Contents FIVE-YEAR OVERVIEW AND KEY FIGURES 2 ADMINISTRATION REPORT 4 FINANCIAL REPORTS. Income statement Group 6

Transcription

1 Annual Report 2011

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3 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 PROPOSED APPROPRIATION OF PROFITS 34 AUDITOR S REPORT 35 ADDRESSES 36 DEFINITIONS 37 1

4 FIVE-YEAR OVERVIEW Five-year overview and key figures SEK m ) ) INCOME STATEMENT Operating income 1,943 1,584 1,703 2,088 1,780 Total operating income 1,943 1,584 1,703 2,088 1,780 Expenses Credit losses Total operating expenses Operating profit 1, ,341 1,121 Taxes Profit for the year 1, , BALANCE SHEET Assets Credits to credit institutions ,337 4,370 Credits to the public 60,096 62,173 67,007 65,135 54,247 Equipment Other assets 1,587 3,122 4,326 4,848 3,096 Total assets 61,996 65,423 71,508 72,334 61,725 LIABILITIES AND EQUITY Due to credit institutions 28,658 33,378 39,621 41,979 38,512 Borrowing from the public 1,573 1,583 1, Other liabilities 8,929 8,594 10,020 9,370 7,112 Total liabilities 39,160 43,555 51,044 52,295 45,806 Equity 22,836 21,868 20,464 20,039 15,919 Total liabilities and equity 61,996 65,423 71,508 72,334 61, Operating profit, SEK m 1, ,341 1,121 Total assets, SEK m 61,996 65,423 71,508 72,334 61,725 Return on equity, % C/I ratio before credit losses, % C/I ratio after credit losses, % Capital ratio, % ) ) ) ) 94.1 Tier 1 ratio, % ) ) ) ) 94.1 Impaired credits reserve ratio, % Proportion of impaired credits, % Credit loss ratio, % Net earnings per share, SEK Ordinary dividend per share, SEK ) , Average number of employees ) According to statutory IFRS. 2) According to transitional rules. 3) Dividend as recommended by the Board. 2

5 FIVE-YEAR OVERVIEW Five-year overview and key figures SEK m INCOME STATEMENT Lease income 5,298 5,004 5,171 5,424 4,543 Operating income , Total operating income 5,637 5,569 5,686 6,900 4,732 Expenses -4,493-4,643-4,649-4,135-3,757 Credit losses Impairment loss on financial assets Total operating expenses -4,330-4,751-4,717-4,188-3,768 Operating profit 1, , Appropriations -1,067-2,312-3,378-3,977-2,730 Taxes Profit for the year 179-1,083-1, ,236 BALANCE SHEET Assets Credits to credit institutions ,362 Credits to the public 14,320 14,562 15,876 15,268 15,970 Equipment Lease assets 42,358 43,819 46,565 44,079 33,226 Other assets 2,811 4,353 5,617 6,073 4,312 Total assets 59,777 62,786 68,154 66,257 55,877 LIABILITIES AND EQUITY Due to credit institutions 26,724 30,951 36,377 36,439 34,482 Borrowing from the public 1,573 1,583 1, Other liabilities ,062 3,019 1,516 Total liabilities 29,235 33,393 40,842 40,404 36,179 Untaxed reserves 29,942 28,876 26,565 23,188 19,204 Equity , Total liabilities and equity 59,777 62,786 68,154 66,257 55, Capital ratio, % ) ) ) ) 83.1 Tier 1 ratio, % ) ) ) ) 83.1 Impaired credits reserve ratio, % Proportion of impaired credits, % 2) ) According to applicable transitional rules. 2) Including leasing. 3

6 ADMINISTRATION REPORT Administration report Handels banken Finans AB (publ), corporate identity no , is a wholly-owned subsidiary of Svenska Handels banken AB (publ), corporate identity no It operates in close co-operation with the Bank s branches. Handels banken has its registered office in Stockholm. The Handels banken 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 Handels banken Finans is to increase the Handels banken 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. Handels banken Finans operates as an integral part of the Handels banken ; 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. As of 1 March 2011, Handels banken Finans is part of the business area called Direkt within the Handels banken. This business area is global product owner for standardised services for both companies and private individuals and is responsible for meeting customers online and on the phone. BUSINESS AREAS Corporate is responsible for leasing, conditional sales, vehicle fleet administration and debt collection services which are offered to companies in Sweden via Handels banken s branch operations. Retail Financial Services provides financing for purchases of consumer and capital goods through co-operation with retailers in Sweden. International is responsible for business operations outside Sweden. In Denmark, Handels banken Finans s Danish branch has operations in leasing, conditional sales and retail financial services. In Finland Handels banken Rahoitus Oyj provides leasing, conditional sales, retail financial services, debt collection services and card services. Handels banken Finans s Finnish branch runs a leasing operation. In Norway, Kreditt-Inkasso AS offers debt collection services. Handels banken Finans s Norwegian branch runs a leasing operation. Handels banken Finans s branches in Great Britain and Poland conduct leasing and hire purchase operations. In China, Handels banken Finans (Shanghai) Financial Leasing Company Ltd works with leasing. Accounting & Finance and Credits are business support units. LENDING Handels banken Finans s total credits to the public at year-end were SEK 60.1 billion (62.2). Of this amount, the carrying amount of lease agreements was SEK 43.6 billion (45.5). In Handels banken Finans AB (parent company) lending to the public decreased including leasing by 3 per cent to SEK 56.7 billion. FINANCIAL PERFORMANCE Operating profit for the year increased by 70 per cent to SEK 1,456 million (855). The increase is mainly due to higher net interest income as a result of higher interest rates. Higher interest rates have a positive impact on Handels banken Finans s profits due to the improved interest effect on equity. Exchange rate changes have not had a major impact on Handels banken Finans s financial performance. Operating income grew by 23 per cent to SEK 1,943 million (1,584). Expenses went down to SEK 644 million (687), mainly due to a lower number of employees. The profit figure was also affected by expenses of approximately SEK 60 million relating to a legal dispute. Credit losses were positive and were SEK 157 million (-42), mainly due to a reassessment of a portfolio of written-off claims which had a one-off effect of SEK 131 million. Net impaired credits, after deductions for provisions, totalled SEK 130 million (240) at year-end. Operating profit was SEK 1,307 million (818), an increase of 60 per cent. The increase is mainly due to higher net interest income due to higher interest rates. Higher interest rates have a positive impact on Handels banken Finans s profits due to the improved interest effect on equity. Exchange rate changes have not had a major impact on Handels banken Finans s financial performance. Operating profit for 2010 was affected by a write-down of the shares in the subsidiary Spartacus A/S by SEK 107 million. The writedown was made in connection with a dividend paid by the subsidiary to the parent company. Operating income, reduced by amortisation of lease assets according to plan, rose by 13 per cent to SEK 1,686 million (1,487). Expenses excluding amortisation of lease assets decreased to SEK 542 million (561). Credit losses were positive and were SEK 163 million (-1), mainly due to a reassessment of a portfolio of written-off claims which had a one-off effect of SEK 131 million. Net impaired credits, after deductions for provisions, totalled SEK 50 million (149). The Board is proposing to the 2012 annual general meeting to decide on an ordinary dividend to shareholders for 2011 of SEK per share (51.00). For information on the recommendation for appropriation of profits, see page 34. 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 Handels banken Finans s strict approach to risk means that Handels banken 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. Handels banken Finans s risk management aims to ensure that Handels banken 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. 4

7 ADMINISTRATION REPORT For information concerning Handels banken Finans s risks and risk control, see note 2 on page 19. CAPITAL ADEQUACY At year-end, the s capital ratio calculated according to Basel II was per cent (204.8). The corresponding figure according to the transitional regulations was per cent (179.6). In the parent company, the capital ratio at year-end according to Basel II was per cent (243.3), or per cent (211.1) according to the transitional regulations. Handels banken 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 Handels banken Finans s capital adequacy. For further information about capital adequacy, see page 32. THE BOARD The Board held eight meetings during the year. At these meetings, the Board discussed the financial position and strategy of Handels banken 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 Handels banken s operations, and thus also of the Handels banken 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. Handels banken has signed and complies with voluntary agreements, such as the ICC Business Charter for Sustainable Develop ment and the UN Environment Programme Banks and the Environment. EMPLOYEES In 2011, Handels banken Finans had an average of 376 (468) employees, working in 7 countries. Around 31 per cent of employees work outside Sweden. In connection with the formation of the business area called Direkt in the Handelsbanken, a number of employees were transferred to Handels banken thus leading to a large decrease in the number of employees at Handels banken Finans. Handels banken 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, Handels banken 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 Handels banken 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 Handels banken Finans. The Chief Executive s salary is set annually by the Board of Handels banken Finans AB. For remuneration to senior management, see note 8 on page 23. The compensation policy has been decided by the Board. GROUP STRUCTURE In 2011, Handels banken Finans conducted business via the following wholly-owned subsidiaries: Leasing Company Ltd In Sweden, Handels banken Finans AB conducts debt collection services on commission for Kredit-Inkasso 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, Handels banken and Handels banken Finans s historically low tolerance of risks, sound capitalisation and strong liquidity situation mean that the is well equipped to operate under these conditions. EVENTS OF MATERIAL IMPORTANCE DURING THE FINANCIAL YEAR On 1 June 2011, Marie Lundberg became Chief Executive of Handels banken Finans AB. 5

8 FINANCIAL REPORTS Income statement SEK m Interest income Note 3 2,726 2,097 Interest expense Note 3-1, Net interest income 1,571 1,218 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 operating income 1,943 1,584 Administrative expenses Staff costs Note Other expenses Note Depreciation, amortisation and impairments of property, equipment and intangible assets Note Total administrative expenses Net credit losses Note Total operating expenses Operating profit 1, Taxes Note Profit for the year 1, Attributable to Ordinary shareholders 1, Net earnings per share, before and after dilution, SEK Consolidated statement of comprehensive income SEK m Profit for the year 1, Other comprehensive income Cash flow hedges Available-for-sale instruments 1 0 Translation differences for the year of which hedges of net investment in subsidiary Tax related to other comprehensive income 8-10 of which cash flow hedges 9 36 of which hedges of net investment in subsidiary Total other comprehensive income Total comprehensive income for the year 1, Attributable to Ordinary shareholders 1, The year s reclassifications to the income statement are presented in note 33. 6

9 FINANCIAL REPORTS Balance sheet SEK m ASSETS Credits to credit institutions Note Credits to the public Note 14 60,096 62,173 Shares and participating interests Note Intangible assets Note Property and equipment Equipment Note Current tax assets - 36 Deferred tax assets Note Other assets Note 19 1,144 2,697 Prepaid expenses and accrued income Note Total assets 61,996 65,423 LIABILITIES AND EQUITY Due to credit institutions Note 21 28,658 33,378 Borrowing from the public Note 22 1,573 1,583 Current tax liabilities 52 1 Deferred tax liabilities Note 25 7,964 7,691 Other liabilities Note Accrued expenses and deferred income Note Total liabilities 39,160 43,555 Share capital Provisions Note Retained earnings 21,356 20,804 Profit for the year 1, Total equity 22,836 21,868 Total liabilities and equity 61,996 65,423 7

10 FINANCIAL REPORTS Statement of changes in equity 2010 SEK m Share capital Hedge reserve Fair value reserve Translation reserve Retained earnings Total Opening equity ,842 20,464 Profit for the year Other comprehensive income Total comprehensive income for the year Dividend contribution received 1,580 1,580 Tax effect of group contribution Closing equity ,435 21, 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 22,836 A more detailed specification of changes in equity is presented in note 34. 8

11 FINANCIAL REPORTS Cash flow statement SEK m OPERATING ACTIVITIES Operating profit 1, of which paid-in interest 2,715 2,147 of which paid-out interest -1, of which paid-in dividends 0 0 Adjustment for non-cash items in profit/loss Credit losses Unrealised changes in value 4-1 Depreciation, amortisation and impairments 3 4 Paid income tax Change in the assets and liabilities of operating activities: Credits to credit institutions 7-4 Credits to the public 1,992 4,711 Interest-bearing securities and equities 30 1 Due to credit institutions -4,720-5,927 Borrowing from the public Derivative instruments, net positions Other -92-2,022 Cash flow from operating activities -1,309-2,467 INVESTING ACTIVITIES Change in tangible non-current assets 12 7 Change in intangible non-current assets -9 9 Cash flow from investing activities 3 16 FINANCING ACTIVITIES Dividend paid contribution 1,580 2,615 Cash flow from financing activities 1,501 2,413 CASH FLOW FOR THE YEAR Liquid funds at beginning of year Cash flow from operating activities -1,309-2,467 Cash flow from investing activities 3 16 Cash flow from financing activities 1,501 2,413 Exchange rate difference on liquid funds Liquid funds at end of year 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. 9

12 FINANCIAL REPORTS Income statement SEK m Interest income Note 3 1, Lease income Note 4 5,298 5,004 Interest expense Note 3-1, Dividends received Fee and commission income Note Fee and commission expense Note Net gains/losses on financial items at fair value Note Other operating income Note Total operating income 5,637 5,569 Administrative expenses Staff costs Note Other expenses Note Depreciation, amortisation and impairments of property, equipment and intangible non-current assets Note 10-3,958-4,090 Total expenses -4,493-4,643 Net credit losses Note Impairment loss on financial assets Total operating expenses -4,330-4,751 Operating profit 1, Appropriations Note 12-1,067-2,312 Profit before taxes 240-1,494 Taxes Note Profit for the year 179-1,083 Statement of comprehensive income SEK m Profit for the year 179-1,083 Other comprehensive income Cash flow hedges Available-for-sale instruments 1 0 Translation differences for the year 7-7 Tax related to other comprehensive income 9 36 of which cash flow hedges 9 36 Total other comprehensive income Total comprehensive income for the year 162-1,192 The year s reclassifications to the income statement are presented in note

13 FINANCIAL REPORTS Balance sheet SEK m ASSETS Credits to credit institutions Note Credits to the public Note 14 14,320 14,562 Shares and participating interests Note Shares and participating interests in companies Note 15 1,348 1,369 Intangible assets Note Property and equipment Equipment Note Lease assets Note 18 42,358 43,819 Current tax assets - 8 Deferred tax assets Note 25-0 Other assets Note 19 1,136 2,690 Prepaid expenses and accrued income Note Total assets 59,777 62,786 LIABILITIES AND EQUITY Due to credit institutions Note 21 26,724 30,951 Borrowing from the public Note 22 1,573 1,583 Current tax liabilities 51 - Deferred tax liabilities Note Other liabilities Note Accrued expenses and deferred income Note Total liabilities 29,235 33,393 Untaxed reserves Note 26 29,942 28,876 Share capital Other funds Note Retained earnings 1 1,163 Profit for the year 179-1,083 Total equity Total liabilities and equity 59,777 62,786 MEMORANDUM ITEMS Contingent liabilities Note 27 Commitments Note 28 12,251 12,871 11

14 FINANCIAL REPORTS Statement of changes in equity 2010 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 -1,083-1,083 Other comprehensive income Total comprehensive income for the year ,083-1,192 Dividend contribution received 1,580 1,580 Tax effect of group contribution 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 Closing equity ) Included in fair value fund. A more detailed specification of changes in equity is presented in note

15 FINANCIAL REPORTS Cash flow statement SEK m OPERATING ACTIVITIES Operating profit 1, of which paid-in interest 1, of which paid-out interest -1, of which paid-in dividends Adjustment for non-cash items in profit/loss Credit losses Unrealised changes in value 4-1 Depreciation, amortisation and impairments 3,958 4,192 Paid income tax -3-2 Change in the assets and liabilities of operating activities: Credits to credit institutions Credits to the public 185 1,246 Lease assets -2,505-1,344 Interest-bearing securities and equities -4 1 Due to credit institutions -4,227-5,111 Borrowing from the public Derivative instruments, net positions Other -47-2,206 Cash flow from operating activities -1,322-2,436 INVESTING ACTIVITIES Change in shares and participating interests 27 - Change in tangible non-current assets 15 8 Change in intangible non-current assets Cash flow from investing activities FINANCING ACTIVITIES Dividend paid contribution received 1,580 2,615 Cash flow from financing activities 1,501 2,413 CASH FLOW FOR THE YEAR Liquid funds at beginning of year Cash flow from operating activities -1,322-2,436 Cash flow from investing activities Cash flow from financing activities 1,501 2,413 Exchange rate difference on liquid funds -1-5 Liquid funds at end of year 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. 13

16 NOTES Notes NOTE 1 Accounting policies 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. 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 22 March 2012 and will be presented for adoption by the AGM on 26 April CHANGED ACCOUNTING POLICIES, ETC. None of the other accounting regulatory changes that came into force as of 2011 has 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 that were applied in the annual report for Future amendments to regulations In 2011, the IASB 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. The standards will be applied as of the 2013 financial year, subject to EU approval of their application. 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. The other amendments to standards or interpretive communications adopted or expected to be adopted by the EU for application as of the 2012 financial year are not judged to affect the s financial reports to a material extent. 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 Handels banken Finans s financial reporting. 3. BASIS OF CONSOLIDATION AND PRESENTATION All companies directly or indirectly controlled by Handels banken Finans (subsidiaries) have been fully consolidated. Control is normally presumed to exist if Handels banken Finans holds more than 50 per cent of the voting power at shareholders meetings or the equivalent. Handels banken 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-for-sale 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 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. 14

17 NOTES 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 through profit or loss 4. available-for-sale assets. Financial liabilities are classified as follows: 1. liabilities at fair value through profit or loss 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 29. 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 fair value. 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 information. When valuing nonstandardised 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). 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 15

18 NOTES 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 32. 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. Goodwill with an indefinite useful life Goodwill with an indefinite useful life 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 16 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. 16

19 NOTES 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: income at the time the service is performed. Examples of such fees are brokerage and payment commission. 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: assets and liabilities. ties classified as held for trading. interest originating from derivatives that are hedging instruments whose interest flows are reported in Net interest income. prise hedging instruments in cash flow hedges. 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 defined-contribution plans. Premiums paid for defined-contribution plans are recognised in the income statement as staff costs as they arise. 16. TAXES The tax expense for the period consists of current tax and deferred tax. Current tax refers to taxes relating to the period s taxable result 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. 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. 17

20 NOTES 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, 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 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. The relationship between the parent company s and the s 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 Chapter 5 of the Annual Accounts Act has been revised with effect from the 2011 financial year. This implies that the note specifying staff costs no longer requires information about sickness absence and information about salaries and other compensation for each country. None of the other accounting regulatory changes that came into force as of 2011 has 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 that were applied in the annual report for 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 : company s income statement. non-current assets in the parent company is reported as other income/ expense. company s balance sheet. 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 held-for-sale in the balance sheet. Shares and participating interests in subsidiaries Shares and participating interests 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, goodwill on acquisitions is amortised in compliance with the provisions of the above-mentioned 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 nonfinancial 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 object. 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

21 NOTES NOTE 2 Risks and risk control RISK AND CAPITAL MANAGEMENT The financial markets have been under considerable stress during the year. A widespread crisis of confidence in heavily indebted countries and their ability to restructure state finances has led to a general crisis of confidence in the entire euro system. The low level of confidence also apples to certain banks that have significant exposures to states (sovereign exposures) experiencing major problems, which has made it difficult to access the requisite market funding. There is also uncertainty regarding the structure of the banking sector and its ability to manage new regulatory requirements in the areas of liquidity and capital requirements. Handels banken has no direct exposures to states or banks with problems, but is naturally affected by external conditions. Handels banken s historically low tolerance of risk, sound capitalisation and strong liquidity situation means that it is well-equipped to cope with these conditions and it has the resources to operate under substantially more difficult market conditions than those experienced during the year. The Handels banken Finans is an integrated part of the Handelsbanken (the Bank). Although the Bank and thus Handels banken 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 Handels banken Finans s customers and thus Handels banken Finans. On the other hand, the economic downturn in itself has not changed the Bank s or Handels banken 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. Handels banken 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. Handels banken 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 Handels banken 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 Handels banken 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. 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 policy documents which Handels banken Finans applies comply with the corresponding policies that apply at the Bank. The Chief Executive of Handels banken 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 Handels banken Finans, and these are adopted by the Board of Handels banken Finans. The independent risk control at Handels banken Finans measures, analyses and reports these risks every day to Central Risk Control at the Bank. The independent risk control function at Handels banken Finans presents matters to Handels banken Finans s risk committee. The risk committee consists of the head of the business area Handels banken Direkt which includes Handels banken Finans, the Chief Executive of Handels banken Finans and Handels banken Finans s CFO. In addition to financial risks, other matters relating to risk are reported and Handels banken Finans s risk and capital situation according to Pillar II. CREDIT RISK Handels banken Finans s credit policy is established by Handels banken Finans s Board and is based on the credit policy established by Handelsbanken s Central Board. This means that the customer unit is responsible for both the evaluation and processing of credit risks. In this way, 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 and, if necessary, expertise from central departments at Handels banken Finans can be called upon. With regard to credits generated by the branch office operations, the Board of Handels banken Finans has delegated responsibility for credit decisions to Handels banken s branches. These decisions follow the guidelines laid down by the Board. Handelsbanken provides an internal guarantee for these credits. As at 31 December 2011, this amounted to SEK 51 billion (53) of total lending of SEK 60 billion (62). In addition to these, there are internal guarantees for SEK 4.8 billion (6) for committed credit offers which have been granted. The total amount of committed credit offers granted was SEK 16 billion (16). Credit risk exposure SEK m Credits to credit institutions SEK m of which claim on Handels banken Credits to the public 60,096 62,173 Shares and participating interests 2 1 Derivatives Other assets 1,005 2,552 of which claim on Handels banken 7 1,589 Committed credit offers 15,049 15,641 Total 77,045 81,064 Total assets according to balance sheet 61,996 65,423 Difference 15,049 15,641 Handels banken 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 Handels banken. 19

22 NOTES Credits for which Handels banken Finans ( Handels banken Finans risk ) bears the risk are generated mainly from credits in Retail Financial Services. These are largely account-based credits. Most of Handels banken Finans s card credits have been processed in a credit management system developed in-house by Handels banken 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 Handels banken Finans bears the credit risk are shown in the diagram below. SEK m Average volume 12 mths, SEK m Gross credit losses, % Recoveries, % Net credit losses, % The breakdown of credit portfolios for Handels banken Finans risk by country and counterparty is as follows (SEK bn). Distribution by country On-balance, SEK bn Sweden Denmark Norway Finland Total Distribution by country Off-balance, SEK bn Sweden Denmark Norway Finland Total At the year-end the distribution of the credit portfolio for Handels banken Finans risk for the counterparty types private and corporate was SEK 8.7 billion (8.6) and SEK 0.3 billion (0.4). At the same date, committed credit offer volumes were SEK 10.1 billion (9.4) for private customers and SEK 0.0 billion (0.0) for companies. Handels banken s and Handels bankens 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 Handels banken 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 Handels banken and Handels banken 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 Handels banken 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 faces serious repayment difficulties, the valuation of collateral focuses on its expected value in the case of insolvency. The value of certain types of asset may change considerably from the period before and the time of a forced sale. FUNDING AND FINANCIAL RISK Handels banken s funding operations are centralised to Central Treasury and this also applies to Handels banken 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 risk at Handels banken Finans is measured and limited as the absolute total of fair value in the case of a substantial, instantaneous parallel shift of all interest rates. This 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 Handels banken Finans nor the company s opportunities to adapt to changed interest rate levels. The interest rate risk that is measured and reported at Handels banken Finans is mainly created through the interest rate swaps which Handels banken Finans uses to reduce the volatility on the return on the structured lease agreements at Handels banken Finans. These swap agreements are made only with Handels banken as the counterparty and they are in turn hedged against an external counterparty. The interest rate risk as at 31 December 2011 was SEK 121 million (172). At the same date, the interest rate risk in the swap agreements with the Bank was SEK 120 million (176). Liquidity risk Handels banken s Central Treasury has overall responsibility for the s liquidity and funding. Liquidity risk management is completely centralised in the Handels banken in what is otherwise a decentralised business model. The basic condition for the funding operation is that it is to 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. Handels banken Finans is responsible for how the liquidity costs are managed in relation to customers. Liquidity is planned so that Handels banken, and thus Handels banken Finans, can manage for at least a twelve-month period without borrowing any new funds in the financial markets. Handels banken also maintains the requisite liquidity reserves for Handels banken 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 Handels banken Finans is permitted to have in given time periods. 20

23 NOTES Interest rate adjustment 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 Issued securities Total interest-bearing liabilities 21, ,334 1,271 5,957 30,231 Off-balance-sheet items, net -4, , Difference assets and liabilities including off-balance-sheet items 26, , ,167 Accumulated difference 26,437 26,793 26,252 30,164 30,167 Accumulated difference as a percentage of total assets 43% 43% 42% 49% 49% 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 Accumulated difference 25,064 25,235 24,744 28,661 28,664 Accumulated difference as a percentage of total assets 42% 42% 41% 48% 48% Interest rate adjustment 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 52, ,190 6,102 62,173 Total interest-bearing assets 53, ,193 6,102 62,290 Due to credit institutions 25, ,242 4,687 33,378 Borrowing from the public ,411 1,583 Issued securities Total interest-bearing liabilities 25, ,242 6,098 34,961 Off-balance-sheet items, net -4, ,932 - Difference assets and liabilities including off-balance-sheet items 22, , ,329 Accumulated difference 22,953 23,040 22,442 27,325 27,329 Accumulated difference as a percentage of total assets 35% 36% 35% 42% 42% 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 50, ,876 6,102 58,381 Total assets 50, ,879 6,102 58,427 Due to credit institutions 23, ,905 4,687 30,951 Borrowing from the public ,411 1,583 Total liabilities 23, ,905 6,098 32,534 Off-balance-sheet items, net -4, ,932 Difference assets and liabilities including off-balance-sheet items 21, , ,893 Accumulated difference 21,487 21,592 20,983 25,889 25,893 Accumulated difference as a percentage of total assets 35% 35% 34% 42% 42% 21

24 NOTES Exchange rate risk Handels banken 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 Handels banken Finans s equity are stated in note 34, 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 (26.3). The exchange rate risk at Handels banken Finans does not depend on trends for an individual currency or group of currencies, because the positions are very short and arise in management of customer-driven flows. The total exchange rate risk was SEK million (-0.21), measured as the impact on Handels banken 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 31. COMPREHENSIVE RISK MANAGEMENT BY MEANS OF THE ECONOMIC CAPITAL MODEL Handels banken Finans applies Handels banken s model for calculating economic capital (EC) which is a 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. Handels banken s Central Risk Control is responsible for overall monitoring of the s various risks. The model for economic capital is an important tool for this monitoring. EC is calculated with a time horizon of one year and a confidence level that is determined by the Board. Handels banken Finans calculates economic capital with a per cent confidence level, which is the same level as has been decided by Handels banken s Central Board. The confidence interval implies a worst outcome in only 3 out of 10,000 cases. The capital which forms a buffer that can absorb negative outcomes is called Available Financial Resources (AFR). AFR is an estimate of the size of Handels banken 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 Handels banken Finans s counterparties and exposures. Market risks comprise interest rate risk in the business operations. The non-financial risks comprise operational risk and business risk. Business risk is related to unexpected variations in 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 Handels banken Finans s capital situation is more than adequate in relation to its risks. CAPITAL PLANNING Handels banken 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, Handels banken s EC model and the outcome of stress tests. For other information concerning risk and capital management in the Handels banken see Handels banken s Annual Report for 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. Identification, management and control of operational risks is a clear and integral part of managerial responsibility at all levels at Handels banken Finans. The decentralised method of work at Handels banken Finans promotes cost-consciousness that results in vigilance against potential loss risk in the daily procedures. As an aid to identification, measurement and handling of operational risk, Handels banken 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 Handels banken Finans for dealing with serious disruptions. 22

25 NOTES Amounts in SEK million unless otherwise stated. NOTE 3 Interest income and interest expense NOTE 6 Net gains/losses on financial operations INTEREST INCOME Credit institutions Public 2,320 1, Derivative instruments recognised as hedges Other interest income Total 2,726 2,097 1, INTEREST EXPENSE Credit institutions Public Derivative instruments recognised as hedges Other interest expense Total -1, , Ineffective portion of cash flow hedges Price difference on hedging foreign net investment Credits and receivables at amortised cost Trading Liquidation Spartacus Total NOTE 7 Other operating income Average interest rate on credits to the public 3.8% 2.7% 5.4% 4.0% Net interest income (Interest income+lease income-interest expense-amortisation of lease assets) 1,571 1,218 1,414 1,043 Interest margin 2.6% 1.9% 2.5% 1.7% Interest income received from companies Interest expense paid to companies Includes interest income on impaired credits SEK 8 million (13). Total interest income in the on assets recognised at amortised cost was SEK 2,397 million (1,841). Total interest expense on liabilities recognised at amortised cost was SEK 975 million (828). NOTE 4 Lease income Lease income gross - - 5,298 5,004 Lease depreciation according to plan ,951-4,082 Total net leases - - 1, Of which received from companies Lease depreciation is reported under Depreciation and impairments, note 10. Rental income Services rendered Other operating income Total Of which received from companies NOTE 8 Staff costs Salaries and fees Social security costs Pension costs 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. NOTE 5 Fee and commission income and expense 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 Lending commissions Lease commissions Other commissions Total fee and commission expense Salaries and other compensation Board, Chief Executive, other senior management Others Total Number of employees (average during the year) Sweden Finland Denmark Norway UK Poland China Total Of which paid to companies Net fee and commission income

26 NOTES NOTE 8 Cont. Gender distribution (average during the year) Men Women Men Women Sweden Finland Denmark Norway UK Poland China Total Gender distribution (average during the year) Men Women Men Women Sweden Finland Denmark Norway UK Poland Total NOTE 9 Other administrative expenses Cost of premises IT costs Communication costs Travel and marketing costs Purchased services Supplies Other administrative expenses Total Audit costs Audit Consulting Audit Consulting External audit KPMG AB Internal audit Gender distribution % Men Women Men Women Board CEO 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 of 65. A retirement pension is paid amounting to 10 per cent of the annual salary up to 7.5 income base amounts. A pension under the national insurance scheme is also payable. A retirement pension of 65 per cent of the final salary 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 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. Other senior managers have a retirement age of 65. Other senior managers are 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 1.8 million (4.1) were paid to the Chief Executive, of which other benefits were SEK 0.1 million (0.2). The other 10 (12) senior managers received compensation and other benefits totalling SEK 10.8 million (14.8), including other benefits amounting to SEK 0.9 million (0.8). In the there are two other key individuals in senior management position but they are employed by Handels banken. Their compensation is not reported here. No variable bonuses are paid. Pensions: SEK 0.9 million (3.1) of the s pension costs are in respect of the Chief Executive and SEK 2.4 million (3.5) for the other 12 (14) senior managers. Pension premiums paid refer to premiums paid to SHB Pensionskassa försäkringsförening (pension fund) for contractual pension insurance. Pensions to the employees are defined-benefit but the company has no obligations since premiums are paid to the pension fund which in its turn is guaranteed by Handelsbanken. For this reason, the company s pension plan is reported as defined-contribution. Board members Board members who are employees of Handels banken Finans receive compensation and pension benefits by reason of their employment. No further compensation or pension benefits are paid for serving on the Board. Credits to senior management There are no credits to senior management. NOTE 10 Depreciation, amortisation and impairments Equipment Lease assets ,951-4,082 Goodwill Other depreciation and impairments Total ,958-4,090 NOTE 11 Credit losses, credits to the public Specific provision for individually assessed credits The year s provision Reversal of previous provisions Total Collective provision The year s collective provision for homogeneous credits Reversal of previous collective provision for individually assessed credits Reversal of previous collective provision for homogenous groups of 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. In 2011, a portfolio of written-off claims was reassessed and this had a one-off effect of SEK 131 million. Credit losses have been positively affected by SEK 33 million in 2011 relating to a present value calculation of a portfolio that was previously in Handels banken s books. Recoveries have also been positively affected by SEK 43 million, of which SEK 34 million has been moved from net interest incmoe and SEK 9 million from net fee and commission income. The comparative figures for 2010 have been adjusted to achieve comparability between the years. 24

27 NOTES NOTE 11 Cont Provision for individually assessed credits Collective provision for individually assessed credits Collective provision for assessed homogeneous credits Provision for impaired credits at beginning of year The year s provision Reversal of previous provisions Utilised for actual losses Exchange rate differences 0-0 Provision for impaired credits at year-end Provision for individually assessed credits Collective provision for individually assessed credits Collective provision for assessed homogeneous credits Provision for impaired credits at beginning of year The year s provision Reversal of previous provisions Utilised for actual losses Other reversals Exchange rate differences Provision for impaired credits at year-end 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 homogeneous groups of credits with limited value Net impaired credits Impaired credits reserve ratio 57.1% 46.1% 68.8% 44.8% Proportion of impaired credits 0.22% 0.38% 0.09% 0.26% Carrying amount of restructured and reclassified credits Restructured credits before restructuring Restructured credits after restructuring Impaired credits which during the period have regained the status of normal receivables Impaired credits by category Nonperforming credits Reserve Impaired gross Collective Individual Impaired net 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 -2-5 Reversal amortisation in excess of plan, goodwill on acquisitions 2 3 Reversal depreciation in excess of plan, leasing 11 - Depreciation in excess of plan, lease assets -1,078-2,310 Total -1,067-2,312 NOTE 13 Credits to credit institutions Banks in Swedish kronor Banks in foreign currency Total Of which non-current assets Of which claims on companies Information concerning maturities Payable on demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: between one and five years Total NOTE 14 Credits to the public Public, Swedish kronor 46,088 47,231 13,232 13,328 Public, foreign currency 14,180 15,147 1,179 1,336 Total 60,268 62,378 14,411 14,664 Probable credit losses Total credits to the public 60,096 62,173 14,320 14,562 Of which non-current assets 60,079 62,142 14,320 14,562 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 2,592 3,766 1,101 1,681 Remaining maturity: over three months but maximum one year 8,302 8,559 3,011 3,370 Remaining maturity: between one and five years 22,529 21,543 7,600 7,195 Remaining maturity: over five years 26,646 28,288 2,608 2,307 Total 60,096 62,173 14,320 14,562 Disclosures on gross investment and present value of future minimum lease payments Gross investment 52,142 51,413 Present value of credits referring to future minimum lease payments at balance sheet date 46,485 47,117 25

28 NOTES NOTE 14 Cont. NOTE 16 Intangible non-current assets 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 5,950 17,416 28,776 52,142 Distribution of present value minimum lease payments 5,891 16,528 24,066 46,485 Unearned finance income 5,657 (4,296) Non-guaranteed residual values accruing to the lessor All Handels banken 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 21.1 million (20.2). Variable part of lease payments included in earnings for the period SEK 729 million (489), owing to higher interest rates in 2011 than in 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 20.6 billion (22.5), which corresponds to 34.2 per cent of the s total credit volume as at 31 December The carrying amount of the largest individual exposure was SEK 9.2 billion (9.6).The average remaining maturity was 10.3 years (11). The exposures are in the transport and energy sectors. NOTE 15 Shares and participating interests Shares and participating interests Other shares and interests Shares in companies Shares Swedish credit institutions 0 0 Shares foreign credit institutions 1,276 1,276 Shares in other foreign subsidiaries Total shares in companies 1,348 1,369 Of which non-current assets 1,348 1,369 Shares in companies Foreign credit institutions Number of shares Carrying amount Participating interest % Handels banken Rahoitus Oy (Helsingfors) ,265, ,276 1,276 Other foreign subsidiaries Kreditt Inkasso AS (Fredrikstad) Spartacus A/S (Ikast) Handels banken Finans (Shanghai) Financial Leasing Company Ltd Other Swedish subsidiaries Kredit-Inkasso AB (Stockholm) , Total 1,348 1,369 Spartacus A/S was liquidated in Goodwill Cost of acquisition Acquisition value of future assets Total cost of acquisition 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 Acquisition value of future assets Amortisation for the year Closing residual value Of which non-current assets Amortisation Amortisation is on the basis of 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 cash-generating 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 long-term 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 risk-free interest rate and a risk adjustment corresponding to the market s average return requirement. In the annual impairment testing, the discount rate was 8.4 per cent before tax. The method for estimating the discount rate changed during the financial year. The estimate was previously based on the s average cost of capital before tax. In last year s impairment testing, the discount rate was 3.9 per cent. 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. 26

29 NOTES NOTE 17 Equipment Opening cost of acquisition Cost of acquisition of new assets Cost of acquisition of assets sold during the year Total cost of acquisition Accumulated depreciation according to plan, opening balance Depreciation for the year Accumulated depreciation of assets sold during the year Total depreciation and impairments Residual value according to plan Of which non-current assets NOTE 18 Lease assets Opening cost of acquisition ,168 58,041 Cost of acquisition of new assets - - 2,986 4,884 Cost of acquisition of assets sold during the year ,559-6,757 Total cost of acquisition ,595 56,168 Accumulated depreciation according to plan, opening balance ,349-11,476 Depreciation for the year ,951-4,082 Impairments for the year Accumulated impairment losses, opening balance Accumulated depreciation of assets sold during the year - - 3,087 3,234 Total depreciation and impairments ,237-12,349 Residual value according to plan ,358 43,819 Of which non-current assets ,341 43,788 Of which current assets Accumulated depreciation in excess of plan ,909-28,842 Net value after depreciation in excess of plan ,449 14,977 Repossessed property Of which provision for probable losses Carrying amount repossessed property The parent company s cost of acquisition includes SEK 1,329 million (2,445) in lease agreements where the basic lease period has not started. For further information, see note 14. NOTE 19 Other assets Customer receivables Claim on parent company, contribution 0 1, ,580 Derivative instruments Other Total 1,144 2,697 1,136 2,690 NOTE 20 Prepaid expenses and accrued income Accrued interest income Other accrued income Prepaid expenses Total NOTE 21 Due to credit institutions Banks in Swedish kronor 7,818 11,227 7,845 11,253 Banks in foreign currency 14,176 15,234 12,214 12,772 Other credit institutions in Swedish kronor 6,664 6,917 6,665 6,916 Other credit institutions in foreign currency Total 28,658 33,378 26,724 30,951 Of which companies 21,302 25,751 19,368 23,325 Information concerning maturities Payable on demand Remaining maturity: maximum three months 13,177 16,600 11,673 15,047 Remaining maturity: over three months but maximum one year 1,996 1,949 1,756 1,424 Remaining maturity: between one and five years 2,814 3,776 2,624 3,439 Remaining maturity: over five years 10,598 10,975 10,598 10,975 Total 28,658 33,378 26,724 30,951 NOTE 22 Borrowing from the public Borrowing from the public in Swedish kronor 1,573 1,583 1,573 1,583 Total 1,573 1,583 1,573 1,583 Information concerning maturities Payable on demand Remaining maturity: maximum three months Remaining maturity: over three months but maximum one year Remaining maturity: between one and five years Remaining maturity: over five years 1,336 1,233 1,336 1,233 Total 1,573 1,583 1,573 1,583 NOTE 23 Other liabilities Accounts payable Other Total Of which current assets 1,144 2,697 1,136 2,690 For further information about derivative instruments, see note

30 NOTES NOTE 24 Accrued expenses and deferred income Tax recognised in the income statement Accrued interest expenses Other accrued expenses Deferred income Total NOTE 25 Taxes Deferred taxes Deferred tax assets Derivative instruments Hedging of net investment in subsidiaries Other Total Deferred tax liabilities Credits to the public (leases) 7,866 7, Derivative instruments Hedging of net investment in subsidiaries Goodwill on acquisitions Total 7,964 7, Net deferred tax liabilities 7,957 7, Change in deferred taxes 2011 Opening balance Recognised in the income statement Recognised in other comprehensive 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 Change in deferred taxes 2010 Opening balance Recognised in the income statement Recognised in other comprehensive income Closing balance Credits to the public (leases) 6, ,585 Derivative instruments Hedging of net investment in subsidiaries Goodwill on acquisitions Other Net 7, ,683 Current tax Tax expense for the year Adjustment of tax relating to previous years Tax effect of received group contribution Deferred tax Changes in temporary differences Total Nominal tax rate in Sweden, % Deviations Non-taxable dividend Tax relating to previous years Non-taxable income/non-deductible expenses Non-taxable write-down of shares in subsidiaries Effects of foreign taxes and other Effective tax rate, % Non-taxable dividend in 2010 in the parent company is related to the dividend from the subsidiary Spartacus A/S. The deferred taxes booked in the income statement in the are related to the untaxed reserves in the parent company. NOTE 26 Untaxed reserves Accumulated depreciation in excess of plan Lease assets 29,909 28,843 Goodwill on acquisitions Total 29,942 28,876 NOTE 27 Contingent liabilities and contingent assets The total contingent liability relates to VAT and is SEK 8 million (45), which in the case of a negative outcome would incur an expense for the of the same amount. The total contingent asset is SEK 0 million (8). The decreased amount for both contingent liabilities and contingent assets between the years is due to the amounts having been recognised in the income statement. NOTE 28 Other commitments Committed credit offers 5,276 6,596 4,965 6,307 Unutilised part of granted overdraft facilities 9,773 9,045 7,221 6,493 Other commitments Total 15,114 15,712 12,251 12,871 Contracted future operating lease charges and rental charges allocated to the periods during which they fall due for payment Total

31 NOTES NOTE 29 Classification and valuation of financial assets and liabilities 2011 SEK m At fair value in income statement Trading Derivatives identified as hedge instruments Loans and Available-for-sale Other financial receivables financial assets 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 Other assets ,144 1,144 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 ,144 31,144 31,192 Non-financial liabilities 8,016 Total liabilities 39, SEK m At fair value in income statement Trading Derivatives identified as hedge instruments Loans and Available-for-sale Other financial receivables financial assets assets/liabilities Total carrying amount Fair value Assets Credits to credit institutions Credits to the public 62,173 62,173 63,555 Shares and participating interests Other assets 580 2,117 2,697 2,697 Prepaid expenses and accrued income Total financial assets , ,298 66,680 Non-financial assets 125 Total assets 65,423 Liabilities Due to credit institutions 33,378 33,378 33,477 Borrowing from the public 1,583 1,583 1,585 Other liabilities Accrued expenses and deferred income Total financial liabilities ,863 35,863 35,964 Non-financial liabilities 7,692 Total liabilities 43,555 Items measured at fair value comprise instruments for which there are listed prices on an active market. Instruments which are subject to hedge accounting are not included in the fair value hierarchy. For more information concerning derivatives, see note 32. 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. 29

32 NOTES NOTE 30 Geographical breakdown of income 2011 Sweden Denmark Finland Norway UK Poland China Total Interest income 2, ,726 Fee and commission income Net gains/losses on financial operations Other operating income Total 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 operating income Total 5, , Sweden Denmark Finland Norway UK Poland China Total Interest income 1, ,097 Net gains/losses on financial operations Fee and commission income Other operating income Total 1, , Sweden Denmark Finland Norway UK Poland Total Interest income Lease income 3, ,004 Fee and commission income Net gains/losses on financial operations Other operating income Total 4, ,312 NOTE 31 Assets and liabilities in foreign currencies 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 Net foreign currency position Total 2010 USD EUR DKK NOK GBP Other currencies Total Assets Credits to credit institutions Credits to the public 94 10,578 1,581 2, ,147 Other assets Total assets ,787 1,760 2, ,711 Liabilities Due to credit institutions ,568 1,631 2, ,234 Deposits and borrowing from the public Other liabilities and equity Total liabilities and equity ,756 1,756 2, ,683 Net foreign currency positions Net positions consist mainly of accumulated profits in foreign subsidiaries. 30

33 NOTES NOTE 32 Derivative instruments Market values Nominal amount Positive market values Negative market values Fair value reserve The fair value reserve contains unrealised changes in value on financial assets classified as available for sale. Derivatives for cash flow hedges Interest rate swaps -13,815-17, Specification of instruments available for sale (amount after tax) SEK m Fair value at beginning of year 1 1 Maturity analysis derivatives up to 1 year over 1 yr up to 5 yrs over 5 yrs Unrealised market value change during the year 1 0 Hedge reserve at end of year 2 1 Nominal amount/maturity 4,202 9,613 - Anticipated cash flows/maturity 260 7,231 - Hedge accounting Handels banken 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 Handels banken 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 229 million (253), after a deduction for deferred tax. Hedge ineffectiveness has affected the income statement by SEK -3.7 million (1.0). For information about classification and valuation of derivatives, see note 29. 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 SEK m Translation reserve at beginning of year Change in translation reserve at branches 3-2 Change in translation reserve at subsidiaries Change in translation reserve on funding net assets in subsidiaries Translation reserve at end of year NOTE 33 Reclassifications to the income statement SEK m Reclassifications from the translation reserve Reclassified tax of which translation reserve Total reclassification adjustments 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. NOTE 34 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 SEK m Hedge reserve at beginning of year Unrealised value changes during the year Recognised in income statement due to ineffectiveness 3-1 Hedge reserve at end of year Specification of instruments available for sale (amount after tax) SEK m Fair value at beginning of year 1 1 Unrealised market value change during the year 1 0 Hedge reserve at end of year 2 1 Change translation reserve SEK m Translation reserve at beginning of year -6 1 Change in translation reserve at branches 6-7 Translation reserve at end of year 0-6 Change in hedge reserve SEK m Hedge reserve at beginning of year Unrealised value changes during the year Recognised in income statement due to ineffectiveness 3-1 Hedge reserve at end of year

34 NOTES NOTE 35 Capital adequacy Capital base SEK m Tier 1 capital Equity 1) 22,436 21,789 22,268 21,719 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 22,154 21,482 22,009 21,431 Tier 2 capital Additional items Unrealised accumulated gains/losses, equities Total tier 2 capital Total capital base for capital adequacy purposes 22,156 21,483 22,011 21,432 Credit risks IRB Exposure after credit risk protection (EAD) Average risk weight, % Capital requirement SEK m Institutions Corporate of which advanced approach foundation approach Retail 15,259 15, Total IRB 15,537 15, Corporate of which advanced approach foundation approach Retail 11,897 11, Total IRB 12,052 11, ) Tier 1 capital has been affected by the Board s proposed appropriations. Capital requirement SEK m 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, Risk-weighted assets according to Basel I 15,667 14,957 13,619 12,688 Capital requirement according to Basel I (8% of risk-weighted assets) 1,253 1,197 1,090 1,015 Lowest permitted capital requirement according to transitional rules 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 Credit risks standardised approach Exposure after credit risk protection (EAD) Average risk weight, % Capital requirement SEK m Sovereign and central banks Municipalities Institutions 54,464 56, Corporate 378 1, Retail 915 1, Past due items Other Total standardised approach 56,495 59, Sovereign and central banks Municipalities Institutions 52,896 54, Corporate 349 1, Retail 915 1, Past due items Other 1,880 2, Total standardised approach 56,061 59,

35 NOTES NOTE 35 Cont. CAPITAL REQUIREMENT Banking group All companies in the Handels banken Finans are included in the banking group for the Handels banken Finans and are thus subject to the Basel 2 capital aqequacy 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, Handels banken 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 risk The capital requirement for credit risks is calculated by a risk-weighted exposure amount being calculated for all Handels banken 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. Handels banken Finans uses the advanced IRB approach for retail exposures (households and small companies) in Sweden, and in its subsidiary Handels banken Rahoitus Oy. The foundation IRB approach has been used for corporate exposures in Sweden and in the subsidiary Handels banken Rahoitus Oy. 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. Handels banken Finans does not prepare its own Pillar 3 report according to Basel II. Instead, please refer to Handels banken s document entitled Risk and capital management Information according to Pillar 3 for 2011, which covers the entire Handels banken banking group. NOTE 36 Related-party disclosures Claims on and liabilities to related parties SEK m Other related Other related parties Subsidiaries parties Credits to credit institutions Derivatives Other assets 11 1, ,588 Total 903 2, ,214 Due to credit institutions 21,302 25, ,368 23,315 Derivatives Other liabilities Total 21,513 25, ,567 23,503 Derivatives, nominal value ,815-17,579 Related parties income and expense SEK m Other related parties Subsidiaries Other related 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 between the parent company and subsidiaries, and with counterparties within the Handels banken. A list of Handels banken Finans s subsidiaries is presented in note 15. The group Other related parties includes Handels banken AB and its foreign branches and subsidiaries. At parent company level, Handels banken 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. Operational risk Handels banken uses the standardised approach according to which calculation of the capital requirement is based on the company s income in various business segments. 33

36 RECOMMENDED APPROPRIATION OF PROFITS Recommendation for appropriation of profit and statement from the Board Recommendation for appropriation of profit and statement from the Board According to the balance sheet, is available in the parent company for distribution by the annual general meeting totalling SEK 411,428,353. The Board recommends that the profit be distributed as follows: To the shareholders dividend per share SEK SEK 400,000,000 Balance carried forward SEK 11,428,353 Total allocated SEK 411,428,353 When assessing the amount of the company s proposed dividend, account has been taken of the nature of operations, their scope, consolidation requirement 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 227 million on equity. The s capital base exceeded the statutory capital requirement by SEK 21,154 million at the year-end. The surplus capital in the parent company was SEK 21,140 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, 22 MARCH 2012 Yonnie Bergqvist Chairman Peter Gustafsson Employee representative Carl Renström Marie Lundberg Chief Executive Kai Jokitulppo 34

37 AUDITOR'S REPORT Auditor s report To the annual general meeting of the shareholders of Handels banken Finans AB (publ) Corporate identity no REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ANNUAL ACCOUNTS We have audited the annual accounts and the consolidated accounts of Handels banken Finans AB (publ) for the year 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 for Credit Institutions and Securities Companies, and for the fair presentation of the consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act for Credit Institutions and Securities Companies, and for such internal control as the Board of Directors and the Chief Executive deem necessary to be able to prepare annual accounts and 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 as to whether the annual accounts and the consolidated accounts are free from material misstatements. During the year, the internal auditing department of Handels banken 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. Statements In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and present fairly, in all material respects, the financial position of the parent company as at 31 December 2011 and its financial performance and cash flows for the year then ended in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies, the consolidated accounts have been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and present fairly, in all material respects, the financial position of the as at 31 December 2011 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act for Credit Institutions and Securities Companies. The Administration Report is consistent with the other parts of the annual accounts and the consolidated accounts. We therefore recommend that the annual general meeting of shareholders adopt the income statement and balance sheet of the parent company and the. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In addition to our audit of the annual accounts and the consolidated accounts, we have examined the proposed appropriations of the company s profit or loss and the administration of the Board of Directors and the Chief Executive of Handels banken Finans AB (publ) 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 the Board of Directors reasoned statement and a selection of supporting evidence in order to be able to assess 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 has any financial liabilities towards the company. We also examined whether any Board member 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 for 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. Statements We recommend to the annual general meeting of shareholders that the profit be appropriated in accordance with the proposal in the Administration Report and that the members of the Board of Directors and the Chief Executive be discharged from liability for the financial year. Stockholm 30 March 2012 KPMG AB Stefan Holmström Public Authorised Accountant 35

38 ADDRESSES Addresses HANDELS BANKEN FINANS AB IN SWEDEN Postal address: SE Stockholm Tel: Office address: Torsgatan 12 HANDELS BANKEN FINANS S BRANCH IN DENMARK Vestergade 2, DK-7430 Ikast Tel: HANDELS BANKEN FINANS S BRANCH IN FINLAND AND HANDELS BANKEN FINANS ABP (FINLAND) Postal address: PB 900, Helsinki Tel: Office address: Kluuvikatu 6 A HANDELS BANKEN FINANS S BRANCH IN NORWAY Postal address: Postboks 1342 Vika, 0113 Oslo Tel: Office address: Tjuvholmen allè 11 KREDITT-INKASSO AS Postal address: Postboks 435, NO-1601 Fredrikstad Tel: Office address: Stortorvet 4/8 HANDELS BANKEN FINANS S BRANCH IN THE UK 4M Building Malaga Avenue, Manchester Airport M90 3RR Manchester Tel: HANDELS BANKEN FINANS S BRANCH IN POLAND Wisniowy Business Park, Building E Ul. Ilzecka Warsaw Tel: HANDELS BANKEN FINANS (SHANGHAI) FINANCIAL LEASING CO., LTD Room 2511, 168 Xi Zang Zhong Road, Huangpu District, Shanghai Tel:

39 DEFINITIONS AND EXPLANATIONS Definitions and explanations CAPITAL BASE Comprises the sum of tier 1 (primary) and tier 2 (supplementary) capital. CAPITAL RATIO The capital ratio is the capital base in relation to risk-weighted volume. The Swedish Capital Adequacy and Large Exposures Act (2006:1371) 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). 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. RETURN ON EQUITY The year s profit in relation to average equity. 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. 37

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