Contents. Key figures 4

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1 20 07 ANNUAL REPORT

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3 Contents Key figures 4 Definitions 4 Administration report 5 Income statement 6 Balance sheet 7 Statement of changes in equity 8 Cash flow statement 9 Notes 10 Accounting policies 10 Risks and risk control 12 Notes to the income statement and balance sheet 15 Other disclosures 21 Recommended appropriation of profits 23 Audit report 23 Five-year summary 24 Addresses 26 handelsbanken Finans annual report 2007

4 Key figures Group Operating profit, SEK m Total assets, SEK m Return on shareholders equity, % C/I ratio before credit losses % C/I ratio after credit losses, % Capital ratio, % Tier 1 ratio, % Bad debt reserve ratio, % Proportion of bad debts, % Credit loss ratio, % Average number of employees Figures for 2004 to 2006 have been restated in accordance with IFRS. For 2003, the figures are presented according to the previous accounting regulations. Definitions BAD DEBTS Loans where payments will probably not be met according to the contract terms. A loan is not a bad debt if there is collateral which covers the principal amount, interest and penalties for late payments by a satisfactory margin. BAD DEBT RESERVE RATIO Provision for probable credit losses as a percentage of gross bad debts. CAPITAL BASE The capital base is the sum of tier 1 (primary) and tier 2 (supplementary) capital. Tier 1 capital comprises shareholders equity less goodwill plus 72% of untaxed reserves in the parent company. Tier 2 capital includes subordinated loans with some reduction when the residual maturity is less than five years. This part of the supplementary capital must not exceed 50% of the tier 1 capital. CAPITAL RATIO The capital ratio is the capital base in relation to risk-weighted volume. The Act on Capital Adequacy and Large Exposures of Credit Institutions and Securities Companies stipulates that this ratio should be at least 8%. C/I (COST/INCOME) RATIO Total expenses in relation to total income. The C/I ratio is calculated before and after credit losses. credit loss RATIO Credit losses as a percentage of the opening balance for loans to the general and credit institutions (excl. banks). NON-PERFORMING LOANS Loans where interest, repayments or overdrafts have been due for payment for more than 60 days. PROPORTION OF BAD DEBTS Bad debts (net) in relation to total loans to the public, credit institutions (excluding banks) and lease assets. RESTRUCTURED LOAN RECEIVABLES Loans where some kind of concession has been made due to the borrower s inadequate payment capacity. RETURN ON EQUITY The year s profit in relation to average shareholders equity. RISK-WEIGHTED VOLUME The risk-weighted volume is determined by the assets and off-balancesheet items being placed in varying risk classes, in accordance with the Act on Capital Adequacy and Large Exposures of Credit Institutions and Securities Companies. The volumes are weighted taking into account the assessed risk such that they are included in the risk-weighted volume by 0%, 20%, 50% or 100%. TIER 1 CAPITAL RATIO Primary capital in relation to risk-weighted volume (see capital base and risk-weighted volume). 4 handelsbanken Finans annual report 2007

5 Administration report Handelsbanken Finans AB (publ), corporate identity no , is a wholly-owned subsidiary of Svenska Handelsbanken AB (publ), corporate identity no It operates in close co-operation with the Bank s branches. Handelsbanken has its registered office in Stockholm. Task and goals The task of Handelsbanken Finans is to increase Handelsbanken s opportunities to establish long-term and profitable customer relationships with a larger number of customers by delivering a higher quality service level at lower cost than our competitors. We define service as: Availability, Simplicity and Care. Handelsbanken Finans operates as an integral part of the Handelsbanken Group. Lending As at 31 December 2007, the Group s total loans to the public were SEK 54.2bn (47.9), an increase of 13%. Of this amount, the book value of lease agreements was SEK 35.2bn (30.7). Loans to the public by the parent company, including leases, increased by 12% to SEK 49.2bn. Performance The Group s operating profit was SEK 1,121m (981). The parent company s operating profit was SEK 964m (825). The Group's operating income, reduced by the amortisation of lease assets according to plan, increased by SEK 197m to SEK 1,780m. In the parent company, the increase was SEK 180m to SEK 1,456m. Expenses for the Group were SEK 625m, up 3% on the previous year. Credit losses in the Group were SEK 34m; in the previous year there were net recoveries of SEK 6m. The parent company had credit losses of SEK 11m as compared to net recoveries of SEK 29m in the previous year. The Group s net bad debts, after deductions for provisions, totalled SEK 135m (95) at the year-end. For the parent company, bad debts totalled SEK 67m (56). For information about appropriation of profits, see page 23, Recommended appropriation of profits. risks and risk control For information concerning Handelsbanken Finans s risks and risk control, see page 12. Capital ratio The capital ratio at the year-end was 72% (71) in the Group and 83% (79) in the parent company. The transition to the new accounting policies under IFRS have not substantially affected the Group s capital requirement. Board In 2007, Jan Löfgren (employee representative) left the board and was replaced by Peter Gustafsson. The board held eight meetings during the year. At these meetings, the board discussed the financial position and strategy of Handelsbanken Finans. It also followed up limits for interest rate risks and liquidity risks, etc. The board received regular information on operational risks. Employees In 2007, the average number of employees in the Group was 493 (460). Group structure During 2007, Handelsbanken Finans conducted business via the following wholly-owned subsidiaries: Kredit-Inkasso AB Spartacus A/S Handelsbanken Rahoitus Oyj Kreditt-Inkasso AS In Sweden, Kredit-Inkasso AB conducts debt collection services on behalf of Handelsbanken Finans AB. During the year, Handelsbanken Finans AS was merged with Kreditt-Inkasso AS. No purchase price has been paid and the merger was made at book values. During the year, the board of Handelsbanken Finans decided to expand its operations in more countries. business areas Regional Bank Operations is responsible for leasing, conditional sales and vehicle administration which is offered to companies in Sweden via Handelsbanken s branch operations. Direct sales provides financing for purchases of consumer and capital goods through co-operation with vendors in Sweden. Card operations is responsible for card issuing and acquisition of card transactions within the Handelsbanken Group. International is responsible for business operations outside Sweden. In Denmark Spartacus A/S works mainly with retail financial services. Handelsbanken Finans s Danish branch runs a leasing operation. In Finland, Handelsbanken Rahoitus Oyj provides leasing, conditional sales and debt collection services and also operates an extensive card business under the name Aktiiviraha. Handelsbanken Finans s Finnish branch runs a leasing operation. In Norway Kreditt-Inkasso AS offers debt collection services. Handelsbanken Finans s Norwegian branch runs operations in leasing, promissory note loans and retail financial services. Handelsbanken Finans's branches in Great Britain and Poland conduct leasing and hire purchase operations. The four business support units IT & Business Development, Accounting & Treasury, Credits and Human Resources are organised as separate areas. The future In view of customers needs for financial solutions characterised by availability and simplicity and of pending capital adequacy regulations, there is every reason to believe that the demand for services offered by the various business areas will rise. Handelsbanken Finans is well poised to meet this growth in demand and we anticipate continued volume growth over the coming year. IT development In 2007, Handelsbanken Finans focused on IT projects for the purpose of developing business mainly in the areas of cards and leasing. In addition to this, the project relating to the new capital cover rules is proceeding according to plan. Environmental work Environmental issues are a vital element in the Handelsbanken Group s operations, and thus also in the Handelsbanken Finans Group. This applies both to the Bank s responsibility for the environment in its own operations and the taking into account of environmental risks when assessing credits. Handelsbanken has signed and complies with voluntary agreements, such as the ICC Business Charter for Sustainable Development and the UN Environment Programme - Banks and the Environment. handelsbanken Finans annual report

6 Income statement Group Parent company SEK m Interest income Note Lease income Note Interest expense Note Dividend received from Group companies Fee and commission income Note Fee and commission expense Note Net gains/losses on financial operations Other operating income Note Total operating income General administrative expenses Staff costs Note Other Note Depreciation, amortisation and impairments of property, equipment and intangible assets Note Total administrative expenses Net credit losses Note Total operating expenses Operating profit Appropriations Note Profit/loss before taxes Taxes Note Profit/loss for the year Net earnings per share, SEK handelsbanken Finans annual report 2007

7 Balance sheet Group Parent company SEK m ASSETS Loans to credit institutions Note Loans to the public Note Shares and participating interests Note Shares and participations in Group companies Note Intangible fixed assets Note Property, plant and equipment Equipment Note Lease assets Note Current tax assets Deferred tax assets Note Other assets Note Prepaid expenses and accrued income Note Total assets LIABILITIES AND EQUITY Due to credit institutions Note Borrowing from the public Note Current tax liabilities Deferred tax liabilities Note Other liabilities Note Accrued expenses and deferred income Note Total debts Untaxed reserves Note Share capital Other funds Statutory reserve Other funds Retained earnings Profit/loss for the year Total equity Total liabilities and equity MEMORANDUM ITEMS Collateral pledged none none none none Other commitments Note handelsbanken Finans annual report

8 Statement of changes in equity Restricted equity GROUP SEK m Share capital Other funds Hedge reserve Retained earnings Total Shareholders equity 31 December Change in exchange differences Change of price difference in financing of net investment in subsidiaries Total changes in equity not recognised in profit/loss Transfer between retained earnings and other reserves Profit/loss for the year Group contribution received Tax effect of Group contribution Shareholders equity 31 December Impact of transition to IFRS 2006 Change in cash flow hedges, after tax Adjusted opening balance 1 January Change in cash flow hedges, after tax Change in exchange differences Change of price difference in financing of net investment in subsidiaries Total changes in equity not recognised in profit/loss Transfer between retained earnings and other reserves Profit/loss for the year Group contribution received Tax effect of Group contribution Shareholders equity 31 December Restricted equity PARENT COMPANY SEK m Share capital Other funds Hedge reserve Retained earnings Total Shareholders equity 31 December Profit/loss for the year Group contribution received Tax effect of Group contribution Other change in shareholders equity 1 1 Shareholders equity 31 December Impact of transition to IFRS 2006 Change in cash flow hedges, after tax Adjusted opening balance 1 January Change in cash flow hedges, after tax Total changes in equity not recognised in profit/loss Profit/loss for the year Group contribution received Tax effect of Group contribution Other change in shareholders equity 2 2 Shareholders equity 31 December Share capital: 1,550,000 shares with a quota value of SEK 100. More information about hedge accounting and the hedge reserve can be found on page handelsbanken Finans annual report 2007

9 Cash flow statement Group Parent company SEK m OPERATING ACTIVITIES Operating profit Adjustment for non-cash items: Credit losses Depreciation, amortisation and impairments Paid income tax Change in assets and liabilities of operating activities Loans to the public Lease assets Financial current assets Due to credit institutions Borrowing from the public Other liabilities and provisions Cash flow from operating activities INVESTING ACTIVITIES Change in shares Change in tangible fixed assets Change in intangible fixed assets Cash flow from investment operations FINANCING ACTIVITIES Group contribution received Cash flow from financing activities CASH FLOW FOR THE PERIOD Liquid funds at beginning of period Cash flow from operating activities Cash flow from investment operations Cash flow from financing activities Exchange rate difference on liquid funds Liquid funds at end of period handelsbanken Finans annual report

10 Notes Accounting policies CONTENTS 1. Statement of compliance 2. Current changes in regulations 3. Basis of consolidation 4. Assets and liabilities in foreign currencies 5. Hedge accounting 6. Financial instruments 7. Recognition of assets and liabilities 8. Leases 9. Intangible assets 10. Property and equipment 11. Depreciation and amortisation 12. Income 13. Credit losses 14. Taxes 1. STATEMENT OF COMPLIANCE The parent company s annual report is prepared in compliance with the Annual Accounts Act for Credit Institutions and Securities Companies (1995:1559), the directives and general advice issued by the Swedish Financial Supervisory Authority, FFFS 2006:16 Annual reports in credit institutions and securities companies, the Swedish Financial Accounting Standards Council s recommendation RR 32:06 Accounting for legal entities. In accordance with the Supervisory Authority s general advice, the parent company and Group both apply statutory IFRS. This means that the international accounting standards and interpretations of these standards as adopted by the EU have been applied to the extent that is possible within the framework of national laws and directives and the link between accounting and taxation. Issuing and adoption of annual accounts The annual accounts were approved for issue by the board on 10 March 2008 and will be adopted by the AGM on 21 April CURRENT CHANGES IN REGULATIONS In the 2006 accounts, Handelsbanken Finans elected to apply the transitional rule which allows institutions to continue to apply the old regulations (FFFS 2002:22) in both the parent company and the Group. The annual report gave a brief description of the material impact on the items in the balance sheet and income statement regarding to the transition to the new accounting standards according to IFRS. One of these effects was the amortisation of goodwill which is not performed if full IFRS is implemented but is instead regularly tested for impairment. In accordance with statutory IFRS, however, Handelsbanken Finans will continue to amortise goodwill according to plan. For further information about the transition to IFRS, see page BASIS OF CONSOLIDATION The consolidated accounts comprise all companies in which Handelsbanken Finans has a participating interest and directly or indirectly has a controlling influence. Subsidiaries are consolidated in accordance with the purchase method. All foreign operations have been classified as independent. This classification is based on the observation that the foreign operations only carry out transactions with the parent company and other Group companies to a small extent, that financing is in local currency only, that salaries and other expenses are paid in local currency, that all billing is done mainly in local currency and that the international operations do not have any direct influence on the cash flow of the parent company. The Group s presentation currency is Swedish kronor. The functional currency for the Group s operations outside Sweden may be different to the Group s presentation currency. The currency used in the economic environment where the operations are primarily conducted is regarded as the functional currency. 4. ASSETS AND LIABILITIES IN FOREIGN CURRENCIES Receivables and liabilities in foreign currencies were translated at the closing day rate, which is the average of buying and selling prices for the currency in question according to the officially listed rates on the balance sheet date. Unrealised gains or losses which have arisen as a result of the aforementioned valuation method are credited or charged to the operating result. When translating the foreign operations balance sheets and income statements, the current method has been used. Assets and liabilities have been translated at the closing day rate. Equity has been translated at the rate applicable at the time of investment or earning. Goodwill and surplus value from the acquisition of foreign operations are reported at the closing day rate. The income statement has been translated at the average annual rate. The resulting translation differences have been recognised directly in equity. 5. HEDGE ACCOUNTING Cash flow hedges are applied to eliminate undesirable variations in cash flows related to changes in the floating interest rate on lending and funding. The hedging instruments used are interest rate swaps measured at fair value. If the value changes on the swap are effective that is they correspond to cash flows related to the hedged item they are recognised directly in equity. Ineffective portions of gains and losses on the swap are recognised in profit or loss. More information about cash flow hedges is provided on page 22. Hedging of net investments in foreign units is applied to protect the Group from exchange rate differences due to operations abroad. Loans in foreign currency raised to hedge net investments in foreign operations are recognised in the Group at the exchange rate on the balance sheet date since the purpose is to reduce the rate difference arising when translating the foreign operations balance sheets and income statements. The exchange rate difference that arises when translating these liabilities is recognised directly in shareholders equity. In the parent company, debts raised for the purpose of hedging exchange rate differences for net investments in subsidiaries are recognised at the historical rate of exchange. 6. FINANCIAL INSTRUMENTS Shares which are held on a permanent basis, such as shares in subsidiaries, are recognised at cost. For shares where the value has fallen and this decline in value is considered to be permanent, an impairment loss is recognised. Dividends on shares in subsidiaries are recognised as income in profit or loss under Dividends received. Other shares are measured at fair value using prices from official market places. 7. RECOGNITION OF ASSETS AND LIABILITIES An asset is defined as a resource over which there is control as a result of past events and that is expected to provide future economic benefit. Assets are recognised in the balance sheet when it is probable that the future economic benefits related to the asset will accrue to the Group and when the value or acquisition cost of the asset can be reliably measured. Liabilities are the Group s existing obligations which as a result of past events are expected to lead to an outflow of resources from the Group. A liability is recognised in the balance sheet when, in order to fulfil an existing obligation, it is probable that the Group must surrender a resource with a value that can be reliably measured. Financial assets are recognised in the balance sheet when the Group becomes a party to the contractual provisions of the instrument. Purchases and sales of money market on the spot market are recognised on the trade date. The same applies to derivatives. Other financial assets and liabilities are normally recognised on the settlement date. Financial assets are removed from the balance sheet when the contractual rights to the cash flows originating from the asset expire or when all risks and rewards related to the asset are transferred to another party. A financial liability is removed from the balance sheet when the obligation ceases or is cancelled. 8. LEASES Leases are normally defined as finance or operating leases. A finance lease implies that the lessor transfers substantially all the risks and rewards associated with ownership to the lessee. Operating leases are all non-financial leases. 10 handelsbanken Finans annual report 2007

11 The Swedish Financial Accounting Standards Council s recommendation RR 32:06 on leases allows a lessor the right to classify all leases as operating leases in his annual accounts for a legal entity. This classification has been used in the parent company s annual accounts The income is thus reported as lease income. The assets are carried as fixed assets, thus permitting the parent company to depreciate them. In the Group, all leases are categorised as financial leases. Such leases are accounted for as loans, which means that lease payments received are recognised as interest income and repayments. 9 INTANGIBLE ASSETS An intangible asset is an identifiable, non-monetary asset without physical substance that is held for use in production, supply of goods or services, for hiring out to others or for administrative purposes. For development of new intangible assets, or new business operations for existing intangible assets, the costs accrued are capitalised from the time when it is probable that economic benefit that can be reliably measured will arise. An impairment test is performed when there is any indication that the asset may have decreased in value. In addition goodwill items at Handelsbanken Finans are annually tested by Handelsbanken for impairment. Goodwill, acquisition assets and other intangible assets with an indefinite useful life are amortised in compliance with the provisions of the above-mentioned Annual Accounts Act. 10. PROPERTY AND EQUIPMENT Property and equipment are recognised at cost less accumulated depreciation and impairment. Depreciation according to plan is based on the estimated useful lives of the assets. A linear depreciation plan is usually applied. Impairment testing of property and equipment is carried out when there is an indication that the asset may have fallen in value. Impairment loss is recognised in cases where the recoverable amount is less than the carrying amount. Any impairment losses are recognised immediately in profit or loss. An impairment charge is reversed if there is an indication that there is no longer any impairment loss and there has been a change in the assumptions underlying the estimated recoverable amount. The increased carrying amount of an asset after a reversal of an impairment loss never exceeds the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised. receivable where there is no realistic possibility of recovery is reported as an actual loss. This is the case, for example, when a trustee in bankruptcy has estimated bankruptcy dividends, a scheme of arrangement has been accepted, or the receivable has been reduced in some other way. An amount forgiven in connection with a reorganisation is always reported as an actual loss. An impairment loss for probable credit losses is made if the value of the collateral together with other payments from the counterparty do not cover the book value of the loan receivable. Losses are recognised down to the amount which is expected to be realised, taking into account the value of the collateral. For collectively valued homogeneous groups of loan receivables, mainly comprising card credits and small consumer credits, where a debt collection process has begun, an allocation to credit loss provisions is made, the amount of which is calculated based on past experience. Apart from the risk assessment for individual loan receivables which is made quarterly, an assessment of homogenous groups of loan receivables is made. This takes into account whether there have been credit losses in these groups of loan receivables which cannot yet be allocated to an individual loan. If necessary, a group provision is made for these loan receivables. As soon as the receivable can be individually identified, the provision is transferred to probable credit losses. Unpaid interest on non-performing loans for which the value of the collateral does not cover both the principal amount and accrued interest by a satisfactory margin is not recognised as income. Interest on these loans that was recognised as income but not paid during the financial year is reversed. Interest payments subsequently received for such credit is reported on a cash basis. 14. TAXES The tax expense for the period consists of current tax and deferred tax. Current tax refers to taxes relating to the period s taxable profit. Deferred tax is tax referring to temporary differences between the carrying amount of an asset or liability and its taxable value. In the parent company, untaxed reserves are recognised as a separate item in the balance sheet. Untaxed reserves can be divided into one part which is deferred tax liability and one part which is equity. Group contributions are recognised in accordance with the economic substance of the contribution. Contributions which are justified for tax purposes are thus recognised after tax adjustment as an increase of Retained earnings. 11. DEPRECIATION AND AMORTISATION Lease assets Lease assets are depreciated according to the annuity method. The total depreciation during the lease period is equal to the acquisition price of the asset. Since a vendor or other party secures a future residual value, such as when a sale can be made on a functioning secondary market, the asset is depreciated during the lease period at a prudently calculated residual value according to plan. The depreciation plan is determined individually for each object. Equipment Equipment is depreciated on a straight-line basis over the useful life of the asset. This implies that personal computers are depreciated over three years and other equipment over five years. Intangible assets Other intangible assets are amortised over their estimated useful life. More information about amortisation of intangible assets is provided in note INCOME Income is recognised in the income statement when it is probable that future economic benefits will be gained and these benefits can be reliably measured. 13. CREDIT LOSSES Actual credit losses for the year, probable credit losses and impairment losses for interest recognised as income in previous annual accounts are reported as credit losses. Lending is reported net, after deduction of actual credit losses and probable credit losses. Any part of a loan handelsbanken Finans annual report

12 Risks and risk control Risk and capital management The Handelsbanken Finans Group is an integrated part of the Handelsbankenen Group. Handelsbanken s ability to manage risks and conduct efficient capital management is of decisive importance to the Bank s profitability and the same applies to Handelsbanken Finans (HF). Historically, HF has low tolerance of risks, which is reflected in its low credit losses and even earnings performance. HF s strict approach to risk means that the company deliberately avoids high-risk transactions, even if the remuneration is high at that moment in time. This low tolerance of risk applies to all areas in the Group. The aim of this strict approach to risk is not just to maintain favourable and even earnings performance, but also to be a good business partner for the Bank s customers; this requires sound credit capacity and preparedness even in troubled times. RISK ORGANISATION The board is responsible for assessing and monitoring the risks arising in the Group s operations. The board establishes policy documents and instructions describing how various risks should be managed and reported. The policy documents and instructions that Handelsbanken Finans applies follow the corresponding policies and instructions applicable to Svenska Handelsbanken AB (the parent company). The parent company also delegates limits for interest rate risk and liquidity risk to the Handelsbanken Finans Group. As well as reporting utilisation of these risks to Handelsbanken Finans s board, reports are also made to the risk unit in the parent company in compliance with the Handelsbanken Group s instructions. LOAN LOSSES AS A PERCENTAGE OF LENDING HF operates in several countries and many different business fields. This leads to various risks that are systematically identified, measured and managed. The most significant risk is credit risk. Credits offered via Handelsbanken s branch office operations are subject to internal guarantees from the parent company. For other credits where Handelsbanken Finans bears the credit risk, credit losses as a proportion of lending are as shown in the below diagram. Handelsbanken Finans has high quality in its credit portfolio. % Gross credit losses % SEK m Volume SEK m Jan Recoveries Net credit losses % 2006 Jan 2007 Jan RISKS AT HANDELSBANKEN FINANS Credit risk - The risk that an individual borrower cannot fulfil his commitments Market risk - The risk of price changes in the financial markets Liquidity risk - The risk that the company cannot make its payments when due Operational risk - The risk of human errors and errors in procedures and systems Business risk - The risk of unexpected changes in financial performance that are not related to credit losses or market risks HF s risk management aims to ensure that HF fulfils the strict approach to risk decided by the board and that apply within the rest of the Handelsbanken Group. CREDIT RISKS Handelsbanken Finans s credit policy is established by HF s board and is based on the credit policy established by Handelsbanken s central board. This means that the customer unit is responsible for both the evaluation and processing of credit risks. In this way, all available data concerning the customer, the local market and the product on offer can be put to good use. This also makes processing rapid and efficient and if necessary, central expertise can be called upon. With regard to credits generated by the branch office operations, the board of Handelsbanken Finans has delegated responsibility for credit decisions to Handelsbanken s branches. These decisions follow the guidelines laid down by the board. The parent company has provided an internal guarantee for these credits. In 2007 this amounted to SEK 43bn of a total of SEK 54bn. In addition to these, there is a guarantee for SEK 11.3bn out of a total of SEK 21.2bn for credit promises. Credit risk exposure SEK thousands Total of which ICM Loans to credit institutions of which parent company Loans to the public Credit promises Shares and participating interests Derivatives Other assets of which parent company Total Credits for which Handelsbanken Finans bears the risk are generated mainly by the Direct Sales business area, and in the International business area by retail financial services. These are largely card-based credits. Of Handelsbanken Finans s 566,000 or so cards, the majority have been processed in a credit management system developed in-house by Handelsbanken Finans and through which more than one million credit applications have passed since the system was launched. The credit management system has shown stability in performance and has played an important part in the company s efforts to maintain a low level of credit losses. By means of Handelsbanken s and Handelsbankens Finans s internal risk classification system, credit risk in all operations is measured in a reliable and consistent manner. The system is evaluated annually and the result of the evaluation is reported to the board. The way the Bank and HF calculate and classify risks, and quantify and validate methods was also an important component in the Swedish Financial Supervisory Authority s review in conjunction with approval of the Bank s and HF s application of the internal rating approach. The internal auditing department regularly examines the risk classification system and its application. 12 handelsbanken Finans annual report 2007

13 COLLATERAL When HF assesses the credit risk of a specific customer, the assessment starts with the borrower s repayment capacity. According to HF s credit policy, weak repayment capacity can never be accepted because good collateral has been offered to HF. Collateral may, however, substantially reduce HF s loss if the borrower cannot fulfil his commitments towards the company. Credits must therefore normally be adequately secured. Credits without collateral occur for small loans to private individuals with good repayment capacity. Since collateral is not generally utilised until a borrower faces serious repayment difficulties, the valuation of collateral focuses on its expected value in the case of insolvency. The value of certain types of asset may be significantly affected in the period before a forced sale. OPERATIONAL RISKS Operational risk is defined as the risk of loss due to deficient or incorrect routines and systems, errors on the part of the company s own employees or external events. Identification, management and control of operational risks is a clear and integral part of managerial responsibility at all levels at Handelsbanken Finans. The decentralised method of work at Handelsbanken Finans promotes cost-consciousness that results in vigilance against potential loss risk in the daily procedures. As an aid to identification, measurement and handling of operational risk, Handelsbanken Finans has a separate reporting system for operational incidents and losses. As a supplement to the day-to-day control of operational risk, all main departments carry out self-evaluation of operational risk. This review is for the purposes of identifying operational risk and quantifying the losses that may arise. In addition, measures are to be proposed and taken to reduce the risks. confidence level that reflects an acceptable level of risk. The board of Handelsbanken Finans therefore decided that as of 1 February 2007, the calculation of economic capital must be made with a 99.97% confidence level (the same level as decided by Handelsbanken s central board ). The confidence interval implies a worst outcome in only 3 out of 10,000 cases. The capital which forms a buffer that can absorb negative outcomes is called Available Financial Resources (AFR). AFR is an estimate of the size of Handelsbanken Finans s equity and other available financial values on and off the balance sheet, with a one-year time horizon. The board continuously sets the targets for HF s capital, such as the tier 1 capital ratio. For 2007, the tier 1 capital ratio was to exceed 8.0%. Credit risk is calculated using simulated outcomes of default for all HF s counterparties and exposures. Market risks comprise interest rate risk in the business operations. The non-financial risks comprise operational risk and business risk. Business risk is related to unexpected variations in earnings that may arise if, for example, demand or competition changes unexpectedly, resulting in lower volumes and pressure on margins. All calculations show that Handelsbanken Finans s capital situation is more than adequate in relation to its risks. CAPITAL PLANNING Handelsbanken Finans s capital planning has the purpose of ensuring that the capital is satisfactory in relation to the existing risk. The capital requirement is a function of an assessment of the operation s performance, the formal capital adequacy regulations, Handelsbanken s EC model and the outcome of stress tests. For other information concerning risk and capital management in the Handelsbanken Group see Handelsbanken s annual report for FUNDING AND FINANCIAL RISKS Funds are raised for the most part internally via Handelsbanken and partly on the open market. Financial risks include interest rate risk, liquidity risk and currency risk. The interest rate risk is the impact that changes in market rates have on Handelsbanken Finans and is measured using a gap analysis for assets and liabilities with different interest rate adjustment periods. Interest rate risk and foreign exchange risk (see also other disclosures) are kept to a minimum since the terms for lending largely match the terms for funding. The interest rate risk that is measured and reported at Handelsbanken Finans is mainly created through the interest rate swaps which Handelsbanken Finans uses to reduce the impact on earnings when there are changes in interest rates. The interest rate swaps are only with the parent company and from the perspective of the Handelsbanken Group, no interest rate risk is created since the risk is hedged with an external counterparty. Interest rate risk is measured as the impact on fair value in the case of an instantaneous parallel shift in all interest rates by 1%. As at 31 December 2007, HF s interest rate risk was 201m (185) of which SEK 164m (128) refers to interest rate swaps. Liquidity risk arises when the Bank s lending and funding do not coincide in time. Liquidity risk is measured by carrying out a gap analysis of the cash flows for various maturities and all currencies. HF is also well-prepared in its way of handling liquidity risks, as illustrated during the market turbulence of 2007 which had a limited impact on its funding and interest costs. Financial risks are measured and monitored at a central level in Handelsbanken Finans. Reports are also made to Handelsbanken Finans s board and Handelsbanken s Central Risk Control unit. COMPREHENSIVE RISK MANAGEMENT BY MEANS OF THE ECONOMIC CAPITAL MODEL HF applies Handelsbanken s model for calculating economic capital (EC) which is a measure to identify the Group s overall risks and corresponds to the capital which, with very high probability, will cover unexpected losses or decreases in value. Handelsbanken calculates EC with a time horizon of one year and a handelsbanken Finans annual report

14 Interest rate risks Interest rate adjustment periods for assets and liabilities, 31 December 2007 Group -3 mths 3-6 mths 6-12 mths 1-5 yrs 5 yrs- Total Loans to credit institutions Loans to the public and lease assets Total interest-bearing assets Due to credit institutions Borrowing from the public Issued securities Total interest-bearing liabilities Bad debts according to category Non-performing Additional Reserves Additional market market Receivables Reserves gross tively Individually net value: Collec- value: Group Private individuals Construction Retail Manufacturing Transport Other Total Off-balance-sheet items, net Difference assets and liabilities including off-balance-sheet items Accumulated difference Accumulated difference as a percentage of total assets 31% 31% 32% 32% 32% Parent company -3 mths 3-6 mths 6-12 mths 1-5 yrs 5 yrs- Total Loans to credit institutions Loans to the public and lease assets Total assets Due to credit institutions Borrowing from the public Issued securities Total debts Off-balance-sheet items, net Difference assets and liabilities including off-balance-sheet items Accumulated difference Accumulated difference as a percentage of total assets 28% 29% 30% 30% 30% Loans to the public according to category Loan receivables Reserves Group Swedish counterparties Private individuals Municipalities and county councils Agriculture and forestry Manufacturing Construction Retail Transport Property management Other Total Non-Swedish counterparties Total handelsbanken Finans annual report 2007

15 Notes to the income statement and balance sheet Amounts in SEK m unless otherwise stated. Note 1 Interest income and interest expense INTEREST INCOME Credit institutions General public Derivative instruments recognised as hedges Other interest income Total INTEREST EXPENSE Credit institutions General public Issued securities Derivative instruments recognised as hedges Subordinated liabilities Other interest expense Total Average interest rate on loans to the public 4.9% 4.0% 6.2% 5.2% The previous year s interest rates are adjusted to the new calculation method Net interest income (interest income+lease income-interest expense-lease depreciation) Interest margin 2.7% 2.5% 2.5% 2.4% Interest income received from Group companies Interest expense paid to Group companies Note 2 Lease income Lease income gross Lease depreciation according to plan Total net leases Of which received from Group companies Lease depreciation is reported under Depreciation, amortisation and impairments Note 7. Note 3 Fee and commission income and fee and commission expense FEE AND COMMISSION INCOME Lending commissions Lease and factoring commissions Total fee and commission income FEE AND COMMISSION EXPENSE Payment commissions Lease and factoring commissions Total fee and commission expense Net fee and commission income Note 4 Other operating income Rental income Services rendered Other operating income Total Note 5 Staff costs Salaries and fees Social security costs Pension costs 1) Provision to profit-sharing foundation Other staff costs Total ) The pension cost refers to fees paid to the SHB pensionskassa försäkringsförening (pension fund) for contractual defined contribution pension insurance. Salaries and other remuneration Board, chief executive, other senior management Sweden Finland Denmark Norway Great Britain Total Others Sweden Finland Denmark Norway Great Britain Total Group Number of employees (average during the year) Sweden Finland Denmark Norway Great Britain 5 5 Total The information about the number of employees has been adjusted compared to the 2006 annual report where the number was reported as Gender distribution Men Women Men Women Sweden Finland Denmark Norway Great Britain Total Gender distribution % Men Women Men Women Board Chief executive Other senior management handelsbanken Finans annual report

16 Note 5 Staff costs (cont.) Sickness absence rate in the Swedish operations % Age Men Women Total Men Women Total Total Of whom on long-term sick leave, percentage of total sickness absence Total Terms and remuneration of senior management Terms: Handelsbanken Finans has no agreements on severance pay. The chief executive of Handelsbanken Finans has a retirement age of 60. Other senior managers have a retirement age of 65. Between the ages of 60 and 64, the retirement pension is 65% of their salary. From the age of 65, the pension is 10% of the annual salary up to 7.5 index-linked base amounts. They also receive a pension under the general national insurance scheme. A retirement pension of 65% is paid on the portion of the salary in excess of 7.5 price base amounts. Other senior managers are the chief executives/country managers of subsidiaries and branches and the management group of Handelsbanken Finans. Remuneration: Remuneration and other benefits amounting to SEK 3.0m (2.6) were paid to the chief executive, of which other benefits were SEK 0.2m (0.2). The chairman of the board has not received any remuneration from the company. The other fourteen (13) senior managers have received remuneration and other benefits amounting to SEK 12.0m (11.4). SEK 0.7m (0.9) of this amount was other benefits. No variable bonuses are paid. Pensions: SEK 1.6m (1.3) of the Group s pension costs are in respect of the chief executive and SEK 1.6m (1.5) for the other fourteen (13) senior managers. The chairman of the board receives no pension from the company. Note 6 Other administrative expenses Cost of premises External IT costs Communication costs Travel and marketing costs Purchased services Procurement of material Other administrative expenses Total Auditing costs Auditing Consulting Auditing Consulting External auditing KPMG Bohlins AB Pricewaterhouse Coopers AB Internal auditing Note 8 credit losses, loans to the public Individually valued loan receivables The year s write-off for actual credit losses Write-back of previous provisions for probable credit losses which are reported as actual credit losses in the year s accounts The year s provision for probable credit losses Paid in from actual credit losses in previous years Write-back of provisions for probable credit losses which are no longer necessary Net expense for the year for individually assessed loan receivables Provision by group for individually assessed loan receivables Allocation to/dissolution of provision by group Collectively assessed homogenous groups of loan receivables The year s write-off for actual credit losses Paid in from actual loan losses in previous years Allocation to/dissolution of reserve for credit losses Net expense for the year for collectively assessed homogenous groups of loan receivables The year s net expense for credit losses Receivables which individually have been assessed as being posted at the correct value must also be assessed as to whether there may be a requirement for making a provision for probable credit losses for these receivables valued as a group. Over and above the risk assessment of individual loan receivables made quarterly by all units with customer and credit responsibility in the Group, no such requirement for provision for the receivables as a group has been identified. Recovered from actual credit losses in previous years includes calculations relating to recoveries in the portfolio of overdue loans which are subject to monitoring. Previously these were only booked in the Handelsbanken Group but can now be booked on a legal entity. For 2006, this has resulted in a profit/loss item of SEK 31m and the change for 2007 is SEK 0.3m. Note 9 Appropriations Depreciation in excess of plan, goodwill on the purchase of net assets 0-2 Depreciation in excess of plan, lease assets Total Note 7 Depreciation, amortisation and impairments Equipment Lease assets Goodwill Other depreciation and impairments Total handelsbanken Finans annual report 2007

17 Note 10 Loans to credit institutions Banks in Swedish kronor Banks in foreign currency Total Of which fixed assets Of which claims on Group companies Of which subordinated claims Information concerning maturities Payable on demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: between one and five years Remaining maturity: more than five years Total Average remaining maturity (months) Note 11 Loans to the public Public, Swedish kronor Public, foreign currency Total Probable credit losses Total loans to the public Of which fixed assets Of which current assets Repossessed property Provision for probable losses Book value repossessed property Information concerning maturities Payable on demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: between one and five years Remaining maturity: more than five years Total Average remaining maturity (months) Bad debts etc Loans to credit institutions, the public, lease assets and other assets Bad debts Specific provisions for individually assessed loan receivables Provisions for collectively assessed homogeneous groups of loan receivables with limited value Net bad debts Bad debt reserve ratio 48,3% 54,7% 51,0% 53,3% Proportion of bad debts 0,25% 0,20% 0,14% 0,13% Book value of restructured and reclassified loan receivables Restructured loan receivables before restructuring Restructured loan receivables after restructuring Doubtful loan receivables which during the period have regained the status of normal receivables Disclosures on gross investment and present value of future minimum lease payments Gross investment Present value of future minimum lease payments at balance sheet day Distribution of gross investment and minimum lease payments by maturity Within 1 yr Between 1 and 5 years Later than 5 yrs Total Distribution of gross investment Distribution of present value minimum lease payments Unearned finance income SEK 4,772m (3,424). Non-guaranteed residual values accruing to the lessor All Handelsbanken Finans s lease agreements have guaranteed residual values. Reserve for bad debts concerning minimum lease charges The book value of the provision for bad debts with respect to minimum lease payments is SEK 4.2m (5.5). Variable part of lease charges which are included in the period s results SEK 310m (142), owing to lower interest rates in 2007 than in Major lease contracts The largest individual lease contract has a value of SEK 9.4bn (8.3), which corresponds to 17.4% (17.3) of the Handelsbanken Finans Group's total credit volume as at 31 December handelsbanken Finans annual report

18 Note 12 Shares and participating interests Shares and participating interests Other shares and interests Shares and participations in Group companies Shares in Swedish credit institutions 0 0 Shares in foreign credit institutions Shares in other foreign subsidiaries Total shares in Group companies Of which fixed assets During the year, Handelsbanken Finans AS (foreign credit institution) was merged with Kreditt-Inkasso AS (other foreign company). Prior to the merger, the share capital in Handelsbanken Finans AS was reduced by SEK 106m. The remaining cost of acquisition of the shares (SEK 11m) was transferred to Kreditt-Inkasso AS in connection with the merger. Number of shares FOREIGN CREDIT INSTITUTIONS Book value SEKm Parent company's share of capital % Handelsbanken Rahoitus Oyj (Helsinki) OTHER FOREIGN SUBSIDIARIES Kreditt-Inkasso AS (Bergen) Spartacus A/S (Nykøbing Mors) OTHER SWEDISH SUBSIDIARIES Kredit-Inkasso AB (Stockholm) Total Note 13 Intangible fixed assets Goodwill Cost Deductible goodwill Total cost Accumulated amortisation at beginning of year Accumulated amortisation on deductible goodwill Amortisation for the year Accumulated amortisation at close of year Foreign exchange effect Residual value according to plan Internally developed software Cost Amortisation for the year Residual value according to plan Of which fixed assets Amortisation Amortisation is based on the expected useful life. At present, this means that principally the following amortisation rates are applied: Goodwill from acquisition of Rahoitus Oyj 10 yrs Goodwill from acquisition of Spartacus A/S 20 yrs Goodwill on the purchase of net assets 20 yrs Internally developed software 5 yrs The possible need for impairment losses has been examined. Note 14 Equipment Acquisition value, opening Acquisition value of additional assets Cost of acquisition of assets sold during the year Total cost Accumulated depreciation according to plan, opening balance Depreciation for the year Accumulated depreciation of assets sold during the year Total depreciation and impairments Residual value according to plan Of which fixed assets Note 15 Lease assets Acquisition value, opening Acquisition value of additional assets Cost of acquisition of assets sold during the year Total cost Accumulated depreciation according to plan, opening balance Depreciation for the year Impairments for the year Accumulated impairment losses, opening balance Accumulated depreciation of assets sold during the year Total depreciation and impairments Residual value according to plan Of which fixed assets Of which current assets Accumulated depreciation in excess of plan Net value after depreciation in excess of plan Repossessed property Provision for probable losses Book value repossessed property handelsbanken Finans annual report 2007

19 Note 16 Other assets Customer receivables Probable credit losses Claim on parent company, Group contribution Derivative instruments Other Total Of which current assets For further information about derivative instruments, see page 22. Note 17 Prepaid expenses and accrued income Accrued interest income Other accrued income Prepaid expenses Total Note 18 Due to credit institutions Banks in Swedish kronor Banks in foreign currency Other credit institutions in foreign currency Total Of which Group companies Information concerning maturities Payable on demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: between one and five years Remaining maturity: more than five years Total Note 19 Borrowing from the public Borrowing from the public in Swedish kronor Borrowing from the public in foreign currency Total Information concerning maturities Payable on demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: between one and five years Remaining maturity: more than five years Total Average remaining maturity (months) Note 20 Other liabilities Accounts payable Derivative instruments Other Total For further information about derivative instruments, see page 22. Note 21 Accrued expenses and deferred income Accrued interest expense Other accrued expenses Deferred income Total Average remaining maturity (months) handelsbanken Finans annual report

20 Note 22 TAXES Deferred tax assets Derivative instruments Other Total Deferred tax liabilities Derivative instruments Goodwill Equipment Total Net deferred tax liabilities Note 23 Untaxed reserves Accumulated depreciation in excess of plan Lease assets Goodwill on the purchase of net assets Total Note 24 Other commitments Interest rate swaps (nominal) Interest-rate related contracts Group Year's change in deferred taxes Opening balance Recognised in profit/loss Recognised directly in equity Closing balance Derivative instruments Goodwill Equipment Other Total Credits granted but not yet drawn Other commitments Total commitments Contracted future operational lease charges allocated to the periods during which they fall due for payment Total Tax recognised in profit or loss Current tax Tax expense for the year Adjustment of Swedish tax relating to previous years Adjustment of foreign tax relating to previous years Tax effect of received Group contribution Total Deferred tax Adjustment of Swedish tax relating to previous years Changes in temporary differences Total Nominal tax rate in Sweden, % Deviations Goodwill amortisation Non-taxable dividend Tax related to previous years Effects of foreign taxes and other Effective tax rate, % The Swedish Tax Authority has previously lodged objections for depreciation made during the financial years on lease assets acquired in Handelsbanken Finans won the case regarding this issue in the County Administrative Court and in 2006 the Administrative Court of Appeal ratified the County Administrative Court's previous judgements. As a result of this, Handelsbanken Finans carried this amount to income. The Tax Authority has previously denied reduction of paid foreign tax for the financial years and this was approved by the County Administrative Court. Handelsbanken Finans subsequently appealed to the Administrative Court of Appeal, whose judgement decided in Handelsbanken Finans's favour in handelsbanken Finans annual report 2007

21 Other disclosures restatements due to transition to IFRS SEK m Statutory income statement as at 31 Dec 2006 under previous accounting policies Restated according to statutory IFRS Statutory income statement as at 31 Dec 2006 restated according to IFRS INCOME STATEMENT Net interest income Net fee and commission income Net gains/losses on financial operations 1 1 Other income Total income Other expenses Depreciation, amortisation and impairment of tangible and intangible assets Total expenses Profit before credit losses Credit losses 6 6 Operating profit Tax Profit/loss for the year Statutory balance sheet as at 31 Dec 2006 under previous accounting policies Restated according to statutory IFRS Statutory balance sheet as at 31 Dec 2006 restated according to IFRS BALANCE SHEET Loans to credit institutions Loans to the public Shares and participating interests 1 1 Goodwill Equipment 9 9 Lease assets 0 0 Deferred tax assets 9 Other assets Total assets Due to credit institutions Borrowing from the public Current tax liabilities 9 Other liabilities Shareholders equity Total liabilities and equity Material effects of the transition to IFRS comprise transferring arrangement fees totalling SEK 68m from net fee and commission income to net interest income and measurement of cash flow hedges at fair value which affects other assets by SEK 53m and Other liabilities and Shareholders equity by SEK 31m and SEK 22m respectively. In the 2006 annual accounts, taxes were reported with other assets and other liabilities. The summary of the main effects of the transition to IFRS differ from the 2006 annual accounts when Handelsbanken Finans, in accordance with statutory IFRS, continued to amortise goodwill. handelsbanken Finans annual report

22 Contingent assets and contingent liabilities Handelsbanken Finans is not conducting any disputes classified as contingent assets or liabilities. Disclosures about fair value For means of payment, current receivables and liabilities and also for receivables and liabilities with a variable interest rate, the fair value is considered to be the same as the book value. Other items are value at the current market rate for the equivalent maturity with an adjustment for credit and liquidity risk. The credit and liquidity risk premium by which the market rate has been adjusted when making the valuation is assumed to be the same as the average margin for new lending at the time of measurement. In comparing the fair value and the book value, no material differences have arisen. Categories of financial assets and financial liabilities The material parts of the balance sheet comprise loans and customer receivables, derivatives identified as hedge instruments, other financial liabilities and non-financial assets and liabilities. Geographical distribution of income Great Group Sweden Denmark Finland Norway Britain Poland Total Interest income Fee and commission income Net gains/losses on financial operations Other operating income Total Parent company Sweden Denmark Great Finland Norway Britain Poland Total Interest income Lease income Dividends received Fee and commission income Net gains/losses on financial operations Other operating income Total ASSETS AND LIABILITIES IN FOREIGN CURRENCY Group USD EUR DKK NOK GBP Other currencies Assets Loans to credit institutions Loans to the public Liabilities Due to credit institutions Deposits and borrowing from the public CAPITAL ADEQUACY ANALYSIS Capital base Tier 1 capital Tier 2 capital Total Capital requirement Risk-weighted amount for credit risks On-balance sheet items Group A (0%) Group B (20%) Group C (50%) Group D (100%) Total Off-balance sheet items Group A (0%) Group B (20%) Group C (50%) Group D (100%) Total Risk-weighted amount Group A (0%) Group B (20%) Group C (50%) Group D (100%) Total Capital ratio % The information regarding 2006 has been adjusted compared to the 2006 annual accounts as a consequence of the changed accounting policies. Derivative instruments Handelsbanken Finans uses cash flow hedges in its operations to hedge against the uncertainty of future cash flows. Uncertainty in future cash flows arises when lending and funding is at variable interest rates. Interest rates swaps are used as hedging instruments, with Handelsbanken as the counterparty. Value changes on swaps which are effective, that is they correspond to cash flows related to the hedged item, are recognised directly in equity. At the end of the year, the hedge reserve was SEK -40m (22), after a deduction for deferred tax. Hedge ineffectiveness has affected profit/loss by SEK 0.6m. Market values Group Positive market values Interest rate swaps Negative market values Interest rate swaps Other assets and liabilities Net foreign currency positions Interest rate swaps more than Group up to 1 year 1 year up to 5 years more than 5 years Nominal amount/maturity Anticipated cash flows/maturity handelsbanken Finans annual report 2007

23 Recommended appropriation of profits According to the balance sheet, the following is available in the parent company for distribution by the annual general meeting: Balance carried forward sek 1,540,755,129 Profit for the year sek -1,235,933,222 SEK 304,821,907 The Board of Directors proposes that accumulated profits of SEK 304,821,907 be carried forward to the next year. Stockholm, 10 March 2008 håkan SANDBERG M. JOHAN WIDERBERG PETER GUSTAFSSON Chairman deputy chairman Employee representative YONNIE BERGQVIST Chief executive Audit report To the general meeting of the shareholders of Handelsbanken Finans AB (publ) Corporate identity no We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the chief executive of Handelsbanken Finans AB (publ) for the year The board of directors and the chief executive are responsible for these accounts and the administration of the company as well as for the application of the Annual Accounts Act for Credit Institutions and Securities Companies when preparing the annual accounts and also for the application of the Annual Accounts Act for Credit Institutions and Securities Companies when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. During the year, the internal auditing department of Handelsbanken has continuously examined the internal controls and accounts. These reports have been submitted to us. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the chief executive and assessing significant estimates made by the board of directors and the chief executive when preparing the annual accounts and consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the chief executive. We also examined whether any board member or the chief executive has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act for Credit Institutions and Securities Companies or the Articles of Association. We believe that our audit provides a reasonable basis for our opinions set out below. The annual accounts have been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies, and give a true and fair view of the company s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and provide a true and fair view of the Group s results of operations and financial position. The administration report is consistent with the other parts of the annual accounts and the consolidated accounts.we recommend to the annual general meeting of shareholders that the income statements and balance sheets of the parent company and the Group be adopted, that the profit of the parent company be dealt with in accordance with the proposal in the administration report and that the members of the board of directors and the chief executive be discharged from liability for the financial year. Stockholm, 19 March 2008 KPMG Bohlins ab Stefan Holmström Authorised public accountant handelsbanken Finans annual report

24 Five-year summary SEK m GROUP INCOME STATEMENT Other operating income Other operating income Expenses Credit losses Total operating expenses Operating profit Taxes Profit/loss for the year BALANCE SHEET ASSETS Loans to credit institutions Loans to the public Equipment Other assets Total assets LIABILITIES AND EQUITY Due to credit institutions Borrowing from the public Issued securities, etc Other liabilities Total liabilities Shareholders' equity Total liabilities and equity As a consequence of the transition to IFRS the income statements and balance sheets for have been restated. The income statements and balance sheets for 2003 are reported according to the policies applying at the end of the year in question since retroactive restatement of these cannot be done without considerable difficulty. 24 handelsbanken Finans annual report 2007

25 SEK m Parent company INCOME STATEMENT Lease income Other operating income Total operating income Expenses Credit losses Total operating expenses Operating profit Appropriations Taxes Profit/loss for the year BALANCE SHEET ASSETS Loans to credit institutions Loans to the public Equipment Lease assets Other assets Total assets LIABILITIES AND EQUITY Due to credit institutions Borrowing from the public Other liabilities Total liabilities Untaxed reserves Shareholders' equity Total liabilities and equity As a consequence of the transition to IFRS the income statements and balance sheets for have been restated. The income statements and balance sheets for 2003 are reported according to the policies applying at the end of the year in question since retroactive restatement of these cannot be done without considerable difficulty. handelsbanken Finans annual report

26 Addresses Handelsbanken Finans AB in Sweden Postal address: Stockholm Tel: Street address: Torsgatan 12 handelsbankenfinans@handelsbanken.se Handelsbanken Finans s branch in Denmark Vestergade 2, DK-7430 Ikast Tel: Fax: handelsbankenfinans.dk@handelsbanken.dk Solbjergvej 10, DK-2000 Frederiksberg Tel: Fax: handelsbankenfinans.dk@handelsbanken.dk Spartacus A/S Postal address: Postboks 32, DK-7900 Nykøbing Mors Tel: Fax: Street address: Kirketorvet mail@spartacus.dk Handelsbanken Finans s branch in Finland and Handelsbanken Rahoitus Oyj Postal address: PB 900, Helsinki Tel: Fax: Street address: Kluuvikatu 6 A myyjayhteistyo@handelsbanken.fi Handelsbanken Finans s branch in Norway Postal address: Postboks 1342 Vika, 0113 Oslo Tel: Fax: Street address: Rådhusgaten 27 leasing@handelsbanken.no salgsfinansiering@handelsbanken.no mycard@handelsbanken.no Kreditt-Inkasso AS Postal address: Box 435,1601 Fredrikstad Tel: Fax: Street address: Stabbursveien 2 Handelsbanken Finans s branch in Great Britain Trinity Tower 9 Thomas More Street London E1W1WY Great Britain Tel: Fax: handelsbankenfinansuk@handelsbanken.se Handelsbanken Finans s branch in Poland Wisniowy Business Park, Building E Ul. Ilzecka Warsaw Poland Tel: Fax: hf.pl@handelsbanken.se Handelsbanken Finans (Shanghai) Financial Leasing Co., Ltd Room 412, Bund 12 Building 12 Zhongshan Dong Yi Road Shanghai , The P.R.C. China Tel: Fax: hf.china@handelsbanken.se 26 handelsbanken Finans annual report 2007

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