BCEE consolidated management report as of June 30, 2010

Transcription

1 BCEE consolidated management report as of June 30, 2010 Most countries returned to growth during the first half of the year However, economic growth remains moderate and fragile. This observation is reinforced by recent developments in the financing of several European countries debt. Following the massive stimulus packages implemented, a number of countries will face important macro-economic imbalances during and after the recovery phase. The Luxembourg economy has not been spared by the crisis and went through a recession before moving into recovery in 2010, based on the dynamic exports of financial services. However, the budget deteriorated and the government decided on stabilization measures in order to promote sustainable economic growth in the future. In these times of economic instability, BCEE, enabled by its financial stability, fulfilled its object to sustain the Luxembourg economy. Customer deposits grew by 1,1% between June 30, 2009 and June 30, In the real estate business, customer loans increased dynamically. Historically low interest rates have favoured real estate investment. At the beginning of the year, a renewed interest in the stock market could be observed. Eventually, investor confidence decreased again in the midst of concerns about the level of sovereign debt of a number of countries. Subsequently, investors sought less risky investments, despite low interest rate levels. To respond to customer demand, the Bank regularly issued savings products with progressive rates over periods of 2 or 3 years. Furthermore, the Bank experienced a strong migration of funds from time deposit accounts to traditional savings accounts with higher interest rate levels. Profits of BCEE Group on June 30, 2010 decreased compared to those published at the closure of the first half of the year Operating income fell by 21,7% and was at 259,3 million euros on June 30, Net interest margin decreased significantly (-24,3%) due to lacking maturity transformation opportunities on one hand and to an exceptional market situation during the first half of the year 2009 on the other hand. Fee and commission income increased by 6,9%, following the substantial increase in the valuation of customers securities deposits at the beginning of the year. Dividend income grew slightly (3,2%). Revenues on financial instruments fell from 16,3 million euros on June 30, 2009 to 2,3 million euros on June 30, By definition more volatile, this heading encompasses the earnings from

2 securities trading and derivatives, the earnings from financial assets available for sale, the earnings from fair value hedging as well as foreign exchange operations. The revaluation reserve reached a comfortable level on June 30, Other net operating income increased by 30,0%, compared to June 30, The income in this heading is essentially due to business related to previous years. Following a rigorous cost control policy, the Group could cut its operating costs, including tangible and intangible asset depreciation, by 0,9%. Significant reengineering and automation projects contribute to an ever increasing productivity. Those elements helped to offset the structural growth of staff costs whilst maintaining the quality of service offered. Budgets for major strategic, commercial, regulatory and risk management projects remained at a high level during the first six months of The Bank finalised the reengineering of its branch network, which now counts 14 financial centres across the country. The branch network is the favoured way of access to customers. In addition more than S-net conventions have been signed to date which confirms the Bank s leading position on the electronic banking services market. As always, BCEE has provided for credit risk in a conservative and prudent way. Given the above, the Group displays a net profit of 117,2 million euros against 137,1 millions euros for the six month period a year earlier, thus decreasing 19,9 million euros or 14,5%. Coupled with a conservative investment policy and solid results, the high level of own funds contributed to the renewal of AA+ and Aaa ratings by both Standard and Poors and Moody s. Given its financial and balance sheet structure, BCEE is in a position of structural liquidity surplus. This situation prevailed throughout the first six months of 2010, based upon solid and stable customer deposits. In addition to these customer deposits, BCEE carries stable and diversified liabilities, be it through financial institutions deposits or through its refinancing programs in ECP, USCP and EMTN. Those programs ensure a comfortable liquidity position. BCEE also carries a portfolio of liquid assets, such as high-quality fixed income securities and loans and advances with an average AA- rating. Hence, the Bank enjoys good access to refinancing at the European Central Bank and in the bilateral and triparty repo markets. 2

3 Outlook on the second half of the year 2010 The European debt crisis continues to weaken the economic recovery and hampers financial markets. In many countries, internal demand is weakened by restrictive credit policies and disturbing unemployment figures. In Luxembourg, BCEE will continue to be a reliable partner serving its customers and the country s economy. No significant events, impacting on the normal course of business, occurred after the closure of June 30, Luxembourg, August 30, 2010 On behalf of the Executive Committee Michel Birel Deputy Chief Executive Officer Jean-Claude Finck Chief Executive Officer 3

4 BANQUE ET CAISSE D'EPARGNE DE L'ETAT LUXEMBOURG Registered office: Luxembourg, 1, Place de Metz R.C. Luxembourg No B Autonomous public law institution, established under the law of February 21, 1856 (Mémorial 1, No 6, of March 10, 1856) and governed by the law of March 24, 1989 (Mémorial A, No 16 of March 28, 1989) Condensed consolidated interim financial information as at June 30,

5 TABLE OF CONTENTS PAGES DECLARATION ON THE CONFORMITY OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION...4 INDEPENDENT AUDITOR S REPORT...6 CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION...9 Condensed consolidated balance sheet as at June 30, Condensed consolidated income statement as at June 30, Condensed consolidated statement of comprehensive income as at June 30, Condensed consolidated statement of changes in equity as at June 30, Condensed consolidated statement of cash flows as at June 30, NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION GENERAL INFORMATION BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION COMPLIANCE WITH GENERAL IFRS PRINCIPLES CONSOLIDATION FOREIGN CURRENCY TRANSLATION NOTES TO THE CONDENSED CONSOLIDATED BALANCE SHEET CASH AND CASH BALANCES WITH CENTRAL BANKS FINANCIAL INSTRUMENTS HELD TO MATURITY SECURITIES COLLATERALISED SECURITIES IN THE CONTEXT OF REPURCHASE AGREEMENTS CONVERTIBLE BONDS INCLUDED IN THE DIFFERENT PORTFOLIOS DERIVATIVE INSTRUMENTS LOANS AND ADVANCES AT AMORTISED COST CREDIT INSTITUTIONS LOANS AND ADVANCES AT AMORTISED COST - CUSTOMERS OTHER ASSETS TAX ASSETS AND LIABILITIES DEBT CERTIFICATES ISSUED DEPOSITS AT AMORTISED COST CREDIT INSTITUTIONS DEPOSITS AT AMORTISED COST PRIVATE CUSTOMERS AND PUBLIC SECTOR PENSION FUND DEFINED BENEFIT PENSION PLAN PROVISIONS OTHER LIABILITIES

6 3.17 TRANSACTIONS WITH RELATED PARTIES OFF BALANCE SHEET ITEMS NOTES TO THE CONDENSED CONSOLIDATED INCOME STATEMENT INTEREST INCOME DIVIDEND INCOME COMMISSIONS INCOME FROM FINANCIAL INSTRUMENTS NOT RECOGNISED AT FAIR VALUE THROUGH PROFIT OR LOSS TRADING INCOME NET INCOME FROM HEDGE ACCOUNTING OTHER NET OPERATING INCOME STAFF EXPENSES OTHER ADMINISTRATIVE EXPENSES IMPAIRMENT OF FINANCIAL ASSETS - INDIVIDUAL AND COLLECTIVE ASSESSMENTS PROVISIONS TAX EXPENSE SEGMENT REPORTING

7 BANQUE ET CAISSE D EPARGNE DE L ETAT, LUXEMBOURG DECLARATION ON THE CONFORMITY OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION June 30,

8 Luxembourg, August 30, 2010 Declaration on the conformity of the condensed consolidated interim financial information and the management report in accordance with the regulations of article 3 of the transparency law («Loi Transparence») Hereby, we declare that to the best of our knowledge, the Banque et Caisse d Epargne de l Etat, Luxembourg s condensed consolidated interim financial information as of June 30, 2010 has been prepared in accordance with the applicable accounting standards and gives a true and fair view of the assets and liabilities, the financial position and the income statement and that the management report reflects the situation accurately, including the main risks and uncertainties of the bank and the group of companies included in the condensed consolidated interim financial information. For and on behalf of the Executive Committee Michel Birel Deputy Chief Executive Officer Jean-Claude Finck Chief Executive Officer 5

9 BANQUE ET CAISSE D EPARGNE DE L ETAT, LUXEMBOURG INDEPENDENT AUDITOR S REPORT June 30,

10 Report on Review of Condensed Consolidated Interim Financial Information PricewaterhouseCoopers Société à responsabilité limitée 400, Route d Esch B.P L-1014 Luxembourg Telephone Facsimile info@lu.pwc.com To the Executive Committee of Banque et Caisse d Epargne de l Etat, Luxembourg Introduction We have reviewed the accompanying condensed consolidated balance sheet of Banque et Caisse d Epargne de l Etat, Luxembourg and its subsidiaries (the Group ) as of June 30, 2010 and the related condensed consolidated profit and loss account and the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Executive Committee is responsible for the preparation and fair presentation of this condensed consolidated interim financial information in accordance with International Financial Reporting Standards as adopted by the European Union related to Interim Financial Information ( IAS 34 ). Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements ( ISRE ) 2410, Review of Interim Financial Information Performed by the Réviseur d entreprises agréé of the Entity as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. A review of condensed consolidated interim 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. Cabinet de révision agréé Expert comptable (autorisation gouvernementale n 95992) R.C.S. Luxembourg B Capital social EUR TVA LU

11 PricewaterhouseCoopers Société à responsabilité limitée 400, Route d Esch B.P L-1014 Luxembourg Telephone Facsimile info@lu.pwc.com Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information does not give a true and fair view of the financial position of the Group as at June 30, 2010, and of the results of its operations for the six-month period then ended in accordance with IAS 34. PricewaterhouseCoopers S.à r.l. Luxembourg, August 30, 2010 Represented by Pierre Krier Only the French version of the present Report has been reviewed by the auditors. In case of differences between the French version and the translation, the French version should be retained. Cabinet de révision agréé Expert comptable (autorisation gouvernementale n 95992) R.C.S. Luxembourg B Capital social EUR TVA LU

12 BANQUE ET CAISSE D EPARGNE DE L ETAT, LUXEMBOURG The English version of the present Report is a translation of the original French version. In case of differences between the French version and the translation, the French version should be retained. CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION June 30,

13 Condensed consolidated interim financial information Condensed consolidated balance sheet as at June 30, 2010 ASSETS in euro Notes 30/06/ /12/ /06/2010 Cash and balances with central banks Loans and advances at amortised cost - Credit institutions Loans and advances at amortised cost - Customers Financial assets held for trading / Hedging derivatives Available for sale - Fixed income securities Available for sale - Variable income securities Held to maturity securities Investments in associates accounted for by using the equity method Tangible and intangible assets Current tax assets Other assets TOTAL de l'actif LIABILITIES in euro Notes 30/06/ /12/ /06/2010 Deposits at amortised cost - Credit institutions Deposits at amortised cost - Private customers and public sector Financial liabilities held for trading / Hedging derivatives Debt securities in issue Provisions Other liabilities Current tax liabilities Deferred tax liabilities Pension fund Sous-total LIABILITIES (before equity) to be carried forward The notes on pages 18 to 43 are an integral part of this condensed consolidated interim financial information 10

14 Condensed consolidated interim financial information Condensed consolidated balance sheet as at June 30, 2010 (cont.) EQUITY in euro Notes 30/06/ /12/ /06/2010 Sub-total of LIABILITIES before equity, brought forward Share capital Revaluation reserve Available for sale Consilidated reserves Equity method adjustment Income from current year Sub-total equity - attributable to the equity holders of the parent entity Minority interest Total Equity TOTAL LIABILITIES AND EQUITY The notes on pages 18 to 43 are an integral part of this condensed consolidated interim financial information 11

15 Condensed consolidated interim financial information Condensed consolidated income statement as at June 30, 2010 in euro Notes 30/06/ /06/2010 Interest and similar income Dividend income Fee and commission income INCOME FROM INTEREST, DIVIDENDS AND FEES AND COMMISSIONS Net income from financial instrument not recognised at fair value through profit or loss Trading income Net income from hedge accounting Foreign currency translation differences Other operating income Other operating expense OPERATING INCOME Personnel expenses General and administrative expenses Amortisation expenses on tangible and intangible assets INCOME AFTER GENERAL EXPENSES Impairment on financial assets - individual and collective assessments Provisions Share of profit of associates accounted for using the equity method PROFIT BEFORE INCOME TAX AND NON-CURRENT ASSETS Profit from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations Tax on income from continuing operations Deferred tax assets PROFIT FOR THE PERIOD OF WHICH: PROFIT FOR THE PERIOD ATTRIBUTABLE TO MINORITY INTEREST PROFIT FOR THE PERIOD ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT ENTITY The notes on pages 18 to 43 are an integral part of this condensed consolidated interim financial information 12

16 Condensed consolidated interim financial information Condensed consolidated statement of comprehensive income as at June 30, 2010 in euro 30/06/ /06/2010 Profit for the year Net gains/(losses) on available for sale financial assets Variation of the revaluation reserve Net reclassification, to the income statement of realised net gains Actuarial losses in defined benefit pension scheme Cash flow hedges Impact of differed taxes Other comprehensive income for the period, net of tax Total comprehensive income for the period of with attributable to: - minority interest equity holders of the parent entity The notes on pages 18 to 43 are an integral part of this condensed consolidated interim financial information 13

17 Condensed consolidated interim financial information Condensed consolidated statement of changes in equity as at June 30, 2010 in euro Share Consolidated Revaluation Total equity - Minority Total Net result capital reserves reserve equity holders interest equity of the parent entity At as January 1, Appropriation of the result for the year Interim net result for the period ending June 30, Distributions for the year Actuarial losses in defined benefit pension plans Net evaluation results of operations on available for sale financial instruments Net evaluation results of cash flow hedges Others At as June 30, Share Consolidated Revaluation Total equity - Minority Total Net result capital reserves reserve equity holders interest equity of the parent entity As at January 1, Appropriation of the result for the year Interim net result for the period ending June 30, Distributions for the year Actuarial losses in defined benefit pension plans Net evaluation results of operations on available for sale financial instruments Net evaluation results of cash flow hedges Others At as June 30, The notes on pages 18 to 43 are an integral part of this condensed consolidated interim financial information 14

18 Condensed consolidated interim financial information Condensed consolidated statement of cash flows as at June 30, 2010 in euro Cash and cash equivalents 30/06/ /06/2010 in euro Cash and cash balances with central banks Loans and advances at amortised cost - Credit institutions Loans and advances at amortised cost - Customers Financial instruments held for trading Available for sale financial instruments - Variable income securities Held to maturity securities Other assets The statement of cash flows represents the inflow and outflow of cash. Cash and cash equivalents include cash in hand, deposits with central banks as well as assets maturing within 90 days. The statement of cash flows classifies the cash flows of the period in operating activities, investing activities and financing activities. The cash flow statement as of June 30, 2009 has been restated in order to include current taxes and to allow comparability with June 30, Cash flow from operating activities - Cash flow from operating activities before changes in operating assets and liabilities: 30/06/ /06/2010 Interest received Interest paid Income from securities Commissions received Commissions paid Other operating income Income taxes Other administrative charges Other operating charges Sub-total The notes on pages 18 to 43 are an integral part of this condensed consolidated interim financial information 15

19 Condensed consolidated interim financial information - Cash flow from changes in operating assets: Net variations 30/06/ /06/2010 Financial assets held for trading Available for sale - Fixed income securities Available for sale - Variable income securities Loans and advances at amortised cost - Credit institutions Loans and advances at amortised cost - Customers Derivative instruments used for hedging Other assets Sub-total Cash flow from changes in operating liabilities Net variations 30/06/ /06/2010 Securities held for trading - Short sales Deposits at amortised cost - Credit institutions Deposits at amortised cost - Customers Hedging derivatives Other liabilities Debt securities in issue Sub-total Cash flow from operating activities Cash flow from investing activities Purchase of available for sale securities - Variable income securities Purchase of variable income securities - Affiliates accounted for under the equity method 30/06/ /06/ Acquisition / repayment of held to maturity securities Acquisitions / proceeds of intangible and tangible assets Cash flow from investing activities The notes on pages 18 to 43 are an integral part of this condensed consolidated interim financial information 16

20 Condensed consolidated interim financial information Cash flow from financing activities 30/06/ /06/2010 Proceeds from subordinated liabilities Income distribution Cash flow from financing activities Net change Change in cash and cash equivalents 30/06/ /06/2010 Situation as at January Net change in cash flow Effect of exchange rates on cash and cash equivalents Situation as at June The notes on pages 18 to 43 are an integral part of this condensed consolidated interim financial information 17

21 BANQUE ET CAISSE D EPARGNE DE L ETAT, LUXEMBOURG NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION June 30,

22 1 GENERAL INFORMATION Banque et Caisse d Epargne de l Etat, Luxembourg (hereinafter the Bank ), established by the law of February 21, 1856 and governed by the law of March 24, 1989, is a self-governing public institution endowed with legal personality. Ultimate responsibility for the institution lies with the Government Minister who heads the Treasury. The Bank s registered office is located at 1, place de Metz, L-2954 Luxembourg. Within the limits set by the laws and regulations applicable to credit institutions, the objective of the Bank is to perform all financial and banking activities, as well as all similar, related or ancillary operations. The condensed consolidated interim financial information for the BCEE Group, of which Banque et Caisse d Epargne de l Etat is the parent company, were prepared in accordance with IFRS «International Financial Reporting Standards» as adopted by the European Union. The Group s average staff headcount for the financial period ending June 30, 2010 was (1.799 in 2009). The financial year is in line with the calendar year. 2 BASIS OF PREPARATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 2.1 Compliance with general IFRS principles The condensed consolidated interim financial information of the Group for the period ending June 30, 2010 were prepared in accordance with the International Financial Reporting Standards as adopted by the European Union and especially IAS 34 Interim Financial Reporting. A joint reading with the consolidated annual accounts of 2009, prepared in accordance with the International Financial Reporting Standards (IFRS), is recommended for a complete insight. The following standards and interpretations relevant to the Group as of January 1, 2010 were of no material impact on the condensed consolidated interim financial information: - Amendments to IAS 32 "Financial instruments : Presentation", classification of rights issues, - IFRS 2 "Share-based payments", - IFRS 3 "Business Combinations". 19

23 No standards and interpretations with a non mandatory application as of January 1, 2010 have been anticipated by the Group. The Group considers that none of these will have a material impact. The Group s activity is not subject to seasonality. 2.2 Consolidation General accounting principles are identical to those applied to the 2009 annual accounts and are detailed therein Consolidation scope Fully consolidated subsidiaries The scope of fully consolidated subsidiaries is identical to the 2009 annual accounts. However, a few voting rights have changed in percentage, but with no material impact. List of subsidiaries included in the consolidation scope Name % of voting rights Lux-Index US Advisory 79,63 Lux-Pension Advisory 82,63 Lux-Garantie Advisory S. A. 85,27 Lux-Croissance Advisory S. A. 85,57 Luxcash Advisory S. A. 85,67 Lux-World Fund Advisory S. A. 87,70 Lux-Protect Fund Advisory 88,63 Lux-Investment Advisors 90,00 Luxbond Advisory S. A. 92,57 BCEE Ré S. A. 99,90 Bourbon Immobilière S. A. 99,90 Luxembourg State and Savings Bank Trust Company S. A. 99,90 20

24 Investments in associates (equity method) The scope of associated companies using the equity method changed with the incorporation of BioTechCube S.A. on June 16, The company s capital is equally provided by BCEE Group and by S.N.C.I. The company is managed by a Board of Directors of at least 3 A directors, of which one should be a representative of the Ministry of Economy and Foreign Trade. The members of the board are appointed by the shareholders meeting from a list of candidates proposed by the Category A Shareholders. The object of the company is the investment in the area of medicine, personalized medicine, technology or economic development in the health care sector in the broadest meaning of this term ( Health Care Companies ). Investments in associates of the Group: Associates % of capital held Direct investment Société Nationale de Contrôle Technique S. à r. l. 20,00 Bourse de Luxembourg 22,74 Parking Théâtre 26,23 Europay Luxembourg 27,90 Visalux 35,46 La Luxembourgeoise 40,00 La Luxembourgeoise-Vie 40,00 BioTechCube S.A. 50,00 Indirect investment Pecoma International 33,33 EFA Partners 29,05 The overall position held within Luxair is 21.81% of Luxair s capital. The Group considers that it does not exercise significant influence given that it acquired 8.4% of Luxair s capital during the third quarter of 2008 with the objective of reselling within a medium term period. The overall position is recognised under Available for sale financial assets Variable income securities and is valued at fair value through the revaluation reserve. 21

25 2.3 Foreign currency translation For the main currencies, the following exchange rates were used for preparing the condensed consolidated interim financial information, which means that 1 euro equals: 30/06/ /12/ /06/2010 CHF 1,5252 1,4840 1,3281 GBP 0,8518 0,8914 0,8167 JPY 135,52 133, ,0900 SEK 10, ,2575 9,5101 USD 1,4124 1,4417 1,

26 3 NOTES TO THE CONDENSED CONSOLIDATED BALANCE SHEET (1) (in euro) 3.1 Cash and cash balances with central banks Cash comprises cash and cash balances with central banks. The compulsory reserve with the Banque centrale du Luxembourg is recognized under this caption. It consists in a minimum reserve required by the Banque centrale du Luxembourg. As a result, these funds are not available for financing the Group s operating activities. 3.2 Financial instruments Assets and liabilities held for trading Assets 30/06/ /12/ /06/2010 Non-derivative instruments Derivative instruments (note 4.7.) Total Liabilities 30/06/ /12/ /06/2010 Non-derivative instruments Derivative instruments (note 4.7.) Total Assets - Non-derivative instruments 30/06/ /12/ /06/2010 Debt instruments Public sector Credit institutions Corporate Equity instruments Total Unrealised result at year-end Liabilities - Non-derivative instruments 30/06/ /12/ /06/2010 Short sales Bonds Shares Total (1) Minor differences between figures in the notes to the condensed consolidated balance sheet and those in the condensed consolidated interim financial information are solely rounding differences. 23

27 3.2.2 Assets available for sale Categories 30/06/ /12/ /06/2010 Debt instruments Public sector Credit institutions Corporate Equity instruments Credit institutions Corporate Other Total Impairment of financial assets Unrealised result at the closing date Impairment of financial assets available for sale: ABS/MBS Corporates Other Credit institutions Total Situation as at January 1, Additions Reversal Write-off Situation as at June 30, Situation as at July 1, Additions Reversal Write-off Situation as at December 31, Situation as at January 1, Additions Reversal Write-off Situation as at June 30, The decrease in impairment for credit institutions is due to a net reversal and to a write-off of debts linked to an American and an Islandic bank. 24

28 Unrealised result on assets available for sale The breakdown of the unrealised result at the closing date consists of the following items: o Debt instruments Debt instruments include variable rate bonds, fixed rate bonds and structured bonds. Fixed rate bonds and structured bonds are converted into variable rate bonds by using derivative instruments ( asset-swaps ). The Group applies fair value hedge accounting to these transactions. The prospective and retrospective efficiencies are close to 100%. 30/06/2010 Value adjustment of the Fair value adjustments of debt instruments swap leg hedging the asset Changes in unhedged Changes in hedged risks Changes in hedged risk Retrospective risks (credit and (interest rate and price) efficiency rate liquidity spread) Fixed rate bonds and structured bonds ,17% Variable rate bonds /12/2009 Value adjustment of the Fair value adjustments of debt instruments swap leg hedging the asset Changes in unhedged Changes in hedged risks Changes in hedged risk Retrospective risks (credit and (interest rate and price) efficiency rate liquidity spread) Fixed rate bonds and structured bonds ,80% Variable rate bonds o Equity instruments 31/12/ /06/2010 Fair value adjustments of equity instruments

29 3.3 Held to maturity securities Categories 30/06/ /12/ /06/2010 Debt instruments Public sector Credit institutions Corporate Total The Group has not recognised any impairment loss at the closing date on held-to-maturity securities. The significant increase of the value of this portfolio is in line with the Group s ALM policy. 3.4 Collateralised securities in the context of repurchase agreements Categories 30/06/ /12/ /06/2010 Debt instruments issued by the public sector Debt instruments issued - Others Equity instruments Total The debt instruments are mainly part of the available for sale portfolio and the held to maturity portfolio. The equity instruments are part of the held for trading portfolio. The decrease in debt instruments is due to the nonrenewal of a number of contracts at maturity. 3.5 Convertible bonds included in the different portfolios Categories 30/06/ /12/ /06/2010 Convertible bonds Investments in convertible bonds are classified as available for sale assets and are hedged by swaps against the fluctuations of interest rates. 26

30 3.6 Derivative instruments Categories Assets Liabilities Notional amounts Balances as at 30/06/2010 Derivative instruments held for trading Operations linked to exchange rates Foreign exchange swaps and forward foreign exchange contracts Others Operations linked to interest rates IRS Operations linked to credit risk Credit derivatives (CDS) Fair value hedge Operations linked to exchange rates CCIS Operations linked to interest rates IRS (interest rate) Operations linked to other indices IRS (other indices) Cash flow hedge Operations linked to interest rates IRS Categories Balances as at 31/12/2009 Derivative instruments used for trading purposes Operations linked to exchange rates Foreign exchange swaps and forward foreign exchange contracts Others Operations linked to interest rates IRS Operations linked to credit risk Credit derivatives (CDS) Fair value hedge Operations linked to exchange rates CCIS Operations linked to interest rates IRS (interest rate) Operations linked to other indices IRS (other indices) Cash flow hedge Operations linked to exchange rates IRS

31 3.7 Loans and advances at amortised cost Credit institutions Categories 30/06/ /12/ /06/2010 Interbank loans Reverse repurchase agreements Roll-over credits Finance lease Sub-total Unused confirmed credit lines Impairment of financial assets Changes in this category during first half of the year 2010 are essentially due to the increase of bank loans. In the repurchase agreement activity, the stock of contracts as at June 30, 2010 mainly comprises triparty reverse repo contracts. In the event of reverse repurchase transactions, the Group becomes the legal owner of the securities received as a collateral and has the right to sell or collateralise these securities. As of June 30, 2010, no such security had been sold or collateralised. 3.8 Loans and advances at amortised cost - Customers Categories 30/06/ /12/ /06/2010 Retail Corporate Public sector Sub-total Unused confirmed credit lines Impairment of financial assets Of which finance leases: Categories 30/06/ /12/ /06/2010 Finance leases Sub-total

32 Impairment of loans and advances Retail customers Corporate Total Situation as at January 1, Additions Reversals Write-off (*) Situation as at June 30, Impairment of financial assets - individual assessment Impairment of financial assets - collective assessment Total Situation as at July 1, Additions Reversals Write-off (*) Situation as at December 31, Impairment of financial assets - individual assessment Impairment of financial assets - collective assessment Total Situation as at January 1, Additions Reversals Write-off (*) Situation as at June 30, Impairment of financial assets - individual assessment Impairment of financial assets - collective assessment Total (*) The write-off of loans and advances represents the amount definitely lost on impaired assets. Outstanding amounts on impaired loans: EUR as at June 30, 2010 against EUR as at December 31, 2009 and EUR as at June 30, Impairment losses cover the principal amount and interest. 29

33 3.9 Other assets Categories 30/06/ /12/ /06/2010 Miscellaneous debtors (1) Other short-term receivables (2) Others Total (1) Mainly operations on securities and coupons. (2) Mainly operations on credit cards and cheques Tax assets and liabilities Whereas current tax is a current liability, deferred taxes are income taxes payable in future periods in respect of taxable temporary differences (liabilities) or income taxes recoverable in future periods in respect of deductible temporary differences (assets). Differences between valuation methods under IFRS and those used under Luxembourg s accounting standards mostly explain the existence of deferred taxes. The non eligibility of certain provisions under IFRS also give rise to differed taxes., the Bank records a deferred tax asset of EUR and a deferred tax liability of EUR Tax assets Categories 30/06/ /12/ /06/2010 Current tax assets Deferred tax assets Tax assets Breakdown of deferred tax assets according to their origin: Categories 30/06/ /12/ /06/2010 Derivatives - application of fair value Debt instruments - application of fair value Capital instruments - application of fair value Other - financial instruments Pension funds - actuarial difference Deferred tax assets

34 Tax liabilities Categories 30/06/ /12/ /06/2010 Current tax liabilities Income tax Commercial tax Deferred tax liabilities Tax liabilities Breakdown of deferred tax liabilities according to their origin: Categories 30/06/ /12/ /06/2010 Derivatives - application of fair value Debt instruments - application of fair value Capital instruments - application of fair value Other - financial instruments Pension fund - actuarial difference Regulatory and other provisions Deferred tax liabilities The table below gives a breakdown of the changes to deferred tax assets and liabilities, depending on whether the changes relate to items that are charged or credited to equity, or relate to items that are charged or credited to the income statement. Deferred tax assets / liabilities 01/01/2010 Equity Income statement movements movements 30/06/2010 Deferred tax assets Deferred tax liabilities Net deferred tax assets / liabilities Deferred tax assets / liabilities 01/07/2009 Equity Income statement movements movements 31/12/2009 Deferred tax assets Deferred tax liabilities Net deferred tax assets / liabilities Deferred tax assets / liabilities 01/01/2009 Equity Income statement movements movements 30/06/2009 Deferred tax assets Deferred tax liabilities Net deferred tax assets / liabilities

35 3.11 Debt certificates issued Categories 30/06/ /12/ /06/2010 Cash certificates Commercial paper Medium Term Notes et other securities issued Total Of which: - subordinated notes (at issuance value) During the first half of the year 2010, the Group issued EMTNs for a value of EUR (EUR during the first half of the year 2009). The increase in this category is essentially due to the recovery of the markets and incidentally also due to an increased issuance business for retail customers. New issues as at June 30, 2009 June 30, 2010 With a maturity of < 2 years With a maturity between 2 and 5 years With a maturity of more than 5 years Total Of which: - Structured notes (at issuance value) The main category of structured notes issued in 2010 are callable step-up notes. Securities issued which have either come to maturity or have been reimbursed prior to maturity during the first half of the year 2010 or 2009: June 30, 2009 June 30, 2010 Maturities / reimbursements Total Of which: - Subordinated notes (at issuance value) Structured notes (at issuance value)

36 During the first half of the year 2010, the Group repurchased own debt for an amount of EUR against EUR in the first half of the year Deposits at amortised cost Credit institutions Categories 30/06/ /12/ /06/2010 Interbank deposits Repurchase agreements Total Deposits at amortized cost Private customers and Public sector Categories 30/06/ /12/ /06/2010 Private customers Repayable on demand Time-deposit accounts Savings Repurchase agreements Public Sector Total In this category, private customers tend to migrate their assets from time-deposit accounts to classical savings products. Furthermore, there is a significant increase in customer deposits from a customer of the public sector Pension fund defined benefit pension plan Main estimates used in determining pension commitments: Variables 30/06/ /12/ /06/2010 Discount rate for staff (active) 5,50% 5,00% 4,70% Discount rate for retired staff 3,95% 3,50% 3,50% Future salary increases (indexation included) 3,50% 3,50% 3,50% Future pension increases (indexation included) 2,50% 2,50% 2,50% Expected return (as from December 1, 2009) na 3,00% 3,00% 33

37 Net transfer to the pension fund (recognised as Staff expenses ): Components 30/06/ /12/ /06/2010 Current service cost Interest cost Expected return Staff contribution Total Pension commitments: Commitments as at January Current service cost Interest cost Paid benefits Actuarial gains / losses Commitments as at the last day of the reporting period Plan assets: 31/12/ /06/2010 Situation as at Pension payments Contribution Expected return Actuarial gains / losses Total The chart above illustrates the situation after externalization of the bank s pension fund on December 1, The amount of related payments on June 30 th, 2010 takes the civil servants pension refund to the Luxembourg State into account. It amounts to EUR for the year Net pension commitments according to IAS 19: 31/12/ /06/2010 Pension commitments Fair value of the assets of the pension plan Unfinanced commitments as at