no such members in the Supervisory Council at all. There is one independent member in the Audit Committee, but he is not a member of the Supervisory Council. | |
|---|---|---|
| 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 and Remuneration committees function in accordance with the regulations approved by the Supervisory Council that establish the authority of the committees. NO - the annual report does not include information on the meetings of the committees. |
| 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. | YES |
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| 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. |
|---|---|---|
| 4.13. Remuneration Committee. | ||
| 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 | YES | |
| YES | ||
| YES | Yes - the Remuneration Committee acts according to the Regulations of the Remuneration Committee approved by the Supervisory Council. | |
| Yes - the Remuneration Committee submits proposals to the Bank's Supervisory Council regarding the Remuneration Policy of the Bank's Group and amendments thereof, as well as the list of employees accepting the risk of the Bank's Group and other related issues. The Remuneration Policy of the Bank's Group includes all forms of remuneration, including fixed pay and variable pay forms. The Remuneration Committee also submits proposals to the Bank's Supervisory Council regarding the remuneration of the President and Vice-Presidents, members of the Management Board, heads of the Internal Audit, Compliance and Risk Control. | ||
| Yes - the Remuneration Committee has all necessary information and submits proposals to |
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| 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; | YES | the Bank's Supervisory Council regarding the individual remuneration of the President and Vice-Presidents, members of the Management Board, heads of the Internal Audit, Compliance and Risk Control. |
|---|---|---|
| • Ensure that remuneration of individual executive directors or members of management body is proportionate to the remuneration of other executive directors or members of management body and other staff members of the company; | ||
| • Periodically review the remuneration policy for executive directors or members of management body, including the policy regarding share-based remuneration, and its implementation; | YES | |
| • Make proposals to the collegial body on suitable forms of contracts for executive directors and members of the management bodies; | YES | |
| • 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); | YES | |
| • 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. | YES | Yes - the Remuneration Committee considers and submits recommendations on the individual remuneration (including pension plans) of the heads of the Bank, which are directly subordinate to the President and the members of the Management Board of the Bank. |
| 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: | YES | Yes - the Remuneration Committee prepares long-term employee incentive programs and submits thereof to the Bank's Supervisory Council for approval. |
| • 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; | YES | |
| • Make proposals to the collegial body regarding the 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. | YES | |
| 4.13.4. The remuneration committee should report on | NO | There is no such practice. The Remuneration |
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| the exercise of its functions to the shareholders and be present at the annual general meeting for this purpose. | Committee is accountable to the Bank's Supervisory Council, members of which are the representatives of the sole shareholder of the Bank. | |
|---|---|---|
| 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 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 | 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 external audit. |
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| the committee;
• Review efficiency of the external audit process and responsiveness of management to recommendations made in the external auditor's management letter. | YES | |
| --- | --- | --- |
| 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 on all issues arising from the audit. | 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. |
| 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 | NO | There is no formal procedure set. |
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| independent investigation of these issues and for appropriate follow-up action.
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. | YES | The Supervisory Council is provided for familiarisation with the entire documentation discussed by the Audit Committee. |
| --- | --- | --- |
| 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^{12}. | 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 work 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 | |
| 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. |
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| 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. | NOT APPLICABLE | 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.13 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. | 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. |
| 6.5. If is possible, in order to ensure shareholders living abroad the right to access to the information, it is recommended that documents on the course of the general shareholders' meeting should be placed on the publicly accessible website of the company not only in Lithuanian language, but in English and /or other foreign languages in advance. 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 Lithuanian, 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. |
13 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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| 6.6. 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. |
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| 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 by allowing the shareholders to participate and vote in general meetings via electronic means of communication. In such cases security of transmitted information and a possibility to identify the identity of the participating and voting person should be guaranteed. Moreover, companies could furnish its shareholders, especially shareholders living abroad, 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. |
| 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 |
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| 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 | |
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| 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. |
| 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) which should be clear and easily understandable. This remuneration statement should be published as a part of the company's annual statement as well as posted on the company's website. | YES | The remuneration statement is made available to the public at least once a year together with the annual financial statements or by a separate notification and shall also be available on the Bank's website. |
| 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 – the remuneration statement does not focus on remuneration policy for the following year. |
| YES - the Remuneration Policy of the Bank's Group establishes the remuneration principles not only to the directors, but also to all employees. The remuneration statement includes decision making process seeking to establish and revise the principles of remuneration policy, and general quantitative information on remuneration to employees by excluding the Bank's management. |
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| 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; • An explanation how the choice of performance criteria contributes to the long-term interests of the company; • An explanation of the methods, applied in order to determine whether performance criteria have been fulfilled; • Sufficient information on deferment periods with regard to 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; • Sufficient information on the policy regarding termination payments; • Sufficient information with regard to vesting periods for share-based remuneration, as referred to in point 8.13 of this Code; • Sufficient information on the policy regarding retention of shares after vesting, as referred to in point 8.15 of this Code; • Sufficient information on the composition of peer groups of companies the remuneration policy of which has been examined in relation to the establishment of the remuneration policy of the company concerned; • A description of the main characteristics of supplementary pension or early retirement schemes for directors; • Remuneration statement should not include commercially sensitive information. | YES | The remuneration statement, in compliance with the bank's secret and personal data protection requirements, includes only information required by the legal acts, whereas other information, in Bank's opinion, is not to be placed in public domain from a commercial point of view. |
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| 8.4. 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 | The remuneration statement, in compliance with the bank's secret and personal data protection requirements, includes only information required by the legal acts, whereas other information, in Bank's opinion, is not to be placed in public domain from a commercial point of view. The remuneration statement includes the following general information on implementation of Remuneration Policy of the Bank's Group: allocation of redundancy payments in case of agreements' termination per financial year, number of beneficiaries and maximum amount per person; amount of guaranteed variable pay specified under the new agreements and redundancy payments in case of the agreements' termination per financial year and number of beneficiaries. |
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| 8.5. 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 8.5.1 to 8.5.4 for each person who has served as a director of the company at any time during the relevant financial year. 8.5.1. 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. 8.5.2. As regards shares and/or rights to acquire 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. 8.5.3. 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 | NO | The remuneration statement, in compliance with the bank's secret and personal data protection requirements, includes only information required by the legal acts, whereas 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. The remuneration statement includes the following general information on implementation of Remuneration Policy of the Bank's Group: 1. general quantitative information on employee remuneration (the Bank's top management and employees accepting the risk of the Bank's Group excluded): - total amount of fixed and variable pay and the number of beneficiaries; - amount of variable pay split into benefits in cash, pension premiums, equities, equity-linked financial instruments, other financial and non-financial instruments; - amounts of non-disbursed deferred variable pay distributed into portions, allocated and non-allocated for employees; - amounts of disbursed and adjusted variable pay allocated in the specified financial year taking into consideration performance results; - amount of guaranteed variable pay established under the new agreements and redundancy payments in case of agreements' termination per financial year and the number of beneficiaries; - allocation of redundancy payments in case of agreement termination per financial year, the number of beneficiaries and maximum amount per person; 2. variable pay portions and all other non-cash benefits' allocation reasons and criteria. |
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| payable by the company in respect of that director during the relevant financial year.
8.5.4. The statement should also state amounts that the company or any subsidiary company or entity included in the consolidated annual financial report 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. | | |
| --- | --- | --- |
| 8.6. Where the remuneration policy includes variable components of remuneration, companies should set limits on the variable component(s). The non-variable component of remuneration should be sufficient to allow the company to withhold variable components of remuneration when performance criteria are not met. | YES | |
| 8.7. Award of variable components of remuneration should be subject to predetermined and measurable performance criteria. | YES | Variable pay is linked with performance results, the total remuneration amount shall be based on the overall assessment of the individual, business unit and the Bank's Group results. In order to assess the input of each employee the achieved financial results as well as non-financial criteria shall be taken into account. |
| 8.8. Where a variable component of remuneration is awarded, a major part of the variable component should be deferred for a minimum period of time. The part of the variable component subject to deferment should be determined in relation to the relative weight of the variable component compared to the non-variable component of remuneration. | NO | The general provision of deferral does not apply to all employees, it applies only to the employees accepting the risk of the Bank's Group |
| 8.9. Contractual arrangements with executive or managing directors should include provisions that permit the company to reclaim variable components of remuneration that were awarded on the basis of data which subsequently proved to be manifestly misstated. | NO | It is not possible for the Bank to reclaim amounts that were awarded, while amounts that were deferred may be reduced or not awarded at all.
o tai, kas atidéta gali būti sumažinta arba iš viso neišmokama. |
| 8.10. Termination payments should not exceed a fixed amount or fixed number of years of annual remuneration, which should, in general, not be higher than two years of the non-variable component of remuneration or the equivalent thereof. | YES | Payments related to termination of the employment contract are established according to the existing acts of law. |
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| 8.11. Termination payments should not be paid if the termination is due to inadequate performance. | YES | Payments related to termination of the employment contract shall be established taking into account the employee's performance results within the recent one-year period of employment at the Bank's Group and also that no reward is paid to employee (no reward for failure) if his/her activity resulted in losses of the Bank's Group, except mandatory payments approved according to the existing acts of law. |
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| 8.12. 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. | YES | The remuneration statement includes information on the decision-making process to identify and review principles of the Remuneration Policy of the Bank's Group, including information on activities of the Remuneration Committee, external consultants, if the latter provided the policy drafting services. |
| 8.13. Shares should not vest for at least three years after their award. | YES | |
| 8.14. Share options or any other right to acquire shares or to be remunerated on the basis of share price movements should not be exercisable for at least three years after their award. Vesting of shares and the right to exercise share options or any other right to acquire shares or to be remunerated on the basis of share price movements, should be subject to predetermined and measurable performance criteria. | YES | |
| 8.15. After vesting, directors should retain a number of shares, until the end of their mandate, subject to the need to finance any costs related to acquisition of the shares. The number of shares to be retained should be fixed, for example, twice the value of total annual remuneration (the non-variable plus the variable components). | NO | There is no such practice. |
| 8.16. Remuneration of non-executive or supervisory directors should not include share options. | NOT APPLICABLE | Members of the Supervisory Council of the Bank receive no remuneration from the Bank. |
| 8.17. Shareholders, in particular institutional shareholders, should be encouraged to attend general meetings where appropriate and make considered use of their votes regarding directors' remuneration. | NOT APPLICABLE |
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| 8.18. 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. |
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| 8.19. 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. | NOT APPLICABLE | |
| 8.20. 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. |
| 8.21. 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. |
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| 8.22. Provisions of Articles 8.19 and 8.20 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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| 8.23. Prior to the annual general meeting that is intended to consider decision stipulated in Article 8.19, 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 |
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| 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. | ||
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| 9.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. | ||
| 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. | NO | The Bank does not adhere to provision 6 under recommendation 10.1 because it is not required by the legal acts and is not important for the Bank.
All other information is announced by the Bank in its annual and interim reports as required, as well as via different communication channels: on its website, notifications on material events, press releases, press conferences. |
| 10.2. It is recommended to the company, which is the parent of other companies, 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 | |
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| 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. | NO | The Bank discloses this kind of information according to the requirements of laws. General quantitative information on remuneration of the members of the Management Board of the Bank is provided. In addition, yearly amounts calculated to the President of the Bank and the Chief Financial Officer of the Bank are provided separately. |
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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 Bank does not adhere to recommendations 10.4, as in the Bank's opinion the information on the relations between the Bank and persons with an interest in it, such as employees, creditors, suppliers, local community, including the Bank's policy regarding human resources, programmes for employee participation in the Bank'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 | Notifications on material events are disclosed in such a way that everyone and at the same time would have equal possibilities to access and familiarize with information when such notifications are announced on stock exchange, website and via other channels - press releases, press conferences. |
| 10.6. Channels for disseminating information should provide for fair, timely and cost-efficient or in cases provided by the legal acts free of charge 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, notifications on material 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 Bank at 1528. | ||
| Languages: Lithuanian and English. |
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| 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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| 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. | ||
| 11.1. An annual audit of the company's financial reports and interim reports 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. | NOT APPLICABLE | The audit company has not rendered any significant non-audit services to the Bank. |
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