Handelsbanken Finans

Transcription

1 annual report 2006 Handelsbanken Finans

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3 Contents Key figures/definitions 4 Administration report 5 Income statement 6 Balance sheet 7 Change in shareholders equity 8 Cash flow statement 9 Accounting policies 10 Notes 11 Other disclosures 17 Changeover to new IAS-IFRS accounting standards 18 Proposed distribution of earnings/audit report 19 Five-year summary 20 Addresses 22 handelsbanken Finans annual report 2006

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 capital ratio, % Bad debt reserve ratio, % Proportion of bad debts, % Credit loss ratio, % Average number of employees Definitions PROPORTION OF BAD DEBTS Bad debts (net) in relation to total lending to the general public, credit institutions (excluding banks) and leasing assets. 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 under five years. This part of the supplementary capital must not exceed 50% of tier 1 capital. CAPITAL RATIO The capital ratio is the capital base in relation to riskweighted volume. The Act on Capital Adequacy and Large Exposures of Credit Institutions and Securities Companies stipulates that the capital ratio should be at least 8%. C/I RATIO Total expenses minus depreciation according to plan for leasing assets, in relation to total income minus depreciation according to plan for leasing assets. The C/I ratio is calculated before and after loan losses. Credit LOSS RATIO Credit losses as a percentage of the opening balance for lending to the general public and credit institutions (excl. banks). RESTRUCTURED LOAN RECEIVABLES Loans where some kind of concession has been made due to the borrower s inadequate payment capacity. NON-PERFORMING CREDITS Credits where interest, repayments or overdrafts have been due for payment for more than 60 days. BAD DEBTS Loans where payments will probably not be met according to the conditions of the contract. 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. TIER 1 CAPITAL RATIO Primary capital in relation to risk-weighted volume (see capital base and risk-weighted volume). BAD DEBT RESERVE RATIO Provision for probable loan losses as a percentage of gross bad debts. RISK-WEIGHTED VOLUME The risk-weighted volume is determined by the assets and off-balance-sheet 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%. RETURN ON EQUITY The year s profit in relation to average shareholders equity. 4 handelsbanken Finans annual report 2006

5 Administration report Handelsbanken Finans (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 longterm 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 At the year-end, total lending by the Group amounted to SEK 47.9bn (42.1). Of this amount, the book value of leasing agreements was SEK 30.7bn (28.3). Lending by the parent company increased by 15% to SEK 43.9bn. PERFORMANCE The operating profit was SEK 981m (797). The parent company s operating profit was SEK 825m (663). Total operating income, reduced by the amortisation of leasing assets according to plan, increased by SEK 222m to SEK 1,583m. In the parent company, the increase was SEK 179m to SEK 1,276m. Expenses excluding amortisation of leasing assets totalled SEK 608m, up 10% on the previous year. During the same period, credit volumes rose by 14%. Net credit losses in the Group consisted of recoveries of SEK 6m; credit losses in the previous year were SEK 13m. Recoveries in the parent company also exceeded losses, totalling SEK 29m (0). The Group s bad debts (net), after deductions for provisions, totalled SEK 95m (86) at the year-end. For the parent company, bad debts totalled SEK 55m (49). For information regarding the distribution of earnings, please refer to page 19, Proposed distribution of earnings. central expertise can be called upon. With regard to credits generated by the branch offices, the board of Handelsbanken Finans has delegated responsibility for credit decisions to the Handelsbanken branch offices. These decisions follow the guidelines laid down by the board. An internal guarantee for these credits is granted by the parent company. 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 532,000 or so cards, the majority have been processed in a credit management system developed in-house by Handelsbanken Finans and through which more than a 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. 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 Bank s own employees or external events. Identification, management and control of operational risks are clear and integral parts of managerial responsibility at all levels at Handelsbanken. 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. CAPITAL RATIO The capital ratio at the year-end was 82% (86) in the Group and 95% (102) in the parent company. HUMAN RESOURCES In 2006, the average number of employees in the Group was 480 (441). The increase was mainly due to the arrival of staff from Stadshypotek Bank. GROUP STRUCTURE During 2006, Handelsbanken Finans AB has conducted business via the following whollyowned subsidiaries: Kredit-Inkasso AB Spartacus A/S Handelsbanken Rahoitus Oyj Kreditt inkasso AS In Sweden, Handelsbanken Finans AB conducts debt collection services on behalf of Kredit-Inkasso AB. In Denmark, Spartacus A/S works mainly with retail financial services. Handelsbanken Finans AB 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 AB s Finnish branch runs a leasing operation. In Norway, Kreditt inkasso AS offers debt collection services. Handelsbanken Finans AB s Norwegian branch runs operations in leasing, promissory note loans and retail financial services. THE FUTURE In view of customers needs for financial solutions characterised by availability and simplicity, 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. 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 are kept to a minimum since conditions for lending largely match conditions for funding. Interest rate risk arises when lending has longer maturities than refinancing. Handelsbanken Finans uses interest rate swaps to reduce the impact of interest rate changes on earnings. 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. Financial risks are measured and monitored at a central level in Handelsbanken Finans. CREDIT RISKS Handelsbanken Finans follows 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, any available data on the customer, the local market and the finance company product on offer can be put to good use. This also makes processing is rapid and efficient and, if necessary, THE BOARD In 2006, Thommy Mossinger (chairman), Petri Hatakka (member), Lennart Francke (member) and Björn G. Olofsson (member) left the board. Håkan Sandberg was appointed new chairman. The Board has held seven 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, etc. The board received regular information on operational risks and made decisions concerning major credit issues, major investments and strategic issues. IT DEVELOPMENT In 2006, 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 ISSUES Environmental issues are a vital element in the Handelsbanken Group s operations. 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 Fee and commission income Note Fee and commission expense Note Net result on financial operations Other operating income Note Total operating income General administrative expenses Staff costs Note Other Note Depreciation, amortisation and write-downs in value of property and equipment and intangible non-current assets Note Total operating income Credit losses, net Note Total operating expenses Operating profit Appropriations Note Profit before taxes Taxes Note Profit for the year Net earnings per share, SEK handelsbanken Finans annual report 2006

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 participating interests in Group companies Note Goodwill Note Property and equipment Equipment Note Leasing assets Note Other assets Note Prepaid expenses and accrued income Note Total assets LIABILITIES, PROVISIONS AND SHAREHOLDERS EQUITY Due to credit institutions Note Funding from the public Note Other liabilities Note Accruals and deferred income Note Provision for deferred taxes Note Total liabilities and provisions Untaxed reserves Note Share capital Other reserves Statutory reserve Other restricted reserves Profit brought forward Profit for the year Total shareholders equity Note Total liabilities, provisions and shareholders equity MEMORANDUM ITEMS Pledged assets none none none none Other commitments Note handelsbanken Finans annual report

8 Change in shareholders equity GROUP Share SEK m capital Restricted reserves Unrestricted reserves Shareholders equity 31 December Change of foreign currency component Change of price difference in financing of net investment in subsidiaries Total changes in equity not reported in the income statement Total Transfer between unrestricted and restricted equity Profit for the year Group contribution received Tax effect of Group contribution Shareholders equity 31 December Change of foreign currency component Change of price difference in financing of net investment in subsidiaries Total changes in equity not reported in the income statement Transfer between unrestricted and restricted equity Profit for the year Group contribution received Tax effect of Group contribution Shareholders equity 31 December PARENT COMPANY SEK m Share capital Restricted reserves Unrestricted reserves Shareholders equity 31 December Profit for the year Group contribution received Tax effect of Group contribution Shareholders equity 31 December Total Profit for the year Group contribution received Tax effect of Group contribution Other change in shareholders equity 1 1 Shareholders equity 31 December handelsbanken Finans annual report 2006

9 Cash flow statement Group Parent company SEK m OPERATING ACTIVITIES Operating profit Adjustment for non-cash items: Credit losses Depreciation, amortisation and write-downs Paid income tax Change in assets and liabilities of operating activities: Loans to the public Leasing assets Financial current assets Due to credit institutions Funding from the public Issued securities Other liabilities and assets Cash flow from operating activities INVESTING ACTIVITIES Change in shares Change in tangible non-current assets Change in intangible non-current assets Cash flow from investing activities FINANCING ACTIVITIES Subordinated loans 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 investing activities Cash flow from financing activities Exchange rate difference on liquid funds Liquid funds at end of period handelsbanken Finans annual report

10 Accounting policies In the 2006 interim report, it was stated that Handelsbanken Finans applies the IASB accounting standards as adopted by the EU. It also stated that Handelsbanken Finans would apply these standards in its annual accounts for Since Handelsbanken Finans is a subsidiary of a listed company, the reporting to the parent company is adapted to IAS/IFRS standards. On the other hand, Handelsbanken Finans has elected, as in previous years, 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 consolidated accounts for Beginning 2007, the new IASB accounting standards will be applied. The accounting follows the regulations of the Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL), the Swedish Financial Accounting Standards Council s recommendations, and the directives issued by the Finansinspektionen (the Swedish Financial Supervisory Authority, FFFS 2002:22). Classification of items in the balance sheets and income statements follows ÅRKL and the Finansinspektionen s accounting regulations. This classification differs from the Swedish Financial Accounting Standards Council s recommendation RR 22 Presentation of Financial Statements. In other respects, the format of the annual accounts has not been affected by differences between the Finansinspektionen s accounting regulations and the Swedish Financial Accounting Standards Council s recommendations. According to the definitions in BFN R9, Handelsbanken Finans does not consist of two or more independent business segments and has accordingly not made any disclosures in accordance with this recommendation. CONSOLIDATED ACCOUNTS The consolidated accounts comprise all companies in which Handelsbanken has a participating interest and directly or indirectly has a controlling influence. Subsidiaries are consolidated in accordance with the acquisition accounting 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 operations do not have any direct influence on the cash flows of the parent company. When converting the foreign subsidiaries balance sheets and income statements, the current method has been used. Assets and liabilities have been valued at the rate prevailing on the balance sheet date. Shareholders equity is converted at the rate applicable at the time of investment or earning. The income statement has been translated at the average annual rate. The resulting translation differences have been classed as shareholders equity. Liabilities which refer to net financing of subsidiaries are recorded at the closing day rate, as the purpose is to reduce the rate difference which occurs when converting the international units balance sheets and income statements (hedge accounting). The rate difference which occurs at the conversion of these liabilities is reported directly against shareholders equity. Goodwill and surplus value from the acquisition of foreign operations are reported at the rate prevailing on the balance sheet date. VALUATION OF ASSETS AND LIABILITIES IN FOREIGN CURRENCIES Receivables and liabilities in foreign currencies were converted at the rate applying on the balance sheet date, 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. In the parent company, liabilities raised for the purpose of hedging exchange rate differences in net investments in subsidiaries are recorded at the rate applicable on acquisition. FINANCIAL INSTRUMENTS Equities which are held on a permanent basis are classified as financial fixed assets and are reported at acquisition value. For equities where the value has fallen and this decline in value is considered to be permanent, a write-down is made. Derivative instruments are valued at market value. An exception is made for derivative transactions which are hedging balance-sheet items that have not been given a market value. If the hedge is considered to represent an effective protection against unfavourable changes in value, i.e. the changes in value of the hedged instrument are balanced by corresponding changes in value of the hedging instrument; the derivative transaction is reported using the accounting principles which apply to the hedged transaction. LENDING Lending to the general public and credit institutions is classified as financial fixed assets and is reported on the balance sheet on the settlement date at acquisition value. Leasing agreements in which the lessee substantially bears the economic risks and acquires the rewards associated with the ownership of the asset are also reported in the Group as lending. Loans which represent bad debts are reported on the balance sheet at their net amount, i.e. after deduction for probable and actual loan losses. 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. An asset is a resource that is expected to provide future economic benefit over which there is control as a result of past events. When acquiring companies, an acquisition balance sheet is prepared in which identifiable assets and liabilities are measured at fair value at the time of acquisition. The part of the acquisition price that cannot be attributed to identifiable assets and liabilities is recognised as goodwill. Internally accrued values in the form of goodwill, trademarks, publishing rights, customer databases and similar are not reported as assets in the balance sheet. Investments in both software developed by the company and acquired software are carried as an expense on a current basis, where the expenditure refers to maintenance of existing business operations or an existing intangible asset. 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. For capitalisation of expenses referring to existing intangible assets, there is the additional requirement that the economic benefits must clearly exceed the economic benefits that were associated with the existing asset in its original state. An impairment test is performed when there is any indication that the asset may have decreased in value. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. An impairment test is performed if there is any indication of a decrease in value. LOAN COSTS Loan costs are normally carried as expenses on a current basis. Where the expenditure refers to intangible assets developed in-house, the expenditure is capitalised from the date on which a decision is made to capitalise development costs. DEPRECIATION Leasing assets Leasing assets are depreciated in accordance with the annuity method. Total depreciation during the base period of the contract corresponds to the cost price of the asset. When the supplier or another party secures a future residual value or when a sale can be made in an active secondary market, depreciation is made during the base period to a prudently calculated residual value according to plan. The original depreciation is made according to an individual plan for each asset. 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 Goodwill from acquisitions with long-term strategic significance is amortised on a straight-line basis over 20 years. Other goodwill is amortised on a straight-line basis during the estimated useful period, normally five years. Other immaterial assets are amortised during the estimated useful period. INCOME Income is reported in the income statement when it is probable that the future economic benefits will be enjoyed and these benefits can be reliably measured. CREDIT LOSSES Actual credit losses for the year, probable credit losses and write-offs of interest shown 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 receivable where there is no realistic possibility of recovery is reported as an actual credit 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. A write-down for probable credit losses is made if the value of the collateral together with other payments from the counterparty does not cover the book value of the loan receivable. Write-downs are made down to the amount which is expected to be realised, taking into account the value of the collateral. On collectively valued, homogeneous groups of loan receivables, mainly comprising card credits and small consumer credits, where a debt collection process has begun, an empirically derived allocation to credit loss provisions is made. 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 loan 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 loan losses. Unpaid interest on non-performing loans where the value of the collateral does not cover the principal amount and the accrued interest by a satisfactory margin is not recognised as income. Interest on these credits that was reported as income but not paid during the financial year is reversed. Interest payments received thereafter in respect of this type of credit are reported in the year of receipt. PROVISIONS Provisions are reported as a consequence of past events when it is probable that an outflow of resources will be required to settle the obligation. The provision is recorded in the amount estimated to be most probable, taking into account the time of settlement. IMPAIRMENT LOSSES Impairment losses of property and equipment and intangible assets, as well as of shares in subsidiaries are reported in cases where the recovery value is less than the carrying amount. The recovery value is calculated as the higher of an asset s value in use or net realisable value. The recovery value is determined when there is an indication that the asset has fallen in value. 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. The Swedish Financial Accounting Standards Council s recommendation on leases allows a lessor the right to classify all leases as operating leases in his annual accounts. This classification has been used in the parent company s annual accounts. The income is thus reported as leasing income. The assets are recorded as fixed assets, thus permitting the parent company to depreciate them. In the Group, all leases are categorised as finance leases. 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 result. Deferred tax claims and liabilities are taxes based on temporary differences between the value of an asset or liability in the accounts and its taxable value or loss carryforwards. 10 handelsbanken Finans annual report 2006

11 Notes to income statement and balance sheet Amounts in SEK million unless otherwise specified Note 1 interest income and interest expense INTEREST INCOME Credit institutions General public Derivatives recognised as hedges Other interest income INTEREST EXPENSE Credit institutions General public Issued securities Derivatives recognised as hedges Subordinated liabilities Other interest expense Average interest rate for loans to the public Adjustment in interest rates for previous years % 3.7% 5.2% 5.0% Net interest income (Interest income+lease income- Interest expense-lease depreciation) Interest spread 2.5% 2.3% 2.3% 2.0% Interest income from Group companies Interest expense to Group companies Note 2 Lease income Lease income, gross Lease depreciation according to plan Total net lease income Of which received from Group companies Lease depreciation is reported under the note for Depreciation and write-downs of property and equipment and intangible non-current assets. Note 3 FEE and Commission income and fee and commission expense FEE AND COMMISSION INCOME Lending commissions Lease and factoring commissions FEE AND COMMISSION EXPENSE Payment commissions Lease and factoring commissions Note 4 other operating income Rental income Services rendered Other operating income Note 5 staff costs Salaries and renumeration Social security charges Pension costs 1) Allocation to profit-sharing foundation Other staff costs ) Pension costs refer to costs paid to the Svenska Handelsbanken Pension Fund Insurance Association for contractual defined-contribution pension insurance. Salaries and other remuneration Board, chief executive, other senior managers Sweden Finland Denmark Norway Great Britain Others Sweden Finland Denmark Norway Great Britain Total Group Number of employees (average during year) Sweden Finland Denmark Norway Great Britain Distribution men/women Men Women Men Women Sweden Finland Denmark Norway Great Britain Gender distribution % Men Women Men Women Board Chief executive Other senior managers handelsbanken Finans annual report

12 Note 5 Staff costs (cont.) Sickness absence in the Swedish operations % Age Men Women Total Men Women Total Total Of whom on long-term sick leave, percentage of total sickness absence Note 6 Other Administrative expenses Premises External IT costs Communication expenses Travel and marketing expenses Purchased services Supplies Other expenses Auditing costs Audit Consulting Audit Consulting External auditing 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. The chief executive s retirement pension between the ages of 60 and 64 is 65% of his salary, and from the age of 65, the pension is 10% of the annual salary up to 7.5 index-linked base amounts. A retirement pension of 65 % is paid on the portion of the salary in excess of 7.5 index-linked base amounts. He also receives a pension under the general national insurance scheme. Other senior managers have a retirement age of 65. Other senior managers are the chief executives/country managers of subsidiaries and branches and the management group of Handelsbanken Finans. Remuneration: : In 2006, remuneration and other benefits amounting to SEK 2.6m (2.3) 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 14 (14) senior managers have received remuneration and other benefits amounting to SEK 11.4m (12.9). SEK 0.9m (1.1) of this amount was other benefits. No variable bonuses are paid. Pensions: SEK 1.3m (0.9) of the Group s pension costs are in respect of the chief executive and SEK 1.5m (1.9) for the other 13 (13) senior managers. The chairman of the board has not received any pension from the company. KPMG Bohlins AB Pricewaterhouse Coopers AB Internal auditing Note 8 credit losses, loans to the public Individually valued loan receivables Note 9 appropriations Change in tax allocation reserve - - Depreciation in excess of plan, goodwill on the purchase of net assets Depreciation in excess of plan, leasing assets 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 losses in previous years Write-back of provisions for probable credit losses which are no longer necessary Net expense for the year for individually valued 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 losses in previous years Allocation to/dissolution of reserve for credit losses Net expense for the year for collectively assessed homogenous loan receivables Net expense for the year for credit losses According to Finansinspektionen s accounting directives, 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 loan 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 were only booked in the consolidated accounts but can now be booked on a legal entity. For 2006, this has resulted in an income statement item of SEK 31m Note 7 Depreciation and write-downs Equipment Leasing assets Goodwill Other depreciation and write-downs handelsbanken Finans annual report 2006

13 Note 10 taxes Current tax Tax for the period Adjustment of foreign tax relating to previous years Adjustment of Swedish tax relating to previous years Tax effect of Group contribution Deferred tax Adjustment of Swedish tax relating to previous years Change in temporary differences Nominal tax rate in Sweden % Deviations Goodwill amortisation Tax attributable to previous years Appropriations 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 leasing assets acquired in Handelsbanken Finans has won the case regarding this issue in the County Administrative Court and the Swedish tax authority has refunded the tax. However, since the Swedish tax authority has appealed the ruling of the County Administrative Court, Handelsbanken Finans entered the amounts as liabilities, i.e. did not take them up as income, when refunded. In 2006, the Administrative Court of Appeal ratified the ruling of the County Administrative Court and Handelsbanken Finans has now reported the amount as income. The ruling of the Administrative Court of Appeal cannot be appealed. Handelsbanken Finans has previously claimed settlement for tax paid abroad for the financial years. The Swedish tax authority has refused settlement, a decision supported by the County Administrative Court. Handelsbanken Finans subsequently appealed to the Administrative Court of Appeal, which has decided in our favour during the year. Note 11 Loans to credit institutions Banks, in Swedish kronor Banks, in foreign currencies Of which non-current assets Of which claims on Group companies Of which, subordinated Information concerning maturities Payable upon demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: over one year but maximum five years Remaining maturity: over five years Total Note 12 Loans to the public General public, in Swedish kronor General public, in foreign currencies Total Probable credit losses Total loans to the public Of which, non-current assets Of which, current assets Repossessed property Provision for probable losses Book value of repossessed property Information concerning maturities Payable upon demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: over one year but maximum five years Remaining maturity: over five years Total Average remaining maturity (months) Loans to the public according to category Loan receivables Provisions Group Swedish counterparties Private individuals Municipalities and county councils Agriculture and forestry Manufacturing Construction Retailing Transport Property management Others Non-Swedish counterparties Total Average remaining maturity (months) handelsbanken Finans annual report

14 Note 12 Loans to the public (Cont.) Bad debts etc Loans to credit institutions, the public, leasing assets and other assets Bad debts Specific provisions for individually valued loan receivables Provisions for collectively valued homogenous groups of loan receivables with limited value Bad debts, net Bad debt reserve ratio 54.7% 57.2% 53.3% 57.6% Proportion of bad debts 0.20% 0.21% 0.13% 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 Details on gross investments and present value of credits concerning future minimum leasing charges Gross investment Present value of credits concerning future minimum leasing charges as at balance sheet date Distribution of gross investment and minimum leasing charges on maturity dates Within 1 year Between 1 and 5 years Later than 5 years Total Distribution of gross investment Distribution of minimum leasing charges using present value computation Unearned finance income SEK 3,424m (1,948). The unguaranteed residual values accruing to the benefit of the lessor All Handelsbanken Finans leasing agreements have guaranteed residual values. Provision for bad debts referring to minimum lease payments The book value of the provision for bad debts with respect to minimum lease payments is SEK 5.5m (4.7) Variable part of lease payments included in earnings for the period were SEK 142m (-38), owing to higher interest rates in 2006 compared with Major leasing contracts The largest individual lease exposure is worth SEK 8.3bn (7.4), corresponding to 17.3% (17.5) of the Handelsbanken Finans Group s total credit volume as at 31 December Note 13 SHARES AND PARTICiPATIONS Shares and participations Other shares and participations 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 Number of shares Book value SEK m Parent company s share of capital % FOREIGN CREDIT INSTITUTIONS Handelsbanken Rahoitus Oyj (Helsinki) Handelsbanken Finans AS (Oslo) Kreditt Inkasso AS (Bergen) Spartacus A/S (Nykøbing Mors) OTHER SWEDISH SUBSIDIARIES Kredit-Inkasso AB (Stockholm) Total Note 14 goodwill Acquisition value Outgoing goodwill Minus divested Total acquisition value Accumulated amortisation at beginning of year Accumulated write-downs for outgoing goodwill Amortisation for the year Minus divested Accumulated amortisation at end of year Foreign currency effect Residual value according to plan Of which non-current assets An impairment test has been performed. 14 handelsbanken Finans annual report 2006

15 Note 15 Equipment Note 16 Leasing assets Acquisition value at beginning of year Acquisition value of new assets Acquisition value of assets sold during the year Total acquisition value Accumulated depreciation according to plan at beginning of year Depreciation for the year Accumulated depreciation of assets sold during the year Total depreciation and write-downs Residual value according to plan Of which non-current assets Acquisition value at beginning of year Acquisition value of new assets Acquisition value of assets sold during the year Total acquisition value Accumulated depreciation according to plan at beginning of year Depreciation for the year Write-downs for the year Accumulated write-downs Accumulated depreciation of assets sold during the year Total depreciation and write-downs Residual value according to plan Of which non-current assets Of which current assets Accumulated depreciation in excess of plan Net value after depreciation in excess of plan Note 17 Other assets Note 19 DUE to credit institutions Banks, in Swedish kronor Banks, in foreign currencies Other credit institutions, in foreign currencies Of which Group companies Information concerning maturities Payable upon demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: over one year but maximum five years Prepaid tax Accounts receivable Probable loan losses Claim on parent company, Group contribution Other Of which current assets Note 18 Prepayments and accrued income Accrued interest income Other accrued income Prepaid expenses Remaining maturity: over five years Total Average remaining maturity (months) Repossessed property Provision for probable losses Book value of repossessed property SEK 527m (265) of the parent company s acquistion value is leasing contracts where the basic leasing period has not started. handelsbanken Finans annual report

16 Note 20 Funding from the public Funding from the public in Swedish kronor Funding from the public in foreign currency Information concerning maturities Payable upon demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: over one year but maximum five years Remaining maturity: over five years Total Average remaining maturity (months) Note 21 Other liabilities Accounts payable Others Note 22 Accruals and deferred income Accrued interest expense Other accrued expenses Deferred income Note 23 Provision for deferred taxes Deferred tax claim Other Deferred tax liability Equipment Goodwill Net deferred tax liability Changes in deferred tax Reported Group Opening via income Other Closing balance statement changes balance Equipment Goodwill Other Note 24 Untaxed reserves Accumulated depreciation in excess of plan Leasing assets Goodwill on the purchase of net assets Tax allocation reserve - - Note 25 Shareholders equity Group Share capital Restricted reserves Unrestricted reserves Profit for the year Total Opening shareholders equity according to adopted balance sheet Shift between restricted and unrestricted equity Change of price difference in financing of net investment in subsidaries Change of foreign currency component Group contribution received Tax effect of Group contribution Profit for the year Closing shareholders equity Parent company Share capital Restricted reserves Unrestricted reserves Profit for the year Total Opening shareholders equity Group contribution received Tax effect of group contribution Other changes in shareholders equity 1 1 Profit for the year Closing shareholders equity Share capital: 1,550,000 shares with a nominal value of SEK 100 each The parent company s equity share of untaxed reserves is SEK 11,861m. Note 26 other commitments Interest rate swaps (nominal) Interest rate related contracts Credits granted but not yet drawn Other commitments Total commitments Contracted future leasing charges stating the periods during which they fall due for payment Total handelsbanken Finans annual report 2006

17 Other disclosures CONTINGENT ASSETS AND LIABILITIES Handelsbanken Finans is not conducting any disputes qualified as contingent assets or liabilities. DISCLOSURES ABOUT FAIR VALUE The balance sheets have been valued by comparing book value with a discounted present value (fair value). In this respect, no material discrepancies have arisen Risk-weighted amount Group A (0%) - - Group B (20%) 6 2 Group C (50%) 3 3 Group D (100%) Total Capital ratio, % Geographic distribution of income Group Sweden Denmark Finland Norway GB Total Interest income Commission income Net result on financial operations Other operating income Total Parent company Sweden Denmark Finland Norway GB Total Interest income Lease income Commission income Net result on financial operations Other operating income Total Bad debts according to category Non preforming Bad debts gross Provision Bad debts net Group Credits Provision Collective Individual Private individuals Property management Construction Manufacturing Transport Other Total CAPITAL ADEQUACY ANALYSIS Capital base Tier 1 capital Tier 2 capital - - Total Capital requirement Risk-weighted amount, credit risks Balance sheet items Group A (0%) Group B (20%) Group C (50%) 5 5 Group D (100%) Total Off-balance-sheet items Group A (0%) Group B (20%) - - Group C (50%) - - Group D (100%) Total assets and liabilities in foreign currencies Group USD EUR DKK NOK GBP Other Assets Loans to credit institutions Loans to the public Liabilities Due to credit institutions Deposits and funding from the general public Issued securities Subordinated liabilities Other assets and liabilities Net foreign currency positions Interest rate risks Interest rate adjustment periods for assets and liabilities, 31 December 2006 Group -3 mths 3-6 mths 6-12 mths 1-5 yrs 5 yrs- Total Loans to credit institutions Loans to the public and leasing assets Total interest-bearing assets Due to credit institutions Funding from the general public Total interest-bearing liabilities Off-balance-sheet items, net Difference assets and liabilities including off-balance sheet items Accumulated difference Accumulated difference as a percentage of total assets 29% 31% 30% 31% 31% 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 leasing assets Total assets Due to credit institutions Funding from the general public Total liabilities Off-balance-sheet items, net Difference assets and liabilities including off-balancesheet items Accumulated difference Accumulated difference as a percentage of total assets 25% 28% 26% 28% 28% handelsbanken Finans annual report

18 Changeover to new IAS-IFRS accounting standards Beginning 1 January 2007, Handelsbanken Finans will harmonise its consolidated accounts with the accounting standards of the IASB (International Accounting Standards Board). The accounting principles applied have been harmonised with the accounting recommendations (IAS or IFRS) which the IASB has issued and the EU has adopted. The impact on opening shareholders equity is SEK 27m. A summary of the main effects is shown in the tables below. CHANGES IN ACCOUNTING policies CONSOLIDATED ACCOUNTS New standards for establishing acquisition balance sheets have been applied. The most important changes are that the acquisition balance sheet must be more detailed than in the past and that goodwill is no longer amortised. Now acquisition balance sheets must include all types of intangible assets which can be distinguished and valued separately, reported at the assessed fair values. This must be performed in the acquisition balance sheet without fulfilment of the normal requirements where intangible assets should be recognised as assets. The intangible assets must be divided into assets with a definable useful life and assets with an indefinable useful life. The latter category also includes goodwill. For intangible assets without a definite useful life, no amortisation is to be made. Another change is that various types of off-balance sheet commitments (such as ongoing legal disputes) must be recognised as a liability when preparing the acquisition balance sheet, which means that these fair values will be reported in the balance sheet at an assessed fair value during first-time reporting of an acquisition. For acquisitions before 2004, the acquisition balance sheets have been reviewed in order to identify intangible assets which could not be recognised as assets according to the old accounting standards. This review has not identified any new intangible assets in the old acquisition balance sheets. GOODWILL AND OTHER INTANGIBLE ASSETS The previous accounting regulations assumed that goodwill and other intangible assets did not have a useful period exceeding 20 years. This assumption has now been removed, and goodwill must not be amortised in the future. Intangible assets are to be divided up into two main categories: those with an indefinite useful life, and those for which a useful life may be assessed. Those for which a useful life may be assessed are subject to amortisation in the same way as before. There should be regular reassessment of whether the set period of useful life is still reasonable, and of whether there are indications that the asset s value in use may have dropped below the booked residual value. For assets with an indefinite useful life, an impairment test must be carried out at least once a year. HEDGE ACCOUNTING Previously, hedge accounting packages were recognised either at amortised cost or fair value. IAS 39 stipulates that derivatives are always to be recognised at fair value, even in cases where they are designated as hedging instruments. Hedge accounting is now divided into two hedge categories depending on the purpose of the hedge: fair value hedges or cash flow hedges. At Handelsbanken, only cash flow hedges are used. In the case of cash flow hedges, the derivatives are recognised at fair value while the hedged item is carried at amortised cost. For the effective portion of hedges, the change in value of the derivative is recognised in equity. An effective hedge means that the cash flows on the hedged item correspond to the cash flows in the hedging instrument. The ineffective portion of the derivative s change in fair value is recognised directly in the income statement. The change in fair value is then transferred from equity to the income statement at the same rate as the cash flows of the hedged item are recognised in the income statement. IMPACT ON SHAREHOLDERS EQUITY FROM THE CHANGEOVER TO IAS/IFrs SEK m Equity 2006 closing balance according to 2006 annual accounts Impact in 2006 from changeover to IFRS: Reversal of goodwill amortisation Net impact of changeover to measuring at fair value according to IAS closing balance after recalculation MAIN IMPACT ON ITEMS IN THE INCOME STATEMENT AND BALANCE SHEET SEK m INCOME STATEMENT 2006 according to new accounting policies Impact of changed accounting policies according to approved balance sheet and income statement Net interest income Leasing income 0 0 Net commission income Net result on financial operations, exchange rate changes 1 1 Other income Total income Other costs Depreciation and write-downs of property and equipment and intangible assets Total costs Loan losses Operating profit Tax Profit for the year BALANCE SHEET Loans to credit institutions Loans to the general public Shares and participating interests 1-1 Goodwill Equipment 9-9 Leasing assets 0-0 Other assets Total assets Due to credit institutions Funding from the public Ofher liabilities Equity Total liabilities and equity Net interest income is affected by the transfer of arrangement fees from net commission income totalling SEK 68m. Depreciations and write-downs of property and equipment and intangible assets are also affected by goodwill no longer being amortised. An adjustment has also been made for those derivative contracts found in the cash flow hedges and where the changes in value, for the effective portion of the hedges, are recognised in equity. The total impact on equity is SEK 22m. The Group s profits rose by a total of SEK 5m related to the reversal of goodwill amortisation for the year. 18 handelsbanken Finans annual report 2006

19 Proposed distribution of earnings The amount at the disposal of the annual general meeting according to the balance sheet for the parent company is: Profit brought forward SEK Profit/loss for the year SEK SEK The board of directors recommends that the accumulated profit of SEK be carried forward. Stockholm, 4 June 2007 håkan SANDBERG M. JOHAN WIDERBERG JAN LÖFGREN 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 These accounts and the administration of the company and the application of the Annual Accounts Act for Credit Institutions and Securities Companies when preparing the annual accounts and the consolidated accounts are the responsibility of the board of directors and chief executive. 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. We have received the reports that have been prepared. 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 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 opinion 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 results and financial position 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 give a true and fair view of the Group s results and financial position and results of operations. The administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the 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 directors report and that the members of the board of directors and the chief executive be discharged from liability for the financial year. Stockholm, 4 June 2007 KPMG Bohlins ab Stefan Holmström U ulla Nordin Buisman Authorised Public Accountant Authorised Public Accountant appointed by Finansinspektionen (the Swedish Financial Supervisory Authority) handelsbanken Finans annual report

20 Five-year summary SEK m group income statement Lease income - - Other operating income Total operating income Expenses Credit losses Total operating expenses Operating profit Taxes Profit for the year BALANCE SHEET ASSETS Loans to credit institutions Loans to the public Equipment Leasing assets Other assets Total assets LIABILITIES AND SHAREHOLDERS EQUITY Due to credit institutions Funding from the general public Issued securities etc Other liabilities Total liabilities Shareholders equity Total liabilities and shareholders equity In the Group, all leases are categorised as finance leases. Previously, leasing agreements signed before 1997 were reported as operating leases according to the exemption rule according to the Swedish Financial Accounting Standards Council s recommendation on leases. Beginning 2005, these are also reported as finance leases, which is why comparative figures from previous years have been recalculated in the table above. 20 handelsbanken Finans annual report 2006

21 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 for the year BALANCE SHEET ASSETS Loans to credit institutions Loans to the public Equipment Leasing assets Other assets Total assets LIABILITIES AND SHAREHOLDERS EQUITY Due to credit institutions Funding from the public Issued securities etc Other liabilities Total liabilities Untaxed reserves Shareholders equity Total liabilities and shareholders equity handelsbanken Finans annual report

22 Addresses Handelsbanken Finans AB in Sweden Postal address: Stockholm Sweden Telephone: Street address: Torsgatan 12 handelsbankenfinans@handelsbanken.se Handelsbanken Finans branches in Denmark Vestergade 2, 7430 Ikast Denmark Telephone: Fax: handelsbankenfinans.dk@handelsbanken.dk Solbjergvej 10, 2000 Frederiksberg Denmark Telephone: Fax: handelsbankenfinans.dk@handelsbanken.dk Spartacus A/S Postal address: Postboks 32, 7900 Nykøbing Mors Denmark Telephone: Fax: Street address: Kirketorvet mail@spartacus.dk Handelsbanken Finans branch in Finland and Handelsbanken Rahoitus Oyj Postal address: PB 900, Helsinki Finland Telephone: Fax: Street address: Glogatan 6 A myyjayhteistyo@handelsbanken.fi Handelsbanken Finans branch in Norway and Handelsbanken Finans AS Postal address: Postboks 1342 Vika, 0113 Oslo Norway Telephone: Fax: Street address: Rådhusgaten 27 leasing@handelsbanken.no salgsfinansiering@handelsbanken.no mycard@handelsbanken.no Kreditt Inkasso AS Postal address: Box 435,1601 Fredrikstad Norway Telephone: Fax: Street address: Stabbursveien 2 Handelsbanken Finans branch in Great Britain Trinity Tower 9 Thomas More Street London E1W 1GE U.K. Telephone: Fax: handelsbankenfinansuk@handelsbanken.se Handelsbanken Finans branch in Poland Wisniowy Business Park, building E Ul. Ilzecka Warsawa Poland Telephone: Fax: hf.pl@handelsbanken.se 22 handelsbanken Finans annual report 2006

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