Contents. Auditors report 35. Addresses 36. Definitions 37

Transcription

1 Annual Report 2012

2 Contents Five-year overview and Key figures 2 Administration report 4 Financial reports Income statement 6 Statement of comprehensive income 6 Balance sheet 7 Statement of changes in equity 8 Cash flow statement 9 Income statement 10 Statement of comprehensive income 10 Balance sheet 11 Statement of changes in equity 12 Cash flow statement 13 Notes 14 recommended appropriation of profit 34 Auditors report 35 Addresses 36 Definitions 37 Handelsbanken Finans AB Corporate identity number: Registered office: Stockholm This Annual Report is also available in Swedish. 1

3 five-year overview Five-year overview and key figures SEK m ) INCOME STATEMENT Operating income 1,908 1,943 1,584 1,703 2,088 Total income 1,908 1,943 1,584 1,703 2,088 Expenses Credit losses Total expenses Operating profit 1,228 1, ,341 Taxes Profit for the year 2,241 1, ,392 BALANCE SHEET Assets Credits to credit institutions 1, ,337 Credits to the public 56,840 60,096 62,173 67,007 65,135 Equipment Other assets 1,748 1,587 3,122 4,326 4,848 Total assets 59,874 61,996 65,423 71,508 72,334 LIABILITIES AND EQUITY Due to credit institutions 26,075 28,658 33,378 39,621 41,979 Borrowing from the public 1,555 1,573 1,583 1, Other liabilities 7,847 8,929 8,594 10,020 9,370 Total liabilities 35,477 39,160 43,555 51,044 52,295 Equity 24,397 22,836 21,868 20,464 20,039 Total liabilities and equity 59,874 61,996 65,423 71,508 72, ) Return on equity, % C/I ratio before credit losses, % C/I ratio after credit losses, % Capital ratio, % Tier 1 ratio, % Impaired credits reserve ratio, % Proportion of impaired credits, % Credit loss ratio, % Net earnings per share, SEK 1, Ordinary dividend per share, SEK , Average number of employees ) According to statutory IFRS. 2 handelsbanken finans annual report 2012

4 five-year overview Five-year overview and key figures SEK m INCOME STATEMENT Lease income 4,957 5,298 5,004 5,171 5,424 Operating income ,476 Total income 5,391 5,637 5,569 5,686 6,900 Expenses -4,260-4,493-4,643-4,649-4,135 Credit losses Impairment loss on financial assets Total expenses -4,305-4,330-4,751-4,717-4,188 Operating profit 1,086 1, ,712 Appropriations ,067-2,312-3,378-3,977 Taxes Profit for the year ,083-1, BALANCE SHEET Assets Credits to credit institutions 1, Credits to the public 14,037 14,320 14,562 15,876 15,268 Equipment Lease assets 39,548 42,358 43,819 46,565 44,079 Other assets 2,964 2,811 4,353 5,617 6,073 Total assets 57,782 59,777 62,786 68,154 66,257 LIABILITIES AND EQUITY Due to credit institutions 24,341 26,724 30,951 36,377 36,439 Borrowing from the public 1,555 1,573 1,583 1, Other liabilities 1, ,062 3,019 Total liabilities 27,004 29,235 33,393 40,842 40,404 Untaxed reserves 30,364 29,942 28,876 26,565 23,188 Equity ,665 Total liabilities and equity 57,782 59,777 62,786 68,154 66, Capital ratio, % Tier 1 ratio, % Impaired credits reserve ratio, % Proportion of impaired credits, % 1) ) Including leasing. handelsbanken finans annual report

5 administration report Administration report Handelsbanken Finans AB, 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. The Handelsbanken Finans has operations in Sweden, Denmark, Finland, Norway, the UK, Poland and China. Operations outside Sweden are conducted in the form of branches and subsidiaries. Task and goals The task of Handelsbanken Finans is to increase the 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. Handelsbanken Finans defines service as: Availability, Simplicity and Care. Handelsbanken Finans operates as an integral part of the Handelsbanken ; its goal is to contribute to the Bank s corporate goal higher return on equity than the weighted average of peer Nordic and UK banks. Handelsbanken Finans is part of the business area called Direkt within the Handelsbanken. This business area is global product owner for standardised services for both companies and private individuals and is responsible for the customer meeting-places online, mobile and telephone. Business areas Corporate is responsible for leasing, conditional sales, vehicle fleet administration and debt collection services which are offered to companies in Sweden via Handelsbanken s branch operations. Private is responsible for asset financing and unsecured credits to private individuals. These are offered in Sweden via Handelsbanken s branch operations. Retail Financial Services provides financing for purchases of consumer and capital goods through co-operation with retailers in Sweden. In Denmark, Handelsbanken Finans s Danish branch has operations in leasing, conditional sales and retail financial services. In Finland the subsidiary Handelsbanken Rahoitus Oyj conducts operations in leasing, conditional sales, retail financial services, debt collection services and card services. Handelsbanken Finans s Finnish branch runs a leasing operation. In Norway, Handelsbanken Finans s Norwegian branch runs a leasing operation and its subsidiary Kreditt-Inkasso AS runs debt collection operations. Handelsbanken Finans s branches in the UK and Poland conduct leasing and hire purchase operations. In China, Handelsbanken Finans (Shanghai) Financial Leasing Company Ltd works with leasing. Accounting & Finance and Credits are business support units. Lending Handelsbanken Finans s total credits to the public at year-end were SEK 56.8 billion (60.1). Of this amount, the carrying amount of lease agreements was SEK 40.7 billion (43.6). In Handelsbanken Finans AB (parent company), credits to the public, including leasing, decreased by 5 per cent to SEK 53.6 billion. Financial performance Operating profit for the year was SEK 1,228 million (1,456). This lower figure is mainly due to positive net credit losses in 2011 due to nonrecurring effects. Net interest income went down by 2 per cent to SEK 1,539 million due to falling credit volumes. Total operating income went down by 2 per cent to SEK 1,908 million (1,943). Expenses went down to SEK 612 million (644), mainly due to a lower number of employees. Credit losses were SEK -68 million (157). The difference is mainly due to a positive effect on profits in 2011 due to a reassessment of a portfolio of written-off claims which had a oneoff effect of SEK 131 million. Net impaired credits, after deductions for provisions, totalled SEK 60 million (130) at year-end. On 21 November 2012, the Swedish Riksdag voted for corporate tax to be lowered to 22 per cent from 26.3 per cent for the taxation year starting A lower tax rate means that reported deferred tax liabilities are revalued. This had an impact of SEK 1,288 million on the tax. Operating profit was SEK 1,086 million (1,307), a decrease of 17 per cent. This lower figure is mainly due to positive net credit losses in 2011 due to non-recurring effects. Operating income reduced by amortisation of lease assets according to plan fell by 3 per cent to SEK 1,633 million (1,686), mainly due to lower credit volumes. Expenses excluding amortisation of lease assets decreased to SEK 502 million (542) since there were fewer employees. Credit losses were SEK -45 million (163). In 2011, a portfolio of written-off claims was reassessed which resulted in a non-recurring effect of SEK 131 million. Net impaired credits, after deductions for provisions, totalled SEK 54 million (50). For a five-year overview of the income statements and balance sheets of the and parent company, see pages 2 and 3. Risks and risk control Handelsbanken Finans s strict approach to risk means that Handelsbanken Finans deliberately avoids high-risk transactions, even if the remuneration is high at the time. The low risk tolerance is maintained through a strong risk culture that is sustainable in the long term and applies to all areas of the. Handelsbanken Finans s risk management aims to ensure that Handelsbanken Finans fulfils the strict approach to risk decided by the Board and which applies within the rest of the Handelsbanken. The Board establishes policies on risks, funding and capital. Limits are established by the Board for market and liquidity risk. 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 customers; this requires sound credit capacity and preparedness even in troubled times. Handelsbanken Finans uses interest rate swaps to reduce the volatility on the return on the structured lease agreements at Handelsbanken Finans. Cash flow hedges are applied for these swap agreements. For information concerning Handelsbanken Finans s risks and risk control, see note 2 on page handelsbanken finans annual report 2012

6 administration report Capital adequacy At year-end, the s capital ratio calculated according to Basel II was per cent (255.3). The corresponding figure according to the transitional regulations was per cent (176.9). In the parent company, the capital ratio at year-end according to Basel II was per cent (306.7), or per cent (202.1) according to the transitional regulations. Handelsbanken Finans has a satisfactory capital situation and the new regulations for capital adequacy which have been announced are not assessed to imply a major impact on Handelsbanken Finans s capital adequacy. For further information about capital adequacy, see page 32. The Board The Board held thirteen meetings during the year. At these meetings, the Board discussed the financial position and strategy of Handelsbanken Finans. It also followed up limits for market and liquidity risks etc. The Board has received regular information on credit risks and operational risks. The Board has taken decisions on major investment matters and strategic issues. Environmental work Environmental issues are a vital element of the Handelsbanken s operations, and thus also of the Handelsbanken Finans. This applies both to the Bank s environmental responsibility relating to its own operations and to the consideration of environmental risks when granting 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. Employees In 2012, Handelsbanken Finans had an average of 344 (376) employees, working in 7 countries. 35 per cent of employees work outside Sweden. Handelsbanken Finans applies Handelsbanken s employee policies. Successful operations are based on trust and respect for the individual. The decentralised way of working gives employees a considerable degree of freedom and creates a sense of involvement and the opportunity to make a difference. Compensation policy In Sweden, Handelsbanken Finans is party to collective agreements on general terms and conditions of employment during the employment period and on terms and conditions of pensions after employees have reached retirement age. Compensation for work performed is set individually for each employee, and is paid in the form of fixed salary, customary benefits and pension provisions. Salaries are established locally in accordance with the Handelsbanken s decentralised method of working and are revised once a year. Salaries are based on recognised salary-setting factors such as the nature and level of difficulty of the work, skills, performance and results achieved. In Sweden, pension is paid in accordance with collective agreements under a defined-benefit plan, which means that a pension amounting to a certain percentage of final salary is paid during the employee s remaining lifetime. In other countries, both defined-contribution and defined-benefit pension plans apply. No variable compensation is paid at Handelsbanken Finans. The Chief Executive s salary is set annually by Handelsbanken Finans AB. For remuneration to senior management, see note 8 on page 23. The compensation policy has been decided by the Board. structure In 2012, Handelsbanken Finans conducted business via the following wholly-owned subsidiaries: Handelsbanken Finans (Shanghai) Financial Leasing Company Ltd Handelsbanken Rahoitus Oyj Kredit-Inkasso AB Kreditt-Inkasso AS In Sweden, the subsidiary, Kredit-Inkasso AB, conducts debt collection services on behalf of Handelsbanken Finans AB. The future Although the Swedish economy performed well during the year, the situation regarding the global recovery is still highly uncertain. The global economy is in a state of imbalance, with large, indebted economies. In the eurozone, the turbulence had a negative impact on the business cycle. As long as the imbalances prevail, the unstable situation will continue to affect the financial markets. However, Handelsbanken and Handelsbanken Finans s historically low tolerance of risks, sound capitalisation and strong liquidity situation mean that the is well equipped to operate under these conditions. handelsbanken finans annual report

7 financial reports Income statement SEK m Interest income Note 3 2,537 2,726 Interest expense Note ,155 Net interest income 1,539 1,571 Fee and commission income Note Fee and commission expense Note Net fee and commission income Net gains/losses on financial items at fair value Note Other operating income Note Total income 1,908 1,943 Administrative expenses Staff costs Note Other expenses Note Depreciation, amortisation and impairments of property, equipment and intangible non-current assets Note Total expenses Net credit losses Note Operating profit 1,228 1,456 Taxes Note Profit for the year 2,214 1,074 Attributable to Ordinary shareholders 2,214 1,074 Net earnings per share, before and after dilution, SEK 1, Statement of comprehensive income SEK m Profit for the year 2,214 1,074 Other comprehensive income Cash flow hedges Available-for-sale instruments 1 1 Translation differences for the year -7-2 of which hedging of net investment in subsidiaries 49 2 Tax related to other comprehensive income 32 8 of which cash flow hedges 42 9 of which hedging of net investment in subsidiaries Total other comprehensive income Total comprehensive income for the year 2,108 1,047 Attributable to Ordinary shareholders 2,108 1,047 The year s reclassifications to the income statement are presented in note handelsbanken finans annual report 2012

8 financial reports Balance sheet SEK m ASSETS Credits to credit institutions Note 13 1, Credits to the public Note 14 56,840 60,096 Shares and participating interests Note Derivative instruments Note Intangible assets Note Equipment Note Deferred tax assets Note Other assets Note Prepaid expenses and accrued income Note Total assets 59,874 61,996 LIABILITIES AND EQUITY Due to credit institutions Note 22 26,075 28,658 Borrowing from the public Note 23 1,555 1,573 Current tax liabilities 9 52 Deferred tax liabilities Note 26 6,736 7,964 Other liabilities Note Accrued expenses and deferred income Note Total liabilities 35,477 39,160 Share capital Provisions Note Retained earnings 21,883 21,356 Profit for the year 2,214 1,074 Total equity 24,397 22,836 Total liabilities and equity 59,874 61,996 handelsbanken finans annual report

9 financial reports Statement of changes in equity 2011 SEK m Share capital Hedge reserve Fair value reserve Translation reserve Retained earnings Total Opening equity ,435 21,868 Profit for the year 1,074 1,074 Other comprehensive income Total comprehensive income for the year ,074 1,047 Dividend Closing equity ,430 22, SEK m Share capital Hedge reserve Fair value reserve Translation reserve Retained earnings Total Opening equity ,430 22,836 Profit for the year 2,214 2,214 Other comprehensive income Total comprehensive income for the year ,214 2,108 Dividend contribution provided Tax effect on group contribution Closing equity ,097 24,397 A more detailed specification of changes in equity is presented in note handelsbanken finans annual report 2012

10 financial reports Cash flow statement SEK m OPERATING ACTIVITIES Operating profit 1,228 1,456 of which paid-in interest 2,556 2,715 of which paid-out interest -1,069-1,133 Adjustment for non-cash items in operating profit Credit losses Unrealised changes in value -3 4 Depreciation, amortisation and impairments 4 3 Paid income tax Change in the assets and liabilities of operating activities: Credits to credit institutions 1 7 Credits to the public 3,143 1,992 Interest-bearing securities and equities 3-4 Due to credit institutions -2,583-4,720 Borrowing from the public Derivative instruments, net positions Other Cash flow from operating activities 1,375-1,309 INVESTING ACTIVITIES Change in tangible non-current assets Change in intangible non-current assets 3-9 Cash flow from investing activities 1 3 FINANCING ACTIVITIES Dividend paid contribution - 1,580 Cash flow from financing activities ,501 CASH FLOW FOR THE YEAR Liquid funds at beginning of year Cash flow from operating activities 1,375-1,309 Cash flow from investing activities 1 3 Cash flow from financing activities ,501 Exchange rate difference on liquid funds -1-2 Liquid funds at end of year 1, Liquid funds are defined as those parts of the item Credits to credit institutions that relate to bank balances in Swedish kronor and foreign currency. handelsbanken finans annual report

11 financial reports Income statement SEK m Interest income Note 3 1,145 1,178 Lease income Note 4 4,957 5,298 Interest expense Note ,110 Fee and commission income Note Fee and commission expense Note Net gains/losses on financial operations Note Other operating income Note Total income 5,391 5,637 Administrative expenses Staff costs Note Other expenses Note Depreciation, amortisation and impairments of property, equipment and intangible non-current assets Note 10-3,765-3,958 Total expenses -4,260-4,493 Net credit losses Note Operating profit 1,086 1,307 Appropriations Note ,067 Profit before taxes Taxes Note Profit for the year Statement of comprehensive income SEK m Profit for the year Other comprehensive income Cash flow hedges Available-for-sale instruments 1 1 Translation differences for the year 0 7 Tax related to other comprehensive income 42 9 of which cash flow hedges 42 9 Total other comprehensive income Total comprehensive income for the year The year s reclassifications to the income statement are presented in note handelsbanken finans annual report 2012

12 financial reports Balance sheet SEK m ASSETS Credits to credit institutions Note 13 1, Credits to the public Note 14 14,037 14,320 Shares and participating interests Note Shares and participating interests in companies Note 15 1,348 1,348 Derivative instruments Note Intangible assets Note Tangible assets Equipment Note Lease assets Note 19 39,548 42,358 Other assets Note Prepaid expenses and accrued income Note Total assets 57,782 59,777 LIABILITIES AND EQUITY Due to credit institutions Note 22 24,341 26,724 Borrowing from the public Note 23 1,555 1,573 Current tax liabilities 8 51 Deferred tax liabilities Note Other liabilities Note Accrued expenses and deferred income Note Total liabilities 26,964 29,235 Untaxed reserves Note 27 30,364 29,942 Share capital Other funds Note Retained earnings Profit for the year Total equity Total liabilities and equity 57,782 59,777 MEMORANDUM ITEMS Pledged assets for own debt Note 35 12,463 12,806 Contingent liabilities Note Commitments Note 30 11,794 12,251 handelsbanken finans annual report

13 financial reports Statement of changes in equity 2011 Restricted equity Unrestricted equity SEK m Share capital Statutory reserve Hedge reserve 1) Fair value reserve 1) Translation reserve 1) Retained earnings Total Opening equity Profit for the year Other comprehensive income Total comprehensive income for the year Dividend Closing equity Restricted equity Unrestricted equity SEK m Share capital Statutory reserve Hedge reserve 1) Fair value reserve 1) Translation reserve 1) Retained earnings Total Opening equity Profit for the year Other comprehensive income Total comprehensive income for the year Dividend contribution provided Tax effect on group contribution Closing equity ) Included in fair value fund. A more detailed specification of changes in equity is presented in note handelsbanken finans annual report 2012

14 financial reports Cash flow statement SEK m OPERATING ACTIVITIES Operating profit 1,086 1,307 of which paid-in interest 1,162 1,167 of which paid-out interest -1,035-1,089 Adjustment for non-cash items in operating profit Credit losses Unrealised changes in value -3 4 Depreciation, amortisation and impairments 3,765 3,958 Paid income tax Change in the assets and liabilities of operating activities: Credits to credit institutions 1-26 Credits to the public Lease assets ,505 Interest-bearing securities and equities 3-4 Due to credit institutions -2,383-4,227 Borrowing from the public Derivative instruments, net positions Other Cash flow from operating activities 1,349-1,322 INVESTING ACTIVITIES Change in shares and participating interests - 27 Change in tangible non-current assets Change in intangible non-current assets 2-10 Cash flow from investing activities 0 32 FINANCING ACTIVITIES Dividend paid Paid-in contribution - 1,580 Cash flow from financing activities ,501 CASH FLOW FOR THE YEAR Liquid funds at beginning of year Cash flow from operating activities 1,349-1,322 Cash flow from investing activities 0 32 Cash flow from financing activities ,501 Exchange rate difference on liquid funds -1-1 Liquid funds at end of year 1, Liquid funds are defined as those parts of the item Credits to credit institutions that relate to bank balances in Swedish kronor and foreign currency. handelsbanken finans annual report

15 Notes Note 1 Accounting policies CONTENTS 1. Statement of compliance 2. Changed accounting policies etc 3. Basis of consolidation and presentation 4. Assets and liabilities in foreign currencies 5. Recognition of assets and liabilities 6. Classification of financial assets and liabilities 7. Calculation of fair value for financial assets and liabilities 8. Credit losses and impairment of financial assets 9. Hedge accounting 10. Leases 11. Intangible assets 12. Equipment 13. Equity 14. Income 15. Employee benefits 16. Taxes 17. Material assessments and assumptions concerning the future 18. Contingent liabilities 1. STATEMENT OF COMPLIANCE The consolidated accounts have been prepared in accordance with international financial reporting standards (IFRSs) and interpretations of these standards as adopted by the EU. The accounting policies also follow the Annual Accounts Act for Credit Institutions and Securities Companies (1995:1559), and the regulations and general guidelines issued by the Swedish Financial Supervisory Authority, FFFS 2008:25, Annual reports in credit institutions and investment firms in accordance with the change directives in FFFS 2009:11 and FFFS 2011:54. RFR 1 Supplementary accounting rules for groups as well as statements from the Swedish Financial Reporting Board are also applied in the consolidated accounts. The parent company s accounting policies are presented further down in this note. Issuing and adoption of annual report The annual report and consolidated accounts were approved for issue by the Board on 20 March 2013 and will be presented for adoption by the AGM on 25 April CHANGED ACCOUNTING POLICIES, ETC. No accounting regulatory changes that came into force as of 2012 had a material impact on the s reported figures or financial position. The s annual report has thus been prepared in accordance with the same accounting policies and calculation methods applied in the 2011 annual report. Future amendments to regulations As of the 2013 financial year, IFRS 13 Fair Value Measurement comes into effect for application in the EU. The standard deals with joint principles for fair value measurement of most of the assets and liabilities at fair value in the accounts, or for which information about fair value must be provided. IFRS 13 clarifies some of the principles for fair value measurement which were previously applied in accordance with IAS 39 Financial Instruments: Recognition and Measurement. According to the current assessment, the application of IFRS 13 will not affect the reported values for financial instruments to any significant degree. The other amendments to standards or interpretive communications adopted or expected to be adopted by the EU for application as of the 2013 financial year are not judged to affect the s financial reports to a material extent. The IASB has issued three new standards that affect consolidated annual accounts: IFRS 10 Consolidated Financial Statements, IFRS 11 Joint arrangements and IFRS 12 Disclosures of interest in other entities have been approved by the EU and according to the EU will be implemented in the financial year starting 1 January 2014 or later. The new regulations mean that the current criteria in IAS 27 and SIC 12 for consolidation are being replaced by a number of assessment criteria for when controlling influence on another company exists. Our preliminary assessment is that the companies which will be consolidated in the consolidated annual accounts according to the new regulations are essentially the same as the companies consolidated using the current regulations. IASB is currently revising a number of existing standards. Of these revisions, IFRS 9 Financial Instruments and IAS 17 Leases, are expected to have the greatest impact on Handelsbanken Finans s financial reporting. 3. BASIS OF CONSOLIDATION AND PRESENTATION All companies directly or indirectly controlled by Handelsbanken Finans (subsidiaries) have been fully consolidated. Control is normally presumed to exist if Handelsbanken Finans holds more than 50 per cent of the voting power at shareholders meetings or the equivalent. Handelsbanken Finans has a 100 per cent ownership interest in all its subsidiaries. Subsidiaries are consolidated according to the acquisition method. This means that the acquisition of a subsidiary is regarded as a transaction where the acquires the company s identifiable assets and assumes its liabilities and obligations. In the case of business combinations, an acquisition balance sheet is prepared, where identifiable assets and liabilities are valued at fair value at the time of acquisition. The cost of acquisition comprises the fair value of all assets, liabilities and issued equity instruments provided as payment for the net assets in the subsidiary. Any surplus due to the cost of acquisition exceeding the identifiable net assets on the acquisition balance sheet is recognised as goodwill in the s balance sheet. The subsidiary s financial reports are included in the consolidated accounts starting on the acquisition date until the date on which control ceases. Intra-group transactions and balances are eliminated when preparing the s financial reports. Where the accounting policies applied for an individual subsidiary do not correspond to the policies applied in the, an adjustment is made to the consolidated accounts when consolidating the subsidiary. 4. ASSETS AND LIABILITIES IN FOREIGN CURRENCIES The s presentation currency is Swedish kronor. The functional currency for the s operations outside Sweden usually differs from the s presentation currency. The currency used in the economic environment where the operations are primarily conducted is regarded as the functional currency. Transactions in foreign currency are translated to the functional currency on the transaction date. Monetary items and assets and liabilities at fair value are valued at the functional currency s spot price at the end of the balance sheet date. Translation differences arising from non-monetary items classified as available-forsale financial assets are recognised as a component of Other comprehensive income and accumulated in equity. Exchange rate differences arising when translating monetary items comprising part of a net investment in a foreign operation are recognised in the same way. Other exchange rate differences are recognised in the income statement. Translation of foreign operations to the s presentation currency When translating the foreign units (including branches ) balance sheets and income statements from the functional currency, the current method has been used. This means that assets and liabilities are translated at the closing day rate. Equity is translated at the rate applicable at the time of investment or earning. The income statement has been translated at the average 14 handelsbanken finans annual report 2012

16 annual rate. Translation differences are recognised as a component of Other comprehensive income and are included in the translation reserve in equity. 5. 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 and when the value or acquisition cost of the asset can be reliably measured. Liabilities are the s existing obligations which as a result of past events are expected to lead to an outflow of resources from the. A liability is recognised in the balance sheet when, in order to fulfil an existing obligation, it is probable that the must surrender a resource with a value that can be reliably measured. Financial assets are recognised in the balance sheet when the becomes a party to the contractual provisions of the instrument. Purchases and sales of money market and capital market instruments 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. When accounting for business combinations, the acquired operations are recognised in the s accounts from the acquisition date. The acquisition date is the date when controlling influence of the acquired entity starts. The acquisition date may differ from the date when the transaction is legally established. The policies for recognising assets and liabilities in the balance sheet are of particular significance when accounting for leases. See the separate sections on these issues below. Dividends are recognised as a liability after the annual general meeting has approved the dividend. 6. CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES For the purposes of measurement, in compliance with IAS 39, all financial assets are placed in the following valuation categories: 1. credits and receivables 2. assets held to maturity 3. assets at fair value through profit or loss held for trading assets which upon initial recognition were designated at fair value through profit or loss 4. available-for-sale assets. Financial liabilities are classified as follows: 1. liabilities at fair value through profit or loss liabilities held for trading liabilities which upon initial recognition were designated at fair value through profit or loss 2. other financial liabilities. The classification in the balance sheet is independent of the measurement category. Thus different measurement principles may be applied for assets and liabilities carried on the same line in the balance sheet. A classification into measurement categories of the financial assets and liabilities which are recognised on the balance sheet is shown in note 31. Upon initial recognition, all financial assets and liabilities are designated at fair value. For assets and liabilities at fair value through profit or loss, the transaction costs are recognised directly in profit or loss at the time of acquisition. For other financial instruments, the transaction costs are included in the cost price. Credits and receivables Assets in the category Credits and receivables are carried at amortised cost, i.e. the discounted present value of all future cash flows relating to the instrument where the discount rate is the asset s effective interest rate at the time of acquisition. Credits and receivables are subject to impairment testing when there are indications of a need to recognise an impairment loss. See section 8 for more details. The impairment loss is recognised in the income statement. Credits and receivables are thus recognised at their net amount, after deduction for probable and actual credit losses. Early redemption fees for credits and receivables repaid ahead of time are recognised immediately in the income statement under Net gains/losses on financial items at fair value. Assets and liabilities held for trading Assets and liabilities held for trading are recognised at fair value in the balance sheet. Interest, dividends and other value changes related to these instruments are recognised in the income statement under Net gains/losses on financial items at fair value. Derivatives that are not hedging instruments are always classified as held for trading. Available-for-sale financial assets The s holdings of equities for which there is an active market but which are not held for trading are classified as available-for-sale financial assets. Financial assets which have been classified as available for sale are recognised at fair value in the balance sheet. Changes in the market value of the assets are recognised as a component of Other comprehensive income and are included in the fair value reserve in equity. Changes in fair value are not recognised in the income statement until the asset has been realised or an impairment loss has occurred. Impairment testing of available-for-sale financial assets is performed when there is an indication of a need to recognise an impairment; see section 8 concerning impairment losses for financial assets. Dividends on shares designated as available for sale are continuously recognised in profit or loss as Other dividend income. Committed credit offers Committed credit offers are reported off balance until the settlement date of the credit. Fees received for committed credit offers are accrued in net fee and commission income over the term of the commitment unless it is highly probable that the commitment will be fulfilled in which case the fee received is included in the effective interest rate of the credit. 7. CALCULATION OF FAIR VALUE FOR FINANCIAL ASSETS AND LIABILITIES For financial instruments listed on an active market, the fair value is the same as the quoted market price. An active market is one where quoted prices are readily and regularly available from a regulated market, multilateral trading facility, reliable news service or equivalent and where the price information received is easily verifiable by means of regularly occurring transactions. The current market price is generally the same as the current bid price for financial assets or the current asking price for financial liabilities. For holdings which comprise risk positions that to a large degree balance each other out, the current market price is the mid-market price on the balance sheet date. For financial instruments where there is no active market, the fair value is determined using comparisons with recently performed transactions in the same instrument or instruments with similar characteristics. If this information is not available, valuation models are used that in all essentials are based on variables from active markets, for example interest rates and share prices. All the valuation models are commonly used in the market and are continuously validated by the s independent risk control. For certain financial instruments, the valuation models are partly based on assumptions that cannot be directly derived from market data. This is the case for example for unlisted shares and participating interests and holdings of more advanced derivative instruments with a longer maturity. The assumptions used in the valuation are based on internally generated experience and are continuously examined by the risk organisation. The result is compared with the actual outcome so as to identify any need to adapt the forecasting tool. Shares and participating interests Equities listed on an active market are valued at market price. Derivatives Derivatives which are traded on an active market are valued at market price. A number of derivatives, such as swap agreements, are valued on the basis of yield curves and other market handelsbanken finans annual report

17 Note 1 Cont. information. When valuing non-standardised derivative contracts that are not traded actively, standard valuation models are used based on all parameters that the market would take into account in the pricing. The primary input data in these models is always market information. If there is no reliable market information, the valuation is based on a reasonable assessment of the input data, for example, volatility. All valuation models are regularly validated on the basis of market data in order to ensure their reliability. 8. CREDIT LOSSES AND IMPAIRMENT OF FINANCIAL ASSETS Credits and receivables recognised at amortised cost All units with customer and credit responsibility in the regularly perform individual assessments of the need for recognising impairment losses for credits and receivables that are recognised at amortised cost. Impairment testing is performed where there is objective evidence that the recoverable amount of the credit is less than its carrying amount. Objective evidence could, according to the circumstances, be late or non-payment, bankruptcy, changed credit rating or a decline in the market value of the collateral. When performing impairment testing, the recoverable amount of the credit is calculated by discounting the estimated future cash flows related to the credit and any collateral (including guarantees) by the effective interest rate of the credit. If the collateral is a listed asset, the valuation of the collateral is based on the quoted price; otherwise the valuation is based on the yield or the estimated market value determined in some other manner. An impairment loss is recognised if the estimated recoverable amount is less than the carrying amount and is recognised as a credit loss in the income statement. A reported credit loss reduces the carrying amount of the credit in the balance sheet, either directly (actual loss) or by a provision account for credit losses (probable loss). In addition to this individual assessment of credits, a collective assessment is made of individually measured credits with the purpose of identifying the need to recognise an impairment loss that cannot yet be allocated to individual credits. The analysis is based on a distribution of individually valued credits in terms of the risk class. An impairment loss is recognised if this is justifiable taking into account changes in the risk classification and expected loss. Impairment losses which have been recognised for a group of credits are transferred to impairment losses for individual credits as soon as there is available information about the impairment in value at an individual level. Collective impairment testing is also performed for homogeneous groups of smaller credits with a similar risk profile in which no single credit is of particular significance, primarily card credits and minor credits to private individuals. Impairment testing is performed where there is objective evidence that the recoverable amount of a group of credits is less than their carrying amount. Objective evidence could, for example, be late or non-payment. Credit losses for the period comprise actual losses and probable losses on credits granted, minus recoveries and reversals of previous impairment losses recognised for probable credit losses. Actual credit losses may refer to entire credits or parts of credits and are recognised when there is no realistic possibility of recovery. This is the case, for example, when a trustee in bankruptcy has estimated bankruptcy dividends, when a scheme of arrangement has been accepted, or the credit has been reduced in some other way. An amount forgiven in connection with reconstruction of a credit or group of credits is always classified as an actual loss. If the customer is following a payment plan for a credit which was previously classified as an actual credit loss, the amount of the loss is subject to new testing. Recoveries comprise reversed amounts on credit losses previously reported as actual losses. Information about probable and actual losses is provided in note 11. Information concerning impaired credits Information concerning impaired credits is provided gross, before a provision for probable credit losses, and net, after a provision for probable credit losses. Credits are defined as impaired if it is not probable that all contracted cash flows will be fulfilled. The full amount of all credits which have been classified as impaired are carried as impaired credits even if parts of the credit are covered by collateral. Credits which have been written down as actual credit losses are not included in impaired credits. 9. HEDGE ACCOUNTING The applies different methods for hedge accounting depending on the purpose of the hedge. For cash flow hedges, interest rate swaps are used as the hedging instrument. When hedging currency risks related to net investments in foreign units, financial liabilities in the functional currency of the foreign unit are used as the hedging instrument. Cash flow hedges are applied to eliminate undesirable exposure to variations in cash flows related to changes in the variable interest rate on lending and funding. This type of lending and funding normally has a long expected maturity while the fixing period is very short. Interest rate swaps are used to hedge the future interest payments for a required maturity. To eliminate the uncertainty in future refinancing and reinvesting interest rates, interest rate swaps are used with a future value date. Since the future cash flows are contracted, the probability of them occurring is deemed to be very high. With cash flow hedges, the interest rate swap used to protect against uncertainty in future cash flows is valued 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 as a component of Other comprehensive income and accumulated in the hedge reserve in equity. Ineffective components of gains and losses on the swap are recognised in the income statement. More information about cash flow hedges is provided in note 16. Hedging of net investments in foreign units is applied to protect the from exchange rate differences due to operations abroad. Credits in foreign currency raised to hedge net investments in foreign operations are recognised in the at the exchange rate on the balance sheet date. The effective part of the exchange rate differences for such credits is recognised as a component of Other comprehensive income and is accumulated in the translation differences reserve in equity. The ineffective components of the hedge are recognised in the income statement. 10. LEASES The s leases are defined as either finance leases or operating leases. A finance lease transfers substantially all the risks and rewards incidental to legal ownership of the leased asset from the lessor to the lessee. Other leases are operating leases. All leases where the is the lessor have been defined as finance leases. Lease agreements of this kind are accounted for as credits in the balance sheet, initially for an amount corresponding to the net investment. Lease fees received are recognised on a continual basis as interest income or repayments. Impairment testing on finance leases is performed according to the same principles as for other lending which is reported at amortised cost. Expenses relating to operating leases where the is the lessor are recognised on a straight-line basis as other expenses. 11. INTANGIBLE ASSETS Recognition in the balance sheet An intangible asset is an identifiable non-monetary asset without physical form. An intangible asset is only recognised in the balance sheet if the probable future economic benefits attributable to the asset will flow to the and the cost of acquisition can be reliably measured. This means that internally generated values in the form of goodwill, trademarks, customer databases and similar are not recognised as assets in the balance sheet. Investments in software developed by the Bank are carried as an expense on a current basis to the extent that the expenditure refers to maintenance of existing business operations or previously capitalised software. In the case of development of new software, or new business operations for existing software, the expenditure incurred is capitalised from the time when it is probable that economic benefit that can be reliably measured will arise. Expenditure arising from borrowing costs is capitalised from the date on which the decision was made to capitalise expenditure for development of intangible assets. 16 handelsbanken finans annual report 2012

18 Goodwill Goodwill is carried at cost less any impairment losses. These assets are tested annually for impairment when preparing the annual accounts or when there is an indication that the asset is impaired. Impairment testing is performed by calculating the recoverable amount of the assets, i.e. the higher of the value in use and the fair value less costs to sell. As long as the recoverable amount exceeds the carrying amount, no impairment loss needs to be recognised. Impairment losses are recognised directly in the income statement. Material assessments and assumptions in impairment testing of goodwill are described in note 17 and in section 17. Previously recognised goodwill impairment losses are not reversed. Intangible assets with a finite useful life Intangible assets for which it is possible to establish an estimated useful life are amortised. The amortisation is on a straight-line basis over the useful life of the asset. The amortisation period is tested on an individual basis at the time of new acquisition and also continually if there are indications that the useful life may have changed. Intangible assets with a finite useful life are tested for impairment when there is an indication that the asset may be impaired. The impairment test is performed in the same way as for intangible assets with an indefinite useful life, i.e. by calculating the recoverable amount of the asset. 12. EQUIPMENT The s tangible non-current assets consist of equipment that is recorded at cost of acquisition less accumulated depreciation and impairment losses. Depreciation is based on the estimated useful lives of the assets. A linear depreciation plan is usually applied. The estimated useful lives are tested annually. Personal computers are usually depreciated over three years and other equipment is depreciated over five years. Impairment testing of tangible non-current assets 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 the income statement. 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. 13. EQUITY Equity comprises share capital, provisions and retained earnings. Retained earnings Retained earnings comprise the profits generated from the current and previous financial years. Hedge reserve Unrealised changes in value on derivative instruments which comprise hedge instruments are reported in the hedge reserve. Fair value reserve The fair value reserve comprises unrealised changes in value on financial assets classified as available for sale. Translation reserve The translation reserve comprises unrealised foreign exchange effects arising due to translation of foreign units to the currency of the consolidated accounts. 14. 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. The following general principles apply to recognition of income for various types of fees and charges: Fees attributable to a specific service or action are recognised as income at the time the service is performed. Examples of such fees are brokerage and payment commission. Fees that constitute part of the effective interest of a financial instrument are accrued in cases where the instrument is valued at amortised cost in accordance with the effective interest method. For financial instruments at fair value, such fees are recognised as income immediately. Net interest income Interest income and interest expense are recognised as Net interest income in the income statement, with the exception of interest flows deriving from available-for-sale financial instruments. Net interest income also includes interest deriving from derivative instruments that hedge items whose interest flows are recognised in Net interest income. In addition to interest income and interest expense, net interest income includes fees for state guarantees such as deposit guarantees and stability fees. Net fee and commission income Income and expense for various kinds of services are recognised in the income statement under Fee and commission income and Fee and commission expense, respectively. This primarily concerns commission related to leasing and conditional sales. Net gains/losses on financial items at fair value Net gains/losses on financial items at fair value include all items with an impact on profit or loss which arise when measuring financial assets and liabilities at fair value in the income statement and when financial assets and liabilities are realised. Specifically, the following items are reported here: Capital gains or losses from the disposal and settlement of financial assets and liabilities. Realised and unrealised changes in value on financial assets and liabilities classified as held for trading. Interest from held-for-trading financial instruments, with the exception of interest originating from derivatives that are hedging instruments whose interest flows are reported in Net interest income. Ineffective component of the value change on derivatives which comprise hedging instruments in cash flow hedges. Ineffective component of the value change on hedging instruments which are hedging net investments in foreign operations. Dividend received Dividends on shares classified as available for sale are recognised in profit and loss as Other dividend income, if such income exists. 15. EMPLOYEE BENEFITS Staff costs Staff costs consist of salaries, pension costs and other forms of direct staff costs including social security costs, special payroll tax on pension costs and other forms of payroll overheads. Accounting for pensions Post-employment benefits to employees consist of defined-contribution plans. Benefit plans under which the pays fixed contributions into a separate legal entity and subsequently has no legal or constructive obligation to pay further contributions if the legal entity does not hold sufficient assets to fulfil its obligations to the employee are accounted for as definedcontribution plans. Premiums paid for definedcontribution plans are recognised in the income statement as staff costs as they arise. 16. TAXES On 21 November 2012, the Swedish Riksdag voted for corporate tax to be lowered to 22 per cent from 26.3 per cent for the taxation year starting 1 January A lower tax rate means that reported deferred tax liabilities are revalued. 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 and adjustments made to previous years. Deferred tax is tax referring to temporary differences between the carrying amount of an asset or liability and its taxable value. Deferred taxes are valued at the tax rate which is deemed to be applicable when the item is realised. Deferred tax assets related to deductible temporary differences and loss carry-forwards are only recognised if it is probable that they will be utilised. Deferred tax liabilities are carried at nominal value. Tax is recognised in the income statement or in other comprehensive income depending on where the underlying transaction is reported. The impact of changed tax rates is recognised in the income statement. handelsbanken finans annual report

19 Note 1 Cont. 17. MATERIAL ASSESSMENTS AND ASSUMPTIONS CONCERNING THE FUTURE In certain cases, the application of the s accounting policies means that assessments must be made that may have a material impact on amounts reported. The amounts reported are also affected in a number of cases by assumptions about the future. Such assumptions always imply a risk for adjustment of the carrying amount of assets and liabilities. The assessment and assumptions applied always reflect management s best and fairest assessments are continually subject to examination and validation. Below follows a report of the assessments and assumptions that have had a material impact on the financial reports. Information on key assumptions is also described in the relevant notes. Assessment of need to recognise an impairment loss for credits and receivables The value of the s receivables is tested at regular intervals. If necessary, the credit is written down to the assessed recoverable amount. The estimated recoverable amount is based on an assessment of the counterparty s financial repayment capacity and assumptions on the realisable value of any collateral. The final outcome may deviate from the original provisions for credit losses. The assessments and assumptions used are subject to regular checks by the internal credit organisation. See also note 2 for a more detailed description of internal risk control and how the manages credit risk. Goodwill impairment testing When performing impairment testing of goodwill, the operations assets which derive from goodwill are valued using the present value calculation of future cash flows. The cash flow forecasts are based on assumptions concerning the operations growth rate, cost development, etc. The assumptions on which the forecast period and discount rate are based are also of importance for the outcome of the impairment testing. To guarantee the reliability of the forecast methods and values applied, a comparison is made between previous forecasts and outcomes in individual years. Future adaptations are based on the comparison. 18. CONTINGENT LIABILITIES A contingent liability is reported when there is a possible commitment related to events which have occurred and whose existence is confirmed only by one or more uncertain future events or where there is a commitment which is not reported as a liability or provision because it is not probable that an outflow of resources will be required. Accounting policies 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 2008:25 Annual Reports in Credit Institutions and Investment Firms in accordance with the change directives in FFFS 2009:11 and FFFS 2011:54, the Swedish Financial Reporting Board s recommendation RFR 2 Accounting for legal entities and also statements from the Swedish Financial Reporting Board. In accordance with the Swedish Financial Supervisory Authority s general guidelines, the parent company applies 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. Relationship between parent company and accounting policies The parent company s accounting policies correspond largely to those of the. The following reports only on the areas where the parent company s policies differ from those of the. In all other respects, please refer to the accounting policies for the above. Changed accounting policies No accounting regulatory changes that came into force as of 2012 had a material impact on the parent company s reported figures or financial position. The parent company s annual report has thus been prepared in accordance with the same accounting policies and calculation methods applied in the 2011 annual report. Presentation The parent company applies the presentation models for the income statement and balance sheet in compliance with the Annual Accounts Act for Credit Institutions and Securities Companies and the Swedish Financial Supervisory Authority s regulations. This mainly implies the following differences relative to the presentation by the : Dividends received are reported on a separate line in the parent company s income statement. The gain/loss arising when divesting property, equipment and intangible non-current assets in the parent company is reported as other income/expense. Memorandum items are reported in direct conjunction with the parent company s balance sheet. Untaxed reserves that are split into equity share and tax liability in the are reported as a separate balance sheet item in the parent company. Assets and liabilities in foreign currencies Credits in the parent company which are hedging net investments in foreign operations are measured at the historical rate of exchange. Assets held for sale There is no separate distinction of assets heldfor-sale in the balance sheet. Shares in subsidiaries Shares in subsidiaries are measured at cost. Dividends on shares in subsidiaries are recognised as income in profit or loss under Dividends received. Intangible assets In the parent company, acquisition assets and other intangible assets are amortised in compliance with the provisions of the Annual Accounts Act. The useful life of goodwill on acquisitions in the parent company is judged to be very long and the amortisation period is set at 11 and 20 years respectively. 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. In the, all leases are categorised as finance leases. The Swedish Financial Reporting Board s recommendation RFR 2 allows a lessor the right to classify all leases in the annual accounts of a legal entity as operating leases. This classification has been used in the parent company s annual accounts. The income is thus reported as lease income. The assets are reported as property and equipment, thus permitting the parent company to depreciate them. Lease assets are depreciated according to the annuity method. 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. Otherwise the total depreciation during the lease period is equal to the acquisition price of the asset. The depreciation plan is determined individually for each asset. Taxes In the parent company, untaxed reserves are recognised as a separate item in the balance sheet. Untaxed reserves may be divided into two parts: deferred tax liabilities and equity. 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/decrease of Retained earnings. 18 handelsbanken finans annual report 2012

20 Note 2 Risks and risk control Risk and capital management The financial markets have again been under considerable stress during the year. This stress is based on the inability of indebted countries to manage their structural imbalances at the same time as they and many other countries around the world need to handle the early stages of a recession. Traditional solutions to resolve an economic downturn tend to exacerbate the structural imbalances. These external conditions affect the financial sector and also Handelsbanken, which, however, always strives to have low exposure to macro-economic risks. In addition to this there is still uncertainty regarding future regulations. Handelsbanken has no direct exposure to the troubled countries and has very limited other exposures in these countries, but the stress on the financial markets also affects Handelsbanken s home markets. Handelsbanken s historically low tolerance of risk, sound capitalisation and strong liquidity situation means that the Bank is well equipped to cope with substantially more difficult market conditions than those experienced during the year. The Handelsbanken Finans is an integrated part of the Handelsbanken (the Bank). Although the Bank and thus Handelsbanken Finans do not have any direct exposures to states or credit institutions with problems, the current situation externally has an indirect effect on the Bank s and Handelsbanken Finans s customers and thus Handelsbanken Finans. On the other hand, the economic downturn in itself has not changed the Bank s or Handelsbanken Finans s way of doing business. All business decisions always take into account the risk of changed conditions externally. This has been manifested in the longer term through low credit losses and an even financial performance. Handelsbanken Finans s strict approach to risk means that Handelsbanken Finans deliberately avoids high-risk transactions, even if the remuneration is high at the time. The low risk tolerance is maintained through a strong risk culture that is sustainable in the long term and applies to all areas of the. 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 customers; this requires sound credit capacity and preparedness even in troubled times. Handelsbanken Finans operates in several countries and many different business fields. This entails a variety of risks that are systematically identified, measured, analysed and managed. The liquidity situation is planned so that business operations are not restricted when the financial markets are disrupted. RISKS AT HANDELSBANKEN FINANS Credit risk Market risk Liquidity risk Operational risk Business risk The risk of Handelsbanken Finans facing economic loss because its counterparties cannot fulfil their contractual obligations. Risk arising from price and volatility changes in the financial markets. The risk that Handelsbanken Finans will not be able to meet its payment obligations when they fall due without being affected by unacceptable costs or losses. The risk of loss due to inadequate or failed internal processes, human error, errors in systems or external events. The risk of unexpected changes in earnings that are not attributable to the risk categories described above. Handelsbanken Finans s risk management aims to ensure that Handelsbanken Finans fulfils the strict approach to risk decided by the Board and which applies within the rest of the Handelsbanken. For further information, see note 37, Capital adequacy. Risk organisation The Board is responsible for assessing and monitoring the risks arising in the s operations. The Board establishes policy documents describing how various risks should be managed and reported. The Chief Executive of Handelsbanken Finans issues instructions for the operations on the basis of policies issued by the Board. The Bank s Central Treasury Department delegates limits for interest rate risk, exchange rate risk and liquidity risk to Handelsbanken Finans whose board then establishes the limits. The independent risk control at Handelsbanken Finans measures, analyses and reports these risks every day to Central Risk Control at the Bank and regularly to the management and Board of Handelsbanken Finans. The independent risk control function at Handelsbanken Finans presents matters to Handelsbanken Finans s risk committee. The risk committee consists of the head of the business area Handelsbanken Direkt which includes Handelsbanken Finans, the Chief Executive of Handelsbanken Finans and Handelsbanken Finans s CFO. In addition to financial risks, other matters relating to risk are reported and Handelsbanken Finans s risk and capital situation according to Pillar II. Credit risks Handelsbanken Finans s credit policy is established by Handelsbanken Finans s Board and is based on the credit policy established by the Bank s 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 rapid and efficient. If necessary, expertise from central departments at Handelsbanken Finans 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 Bank provides an internal guarantee for these credits. As at 31 December 2012 this amounted to SEK 47 billion (51) of total lending of SEK 57 billion (60). In addition to these, there are committed credit offers of SEK 3.5 billion (4.8) out of a total of SEK 14 billion (15) for committed offers. Credit risk exposure SEK m Credits to credit institutions 1, of which claim on Handelsbanken 1, Credits to the public 56,840 60,096 Shares and participating interests 3 2 Derivatives Other assets 1,274 1,005 of which claim on Handelsbanken 11 7 Committed credit offers 14,245 15,049 Total 74,119 77,045 Credits for which Handelsbanken Finans bears the credit risk are generated mainly from credits in Handelsbanken Finans s Retail Financial Services. These credits are offered via retailers, in the car and home electronic sectors for example. These are largely account-based credits. Most of Handelsbanken Finans s credit cards have been processed in a credit management system developed in-house by Handelsbanken Finans. 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. Credit losses as a proportion of lending for credits where Handelsbanken Finans bears the credit risk are shown in the diagram below. % Average volume 12 mths, SEK m Gross credit losses, % SEK m 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Recoveries, % Net credit losses, % handelsbanken finans annual report

21 Note 2 Cont. The distribution of credit exposure and committed credit offers granted per country is shown in the below tables. Credit exposure per country On-balance, SEK bn Sweden Denmark Norway Finland Total Committed credit offers granted by country Off-balance, SEK bn Sweden Denmark Norway - - Finland Total At the year-end the distribution of the credit portfolio for the counterparty types private and corporate was SEK 8.6 billion (8.7) and SEK 0.3 billion (0.3). At the same date, committed credit offer volumes were SEK 10.5 billion (10.1) for private customers and SEK 0.0 billion (0.0) for companies. Handelsbanken s and Handelsbanken Finans s internal risk classification system enable 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 Handelsbanken Finans calculate and classify risks, quantify and validate methods is also an important component in the Swedish Financial Supervisory Authority s review in conjunction with approval of the Bank s application of the IRB method for calculating the statutory capital requirement. Internal Audit regularly examines the risk classification system and its application. Collateral When Handelsbanken and Handelsbanken Finans assess the credit risk of a specific customer, the assessment is mainly based on the borrower s repayment capacity. According to the Bank s credit policy, weak repayment capacity can never be accepted on the grounds that good collateral has been offered to the Bank. Collateral may, however, substantially reduce the Bank s loss if the borrower cannot fulfil his obligations to the Bank. The types of collateral held by Handelsbanken Finans to minimise the credit risk consist of movable property. Credits must therefore normally be adequately secured. Credits without collateral occur for small credits to private individuals with good repayment capacity. Since collateral is not generally utilised until a borrower has serious repayment difficulties, the collateral valuation focuses on its expected value in the case of insolvency. The value of certain types of asset may change considerably from the period before and the time of a forced sale. Funding and financial risk Handelsbanken s funding operations are centralised to Central Treasury and this also applies to Handelsbanken Finans s operations. A small amount of funding has been obtained from other counterparties than the Bank. Financial risks include interest rate risk, liquidity risk and exchange rate risk. Interest rate risk Interest rate risks arise when the rate adjustment periods for financial assets and liabilities do not coincide. At Handelsbanken Finans, interest rate risk is defined and limited as the difference that arises in the present value of future cash flows if the yield curve experiences a shift of one percentage point. The risk measure includes both interest-bearing items at market value and not at market value and it is therefore not appropriate to assess the effects on the balance sheet and income statement. It does not take into account the equity held by Handelsbanken Finans nor the company s opportunities to adapt to changed interest rate levels. 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 volatility on the return on the structured lease agreements at Handelsbanken Finans. These swap agreements are made only with Handelsbanken as the counterparty and they are in turn hedged against an external counterparty. The interest rate risk as at 31 December 2012 was SEK 63 million (121). At the same date, the interest rate risk in the swap agreements with the Bank was SEK 56 million (120) Liquidity risk Handelsbanken s Central Treasury has overall responsibility for Handelsbanken Finans s funding and liquidity risk management. Liquidity risk management is completely centralised in the Handelsbanken in what is otherwise a decentralised business model. The basic condition for funding of the operations is that it must promote long-term stable growth in profits by limiting market and liquidity risks.this is achieved by matching cash flows between funding and lending. The Bank thus minimises the economic risks in funding and can determine stable and long-term internal interest rates to the business operating units. Internal interest rates reflect the liquidity risk and the cost of maintaining the required liquidity reserves. Liquidity is planned so that Handelsbanken, and thus Handelsbanken Finans, can manage for at least a twelve-month period without borrowing any new funds in the financial markets, while maintaining operations. Handelsbanken maintains the requisite liquidity reserves for Handelsbanken Finans to ensure access to liquidity, even in extremely negative scenarios. Liquidity risk is measured and limited by carrying out a gap analysis of cash flows for various maturities and all currencies, where the limit states the highest accumulated liquidity deficit Handelsbanken Finans is permitted to have in given time periods. The cash flow table shows undiscounted cash flows on the liabilities and assets side for the contracted payment commitments that are due for payment at the latest within the stated time intervals, including interest flows. Exchange rate risk Handelsbanken Finans has home markets outside Sweden and also operations in a number of other countries. Indirect currency exposure of a structural nature therefore arises, because the s accounts are expressed in Swedish kronor. The structural risk is minimised by matching assets and liabilities in the same currency as much as possible. The exchange rate movements that affect Handelsbanken Finans s equity are stated in note 36, Specification of changes in equity. Some foreign exchange exposure also arises in the regular operations. This exchange rate risk is measured and limited with position limits. At year-end, the aggregate net position amounted to SEK 0.2 million (0.2). The exchange rate risk at Handelsbanken Finans does not depend on trends for an individual currency or group of currencies, because the positions are very short and arise in mana- Assets 3 mths 3-12 mths 1-5 yrs Over 5 yrs Total Credits to credit institutions Credits to the public 2,226 5,397 21,544 26,846 56,013 Internal lending 1, ,166 Interest on lending ,228 3,384 7,882 Cash flows, off-balance volumes Liabilities 3 mths 3-12 mths 1-5 yrs Over 5 yrs Total Due to credit institutions ,268 4,883 6,380 Deposits and borrowing from the public ,283 1,564 Internal liabilities 13, ,123 5,395 20,470 Interest on borrowing ,689 3,350 5,527 Cash flows, off-balance volumes handelsbanken finans annual report 2012

22 gement of customer-driven flows. The total exchange rate risk was SEK -0.0 million (-0.0), measured as the impact on Handelsbanken Finans s earnings from an instantaneous five per cent change of the Swedish krona against all currencies where positions exist. The sensitivity to a change of the krona against any individual currency was not appreciably larger than the total exchange rate risk. Exchange rate risk is kept to a minimum since conditions for lending largely match conditions for funding. For information about currency risk exposure, see note 33. Comprehensive risk management using the economic capital model Handelsbanken Finans applies a model for calculating economic capital (EC) which is an overall measure to identify the s overall risks and corresponds to the capital which, with very high probability, will cover unexpected losses or decreases in value. EC is calculated with a time horizon of one year and a confidence level that is determined by the Board. Handelsbanken Finans calculates economic capital with a per cent confidence level. This confidence interval implies an outcome which is worse than that reported in three 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 has decided that the ratio between AFR and the capital requirement calculated according to EC must be at least 120 per cent. Credit risk is calculated using simulated outcomes of default for all Handelsbanken Finans s counterparties and exposures. Market risks comprise interest rate risk in the business operations. The non-financial risks are operational risk and business risk. Business risk is related to Interest rate fixing table Interest fixing periods for assets and liabilities, 31 December mths 3 6 mths 6 12 mths 1 5 yrs 5 yrs Total Credits to credit institutions 1, ,277 Credits to the public and lease assets 49, ,777 56,840 Total interest-bearing assets 50, ,777 58,117 Due to credit institutions 18, ,946 26,075 Borrowing from the public 1, ,555 Total interest-bearing liabilities 20, ,946 27,630 Off-balance-sheet items, net -2, ,800-0 Difference assets and liabilities including off-balance-sheet items 27, , ,487 3 mths 3 6 mths 6 12 mths 1 5 yrs 5 yrs Total Credits to credit institutions 1, ,229 Credits to the public and lease assets 46, ,777 53,585 Total assets 47, ,777 54,814 Due to credit institutions 17, ,946 24,341 Borrowing from the public 1, ,555 Total liabilities 19, ,946 25,896 Off-balance-sheet items, net -2, ,800-0 Difference assets and liabilities including off-balance-sheet items 25, , ,918 Interest fixing periods for assets and liabilities, 31 December mths 3 6 mths 6 12 mths 1 5 yrs 5 yrs Total Credits to credit institutions Credits to the public and lease assets 51, ,182 5,960 60,096 Total interest-bearing assets 51, ,183 5,960 60,398 Due to credit institutions 19, ,334 1,271 5,957 28,658 Borrowing from the public 1, ,573 Total interest-bearing liabilities 21, ,334 1,271 5,957 30,231 Off-balance-sheet items, net -4, ,000-0 Difference assets and liabilities including off-balance-sheet items 26, , ,167 3 mths 3 6 mths 6 12 mths 1 5 yrs 5 yrs Total Credits to credit institutions Credits to the public and lease assets 48, ,960 56,678 Total assets 49, ,960 56,961 Due to credit institutions 18, ,207 1,080 5,957 26,724 Borrowing from the public 1, ,573 Total liabilities 20, ,207 1,080 5,957 28,297 Off-balance-sheet items, net -4, ,000-0 Difference assets and liabilities including off-balance-sheet items 25, , ,664 handelsbanken finans annual report

23 Note 2 Cont. unexpected variations in income and expenses that may arise if, for example, demand or competition changes unexpectedly, resulting in lower volumes and narrower margins. All calculations show that Handelsbanken Finans s capital situation is more than adequate in relation to its risks, both in terms of the internally calculated capital requirement EC and the statutory capital requirement. 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 see Handelsbanken s 2012 Annual Report. Operational risks Operational risk is defined as the risk of loss due to deficient or erroneous procedures and systems, human error on the part of the company s employees or external events. Operational risks and losses linked to these are reported on a regular basis to the management of Handelsbanken Finans and its Board. 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 costconsciousness 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. New and major changes in products, services and IT systems undergo risk analysis that incorporates every conceivable type of risk, including operational risk. Contingency and continuity plans are in place in all parts of the Handelsbanken Finans for dealing with serious disruptions. Amounts in SEK million unless otherwise stated. Note 3 Net interest income Note 5 Net fee and commission income INTEREST INCOME Credit institutions Public 2,104 2, Derivative instruments recognised as hedges Other interest income Total interest income 2,537 2,726 1,145 1,178 INTEREST EXPENSE Credit institutions Public Derivative instruments recognised as hedges Other interest expense Total interest expense , ,110 Average interest rate on credits to the public 3.6% 3.8% 5.1% 5.4% Net interest income (Interest income+lease income-interest expense-amortisation of lease assets) 1,539 1,571 1,376 1,414 Interest margin 2.6% 2.6% 2.5% 2.5% Interest income received from companies Interest expense paid to companies Includes interest income on impaired credits SEK 4 million (8). Total interest income in the on assets recognised at amortised cost was SEK 2,205 million (2,397). Total interest expense on liabilities recognised at amortised cost was SEK 825 million (975). FEE AND COMMISSION INCOME Payment commissions Lending commissions Lease commissions Other commissions Total fee and commission income Of which received from companies FEE AND COMMISSION EXPENSE Payment commissions Lease commissions Other commissions Total fee and commission expense Of which paid to companies Net fee and commission income Note 6 Net gains/losses on financial operations Note 4 Lease income Ineffective portion of cash flow hedges Trading Liquidation Spartacus Total Lease income gross - - 4,957 5,298 Lease depreciation according to plan ,758-3,951 Net leases - - 1,199 1,347 Note 7 Other operating income Of which received from companies Lease depreciation is reported under note 10, Depreciation and impairments. Rental income Services rendered Other income Total Of which received from companies handelsbanken finans annual report 2012

24 Note 8 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 and BTPK pension plan. Salaries and fees Board, Chief Executive, Other senior management Others Total Average number of employees Sweden Finland Denmark Norway UK Poland China Total Gender distribution Average number of employees Men Women Men Women Sweden Finland Denmark Norway UK Poland China Total of 65. A retirement pension is paid amounting to 10 per cent of the annual salary up to 7.5 income base amounts. A retirement pension of 65 per cent of the final salary at the time of retirement is paid on the portion of the salary between 7.5 and 20 income base amounts and a retirement pension of 32.5 per cent of the final salary at the time of retirement is paid on the portion of the salary between 20 and 30 income base amounts. In addition a BTPK premium of two per cent is paid up to 30 income base amounts. A pension under the general national insurance scheme is also paid. 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. Compensation: During the year, compensation and other benefits amounting to SEK 1.6 million (1.8) were paid to the Chief Executive, of which other benefits were SEK 0.1 million (0.1). The other 12 (9) senior managers received compensation and other benefits totalling SEK 13.1 million (9.8), including other benefits amounting to SEK 1.4 million (0.9). During the year, termination benefits of SEK 0.3 million (-) were contracted for one person. No variable bonuses are paid. Pensions: SEK 0.4 million (0.9) of the s pension costs are in respect of the Chief Executive and SEK 2.9 million (2.4) for the other 13 (10) senior managers. Pension premiums paid refer to premiums paid to the SHB Pension Fund for contractual pension insurance and the BTPK pension plan. Pensions to employees are defined-benefit which are secured by an insurance policy taken out with Pensionskassan SHB försäkringsförening (pension fund). Plan assets and obligations in the pension fund cannot be allocated to each company in the Handelsbanken which is covered. The pension plan is thus reported as a defined contribution plan. In the pension fund, the market value for plan assets is SEK 8,918 million and the obligations are SEK 3,959 million. The pension obligations for the Chief Executive are SEK 4.9 million and for other senior managers they are SEK 28.4 million. The Board s compensation Board members who are employees of Handelsbanken Finans receive compensation and pension benefits by reason of their employment. No compensation or pension benefits are paid for serving on the Board. Credits to senior management There are no credits to senior managers at Handelsbanken Finans AB. Credits to chief executives or executive vice presidents at other companies in the Handelsbanken amount to SEK 1 million. Gender distribution Average number of employees Men Women Men Women Sweden Finland Denmark Norway UK Poland Total Gender distribution, senior managers % Men Women Men Women Board Chief Executive Other senior management Gender distribution, senior managers % Men Women Men Women Board Chief Executive Other senior management Terms and compensation for senior management Conditions: Handelsbanken Finans has no agreements on severance pay.the Chief Executive of Handelsbanken Finans has a retirement age Note 9 Other expenses Premises IT Communication Travel and marketing Purchased services Supplies Other costs Total Compensation to audit companies Audit Audit Audit assignment, KPMG AB Internal audit Audit operations outside the audit assignment Tax advice Other services, DBO handelsbanken finans annual report

25 Note 10 Depreciation, amortisation and impairments Equipment Lease assets ,758-3,951 Goodwill Other depreciation and impairments Total ,765-3, Provision for individually assessed credits Collective provision for individually assessed credits Provision collectively assessed homogeneous credits Provision at beginning of year The year s provision Reversal of previous provisions Utilised for actual losses Exchange rate differences 0-0 Provision at end of year Note 11 Credit losses Carrying amount of restructured and reclassified credits Specific provision for individually assessed credits The year s provision Reversal of previous provisions Total Collective provision The year s net provision for homogeneous credits The year's collective provision for individual credits Total Write-offs Actual credit losses for the year Utilised share of previous individual provisions Utilised share of previous collective provisions Recoveries Total Net credit losses Recoveries include estimated recoveries from defaulted credits still under observation.the item Collective provision for individually assessed credits was previously carried by Handelsbanken, but has been carried by Handelsbanken Finans since Restructured credits before restructuring Restructured credits after restructuring Impaired credits which during the period have regained the status of normal receivables Impaired credits and/or non-performing credits, by sector 2012 Provision for impaired credits Nonperforming credits Impaired gross Collective Individual Impaired net which are not impaired Construction Property management Retail Hotel and restaurant Agriculture, hunting and forestry Private individuals Manufacturing Transport Other Total Collective provision -8 Total impaired credits 60 Impaired credits, etc Credits to credit institutions, the public, lease assets and other assets Impaired credits Specific provisions for individually assessed credits Provisions for collectively assessed credits Provisions for collectively assessed homogeneous groups of credits with limited value Net impaired credits Impaired credits reserve ratio, % Proportion of impaired credits, % Change in provision for probable credit losses 2012 Provision for individually assessed credits Collective provision for individually assessed credits Provision collectively assessed homogeneous credits Provision at beginning of year The year s provision Reversal of previous provisions Utilised for actual losses Exchange rate differences Provision at end of year Provision for impaired credits Nonperforming credits Impaired gross Collective Individual Impaired net which are not impaired Construction Property management Retail Hotel and restaurant Agriculture, hunting and forestry Private individuals Manufacturing Transport Other Total Note 12 Appropriations Amortisation in excess of plan, goodwill on acquisitions 0-2 Reversal amortisation in excess of plan, goodwill on acquisitions 2 2 Reversal depreciation in excess of plan, leasing - 11 Depreciation in excess of plan, lease assets ,078 Provision to tax allocation reserve Total , handelsbanken finans annual report 2012

26 Note 13 Credits to credit institutions Banks in Swedish kronor 1, , Banks in foreign currency Total 1, , Of which non-current assets 1, , Of which claims on companies 1, , Information concerning maturities Payable on demand Remaining maturity: maximum three months 1, , Remaining maturity: between three months and one year Remaining maturity: between one and five years Total 1, , Note 14 Credits to the public Credits in Swedish kronor 43,276 46,088 12,827 13,232 Credits in foreign currency 13,738 14,180 1,308 1,179 Total 57,014 60,268 14,135 14,411 Probable credit losses Total credits to the public 56,840 60,096 14,037 14,320 Of which non-current assets 56,822 60,079 14,037 14,320 Of which current assets Repossessed property Of which provision for probable losses Carrying amount repossessed property Information concerning maturities Payable on demand Remaining maturity: maximum three months 3,173 2,592 1,100 1,101 Remaining maturity: between three months and one year 7,274 8,302 2,968 3,011 Remaining maturity: between one and five years 21,994 22,529 7,429 7,600 Remaining maturity: over five years 24,397 26,646 2,539 2,608 Total 56,840 60,096 14,037 14,320 Disclosures on gross investment and present value of future minimum lease payments Gross investment 47,984 52,142 Present value of credits referring to future minimum lease payments at balance sheet date 44,111 46,485 Distribution of gross investment and minimum lease payments by maturity Within 1 yr Between 1 and 5 yrs More than 5 yrs Total Distribution of gross investment 5,477 16,756 25,751 47,984 Distribution of present value minimum lease payments 5,439 16,146 22,526 44,111 Unearned finance income 3,873 (5,657) Non-guaranteed residual values accruing to the lessor All Handelsbanken Finans s lease agreements have guaranteed residual values. Provision for impaired credits referring to minimum lease payments The book value of the provision for impaired credits with respect to minimum lease payments is SEK 15.1 million (21.1). Variable part of lease payments included in earnings for the period This amounts to SEK 742 million (901), owing to lower interest rates in 2012 than in 2011 and lower volumes. Major lease agreements At the end of the year, there were six lease exposures in the with an individual carrying amount exceeding SEK 1 billion. The total value of these was SEK 19.8 billion (20.6), which corresponds to 34.8 per cent of the s total credit volume as at 31 December The carrying amount of the largest individual exposure was SEK 8.7 billion (9.2). The average remaining maturity was 9.4 years (10.3). The exposures are in the transport and energy sectors. Note 15 Shares and participating interests Shares Swedish credit institutions Shares foreign credit institutions - - 1,276 1,276 Shares in other foreign subsidiaries Other shares and participating interests Total 3 2 1,351 1,350 Of which non-current assets 1,348 1,348 Shares in companies Number of shares Carrying amount Proportion of impaired credits, % Foreign credit institutions Handels banken Rahoitus Oyj (Helsinki) ,265, ,276 1,276 Other foreign subsidiaries Kreditt Inkasso AS (Fredrikstad) Handelsbanken Finans (Shanghai) Financial Leasing Company Ltd Other Swedish subsidiaries Kredit-Inkasso AB (Stockholm) , Total 1,348 1,348 Note 16 Derivative instruments Nominal amount Positive market values Negative market values Derivatives for cash flow hedges Interest rate swaps -9,970-13, Maturity analysis derivatives up to 1 yr over 1 yr up to 5 yrs over 5 yrs Nominal amount/maturity 5,470 4,500 - Anticipated cash flows/maturity 4,348 2,967 - Hedge accounting 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 in other comprehensive income and accumulated in equity. At the end of the year, the hedge reserve was SEK 139 million (229), after a deduction for deferred tax. Hedge ineffectiveness has affected the income statement by SEK 3.1 million (-3.7) For more information about classification and valuation of derivatives, see note 31. handelsbanken finans annual report

27 Note 17 Intangible assets Note 18 Equipment Goodwill Cost of acquisition at beginning of year Acquisition value of future assets Cost of acquisition at end of year Accumulated amortisation at beginning of year Amortisation for the year Accumulated amortisation at end of year Foreign exchange effect Closing residual value Internally developed software Cost of acquisition at beginning of year Acquisition value of future assets Amortisation for the year Closing residual value Total intangible assets Amortisation Amortisation is on a straight-line basis, based on the expected useful life. At present, this means that principally the following amortisation rates are applied: Goodwill on acquisitions Not amortised 11 and 20 years Internally developed software 5 yrs 5 yrs Goodwill impairment testing Goodwill impairment testing is performed at the end of the reporting year and when there is an indication of the need for impairment testing. Testing is performed by calculating the recoverable amount for the cash-generating unit to which the goodwill item refers, which is the s business operation in Denmark. As long as the recoverable amount exceeds the carrying amounts, no impairment loss needs to be recognised. The recoverable amount was established by calculating the useful life of the cashgenerating unit. The useful life has been calculated by discounting estimated future cash flows using a cash flow period of 20 years. Forecasts have been made of risk-weighted assets, income, expenses and credit losses. The year s impairment test is based on a cautious assumption of a longterm cash flow growth of 2 per cent which corresponds to the Riksbank s long-term inflation target. Forecast cash flows have been discounted at a rate based on a riskfree interest rate and a risk adjustment corresponding to the market s average return requirement. In the annual impairment testing, the discount rate was 7.9 per cent (8.4) before tax. In the annual impairment testing the difference between the recoverable amounts and the carrying amounts was deemed to be satisfactory. The value of goodwill is not sensitive to the assumptions on which the calculation of the recoverable amount is based. Cost of acquisition at beginning of year Cost of acquisition of new assets Cost of acquisition of assets sold during the year Cost of acquisition at end of year Accumulated amortisation according to plan, opening balance Amortisation for the year Accumulated amortisation of assets sold during the year Accumulated amortisation at end of year Closing residual value Of which non-current assets Note 19 Lease assets Cost of acquisition at beginning of year ,595 56,168 Cost of acquisition of new assets - - 3,561 3,912 Cost of acquisition of assets sold during the year ,505-4,485 Cost of acquisition at end of year ,651 55,595 Accumulated amortisation and impairments at beginning of year ,237-12,348 Amortisation for the year ,758-3,951 Accumulated amortisation of assets sold during the year - - 2,917 3,087 Accumulated impairments Depreciation and impairments at end of year ,103-13,237 Closing residual value ,548 42,358 Of which non-current assets ,530 42,341 Of which current assets Accumulated depreciation in excess of plan ,179-29,909 Net value after depreciation in excess of plan - - 9,369 12,449 Repossessed property Of which provision for probable losses Carrying amount repossessed property SEK 921 million (1,329) of the parent company s acquisition value is leasing contracts where the basic lease period has not started. For further information, see note 14. Note 20 Other assets Customer receivables Other Total Of which current assets handelsbanken finans annual report 2012

28 Note 21 Prepaid expenses and accrued income Note 26 Taxes Deferred taxes Accrued interest income Other accrued income Prepaid expenses Total Note 22 Due to credit institutions Banks in Swedish kronor 5,944 7,818 6,020 7,845 Banks in foreign currency 13,751 14,176 11,941 12,214 Credit institutions in Swedish kronor 6,380 6,664 6,380 6,665 Total 26,075 28,658 24,341 26,724 Of which companies 19,695 21,302 17,961 19,368 Information concerning maturities Payable on demand Remaining maturity: maximum three months 12,135 13,177 10,904 11,673 Remaining maturity: between three months and one year 988 1, ,756 Remaining maturity: between one and five years 2,690 2,814 2,494 2,624 Remaining maturity: over five years 10,211 10,598 10,211 10,598 Total 26,075 28,658 24,341 26,724 Note 23 Borrowing from the public Borrowing in Swedish kronor 1,555 1,573 1,555 1,573 Total 1,555 1,573 1,555 1,573 Information concerning maturities Payable on demand Remaining maturity: maximum three months Remaining maturity: between three months and one year Remaining maturity: between one and five years Remaining maturity: over five years 1,247 1,336 1,247 1,336 Total 1,555 1,573 1,555 1,573 Note 24 Other liabilities Accounts payable Liability to parent company, contribution Other Total Note 25 Accrued expenses and deferred income Deferred tax assets Goodwill on acquisitions Total Deferred tax liabilities Credits to the public (leases) 6,639 7, Derivative instruments Hedging of net investment in subsidiaries Goodwill on acquisitions Other Total 6,736 7, Net deferred tax liabilities 6,631 7, Change in deferred taxes 2012 Opening balance Recognised in income statement Recognised in other comprehensive income Closing balance Credits to the public (leases) 7,866-1,227-6,639 Derivative instruments Hedging of net investment in subsidiaries Goodwill on acquisitions Other Net 7,957-1, , Opening balance Recognised Recognised in other in income comprehensive statement income Closing balance Credits to the public (leases) 7, ,866 Derivative instruments Hedging of net investment in subsidiaries Goodwill on acquisitions Other Net 7, ,957 Tax recognised in the income statement Current tax Tax expense for the year Adjustment of tax relating to previous years Deferred tax Changes in temporary differences 1, Total Nominal tax rate in Sweden, % Deviations Tax relating to previous years Non-taxable income/ non-deductible expenses Effect of lower tax rate Effects of foreign taxes and other items Effective tax rate, % The deferred taxes booked in the income statement in the are related to the untaxed reserves in the parent company. As of 2012, Swedish corporate tax has been changed from 26.3 per cent to 22 per cent. Deferred taxes in the balance sheet have been recalculated to the new tax rate. Accrued interest expenses Other accrued expenses Deferred income Total handelsbanken finans annual report

29 Note 27 Untaxed reserves Accumulated depreciation in excess of plan Lease assets 30,179 29,909 Goodwill on acquisitions Provision to tax allocation reserve Total 30,364 29,942 Note 28 Claims on and liabilities to related parties Related-party disclosures Other related parties Other related Subsidiaries parties Credits to credit institutions 1, , Derivatives Other assets Total 1, , Due to credit institutions 19,695 21, ,961 19,368 Derivatives Other liabilities Total 20,045 21, ,306 19,567 Derivatives, nominal value ,970-13,815 Note 29 Contingent liabilities The contingent liability relates to VAT and is SEK 8 million (8), which in the case of a negative outcome would incur an expense for the of the same amount. Note 30 Other commitments Committed credit offers 3,965 5,276 3,817 4,965 Unutilised part of granted overdraft facilities 10,280 9,773 7,977 7,221 Other commitments Total 14,245 15,114 11,794 12,251 Contracted future operating lease charges and rental charges allocated to the periods during which they fall due for payment Total Operating lease charges for SEK 19 million were recognised as an expense in Related parties income and expense Other related parties Other related Subsidiaries parties Interest income Interest expense Fee and commission income Fee and commission expense Other income Other expenses Total During the year, normal business transactions have been carried out be tween the parent company and subsidiaries, and with counterparties within the Handelsbanken. A list of Handelsbanken Finans s subsidiaries is presented in note 15. The group Other related parties includes Handelsbanken AB and its foreign branches and subsidiaries. At parent company level, Handelsbanken Finans AB s branches are also included. For salaries, other compensation and pensions to key persons in the senior management, see note 8 Staff costs. 28 handelsbanken finans annual report 2012

30 Note 31 Classification of financial assets and liabilities 2012 Derivatives identified as hedge instruments Credits and receivables Available-for-sale financial assets Other financial assets/liabilities Total carrying amount Fair value Assets Credits to credit institutions 1,277 1,277 1,277 Credits to the public 56,840 56,840 59,461 Shares and participating interests Derivative instruments Other assets Prepaid expenses and accrued income Total financial assets , ,784 62,405 Non-financial assets 90 Total assets 59,874 Liabilities Due to credit institutions 26,075 26,075 28,517 Borrowing from the public 1,555 1,555 1,557 Other liabilities Accrued expenses and deferred income Total financial liabilities 28,732 28,732 31,176 Non-financial liabilities 6,745 Total liabilities 35, Derivatives identified as hedge instruments Credits and receivables Available-for-sale financial assets Other financial assets/liabilities Total carrying amount Fair value Assets Credits to credit institutions Credits to the public 60,096 60,096 62,744 Shares and participating interests Derivative instruments Other assets Prepaid expenses and accrued income Total financial assets , ,898 64,546 Non-financial assets 98 Total assets 61,996 Liabilities Due to credit institutions 28,658 28,658 28,705 Borrowing from the public 1,573 1,573 1,574 Other liabilities Accrued expenses and deferred income Total financial liabilities 31,144 31,144 31,192 Non-financial liabilities 8,016 Total liabilities 39,160 For more information concerning derivatives, see note 16. Calculation of fair value for financial assets and liabilities For means of payment, receivables and liabilities with a variable interest rate, and short-term receivables and liabilities, the fair value is considered to be the same as the carrying amount. Receivables and liabilities with final maturity or the date for next interest rate fixing falling within 30 days are defined as short-term. Other lending and borrowing is valued 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. handelsbanken finans annual report

31 Note 32 Geographical breakdown of income 2012 Sweden Denmark Finland Norway UK Poland China Total Interest income 2, ,537 Fee and commission income Net gains/losses on financial operations at fair value Other income Total income 2, , Sweden Denmark Finland Norway UK Poland Total Interest income 1, ,145 Lease income 3, ,957 Fee and commission income Net gains/losses on financial operations Other income Total income 5, , Sweden Denmark Finland Norway UK Poland China Total Interest income 2, ,726 Fee and commission income Net gains/losses on financial operations at fair value Other income Total income 2, , Sweden Denmark Finland Norway UK Poland Total Interest income 1, ,178 Lease income 4, ,298 Fee and commission income Net gains/losses on financial operations Other income Total income 5, ,800 Note 33 Assets and liabilities in foreign currencies 2012 USD EUR DKK NOK GBP Assets Other currencies Credits to credit institutions Credits to the public 31 10,026 1,123 1, ,738 Other assets Total assets 37 10,279 1,216 1, ,278 Liabilities Due to credit institutions 31 9,940 1,169 1, ,751 Deposits and borrowing from the public Other liabilities and equity Total liabilities and equity 31 10,045 1,215 1, ,031 Net foreign currency position Total 2011 USD EUR DKK NOK GBP Assets Other currencies Credits to credit institutions Credits to the public 60 10,206 1,338 2, ,180 Other assets Total assets 66 10,458 1,434 2, ,668 Liabilities Due to credit institutions 60 10,137 1,385 2, ,176 Deposits and borrowing from the public Other liabilities and equity Total liabilities and equity 60 10,318 1,434 2, ,516 Total Net foreign currency positions Net positions consist mainly of accumulated profits in foreign subsidiaries. 30 handelsbanken finans annual report 2012

32 Note 33 Cont USD EUR DKK NOK GBP Assets Other currencies Credits to credit institutions Credits to the public ,308 Other assets 3 6, , ,441 Total assets 28 6,948 1,215 1, ,856 Liabilities Due to credit institutions 31 8,131 1,169 1, ,941 Deposits and borrowing from the public Other liabilities and equity - -1, ,081 Total liabilities and equity 31 6,951 1,215 1, ,860 Net foreign currency position Total 2011 USD EUR DKK NOK GBP Assets Other currencies Credits to credit institutions Credits to the public ,179 Other assets 2 6, , ,842 Total assets 52 6,997 1,434 2, ,107 Liabilities Due to credit institutions 60 8,177 1,385 2, ,214 Deposits and borrowing from the public Other liabilities and equity - -1, ,097 Total liabilities and equity 60 6,999 1,434 2, ,117 Net foreign currency positions Total Note 34 Reclassifications to the income statement Reclassifications from translation reserve Reclassifications from hedge reserve Reclassified tax of which translation reserve of which hedge reserve Total reclassification adjustments Note 35 Pledged assets for own debt All pledged assets refer to credits to the public SEK 12,463 million (12,806). Reclassification adjustments consist of income and expense previously recognised in Other comprehensive income and reclassified to the income statement during the financial year. Negative amounts in the table above represent recognised income in the income statement and vice versa. handelsbanken finans annual report

33 Note 36 Specification of changes in equity Hedge reserve Unrealised changes in value on derivative instruments used for cash flow hedges are reported in the hedge reserve. Change in hedge reserve Hedge reserve at beginning of year Unrealised value changes during the year Recognised in income statement due to ineffectiveness -3 3 Hedge reserve at end of year Fair value reserve The fair value reserve contains unrealised changes in value on financial assets classified as available for sale. Specification of instruments available for sale (amount after tax) Note 37 Capital adequacy Capital base Tier 1 capital Equity 1) 24,397 22,436 24,138 22,268 Deducted items Goodwill and other intangible assets Deferred tax asset Adjustments in accordance with stability filter Cash flow hedges Unrealised accumulated gains/losses, equities Total tier 1 capital 24,209 22,154 23,975 22,009 Tier 2 capital Additional items Unrealised accumulated gains/losses, equities Total tier 2 capital Total capital base for capital adequacy purposes 24,212 22,156 23,978 22,011 1) Tier 1 capital has been affected by the Board s proposed appropriations Fair value reserve at beginning of year 2 1 Unrealised market value change during the year 1 1 Fair value reserve at end of year 3 2 Translation reserve The translation reserve includes the effects of changed exchange rates when translating foreign operations financial reports to the currency of the consolidated accounts. Change translation reserve Translation reserve at beginning of year Change in translation reserve at branches -1 3 Change in translation reserve at subsidiaries Change in translation reserve on funding net assets in subsidiaries 39 1 Translation reserve at end of year 3 20 Change in hedge reserve Hedge reserve at beginning of year Unrealised value changes during the year Recognised in income statement due to ineffectiveness -3 3 Hedge reserve at end of year Specification of instruments available for sale (amount after tax) Fair value reserve at beginning of year 2 1 Unrealised market value change during the year 1 1 Fair value reserve at end of year 3 2 Capital requirement Credit risk according to IRB approach Credit risk according to standardised approach Operational risk Total capital requirement according to Basel II Adjustment according to transitional rules Total capital requirement according to Basel II, transitional rules 1,003 1, Risk-weighted assets according to Basel I 15,687 15,667 14,153 13,619 Capital requirement according to Basel I (8% of risk-weighted assets) 1,255 1,253 1,132 1,090 Lowest permitted capital requirement according to transitional rules 1,003 1, Capital adequacy analysis Capital requirement in Basel II compared with Basel I, % Capital requirement in Basel II compared with transitional rules, % Capital ratio according to Basel II, % Capital ratio according to Basel I, % Capital ratio according to transitional rules, % Tier 1 ratio according to Basel II, % Tier 1 ratio according to Basel I, % Tier 1 ratio according to transitional rules, % Capital base in relation to capital requirement Basel II Capital base in relation to capital requirement Basel I Capital base in relation to capital requirement according to transitional rules Change translation reserve Translation reserve at beginning of year 0-6 Change in translation reserve at branches 0 6 Translation reserve at end of year handelsbanken finans annual report 2012

34 Note 36 Cont. Credit risks IRB Exposure after credit risk protection (EAD) Average risk weight, % Capital requirement Institutions Corporate of which advanced approach of which foundation approach Retail 16,477 15, Total IRB 16,614 15, Corporate of which advanced approach of which foundation approach Retail 13,437 11, Total IRB 13,527 12, Credit risks standardised approach Exposure after credit risk protection (EAD) Average risk weight, % Capital requirement Sovereign and central banks Municipalities Institutions 52,395 54, Corporate Retail Past due items Other Total standardised approach 53,859 56, Sovereign and central banks Municipalities Institutions 50,887 52, Corporate Retail Past due items Other 1,432 1, Total standardised approach 53,456 56, CAPITAL REQUIREMENT Banking group All companies in the Handelsbanken Finans are included in the banking group for the Handelsbanken Finans and are thus subject to the Basel II capital adequacy rules. Capital base The capital base for the banking group consists of tier 1 capital and tier 2 capital. Tier 1 capital includes restricted and unrestricted equity in accordance with the specification for equity. Items that may be deducted from tier 1 capital include goodwill, unrealised gains on shares classified as available-for-sale, deferred tax assets and the impact of cash flow hedges on equity. Tier 2 capital consists of the unrealised gains on shares classified as available-for-sale. In general, Handelsbanken Finans is able to re-allocate capital among the companies, to the extent that is permitted by legislation, for example capital adequacy requirements and restrictions in corporate law. Credit risks The capital requirement for credit risks is calculated by a risk-weighted exposure amount being calculated for all Handelsbanken Finans s exposures. The risk-weighted exposure amount for credit risk is partly calculated according to the IRB foundation and advanced approach, and partly according to the standardised approach. Handelsbanken Finans uses the advanced IRB approach for retail exposures (households and small companies) in Sweden, and in its subsidiary Handelsbanken Rahoitus Oyj. The foundation IRB approach has been used for corporate exposures in Sweden and in the subsidiary Handelsbanken Rahoitus Oyj. The IRB foundation approach has also been used for certain large corporate, household and small company exposures at Handelsbanken Finans s international branches. The standardised approach has been used for other exposures. 68 per cent of the capital requirement for credit risk has been calculated according to the IRB methods and the remainder according to the standardised method. Handelsbanken Finans does not prepare its own Pillar III report according to Basel II. Instead, please refer to Handelsbanken s document entitled Risk and capital management Information according to Pillar III for 2012, which covers the entire Handelsbanken banking group. Operational risks Handelsbanken uses the standardised approach according to which calculation of the capital requirement is based on the company s income in various business segments. handelsbanken finans annual report

35 Recommended appropriation of profit Recommended appropriation of profit and statement from the Board According to the parent company s balance sheet, a total of SEK 265,265,958 is available for distribution by the annual general meeting comprising retained earnings and fair value fund. The Board proposes that the profits be carried forward to the next year. Balance carried forward SEK 265,265,958 Total allocated SEK 265,265,958 When assessing the amount of the company s paid contribution, account has been taken of the nature of operations, their scope, consolidation requirements and risk-taking. Our assessment is that the above appropriation of profits is prudent and well-adapted to the operations as a going concern. Unrealised changes in value of assets and liabilities at fair value have had a net impact of SEK 145 million on equity. The s capital base exceeded the statutory capital requirement by SEK 23,201 million at the year-end. The surplus capital in the parent company was SEK 23,032 million. We hereby declare that the consolidated accounts were prepared in accordance with international financial reporting standards as referred to in the Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards to the extent that this is possible within the confines of national laws and directives, that the parent company s annual accounts were prepared in accordance with sound accounting practices for listed companies, that the annual accounts and consolidated accounts give a fair presentation of the s and the parent company s financial position and performance and that the statutory administration report provides a fair view of the parent company s and s operations, financial position and performance and describes material risks and uncertainties to which the parent company and other companies in the are exposed. Stockholm 20 March 2013 Yonnie Bergqvist Chairman Peter Gustafsson Employee Representative Marie Lundberg Chief Executive Carl Renström Kai Jokituippo 34 handelsbanken finans annual report 2012

36 Auditor s report Auditor s report To the annual meeting of the shareholders of Handelsbanken Finans AB Corporate identity no Report on the annual accounts and consolidated annual accounts We have audited the annual accounts and the consolidated accounts of Handelsbanken Finans AB for the year 2012, included in the printed version of this document on pages Responsibilities of the Board of Directors and the Chief Executive for the annual accounts and the consolidated accounts The Board of Directors and the Chief Executive are responsible for the preparation and fair presentation of the annual accounts in accordance with the Annual Accounts Act of Credit Institutions and Securities Companies, and for the fair presentation of the consolidated accounts in accordance with the International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act of Credit Institutions and Securities Companies, and for such internal control as the Board of Directors and the Chief Executive determine is necessary to enable the preparation of annual accounts and the consolidated accounts that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and the consolidated accounts are free from material misstatements. During the year, the Bank s internal audit department has continuously examined the internal controls and accounts. We have received the reports that have been prepared. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and the consolidated accounts. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the annual accounts and the consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company s preparation and fair presentation of the annual accounts and the consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Chief Executive, as well as evaluating the overall presentation of the annual accounts and the consolidated accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act of Credit Institutions and Securities Companies and present fairly, in all material respects, the financial position of the parent company as of 31 December 2012 and of its financial performance and cash flows for the year then ended in accordance with the Annual Accounts Act of Credit Institutions and Securities Companies. The consolidated accounts have been prepared in accordance with the Annual Accounts Act of Credit Institutions and Securities Companies, and present fairly, in all material respects, the financial position of the group as of 31 December 2012 and of its financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act of Credit Institutions and Securities Companies. The Board of Directors report is consistent with the other parts of the annual accounts and the consolidated accounts. We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet of the parent company and the group. Report on other legal and regulatory requirements In addition to our audit of the annual accounts and the consolidated accounts, we have also audited the proposed appropriations of the company s profit or loss and the administration of the Board of Directors and the Chief Executive of Handelsbanken Finans AB for the year Responsibilities of the Board of Directors and the Chief Executive The Board of Directors is responsible for the proposal for appropriations of the company s profit or loss, and the Board of Directors and the Chief Executive are responsible for administration under the Companies Act and the Banking and Financing Business Act. Auditor s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors proposed appropriations of the company s profit or loss, we examined whether the proposal is in accordance with the Companies Act. As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and the consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Chief Executive is liable to the company. We also examined whether any member of the Board of Directors or the Chief Executive has, in any other way, acted in contravention of the Companies Act, the Banking and Financing Business Act, the Annual Accounts Act of Credit Institutions and Securities Companies, or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Opinions We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the Board of Directors report and that the members of the Board of Directors and the Chief Executive be discharged from liability for the financial year. Stockholm, 28 March 2013 KPMG AB Stefan Holmström Public Authorised Accountant handelsbanken finans annual report

37 Addresses Addresses Handelsbanken Finans AB in Sweden Postal address: SE Stockholm Tel: +46 (0) Office address: Torsgatan 12 Kredit-Inkasso AB Postal address: SE Stockholm Tel: +46 (0) Office address: Torsgatan 12 Handelsbanken Finans s branch in Denmark Vestergade 2, DK-7430 Ikast Tel: Handelsbanken Finans s branch in Finland and Handelsbanken Rahoitus Oyj Postal address: PB 900, Helsinki Tel: Office address: Kluuvikatu 6 A Handelsbanken Finans s branch in Norway Postal address: Postboks 1342 Vika, 0113 Oslo Tel: Office address: Tjuvholmen Allé 11 Kreditt-Inkasso AS Postal address: Postboks 435, NO-1601 Fredrikstad Tel: Office address: Stortorvet 4/8 Handelsbanken Finans s branch in the UK 4M Building Malaga Avenue, Manchester Airport Manchester M90 3RR Tel: Handelsbanken Finans s branch in Poland Mokotow Nova Building 22 Woloska Str., Warsaw Tel: Handelsbanken Finans (Shanghai) Financial Leasing Co., Ltd Room 47, Area B, 1st Floor of No. 23, 4999 Hongmei (S) Road, Minhang District, Shanghai , P.R.C. Tel: handelsbanken finans annual report 2012

38 Definitions Definitions Adjusted equity per share Equity at the end of the year reduced by the equity effects of cash flow hedges and the minority share of equity. Adjusted equity is then divided by the number of ordinary shares at the year-end, reduced by buybacks. Where applicable, the dilution effect is taken into account. CAPITAL BASE Comprises the sum of tier 1 and tier 2 capital. CAPITAL RATIO The capital ratio is the capital base in relation to risk-weighted volume. The Swedish Capital Adequacy and Large Exposures Act stipulates that the capital ratio should be at least 8 per cent. C/I 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 credits to the public and credit institutions (excl. banks). Earnings per share The profit for the year attributable to holders of ordinary shares divided by the average number of outstanding shares. Where applicable, the dilution effect is taken into account. IMPAIRED CREDIT A credit where contracted cash flows will probably not be fulfilled. The full amount of all receivables which give rise to a specific provision is included in impaired credits even if parts are covered by collateral. A credit is not impaired if there is collateral which covers the principal amount, interest and penalties for late payments by a satisfactory margin. IMPAIRED CREDITS RESERVE RATIO Provision for probable credit losses as a percentage of gross impaired credits. NON-PERFORMING CREDITS A credit where interest, repayments or overdrafts have been due for payment for more than 60 days. PROPORTION OF IMPAIRED CREDITS Impaired credits (net) in relation to total credits to the public, credit institutions (excluding banks) and lease assets. Impaired credits are reported without deduction for the collateral which exists to secure the claim. Restructured credits Credits where some kind of concession has been made due to the borrower s inadequate payment capacity. RETURN ON EQUITY Earnings for the year after appropriations and tax in relation to average equity adjusted for dividends. RISK-WEIGHTED ASSET The total risk-weighted amount from each credit risk exposure. The risk-weighted amount is the same as the risk weight of the exposure multiplied by its exposure amount. The risk weight is based on a number of factors such as the repayment capacity and debt-servicing of the counterparty, type of product and the value of any collateral. TIER 1 CAPITAL Consists of equity. A deduction is made for goodwill and other intangible assets. TIER 1 RATIO Tier 1 capital in relation to risk-weighted assets. TIER 2 CAPITAL Consists of the unrealised accumulated result on available-for-sale shares. handelsbanken finans annual report

39 +46 (0) SE Stockholm