Contents ADMINISTRATION REPORT 2 FIVE-YEAR OVERVIEW AND KEY FIGURES 4

Transcription

1 Annual Report 2016

2 Contents ADMINISTRATION REPORT 2 FIVE-YEAR OVERVIEW AND KEY FIGURES 4 FINANCIAL REPORTS Income statement 6 Statement of comprehensive income 6 Balance sheet 7 Statement of changes in equity 8 Cash flow statement 9 Income statement 10 Statement of comprehensive income 10 Balance sheet 11 Statement of changes in equity 12 Cash flow statement 13 Notes 14 SIGNATURES OF THE BOARD AND CHIEF EXECUTIVE 44 AUDITOR S REPORT 45 BOARD MEMBERS 47 ADDRESSES 48 DEFINITIONS AND EXPLANATIONS 49 Handelsbanken Finans AB Corporate identity no.: Registered office: Stockholm handelsbanken.se/finans 1

3 Administration report Administration report Handelsbanken Finans AB, corporate identity no , is a wholly owned subsidiary of Svenska Handelsbanken AB (publ), corporate identity no It operates in close co-operation with the Bank s branch operations. With the aim of co-ordinating and integrating the Leasing and Conditional Sales business with the branches offering, thereby strengthening Handelsbanken s decentralised business model, it was decided that the operations in Handelsbanken Finans AB, except for structured leasing, would be integrated into Handelsbanken AB. Thus the business operations will be reported as discontinued operations under IFRS 5. For the parent company, discontinued operations are not recognised separately in the income statement, and there is no separate distinction of assets held for sale on the balance sheet in accordance with RFR 2. The Handelsbanken Finans has operations in Sweden, Finland, the UK, Poland and China. Operations outside Sweden are conducted in the form of branches and subsidiaries. TASK AND GOALS The task of Handelsbanken Finans is to increase the Handelsbanken s opportunities to establish long-term and profitable customer relationships with a larger number of customers by delivering higher quality service at lower cost than our competitors. Handelsbanken Finans defines service as availability, simplicity and care. Handelsbanken Finans operates as an integral part of the Handelsbanken ; its goal is to contribute to the Bank s corporate goal higher profitability than the average of peer banks on its home markets. BUSINESS AREAS Sweden Corporate This business area is responsible for leasing, conditional sales, vehicle fleet administration and debt collection services which are offered to companies in Sweden via Handelsbanken s branch operations. Retail Financial Services This business area provides financing for purchases of consumer and capital goods through co-operation with retailers in Sweden. Operations outside Sweden In Finland, the subsidiary Handelsbanken Rahoitus Oyj conducts operations in leasing, conditional sales, retail financial services and card services. Handelsbanken Finans s Finnish branch runs a leasing operation. Handelsbanken Finans s branches in Poland and the UK conduct operations in leasing and conditional sales. In China, Handelsbanken Finans (Shanghai) Financial Leasing Company Ltd, a subsidiary, provides leasing. LENDING At year-end, the Handelsbanken Finans s total credits to the public for continuing operations were SEK 24.8 billion (26.5). At year-end, the Handelsbanken Finans s total credits to the public were SEK 48.8 billion (51.1). For continuing operations, the carrying amount of lease agreements was SEK 24.8 billion (26.5). Of total credits, SEK 31.7 billion (34.9) was the carrying amount of lease agreements. Handelsbanken Finans AB s (the parent company s) credits to the public, including leasing, decreased to SEK 44.5 billion (47.3). The main reason for this decrease was a reduction in settlement volumes according to plan and reduced sales of new leases. FINANCIAL PERFORMANCE Operating profit/loss for continuing operations was SEK -108 million (503). The weaker earnings were related to the decision to divest operations to Handelsbanken because the operations are to be recognised on their own line. The profit for these operations was SEK 368 million after tax. The operating profit for total operations declined 31 per cent, to SEK 348 million (503). Earnings weakened partly as a result of a goodwill item that was reversed in connection with the transfer of operations in Denmark to Handelsbanken in Denmark, partly due to poorer net interest income as a result of lower credit volumes, poorer margins and lower market rates. Consequently, return on equity decreased. Total operating income for continuing operations declined, to SEK -103 million (1,059). For total operations, income was SEK 979 million (1,059). Expenses for continuing operations were SEK 5 million. Expenses for total operations increased, to SEK 638 million (571), primarily as a result of the reversal of a goodwill item related to the divested operations in Denmark. Recoveries and recalculated provisions for the total operations led to credit losses generating an income of SEK 7 million (15). Net impaired credits for the total operations, after deductions for provisions, were SEK 114 million (121) at year-end. Operating profit was SEK 256 million (337), down 24 per cent. Weaker profit was due to less net interest income and net leasing income as a result of lower credit volumes, poorer margins and lower market rates, thus decreasing the return on equity. Operating income less depreciation of lease assets according to plan declined to SEK 691 million (738), for the abovementioned reasons. Expenses excluding depreciation of lease assets increased to SEK 438 million (433). Recoveries and recalculated provisions led to credit losses generating an income of SEK 31 million (17). Net impaired credits, after deductions for provisions, totalled SEK 24 million (24). For a five-year overview of the income statements and balance sheets of the and parent company, see pages 4 and 5. RISKS AND RISK CONTROL Handelsbanken Finans consciously avoids high-risk transactions. The risk management aims to ensure that the company fulfils the strict approach to risk decided by the Board and which applies within the rest of the Handelsbanken. The Board establishes policies on risks, funding and capital. Limits are established by the Board for market and liquidity risk. The aim of this strict approach to risk is not just to maintain favourable and even earnings performance, but also to be a good business partner for customers, which requires sound credit capacity and preparedness also in troubled times. For information concerning Handelsbanken Finans s risks and risk control, see note 2 on page 19. CAPITAL ADEQUACY In its annual accounts for 2016, Handelsbanken Finans applies the standardised approach to calculate the capital requirement for credits generated by the branch operations in the institutional exposures category in the parent company and. For these credits, Handelsbanken has provided an internal guarantee which has been assigned an average risk weight of 19 per cent. The corresponding comparison figure for 2015 has been adjusted with a risk weight of 19 per cent, instead of an average risk weight of 0 per cent as was applied previously. Following the close of 2016, Handelsbanken Finans AB applied to the Swedish Financial Supervisory Authority to be allowed to continue to apply the 0 per cent risk weight. 2

4 Administration report Handelsbanken Finans has a satisfactory capital situation. At year-end, the s common equity tier 1 ratio according to CRD IV was per cent (170.9). At year-end, the parent company s common equity tier 1 ratio according to CRD IV was 212 per cent (196.5). For further information about capital adequacy, see page 34. THE BOARD The Board held 11 meetings during the year. At these meetings, the Board discussed the company s operations, financial position and strategy. The control functions of risk control, compliance and internal audit reported on material questions. Credit risk, operational risk, market risks and liquidity risks were followed up. A training plan has been established for the Board, and training was carried out, such as on money laundering. The Board s work has been evaluated, and decisions have been taken regarding strategic questions. ENVIRONMENTAL WORK As far as is technically and financially possible, and to the extent that is compatible with the company s undertakings, Handelsbanken Finans aims to promote long-term sustainable development. Therefore, the starting-point is that the company s impact on the environment must be minimised. Handelsbanken has signed and complies with a number of voluntary agreements, such as the ICC Business Charter for Sustainable Development, the UN Environmental Programme Finance Initiative (UNEP FI), the United Nations Global Compact and the UN Principles for Responsible Investment (PRI). EMPLOYEES In 2016, Handelsbanken Finans had an average of 267 (271) employees, working in seven countries. 39 per cent of the employees work outside Sweden. Handelsbanken Finans applies Handelsbanken s wide guidelines for employees. Successful operations are based on trust and respect for the individual. Our decentralised way of working gives employees great freedom and creates a sense of involvement and the opportunity to make a difference. OTHER MATERIAL EVENTS Effective February 2016, unsecured credits to private individuals are offered via Handelsbanken and no longer as Direct Credits at Handelsbanken Finans. As of 1 November 2016, the operations previously conducted at Handelsbanken Finans s branch in Norway have been transferred to Handelsbanken s branch, Norway. The operations of the subsidiary Kreditt Inkasso AS were closed down at 31 May 2016, and the company will be liquidated in the beginning of As of 30 November 2016, the operations previously conducted at Handelsbanken Finans s branch in Denmark have been transferred to Handelsbanken s branch, Denmark. REMUNERATION POLICY In Sweden, Handelsbanken Finans is party to collective agreements on general terms and conditions of employment during the employment period and on terms and conditions of pensions after employees have reached retirement age. Remuneration for work performed is set individually for each employee. Remuneration is paid in the form of a fixed salary, customary salary benefits and a pension provision. Salaries are established locally in accordance with the Handelsbanken s decentralised method of working and are revised once a year. Salaries are based on recognised salary-setting factors such as the nature and level of difficulty of the work, skills, performance and results achieved. In Sweden, pension is paid in accordance with collective agreements under a defined benefit plan, which means that a pension amounting to a certain percentage of final salary is paid during the employee s remaining lifetime. In other countries, both defined contribution and defined benefit pension plans apply. The remuneration policy has been decided by the Board and is revised annually. One member of Handelsbanken Finans s Board is assigned to prepare decisions on remuneration that the Board adopts. No variable remuneration is paid at Handelsbanken Finans. The Chief Executive s salary is established by the shareholders meeting. Remuneration for executive officers is set annually by the Board of Handelsbanken Finans AB; see also note 8. Handelsbanken Finans s low tolerance of risk is essential to the risk analysis on which the policy is based. GROUP STRUCTURE In 2016, Handelsbanken Finans conducted business via the following wholly-owned subsidiaries: Handelsbanken Finans (Shanghai) Financial Leasing Company Ltd Handelsbanken Rahoitus Oyj Kreditt Inkasso AS (until 31 May 2016 inclusive) Kredit-Inkasso AB In Sweden, Handelsbanken Finans AB conducts debt collection services on commission on behalf of Kredit-Inkasso AB. THE FUTURE Leasing and conditional sales are a vital part of the Handelsbanken s offering to branch customers. With the purpose of making the business more efficient and making it easier for the Bank to develop these products, a project has been started to transfer the operations in Handelsbanken Finans to Handelsbanken. During 2017, the retail financial services operations in Sweden will be transferred to a separate subsidiary of Handelsbanken AB, Ecster AB. During 2017, Handelsbanken Finans s operations in Poland and England will be transferred to Handelsbanken s branches in Poland and England respectively. During 2017, the shares in Handelsbanken Rahoitus Oyj will be transferred to Handelsbanken AB. During 2017, the operations in Kredit Inkasso AB will be transferred to Handelsbanken AB. During 2017, the operations in Handelsbanken Finans (Shanghai) Financial Leasing Company Ltd will be closed down and liquidation will begin. During 2018, the continuing operations in Sweden, except for structured leasing, will be transferred to Handelsbanken AB. In 2016, low market rates continued to dominate financial markets, which had an impact on Handelsbanken Finans s business. Handelsbanken Finans s historically low tolerance of risk, sound capitalisation and strong liquidity situation mean that the company is well equipped to cope even if the difficult market conditions experienced during 2016 continue. RECOMMENDED APPROPRIATION OF PROFITS In accordance with the balance sheet for the parent company, after deduction of SEK 1,326 million after tax for a contribution provided, the following profits are at the disposal of the annual general meeting: Retained earnings SEK -886 million Fair value fund SEK -1 million Profit for the year SEK 1,738 million Total SEK 851 million The Board recommends that the profit be distributed as follows: To the shareholders, dividend per share SEK SEK 700 million To be carried forward SEK 151 million When assessing the amount of the contribution provided by the company, account has been taken of the nature of operations, their scope, consolidation requirements and risktaking. The Board s assessment is that the above appropriation of profits is prudent and well-adapted to the operations as a going concern. The total capital exceeded the statutory minimum capital requirement by SEK 19,729 million, common equity tier 1 capital exceeded the minimum requirement and the buffer requirement by SEK 19,688 million, and the tier 1 capital by SEK 19,543 million. 3

5 Five-year overview Five-year overview and key figures SEK m INCOME STATEMENT Operating income ,059 1,313 1,620 1,908 Total income ,059 1,313 1,620 1,908 Expenses Net credit losses Total expenses Operating profit ,049 1,228 Taxes Profit for the year from continuing operations -108 Profit for the year related to discontinued operations, after tax 368 Profit for the year ,214 BALANCE SHEET Assets Credits to credit institutions 831 4,082 4,622 3,338 1,277 Credits to the public 24,779 51,078 53,077 54,610 56,840 Equipment Assets held for sale 27, Other assets ,063 1,491 1,748 Total assets 53,221 56,098 58,770 59,447 59,874 LIABILITIES AND EQUITY Due to credit institutions 17,881 24,758 26,342 25,331 26,075 Borrowing from the public ,506 1,555 Liabilities related to assets held for sale 6,355 Other liabilities 7,002 8,313 8,395 8,307 7,847 Total liabilities 31,238 33,081 34,744 35,144 35,477 Equity 21,983 23,017 24,026 24,303 24,397 Total liabilities and equity 53,221 56,098 58,770 59,447 59, Return on equity, % Return on equity, continuing operations, % -0.5 Return on total assets, % C/I ratio before credit losses, % C/I ratio after credit losses, % Total capital ratio, % according to CRD IV 2, Tier 1 ratio, % according to CRD IV 2, Impaired credits reserve ratio, % Proportion of impaired credits, % Credit loss ratio, % Net earnings per share, continuing operations, SEK Net earnings per share, discontinued operations, SEK Net earnings per share, SEK , Ordinary dividend per share, SEK Average number of employees Key figures refer to total operations unless otherwise stated. 2 Capital ratio and tier 1 ratio according to Basel II up to and including The historical figures for comparison of the key figures according to CRR/CRD IV for 2013 are estimates based on the company s interpretation of the regulations at the reporting date and assuming full implementation. 4 Dividend as recommended by the Board. 5 Key figures recalculated based on current definition. 6 The figure for comparison has been changed. See page 42. For definitions, see page 49. 4

6 Five-year overview Five-year overview and key figures SEK m INCOME STATEMENT Lease income 3,710 3,896 4,186 4,443 4,957 Operating income Total income 3,990 4,193 4,536 4,978 5,391 Expenses -3,765-3,873-3,984-4,089-4,260 Net credit losses Total expenses -3,734-3,856-3,955-4,074-4,305 Operating profit ,086 Appropriations 1,976 1, Taxes Profit for the year 1,738 1, BALANCE SHEET Assets Credits to credit institutions 3,490 3,952 4,490 3,247 1,229 Credits to the public 14,315 13,723 13,444 13,469 14,037 Equipment Lease assets 30,212 33,543 36,009 37,796 39,548 Other assets 2,006 2,060 2,229 2,696 2,964 Total assets 50,025 53,279 56,174 57,211 57,782 LIABILITIES AND EQUITY Due to credit institutions 20,448 22,706 24,398 23,567 24,341 Borrowing from the public ,506 1,555 Other liabilities 2,669 2,102 1,842 1,605 1,068 Total liabilities 23,132 24,818 26,247 26,678 26,964 Untaxed reserves 25,843 27,818 29,418 30,082 30,364 Equity 1, Total liabilities and equity 50,025 53,279 56,174 57,211 57, Return on total assets, % Total capital ratio, % according to CRD IV 1, Tier 1 ratio, % according to CRD IV 1, Impaired credits reserve ratio, % Proportion of impaired credits, % Capital ratio and tier 1 ratio according to Basel II up to and including The historical figures for comparison of the key figures according to CRR/CRD IV for 2013 are estimates based on the company s interpretation of the regulations at the reporting date and assuming full implementation. 3 Including leasing. 4 Key figures recalculated based on current definition. 5 The figure for comparison has been changed. See page 42. For definitions, see page 49. 5

7 Financial reports Income statement SEK m Interest income Note ,141 Interest expense Note Net interest income Fee and commission income Note Fee and commission expense Note Net fee and commission income Net gains/losses on financial transactions Note Other operating income Note Total income ,059 Administrative expenses Staff costs Note Other expenses Note Depreciation, amortisation and impairments of property, equipment and intangible non-current assets Note Total expenses Net credit losses Note Operating profit Taxes Note Profit for the year from continuing operations Profit for the year related to discontinued operations, after tax Note Profit for the year from total operations Attributable to Ordinary shareholders Net earnings per share, before and after dilution, continuing operations, SEK Net earnings per share, before and after dilution, discontinued operations, SEK Net earnings per share, before and after dilution, total operations, SEK Total operations are recognised in the note. Statement of comprehensive income SEK m Profit for the year Other comprehensive income Items that may subsequently be reclassified to profit or loss for the year Cash flow hedges - 0 Available-for-sale instruments -8 2 Translation differences for the year of which hedging of net investment in subsidiaries Tax related to other comprehensive income 13-9 of which cash flow hedges - 0 of which hedging of net investment in subsidiaries 13-9 Total other comprehensive income Total comprehensive income for the year Attributable to Ordinary shareholders Minority interest - - The year s reclassifications to the income statement are presented in the Statement of changes in equity. Discontinued operations affect the translation reserve for the year and tax related to other comprehensive income. 6

8 Financial reports Balance sheet SEK m ASSETS Credits to credit institutions Note ,082 Credits to the public Note 15 24,779 51,078 Shares and participating interests Note 16-8 Derivative instruments Note Intangible assets Note Equipment Note Current tax assets - 2 Deferred tax assets Note Assets held for sale 1 27,244 Other assets Note Prepaid expenses and accrued income Note Total assets 53,221 56,098 LIABILITIES AND EQUITY Due to credit institutions Note 23 17,881 24,758 Borrowing from the public Note Current tax liabilities Deferred tax liabilities Note ,161 6,123 Provisions Note Liabilities related to assets held for sale 1 6,355 Other liabilities Note 25 1,728 1,702 Accrued expenses and deferred income Note Total liabilities 31,238 33,081 Share capital Provisions Retained earnings 21,488 22,424 Profit for the year Total equity 21,983 23,017 Total liabilities and equity 53,221 56,098 1 Available for sale assets and liabilities are mainly related to credits to the public. 2 Total operations are recognised in the note. 7

9 Financial reports Statement of changes in equity 2015 SEK m Share capital 1 Hedge reserve Fair value reserve Translation reserve Retained earnings Total Opening equity ,797 24,026 Profit for the year Other comprehensive income Total comprehensive income for the year Dividend contribution provided -1,400-1,400 Tax effect of contribution Closing equity ,814 23, SEK m Share capital 1 Hedge reserve Fair value reserve Translation reserve Retained earnings Total Opening equity ,814 23,017 Profit for the year Other comprehensive income Total comprehensive income for the year contribution provided -1,700-1,700 Tax effect of contribution Closing equity ,748 21,983 Specification of changes in equity Change in hedge reserve SEK m Hedge reserve at beginning of year 0 0 Unrealised value changes during the year - - Hedge reserve at end of year 0 0 Change in fair value reserve SEK m Fair value reserve at beginning of year 8 6 Unrealised market value changes during the year for remaining and new holdings - 2 Reclassified in the income statement -8 - Fair value reserve at end of year 0 8 Change in translation reserve SEK m Translation reserve at beginning of year Change in translation difference related to branches -1-3 Change in translation difference related to subsidiaries Change in translation reserve on funding net assets in subsidiaries Reclassified in the income statement 0 - Translation reserve at end of year Number of ordinary shares = 1,550,000 8

10 Financial reports Cash flow statement SEK m OPERATING ACTIVITIES Operating profit of which paid-in interest 213 1,199 of which paid-out interest Adjustment for non-cash items in profit/loss Credit losses - 66 Depreciation, amortisation and impairments - 5 Paid income tax Changes in the assets and liabilities of operating activities Credits to credit institutions Credits to the public 26,244 1,933 Interest-bearing securities and equities - 0 Due to credit institutions -6,697-1,584 Borrowing from the public Derivative instruments, net positions - 26 Other -1, Net cash flow from discontinued operations -21,216 - Cash flow from operating activities -2, INVESTING ACTIVITIES Divestment of shares and participating interests 8 - Divestment of lease assets 55 - Change in property and equipment - -1 Change in intangible non-current assets 9-5 Net cash flow from discontinued operations -4 - Cash flow from investing activities 68-6 FINANCING ACTIVITIES Dividend paid contribution paid -1,400-1,150 Cash flow from financing activities -1,400-1,430 CASH FLOW FOR THE YEAR -4, Liquid funds at beginning of year 4,082 4,622 Cash flow from operating activities -2, Cash flow from investing activities 68-6 Cash flow from financing activities -1,400-1,430 Exchange rate difference on liquid funds Liquid funds at end of year 31 4,082 Divestment of lease assets At 1 November, Handelsbanken Finans s branch in Norway divested lease assets to Svenska Handelsbanken s branch in Norway. At 30 November, Handelsbanken Finans s branch in Denmark divested lease assets to Svenska Handelsbanken s branch in Denmark. The acquired assets had the following carrying amounts. Credits to the public 1,926 Liquid funds are defined as those parts of the item Credits to credit institutions that relate to bank balances in Swedish kronor and foreign currency. 9

11 Financial reports Income statement SEK m Interest income Note Lease income Note 4 3,710 3,896 Interest expense Note Fee and commission income Note Fee and commission expense Note Net gains/losses on financial transactions Note Other operating income Note Total operating income 3,990 4,193 Administrative expenses Staff costs Note Other expenses Note Depreciation, amortisation and impairments of property, equipment and intangible non-current assets Note 10-3,327-3,440 Total expenses -3,765-3,873 Net credit losses Note Operating profit Appropriations Note 13 1,976 1,600 Profit before taxes 2,232 1,937 Taxes Note Profit for the year 1,738 1,506 Statement of comprehensive income SEK m Profit for the year 1,738 1,506 Other comprehensive income Items that may subsequently be reclassified to profit or loss for the year Cash flow hedges - 0 Available-for-sale instruments -8 2 Translation differences for the year 3-2 Tax related to other comprehensive income - 0 of which cash flow hedges - 0 Total other comprehensive income -5 0 Total comprehensive income for the year 1,733 1,506 The year s reclassifications to the income statement are presented in the Statement of changes in equity. 10

12 Financial reports Balance sheet SEK m ASSETS Credits to credit institutions Note 14 3,490 3,952 Credits to the public Note 15 14,315 13,723 Shares and participating interests Note 16-8 Shares and participating interests in companies Note 16 1,348 1,348 Derivative instruments Note Intangible assets Note Tangible assets Equipment Note Lease assets Note 20 30,212 33,543 Other assets Note Prepaid expenses and accrued income Note Total assets 50,025 53,279 LIABILITIES AND EQUITY Due to credit institutions Note 23 20,448 22,706 Borrowing from the public Note Current tax liabilities Deferred tax liabilities Note 27-3 Provisions Note Other liabilities Note 25 2,286 1,661 Accrued expenses and deferred income Note Total liabilities 23,132 24,818 Untaxed reserves Note 29 25,843 27,818 Share capital Other funds Retained earnings ,056 Profit for the year 1,738 1,506 Total equity 1, Total liabilities and equity 50,025 53,279 11

13 Financial reports Statement of changes in equity 2015 Restricted equity Non-restricted equity SEK m Share capital Statutory reserve Hedge reserve Fair value reserve Translation reserve Retained earnings Total Opening equity Profit for the year 1,506 1,506 Other comprehensive income Total comprehensive income for the year ,506 1,506 Dividend contribution provided -1,400-1,400 Tax effect of contribution Closing equity Restricted equity Non-restricted equity SEK m Share capital Statutory reserve Fund for internally developed software Hedge reserve Fair value reserve Translation reserve Retained earnings Total Opening equity Profit for the year 1,738 1,738 Other comprehensive income Total comprehensive income for the year ,738 1,733 Fund for internally developed software contribution provided -1,700-1,700 Tax effect of contribution Closing equity ,050 Specification of changes in equity Change in hedge reserve SEK m Hedge reserve at beginning of year 0 0 Unrealised value changes during the year - - Hedge reserve at end of year 0 0 Change in fair value reserve SEK m Fair value reserve at beginning of year 8 6 Unrealised market value changes during the year for remaining and new holdings - 2 Reclassified in the income statement -8 - Fair value reserve at end of year 0 8 Change in translation reserve SEK m Translation reserve at beginning of year -4-2 Change in translation difference related to branches 3-2 Reclassified in the income statement 0 - Translation reserve at end of year

14 Financial reports Cash flow statement SEK m OPERATING ACTIVITIES Operating profit of which paid-in interest of which paid-out interest Adjustment for non-cash items in profit/loss Credit losses Unrealised changes in value - 0 Depreciation, amortisation and impairments 3,327 3,440 Paid income tax Changes in the assets and liabilities of operating activities Credits to credit institutions 1 0 Credits to the public Lease assets Interest-bearing securities and equities - 0 Due to credit institutions -2,258-1,692 Borrowing from the public 5 3 Derivative instruments, net positions - 26 Other Cash flow from operating activities INVESTING ACTIVITIES Divestment of shares and participating interests 8 - Divestment of lease assets 55 - Change in property and equipment Change in intangible non-current assets 18-7 Cash flow from investing activities FINANCING ACTIVITIES Dividend paid contribution paid -1,400-1,150 Cash flow from financing activities -1,400-1,430 CASH FLOW FOR THE YEAR Liquid funds at beginning of year 3,952 4,490 Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities -1,400-1,430 Exchange rate difference on liquid funds Liquid funds at end of year 3,490 3,952 Divestment of lease assets At 1 November, Handelsbanken Finans s branch in Norway divested lease assets to Svenska Handelsbanken s branch in Norway. At 30 November, Handelsbanken Finans s branch in Denmark divested lease assets to Svenska Handelsbanken s branch in Denmark. The acquired assets had the following carrying amounts. Lease assets 1,926 Liquid funds are defined as those parts of the item Credits to credit institutions that relate to bank balances in Swedish kronor and foreign currency. 13

15 Notes NOTE 1 Accounting policies CONTENTS 1. Statement of compliance 2. Changed accounting policies etc. 3. Basis of consolidation and presentation 4. Assets and liabilities in foreign currencies 5. Recognition of assets and liabilities on the balance sheet 6. Classification of financial assets and liabilities 7. Principles for fair value measurement of financial assets and liabilities 8. Credit losses and impairment of financial assets 9. Hedge accounting 10. Leases 11. Intangible assets 12. Equipment 13. Provisions 14. Equity 15. Income 16. Employee benefits 17. Taxes 18. Material assessments and assumptions concerning the future 19. Contingent liabilities 1. STATEMENT OF COMPLIANCE The consolidated accounts have been prepared in accordance with international financial reporting standards (IFRS) and interpretations of these standards as adopted by the EU. The accounting policies also follow the Annual Accounts Act for Credit Institutions and Securities Companies (1995:1559), and the regulations and general guidelines issued by the Swedish Financial Supervisory Authority, FFFS 2008:25, Annual reports in credit institutions and securities companies. RFR 1 Supplementary accounting rules for groups as well as statements from the Swedish Financial Reporting Board are also applied in the consolidated accounts. The parent company s accounting policies are presented further down in this note. Svenska Handelsbanken AB (publ), corporate identity number , prepares consolidated accounts which include Handelsbanken Finans AB. Handelsbanken s Board has its registered office in Stockholm. Valuation principles when preparing the company s financial reports Assets and liabilities are recognised at historical cost. Financial assets and liabilities are recognised at amortised cost, except for derivatives which are recognised at fair value. Issuing and adoption of annual report The annual report and consolidated accounts were approved for issue by the Board on 21 March 2017 and will be presented for adoption at the AGM on 27 April CHANGED ACCOUNTING POLICIES ETC. No accounting regulatory changes that came into force as of 2016 had a material impact on the s reported figures or financial position. The annual report has thus been prepared in accordance with essentially the same accounting policies, categories and calculation methods applied in the 2015 annual report. Future regulatory changes IFRS 9 Financial Instruments, which is to replace IAS 39 Financial Instruments: Recognition and Measurement, has been adopted for application by the EU. The standard must be applied from the 2018 financial year. The standard covers three areas: classification and measurement, impairment of financial instruments and general hedge accounting. The new regulations for classification and measurement of financial instruments are based on the company s business model and the purpose of the holding. As a result of the new regulations on impairment, a model is being introduced which is based on expected credit losses and not on incurred credit losses as in the existing model in IAS 39. The new general regulations for hedge accounting allow the financial reports to better reflect the company s own risk management. Handelsbanken Finans is currently analysing the financial effects of IFRS 9 in more detail. IFRS 15 Revenue from Contracts with Customers has also been adopted for application in the EU. The standard must be applied as of the 2018 financial year, but can be applied before this. Handelsbanken Finans does not intend to apply the standard ahead of the stipulated date. IFRS 15 introduces a five-step model to establish how and when revenue must be recognised. However, the standard does not apply to financial instruments, insurance contracts or leases. IFRS 15 also contains increased disclosure requirements relating to revenue. The current assessment is that the new standard will not have any material impact on Handelsbanken Finans s financial reports, capital adequacy or large exposures. In addition, IASB has published IFRS 16, the new standard for accounting for leases. Assuming that IFRS 16 is adopted by the EU, and the date of implementation proposed by the IASB is not changed, this standard will be applied as of the 2019 financial year. The main change due to the new standard is that all lease contracts (with the exception of short-term and minor lease contracts) must be recognised as an asset (right-of-use asset) and as a liability on the lessee s balance sheet. The lease payment must be recognised as depreciation and interest expense. The disclosure requirements have been increased. For lessors, the requirements are largely unchanged. However, the standard is expected to have a major impact on reporting of leasing by Handelsbanken Finans s customers and thus indirectly on Handelsbanken Finans. Handelsbanken Finans is currently analysing the financial implications of the standard. None of the other changes in the accounting regulations issued for application are assessed to have a material impact on Handelsbanken Finans s financial reports, capital adequacy, large exposures or other circumstances according to the applicable regulatory requirements. 3. BASIS OF CONSOLIDATION AND PRESENTATION All companies directly or indirectly controlled by Handelsbanken Finans (subsidiaries) have been fully consolidated. Handelsbanken Finans is deemed to have direct control of a company when Handelsbanken Finans is exposed to, or is entitled to, variable returns from its holding in the company and can affect the return by means of its influence over the company. Control is normally presumed to exist if Handelsbanken Finans holds more than 50 per cent of the voting power at shareholders meetings or the equivalent. Handelsbanken Finans has a 100 per cent ownership interest in all its subsidiaries. Subsidiaries are consolidated according to the acquisition method. This means that the acquisition of a subsidiary is regarded as a transaction where the acquires the company s identifiable assets and assumes its liabilities and obligations. In the case of business combinations, an acquisition balance sheet is prepared, where identifiable assets and liabilities are measured at fair value at the time of acquisition. The cost of the business combination comprises the fair value of all assets, liabilities and issued equity instruments provided as payment for the net assets in the subsidiary. Any surplus due to the cost of the business combination exceeding the identifiable net assets on the acquisition balance sheet is recognised as goodwill on the s balance sheet. Acquisition-related costs are recognised when they arise. The subsidiary s financial reports are included in the consolidated accounts starting on the acquisition date until the date on which control ceases. Intra-group transactions and balances are eliminated when preparing the s financial reports. Where the accounting policies applied for an individual subsidiary do not correspond to the policies applied in the, an adjustment is made to the consolidated accounts when consolidating the subsidiary. 14

16 Discontinued operations and held-for-sale assets Non-current assets or a group of assets (disposal group) are classified as held for sale when the carrying amount will be mainly recovered through sale and when the sale is highly probable. After an asset is classified as held for sale, special valuation principles are applied. These principles essentially mean that, with the exception of items such as financial assets and liabilities, assets held for sale and disposal groups are measured at the lower of the carrying amount and fair value less costs to sell. Assets and liabilities held for sale are reported as a separate line item on the s balance sheet until the time of sale. Independent operations of a material nature that can be clearly differentiated from the s other operations and that are classified as held for sale are recognised as discontinued operations. In recognition as a discontinued operation, the operation s profit is reported on a separate line in the income statement, separate from other profit/loss items. Profit or loss from discontinued operations comprises the after-tax profit or loss of discontinued operations, the after-tax gain or loss that arises when the assets held for sale/disposal groups that are included in discontinued operations are measured at fair value less costs to sell, and the gain or loss realised from the divestment of discontinued operations. 4. ASSETS AND LIABILITIES IN FOREIGN CURRENCIES The s presentation currency is Swedish kronor. The functional currency for the s operations outside Sweden usually differs from the s presentation currency. The currency used in the economic environment where the operations are primarily conducted is regarded as the functional currency. Transactions in foreign currency are translated to the functional currency on the transaction date. Monetary items and assets and liabilities at fair value are measured at the functional currency s spot rate at the end of the balance sheet date. Translation differences arising from non-monetary items classified as available-forsale financial assets are recognised as a component of other comprehensive income and accumulated in equity. Exchange rate differences arising when translating monetary items comprising part of a net investment in a foreign operation are recognised in the same way. Other exchange rate differences are recognised in the income statement. Translation of foreign operations to the s presentation currency When translating foreign units (including branches ) balance sheets and income statements from the functional currency to the s presentation currency, the current method is used. This means that assets and liabilities are translated at the closing day rate. Equity is translated at the rate applicable at the time of investment or earning. The income statement is translated at the average annual rate. Exchange differences are recognised as a component of other comprehensive income and are included in the translation reserve in equity. 5. RECOGNITION OF ASSETS AND LIABILITIES ON THE BALANCE SHEET An asset is defined as a resource over which there is control as a result of past events and that is expected to provide future economic benefit. Assets are recognised on the balance sheet when it is probable that the future economic benefits related to the asset will accrue to the and when the value or acquisition cost of the asset can be reliably measured. Liabilities are the s existing obligations which as a result of past events are expected to lead to an outflow of resources from the. A liability is recognised on the balance sheet when, in order to fulfil an existing obligation, it is probable that the must surrender a resource with a value that can be reliably measured. Financial assets are recognised on the balance sheet when the becomes a party to the contractual provisions of the instrument. Purchases and sales of money market and capital market instruments on the spot market are recognised on the trade date. The same applies to derivatives. Other financial assets and liabilities are normally reported on the settlement date. Financial assets are removed from the balance sheet when the contractual rights to the cash flows originating from the asset expire or when all risks and rewards related to the asset are transferred to another party. A financial liability is removed from the balance sheet when the obligation ceases or is cancelled. When accounting for business combinations, the acquired operations are recognised in the s accounts from the acquisition date. The acquisition date is the date when controlling influence of the acquired entity starts. The acquisition date may differ from the date when the transaction is legally established. With regard to derivative instruments, financial assets and liabilities are offset when appropriate. Due to the nature of the business, offsetting is not done in other respects. The policies for recognising assets and liabilities on the balance sheet are of particular significance when accounting for leases. See the separate section below. Dividends are recognised as a liability after the annual general meeting has approved the dividend. 6. CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES For the purposes of measurement, all financial assets are placed in the following categories in compliance with IAS 39: 1. credits and receivables 2. assets held to maturity 3. assets at fair value through profit or loss held for trading assets which upon initial recognition were designated at fair value through profit or loss 4. available-for-sale assets. Financial liabilities are classified as follows: 1. liabilities at fair value through profit or loss liabilities held for trading liabilities which upon initial recognition were designated at fair value through profit or loss 2. other financial liabilities. The classification on the balance sheet is independent of the measurement category. Thus, different measurement principles may be applied for assets and liabilities carried on the same line on the balance sheet. A classification into measurement categories of the financial assets and liabilities which are recognised on the balance sheet is shown in note 32. Upon initial recognition, all financial assets and liabilities are measured at fair value. For assets and liabilities measured at fair value through profit or loss, the transaction costs are recognised directly in the income statement at the time of acquisition. For other financial instruments, the transaction costs are included in the cost of acquisition. Credits and receivables Unlisted interest-bearing assets are classified as Credits and receivables. Credits and receivables are carried at amortised cost, that is, the discounted present value of all future cash flows relating to the instrument where the discount rate is the asset s effective interest rate at the time of acquisition. Credits and receivables are subject to impairment testing when there are indications of a need to recognise an impairment loss. See section 8 for more details. Impairment losses are recognised in the income statement. Thus, credits and receivables are recognised at their net amount, after deduction for probable and actual credit losses. Early repayment charges for credits and receivables which are repaid before maturity are recognised immediately in the income statement under Net gains/losses on financial transactions. Assets and liabilities held for trading Assets and liabilities held for trading are recognised at fair value on the balance sheet. Interest, dividends and other value changes related to these instruments are recognised in the income statement under Net gains/losses on financial transactions. Derivatives that are not hedging instruments are always classified as held for trading. Available-for-sale financial assets The s holdings of equities for which there is an active market but which are not held for trading are classified as available-for-sale financial assets. Financial assets which have been classified as available for sale are measured at fair value on the balance sheet. Changes in the market values of assets are recognised as a component of other comprehensive income and are included in the fair value reserve in equity. Changes in fair value are not recognised in the income statement until the asset has been 15

17 NOTE 1 Cont. realised or an impairment loss has occurred. Impairment testing of available-for-sale financial assets is performed when there is an indication of a need to recognise an impairment; see section 8 concerning impairment losses for financial assets. Dividends on shares designated as available for sale are continuously recognised in profit or loss as Other dividend income. Other financial liabilities Unlisted interest-bearing liabilities are reported in other financial liabilities and are carried at amortised cost. The amortised cost is calculated in the same way as for credit receivables. Committed credit offers Committed credit offers are reported off the balance sheet until the settlement date of the credit. Fees received for committed credit offers are accrued in net fee and commission income over the term of the commitment unless it is highly probable that the commitment will be fulfilled, in which case the fee received is included in the effective interest rate of the credit. 7. PRINCIPLES FOR FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS AND LIABILITIES Fair value is defined as the price at which an asset could be sold or a liability could be converted in a normal transaction between independent market participants. For financial instruments traded on an active market, the fair value is the same as the current market price. An active market is one where quoted prices are readily and regularly available from a regulated market, execution venue, reliable news service or equivalent, and where the price information received is easily verified by means of regularly occurring transactions. The current market price is generally the same as the current bid price for financial assets or the current ask price for financial liabilities. For holdings which comprise risk positions that to a large degree balance each other out, the current market price is the mid-market price on the balance sheet date. For financial instruments where there is no reliable information about market prices, fair value is established using valuation models. The valuation models used are based on input data which essentially can be verified using market observations such as market interest rates and share prices. When necessary, an adjustment is made for other variables which a market participant would be expected to take into consideration when setting a price. The assumptions used in the valuation are based on internally generated experience and are continuously examined by risk control. The result is compared with the actual outcome so as to identify any need to adapt the forecasting tool. Shares and participating interests Shares listed on an active market are valued at market price. Derivatives Derivatives that are traded on an active market are recognised at market price. The s derivative contracts comprise interest rate swaps measured using valuation models based on market rates and other market prices. 8. CREDIT LOSSES AND IMPAIRMENT OF FINANCIAL ASSETS All units with customer and credit responsibility regularly perform individual assessments of the need for recognising impairment losses for credits and receivables that are carried at amortised cost. Impairment testing is performed where there is objective evidence that the recoverable amount of the credit is less than its carrying amount. Depending on the circumstances, objective evidence might be late or non-payment, bankruptcy, change in the credit rating, or a decline in the market value of the collateral. When performing impairment testing, the recoverable value of the credit is calculated by discounting the estimated future cash flows related to the credit and any collateral (including guarantees) by the effective interest rate of the credit. If the collateral is a listed asset, it is measured using the quoted price; otherwise it is measured based on the yield value or the market value estimated in some other manner. An impairment loss is recognised if the estimated recoverable amount is less than the carrying amount and is recognised as a credit loss in the income statement. A reported credit loss reduces the carrying amount of the credit on the balance sheet, either directly (actual loss) or through a provision account for credit losses (probable loss). In addition to this individual assessment of credits, a collective assessment is made of individually measured credits with the purpose of identifying the need to recognise an impairment loss that cannot yet be allocated to individual credits. The analysis is based on a distribution of individually measured credits into risk classes. An impairment loss is recognised if this is justifiable taking into account changes in the risk classification and expected loss. Impairment losses which have been recognised for a group of credits are transferred to impairment losses for individual credits as soon as information about the impairment in value is available at an individual level. Collective impairment testing is also performed for homogeneous groups of smaller credits with a similar risk profile in which no single credit is of particular significance, primarily card credits and minor credits to private individuals. Impairment testing is performed where there is objective evidence that the recoverable amount of a group of credits is less than the group s carrying amount. Objective evidence could be late or non-payment, for example. Credit losses for the period comprise actual losses and probable losses on credits granted, minus recoveries and reversals of previous impairment losses recognised for probable credit losses. Actual credit losses may refer to entire credits or parts of credits and are recognised when there is no realistic possibility of recovery. This is the case, for example, when a trustee in bankruptcy has estimated bankruptcy dividends, when a scheme of arrangement has been accepted, or a concession has been extended in some other way. An amount forgiven in connection with reconstruction of a credit or group of credits is always classified as an actual loss. If the customer is following a payment plan for a credit which was previously classified as an actual credit loss, the amount of the loss is subject to new testing. Recoveries comprise reversed amounts on credit losses previously recognised as actual losses. Information about probable and actual credit losses is provided in note 11. Information concerning impaired credits Information concerning impaired credits is provided gross, before a provision for probable credit losses, and net, after a provision for probable credit losses. Credits are defined as impaired if it is not probable that all contracted cash flows will be fulfilled. The full amount of every credit that has been classified as impaired is carried as an impaired credit even if parts of the credit are covered by collateral. Credits which have been written down as actual credit losses are not included in impaired credits. 9. HEDGE ACCOUNTING The applies different methods for hedge accounting, depending on the purpose of the hedge. For cash flow hedges, interest rate swaps are used as the hedging instrument. When hedging exchange rate risk related to net investments in foreign units, financial liabilities in the functional currency of the foreign unit are used as the hedging instrument. Cash flow hedges are used to manage exposures to variations in cash flows related to changes in the variable interest rate on lending and funding. The expected maturity for this type of lending and funding is normally much longer than the fixing period, which is very short. Cash flow hedges are also used to hedge the exchange rate risk in future cash flows related to lending and funding. Exchange rate risks deriving from intra-group monetary items can also be subject to this type of hedging, if they give rise to currency exposures which are not eliminated on consolidation. Derivatives which are hedging instruments in cash flow hedges are measured at fair value. If the derivative s value change is effective that is, it corresponds to future cash flows related to the hedged item it is recognised as a component of other comprehensive income and in the hedge reserve in equity. Ineffective components of the derivative s value change are recognised in the income statement under Net gains/losses on financial transactions. More information about cash flow hedges is provided in note 17. Net investments in foreign operations are hedged to protect the from exchange rate differences due to operations abroad. Credits in foreign currency raised to hedge net 16