Interim Report January-June Nordea Bank Finland Plc

Transcription

1 Interim Report January-June 2004 Nordea Bank Finland Plc

2 Interim Report, January-June 2004 Summary The Finnish economy picked up in the first half of Private consumption growth remained robust underpinned by a positive income trend and the low interest rate level. The favourable development of the global economy and the pick-up in the Euro area fed through to the fixed income markets in the spring, which led to slightly higher market rates. Focusing and integration Nordea has completed its real estate divestment process by the sale of central district properties in Finland, Norway and Sweden. The transaction includes lease agreements with durations of up to 25 years. Following the completion, Nordea owns no major properties. The anticipated sales losses of the divestment process were mainly booked already in the accounts of NBF in At the finalisation of the sales in 2004, net sales profits of approximately EUR 30m realised. The integration of Markets derivatives operations, started in the summer 2003, was finalised during the first half of In connection of the process Markets derivatives portfolios were transferred from the other Nordea banks to NBF. Changes in the group stucture in 2004 In connection of the real estate divestment process, several real estate subsidiaries were sold with a positive result effect of approximately EUR 37m. Nordea Finance Finland Ltd acquired the shares in Nordea Finance Polska S.A. on 30 June 2004 from Nordea Bank AB (publ). The transfer had no major impact on the balance sheet of NBF. The subsidiaries of Nordea Bank AB (publ), Nordea Securities Holding Oy, Nordea Securities Corporate Finance Oy and Nordea Securities Oyj were merged with NBF at the end of June These mergers had an impact of EUR 6m on the restricted equity and an impact of EUR 15m on the non-restricted equity of NBF. The wholly owned subsidiary of Nordea Finance Finland Ltd, K-Luotto Oy, was merged into Nordea Finance Finland Ltd on 1 June Result As Nordea Bank Finland sold the shares of Nordea Bank Danmark (NBD), Nordea Bank Norge ASA (NBN) and Nordea Bank Sweden AB (publ) (NBS) to Nordea AB (publ) in June 2003, the comparability of the financial statements for the periods January-June 2004 and 2003 is weakened. The income statements of the banks sold were consolidated in the accounts of NBF until 30 June The balance sheet of NBN was still included in the consolidated balance sheet at the end of June 2003 as the sale was not finalised by that time. Because the comparison of the first half of 2004 with the second half of 2003 gives a better view of the result development, the income statement figures for the second half of 2003 are shown on page 2. NBF s result for the first six months of 2004 reflects continued strong demand for household mortgages and netbank services, resulting in increased business volumes. Operating profit was EUR 375m (EUR 914m). (The income statement comparison figures in brackets refer to the figures for the first six months of 2003.) Throughout this report, Nordea Bank Finland and NBF refer to the parent company Nordea Bank Finland Plc, business identity code , with its subsidiaries. The registered office of the company is in Helsinki. Nordea Bank Finland Plc is a wholly owned subsidiary of Nordea Bank AB (publ), former Nordea AB (publ), the listed parent company of the whole Nordea Group. The business operations of the Nordea Group have been organised in three business areas, all of which operate across national boundaries: Retail Banking, Corporate and Institutional Banking (CIB) and Asset Management & Life. The consolidated interim report of Nordea Bank AB (publ) embraces all the activities of the Nordea Group and provides the most complete and fair view. This statutory interim report covers the operations of the legal entity Nordea Bank Finland Plc with its subsidiaries. Nordea Bank Finland. January-June

3 After taxes and minority interest, the profit for the first half of the year amounted to EUR 265m (EUR 1,153m). Return on equity was 4.9 % (13.0%). Income Net interest income amounted to EUR 551m (EUR 1,876m). Excluding the impact of the structural changes the development was slightly positive. Lending to households continued to grow mainly in mortgage financing. Lending margins to households were stable compared to last year. On the other hand, deposit margins declined following the lower shortterm interest rates. Net commission income decreased to EUR 146m (EUR 601m). Taking into account the changes in the group structure commission income was somewhat higher than in the corresponding period one year earlier. Commissions on lending and on payment transactions increased as a consequence of growth in volumes. Excluding the structural changes commission expenses were significantly higher due to the integrated derivative operations. Net income from securities transactions and foreign exchange dealing amounted to EUR 77m (EUR 152m). Excluding the impact of the structural changes, both net income from securities transactions and net income from foreign exchange dealing increased slightly. Other income (including dividends) decreased to EUR 53m (EUR 158m) mainly due to the structural changes. Excluding the impact of these changes, other income was slightly higher than in the corresponding period last year. Capital gains were higher whereas dividends decreased. Real estate sales profits totalled EUR 29m. Expenses Total expenses decreased to EUR 442m (EUR 1,742m) following the changes in the group structure. Excluding the impact of the changes, expenses grew slightly. Personnel expenses amounted to EUR 233m (EUR 950m). In addition to the structrural changes, reduction in overall headcount by approximately 400 persons from the year-end 2003 had a positive impact on the development of personnel expenses. The aggregate amount of other administrative expenses, operating expenses and depreciation costs was EUR 209m (EUR 792m). The decrease is due to the changes in the group structure. Excluding these changes, the expenses were somewhat higher than in the corresponding period last year. The increase in IT-expenses includes expenses related to the outsourced IT production in the IBM joint-venture. Cost/income ratio was 52 % (59%). Loan losses Net loan losses amounted to EUR 20m (EUR 190m). Last year s losses were mainly booked in other Nordea banks. The overall quality of NBF s loan portfolio remains good. Net impaired loans were at the same level as at year-end and amounted to EUR 0.2bn. The provision for impaired loans remained at the same level as well and amounted to EUR 0.4bn, which accounted for 70% (65 %) of impaired loans (gross). Interim income statement Jan-Jun Jul-Dec EUR million Net interest income Net commission income Net income from securities transactions and foreign exchange dealing Other income Total income Personnel expenses Other expenses ) Total expenses Profit before loan losses Loan losses, net Profit from companies accounted for under the equity method Operating profit ) Includes EUR 191m one-off capital losses arising from the real estate divestment process. Nordea Bank Finland. January-June

4 Share of profit of companies accounted for under the equity method Lower earnings from companies accounted for under the equity method, EUR 10m (EUR 59m), reflect mainly last year s one-off gain (EUR 30m) on the sale of the real estate brokerage activities of Huoneistokeskus Oy. Extraordinary items and taxes No extraordinary items were booked during the period under review. Previous year s figures related to the sale of the shares in NBD, NBS and NBN. Taxes amounted to EUR 108m (EUR 235m). The deferred tax receivable reflect the expected utilisation of the tax loss carry forward that was originated in The changes in the Finnish corporate tax laws in 2005 have been taken into account when evaluating the tax receivable. Balance sheet (Comparison figures in brackets refer to December 2003 figures.) Total assets of NBF amounted to EUR 102.6bn (EUR 94.2bn). The increase mainly reflects changes in funding structure as well as growth in lending to the public. Low interest rates supported especially housing loan demand and loans to the public grew by 8%. Due to lending to other Nordea banks claims from credit institutions increased significantly. The same development was seen in liabilities to credit institutions. Deposits from the public fell to EUR 28.1bn (EUR 29.1bn) from the high level at year-end. At 1 January 2004, shareholders equity amounted to EUR 11.2bn of which EUR 875m was utilised for payment of the dividend for At end June, shareholders equity amounted to EUR 10.6bn, including the profit for the period, EUR 0.3bn. Off-balance sheet commitments The total amount of off-balance sheet commitments decreased to EUR 20.0bn (EUR 26.6bn). The decrease mainly related to guarantees and unused credit lines. The impact of the structural changes on the volumes of derivatives was largely compensated by the transfer of the main part of derivatives of other Nordea banks to NBF after June Capital adequacy and ratings Capital adequacy remained at a high level and the ratio was 22.4% compared with 22.2% at year-end Tier 1 capital ratio was 19.3% (19.0%). Profit for the period and the estimated profit distribution have been taken into account in the calculations. The credit ratings of NBF Plc were unchanged during the first half of IFRS implementation The preparations for the introduction of IFRS principles in 2005 are proceeding according to plan. Uncertainty is attached to the timing and scope of the implication of new valuation principles on financial instruments (IAS 32 and 39) due to delays in the endorsement process. Should IAS 39 be implemented based on the current IASB proposal, it might lead to accounting volatility. In addition to IAS 32 and 39 the major adjustments to be included in NBF s accounting policies in 2005 include implication of IAS 19 on employee benefits and IAS 17 on leases as well as implications on capitalisation of IT development costs according to IAS 38. The implementation of the IFRS principles is not expected to have a material net impact on NBF s figures. Outlook After the end of the financial period there have been no material events that would affect the financial position of NBF. The outlook for economic growth in the Nordic region has improved somewhat, and growth estimates have been adjusted somewhat upwards. Short-term interest rates have been lowered slightly also in the second quarter, and are likely to have bottomed out. Based on the improved growth outlook and a more stable interest rate environment, the comparable total income in 2004 is expected to increase compared to An increase in overall business volumes is expected, primarily stemming from the household sector. Nordea Bank Finland. January-June

5 The sharp attention on cost management will be maintained. countries, the loan loss ratio is expected to be at the recent low level. Based on the overall quality of the credit portfolio, and the present economic outlook for the Nordic Stockholm, 16 August 2004 Board of Directors Auditors review report We have reviewed the interim report of Nordea Bank Finland Plc for the period January-June 2004 in accordance with the standards issued by the Finnish Institute of Authorized Public Accountants. In our review nothing came to our attention that would indicate non-compliance of the interim report with the rules and regulations covering the preparation of such reports. A review is significantly more limited in scope than an audit. Helsinki, 18 August 2004 KPMG WIDERI OY AB Mauri Palvi Authorized Public Accountant Nordea Bank Finland. January-June

6 Income statements Jan-Jun Jan-Jun Jan-Dec EUR million ) ) Interest income 2) Interest expenses Net interest income Income from equity investments Commission income Commission expenses Net income from securities transactions and foreign exchange dealing Other operating income Total income Personnel expenses Other administrative expenses Depreciation and write-downs on tangible and intangible assets Other operating expenses Total expenses Profit before loan losses Loan and guarantee losses Write-downs on securities held as financial fixed assets Profit from companies accounted for under the equity method Operating profit Extraordinary items Income taxes Minority interest Net profit for the period Financial ratios Return on equity, % ) 7.5 Income/cost ratio Average number of employees during the year - full-time part-time ) The figures for 2003 include half year's income statements of NBD, NBS and NBN. 2) Includes net income from leasing EUR 31m (45, 77). 3) Equity does not include the balance sheet item "Capital loans". Formulas used Return on equity, %: 100 x (Operating profit after taxes) / (Shareholders equity + minority interest (average for beginning and end of year)) Income/cost ratio: (Net interest income + income from equity investments + commission income + net income from securities transactions and foreign exchange dealing + other operating income) / (Commission expenses + administrative expenses + other operating expenses + depreciation) Nordea Bank Finland. January-June

7 Balance sheets EUR million June 30, 2004 June 30, ) Dec 31, 2003 Liquid assets Debt securities eligible for refinancing with central banks Loans to credit institutions Loans to the public and public sector organisations Leased assets Debt securities Shares and participations Participating interests and shares and participations in group companies Intangible assets Tangible assets Other assets Prepaid expenses and accrued income Deferred tax receivables Total assets Due to credit institutions and central banks Due to the public and public sector organisations Debt securities outstanding Other liabilities Accrued expenses and prepaid income Provisions Subordinated liabilities Deferred tax liabilities Minority interest Share capital Share premium account Other restricted reserves Capital securities Non-restricted reserves Profit carried forward from previous years Net profit for the period Total liabilities and shareholder's equity Off-balance-sheet commitments Commitments on behalf of customers in favour of third parties Irrevocable commitments in favour of customers Impaired loans and property taken over for protection of claims 2) EUR million June 30, 2004 June 30, ) Dec 31, 2003 Impaired loans, gross Provision for impaired loans Impaired loans, net Provisions / impaired loans, gross, % Impaired loans, net / lending, % Property taken over for protection of claims, EUR million ) The balance sheet items of NBN are still included in the June 30, 2003 figures. 2) Excluding country risk provisions. Nordea Bank Finland. January-June

8 Off-balance sheet commitments EUR million June 30, 2004 June 30, ) Dec 31, 2003 Contingent liabilities Guarantees Stand-by facilities Unused credit lines Other commitments Total Of which on behalf of associated companies Pledged assets Assets pledged as collateral for own liabilities - debt securities eligible for refinancing with central banks leased assets debt securities other Total The above collateral has been pledged for the following liability items - due to credit institutions and central banks due to the public and public sector organisations debt securities outstanding other liabilities and commitments Total The parent company has not pledged assets as collateral for liabilities of the group companies or associated undertakings of the Nordea Bank Finland group. Assets as collateral for liabilities for other Nordea group companies have been pledged in the amount of EUR 203m. Derivative instruments (nominal values) Contracts made for hedging purposes Interest-rate-related derivatives Currency-related derivatives Equity-related derivatives Other derivatives Contracts made for other than hedging purposes Interest-rate-related derivatives Currency-related derivatives Equity-related derivatives Other derivatives Total Interest-rate-related derivatives, credit equivalents Currency-related derivatives, credit equivalents Equity-related derivatives, credit equivalents Other derivatives, credit equivalents ) Includes the off-balance sheet items of NBN. Nordea Bank Finland. January-June

9 Capital adequacy EUR million June 30, 2004 June 30, 2003 Dec 31, 2003 Total Tier 1 (incl. profit for the period and estimated profit distribution) Total Tier Deductions Total own funds Capital securities included in Tier Risk-weighted items Total capital ratio, % Tier 1 ratio, % Nordea Bank Finland. January-June