Interim Condensed Consolidated and Bank Financial Statements for the 6 month period ended 30 June 2011

Transcription

1 AS SEB BANKA Interim Condensed Consolidated and Bank Financial Statements Translation from Latvian original * * This version of financial statements is a translation from the original, which was prepared in Latvian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of financial statements takes precedence over this translation.

2 CONTENTS Statement of the Board of Directors of the Bank 3 4 Auditors Report 5 Interim Condensed Financial Statements: Income Statement 6 Statement of Comprehensive Income 7 Balance Sheet and Commitments and Contingent Liabilities 8 Statement of Changes in Equity 9 10 Statement of Cash Flows 11 Notes to the Interim Condensed Financial Statements Meistaru iela 1, Valdlauči, Ėekavas pagasts Ėekavas novads, LV-1076, Latvia phone: (371) facsimile: (371) Registration number: LV

3 Statement of the Board of Directors of the Bank SEB banka s operations in 2011 are carried out in the conditions in which the national economy is continuing to recover from deep recession by showing moderate growth. The economy is continuously promoted by export while recovery of consumption is restricted by food and power resources price growth, as well as tax increase. Favourable conditions also ensure growth of operational activities in individual export-oriented service areas. Seasonal factors, activation of agricultural sectors and emigration ensures improvement of unemployment ratios. Gradually the growth of work salary has also been renewed, which is, however, neutralized by the growing inflation, due to which the purchasing capacity this year will improve only slightly. The main priorities in the economy will be further growth of prices and events for ensuring employment possibilities. In addition, it is also important to approve the national budget for 2012 on timely basis. A great role will be played by the development of events in the world economy, especially in the Eurozone. In the first half of 2011, SEB banka s total income has increased by 4% compared to the same period of last year, including net interest income increase by 2%, net commission income increase by 9% and net profit from securities trading and foreign exchange by 26%. SEB Group in Latvia has managed to reduce administrative costs by 9%. SEB banka s consolidated profit before allowance for loans in the first half of 2011 is 21 million lats, which is by 20% more than in six months of In the reporting period income from release of previously established allowances and recoveries of write-offs materially exceeded the new allowances, which gives an additional positive effect for SEB banka s half-year operating results. Overall SEB Group in Latvia closed the first half of 2011 with a profit of 41.6 million lats, contrary to the loss of LVL 30.6 in the first 6 months of the previous year. The capital adequacy ratio of SEB banka is stable, i.e 17.59%, which exceeds the minimum rate of 8% set by the FCMC, and the liquidity level is 42.06% (min. requirement: 30%). During the reporting period, changes were made in the composition of SEB banka's Board. Starting from 1 March 2011, the duties of SEB banka s Board Member were undertaken by Indrek Julge who is responsible for large corporate customer service, financial markets and cash management business in SEB banka. During the first half of the year, SEB Group in Latvia actively continued cooperation with private persons and companies which are engaged in domestic and export markets, thus also promoting economic development. In the first six months of this year, SEB banka in Latvia has provided financing both to companies and private persons in the form of various loans amounting to more than 157 million lats. In total, within half a year more than 4000 private persons and 1400 companies have received loans and other forms of financing from SEB banka. Of the total financing granted by SEB banka 87% was granted to entrepreneurs for business development and 13% to private persons. The most credited areas are still the same agriculture, trade and production. At the beginning of the year, SEB banka repeatedly gained rights to issue state guaranteed loans to students in The total scope of financing which SEB banka this year will grant as study or student s loans is 28.7 million lats. At the end of June, the consolidated gross value of loans issued by SEB banka was 1.9 billion lats. SEB banka's subsidiary SEB līzings closed the first half of 2011 with a loan portfolio of 150 million lats of which 97% account for leasing transactions and 3% for factoring transactions. SEB līzings factoring portfolio during half of the year increased by 1 million lats up to 4.9 million lats. Leasing portfolio at the end of half of the year was worth 145 million lats, which is by 9% less than at the beginning of the year. Irrespective of the fall of the leasing portfolio, SEB līzings in the 1 st half of this year increased the market share in the new sales volumes. In the first 6 months of 2011, the volume of customers deposits has decreased by 4% to 962 million lats. Meanwhile, successful development is consistently observed in alternative long-term investment services offered by the subsidiaries. Thanks to the sound performance of the managed funds, more and more people entrust SEB banka Group with management of their 2nd level pension funds; for the purposes of short-term deposits in lats the Lat Reserve Fund is also popular in the present conditions, etc. Total capital entrusted by private persons and corporate customers and managed by SEB banka s investment management company SEB Wealth Management in the 6 months of 2011 increased by 16.4 million lats or 3.8% reaching million lats. Such growth was reached thanks to the growth of state-funded pension scheme passed to the management of SEB Wealth Management by more than 7.2 million lats, as well as thanks to the growth of assets passed to the management of SEB pension fund and endowment life insurance by 5.9 million lats. Special interest among wealthy customers was continuously manifested by investment funds of SEB Private Banking, which resulted in scope of fund assets offered within the Modern Investments Programme increased by more than 3 million lats. Lat Reserve fund retained its position as the largest registered investment fund in Latvia by reaching the volume of assets of 63.1 million lats. In the 6 months of 2011, SEB banka s financial group in Latvia by providing its customers the best pension solutions and financial consultations takes the leading positions in pension and long-term accrual market by managing pension funds for more than 300 thousand people participants of 2 nd and 3 rd level pension scheme whose total pension capital in the first half of 2011 increased by 4% and exceeded 234 million lats. In the first 6 months of 2011, the funds of the 2 nd pension scheme passed for management of SEB Wealth Management have increased by 7.2 million lats. In turn, the number of participants in SEB pension s 2 nd level plans increased by 3977 people since the beginning of the year. By providing consultations to the residents of Latvia on the necessity of making investments, in the private pensions market the SEB Pensiju fonds among the open pension funds in the 6 months of 2011 has maintained its leading position in the private 3

4 Statement of the Board of Directors of the Bank (continued) pension market both in terms of the number of clients, with 40% market share, and the amount of assets of pension plans, with 55% market share. More and more new companies use private pension contributions for remuneration of their employees. Already more than 740 Latvian and international companies use the services of the 3rd pension level offered by SEB Pensiju fonds as means of additional motivation for their staff and improvement of pay by making private pension savings for their employees. The number of customers who actively use SEB banka s internet bank Ibanka for signing private pension accrual agreements has increased and 112 customers, or 10% of contracting customers, have used this possibility in the 6 months of At the beginning of 2011, changes have occurred in the composition of SEB banka s subsidiaries. By continuing optimization of SEB Group s legal structure, the Bank has sold investments in the subsidiary SIA IBS SEB Enskilda. Since February 2011, a new owner of the subsidiary is SEB banka s parent company Skandinaviska Enskilda Banken AB. With a wish to expand cooperation with customers and reach its target to become the home bank of its customers, the Bank actively continues work on offering new and more convenient services, including constant development and improvement of electronic services. SEB banka s invested work and resources in expansion of the range of services offered to private persons and companies and educating of customers, as well as the customers interest and experience in how to use the banks offered electronic services more effectively, has created favourable soil for the growth of electronically made settlements. At the end of June of 2011, the total amount of electronically made settlements by private persons and companies reached already 92% of the total number of settlements. SEB banka currently provides services to 900 thousand clients in 49 client service centres all over Latvia. These include 66 thousand legal entities. More than 500 thousand clients use Internet bank s Ibanka solutions for their daily settlements and payment cards of SEB banka s brand. To reach the target of being more accessible to the customer, SEB banka has prolonged the working hours of 2 branches in Riga this year. Now SEB banka s branches in Vecrīga and Spice work from 9:00 to in the evening, thus providing private persons with a possibility to make the necessary transactions and arrive for a consultation with a Bank specialist also after SEB banka has always been an active player in Latvian social, educational, cultural and sport life as well as in environmental protection. This year the bank continues to promote development of social organization The Mentor Latvia which focuses on children and young people who have grown up without parent care to help them fully integrate in a culturally adapted environment. 20 SEB banka employees also take part in the Mentor programme. Already for the 11 th year SEB banka is actively involved in the Shadow Day organized by Junior Achievement-Latvia by giving a possibility to students to visit employers, meet specialists in the areas of interest and observe their daily operations. This year SEB hosted 91 shadows. In May, SEB Mountain Biking Marathon started. The competition offers 7 stages to cycling sport enthusiasts in different Latvian cities. Upon finalization of the tree seeding and planting campaign Oxygen, organized by SEB banka and A/s Latvijas Valsts Meži, within which spruce, price and oak trees were planted, on 13 May in the region of Dunezers together with the schoolchildren of most active schools and representatives of several companies a special Oxygen forest was planted in the area of 3.5 ha. SEB banka continues to provide support to SOS Children s Village Association, youth social rehabilitation organization Dzivesprieks, as well as the regional non-governmental organizations in cooperation with the Community s Initiative Fund. SEB banka is truly pleased for the trust of its existing customers and their positive evaluation of most of the offered products and services. In addition, in rating tables SEB banka is placed as one of the most respectable companies in Latvia. Euromoney, the world's leading financial magazine, has recognised SEB as being the best bank in Latvia in its recent assessment of the financial sector, granting SEB the Euromoney Award of Excellence Best Bank in Latvia. The international finance magazine EMEA Finance in its annual award Europe Banking Awards 2010 has evaluated SEB banka as the Best Bank in Latvia. EMEA Finance experts have granted the highest award to SEB banka against other Latvian commercial banks already for the third year in succession. EMEA Finance has also highly evaluated the Bank s subsidiary in the category Best Asset Manager in Latvia 2010 by nominating SEB Wealth Management to this position. In turn, Sustainability Index experts, when evaluating the data submitted by 50 companies operating in Latvia in the context of sustainable and socially responsible operations in 2010, have declared SEB banka as one of the three most sustainable companies in Latvia. The Latvian Free Trade Union Association has granted SEB banka an award as the Best Cooperation Partner in Private Companies Group in The objective of SEB banka has always been to be the leading bank by offering its clients the highest level financial services. SEB banka will continue its work acting in accordance with SEB group s core values commitment, continuity, mutual respect and professionalism to make sure that its clients receive the best service. In conclusion, we would like to thank all the clients and cooperation partners of SEB banka for the collaboration and employees for their contribution to the Bank s further growth. We wish further success to all of us. 19 July 2011 Ainārs Ozols President / Chairman of the Board Jūrate Lingiene Member of the Board 4

5 REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION To the shareholders of Introduction We have reviewed the accompanying interim condensed consolidated balance sheet of and its subsidiaries (the Group ) and interim condensed balance sheet of AS SEB Banka (the Bank ) as of 30 June 2011 and the related interim condensed consolidated and Bank statements of income, comprehensive income, changes in equity and cash flows for the six-month period then ended. Management is responsible for the preparation and presentation of these condensed consolidated and Bank interim financial statements ( interim condensed financial information ) in accordance with International Accounting Standard 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim condensed financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 "Interim Financial Reporting". PricewaterhouseCoopers SIA Certified audit company Licence No. 5 Ahmed Abu Sharkh Chairman of the Board Ilandra Lejiņa Certified auditor in charge Certificate No. 168 Riga, Latvia 19 July 2011 PricewaterhouseCoopers SIA, Kr. Valdemara iela 19, Riga LV-1010, Latvia T: , F: , LV , PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See for more information PricewaterhouseCoopers SIA. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers SIA, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

6 Income Statement Six month period ended 30 June Notes Group Bank Group Bank Interest income 40,818 38,740 47,439 44,567 Interest expense (17,103) (16,561) (24,087) (23,658) Net interest income 23,715 22,179 23,352 20,909 Fee and commission income 15,019 12,837 13,913 11,658 Fee and commission expense (4,989) (5,144) (4,747) (4,842) Net fee and commission income 10,030 7,693 9,166 6,816 Profit on securities trading and foreign exchange, net 4,731 4,733 3,758 3,939 Dividend income ,200 Other operating income 2,818 1,530 3,453 1,665 Allowances for loan impairment 3 (35,140) (35,140) (70,503) (70,417) Release of previously established allowances and recoveries of write-offs 3 62,378 62,378 17,087 17,084 Change in allowances for loans and advances 3 27,238 27,238 (53,416) (53,333) Operating expenses (16,795) (15,137) (18,111) (16,086) Amortisation and depreciation charges (3,069) (1,817) (3,699) (2,155) (Loss) / Gain on disposal of assets held for sale 12 (34) Profit / (Loss) before income tax 48,635 46,748 (35,495) (37,045) Income tax (expenses) / benefits 4 (7,003) (6,686) 3,815 2,943 Profit / (Loss) from continuing operations 41,632 40,062 (31,680) (34,102) Profit / (Loss) from discontinued operations ,105 (99) Profit / (Loss) for the period 41,632 40,062 (30,575) (34,201) The financial statements on pages 6 to 20 have been approved by the Board of Directors of the Bank and signed on its behalf by: Ainārs Ozols President / Chairman of the Board Jūrate Lingiene Member of the Board 19 July 2011 The accompanying notes on pages 12 to 20 are an integral part of these financial statements. 6

7 Statement of Comprehensive Income Six month period ended 30 June Group Bank Group Bank Profit / (Loss) for the period 41,632 40,062 (30,575) (34,201) Net gain from investment securities availablefor-sale, after tax ,055 2,049 Total comprehensive profit / (loss) for the period 42,244 40,674 (28,520) (32,152) The accompanying notes on pages 12 to 20 are an integral part of these financial statements. 7

8 Balance Sheet and Commitments and Contingent Liabilities 30/06/11 31/12/10 Notes Group Bank Group Bank Assets Cash and balances with the Bank of Latvia 282, , , ,153 Balances due from banks 244, , , ,010 Loans and advances to customers 5-6 1,910,701 1,811,320 1,907,419 1,812,801 Trading securities 24,176 24,176 15,607 15,607 Investment securities available-for-sale 29,091 29,044 54,994 54,947 Derivative financial instruments 13,296 13,625 13,339 13,742 Investments in subsidiaries - 3,527-3,527 Intangible assets 3,713 3,656 4,175 4,111 Property and equipment 11,524 5,310 13,449 5,770 Current income tax assets ,607 1,132 Deferred income tax assets 13,236 13,231 19,923 19,917 Other assets 23,246 22,422 27,717 26,765 Assets classified as held for sale and discontinued operations Total assets 2,557,319 2,454,160 2,717,971 2,618,045 Liabilities Balances due to banks 1,212,393 1,060,904 1,346,968 1,195,575 Due to customers 7 962,159 1,025,628 1,004,446 1,069,332 Derivative financial instruments 14,129 14,130 14,397 14,398 Current income tax liability Deferred income tax liability Other liabilities 19,096 16,646 24,640 22,206 Subordinated liabilities 78,448 78,448 98,910 98,910 Liabilities classified as held for sale and discontinued operations Total liabilities 2,287,077 2,195,756 2,490,079 2,400,421 Equity Capital and reserves attributable to the equity holders Share capital 102, , , ,106 Share premium 3,565 3,565 3,565 3,565 Revaluation reserve on investment securities available-for-sale (157) (158) Other reserves Retained earnings 163, , , ,660 Total equity 270, , , ,624 Total liabilities and equity 2,557,319 2,454,160 2,717,971 2,618,045 Commitments and contingent liabilities Contingent liabilities 83,591 83,591 68,194 68,194 Financial commitments 250, , , ,931 The financial statements on pages 6 to 20 have been approved by the Board of Directors of the Bank and signed on its behalf by: Ainārs Ozols President / Chairman of the Board Jūrate Lingiene Member of the Board 19 July 2011 The accompanying notes on pages 12 to 20 are an integral part of these financial statements. 8

9 Consolidated Statement of Changes in Equity Paid-in share capital Share premium Other reserves Revaluation reserve on investment securities availablefor-sale Retained earnings TOTAL Ls 000 Ls 000 Balance at 31 December ,106 3, (3,165) 116, ,935 Change in other reserves Total comprehensive loss for the period ,055 (30,575) (28,520) Balance at 30 June ,106 3, (1,110) 85, ,476 Change in other reserves Total comprehensive profit for the period ,341 37,294 Balance at 31 December ,106 3, (157) 121, ,892 Change in other reserves Total comprehensive profit for the period ,632 42,244 Balance at 30 June ,106 3, , ,242 The accompanying notes on pages 12 to 20 are an integral part of these financial statements. 9

10 Statement of Changes in the Bank s Equity Paid-in share capital Share premium Other reserves Revaluation reserve on investment securities availablefor-sale Retained earnings TOTAL Ls 000 Ls 000 Balance at 31 December ,106 3, (3,155) 111, ,713 Change in other reserves Total comprehensive loss for the period ,049 (34,201) (32,152) Balance at 30 June ,106 3, (1,106) 77, ,622 Change in other reserves Total comprehensive profit for the period ,932 34,880 Balance at 31 December ,106 3, (158) 111, ,624 Change in other reserves Total comprehensive profit for the period ,062 40,674 Balance at 30 June ,106 3, , ,404 The accompanying notes on pages 12 to 20 are an integral part of these financial statements. 10

11 Statement of Cash Flows Six month period ended 30 June Group Bank Group Bank Notes Cash flows from operating activities Profit/(Loss) before income tax 48,635 46,748 (35,495) (37,045) (Loss)/Profit before tax from discontinued operations - - 1,105 (99) Amortisation and depreciation of intangible assets and property and equipment 3,056 1,806 3,665 2,124 (Decrease)/Increase in allowances for loan impairment (25,142) (25,142) 52,174 52,094 Interest income (38,864) (36,788) (43,428) (40,577) Interest expense 4,810 5,132 11,773 12,436 Profit from revaluation of foreign currency (3,621) (3,635) (3,113) (3,098) (Profit)/Loss from disposal of tangible property and equipment (14) Loss/(Profit) on derecognition of investments in subsidiaries 34 (328) (1,105) 99 Dividends received (1) (1) (2) (1,200) Decrease/(Increase) in other assets 4,884 4,753 (5,044) (5,758) Decrease in other liabilities (5,545) (5,560) (536) 2,138 Increase in cash and cash equivalents from operating activities before changes in assets and liabilities (11,768) (13,004) (19,393) (18,700) (Increase)/Decrease in trading securities (8,569) (8,569) 2,074 2,074 Increase in balances due from banks (25,562) (25,620) (43,392) (43,613) Decrease in loans and advances to customers 19,960 24, , ,074 Decrease in balances due to banks (134,575) (134,671) (30,038) (29,947) (Decrease)/Increase in deposits due to customers (42,967) (43,819) 42,971 76,389 (Decrease)/Increase in cash and cash equivalents from operating activities before income taxes (203,481) (200,842) 100, ,277 Interest received 40,764 38,570 47,066 43,359 Interest paid (4,777) (5,098) (11,506) (12,171) Income tax paid (111) - (442) - Net cash (used in)/generated from operating activities (167,605) (167,370) 135, ,465 Cash flows from investing activities Purchase of property and equipment (971) (902) (588) (522) Disposal of subsidiary entities ,763 6,763 Sale of property and equipment Decrease in investment securities available-for-sale 26,515 26,515 25,601 25,602 Dividends received ,200 Net cash generated from investing activities 26,752 26,505 31,800 33,059 Cash flows from financing activities Repayments of subordinated liabilities (20,381) (20,381) - - Change in statutory reserves Net cash (used in)/generated from financing activities (20,275) (20,275) Net cash (outflow)/inflow for the period (161,128) (161,140) 167, ,585 Cash and cash equivalents at the beginning of the period 468, , , ,985 Effect of exchange rates on cash and cash equivalents 3,621 3,635 3,113 3,098 Cash and cash equivalents at the end of the period 8 311, , , ,668 The accompanying notes on pages 12 to 20 are an integral part of these financial statements. 11

12 Notes to the Financial Statements General information (the Bank) is a joint-stock company incorporated in the Republic of Latvia. The Bank is registered in Commercial Register with common registration number LV The Bank and its subsidiaries (the Group) are engaged in banking and financial services business. The Parent and ultimate parent of the Bank is Skandinaviska Enskilda Banken AB, registered in Sweden. The legal address of is Meistaru street 1, Valdlauči, Ėekava parish, Ėekava region, LV-1076, Latvia. Note 1 Accounting policies These interim condensed financial statements are prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. These interim condensed financial statements should be read in conjunction with the 2010 full annual financial statements. The accounting policies used in the preparation of the interim financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with IFRSs. Note 2 Adoption of new or revised standards and interpretations Certain new IFRSs became effective for the Group from 1 January Listed below are those new or amended standards or interpretations which are relevant to the Group s operations and the nature of their impact on the Group s accounting policies. Improvements to International Financial Reporting Standards (issued in May 2010; most of the amendments are effective for annual periods beginning on or after 1 January 2011). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: IFRS 1 was amended (i) to allow previous GAAP carrying value to be used as deemed cost of an item of property, plant and equipment or an intangible asset if that item was used in operations subject to rate regulation, (ii) to allow an event driven revaluation to be used as deemed cost of property, plant and equipment even if the revaluation occurs during a period covered by the first IFRS financial statements and (iii) to require a first-time adopter to explain changes in accounting policies or in the IFRS 1 exemptions between its first IFRS interim report and its first IFRS financial statements; IFRS 3 was amended (i) to require measurement at fair value (unless another measurement basis is required by other IFRS standards) of non-controlling interests that are not present ownership interest or do not entitle the holder to a proportionate share of net assets in the event of liquidation, (ii) to provide guidance on acquiree s share-based payment arrangements that were not replaced or were voluntarily replaced as a result of a business combination and (iii) to clarify that the contingent considerations from business combinations that occurred before the effective date of revised IFRS 3 (issued in January 2008) will be accounted for in accordance with the guidance in the previous version of IFRS 3; IFRS 7 was amended to clarify certain disclosure requirements, in particular (i) by adding an explicit emphasis on the interaction between qualitative and quantitative disclosures about the nature and extent of financial risks, (ii) by removing the requirement to disclose carrying amount of renegotiated financial assets that would otherwise be past due or impaired, (iii) by replacing the requirement to disclose fair value of collateral by a more general requirement to disclose its financial effect, and (iv) by clarifying that an entity should disclose the amount of foreclosed collateral held at the reporting date and not the amount obtained during the reporting period; IAS 1 was amended to clarify that the components of the statement of changes in equity include profit or loss, other comprehensive income, total comprehensive income and transactions with owners and that an analysis of other comprehensive income by item may be presented in the notes; IAS 27 was amended by clarifying the transition rules for amendments to IAS 21, 28 and 31 made by the revised IAS 27 (as amended in January 2008); IAS 34 was amended to add additional examples of significant events and transactions requiring disclosure in a condensed interim financial report, including transfers between the levels of fair value hierarchy, changes in classification of financial assets or changes in business or economic environment that affect the fair values of the entity s financial instruments; and IFRIC 13 was amended to clarify measurement of fair value of award credits. The amendments did not have a material effect on these financial statements. 12

13 Notes to the Financial Statements (continued) Note 2 Adoption of new or revised standards and interpretations (continued) The following new and amended IFRSs and interpretations became effective in 2011, but are not relevant for the Group s operations and did not have an impact on these financial statements. Amendment to IAS 24, Related Party Disclosures Amendment to IFRIC 14, Prepayments of a Minimum Funding Requirement Certain new standards and interpretations have been published that become effective for the accounting periods beginning on or after 1 January 2011 or later periods and which are not relevant to the Group or are not yet endorsed by the EU: Disclosures Transfers of Financial Assets Amendments to IFRS 7(effective for annual periods beginning on or after 1 July 2011; not yet adopted by the EU) Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters Amendment to IFRS 1. (effective for annual periods beginning on or after 1 July 2011; not yet adopted by the EU). Deferred Tax: Recovery of Underlying Assets Amendment to IAS 12 (effective for annual periods beginning on or after 1 January 2012; not yet adopted by the EU). Employee benefits Amendment to IAS 19 (effective for annual periods beginning on or after 1 January 2013; not yet adopted by the EU). Financial statement presentation` regarding other comprehensive income Amendment to IAS 1 (effective for annual periods beginning on or after 1 July 2012; not yet adopted by the EU). IFRS 9, Financial Instruments Part 1: Classification and Measurement (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU). IFRS 10, Consolidated financial statements (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU). IFRS 11, `Joint arrangements (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU). IFRS 12, `Disclosures of interests in other entities` (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU). IFRS 13, `Fair value measurement` (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU). `Separate financial statements` - IAS 27 (revised 2011), (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU). `Associates and joint ventures`- IAS 28 (revised 2011), (effective for annual periods beginning on or after 1 January 2013; not yet endorsed by the EU). 13

14 Notes to the Financial Statements (continued) Note 3 Change in allowances for loans and advances The table below shows the split of the Group s total impairment allowances between loans and advances to nonbank customers and other assets outstanding at the end of the reporting period: Loans and advances Other assets Off-balance sheet liabilities Total 31 December , ,980 Increase in allowances 69,262-1,241 70,503 Release of allowances (16,979) - - (16,979) Recovered from write-offs (104) (4) - (108) Release to Income Statement 52,179 (4) 1,241 53,416 Write-offs (102) - - (102) Foreign exchange difference (11) - - (11) 30 June ,150-1, ,391 Increase in allowances (2,184) - 1,925 (259) Release of allowances (27,749) - - (27,749) Recovered from write-offs (57) (14) - (71) Release to Income Statement (29,990) (14) 1,925 (28,079) Write-offs (4,087) - - (4,087) Foreign exchange difference (39) - - (39) 31 December ,091-3, ,257 Increase in allowances 34, ,140 Release of allowances (59,616) - (2,475) (62,091) Recovered from write-offs (287) - - (287) Release to Income Statement (25,428) - (1,810) (27,238) Write-offs (31,310) - - (31,310) Foreign exchange difference (151) - - (151) 30 June ,489-1, ,845 14

15 Notes to the Financial Statements (continued) Note 3 Change in allowances for loans and advances The table below shows the split of the Bank s total impairment allowances between loans and advances to nonbank customers and other assets outstanding at the end of the reporting period: Loans and advances Other assets Off-balance sheet liabilities Total 31 December , ,980 Increase in allowances 69,176-1,241 70,417 Release of allowances (16,979) - - (16,979) Recovered from write-offs (104) - - (104) Release to Income Statement 52,093-1,241 53,334 Write-offs (16) - - (16) Foreign exchange difference (9) - - (9) 30 June ,152-1, ,393 Increase in allowances (2,192) - 1,925 (267) Release of allowances (27,749) - - (27,749) Recovered from write-offs (57) - - (57) Release to Income Statement (29,998) - 1,925 (28,073) Write-offs (4,079) - - (4,079) Foreign exchange difference (41) - - (41) 31 December ,091-3, ,257 Increase in allowances 34, ,140 Release of allowances (59,616) - (2,475) (62,091) Recovered from write-offs (287) - - (287) Release to Income Statement (25,428) - (1,810) (27,238) Write-offs (31,310) - - (31,310) Foreign exchange difference (151) - - (151) 30 June ,489-1, ,845 15

16 Notes to the Financial Statements (continued) Note 4 Income tax benefits Income tax expense is recognised in each interim period based on the best estimate of the weighted average effective annual income tax rate expected for the full financial year. At the end of the accounting period, the Bank has recognised the deferred income tax asset arising from tax losses transferred to the future taxation periods, as well as on the collective reserves created and the temporary differences in the depreciation of fixed and intangible assets in tax and financial accounting. Note 5 Loans and advances to customers Loans and advances to customers comprise the following: 30/06/11 31/12/10 Group Bank Group Bank Loans 1,687,536 1,702,335 1,773,899 1,793,213 Loans under reverse repurchase agreements Utilised credit lines 224, , , ,188 Total gross loans to customers 1,912,316 1,957,295 1,979,272 2,040,704 Finance leases 148,291 8, ,575 7,548 Factoring 5, ,023 - Overdraft facilities on demand deposit accounts 26,647 26,647 1,239 1,239 Credit balances on settlement cards 38,782 38,782 40,401 40,401 Total gross loans and advances to customers 2,131,190 2,031,809 2,184,510 2,089,892 Less allowances for loan impairment (220,489) (220,489) (277,091) (277,091) Total net loans and advances to customers 1,910,701 1,811,320 1,907,419 1,812,801 Note 6 Loans and advances to customers by quality The following table provides the analysis of loans and advances to customers by quality: 30/06/11 31/12/10 Group Bank Group Bank Neither past due nor impaired 1,620,670 1,554,977 1,638,972 1,586,913 Past due but not impaired 316, , , ,702 Impaired 194, , , ,277 Total gross loans and advances to customers 2,131,190 2,031,809 2,184,510 2,089,892 Less allowances for loan impairment (220,489) (220,489) (277,091) (277,091) Total net loans and advances to customers 1,910,701 1,811,320 1,907,419 1,812,801 16

17 Notes to the Financial Statements (continued) Note 6 Loans and advances to customers by quality (continued) The following table provides an analysis of loans and advances to customers neither past due nor impaired: 30/06/11 31/12/10 Grades Risk classes Group Bank Group Bank Investment grade ,682 42,583 18,210 18, ,927 8,920 9,129 9,129 Normal business , , , , , , , ,014 Watch list , , , ,181 Retail companies 80,727 62,508 87,901 65,484 Private individuals 575, , , ,103 Total gross loans and advances to customers neither past due nor impaired 1,620,670 1,554,977 1,638,972 1,586,913 The following table provides an analysis of loans and advances to customers past due but not impaired: 30/06/11 31/12/10 Group Bank Group Bank Past due up to 30 days 96,413 84,612 76,348 67,865 Past due days 38,047 33,782 30,627 24,790 Past due days 7,648 6,900 15,849 14,850 Past due over 90 days 174, , , ,197 Total gross loans and advances to customers past due but not impaired 316, , , ,702 Fair value of collateral 186, , , ,235 The following table provides an analysis of the Group s loans and advances to customers individually impaired: 30 June 2011 Utilised Finance Credit Loans credit lines leases Overdrafts cards Total Ls 000 Ls 000 Impaired loans 163,110 14,822 16, ,337 Fair value of collateral 94,365 5,423 3, , December 2010 Impaired loans 210,150 19,829 22, ,691 Fair value of collateral 118,160 7,032 7, ,583 The following table provides an analysis of the Bank s loans and advances to customers individually impaired: 30 June 2011 Utilised Finance Credit Loans credit lines leases Overdrafts cards Total Ls 000 Ls 000 Impaired loans 162,451 14,822 3, ,849 Fair value of collateral 94,274 5, , December 2010 Impaired loans 209,647 19,828 2, ,277 Fair value of collateral 118,047 7, ,079 17

18 Notes to the Financial Statements (continued) Note 7 Due to customers 30/06/11 31/12/10 Group Bank Group Bank Maturity profile: Demand deposits 753, , , ,470 Term deposits 208, , , ,862 Total due to customers 962,159 1,025,628 1,004,446 1,069,332 30/06/11 31/12/10 Group Bank Group Bank Ls 000 Ls 000 Ls 000 Ls 000 Sector profile: Private companies 354, , , ,256 Private individuals 442, , , ,633 State owned enterprises 42,300 42,300 49,387 49,387 Central government 5,586 5,586 5,262 5,262 Municipal authorities 96,966 96,966 87,005 87,005 Public and religious institutions 20,325 20,325 21,789 21,789 Total due to customers 962,159 1,025,628 1,004,446 1,069,332 30/06/11 31/12/10 Group Bank Group Bank Geographical profile: Residents 935, , ,548 1,042,434 Non-residents 26,504 26,504 26,898 26,898 Total due to customers 962,159 1,025,628 1,004,446 1,069,332 Note 8 Cash and cash equivalents The table below provides a breakdown of cash and cash equivalents: 30/06/11 30/06/10 Group Bank Group Bank Cash and demand deposits with the Bank of Latvia 282, , , ,234 Demand deposits with credit institutions 28,403 28, , ,434 Total cash and cash equivalents 311, , , ,668 Demand deposits with the Bank of Latvia include an obligatory reserve maintained in accordance with Bank of Latvia regulations. The regulations specify the average balance to be maintained on the Bank s correspondent account with the Bank of Latvia during each month, whilst allowing funds in the account to be used in an unrestricted manner on individual days. For June 2011 the obligatory reserve requirement was Ls 91,830 thousand (Ls 92,738 thousand as at 31 December 2010). 18

19 Notes to the Financial Statements (continued) Note 9 Capital adequacy Capital adequacy refers to the sufficiency of the Group s and the Bank s capital resources to cover credit risks, operational and market risks arising from the portfolio of assets of the Group and the Bank and the exposure from commitments and contingent liabilities of the Group and the Bank. In accordance with the Latvian Financial and Capital Market Commission s (FCMC) requirements, the Group s and the Bank s risk based capital adequacy ratios as at 30 June 2011 were 17.59% (16.09% as at 31 December 2010) and 18.19% (16.32% as at 31 December 2010) respectively, which is above the minimum required by the FCMC guidelines of FCMC requires Latvian banks to maintain a capital adequacy ratio of 8% of risk weighted assets and commitments and contingent liabilities which is calculated in accordance with the rules set by FCMC. These ratios have been calculated by using respectively the Group s and the Bank s audited net profit for the six months period ended 30 June Note 10 Liquidity The Bank places the assets so that to ensure settling of their creditors' legal claims at any time (liquidity). To ensure liquidity, the Bank evaluates and plans the term structures of the assets and liabilities on a daily basis and maintains liquid assets that are sufficient for settling liabilities, however, no less than 30% of total current liabilities of the Bank (liquidity indicator). Current liabilities are demand liabilities and liabilities with a residual maturity of no more than 30 days. In accordance with the Latvian Financial and Capital Market Commission s (FCMC) requirements, the Bank s liquidity ratio as at 30 June 2011 was 42.06% (50.08% as at 31 December 2010), which is above the minimum 30% required. Note 11 Related party transactions Related parties are defined as shareholders who have significant influence over the Bank and key management personnel, as well as companies in which they have a controlling interest or significant influence. In order to ensure long-term resources, the Group has attracted financing from the parent bank Skandinaviska Enskilda Banken AB in the amount of LVL 1,023,309 thousand (LVL 1,129,524 thousand on 31 December 2010), as well as a subordinated loan in the amount of LVL 78,448 thousand (LVL 98,910 thousand on 31 December 2010). For the purposes of maintaining liquidity, the Group placed available cash funds totalling LVL 230,103 thousand (LVL 220,188 thousand on 31 December 2010) in short-term money market transactions with the parent bank and subsidiaries of the parent bank. The transactions were entered into at fixed rates, and their terms do not exceed one year. The transactions were completed as part of the main operations of the Group in accordance with market prices. Note 12 Changes in consolidation group In December 2010 the management of the Bank made a decision to sell its subsidiary SIA IBS SEB Enskilda to another company within the SEB Group. Consequently the assets and liabilities of SIA IBS SEB Enskilda on 31 December 2010 were classified as held for sale. On 28 February 2011, SEB banka completed the sale of its subsidiary SIA IBS "SEB Enskilda", to SEB Group s in Latvia parent company Skandinaviska Enskilda Banken AB (publ) for 890,906 lats. 19

20 Notes to the Financial Statements (continued) Note 12 Changes in consolidation group (continued) The result of sale of the subsidiary was as follows: Six month period ended 30 June 2011 Group Ls 000 Consideration received - cash 891 Carrying amount of net assets sold (925) Loss on disposal of assets held for sale (34) The carrying amounts of the assets and liabilities at the disposal date were as follows: Group Ls 000 Assets Balance due from banks 566 Property and equipment 37 Current income tax assets 138 Deferred income tax assets 100 Other assets 119 Total assets 960 Liabilities Other liabilities 35 Total liabilities 35 Net assets