Annual Report 2006 Nordea Bank Polska S.A.

Transcription

1 Annual Report 2006 Nordea Bank Polska S.A.

2 We will be valued as the leading financial services group in the Nordic and Baltic markets with substantial growth potential. We will be in the top league or show superior and profitable growth in every market and product area in which we choose to be present. We will have the leading multichannel distribution with a top world ranking in e based financial solutions and a high level of use of our e services. We will be a good corporate citizen ensuring confidence and trust. Nordea Bank Polska S.A. Annual Report

3 Contens Opinion of the independent auditor... 5 Report supplementing the auditor s opinion on the financial statements... 8 Letter of the CEO of Nordea Bank Polska S.A Annual Financial Report of Nordea Bank Polska S.A. for the year of Profit and loss account Balance sheet Statement of changes in equity Cash flow statement General issuer information Significant accounting policies Segment reporting Net interest income Net fee and commission income Gains/(losses) from financial instruments measured at fair value through profit and loss Other operating income Operating expenses Depreciation Impairment (losses)/releases on loans and advances Income tax Earnings per share Cash and cash equivalents in the Central Bank Loans and advances to banks Loans and advances to customers Securities Derivative financial instruments Shares in subsidiaries Intangible assets Tangible fixed assets change in the balance of fixed assets (by kind) Deferred tax assets and liabilities Prepayments Other assets Deposits from banks Customer deposits Issued debt securities Other liabilities Accruals Provisions Equity Nordea Bank Polska S.A. Annual Report

4 35. Risk management Hedge accounting Fair value Contingent liabilities Assets pledged as collateral Operating lease Cash flow statement Related entities Events after the balance-sheet date Estimates and judgements Solvency ratio Management Board's report on the activities of Nordea Bank Polska S.A. in A. General part B. Detailed part Nordea Bank Polska S.A. Annual Report

5 ABCD TRANSLATION Nordea Bank Polska S.A. Opinion and Report of the Independent Auditor Financial Year ended 31 December 2006 KPMG Audyt Sp. z o.o. The opinion contains 2 pages The report supplementing the auditor s opinion contains 12 pages Opinion of the independent auditor and report supplementing the auditor s opinion on the financial statements for the financial year ended 31 December 2006

6 TRANSLATION OPINION OF THE INDEPENDENT AUDITOR To the Shareholders Meeting of Nordea Bank Polska S.A. We have audited the accompanying financial statements of Nordea Bank Polska S.A. seated in Gdynia, Kielecka 2 St. ( the Bank ), which comprise the balance sheet as at 31 December 2006, with total assets of and total liabilities and equity of PLN 6,918,148 thousand, the profit and loss account for the year then ended with a net profit of PLN 50,068 thousand, the statement of changes in equity for the year then ended with an increase in equity of PLN 50,068 thousand, the cash flow statement for the year then ended with a decrease in cash amounting to PLN 7,766 thousand, and notes to the financial statements, comprising of a summary of significant accounting policies and other explanatory notes. Management of the Bank is responsible for the accuracy of the accounting records and the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, as adopted by European Union and with other applicable regulations. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Our responsibility, based on our audit, is to express an opinion on these financial statements, and whether the financial statements are derived from properly maintained accounting records. We conducted our audit in accordance with section 7 of the Accounting Act dated 29 September 1994 (Official Journal from 2002, No. 76, item 694 with amendments) ( the Accounting Act ), the professional standards established by the Polish National Council of Certified Auditors and International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements and the accounting records from which they are derived are free of material misstatements. 1

7 TRANSLATION An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. In our opinion, the accompanying financial statements of Nordea Bank Polska S.A. have been prepared, in all material respects, and give a true and fair view of the financial position of the Bank as at 31 December 2006, and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union, are in compliance with the respective regulations and the provisions of the Bank s Statute that apply to the Bank s financial statements and have been prepared from accounting records, that in all material respects have been properly maintained. As required under the Accounting Act we also report that the Report on the Bank s activities includes, in all material respects, the information required by Art. 49 of the Accounting Act and by the Decree of the Ministry of Finance dated 19 October 2005 on current and periodic information provided by issuers of securities (Official Journal from 2005, No 209, item 1744) and the information is consistent with the financial statements. Signed on the Polish original... Certified Auditor No. 9941/7390 Bożena Graczyk Signed on the Polish original... For KPMG Audyt Sp. z o.o. ul. Chłodna 51; Warsaw Certified Auditor No. 9941/7390 Bożena Graczyk Member of the Management Board Signed on the Polish original... For KPMG Audyt Sp. z o.o. ul. Chłodna 51; Warsaw Richard Cysarz, Member of the Management Board Warsaw, 27 February

8 ABCD Nordea Bank Polska S.A. Report supplementing the auditor s opinion on the financial statements Financial Year ended 31 December 2006 KPMG Audyt Sp. z o.o. The report supplementing the auditor s opinion contains 12 pages Report supplementing the auditor s opinion on the financial statements for the financial year ended 31 December 2006

9 Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION Contents 1 General General information about the Bank Auditor information Legal status Prior period financial statements Audit scope and responsibilities 5 2 Financial analysis of the Bank Summary of the financial statements Selected financial ratios Interpretation of selected financial ratios 9 3 Detailed report Proper operation of the accounting system Verification of assets and liabilities Compliance with banking regulations Audit materiality Notes to the financial statements Report on the Bank s activities Information on the opinion of the independent auditor 11 2

10 Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION 1 General 1.1 General information about the Bank Company name Nordea Bank Polska S.A Registered office Kielecka 2 St Gdynia Registration in the National Court Register Seat of the court: District Court in Gdańsk, XVI Commercial Department of the National Court Register Date: 26 June 2001 Registration number: KRS Tax Office and Provincial Statistical Office registration NIP: REGON: Auditor information Name: KPMG Audyt Sp. z o.o. Registered office: Warsaw, Address: ul. Chłodna 51, Warsaw KRS number.: Registration court: Share capital: PLN 125,000 NIP number: District Court for the Capital City Warsaw in Warsaw, XII Commercial Department of the National Court Register; KPMG Audyt Sp. z o.o. is entered in the register of entities authorised to audit financial statements under number Legal status Share capital The Bank was established for an indefinite period under the terms of its Statute dated 9 November The share capital of the Bank amounted to PLN 168,089,165 as at 31 December 2006 divided into 33,617,833 ordinary shares with a nominal value of PLN 5 each. 3

11 As at 31 December 2006, the shareholder structure was as follows: Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION Name of the Shareholder Number of shares Number of voting rights Nominal value of shares Percentage of share capital Nordea Bank AB 33,183, % % Others % % 33,617, % % Related parties The Bank is a member of the Nordea Bank AB Group Management of the Company The Management Board is responsible for management of the Bank. At 31 December 2006, the Management Board of the Bank comprised the following members: Włodzimierz Kiciński President of the Board Sławomir Żygowski I Vice President of the Board Jacek Kalisz Vice President of the Board Kari Ojala Vice President of the Board Wojciech Papierak Vice President of the Board Bohdan Tillack Vice President of the Board The following changes took place in the Management Board of the Bank comparing to 31 December 2005: 1. On 23 August 2006 Mr. Asbjorn Hoyheim resigned as Member of the Management Board. 2. On 1 October 2006, according to the decision of Supervisory Board, Mr. Bohdana Tillacka took up the position in the Management Board. 3. On 1 October 2006, according to the decision of Supervisory Board, Mrs. Anna Rudnicka was dismissed from the position in the Management Board. 4. On 1 November 2006, according to the decision of Supervisory Board, Mr. Wojciech Papierak took up the position in the Management Board. 5. On 19 October Mr. Kari Ojala resigned as Member of the Management Board. 6. On 1 January 2007, according to the decision of Supervisory Board Mr. Janne Hirsto took up the position in the Management Board Scope of activities The business activities listed in the Bank's Statute include the following: receiving and maintaining current and term deposits, including accepting and placing cash deposits in domestic and foreign banks, maintaining other bank accounts, granting loans, granting and confirming guarantees and letters of credit, 4

12 Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION issuing banking securities, performing cash settlements, performing FX operations, agency services for cash transfers by residents abroad and settlements with non residents in Poland, performing particular bank activities on behalf of other banks in the area determinated by the Bank s Statue, performing cheque and bill of exchange operations, issuing payment cards and processing card operations, performing term financial operations, trading in receivables, safekeeping of goods and securities as well as providing access to safe deposit-boxes, performing operations related to the issue of securities. 1.4 Prior period financial statements The financial statements for the period ended 31 December 2005 were audited by KPMG Audyt Sp. z o.o. and received an unqualified opinion. The financial statements were approved at the General Meeting on 11 May 2006 where it was resolved to allocate the profit for the prior financial year of PLN 30,727 to Reserve Capital The closing balances as at 31 December 2005 have been properly recorded as the opening balances of the audited year. Due to the changes in the applied accounting policies resulting from the adoption of the accounting policies that are in compliance with International Financial Reporting Standards as adopted by the European Union, the related corresponding figures for 31 December 2005 have been restated. The financial statements were submitted to the Registry Court on 17 May 2006 and were published in Monitor Polski B No 1437 on 13 December Audit scope and responsibilities This report was prepared for the General Meeting of Nordea Bank Polska S.A. seated in Gdańsk, Kielecka 2 St., and relates to the financial statements comprising: the balance sheet as at 31 December 2006 with total assets and total liabilities and equity of PLN 6,918,148 thousand, the profit and loss account for the year then ended with a net profit of PLN 50,068 thousand, the statement of changes in equity for the year then ended with an increase in equity of PLN 50,068 thousand, the cash flow statement for the year then ended with a decrease in cash amounting to PLN 7,766 thousand and notes to the financial statements, comprising of a summary of significant accounting policies and other explanatory notes. The audited Bank prepares its financial statements in accordance with International Financial Reporting Standards as adopted by the European Union on the basis of the decision of General Meeting of Shareholders dated 12 May The financial statements have been audited in accordance with the contract dated 29 November 2006, concluded on the basis of the resolution of decision of the Supervisory Board dated 19 October 2005 on the appointment of the auditor. 5

13 Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION We conducted the audit in accordance with section 7 of the Accounting Act, the professional standards established by the Polish National Council of Certified Auditors and International Standards on Auditing. We have conducted the interim audit in the Bank s head office and branches during the period from 13 November 2006 to 4 December We audited the financial statements in the Bank s head office during the period from 22 January 2006 to 16 February Management of the Bank is responsible for the accuracy of the accounting records and the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and with other applicable regulations. Our responsibility is to express an opinion, and to prepare a supplementing report, on the financial statements, and whether the financial statements are derived from properly maintained accounting records, based on our audit. Management of the Bank submitted a statement dated the same date as this report as to the true and fair presentation of the financial statements presented for audit, which confirmed that there were no undisclosed matters which could significantly influence the information presented in the financial statements. All our requests for additional documents and information necessary for expressing our opinion and preparing the report have been fulfilled. KPMG Audyt Sp. z o.o., the members of its Management Board and Supervisory Board and other persons involved in the audit of the financial statements of the Bank fulfill independence requirements. The scope of the work planned and performed has not been limited in any way. The method and scope of our audit is detailed in working papers prepared by us and retained in the offices of KPMG Audyt Sp. z o.o. 6

14 Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION 2 Financial analysis of the Bank 2.1 Summary of the financial statements Balance sheet ASSETS PLN '000 % of balance amount PLN '000 % of balance amount Cash and cash equivalents in the Central Bank % % Treasury bonds and other debt securities eligible to rediscount in the Central Bank % % Loans and advances to banks % % Loans and advances to clients % % Debt securities % % Shares 986 0% 374 0% Derivative financial instruments % % Shares in subsidiaries 0 0% % Intangible assets % % Tangible fixed assets % % Deferred tax assets % % Prepayments % % Other assets % % Total assets % % EQUITY AND LIABILITIES PLN '000 % of balance amount PLN '000 % of balance amount Liabilities Deposits from banks % % Customer deposits % % Issued debt securities % % Derivative financial instruments % 624 0% Other liabilities % % Accruals % % Deferred tax liabilities % % Provisions % % Total liabilities % % Equity Share capital % % Supplementary capital % % Reserve capital % % Loss from previous years - 0% (16 805) 0% Net result of the current year % % Total equity % % Total liabilities and equity % % 7

15 Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION Profit and loss account PLN ' PLN '000 Interest income 302, ,258 Interest expenses (165,556) (164,004) Net interest income 136, ,254 Fee and commission income 55,575 42,611 Fee and commission expense (10,169) (7,021) Net fee and commission income 45,406 35,590 Gains/(losses) from financial instruments measured at fair value through profit or loss Change in investments in associates accounted for under the equity method 55,514 39,270 10, Dividend received Other operating income 7,739 15,735 Administration expenses 168, ,740 - staff costs 77,527 66,508 - other administration expenses 91,115 83,232 Depreciation 24,309 29,176 Impairment (losses)/releases on loans and advances (4 572) 2,780 Sales of fixed and intangible assets Gross profit 67,927 36,581 Income tax (17,859) (5,854) Net profit 50,068 30,727 Earnings per share (PLN) Diluted earnings per share (PLN)

16 Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION 2.2 Selected financial ratios PLN' PLN' PLN'000 Total assets 6,918,148 5,919,316 5,114,479 Gross profit 67,927 36,581 16,387 Net profit 50,068 30,727 5,748 Shareholder's equity 517, , ,536 Return on equity 9,6% 6,3% 1,2% Capital adequacy ratio 9,6% 11,9% 11,6% Receivables to total assets 87,0% 84,0% 82,6% Income generating assets to total assets 97,0% 95,0% 92,0% Interest bearing liabilities to total liabilities 90,0% 89,8% 86,6% * excluding current year net profit 2.3 Interpretation of selected financial ratios The total assets as at 31 December 2006 were higher by 16.8% in comparison to the total assets as at 31 December 2005 and amounted to PLN 6,918,148 thousand. The largest increase in assets included loans and advances to customers which increased by PLN 1,317,435 thousand (an increase of 33%). In liabilities and equity, the largest increase included deposits from customers of PLN 1,062,779 thousand (an increase of 28%). The net profit for the period from 1 January 2006 to 31 December 2006 amounted to PLN 50,068 thousand representing an increase on the corresponding year of PLN 19,341 thousand (63%). Total equity as at 31 December 2006 excluding current year net profit amounted to PLN 517,091 thousand which is 6.3% lower than the equity as at 31 December

17 Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION 3 Detailed report 3.1 Proper operation of the accounting system The Bank maintains current documentation describing the applied accounting principles, adopted by the Management Board, to the extent required by Art. 10 of the Accounting Act. During the audit of the financial statements, we tested, on a sample basis, the operation of the accounting system. Our assessment covered in particular: appropriateness and consistency of the accounting principles used, correctness of the documentation of business transactions, fairness, accuracy and verifiability of the books of account, including the matching of accounting entries with supporting documentation and the financial statements, compliance of the adopted policies relating to safeguarding of accounting records, books of account and the financial statements with the Accounting Act. On the basis of the work performed we have not identified material irregularities in the accounting system which have not been corrected and that could have a material impact on the financial statements. Our audit was not conducted for the purpose of expressing a comprehensive opinion on the operation of the accounting system. 3.2 Verification of assets and liabilities The Bank performed a verification of assets and liabilities and in accordance with the requirements and time frame specified in Art. No. 26 of the Accounting Act. Count differences have been recorded in the period covered by the financial statements. 3.3 Compliance with banking regulations Based on our audit we have not identified any significant deviations in the bank s compliance with the banking regulatory norm pertaining among other to loan concentration, obligatory reserve and capital adequacy ratio. 3.4 Audit materiality We have planned and applied an appropriate level of precision in conducting our audit procedures in order to obtain reasonable assurance about whether the financial statements taken as a whole are free of material misstatements. 3.5 Notes to the financial statements All information included in the notes to the financial statements, comprising of a summary of significant accounting policies and other explanatory notes, is, in all material respects, presented accurately and completely. This information should be read in conjunction with the financial statements taken as a whole. 10

18 Nordea Bank Polska S.A Report supplementing the opinion on the financial statements for the financial year ended 31 December 2006 TRANSLATION 3.6 Report on the Bank s activities The Report on the Bank s activities includes, in all material respects, information required by Art. 49 of the Accounting Act and by the Decree of the Ministry of Finance dated 19 October 2005 on current and periodic information provided by issuers of securities (Official Journal from 2005, No 209, item 1744) and the information is consistent with the financial statements. 3.7 Information on the opinion of the independent auditor Based on our audit of the financial statements as at and for the year ended 31 December 2006, we have issued an unqualified opinion. Signed on the Polish original... Certified Auditor No. 9941/7390 Bożena Graczyk Signed on the Polish original... For KPMG Audyt Sp. z o.o. ul. Chłodna 51, Warsaw Certified Auditor No. 9941/7390 Bożena Graczyk Member of the Management Board Signed on the Polish original... For KPMG Audyt Sp. z o.o. ul. Chłodna 51, Warsaw Richard Cysarz Member of the Management Board Warsaw, 27 February

19 Letter of the CEO of Nordea Bank Polska S.A represented a breakthrough year in the operations of Nordea Bank. After a period of consolidation and restructuring, we successfully continued our expansion in the banking services market. Strong growth of Nordea Bank Polska in 2006 was based on our stable financial position. As a result of the Bank s dynamic growth, which started already in 2005, we reported excellent financial results in Nordea Bank closed the past financial year with net profit of PLN 50.1 m. This means a 63 per cent increase in net profit, compared to Considerable growth in the Bank s total assets which, compared to the end of 2005, grew by more than 17% and reached over PLN 6.9 bn, represents another remarkable figure. Strong growth in financial results and total assets of Nordea Bank was accompanied by favourable changes in the structure of assets and liabilities. Compared to 2005, the Bank recorded a decrease in the share of irregular receivables in its total receivables from 10.8% to only 4.9%. At the same time there was a significant growth in a vista deposits while term deposits stayed at a level close to that of Other factors with a positive impact on the financial results of Nordea Bank in 2006 were: increased repayments of loans under restructuring, increase in fee and commission income resulting mainly from the growth in mortgage lending volumes, and income earned on sales of unutilized assets. Thanks to financial discipline, the dynamic growth of the Bank caused only a small increase in its operating costs. Compared to 2005, operating costs increased only by 7.9%. Such a good performance can also be attributed to a substantial reduction in the cost of depreciation of fixed assets (a decrease by 17 per cent) represented also a period of the Bank s intensified activity in the field of developing a network of modern banking outlets which have been adapted to fully meet customer expectations with regard to the scope of services offered. In 2006 we fully delivered the targets planned for the development of the network of banking outlets which we opened, first of all, in the regions where Nordea Bank had already made its presence known. As a result, at the end of the year we had 45 outlets delivering services to Nordea Bank customers. In accordance with the assumptions of the branch network development project, the expansion process will continue in the years to come, at a much larger scale. Growth in the Bank s total assets was facilitated by the launch of new financial products and services which met with appreciation of customers and independent experts alike. In retail banking the unquestionable areas of success are mortgage loans and electronic banking. Compared to 2005, the value of mortgage loans increased by per cent to reach PLN m. Over the same period the number of account users with access to electronic banking increased by 37.7 per cent. A breakthrough development in the Bank s history was the fact that, in March 2006, Nordea was the first bank in Poland to implement safe electronic signature, equivalent to signature by hand. The implementation of the electronic signature into the electronic banking system was possible thanks to cooperation with the Polish Security Printing Works (PWPW SA), as the technology partner. For customers, safe electronic signature became an alternative form of authorization of the transactions they make. It can be used by both retail and corporate customers who use e Firma and e Firma Plus packages. Nordea Bank Polska S.A. Annual Report

20 In 2006, taking into account the specific needs of companies who run their business on an international scale, Nordea Bank systematically expanded the table of currency exchange rates for currencies in which international transactions of the Bank s customers are being settled. Since September 2006, the Bank also offers a Nordea Progres savings account in foreign currencies (EUR and USD) whose functionality is identical to that of Nordea Progres held in the Polish currency. Enhanced functionality and constantly improved security of services addressed to business customers translated itself into a dynamic growth in the sales of e Firma and e Firma Plus. Compared to 2005, the number of accounts held by business entities increased by per cent. Measurable results were also brought about by enhancements in lending products which have won recognition in the eyes of independent experts. Good ratings were given to the currency denominated car loan product and also to bank cards issued by Nordea Bank. In September 2006, the card offering was expanded by the addition of a new credit card, Nordea MasterCard Platinum, accompanied by an attractive package of add on services. Moreover, Nordea Bank has launched a lending product which is new in the Polish market Nordea Komfort credit limit. Available since October 2006, the mortgage secured credit limit can be used for any purpose. Granted for the period of ten years, the limit may be equal to as much as 75 per cent of the market value of the property, and its interest rate is competitive compared to typical consumer loans. Nordea Bank Polska actively supports the development of small and medium sized enterprises (SMEs) and participates in financing for large infrastructure projects initiated upon Poland s accession into the EU. For this purpose, in February 2006, Nordea Bank signed a EUR 120 m agreement with the European Investment Bank, which makes it possible to support financing of infrastructure development projects, investment projects carried out by local governments, and capital investment projects of SMEs. Development of new financial products and services along with increased accessibility of the Bank s outlets translated in 2006 into a considerable growth in the customer base which increased by 17.5 per cent. Undoubtedly, our greatest success is the fact that we have maintained our position of a leader in services to Nordic customers. Compared to 2005, the share of Nordea Bank Polska in services provided to Nordic companies grew from about 40 to about 50 per cent. We also have kept our high position in the market of banking services to public sector institutions, first of all local governments. In the opinion of independent experts, Nordea Bank Polska has kept its leadership position when it comes to the security of on line transactions, functionality and utility of the IT solutions applied, and the quality of operation of its telephone info line service. Beside the electronic signature, another method to make our electronic banking services more attractive to both retail and corporate customers is the continuous development of our Nordea Market service available at Excellent quality of our services is highly appreciated by our partners was a second consecutive year when we received the prestigious Elite Quality Recognition Award by JP Morgan Chase, an American bank, for the level of faultless performance in inter bank transactions. Last year we were also awarded the Certificate of Excellent Quality by American Express in recognition of the excellent quality of international transactions carried out in 2005, of which 98.5 per cent represented error free operations. The stability of the Bank s financials achieved in 2006 will provide in the coming years a solid base to our drive towards further improvement in asset quality and increase in market shares held in the target segments of the market. The steady growth of the Polish economy, predicted to continue in the years to come and generated, inter alia, by an increasing inflow of EU funding, represents an opportunity for strengthening the position of Nordea Bank Polska in the financial market. This is Nordea Bank Polska S.A. Annual Report

21 specifically true about the strategic areas of the Bank s operations, such as electronic banking, corporate banking, and mortgage loans. Our achievements to date and plans for the future show that we can act for the benefit of the customers and shareholders of our Bank by delivering on our corporate mission of Making it possible. Best regards Włodzimierz Kiciński CEO Nordea Bank Polska SA Nordea Bank Polska S.A. Annual Report

22 Annual Financial Report of Nordea Bank Polska S.A. for the year of Profit and loss account Note 01/01/ /12/ /01/ /12/2005 Operating income Interest income Interest expenses Net interest income Fee and commission income Fee and commission expenses Net fee and commission income Gains/(losses) from financial instruments measured at fair value through profit or loss Investments in associates accounted for under the equity method change Dividends received Other operating income Total operating income Operating expenses Administration expenses staff costs other administration expenses Depreciation 13;23; Total operating expenses Impairment (losses)/releases on loans and advances 14 (4 572) Sales of fixed and intangible assets Gross profit Income tax Net profit Earnings per share 16 1,49 0,91 Diluted earnings per share 16 1,49 0,91 Nordea Bank Polska S.A. Annual Report

23 2. Balance sheet Note 01/01/ /12/ /01/ /12/2005 Assets Cash and cash equivalents in the Central Bank Treasury bonds and other debt securities eligible to rediscount in the Central Bank Loans and advances to banks Loans and advances to clients Debt securities Shares Derivative financial instruments Shares in subsidiaries Intangible assets Tangible fixed assets Deferred tax assets Prepayments Other assets Total assets Liabilities Deposits from banks Customer deposits Issued debt securities Derivative financial instruments Other liabilities Accruals Deferred tax liabilities Provisions Total liabilities Capital Share capital Supplementary capital Reserve capital Retained earnings - (16 805) Net result of the current year Total equity Total liabilities and equity Nordea Bank Polska S.A. Annual Report

24 3. Statement of changes in equity Share capital Supplem. capital Reserve capital Retained earnings Total capital Balance as at 1 January Distribution of profits (30 727) - Coverage of loss from previous - years (16 805) Net result of the current year Closing balance as at 31 December Balance as at 31 December 2004 according to the previous accounting rules Changes arising from adoption of IFRS as at 1 Jan (334) (16 805) (17 139) Balance as at 1 January 2005 according to IFRS (12 838) Distribution of profits (3 967) - Net result of the current year Closing balance as at 31 December Nordea Bank Polska S.A. Annual Report

25 4. Cash flow statement Note 01/01/ /12/ /01/ /12/2005 Operating activity Net profit Adjustment of net profit with net cash from operating activity (9 354) (6 492) Interest paid and received (11 286) (6 424) Income tax FX result on the operating activity (1 340) (68) Operating activity Changes in operating assets ( ) ( ) Changes in the value of treasury bonds and other securities issued by government units - - Changes in loans to financial institutions ( ) Changes in loans and advances (lending business) ( ) ( ) Changes in derrivatives (23 663) Changes in other assets except for financial instruments 41 (25 124) Changes in operating liabilities Changes in deposits from financial institutions ( ) Changes in deposits from other customers Changes in other liabilities Cash flows in the operating activity (13 905) Investment activity Sale of shares or interests in subsidiaries and associates Acquisition of fixed assets (7 104) (5 752) Sales of fixed assets Acquisition of intangible assets (480) (1 212) Sale of intangible assets - - Change in other financial assets (70 343) (905) Cash flows in the investment activity (73 460) (6 837) Financial activity Other (21 739) Cash flow in the financial activity (21 739) Cash flow for the year (7 766) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Balance sheet change in cash (7 766) Interest paid Interest received Notes to the financial report 5. General issuer information Information on Nordea Bank Polska S.A. Nordea Bank Polska Spółka Akcyjna, hereinafter referred to as the Bank, with its seat in Gdynia, Poland, ul. Kielecka 2, registered at the Regional Court in Gdańsk, XVI Business Division of the National Court Registry on 21 November 1991 (registration number: KRS ); the sector according to the classification adopted by the Warsaw Stock Exchanges BANKS. The basic activity of the Bank, according to Polish Business Classification, is other banking Nordea Bank Polska S.A. Annual Report

26 activity (symbol PKD A). The Bank offers universal banking services to entities, both business and non business related as well as private individuals. The Bank s shares are listed on the Warsaw Stock Exchange. On 22 November 2006 Nordea Bank Polska S.A. sold all its shares in the subordinate entity of Inwestycje Kapitałowe S.A. See Note 42. Selected financial data in thousand PLN in thousand EUR period from 01/01/2006 to 31/12/2006 period from 01/01/2005 to 31/12/2005 period from 01/01/2006 to 31/12/2006 period from 01/01/2005 to 31/12/2005 Interest income Fee and commission income Gross profit Net profit Cash flows for the year (7 766) (1 992) Loans and advances to banks Loans and advances to clients Total assets Deposits from banks Customer deposits Total liabilities Total equity Number of shares Book value per share (in PLN/EUR) 16,87 15,38 4,40 3,99 Solvency ratio 9,64 11, Profit (loss) per share (in PLN/EUR) 1,49 0,91 0,38 0,23 The following exchange rates were applied in order to determine the basic figures in EUR: for balance sheet items the NBP s exchange rate from and the NBP s exchange rate from 31/12/2005. for profit and loss items as at (an average EUR rate to PLN in NBP on the last day of each month in 2006), as at (an average EUR rate to PLN in NBP on the last day of each month in 2005). 6. Significant accounting policies Statement of compliance The Annual Financial Statements of the Bank have been prepared in accordance with the International Financial Reporting Standard for annual financial reporting as adopted by the European Union and as regards issues not provided therein in accordance with the requirements of the Accounting Act of September 29, 1994 (Official Journal of 2002 No. 76 item 694, as amended) and enforcement regulations issued thereunder, as well as according to the requirements concerning the issuers of securities admitted to trading or in regard of which an application has been filed for admission to trading in an official stock market. The Financial Report was approved for publication on Application of standards prior to their entering into effect IFRS 7 Financial instruments Disclosures, which have been approved by the European Union but have not yet entered into effect and Nordea Bank Polska S.A. Annual Report

27 shall be applicable from 1 January The Bank has not applied IFRS 7 prior to that date, as in the opinion of the management board information disclosed according to IFRS 7 will not be substantially different from disclosures required in the light of IAS 32 and IAS 30. Other standards, changes to the existing standards and interpretations issued by the Interpretation Committee for the International Financial Reporting Standards, both those approved and waiting for approval by the European Commission, are either not applicable to the Bank s financial report, or would not have a substantial effect on this Financial Report. The basis of preparation of the financial report The Financial Report has been drawn up in Polish zloty (PLN) rounded off to the nearest thousand PLN, which is the functional currency as well as the presentation currency of the Bank. The financial report incorporates the concept of fair value for financial assets and financial liabilities measured at their fair value through the profit and loss account, including derivative instruments and financial assets classified as available for sale, with the exception of those assets, whose fair value cannot be reliably determined. Other items of financial assets and financial liabilities are assessed at amortised cost (loans and advances, financial liabilities other than those measured at fair value through profit and loss) or at cost less any impairment losses. The preparation of the financial statements in compliance with the IFRS requires the management to make judgements, estimates and assumptions influencing its accounting policies and the presentation of the assets and liabilities, as well as the income and expenses. The estimates and assumptions are based on available historical data and a number of other factors that are deemed to be reasonable under the circumstances, the results of which constitute the basis for estimating the carrying amounts of the assets and liabilities that are not readily apparent from other sources. Such estimates and assumptions are subject to on going revisions. Adjustments of estimates are recognised in the period, in which the change in the estimate was carried out, on the condition that the adjustment refers only to the given period, or in the period, in which the adjustment was carried out, and in future periods, if the adjustment affects both the current and future periods. The accounting rules presented below were applied consistently for all reporting periods presented in the financial report. Principles of consolidation Subsidiaries Subsidiaries are entities controlled by the Bank. Such control exists when the Bank has direct or indirect influence on the entity s financing and operating policies, which allows the Bank to obtain economic benefits from the entity s operations. Financial statements of subsidiaries are included in a consolidated report from the time of obtaining control until it ceases. On 22 November 2006 the Bank and Inwestycje Kapitałowe S.A. (a subsidiary) concluded an agreement on transfer of bearer shares with the view to redeem them, with simultaneous conclusion of an agreement on sale of the company s bearer shares remaining after the redemption. Before conclusion of that transaction, the Bank was the sole shareholder of Inwestycje Kapitałowe S.A. (100% shares in the initial capital and 100% votes at the General Shareholders Meetings of the company). There are no relations between the Bank and the buyer. The total value of both transactions was consistent with the valuation of the company made by an independent auditor, and was corresponding to the value of its assets. After conclusion of the sale transactions, the Bank does not hold any shares in Inwestycje Kapitałowe S.A. See Note 42. Transactions in foreign currencies disclosed in the functional currency valuation Transactions in foreign currencies are converted at the rate of the date of transaction. The financial assets and liabilities arising from such transactions, denominated in foreign currencies, presented according to the historical cost, are converted at the rate binding on that date. FX differences arising from the conversion are reported in the profit and loss account. Non Nordea Bank Polska S.A. Annual Report

28 financial assets and liabilities denominated in foreign currencies, presented according to the historical cost, are converted at the rate binding on the date of transaction. Non financial assets and liabilities denominated in foreign currencies, presented in their fair value, are converted to the currency of the financial report at the rate binding on the date of fair value assessment. Hedge accounting and derivative financial instruments The Bank does not apply hedge accounting. Derivative financial instruments are first reconized at their fair value. After their initial recognition, derivative instruments are measured at fair value without allowance for the costs of transaction, which will be incurred at their sale. The best basis for determining the fair value of a financial derivative at its initial recognition is the transaction price (i.e. fair value of the consideration made or received) unless the fair value of this instrument is evidenced by comparison with other current market transactions for the same instrument (i.e. without modification) or based on the assessment technique, the variables of which include only the data arising from the markets available for observation. Some derivative instruments embedded in other financial instruments are separated from the principal agreement and treated as derivative instruments provided that the economic properties and risks of such embedded derivative instruments are not strictly related to the economic features and risks of the basic agreement, and the principal agreement is not measured at fair value through profit or loss. Embedded derivative instruments are measured at fair value, and changes in the fair value are taken to profit or loss. The Bank uses financial derivative instruments to hedge its exposure to foreign exchange and interest rate risks resulting from its operating, financing and investing activities. Financial assets and financial liabilities Classification The Bank classifies financial instruments into the following categories: financial assets or financial liabilities measured at fair value through profit or loss and loans and receivables. (a) Financial assets or financial liabilities measured at fair value through profit or loss These are financial assets or liabilities meeting one of the following conditions. They are classified as held for trading. Financial assets or financial liabilities are classified as held for trading if they are acquired or incurred mainly for the purpose of being sold or repurchased in near future; They are a part of the portfolio of certain financial instruments managed together and for which there is evidence of a recent actual pattern of short term profit taking. Derivative instruments are also categorised as held fortrading unless the derivative is a designated and effective hedging instrument. Upon initial recognition they were designated by the Bank as measured at fair value through profit or loss. (b) Loans and receivables Loans and receivables are financial assets other than derivative instruments, whose terms of payment are defined or definable, which are not quoted in an active market. Loans and receivables arise when the Bank provides finance to customers other than those created with the intention of short term profit taking. Loans and receivables comprise loans and advances to other banks and customers, including purchased receivables and investment in debt securities provided that they are not quoted in an active market. The Bank qualified the NBP s bonds in the category of loans and receivables. (c) Financial liabilities Financial liabilities are the Bank s contractual liabilities to provide cash or other financial assets to another entity. Financial liabilities Nordea Bank Polska S.A. Annual Report