SWEDBANK, AB Independent Auditor s Report and Financial Statements for the year ended 31 December 2012

Transcription

1 SWEDBANK, AB Independent Auditor s Report and Financial Statements for the year ended 31 December 2012

2 SWEDBANK, AB TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR S REPORT 3 ANNUAL REPORT 4 14 FINANCIAL STATEMENTS: STATEMENTS OF COMPREHENSIVE INCOME 15 STATEMENTS OF FINANCIAL POSITION 16 STATEMENTS OF CASH FLOWS STATEMENTS OF CHANGES IN EQUITY 19 EXPLANATORY NOTES INFORMATION DISCLOSURES REQUIRED BY LAWS Page 2 of 95

3 INDEPENDENT AUDITOR S REPORT To the shareholder of Swedbank, AB: Report on the Financial Statements We have audited the accompanying separate financial statements (pages 15 to 89) of Swedbank, AB ( the Bank ) and the consolidated financial statements of Swedbank, AB and its subsidiaries ( the Group ), which comprise the Bank s and the Group s statements of financial position as of 31 December 2012, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these separate and consolidated financial statements in accordance with the Republic of Lithuania law on accounting and financial reporting and International Financial Reporting Standards as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of the separate and consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on those separate and consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the separate and consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate and consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the separate and consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers 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 policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate and consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying separate and consolidated financial statements present fairly, in all material respects, the financial position of the Bank and the Group as of 31 December 2012, and their financial performance and their cash flows for the year then ended in accordance with the Republic of Lithuania law on accounting and financial reporting and International Financial Reporting Standards as adopted by the European Union. Report on Other Legal and Regulatory Requirements As required by the Law on Banks of the Republic of Lithuania, Article 61, the Bank has presented financial information (page 90 to 95) of the Financial Group that comprise financial information extracted from the separate financial statements of the Bank and the consolidated financial statements of the Group. In our opinion, the financial information of the Financial Group is consistent, in all material respects, with the separate financial statements of the Bank and the consolidated financial statements of the Group from which it was derived. Furthermore, we have read the accompanying Annual Report for the year ended 31 December 2012 (page 4 to 14) and have not noted any material inconsistencies between financial information included in it and the separate and consolidated financial statements for the year ended 31 December Deloitte Lietuva, UAB Licence No Sigitas Babarskas Lithuanian Certified Auditor Licence No Vilnius, Republic of Lithuania 28 February 2013 Page 3 of 95

4 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER Accounting period covered by the Consolidated Annual Report Year Companies comprising the Group, their contact details Name Legal form Address Company s code Registration date and place Telephone Fax address Website address Swedbank, AB Public Limited Liability Company Konstitucijos Av. 20A, Vilnius December 1993, Vilnius 1884 (8 5) info@swedbank.lt Principal activity. Swedbank, AB (hereinafter the Bank) is a credit institution operating on the basis of share capital which holds the license issued by the Bank of Lithuania to engage, and engages in, accepting deposits and other repayable funds from nonprofessional market participants and in lending of such funds, and also has the right to provide other financial services and assumes related risks and responsibility. Name Legal form Address Company s code Registration date and place Telephone Fax address Website address Swedbank lizingas, UAB Private Limited Liability Company Konstitucijos Av. 20A, Vilnius September 1996, Vilnius (8 5) (8 5) info@swedbank.lt Principal activity. Leasing (financial and operating lease) and factoring services. Name Legal form Address Company s code Registration date and place Telephone Fax address Website address Swedbank autoparko valdymas, UAB Private Limited Liability Company Konstitucijos Av. 20A, Vilnius November 1997, Vilnius (8 5) (8 5) autoparkas@swedbank.lt Principal activity. Car rental services. Name Legal form Address Company s code Registration date and place Telephone Fax address Website address Principal activity. Insurance brokerage. Swedbank draudimo brokeris, UADBB (under liquidation) Pprivate Limited Insurance Brokarage Company Konstitucijos pr. 20A, Vilnius April 2007, Vilnius 1884 (8 5) info@swedbank.lt Name Legal form Address Swedbank valda, UAB Private Limited Liability Company Konstitucijos Av. 20A, Vilnius Page 4 of 95

5 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 Company s code Registration date and place Telephone Fax address Website address November 2004, Vilnius (8 5) (8 5) info@swedbank.lt Principal activity. Real estate rental and maintenance services. 3. Bank s agreements with intermediaries of public trading in securities Swedbank, AB has not issue public securities in Objective review of the Bank and Group condition, business and development and analysis of financial performance of the Group 2012 was profitable for Swedbank, AB Group in Lithuania companies (hereinafter the Group), net consolidated profit amounted to LTL 369.7m (net profit of 2011 was LTL 592.0m). Net profit decreased mainly due to decreased net interest income and lower recovery of loan value impairment. Operating results of Swedbank, AB subsidiaries during 2012 were as follows: profit of Swedbank lizingas, UAB was LTL 38.0m, Swedbank autoparko valdymas, UAB LTL 3.4m, profit share of Swedbank Life Insurance SE attributable to the Bank reached LTL 33.3m, Swedbank draudimo brokeris, UADBB being under liquidation and Swedbank valda, UAB incurred losses of LTL 0.1m. At the end of 2012 the loan portfolio of Group slightly grew which until then was declining. The loan portfolio increased by 0.8% to LTL 13.1bn, compared to the previous year the loan portfolio of LTL 13.0bn. Impaired loans continued to decline. The improvement in credit quality was supported by improved financial situation of customers. The ratio of provisions to loan portfolio in 2012 was 3.2% (in %). There was noticed significant deposits growth, deposits increased by 13.0% to LTL 14.8bn, whereas at the end of 2011 deposits amounted to LTL 13.1bn. The fast growth of demand deposits concluded 23.1% and reached LTL 9.6bn. Loan-to-deposit ratio reflecting the dependence of the Group upon external financing at the end of 2012 was 88.5%. At the end of 2012 the equity of the Group was LTL 2.9bn. Capital adequacy ratio which is one of the main indicators defining stability at the end of 2012 was 16.8% (in %). Liquidity ratio of the Group at the end of 2012 was 39.8% (in %). Total income of the Group of 2012 amounted to LTL 645.4m and compared to the previous year has decreased by 9.3%. Comparing to the previous year, net interest income of the Group decreased by 18.6% to LTL 335.2m mainly due to historically lowest market interest rates. Meanwhile increased customers activity and number of transactions supported net commissions income growth by 8.0% to LTL 218.7m. Due to increased efficiency and well managed costs, operating costs during 2012 decreased by 7.8% to LTL 305.1m. Due to decreased number of employee, personnel expenses went down by 11.1% and amounted LTL 141.6m. At the end of 2012 the Group had 2,277 of full time employees (in ,401). Due to the above mentioned measures cost-to-income ratio was maintained at competitive level, it increased only by 0.8 percentage points to 47.3%. Operating profit of the Group before impairment losses at the end of 2012 amounted to LTL 373.6m (in 2011 LTL 403.3m). At the end of the year, the Competition Council in Lithuania imposed a fine of LTL 14.2m on Swedbank, AB after ruling that agreements on cash handling with G4S Lietuva UAB limited competition in the market. Swedbank, AB has submit an appeal against the decision. Litigation process continues. 5. Description of main types of risks and uncertainties Swedbank defines risk as a potential negative impact on the value of the Group that may arise from current internal processes or from internal or external future events. The concept of risk combines the probability of an event occurring with the impact that event would have on profit and loss, equity and the value of the Group. The main risk types are defined as: Page 5 of 95

6 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 Credit risk The risk that counterparty will not meet its financial obligations to the Group, and the Risk that pledged collateral will not cover the claims of the Group. Credit risk also includes counterparty risk, concentration risk and settlement risk. Liquidity risk The risk of not being able to meet payment obligations at maturity for obtaining means of payment. Market risk Market risk is defined as the risk to value, earnings, or capital arising from movements of risk factors in financial markets, such as interest rates, exchange rates, or share prices. Market risk also includes changes in correlation between risk factors and their volatility parameters. Operational risk Operational Risk is the risk of losses resulting from inadequate or failed internal processes, people and systems, or from external events. Insurance risk Risk related with possible negative impact of the difference between estimated and actual insurance costs on the Group value. Detailed information about key risks and fulfilment of prudential requirements established by the Bank of Lithuania is included in the Explanatory Notes to the Financial Statements of Main aspects of activity and activity risk management strategy The Bank is the parent company of the Group engaged in banking and related saving and asset management activities. Preventing and managing risk is central to Group s operations. Risk management begins with business operations and encompasses every employee. A separate risk organization ensures that risk management is conducted efficiently and in accordance with group-wide procedures in order to protect the Bank and the Group against unintentional and undue risk-taking. 7. Structure and execution of internal control Risk management process in the Bank and the Group is built on the concept of three lines of defence: First line of defence refers to all risk management activities carried out by line management and staff who work directly with customers; Second line of defence is secured by independent Credit and Compliance and operational risk units (risk control units); Third line of defence is performed by Internal Audit function which performs independent periodic reviews of the governance and the system of internal controls. Page 6 of 95

7 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER Analysis of non-financial performance of the Bank and the Group, environment and personnel related information In 2012, Group remained focused on several key areas education of youth and promotion of entrepreneurship, improvement of financial literacy of society and development of performance-based environmental initiatives. In 2012, we implemented changes that helped us to move forward developing sustainable business and its environment. In addition to the Sustainability Policy pursued by us since 2011, in 2012 the Supplier s Code of Conduct, which must be signed by all suppliers of the Group, entered into force. By signing this document a supplier guarantees that he and his subcontractors respect human rights, act transparently and in an environmentally respectful way. Furthermore, in 2012 we started discussing with corporate customers whom we granted credits the matters of sustainability and assessing the impact of their business on the environment. Promotion of financial literacy Swedbank experts Nerijus Mačiulis and Odeta Bložienė are acknowledged opinion leaders according to TNS LT data these experts are two of the three most frequently quoted company representatives. Dr. Nerijus Mačiulis is the most frequently quoted in the market of bank representatives. N. Mačiulis and O. Bložienė actively speak on the matters of management of public and private finances, cooperate with business community and public authorities. N. Mačiulis, chief economist of the Bank, delivered reports at 16 conferences or meetings with Swedbank corporate customers introducing to them relevant economic reviews. The economist also participates in debates of academic community or business institutions, various business clubs and public organizations, actively provides comments to media and engages in public discussions on different economic matters. In 2012, Dr. Nerijus Mačiulis was also invited to join the working group supervising the process of the reform of public enterprises formed by decree of the Prime Minister. Swedbank Institute of Private Finances (IPF) continues working on the relevant subjects of financial literacy. It is estimated that in 2012 experts of the Institute of Private Finances delivered over 60 reports throughout Lithuania. They directly communicated with more than 2,800 students, 1,600 teachers and parents as well as other people interested in financial themes was the third year during which IPF experts continued cooperation with the Bank of Lithuania and participated in the series of free lectures of financial literacy, also organized the third Economics Teacher National Conference and gathered opinion leaders to the traditional debate on the selected theme of financial literacy of youth. In 2012, the number of individuals using My budget tool for active management of private finances increased to 10,000. Education of youth encouraging society to share knowledge: Who needs it?! Together with the telecommunications company Omnitel we designed and offered to the society the platform building bridges between Lithuanian schools and business practices: pupils can learn life experience directly from business professionals. In 2012, 331 schools, 573 teachers and 72 enterprises as well as 347 practitioners registered for the Project Who needs it?! The number of meetings of business representatives and students already amounts to 169. Promotion of entrepreneurship In cooperation with PE Lithuania Junior Achievement (LJA), in 2012 alone we provided 1,730 students with the possibility to learn business fundamentals already at school setting up educational enterprises for students. Volunteers of the Bank consult students, help to prepare business plans and develop business. In 2012, 200 educational enterprises for students were set up, that is by 60 enterprises more than in In 2012, 40 schools joined the Project. 40 teachers were trained to work according to the Junior Achievement Programme. We take care of public security Caring about public security Swedbank initiated cooperation with the Police of Lithuania and participated in joint actions educating society about attacks of swindlers and types of fraud used by them. Representatives of the Bank and of the Police visited 5 regions of Lithuania, noted for the largest number of attempts to cheat money from residents and organized meetings with local media. Our messages communicated via TV, radio, press and internet portals reached the audience of 3.4 million. Performance-based environmental initiatives We continue consistently supporting performance-based environmental initiatives. We grant loans for renovation of multi-family dwellings under JESSICA programme. In 2012, 22 agreements were signed for EUR 3.6 million. At present we are providing consultations for about 40 more projects. At the end of 2012, we signed the agreement on the use of purely green electric energy generated from renewable energy sources in the buildings owned or managed by the Bank since Page 7 of 95

8 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 The Bank is an active member of society Our aim is to be a socially active bank open to the whole society. We want to participate in the education of youth and contribute to their study programs with our practical knowledge. Our employees are encouraged to engage in joint activities with universities. Our employees have been visiting various higher education institutions delivering lectures for students already for three years. Also, we invite students to participate in our training program organized twice a year (in 2012, 12 out of 68 students who participated in the training program remained to work with our organization). Trainees are familiarized with the activities of the particular subdivision and thanks to the specially developed program also have an opportunity to get acquainted with the functioning of the bank as an organization. Students are also included in project groups where they can apply their knowledge in practice addressing a problem or issue relevant to the bank. One more important step is the cycle of events Conversations under the oak-tree organized for the purpose of broadening the horizon of employees. During these events professionals from different spheres share their experience, discoveries, insights. Everybody who wants our employees, their families, friends, customers is invited to the events of Conversations under the oak-tree. Since the beginning of the cycle of these events until the end of 2012 we invited about 2,600 people to 47 events hosted in 8 towns of Lithuania Vilnius, Kaunas, Panevėžys, Klaipėda, Šiauliai, Ukmergė, Alytus and Utena. In 2012 alone we organized 22 events with one and a half thousand participants. We encourage our employees to actively engage in voluntary activities. In 2012, together with our colleagues we participated in the Food Bank campaign of collection of food products, upkeep of the environment with Let s Do It 2012, our employees donated blood to the National Blood Centre. Dialogue with staff One of our key priorities is to increase the involvement of employees. We seek active involvement of our employees in finding best business solutions, but also in improving work environment directly related with the wellbeing of employees. The Labour Council, elected in 2008 to represent the opinion of employees, is continuing its activities after re-election at the end of With a view to promoting the creation of long-term value in the organization employees of the Bank and the Group are offered the remuneration package consisting of fixed salary and variable remuneration. Detail information about variable remuneration will be present in a separate report. 9. References and additional explanations about data provided in consolidated financial statements The main financial data are provided in consolidated financial statements of the Group. 10. Significant events occurring after the end of the previous financial year Bank decided to sell associated company Swedbank Life Insurance SE. This transaction will be finished in the first half of Plans and forecasts of activities of the Bank and the Group In 2013 economic growth is expected to be more rapid and will be determined by investment growth. Main impact to Group profitability will come from low market interest rates. It s expected further deposits growth, but with slower pace, portfolio loans will go up slightly. In daily activities Swedbank, AB Lithuania will continue to provide adequate services to customers to ensure desired customer satisfaction level in Customers confidence and values are very important to the Group. We will pay attention to the maintenance and improvement of operating efficiency, profitability. Also, we will seek effective use of capital employed in our business. We will invest to our employees and increase their motivation to provide adequate service level. Page 8 of 95

9 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER Financial risk management objectives The Group manages its financial risks in the manner described in consolidated annual financial statements. Consolidated annual financial statements also specify financial risk management objectives, transaction risk mitigation measures applied, as well as the extent of credit and market risk within the Group. 13. Data on purchase of own shares Swedbank, AB does not hold own shares and did not purchase them in Subsidiaries of Swedbank, AB have not acquired its shares either. The Bank and its subsidiaries did not purchase or sell own shares during the accounting period. 14. Information about branches and representative offices As of 31 December 2012, the Bank had 3 branches and 81 customer service centres within their structure in Lithuania. 15. Authorized capital Type of shares ISIN code Number of shares, units Par value, LTL Total par value, LTL Share in authorized capital (%) Ordinary registered Shares LT ,008, ,640,080, Total: 164,008,000 1,640,080, The holder of these shares has all rights and obligations established by laws of the Republic of Lithuania. 16. Shareholders Shareholder Number of shares, units Participation in share capital and voting rights (%) Swedbank AB (publ) (Sweden) (Company code: ; address: Brunkebergstorg 8, Stockholm, Sweden) 164,008, Organizational structure The structure of the Bank supports optimal organization of bank activities, effectiveness of processes, clear responsibilities and reporting lines and high-level competence of employees. The governance structure of the Bank satisfies local business needs and ensures best synergies between subdivisions of Swedbank Group operating in different countries. No significant changes or structural developments are planned for the next year. For the purposes of this scheme Group units are subdivisions the functions whereof are integrated at the level of Swedbank AB (publ) (Sweden). In administrative terms the subdivisions are subordinate to managers and managerial bodies of Swedbank, AB in Lithuania, but in functional terms they are also subordinate to the respective managers and managerial bodies of Swedbank AB (publ) (Sweden). Page 9 of 95

10 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER Employees As of 31 December 2012, the Group had 2,277 employees. During the year average number of the Bank employees was 2,207 and of the Group - 2,339. Associated company Swedbank Life Insurance SE employees who work in Lithuania are included in the number of employees of the Group. Number of employees Average monthly earnings, LTL 31 Dec Dec Dec Dec 2011 Bank Group Bank Group Bank Group Bank Group Managers ,228 8,921 8,393 8,149 Specialists 1,926 2,032 1,997 2,114 3,497 3,481 3,192 3,188 Total 2,157 2,277 2,256 2,401 4,180* 4,158* 3,789* 3,781* * The weighted average of earnings Number of employee according to educational background: Education Number of employees Percentage from all employees Bank Group Bank Group University 1, Non-higher professional education (higher nonuniversity education) Secondary Total 2, Page 10 of 95

11 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER Information about members of collegiate bodies, Chief Executive Officer and Chief Accountant of the Company Organizational management structure of Swedbank AB comprises the General Meeting of Shareholders, Supervisory Council, Management Board and Head of the Administration. The Supervisory Council of Swedbank, AB According to the Statute of Swedbank, AB the Supervisory Council consists of 5 persons elected for the term of office of four years. The starting and end dates of the term of office of the members of the existing Supervisory Council of Swedbank, AB members are 25 March 2009 and 25 March 2013, respectively. Members of the Supervisory Council Birgitte Bonnesen Swedbank, AB Supervisory Council Member since 25 October 2011, Swedbank, AB Supervisory Board Chairwoman since 23 November 2011, Member of Swedbank AB (publ) (Brunkebergstorg 8, Stockholm, Sweden) Group Executive Committee, Head of Baltic Banking. She does not participate in the capital of the Bank. Tiina Sepa Swedbank, AB Supervisory Council Member since 25 October 2011, Deputy Chairwoman of Supervisory Council since 22 August 2012, Member of Baltic Banking Management, Baltic Banking Chief Legal Counsel. She does not participate in the capital of the Bank. Johan Rosen Swedbank, AB Supervisory Council Member since 14 December 2011, Member of Baltic Banking Management, Baltic Banking Chief Compliance and Operational Risk Officer. He does not participate in the capital of the Bank. Kristina Mikenberg Swedbank, AB Supervisory Council Member since 20 August 2012, Member of Baltic Banking Management, Baltic Banking Chief Credit Management Officer. She does not participate in the capital of the Bank. Pehr Olofsson Swedbank, AB Supervisory Council Member since 5 November 2012, Member of Baltic Banking Management, Baltic Banking Chief Financial Officer. He does not participate in the capital of the Bank. Erik Štarkov Swedbank, AB Supervisory Council Member since 27 May 2010 till 5 November Ex-member of Baltic Banking Management and Baltic Banking Chief Compliance Officer. He does not participate in the capital of the Bank. Toms Silins Swedbank, AB Supervisory Council Member since 25 October 2011 till 20 August 2012, Deputy Chairman of Supervisory Council since 23 November 2011 till 20 August Ex-member of Baltic Banking Management and Baltic Banking Chief Financial Officer. He does not participate in the capital of the Bank. The Supervisory Council members do not participate in the activities or capital of other enterprises and organizations in the Republic of Lithuania. During the last five years the Supervisory Council members have not been subject to public prosecution or sanctions imposed by regulatory authorities, or prohibited by court decision from holding the leading positions or handling any affairs of the Bank. The Supervisory Council members did not receive any monetary amounts from Swedbank, AB during the accounting period. The Management Board of Swedbank, AB In observance of the Statute of Swedbank, AB approved on 28 October 2009, the Managing Board consists of 5 members who are appointed by the Supervisory Council for the term of office thereof. The starting and end dates of the term of office of the Management Board members are 25 March 2009 and 25 March 2013, respectively. Members of the Management Board are: Antanas Danys Swedbank, AB Management Board Chairman and Head of Administration since 25 June 2008, Member of Baltic Banking Management. He does not participate in the capital of the Bank. Eugenijus Preikša Deputy of Chairman and Member of Swedbank, AB Management Board since November 2003, Chief Credit Officer since June He does not participate in the capital of the Bank. Marius Adomavičius Deputy of Chairman and Member of Swedbank, AB Management Board since 25 January 2006, Chief Financial Officer since November He does not participate in the capital of the Bank. Page 11 of 95

12 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 Orinta Žvirzdinė Swedbank, AB Management Board Member since 23 October 2008, Deputy Chairman of Management Board since December 2008, Head of Retail Banking Service since September She does not participate in the capital of the Bank. Vytautas Bučiūnas Deputy Chairman and Member of Swedbank, AB Management Board and Head of Corporate Banking Division since 5 October 2009, Deputy Head of Administration since 3 December He does not participate in the capital of the Bank. Chief Accountant Virginija Miškinienė Swedbank, AB Chief Accountant since 22 December She does not participate in the capital of the Bank. Information about remuneration paid to the Board Members, Chief Executive Officer and Chief Accountant of the Company in 2012: Amount (LTL thousands) Average remuneration per capita (LTL thousands) Calculated amounts 3, Members of committees formed by the Bank Supervisory Council of Swedbank, AB has formed the Internal Audit Committee of Swedbank, AB to assist in performing its activities. The Internal Audit Committee performs the following main functions: Monitors the process of preparation of financial statements. Monitors the effectiveness of internal control, risk management and internal audit systems of the Bank. Monitors the processes of audit and internal audit performed, analyses information provided by internal audit about completed reviews, elimination of identified irregularities, implementation of work plans of internal audit and takes respective actions, where appropriate. Guarantees the autonomy of the Internal Audit Department. Conducts regular reviews of compliance of the Bank s activities with the requirements and provisions of laws, the Statute of the Bank, Bank Strategy and other normative acts. Issues recommendations to the Supervisory Council of the Bank with regard to the selection of external audit company. Monitors the adherence to the principles of independence and objectivity by the auditor and Audit Company conducting the audit of the Bank. Establishes general principles of internal audit organization in the Bank and all subsidiaries thereof. Internal Audit Committee of Swedbank, AB The competence, regulations and members of the Internal Audit Committee are approved by the Supervisory Council of the Bank. The Committee consists of 3 members. Composition of the Internal Audit Committee Ulrika Francke Swedbank, AB Internal Audit Committee Chairwoman since 23 November 2011, Chairwoman of Audit and Compliance committee of Swedbank AB (publ) (Brunkebergstorg 8, Stockholm, Sweden). She does not participate in the capital of the Bank. Karl-Henrik Sundström Swedbank, AB Internal Audit Committee Member since 23 November 2011, Member of Audit and Compliance committee of Swedbank AB (publ) (Brunkebergstorg 8, Stockholm, Sweden). He does not participate in the capital of the Bank. Siv Svensson Swedbank, AB Internal Audit Committee Member since 23 November 2011, Member of Audit and Compliance committee of Swedbank AB (publ) (Brunkebergstorg 8, Stockholm, Sweden). She does not participate in the capital of the Bank. Page 12 of 95

13 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER Activity of other committees Management Board of Swedbank, AB has formed the Loan, Risk Management and Business Continuity Committees of Swedbank, AB to assist in performing its activities. The competence, regulations and members of the Committees are approved by the Management Board of the Bank. Main functions of Swedbank, AB Risk Management Committee: Adoption of decisions on management of current and long-term liquidity and allocation of assets of the Bank. Adoption of decisions on the Bank s financing strategy and capital panning. Adoption of decisions on risks hedging, internal funds transfer pricing, deposit interest rates. Establishment of limits, adoption of decisions and coordination of the process of financial, country and financial institutions risk management process. Establishment of limits for securities acceptable to the Bank as collateral, approval of the rules on management collaterals of financial derivatives, repos. Examination of cases of exceeding limits established within the competence of the Risk Management Committee. Approval of the rules regulating the process of management of financial risks of the Bank, descriptions and implementation procedures for products of financial instruments, principles of securities portfolios. Periodic review of financial risk control and assessment reports and assessment of validation of financial risks management system of the Bank. Main functions of Swedbank, AB Business Continuity Committee: Implementation of the operational and business continuity risks management system and coordination of related actions in the Bank and its subsidiaries. Analysis of the operational risk profile of the Bank and ensuring the identification, analysis and assessment of the operational risks in the Bank. Control of the process of implementation of risk mitigation measures. Establishment of the scope and deadlines for the assessment of operational risk. Approval of business impact analysis results and priorities in restoring the operation of services of the same criticality class. Establishment of business continuity scenarios to be analysed in observance of Risk Analysis Methodology and approval of risk analysis results. Preparation and approval of business continuity strategy. Approval of business continuity plans. Coordination of testing of business continuity plans: approval of test plan and schedule of testing, analysis of test results, approval of action plan drafted after the test and monitor its implementation. Implementation of the principles of management of crisis situations and appointment of the Crisis Management Team. Coordination of management of business continuity incidents: analysis of incident reports and monitoring the implementation of the business plan prepared after the incident. Regular supervision of the performance of service quality agreements. Submission of the report on activities (implemented actions, their results) to the Bank Board at least once a year. Main functions of Swedbank, AB Loan Committee: Adoption of decisions on loan granting, maturities, other conditions and credit risk limitations within the limits of approved competence: The term of loan covers all types of loans (including statement of financial position and off-balance items) and leasing and factoring products. The term loan granting covers respective loan agreements or amendments to their terms and conditions. The term loan conditions covers the establishment of interest rates, other fees for loan granting and all other conditions of granting a loan. Establishment of the principal conditions of crediting activities of the bank (portfolio structure, interest rates and product descriptions). Approval of the rules regulating the competences regarding the adoption crediting decisions and other documents attributed to the competence of the Loan Committee. Page 13 of 95

14 SWEDBANK, AB ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2012 Setting up and dismissal of the Bank s Business Loan Committee, Retail Loan Committee, Problem Loan Committee and loan committees of structural subdivisions of the Bank, suspend their activities, approve regulations, competence (including individual competence) and members of these committees, at least once a year revise the rules regulating the competences regarding the adoption crediting decisions. Maintenance of the quality of the credit risk portfolio of the Bank. Fulfilment of other functions assigned by legal acts and internal documents of the Bank. 22. Significant arrangements to which the Bank and the Group are parties and which would come into force, change or terminated upon change of the Bank s and Group s control None. 23. Agreements between the Group and members of its management bodies or employees Employment contracts do not provide for any special benefits to employees of the Bank and the Group upon termination of the employment contracts, except for the following: disbursement of severance pay in the amount of twelve monthly salaries under employment contracts concluded with three employees; disbursement of severance pay in the amount of six monthly salaries under employment contracts concluded with two employees. 24. Information about concluded harmful transactions During the reporting period the Bank and the Group did not enter into any harmful transactions that are inconsistent with the goals of the Group or concluded under unusual market conditions, or giving rise to the conflicts of interest between the Bank managers, shareholders or other parties concerned. Information about related parties is disclosed in annual financial statements and explanatory notes. 25. Information about Bank securities The holder of shares can dispose them without any restrictions. Securities issued by the Bank are not traded on regulated markets. 26. Information about made investments Bank and Group disclosed all information about made investments during the accounting period in the Explanatory Notes to the Financial Statements. 27. Disclosure on publicized information Swedbank, AB does not disclose information on significant events because the Bank does not participate in the regulated market. In 2012, the Bank published reports on the distribution of privately issued bonds of Swedbank, AB. The aforementioned information is provided in the central regulated information database ( on the Bank s website ( and to the Bank of Lithuania. The annual report was signed on 28 February 2013 by: A. Danys Chairman of the Management Board Page 14 of 95

15 SWEDBANK, AB STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012 Notes Bank Group Bank Group Interest income 501, , , ,924 Interest expenses (197,041) (225,812) (216,345) (258,180) Interest income, net 7 304, , , ,744 Fees and commission income 278, , , ,730 Fees and commission expenses (58,909) (58,970) (56,182) (56,249) Fees and commissions, net 8 219, , , ,481 Dividend income , Realised gain on financial assets not measured at fair value through profit or loss, net 3,022 3, Gain on financial assets and liabilities held for trading, net 9 54,018 54,387 46,839 47,478 Loss on financial assets and liabilities designated at fair value through profit or loss, net (7,525) (7,525) (12,539) (12,539) Exchange differences, net 6,537 6,537 9,039 9,038 Other operating income 11 21,040 34,953 20,399 53,048 Other operating expenses 11 (43,665) (48,541) (41,170) (44,865) Staff expenses 12 (136,422) (141,580) (152,681) (159,227) General and administrative expenses 13 (108,372) (102,906) (117,543) (114,157) Depreciation and amortization 26, 27 (9,202) (12,090) (9,724) (12,714) Provisions 33 (14,153) (14,699) Impairment 25 99,288 86, , ,155 Share of the profit of associates accounted for using the equity method - 33,349-23,034 Loss on the remeasurement of assets classified as held for sale (316) (316) (745) (745) Profit before income tax 389, , , ,456 Income tax expense 15 (55,011) (75,012) (75,255) (72,431) Profit for the year from continuing operations 334, , , ,025 Profit for the year from discontinued operations Profit for the year 334, , , ,025 Other comprehensive income Other comprehensive income for the year Total comprehensive income for the year 334, , , ,025 The accompanying explanatory notes are an integral part of these financial statements. The financial statements were signed on 28 February 2013 by: A. Danys V. Miškinienė Chairman of the Management Board Chief Accountant Page 15 of 95

16 SWEDBANK, AB STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 2012 Notes Bank Group Bank Group Assets Cash 352, , , ,563 Due from Central Bank 23 1,818,147 1,818,147 1,177,095 1,177,095 Due from other banks 16, 23 1,935,525 1,938,725 2,940,431 2,940,760 Financial assets held for trading 17, 23, , ,449 99,491 99,491 Financial assets designated at fair value through profit or loss 18, 23 1,074,054 1,074,054 1,014,100 1,014,100 Held-to-maturity securities 19, 23 39,941 39, , ,630 Investments in subsidiaries and associates , , , ,515 Loans 21, 22, 23 12,774,504 13,091,746 11,712,434 12,990,095 Other assets 24 88, ,462 62, ,229 Tangible assets 26 49, ,975 51, ,873 Intangible assets Assets classified as held for sale 3,380 3,380 2,482 2,482 Deferred tax asset 34 2,552 35,311 40,063 94,107 Total assets 18,901,562 19,400,447 17,839,044 19,305,043 Liabilities Due to other banks , ,184 1,278,466 2,537,209 Deposits 30 14,815,508 14,809,647 13,108,239 13,105,083 Demand deposits 9,635,632 9,629,771 7,766,511 7,763,355 Time deposits 5,179,876 5,179,876 5,341,728 5,341,728 Loans from international institutions 23,620 23,620 13,865 13,865 Financial liabilities held for trading 31, 38 25,549 25,549 32,250 32,250 Other liabilities , , , ,155 Provisions 33 18,412 18,958 5,256 5,256 Debt securities issued , , , ,627 Subordinated loans , ,147 Total liabilities 16,200,112 16,504,585 15,484,034 16,791,592 Equity Share capital 37 1,640,080 1,640,080 1,640,080 1,640,080 Share premium 91,965 91,965 91,965 91,965 Reserves 37 92,657 93,130 51,860 51,865 Retained earnings 876,748 1,070, , ,541 Total equity 2,701,450 2,895,862 2,355,010 2,513,451 Total liabilities and equity 18,901,562 19,400,447 17,839,044 19,305,043 The accompanying explanatory notes are an integral part of these financial statements. The financial statements were signed on 28 February 2013 by: A. Danys V. Miškinienė Chairman of the Management Board Chief Accountant Page 16 of 95

17 SWEDBANK, AB STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012 Notes Bank Group Bank Group Profit for the year 334, , , ,025 Adjustments to profit for the year Income tax expenses 55,011 75,012 75,255 72,431 Impairment and provisions (85,135) (71,435) (335,189) (261,862) Interest income (501,154) (561,033) (580,026) (669,924) Interest expenses 197, , , ,180 Dividends income (973) (36) (2,840) (18) Depreciation and amortization 26, 27 9,202 12,090 9,724 12,714 Other adjustments - (33,349) - (23,034) Loss on the remeasurement of assets classified as held for sale Profit from sales of tangible and intangible assets (86) (91) (1) (44) Carrying amount of tangible assets written-off Total adjustments to operating profit (325,744) (352,680) (615,979) (610,804) Changes in operating assets and liabilities Net change in financial assets held for trading (234,958) (234,958) (39,020) (39,020) Net change in financial assets designated at fair value through profit and loss (59,954) (59,954) 350, ,578 Net change in loans (1,007,067) (27,882) 368, ,776 Net change in other assets (43,376) (106,252) (12,296) 47,907 Net change in liabilities due to other financial institutions (662,191) (1,674,270) (766,192) (1,420,202) Net change in demand deposits 1,869,151 1,866, , ,322 Net change in time deposits (149,567) (142,746) (448,271) (443,978) Net change in other liabilities (94,867) (83,237) 211, ,282 Total adjustments to operating assets and liabilities (382,829) (462,853) 622, ,665 Interest received 506, , , ,674 Interest paid (215,639) (251,231) (226,411) (269,977) Dividends received , Income tax paid - (9) - (137) Net cash (used in) / from operating activities (82,655) (131,732) 943, ,464 Cash from investing activities Net cash outflow due to increase of share capital of subsidiaries (52,002) - (1,290) - Acquisition of investments held tomaturity (161,674) (161,674) (111,081) (111,081) Proceeds from sale of investments heldto-maturity 245, ,264 92,041 92,041 Acquisition of tangible assets (10,214) (10,485) (11,756) (12,017) Proceeds from disposal of tangible assets 1,658 1,877 1,146 1,546 Acquisition of intangible assets (24) (25) (4) (4) Proceeds from disposal of assets classified as held for sale ,011 5,011 Net cash from / (used in) investing activities 23,360 75,309 (25,933) (24,504) Page 17 of 95

18 SWEDBANK, AB STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012 Cash from financing activities Subordinated loans repayment (448,864) (448,864) - - Bonds issued 694, , , ,449 Bonds redeemed (475,567) (475,567) (504,896) (504,896) Net cash (used in) / provided by financing activities (230,098) (230,098) 6,553 6,553 Net decrease / (increase) in cash and cash equivalents (289,393) (286,521) 923, ,513 Cash and cash equivalents at the beginning of the year 4,393,047 4,393,377 3,469,131 3,469,864 Cash and cash equivalents at the end of the year 4,103,654 4,106,856 4,393,047 4,393,377 Analysis of cash and cash equivalents Bank Group Bank Group Cash 352, , , ,563 Due from Central Bank 1,818,147 1,818,147 1,177,095 1,177,095 Placements with other banks 16 1,933,151 1,936,351 2,939,390 2,939,719 Total 4,103,654 4,106,856 4,393,047 4,393,377 The accompanying explanatory notes are an integral part of these financial statements. The financial statements were signed on 28 February 2013 by: A. Danys V. Miškinienė Chairman of the Management Board Chief Accountant Page 18 of 95

19 SWEDBANK, AB STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2012 Bank Group Bank Group Share capital Balance at the beginning of the year 1,640,080 1,640,080 1,640,080 1,640,080 Balance at the end of the year 1,640,080 1,640,080 1,640,080 1,640,080 Share premium Balance at the beginning of the year 91,965 91,965 91,965 91,965 Balance at the end of the year 91,965 91,965 91,965 91,965 Reserves Balance at the beginning of the year 51,860 51,865 55,449 55,454 Balance at the end of the year 92,657 93,130 51,860 51,865 Compulsory reserve Balance at the beginning of the year 41,017 41,022 41,017 41,022 Transfer from retained earnings 28,555 28, Balance at the end of the year 69,572 69,577 41,017 41,022 Other general-purpose reserves Balance at the beginning of the year 2,460 2,460 6,049 6,049 Transfer to retained earnings - - (3,589) (3,589) Transfer from fixed assets revaluation reserve Balance at the end of the year 2,619 2,619 2,460 2,460 Fixed assets revaluation reserve Balance at the beginning of the year 8,383 8,383 8,383 8,383 Transfer to other general-purpose reserves (159) (159) - - Balance at the end of the year 8,224 8,224 8,383 8,383 Share related compensation Balance at the beginning of the year Share related compensation increase 12,242 12, Balance at the end of the year 12,242 12, Retained earnings Balance at the beginning of the year 571, ,541 (3,589) 133,927 Profit for the year 334, , , ,025 Transfer to compulsory reserve (28,555) (28,555) - - Transfer from other general-purpose reserves - - 3,589 3,589 Balance at the end of the year 876,748 1,070, , ,541 Total equity 2,701,450 2,895,862 2,355,010 2,513,451 The accompanying explanatory notes are an integral part of these financial statements. The financial statements were signed on 28 February 2013 by: A. Danys V. Miškinienė Chairman of the Management Board Chief Accountant Page 19 of 95

20 SWEDBANK, AB Note 1. Corporate Information Swedbank, AB (hereinafter referred to as the Bank) is a member of Swedbank Group, one of the largest financial groups in the Baltics, which is owned by the Swedish bank Swedbank AB (publ). The Bank was founded in year Later in 2001 it merged with Lietuvos Taupomasis Bankas, AB. The brand name of new bank was Hansabankas. The legal name of Hansabankas, AB has been changed to Swedbank, AB in year 2009 on the basis of the Bank s sole shareholder Hansapank AS decision. Swedbank AB (publ) (Brunkebergstorg 8, Stockholm, Sweden) bought shares from Swedbank AS (Estonia) and became the sole shareholder of the Bank starting from 1 July The Bank s Head Office address is Konstitucijos av. 20 A, LT Vilnius, Lithuania. The Bank has an issued business license from the Bank of Lithuania for conducting all financial services specified by the Law on Banks of the Republic of Lithuania and providing other services allowed under the Law on Financial Institutions of the Republic of Lithuania. The Bank has 3 Branches and 81 Customer Service Centres; in additions it owns 4 subsidiaries: Swedbank lizingas, UAB, acquired in 2003, Swedbank autoparko valdymas, UAB and Swedbank valda, UAB, set up in 2004, and Swedbank draudimo brokeris, UADBB, set up in 2007, and one associated company Swedbank Life Insurance SE (49.67%), acquired in Group As of 31 December 2012 and 2011 the Group s consolidated financial statements include financial statements of the Bank and the Bank s 100% owned subsidiaries: Swedbank lizingas, UAB; Swedbank autoparko valdymas, UAB; Swedbank valda, UAB, and Swedbank draudimo brokeris, UADBB and one associated company Swedbank Life Insurance SE (49.67%). As of 31 December 2012 the Group and the Bank employed 2,277 and 2,157 employees, respectively (2011: 2,401 and 2,256 employees, respectively). The Bank s shareholder as of 31 December 2012 and 2011 was: Swedbank AB (publ) (Sweden) 100% International agency ratings of Swedbank AB (publ) (Sweden) Key ratings Moody's Short P-1 Long A2 Financial strength C- Fitch Short F1 Long A+ Note 2. Statement of Compliance The financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and interpretations of them. The standards are issued by the International Accounting Standards Board (IASB) and the interpretations by the International Financial Reporting Interpretations Committee (IFRIC). The Bank and the Group have not applied the following amendments in the financial statements for the year ended 31 December 2012 Financial Instruments: Disclosures (amendments to IFRS 7) The amendment concerning Offsetting Financial Assets and Financial Liabilities will apply to the financial year beginning on 1 January The EU has approved the amendment. New requirements have been introduced on disclosures of financial assets and financial liabilities whose carrying amounts are offset in the statements of financial position. Disclosures must also be made on financial assets and financial liabilities that are subject to various netting arrangements or other risk-reducing transactions, even when they are not netted in the statements of financial position. Page 20 of 95