Výročná správa Annual report

Transcription

1 Výročná správa Annual report 2005 Fond ochrany vkladov Deposit protection Fund

2

3 CONTENTS Introduction by the Deposit Protection Fund Council Chairman 33 Management report 34 Financial statements 37 Selected financial indicators Supervisory Board report 59 Auditors report 60

4

5 INTRODUCTION BY THE DEPOSIT PROTECTION FUND COUNCIL CHAIRMAN Ladies and gentlemen, Main role of the Fund, as the guarantor of the deposit protection system, is to protect deposits accumulated in banks and foreign bank branches. Operations are directed towards the strengthening of trust of clients depositors with respect to the banking community. Year 2005 was the 4 th year without a bank becoming unable to pay out deposits, which is a sign of a financial stability of the banking system in Slovakia. After fulfilling its primary duty in towards depositors of four bankrupt banks, the Fund continued also in 2005 with the compensation payments in Devín banka, but only to those depositors, who have filed their entitlement against the fund in writing and within the statutory time period. In AG Banka, Slovenská kreditná banka and Dopravná banka the Fund can, considering the finalisation of the compensation payout process, the fund is able to make compensation payment only based on legally binding court ruling. The fund continued in exercising its creditor rights in ongoing bankruptcy proceedings. In November, the final report in Dopravná banka was consulted, opening an avenue for first settlements in favour of creditors. Process of liquidating assets of Slovenská kreditná banka and Devín banka continued, in AG Banka the bankruptcy administrator finalised the asset liquidation process. Despite efforts exerted by the fund in the bankruptcy proceedings as well as through creditor committees the results of the liquidation are not satisfactory. Significant event in the legislative area was the amendment of the deposit protection legislation adopted through Act No. 578/2005 Coll., allowing to adjust the level of contributions from banks and foreign bank branches to the fund (with previous reason approval from the National Bank of Slovakia) to 0.2% of the protected deposits value. The possibility of reduced contribution level for protected deposits was significantly supported by a change of financial regime of the Fund brought about by the assigning of NBS receivable/claim towards the fund arising from a loan provided to make compensation payments for banks and to extend the repayment schedule over a longer time period. As a part of international activities the fund engaged within the European Forum of Deposit Insurers and participated in discussions regarding the changes to the EU Guideline on deposit protection systems. The Deposit Protection Fund activities would not be possible without close cooperation with the Ministry of Finance of the Slovak Republic, the National Bank of Slovakia, Banking Association, commercial banks and branches of foreign banks, as well as without cooperation with other involved institutions. Dear ladies and gentlemen, In closing I would like to thank all the representatives of the institutions mentioned, members of the Deposit Protection Fund Council, Supervisory Board, Presidium and all Fund employees for their efforts in 2005 in support of the operations of the Deposit Protection Fund. Ing. Štefan Králik Deposit Protection Fund Council Chairman 33

6 MANAGEMENT REPORT In 2005 the Fund continued to pursue creditor's rights against the assets of banks under bankruptcy proceedings, on behalf of whom the fund made compensation payments for inaccessible bank deposits during period of years Following a 4-year effort we have expected financial settlement in particular from the bankruptcy proceeding of Dopravná banka. Despite an effort we have not been able to achieve this goal due to reasons which the Deposit Protection Fund cannot influence directly nor influence otherwise (court rulings in particular). By publishing of a resolution with respect to the final bankruptcy report the bankruptcy proceedings of Dopravná banka has entered a final phase before the issuing of creditor receivables and entitlements settlement. In case of bankruptcy proceedings of Devín banka a Slovenská kreditná banka the asset liquidation process was smooth. Debt position of the Deposit Protection Fund, which has arisen as a result of prior development, was reduced during the course of the year by annual contributions from banks and extraordinary settlement from securities. At the same time the NBS has at the end of the year assigned receivable from Deposit Protection Fund to consortium of banks, represented by Slovenská sporiteľňa, Všeobecná úverová banka and Tatra banka. Amendment of Act No. 578/2005 Coll. dated December 16, 2005, amending the deposit protection legislation opened the avenue for reducing the day annual contribution level to 0.35% and following a prior written approval from the National bank of Slovakia to 0.2% of the value of deposits protected by legislation throughout the whole repayment period of the Fund s liability. During the year the Deposit Protection Fund actively participated in re-assessing the current principles and terms of the European Parliament and European Council Guideline No. 94/19/ES dated May 30, 1994 on deposit protection systems. Main objective is to ensure such level of deposit protection in banks, which would be without significant deviations within EU member countries. Banking sector As of the 2005 year-end the banks managed funds totalling more than 818 bln Sk, 51% of which were subject of deposit protection system. The absolute volume of protected deposits was largely stagnant. Banking deposits during 1996 and 2005 are shown in the following graph. Banking sector deposits comparison bln Sk Banking sector deposits total Protected bank deposits year 34

7 Deposit Protection Fund contributions Annual contributions from banks totalling bln Sk were in 2005 the main income source for the Deposit Protection Fund. The contribution level was determined in line with the deposit protection legislation at a maximum level, i.e., 0.75% of the protected deposits volume, due to the debt level from previous years. The incumbent 18 members of the deposit protection system were joined in mid-june 2005 by a new member, HSBC Bank plc, branch of a foreign bank. These funds were utilised in full to reduce the debt owed to the National Bank of Slovakia. Based on contractual the NBS has assigned the Fund debt totalling 4.13 bln Sk to a consortium of banks with agreed maturity on December 31, During the years the banking entities have paid to the Fund statutory contributions, including annual, extraordinary and entry contributions totalling 16 bln Sk. The following graph is showing the quarterly contributions and total annual contribution levels. in '000 Sk Quarterly contributions Q Q Q 4 Q Total year 35

8 Deposit Protection Fund performance In 2005 the Deposit Protection Fund generated a profit of 2.89 bln Sk. Major portion of the balance sheet total represented receivables from banks in bankruptcy, which were evaluated according to value of assets under bankruptcy of these four banks and according to the expected yield from the disposal of these assets. Securities held in the Deposit Protection Fund portfolio, which were due in 2005, were liquidated for 250 mil Sk and proceeds used as an extraordinary repayment of the liability towards the National Bank of Slovakia. Total fund expenses as of December 31, 2005 represented an amount of mil Sk and reported revenues totalled 3.08 bln Sk. Compensation payments for inaccessible deposits Since the beginning of 2000 the Deposit Protection Fund made compensation payments for inaccessible deposits to clients of four illiquid banks totalling bln Sk. Depositors of AG Banka received 1.74 bln Sk, Slovenská kreditná banka 4.32 bln Sk, Dopravná banka 2.22 bln Sk. The highest amount was paid to Devin banka depositors, totalling bln Sk. Deposit Protection Fund is claiming the amount of paid out compensation payments as a receivable in bankruptcy cases against the assets of these four insolvent banks. Compensation limit for inaccessible deposits in banks As of the effective date of the Accession Agreement of Slovakia s joining the EU, i.e., from May 1, 2004 the compensation amount per one depositor in one bank was paid at 90% of his/her inaccessible deposit amount, with a combined maximum of 20,000 Euro, converted to SKK. Maximum amount of compensation guaranteed by law in case of inaccessibility remained unaltered in Ing. Rudolf Šujan Presidium Chairman Deposit Protection Fund 36

9 FINANCIAL STATEMENTS Balance Sheet Úč B 1-01 B A L A N C E S H E E T as of 31 December 2005 (in thousand of Sk) month year month year for the period from to Financial statements Financial statements *) - ordinary - prepared - extraordinary - approved - interim *) mark with a cross Identification No Business name of the reporting enterprise F o n d o c h r a n y v k l a d o v Legal form of the reporting enterprise Seat of the reporting enterprise, street and number K a p i t u l s k á 1 2 Postal code Municipality name B r a t i s l a v a Phone Routing Code Phone No. Fax No Prepared on: Signature of a member of the statutory body of the reporting enterprise or a natural person acting as a reporting enterprise: Signature of the person responsible for the preparation of the financial statements: Signature of the person responsible for bookkeeping:

10 Annex No. 1 to Decree MF/5292/ B A L A N C E S H E E T as at Ref. ITEM Comment Current reporting a b c 1 2 x Assets x x 1. Cash on hand and deposits with central banks payable on demand Amounts due from banks payable on demand Other amounts due from central banks and banks - - a) gross amount - - b) correction Securities held for trading Derivatives - - a) held for trading - - b) hedging Available-for-sale securities Amounts due from clients and other debtors - - a) gross amount - - b) correction Debt securities held-to-maturity E a) of state authorities b) of other entities - - b1 gross amount - - b2 correction Share in the share capital of associates - - a) of entities in financial sector - - a1 gross amount - - a2 correction - - b) of other entities - - b1 gross amount - - b2 correction Share in the share capital of subsidiaries - - a) of in financial sector - - a1 gross amount - - a2 correction - - b) of other entities - - b1 gross amount - - b2 correction Acquisition of tangible and intangible assets - - a) gross amount - - b) correction Intangible assets E a) gross amount b) correction (7 797) (7 731) b1 accumulated amortisation (7 797) (7 731) b2 provisions Tangible assets E a) non-depreciated a1 gross amount a2 correction - - b) depreciated b1 gross amount b2 correction (14 601) (13 341) b2a accumulated depreciation (14 601) (13 341) b2b provisions Tax receivables Other assets a) gross amount E.1.3, E b) correction E.1.5-E.1.7 ( ) ( ) TOTAL ASSETS period Prior reporting period 38

11 Current reporting Ref. ITEM Comment Prior reporting period period a b c 1 2 x Liabilities x x I. Liabilities (total of items 1 through 11) Amounts due to central banks payable on demand Amounts due to banks payable on demand Other payables to central banks and banks E Amounts due to clients and other creditors - - a) payables on demand - - b) other liabilities Amounts payable from securities sold short Derivatives - - a) held for trading - - b) hedging Amounts payable from debt securities - - a) with contractual maturity less than one year - - b) with contractual maturity exceeding one year Other payables E Provisions for liabilities E Subordinated financial liabilities Tax liabilities - - II. Shareholders' equity (total of items 12 through 19) C. ( ) ( ) 12. Registered capital, thereof - - a) registered capital subscribed - - b) amounts due from shareholders (x) Own shares (x) Capital funds - - a) share premium - - b) other capital funds Funds from profit after taxation Revaluation differences x/(x) - - a) from fixed assets x/(x) - - b) from available-for-sale securities x/(x) - - c) from hedging derivatives x/(x) - - d) from conversion of equity shares and participation in foreign currency x/(x) - - e) from subsidiaries and associates Retained earnings x/(x) ( ) ( ) 18. Profit or loss to be approved x/(x) Profit or loss of the current accounting period x/(x) TOTAL LIABILITIES

12 Statement of profit and loss Úč B 2-01 I N C O M E S T A T E M E N T as of 31 December 2005 (in thousand of Sk) month year month year for the period from to Financial statements Financial statements *) - ordinary - prepared - extraordinary - approved - interim *) mark with a cross Identification No Business name of the reporting enterprise F o n d o c h r a n y v k l a d o v Legal form of the reporting enterprise Seat of the reporting enterprise, street and number K a p i t u l s k á 1 2 Postal code Municipality name B r a t i s l a v a Phone Routing Code Phone No. Fax No Prepared on: Signature of a member of the Signature of the person statutory body of the reporting responsible for the preparation of enterprise or a natural person acting the financial statements: as a reporting enterprise: Signature of the person responsible for bookkeeping:

13 Annex No. 2 to Decree MF/5292/ INCOME STATEMENT for twelve months of 2005 Ref. ITEM Comment Current reporting period Prior reporting period a b c Interest and similar income a. Interest and similar expense (85 610) ( ) I. Net interest income E.2.1. (79 755) ( ) 2. Fee and commission income b. Fee and commission expense (11 522) (9) II. Net profit or loss from fees and commissions E Income from contributions to share capital of subsidiaries and associates of other participations /c. Net profit or net loss from trading with securities, derivatives and foreign currencies Income from sale and transfer of assets Income from reversal of provisions for sold or transfered assets - - d. Expenses for sale and transfer of assets - - III. Net profit or loss from sale or transfer of assets Income from reversal of provisions for liabilities from principal activities B Income from reversal of provisions and written-off receivables - - e. Expenses for additions to provisions for liabilities from principal activities B ( ) f. Expenses for additions to provisions for impairment and asset write offs (76 133) (1 345) f.1. Expenses for additions to provisions (76 133) (1 345) f.1.1. to financial assets (76 133) (1 345) f.1.2. to tangible and intangible assets - - f.2. Expenses for asset write-offs - - f.2.1. financial assets - - f.2.2. tangible and intangible assets - - f.3. Expenses for revaluation differences Other income E Income from reversal of provisions for liabilities Miscellaneous other income 95 5 g. Other expenses (12 361) (17 260) g.1. Personnel expenses E.2.4. (5 695) (5 264) g.1.1. Payroll and social security expenses (5 535) (5 089) g.1.2. Other personnel expenses (160) (175) g.2. Expenses for additions to provisions for liabilities - (2 778) g.3. Depreciation and amortisation (1 326) (5 266) g.3.1 depreciation of tangible assets (1 260) (3 050) g.3.2. amortisation of intangible assets (66) (2 216) g.4. Miscellaneous other expenses E.2.5. (5 340) (3 952) 10./h. Share in profit or loss of subsidiaries and associates - - A. Profit or loss for the reporting period before taxation i. Income tax - - i.1. current income tax - - i.2. deferred income tax - - B. Profit or loss for the reporting period after taxation

14 A. GENERAL INFORMATION A.1. Main operations Deposit Protection Fund (hereinafter the "Fund"), Company ID: , address Kapitulská 12, Bratislava, was established by the National Council of the Slovak Republic Act on Protection of Bank Deposits No. 118/1996 Col., with amendments dated March 20, Through a series of subsequent amendments the Act became fully compatible with European Parliament and Deposit Protection System Council Guideline No. 94/19/ES. The Fund was registered with the Companies Register of the District Court Bratislava I on October 10, 1996 under file no. 566/B, section PO. The Fund is not a government-funded entity and the Fund operations are not of business nature. Details about operations and organisation are regulated primarily by the Fund Statutes. Fund s role is to organise and execute activities prescribed by law, related to protection of deposits held by private individuals and legal entities defined by law, deposited with banks and branches of foreign banks, which are, pursuant to this Act obliged to participate in the deposit protection system in the Slovak Republic. These operations concern mainly: accumulation of contributions from banks and branches of foreign banks made to the Fund and application of these funds as prescribed by 13 of the Deposit Protection Act, compensation payments for inaccessible deposits in banks and branches of foreign banks within a scope and under conditions stipulated in the Deposit Protection Act and General Terms and Conditions for compensation payments for inaccessible deposits, issued by the Fund, pursuant to 12 par. 3, of the Deposit Protection Act. purchase of government securities with maturity less than 1 year from the purchase date. A.2. Fund bodies Fund Council Fund Council (hereinafter the Council ) is the Fund s supreme body. It has seven members with a four-year term. Three members are representatives of banks participating in the deposit protection system and elected by the banks at the bank representatives assembly meeting. Two Council members represent the National Bank of Slovakia, appointed and dismissed by the NBS Governor. Two members represent the Ministry of Finance, appointed and dismissed by the Minister of Finance. Each member has one vote. Fund Council in 2005 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005 Ing. Štefan Králik National Bank of Slovakia Chairman Mag. Regina Ovesny Straka Slovenská sporiteľňa, a.s. Vice-Chairman JUDr. Štefan Hrčka National Bank of Slovakia Member Dkfm. Rainer Franz Tatra banka, a.s. Member Ing. Miloš Nosál, CSc. Ministry of Finance SR Member Tomas Spurny, MBA Všeobecná úverová banka, a.s. Member Ing. Günter Furin Ministry of Finance SR Member 42

15 Presidium Fund Presidium (hereinafter the Presidium ) is responsible for the Fund operations, including the execution of the Council s rulings and acts on behalf of the Fund as prescribed by legislation, the deposit protection Act in particular and the Fund statutes. Presidium consists of the Chairman and other two members, appointed and dismissed by the Fund Council. Presidium Chairman and other two members are employees of the Fund. Presidium in 2005 Ing. Rudolf Šujan JUDr. Ildikó Kamenická Ing. Martin Bizoň Chairman Member Member Supervisory Board Supervisory Board oversees the operations and performance of the Fund. It consists of seven members and the office term is 4 years. Three members representing banks are elected and dismissed by the Fund Council upon recommendation from the banks. Two members are representatives of the National bank of Slovakia, appointed and dismissed by the Governor of the National bank of Slovakia and two members are representatives of the Ministry of Finance of the Slovak Republic, selected from among the ministry employees, appointed and dismissed by the Minister of Finance. Council members, Fund Presidium members or other Fund employees cannot be members of the Supervisory Board. Supervisory Board in 2005 Ing. Peter Baláž National Bank of Slovakia Chairman Ing. Jozef Barta UniBanka, a.s. Vice-Chairman Ing. Darina Čaplánová Ministry of Finance SR member JUDr. Renáta Bašková National Bank of Slovakia member Ing. Radovan Majerský Ministry of Finance SR member Ing. Jozef Kollár, PhD. Ľudová banka, a.s. member Mag. Volker Pichler Istrobanka, a.s. member B. APPLIED ACCOUNTING PRINCIPLES AND METHODS B.1. Basis of preparation Individual financial statements of the Fund were duly prepared as regular financial statements under the assumption of the Fund being a going-concern. The accounts were issued in line with Ministry of Finance guideline no. 5292/ , setting out details pertaining to the sequence and description of items of individual financial statements, content definition of these items and scope of data for disclosure by financial companies, the Deposit Protection Fund and Investment Guarantee Fund. Financial statements of the Deposit Protection Fund were duly prepared in accordance with Accounting Act No. 431/2002 Col., et. at., and relevant guidelines issued by the Ministry of Finance SR, in particular Guideline No / , setting out accounting procedure particulars and frame chart of accounts for banks, foreign bank branches, the National Bank of Slovakia, Deposit Protection Fund, securities dealers, foreign securities dealers branches, Investment Guarantee Fund, Asset Management Companies, foreign asset management company branches and Unit-linked Investment Funds. 43

16 Financial statements are presented in historical prices, maintaining the revenue and expense accrual principles, with the exception of some financial instruments valued at fair values. Impact of transactions and other events is reported at the time they occurred and during a period to which they relate. Currency used in these individual financial statements is the Slovak Crown ( Sk ) and balances are reported in thousands of Slovak Crowns, unless stipulated otherwise. B.2. Accounting principles and methods B.2.1. Accounting entry date Accounting entry date is considered a date of cash payment or cash receipt, date of purchase or sale of foreign currency, date of payment to or collection from an account, securities deal or settlement date. In other cases under such date we understand a day when asset ownership has come into effect or ceased to exist, or date when an entitlement to other property has come into effect, effective date of receivable and liability, their change or expiry, date when asset deficit, shortage or surplus was discovered by the Fund and other facts, which are subject of accounting and which have occurred or where required documentation supporting these facts exists. Accounting cases of purchase and sale of financial assets with the usual delivery deadlines are booked between the deal date and settlement date on off-balance sheet accounts and on the settlement date the off-balance sheet account record is cancelled and posting continues on balance sheet accounts. B.2.2. Securities Pursuant to the deposit protection legislation the Fund applies its funds to purchase government securities with maturity less than 1 year from the purchase date, i.e., government treasury bills and government bonds; the Fund does not issue own securities nor holds shares in other entities. Securities are broken down according to the intention, with which they were purchased, into securities for trading, for sale or held to maturity. Securities portfolio held to maturity includes securities with defined maturity where an intention and ability to hold these until their maturity can be demonstrated. Securities held to maturity are initially valued at cost and their value increases/decreases in line with the value of actual interest income/expense. In case of coupon bonds, the interest income and expense includes the amortisation of premium or accretion of discount, which represent the difference between the bond s cost and its nominal value on initial recognition; and the interest income at the nominal interest rate. In case of zero coupon bonds the interest expense and income represents the gradual reduction in the difference between their nominal value and cost. The Fund does not account for any provisions for government securities held to maturity. B.2.3. Receivables from bankrupt banks and creation of provisions for these receivables Receivables from bankrupt banks represent the Fund s receivables for compensation payments made to bank clients, which the Fund paid out in line with the Deposit Protection Act, and other receivables from these banks, which the Fund reports in its books (due to the non-payment of deposit protection system membership fee, etc.,). Receivables are reported in gross amounts decreased by provisions. 44

17 Receivables are valued according to the recovery likelihood and the Fund is creating provisions against individual receivables for debtors in bankruptcy, proceeding in line with Taxation Act No. 595/2003 Col., and Bankruptcy and Settlement Act No. 328/1991 Col., et al. Receivables valuation is performed in accordance with the principles for creation of provisions applicable to the Fund, taking into consideration the anticipated risks and losses, period of time overdue and amount recoverable in bankruptcy proceedings in favour of the Fund. The Fund writesoff receivables based on a legally binding court decision. B.2.4. Due to banks Fund liabilities towards the central bank and commercial banks are reported in amounts equal to the value of outstanding principal and unpaid interest expenses accrued as of the accounts closing date. Fees related to the renewal of the loan relationship and its further continuation with respect to the assigning of National Bank of Slovakia claim against the Fund to a consortium of banks were posted as a single expenses entry in full amount in B.2.5. Tangible and intangible assets Tangible and intangible assets are initially valued at cost, which includes the purchase price and other purchase-related expenses and are depreciated in equal amounts during the expected useful life corresponding with common conditions of use. Tangible investments in progress, land and art work are not depreciated. Estimated useful life of intangible assets is 4 years. Estimated useful life of intangible Fund assets is as follows Years Buildings 40 Cars 4 Furniture and inventory 8 Office equipment 4 Other 15 Repairs and maintenance are booked directly to Profit/Loss statement as of their actual date. Tangible assets worth less than 6,000 Sk and intangible assets worth less than 50,000 are booked directly to expenses as of their actual activation date. B.2.6. Foreign currency conversion Foreign currency operations are booked in Sk with exchange rate applicable on the posting date. Assets and liabilities in foreign currency are converted to Sk using exchange rate published by NBS on the accounts closing date. B.2.7. Posting of revenues and expenses Interest income and expense is accrued in Profit/Loss statement by applying linear interest method. Interest and income include income and expenses from fixed interest securities coupons, accrued discount from government treasury bonds and other securities and amortised premium from securities. 45

18 Interest accruals are reported on the same classes of accounts as the financial statements they relate to. Contributions paid to the Fund by commercial banks are reported on line Fee and other income. B.2.8. Provisions The Fund is creating provisions for compensation payments for inaccessible deposits based on risk assessment that the Fund will have to make such payment in foreseeable future. Since the analysis of the banking environment has revealed that the Fund does not expect compensation payments in foreseeable future, as of December 31, 2005 and December 31, 2004 there was no such provisions booked. B.2.9. Taxation The Fund belongs among taxation entities, which were not established or founded to pursue business and therefore income generated from its activities/operations carried out on the basis of deposit protection legislation, with the exception of income taxed at a special rate, is exempt from corporate income tax. In 2005, the Fund did not generate any income other than exempt from corporate income tax where no breach of duty to withhold tax occurred. The Fund is not a VAT payer and other operating expenses include indirect taxes paid. Withholding tax applicable to interest income from treasury bills and bank accounts recorded in the current year is reported in Miscellaneous other expenses. During the previous period the withholding tax paid was reported as an interest expense, and a provision was created for withholding tax applicable to accrued interest income from securities. The Fund does not recognise a deferred tax asset/liability arising from temporary differences between the accounting and tax values of assets and liabilities, as it is unlikely that any income which would be subject to corporate income tax that will be generated in the foreseeable future. B Parties with special relationship to the Fund In line with accounting regulations parties with special relationship to the Fund represent the parties, who directly or indirectly control the Fund (and their close relatives), individuals with significant influence in the Fund and key managerial staff of the Fund (and their close relatives). They are as follows: Members of the Deposit Protection Fund Council, Members of the Deposit Protection Fund Supervisory Board, Members of the Deposit Protection Fund Presidium, including their family members. B Reporting of cash in hand and deposits in the National Bank of Slovakia Assets in balance sheet line 1 include cash in hand together with the Fund s deposits held in current accounts with the National bank of Slovakia in nominal value. B Significant changes against 2004 In 2004, pursuant to specific provisions of the accounting procedures rules, the Fund posted the creation of provisions in the amount equal to annual contributions from banks totalling 3,066,342,000 Sk. At the same time the Fund recognised the release of provisions in the same amount considering the fact that during the past accounting periods compensation payments for inaccessible deposits were made and the contributions received in 2004 covered the provision deficit from previous years. 46

19 In 2005, the Fund did not recognise any additions to or reversal of provisions equalling the received annual contributions. The accounting procedures were changed with the aim to present more accurately the Fund s revenues and expenses in Year 2005 Year 2004 Cumulative total of contributions received from banks as of January 1 13,012,339 9,945,998 Total compensation payments for inaccessible deposits as of January 1 (19,896,426) (19,894,790) Provision deficit as of January 1 (6,884,087) (9,948,792) Received annual contributions 3,074,286 3,066,342 Compensation payments made during the current year (133) (1,636) Provision deficit as of December 31 (3,809,934) (6,884,086) Other differences in the reporting of financial statement items were the result of a change in accounting regulations, namely the reporting of balance sheet and income statement items according to the current period. For example, the banks contributions were reported in 2004 as other financial revenues, in 2005 as revenues from fees and commissions. C. STATEMENT ON CHANGES IN EQUITY Pursuant to the relevant provisions of the Commercial Code, the Fund does not create mandatory registered capital or any reserve funds. Retained earnings Accumulated profit/loss Profit/loss to be approved Equity total ,602 (6,857,956) (2,193,078) (8,815,432) Declared loss for (2,193,078) 2,193,078 - Social fund allocation (180) - - (180) Royalties payment (590) - - (590) Profit/loss for ,930,745 2,930, ,832 (9,051,033) 2,930,745 (5,885,456) Declared profit for ,930,745 (2,930,745) - Social fund allocation (135) - - (135) Royalties payment (555) - - (555) Profit/loss for ,894,610 2,894, ,142 (6,120,288) 2,894,610 (2,991,537) D. CASH-FLOW STATEMENT Year 2005 Year 2004 Received contributions 3,074,286 3,066,342 Interest paid (104,362) (140,128) Interest received 6,482 19,899 Payments to employees and suppliers (9,270) (9,062) Expenses related to compensation payments for inaccessible deposits (133) (1,636) Other income and expenses (653) (1,873) Income from and expenses for securities 174, ,172 Cash flow from operating activities 3,141,150 3,067,714 Expenses related to purchase of tangible and intangible assets (286) (499) Cash flow from investing activities (286) (499) Settlement of long-term loans (3,230,264) (2,926,801) Cash flow from financing of the reporting enterprise (3,230,264) (2,926,801) Cash flow total (89,400) 140,414 Opening balance of cash and cash equivalents 159,919 19,505 Closing balance of cash and cash equivalents 70, ,919 47

20 E. NOTES ON BALANCE SHEET AND INCOME STATEMENT ITEMS E.1. Balance sheet E.1.1. Debt securities held to maturity In 000 Sk December 31, 2005 December 31, 2004 Gvt. bonds with coupon - 37,580 Gvt. treasury bills - 140,177 Total - 177,757 As of December 31, 2004 the Fund owned securities held to maturity, namely treasury bills and government bonds with original maturity less than 1 year. Due to limited financial resources and the supply on the securities market in the 2 nd half of the year the Fund did not place available cash in securities. E.1.2. Tangible and intangible assets In 000 Sk Buildings and lands Equipment Cars Software Acquisition of assets Cost As of January 1, ,532 10, ,871-41,119 Additions Disposals (286) (286) As of December 31, 2005 Total 21,532 11, ,871-41,406 Accumulated depreciation As of January 1, ,137 9, ,731-21,071 Depreciation for the year ,326 Disposals As of December 31, ,674 10, ,797-22,398 Net book value As of January 1, ,395 1, ,048 As of December 31, ,858 1, ,008 E.1.3. Other assets December 31, 2005 December 31, 2004 Receivables from banks in bankruptcy 19,898,892 19,898,759 Operating advances paid and other receivables 1,193 1,332 Inventory Prepaid expenses and accrued income Other assets, gross 19,900,333 19,900,390 Provisions for other assets (18,838,601) (18,762,468) Other assets, net 1,061,732 1,137,922 As of December 31, 2005 the Fund s assets include receivables from bankrupt banks, with gross carrying value of 19,898,892,000 Sk, reduced by provisions of 18,838,601,000 Sk and with net carrying value of 1,060,291,000 Sk. Other provisions for asset represent provisions for the Fund s receivables from banks in bankruptcy proceedings; for more details see section E.1.5 of the Notes. 48

21 E.1.4. Summary of the Fund s receivables by banks January 1, 2005 Compensation payments in 2005 December 31, 2005 AG Banka, a.s. 1,744,303-1,744,303 Slovenská kreditná banka, a.s. 4,317,854-4,317,854 Dopravná banka, a.s. 2,223,122-2,223,122 Devín banka, a.s. 11,613, ,613,613 Total 19,898, ,898,892 The amount of compensation payments made to clients of the four banks is subject to up-dated bankruptcy petitions, which are filed with respective District courts of the insolvent banks. Bankruptcy trustees in the banks have acknowledged all claims of the Fund. E.1.5. Movements in provisions vs. other assets January 1, 2005 Allocation in 2005 December 31, 2005 For receivables from bankrupt banks (E.1.4.), thereof: 18,762,468 76,133 18,838,601 For compensation payments to clients 18,760, ,836,268 Other 2,333-2,333 Total 18,762,468 76,133 18,838,601 E.1.6. Summary of additions to provisions by banks January 1, 2005 Additions in 2005 December 31, 2005 AG Banka, a.s. 1,744,303-1,744,303 Slovenská kreditná banka, a.s. 4,317,854-4,317,854 Dopravná banka, a.s. 1,686,831-1,686,831 Devín banka, a.s. 11,013,480 76,133 11,089,613 Total 18,762,468 76,133 18,838,601 The amount of provisions for the Fund s receivables from bankrupt banks is determined by the amount of assets, which form the bankrupt s estate securing the receivables. The Fund s receivables will be settled from the proceeds of the asset disposal based on the outcome of liquidation plans and resolution of bankruptcy judges regarding schedules. The amount of the created and recognised provisions is based on data and information relating to the bankruptcy proceedings, which are available to the Fund from individual bankruptcy trustees and reflects the circumstances and changes, which occurred during the bankruptcy proceedings up to the balance sheet date. The Fund also takes into account experience from previous bankruptcy proceedings and other factors, which will impact the recoverability of receivables. In estimating the recoverability of receivables the management follows the prudence principle. Certain degree of uncertainty exists with respect to the final receivable recoverability, and the Fund expects that the final recoverability will not be lower than the net book value of receivables estimated in the attached financial statements. Recoverability estimates can change in the future in line with development of the bankruptcy proceedings. The final recoverability of receivables may differ form the estimates, and the differences may be significant. 49

22 Based on the analysis of the financial position of the bankrupt banks and the development and progress of the bankruptcy proceedings, in 2005 the Fund created additional provisions for the bankrupt banks, namely for Devín banka, while observing the prudence and adequacy principle pursuant to the legislation applicable to the Fund s operations. The valuation of the Fund s receivables from other bankrupt debtors remained at the level from E.1.7. Bankruptcy proceedings status and assets position by the Fund s debtors in 2005 The Fund complied with the statutory obligation to make compensation payments for inaccessible deposits in four banks, which were declared by the National Bank of Slovakia as unable to pay out deposits and the deposits held by them became inaccessible. Following the bankruptcy declaration on assets of these banks the Fund has exercised its right in the form of registered receivables equal to the amount of compensation payments, and these receivables were updated according to the amount of compensations actually paid out. The difference between the registered receivables and the receivable amount recognised in the books represents the unpaid compensation payments; the Fund does not expect these payments to be made in a significant amount. In bankruptcy proceedings of all four banks the Fund proceeds in line with the Bankruptcy and Settlement Act and exercises its rights through creditor assemblies, creditor committees, liquidations plans or other legal avenues in line with the Bankruptcy and Settlement Act. E Dopravná banka, a.s. Bankruptcy of the bank s estate was declared by a resolution passed by the District Court in Banská Bystrica (ref. no K 231/00) dated 22 nd August Liquidation of the bankrupt s estate was completed in 2003, in line with the approved liquidation plan. On August 11, 2005 a final report on the liquidation of the bankrupt s estate was published, to which the Fund filed objections. At the same time on November 28, 2005 creditor objections were discussed by the District Court in Banská Bystrica, the results of which were published by the bankruptcy judge in her resolution on March 10, As of , the bankruptcy administration held on its accounts cash totalling 1,046,414,000 Sk. Based on the analysis of the bankrupt s estate and taking into consideration the liabilities prior to the bankruptcy finalisation, the Fund expects to receive the minimum of 536,291,000 Sk of its claim. Since in 2005 the value of bankrupt s estate did not decrease as compared to the previous year the valuation of the claim against the bankrupt remained unchanged. E Devín banka, a.s. Bankruptcy of the bank s estate was declared by a resolution of the District Court in Bratislava (ref. no. 3K 297/00) on The claim filed by the Fund totalling 11,874,887,000 Sk was acknowledged by the bankruptcy trustee at a preliminary meeting held on as a 1 st class claim. At the same time the Fund has registered its receivable with the condition of it being applied against the bankrupt s estate pursuant to the relevant provisions of the Bankruptcy and Settlement Act and the Deposit Protection Act in order to procure legal security and to prevent the infringement of the creditor s rights. Since the bankruptcy trustee did not acknowledge the condition of the preferential treatment of the aforementioned receivable, the Fund therefore exercised its right for the receivable to be acknowledged by filing a supplemental plea, which, if accepted, shall mean the settlement of the receivable in a higher amount. Otherwise the Fund s claim remains 1 st class claim, representing 52% of all registered claims. 50

23 As of December 21, 2005 the cash balance stood at 1,297,913,000 Sk. Considering the creditworthiness of the remaining assets, which will be subject of additional tenders for the disposal of the bankrupt s estate, the expected recovery represents mil. Sk. Further income of the bankruptcy administration is impacted by the success or otherwise of the bankrupt in on-going legal disputes. Following the analysis of the bankrupt s estate and taking into consideration the anticipated income and expenses of the bankruptcy administration by the completion of the bankruptcy proceedings, as of the Fund created additional provisions for the receivable from bankrupt s estate totalling 76,133,000 Sk. E Slovenská kreditná banka, a.s. Bankruptcy of the bank s assets was announced by a resolution of the District Court in Bratislava (ref. no. 1K 118/00) on In 2005, three rounds of tenders for the disposal of the bankrupt s estate according to the approved liquidation plan took place. As of December 31, 2005 the bankruptcy administration held a total of 134,788,000 Sk on its accounts. The registered claims total 4,695,133,000 Sk; of that amount the largest part represents the Fund s receivable totalling 4,317,676,000 Sk, which has been acknowledged, pursuant to the Bankruptcy and Settlement Act, as a 3 rd class claim. Following the assessment of the status of the bankrupt s estate the Fund does not expect the receivable to be settled, or if yes, then only at a minimum level, considering the low liquidity of assets. The claim against Slovenská kreditná banka has been provisioned at 100%. E AG Banka, a.s. Bankruptcy of the bank s assets was announced by a resolution of the District Court in Bratislava (ref. no. 1K 01/00) on Liquidation of the bankrupt s assets was completed during 2004 in line with the principles for the disposal of the bankrupt s assets approved by court a (case no. 1K/00-68 dated ruling for the disposal of movable assets and receivables and case no. 1K/00-77 dated ruling for the sale of shares). The bankrupt s estate consists of cash with balance as of in the amount of 42,875,000 Sk. Registered and acknowledged receivables in the bankruptcy proceedings represent 1,891,058,000 Sk, of which the largest portion represents the Fund s claim totalling 1,742,515,000 Sk, accepted as a 3 rd class receivable. The bankrupt pursues defence proceedings to determine the authenticity, amount and order of the claims, which were rejected by the bankruptcy trustee at an examination hearing held on However the outcome of the judicial proceedings will have no impact on the settled amounts of 1 st 3 rd class claims. According to the status of the bankrupt s estate it is unlikely that the Fund s claim will be satisfied from the proceeds from asset liquidation taking into consideration the claims of priority creditors and cash balance available in the bankrupt s estate. The Fund s claim against AG Banka, a.s., was provisioned at 100%. In the event that appeal against priority receivables from the bankrupt will not be successful, we can expect that the bankruptcy proceedings will be terminated pursuant to 44 par. 1 of the Bankruptcy and Settlement Act. 51

24 E.1.8. Other liabilities to central banks and banks December 31, 2005 December 31, 2004 Loans from banks, thereof: 4,129,358 7,378,390 Loan from NBS - 7,378,390 Payable loan from bank consortium 4,129,358 - Total 4,129,358 7,378,390 As of , the Balance of a loan from NBS represented 7,378,390,000 Sk. Through the Amendment no.1 dated , due to a reassessment of financial flows, the loan maturity was extended until January 31, In 2005 the National Bank of Slovakia assigned its receivable from the Fund to a bank consortium consisting of Slovenská sporiteľňa, a.s., Všeobecná úverová banka, a.s. and Tatra banka, a.s., by signing a receivable assignment contract, dated June 29, 2005 and Amendment No.1, dated November 30, In a contract for renewal and provision of medium-term instalment loan dated December 15, 2005, the settlement terms of the Fund s liability were agreed upon. As of December 30, 2005 the loan principal represented 4,128,500,000 Sk and agreed maturity date was December 31, As of December 31, 2005 the total liability, including interest accruals, represented an amount of 4,129,358,000 Sk. The final settlement date is based on the current and anticipated status of deposits on the banking market, the contribution level and current status of individual bankruptcy proceedings applying the prudence principles for the assessment of all aspects, which have immediate impact on the loan instalment amounts. E.1.9. Other liabilities December 31, 2005 December 31, 2004 Fees related to loan from commercial banks 11,511 - Future expenses non-invoiced deliveries and outstanding holidays Employee liabilities Social and health insurance liabilities Settlement with the state budged Other liabilities Total 13,438 1,162 E Provisions for liabilities Provision balance as of December 31, 2004 in the amount of 1,550,000 Sk includes a provision for withholding tax of 941,000 Sk, a provision for unbilled supplies totalling 306,000 Sk and a provision for outstanding holidays totalling 302,000 Sk. In 2005, provisions for unbilled supplies and for outstanding holidays were reported in other liabilities and future expenses. 52

25 E.2. Income statement E.2.1. Net interest income January 1 December 31, 2005 January 1 December 31, 2004 Interest income and similar income, thereof : 5,855 16,690 deposits 2,136 3,077 debt securities 3,719 13,613 Interest expenses and similar expenses, thereof: (85,610) (135,781) loans from banks (85,593) (132,597) debt securities and deposits (17) (2,599) Total (79,755) (119,091) In 2004, interest expense on securities includes withholding tax on interest income from securities and bank deposits totalling 2,103,000 Sk. In 2005, these taxes were reported as a part of expenses in line Taxes and fees totalling 1,778,000 Sk. E.2.2. Net profit from fees and commissions January 1 December 31, 2005 January 1 December 31, 2004 Revenues from bank contributions 3,074,286 3,066,342 Cost of fees and commissions expenses (11,522) (9) Net profit 3,062,764 3,066,333 The cost of fees and commissions include a fee related to arranging a loan from a bank consortium as described in note E.1.9. in the amount of 11,511,000 Sk, which was recognised in expenses as a oneoff item. E.2.3. Other revenues January 1 December January 1 December 31, , 2004 Revenues from reversal of provision for liabilities - 2,103 Other operating revenues 95 5 Total 95 2,108 E.2.4. Personnel expenses January 1 December January 1 December 31, , 2004 Personnel expenses and bonuses, thereof: (5,535) (5,089) Employee wages and bonuses (4,298) (3,934) Social and health insurance (1,237) (1,155) Other personnel expenses (160) (175) Total (5,695) (5,264) The Fund s employees represent the Fund Office, which discharges the tasks related to professional, organisational, administrative and technical operations of the Fund and its bodies and is managed by the Presidium Chairman. In 2005, the average number of employees was 6, with 3 of them being the Presidium members. 53

26 E.2.5. Miscellaneous other expenses January 1 December January 1 December Taxes and fees (1,829) (42) Cost of audit and legal advisory services (1,384) (1,258) Other administrative expenses (2,127) (2,652) Total (5,340) (3,952) Taxes and fees in 2005 include a withholding tax on interest income from securities and bank deposits totalling 1,778,000 Sk. In 2004, these taxes were reported as interest expense and amounted to 2,103,000 Sk. F. OTHER ASSETS, OTHER LIABILITIES The Fund s liability to the bank consortium totalling 4,129,358,000 Sk as of is secured by the Fund s future revenues raised in the form of received annual contributions from banks, income from bankruptcy liquidation proceeds, with the exception of extraordinary contributions from the banks and other Fund income generated in order to provide compensation for inaccessible deposits. The Fund does not report any other assets or liabilities arising from receivables and liabilities related to future loans, borrowings and guarantees, from written-off receivables and assets delivered for handling. G. MISCELLANEOUS NOTES G.1. Related parties As of December 31, 2005 there were no loans, borrowings or guarantees extended to related parties as referred to in section B The Fund does not report any receivables or liabilities in relation to such parties. In 2005, the Fund Council members received remuneration for their performance in the amount of 225,000 Sk, members of Supervisory Board 200,000 Sk and Presidium Chairman 130,000 Sk. This remuneration was awarded and recognised together with the use of the 2004 profit as described in note C. G.2. Profit distribution On June 30, 2005 the Fund Council decided to use the profit for 2004 totalling 2,930,745,000 Sk to settle the loss from previous years. In 2005 the Fund operated with a profit of 2,894,610,000 Sk. The distribution of this profit will be decided upon by the supreme Fund body at its meeting in G.3. Risks arising from the Fund s operations The Fund s receivables from the bankrupt banks are specific in nature, which relates to the cause of their origin. All Fund s receivables have arisen as a result of the Fund s statutory obligation pursuant to the Deposit Protection Act, i.e., to make compensation payments for inaccessible deposits on behalf of insolvent banks. At the time of the receivable inception, the Fund did not determine its amount and neither did it define the terms of recovery. The transfer of creditor rights as a result of compensation payments is guaranteed by the Deposit Protection Act. 54