Annual Report 2013
Contents five-year overview and Key figures 2 Administration report 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 Recommendation for appropriation of profits 34 Auditors report 35 Addresses 36 Glossary 37 Handelsbanken Finans AB Corporate identity number: 556053-0841 Registered office: Stockholm handelsbanken.se/finans This Annual Report is also available in Swedish. 1
Five-Year overview Five-year overview and key figures SEK m 2013 2012 2011 2010 2009 INCOME STATEMENT Operating income 1,620 1,908 1,943 1,584 1,703 Total income 1,620 1,908 1,943 1,584 1,703 Expenses -586-612 -644-687 -676 Net credit losses 15-68 157-42 -126 Total expenses -571-680 -487-729 -802 Operating profit 1,049 1,228 1,456 855 901 Taxes -259 986-382 -224-235 Profit for the year 790 2,214 1,074 631 666 BALANCE SHEET Assets Credits to credit institutions 3,338 1,277 302 117 161 Credits to the public 54,610 56,840 60,096 62,173 67,007 Equipment 8 9 11 11 14 Other assets 1,491 1,748 1,587 3,122 4,326 Total assets 59,447 59,874 61,996 65,423 71,508 LIABILITIES AND EQUITY Due to credit institutions 25,331 26,075 28,658 33,378 39,621 Borrowing from the public 1,506 1,555 1,573 1,583 1,403 Other liabilities 8,307 7,847 8,929 8,594 10,020 Total liabilities 35,144 35,477 39,160 43,555 51,044 Equity 24,303 24,397 22,836 21,868 20,464 Total liabilities and equity 59,447 59,874 61,996 65,423 71,508 2013 2012 2011 2010 2009 Return on equity, % 3.2 9.6 4.8 3.0 3.3 C/I ratio before credit losses, % 36.2 32.1 33.2 43.3 40.0 C/I ratio after credit losses, % 35.3 35.7 25.1 46.0 47.4 Capital ratio, % 199.3 193.0 176.9 179.6 142.1 Tier 1 ratio, % 199.3 193.0 176.9 179.6 142.1 Impaired credits reserve ratio, % 53.4 56.7 57.1 46.1 46.5 Proportion of impaired credits, % 0.25 0.24 0.22 0.38 0.42 Credit loss ratio, % -0.03 0.11-0.25 0.06 0.19 Net earnings per share, SEK 509.50 1,428.31 692.85 407.13 430.22 Ordinary dividend per share, SEK - - 258.06 51.00 130.00 Average number of employees 332 344 376 468 507 Glossary, see page 37. 2 handelsbanken finans annual report 2013
Five-Year overview Five-year overview and key figures SEK m 2013 2012 2011 2010 2009 INCOME STATEMENT Lease income 4,443 4,957 5,298 5,004 5,171 Operating income 535 434 339 565 515 Total income 4,978 5,391 5,637 5,569 5,686 Expenses -4,089-4,260-4,493-4,643-4,649 Net credit losses 15-45 163-1 -68 Impairment loss on financial assets - - - -107 - Total expenses -4,074-4,305-4,330-4,751-4,717 Operating profit 904 1,086 1,307 818 969 Appropriations 282-422 -1,067-2,312-3,378 Taxes -286-174 -61 411 682 Profit for the year 900 490 179-1,083-1,727 BALANCE SHEET Assets Credits to credit institutions 3,247 1,229 283 46 87 Credits to the public 13,469 14,037 14,320 14,562 15,876 Equipment 3 4 5 6 9 Lease assets 37,796 39,548 42,358 43,819 46,565 Other assets 2,696 2,964 2,811 4,353 5,617 Total assets 57,211 57,782 59,777 62,786 68,154 LIABILITIES AND EQUITY Due to credit institutions 23,567 24,341 26,724 30,951 36,377 Borrowing from the public 1,506 1,555 1,573 1,583 1,403 Other liabilities 1,605 1,068 938 859 3,062 Total liabilities 26,678 26,964 29,235 33,393 40,842 Untaxed reserves 30,082 30,364 29,942 28,876 26,565 Equity 451 454 600 517 747 Total liabilities and equity 57,211 57,782 59,777 62,786 68,154 2013 2012 2011 2010 2009 Capital ratio, % 223.5 211.9 202.1 211.1 174.5 Tier 1 ratio, % 223.5 211.9 202.1 211.1 174.5 Impaired credits reserve ratio, % 64.2 63.1 68.8 44.8 49.0 Proportion of impaired credits, % 1 0.11 0.13 0.09 0.26 0.27 1) Including leasing. Glossary, see page 37. handelsbanken finans annual report 2013 3
Administration report Administration report Handelsbanken Finans AB, corporate identity no. 556053-0841, is a wholly-owned subsidiary of Svenska Handelsbanken AB (publ), corporate identity no. 502007-7862. It operates in close co-operation with the Bank s branches. Handelsbanken s Board has its registered office in Stockholm. The Handelsbanken Finans has operations in Sweden, Denmark, Finland, Norway, 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 a higher quality service level 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 return on equity than the weighted average of peer Nordic, UK and Netherlands banks. Handelsbanken Finans is part of the business area called Direkt within the Handelsbanken. This business area is global product owner for standardised services for both companies and private individuals and is responsible for the customer meeting-places online, mobile and telephone. Business areas Corporate Business area Corporate 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. Private Business area Private is responsible for asset financing and unsecured credits to private individuals. These are offered in Sweden via Handelsbanken s branch operations. Retail Financial Services Business area Retail Financial Services provides financing for purchases of consumer and capital goods through co-operation with retailers in Sweden. Branches and support units In Finland the subsidiary Handelsbanken Rahoitus Oyj conducts operations in leasing, conditional sales, retail financial services, debt collection services and card services. Handelsbanken Finans s Finnish branch runs a leasing operation. In Norway, Handelsbanken Finans s Norwegian branch runs a leasing operation and its subsidiary Kreditt-Inkasso AS runs debt collection operations. Handelsbanken Finans s branches in the UK, Denmark and Poland conduct leasing and hire purchase operations. In China, Handelsbanken Finans (Shanghai) Financial Leasing Company Ltd works with leasing. Accounting & Finance and Credits are business support units. Lending The Handelsbanken Finans s total credits to the public at year-end were SEK 54.6 billion (56.8). Of this amount, the carrying amount of lease agreements was SEK 38.9 billion (40.7). In Handelsbanken Finans AB (parent company), credits to the public, including leasing, decreased to SEK 51.3 billion (53.6). Financial performance Operating profit for the year went down to SEK 1,049 million (1,228), a decrease of 15 per cent. The poorer figure is entirely due to lower net interest income as a result of lower credit volumes and lower market rates which meant that return on equity was lower. Total operating income went down by 15 per cent to SEK 1,620 million (1,908). Expenses decreased to SEK 586 million (612) due to lower administrative expenses. Exchange rate movements had a negative impact on profits of SEK 1 million. Credit losses were positive at SEK 15 million (-68). The improvement is mainly due to a writeback of possible losses. Net impaired credits, after deductions for provisions, totalled SEK 135 million (139) at year-end. Operating profit was SEK 904 million (1,086), a decrease of 17 per cent. The poorer figure is entirely due to lower net interest income as a result of lower credit volumes and lower market rates which meant that return on equity was lower. Operating income reduced by amortisation of lease assets according to plan fell by 18 per cent to SEK 1,346 million (1,633), for the above-mentioned reasons. Expenses excluding amortisation of lease assets decreased to SEK 457 million (502) due to lower administrative expenses. Credit losses were positive at SEK 15 million (-45). Net impaired credits, after deductions for provisions, totalled SEK 56 million (71). For a five-year overview of the income statements and balance sheets of the and parent company, see pages 2 and 3. Risks and risk control Handelsbanken Finans s strict approach to risk means that Handelsbanken Finans deliberately avoids high-risk transactions. The low risk tolerance is maintained through a strong risk culture that is sustainable in the long term and applies to all areas of the. Handelsbanken Finans s risk management aims to ensure that Handelsbanken Finans 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; this requires sound credit capacity and preparedness even in troubled times. To some extent, Handelsbanken Finans uses interest rate swaps to reduce volatility of return on the structured lease agreements at Handelsbanken Finans. Cash flow hedges are applied for these swap agreements. For information concerning Handelsbanken Finans s risks and risk control, see note 2 on page 19. Capital adequacy At year-end, the s capital ratio according to Basel II was 276.7 per cent (268.5). The corresponding figure according to the transitional regulations was 199.3 per cent (193.0). In the parent company, the capital ratio at year-end according to Basel II was 328.6 per cent 4 handelsbanken finans annual report 2013
Administration report (311.3), or 223.3 per cent (211.9) according to the transitional regulations. Handelsbanken Finans has a satisfactory capital situation and the new regulations for capital adequacy which have been announced are not assessed to imply a major impact on Handelsbanken Finans s capital adequacy. For further information about capital adequacy, see page 32. The Board The Board held twelve meetings during the year. At these meetings, the Board discussed the financial position and strategy of Handelsbanken Finans. It also followed up limits for market and liquidity risks, etc. The Board has received regular information on credit risks and operational risks. The Board has taken decisions on major investment matters and strategic issues. Environmental work As far as is technically and financially possible, and to the extent that is compatible with the Bank s undertakings, Handelsbanken aims to promote long-term sustainable development. Handelsbanken therefore aims for its environmental impact to be as small as possible. The same applies to the Handelsbanken Finans. Handelsbanken has signed and complies with a number of voluntary agreements, such as the ICC Business Charter for Sustainable Development, the UN s Banks and the Environment programme (UNEP FI), the UN s Global Compact voluntary initiative, and the UN Principles of Responsible Investment (PRI). Employees In 2013, Handelsbanken Finans had an average of 332 (344) employees, working in seven countries. 35 per cent of the employees work outside Sweden. Handelsbanken Finans applies Handelsbanken s employee policies. Successful operations are based on trust and respect for the individual. Our decentralised way of working gives employees a considerable degree of freedom and creates a sense of involvement and the opportunity to make a difference. Other material events During the year it was decided to gradually close down the operations at Retail Financial Services at the Danish branch. Compensation 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. Compensation for work performed is set individually for each employee, and is paid in the form of fixed salary, customary benefits and pension provisions. 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 compensation policy has been decided by the Board and is revised annually. The Board s compensation committee comprises two persons who prepare decisions regarding compensation. No variable compensation is paid at Handelsbanken Finans. Salaries for the Chief Executive, senior management and the heads of the control functions are set annually by the Board of Handelsbanken Finans AB. For remuneration to senior management, see note 8 on page 23. Handelsbanken Finans s low tolerance of risks permeates the risk analysis on which the policy is based. structure In 2013, Handelsbanken Finans conducted business via the following wholly-owned subsidiaries: Handelsbanken Finans (Shanghai) Financial Leasing Company Ltd Handelsbanken Rahoitus Oyj Kredit-Inkasso AB Kreditt-Inkasso AS. In Sweden, the subsidiary Kredit-Inkasso AB, conducts debt collection services on behalf of Handelsbanken Finans AB. The future Although the turbulence in the financial markets decreased during the year, the structural problems that brought on the crisis remain. In many respects, the debt problems of some countries are unchanged, and certain parts of the financial sector are weak. The financial sector and the real economy have been propped up by massive monetary policy initiatives during the crisis years. Sooner or later the players in the economy must adapt to more normal circumstances. The financial sector must also adapt to significantly more stringent and extensive regulatory requirements not all of which have yet been established. Handelsbanken Finans s historically low tolerance of risk, sound capitalisation and strong liquidity situation mean that Handelsbanken Finans is well equipped to cope with substantially more difficult market conditions than those experienced during the year. The core operations will continue to be run using the same business model, including under stricter regulations. handelsbanken finans annual report 2013 5
Financial Reports Income statement SEK m 2013 2012 Interest income Note 3 1,884 2,537 Interest expense Note 3-636 -998 Net interest income 1,248 1,539 Fee and commission income Note 5 322 330 Fee and commission expense Note 5-50 -62 Net fee and commission income 272 268 Net gains/losses on financial transactions Note 6 0 2 Other operating income Note 7 100 99 Total income 1,620 1,908 Administrative expenses Staff costs Note 8-259 -258 Other expenses Note 9-322 -350 Depreciation, amortisation and impairments of property, equipment and intangible non-current assets Note 10-5 -4 Total expenses -586-612 Net credit losses Note 11 15-68 Operating profit 1,049 1,228 Taxes Note 26-259 986 Profit for the year 790 2,214 Attributable to Ordinary shareholders 790 2,214 Net earnings per share, before and after dilution, SEK 509.50 1,428.31 Statement of comprehensive income SEK m 2013 2012 Profit for the year 790 2,214 Other comprehensive income Items that may be reclassified to the profit for the year Cash flow hedges -157-132 Available-for-sale instruments 2 1 Translation differences for the year 8-7 of which hedging of net investment in subsidiaries -43 49 Tax related to other comprehensive income 43 32 of which cash flow hedges 34 42 of which hedging of net investment in subsidiaries 9-10 Total other comprehensive income -104-106 Total comprehensive income for the year 686 2,108 Attributable to Ordinary shareholders 686 2,108 Minority interest - - The year s reclassifications to the income statement are presented in Statement of changes in equity. 6 handelsbanken finans annual report 2013
Financial Reports Balance sheet SEK m 2013 2012 ASSETS Credits to credit institutions Note 13 3,338 1,277 Credits to the public Note 14 54,610 56,840 Shares and participating interests Note 15 5 3 Derivative instruments Note 16 226 480 Intangible assets Note 17 76 76 Equipment Note 18 8 9 Current tax assets 286 - Deferred tax assets Note 26 5 5 Other assets Note 20 492 816 Prepaid expenses and accrued income Note 21 401 368 Total assets 59,447 59,874 LIABILITIES AND EQUITY Due to credit institutions Note 22 25,331 26,075 Borrowing from the public Note 23 1,506 1,555 Current tax liabilities 1 9 Deferred tax liabilities Note 26 6,630 6,736 Other liabilities Note 24 1,292 707 Accrued expenses and deferred income Note 25 384 395 Total liabilities 35,144 35,477 Share capital 155 155 Provisions 41 145 Retained earnings 23,317 21,883 Profit for the year 790 2,214 Total equity 24,303 24,397 Total liabilities and equity 59,447 59,874 handelsbanken finans annual report 2013 7
Financial Reports Statement of changes in equity 2012 SEK m Share capital Hedge reserve Fair value reserve Translation reserve Retained earnings Total Opening equity 2012 155 229 2 20 22,430 22,836 Profit for the year 2,214 2,214 Other comprehensive income -90 1-17 -106 Total comprehensive income for the year -90 1-17 2,214 2,108 Dividend -400-400 contribution provided -200-200 Tax effect of contribution 53 53 Closing equity 2012 155 139 3 3 24,097 24,397 2013 SEK m Share capital Hedge reserve Fair value reserve Translation reserve Retained earnings Total Opening equity 2013 155 139 3 3 24,097 24,397 Profit for the year 790 790 Other comprehensive income -123 2 17-104 Total comprehensive income for the year -123 2 17 790 686 contribution provided -1,000-1,000 Tax effect of group contribution 220 220 Closing equity 2013 155 16 5 20 24,107 24,303 Specification of changes in equity Change in hedge reserve SEK m 2013 2012 Hedge reserve at beginning of year 139 228 Unrealised value changes during the year -123-89 Hedge reserve at end of year 16 139 Change in fair value reserve SEK m 2013 2012 Fair value reserve at end of year 3 2 Unrealised market value changes during the year for remaining and new holdings 2 1 Fair value reserve at end of year 5 3 Change in translation reserve SEK m 2013 2012 Translation reserve at beginning of year 3 20 Change in translation difference related to branches -3-1 Change in translation difference related to subsidiaries 20-16 Reclassifications to the income statement - 0 Translation reserve at end of year 20 3 8 handelsbanken finans annual report 2013
Financial Reports Cash flow statement SEK m 2013 2012 OPERATING ACTIVITIES Operating profit 1,049 1,228 of which paid-in interest 1,867 2,556 of which paid-out interest -696-1,069 Adjustment for non-cash items in operating profit Credit losses 55 113 Unrealised changes in value 0-3 Depreciation, amortisation and impairments 5 4 Paid income tax -396-197 Changes in the assets and liabilities of operating activities Credits to credit institutions -49 1 Credits to the public 2,176 3,143 Interest-bearing securities and equities 0 3 Due to credit institutions -744-2,583 Borrowing from the public -49-19 Derivative instruments, net positions 97-21 Other 121-294 Cash flow from operating activities 2,265 1,375 INVESTING ACTIVITIES Change in tangible non-current assets -2-2 Change in intangible non-current assets -2 3 Cash flow from investing activities -4 1 FINANCING ACTIVITIES Dividend paid - -400 contribution paid -200 - Cash flow from financing activities -200-400 CASH FLOW FOR THE YEAR 2,061 976 Liquid funds at beginning of year 1,277 302 Cash flow from operating activities 2,265 1,375 Cash flow from investing activities -4 1 Cash flow from financing activities -200-400 Exchange rate difference on liquid funds 0-1 Liquid funds at end of year 3,338 1,277 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. handelsbanken finans annual report 2013 9
Financial Reports Income statement SEK m 2013 2012 Interest income Note 3 901 1,145 Lease income Note 4 4,443 4,957 Interest expense Note 3-620 -969 Fee and commission income Note 5 185 187 Fee and commission expense Note 5-37 -46 Net gains/losses on financial transactions Note 6 0 3 Other operating income Note 7 106 114 Total operating income 4,978 5,391 Administrative expenses Staff costs Note 8-199 -201 Other expenses Note 9-249 -294 Depreciation, amortisation and impairments of property, equipment and intangible non-current assets Note 10-3,641-3,765 Total expenses -4,089-4,260 Net credit losses Note 11 15-45 Operating profit 904 1,086 Appropriations Note 12 282-422 Profit before taxes 1,186 664 Taxes Note 26-286 -174 Profit for the year 900 490 Statement of comprehensive income SEK m 2013 2012 Profit for the year 900 490 Other comprehensive income Items that may be reclassified to the profit for the year Cash flow hedges -157-132 Available-for-sale instruments 2 1 Translation differences for the year -3 0 Tax related to other comprehensive income 34 42 of which cash flow hedges 34 42 Total other comprehensive income -124-89 Total comprehensive income for the year 776 401 The year s reclassifications to the income statement are presented in Statement of changes in equity. 10 handelsbanken finans annual report 2013
Financial Reports Balance sheet SEK m 2013 2012 ASSETS Credits to credit institutions Note 13 3,247 1,229 Credits to the public Note 14 13,469 14,037 Shares and participating interests Note 15 5 3 Shares and participating interests in companies Note 15 1,348 1,348 Derivative instruments Note 16 226 480 Intangible assets Note 17 49 55 Equipment Equipment Note 18 3 4 Lease assets Note 19 37,796 39,548 Current tax assets 286 - Other assets Note 20 487 813 Prepaid expenses and accrued income Note 21 295 265 Total assets 57,211 57,782 LIABILITIES AND EQUITY Due to credit institutions Note 22 23,567 24,341 Borrowing from the public Note 23 1,506 1,555 Current tax liabilities - 8 Deferred tax liabilities Note 26 5 39 Other liabilities Note 24 1,266 682 Accrued expenses and deferred income Note 25 335 339 Total liabilities 26,679 26,964 Untaxed reserves Note 27 30,082 30,364 Share capital 155 155 Other funds 52 176 Retained earnings -657-367 Profit for the year 900 490 Total equity 450 454 Total liabilities and equity 57,211 57,782 MEMORANDUM ITEMS Pledged assets for own debt Note 35 12,725 13,134 Contingent liabilities Note 29 9 8 Commitments Note 30 10,719 11,794 handelsbanken finans annual report 2013 11
Financial Reports Statement of changes in equity 2012 Restricted equity Unrestricted equity SEK m Share capital Statutory reserve Hedge reserve 1) Fair value reserve 1) Translation reserve 1) Retained earnings Total Opening equity 2012 155 34 229 2 0 180 600 Profit for the year 490 490 Other comprehensive income -90 1 0-89 Total comprehensive income for the year -90 1 0 490 401 Dividend -400-400 contribution provided -200-200 Tax effect of contribution 53 53 Closing equity 2012 155 34 139 3 0 123 454 2013 Restricted equity Unrestricted equity SEK m Share capital Statutory reserve Hedge reserve 1) Fair value reserve 1) Translation reserve 1) Retained earnings Total Opening equity 2013 155 34 139 3 0 123 454 Profit for the year 900 900 Other comprehensive income -123 2-3 -124 Total comprehensive income for the year -123 2-3 900 776 contribution provided -1,000-1,000 Tax effect of contribution 220 220 Closing equity 2013 155 34 16 5-3 243 450 1) Included in fair value fund. Specification of changes in equity Change in hedge reserve SEK m 2013 2012 Hedge reserve at beginning of year 139 228 Unrealised value changes during the year -123-89 Hedge reserve at end of year 16 139 Change in fair value reserve SEK m 2013 2012 Fair value reserve at end of year 3 2 Unrealised market value changes during the year for remaining and new holdings 2 1 Fair value reserve at end of year 5 3 Change in translation reserve SEK m 2013 2012 Translation reserve at beginning of year 0 0 Change in translation difference related to branches -3 0 Translation reserve at end of year -3 0 12 handelsbanken finans annual report 2013
Financial Reports Cash flow statement SEK m 2013 2012 OPERATING ACTIVITIES Operating profit 904 1,086 of which paid-in interest 886 1,162 of which paid-out interest -679-1,035 Adjustment for non-cash items in operating profit Credit losses 42 79 Unrealised changes in value 0-3 Depreciation, amortisation and impairments 3,641 3,765 Paid income tax -360-163 Changes in the assets and liabilities of operating activities Credits to credit institutions 0 1 Credits to the public 526 204 Lease assets -1,886-947 Interest-bearing securities and equities 0 3 Due to credit institutions -774-2,383 Borrowing from the public -48-18 Derivative instruments, net positions 97-21 Other 71-254 Cash flow from operating activities 2,213 1,349 INVESTING ACTIVITIES Change in tangible non-current assets 5-2 Change in intangible non-current assets -1 2 Cash flow from investing activities 4 0 FINANCING ACTIVITIES Dividend paid - -400 contribution paid -200 - Cash flow from financing activities -200-400 CASH FLOW FOR THE YEAR 2,017 949 Liquid funds at beginning of year 1,229 281 Cash flow from operating activities 2,213 1,349 Cash flow from investing activities 4 0 Cash flow from financing activities -200-400 Exchange rate difference on liquid funds 1-1 Liquid funds at end of year 3,247 1,229 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. handelsbanken finans annual report 2013 13
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 in 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. Equity 14. Income 15. Employee benefits 16. Taxes 17. Material assessments and assumptions concerning the future 18. Contingent liabilities 1. STATEMENT OF COMPLIANCE The consolidated accounts have been prepared in accordance with international financial reporting standards (IFRSs) 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 investment firms in accordance with the change directives in FFFS 2013:24. 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. Issuing and adoption of annual report The annual report and consolidated accounts were approved for issue by the Board on 18 March 2014 and will be presented for adoption by the AGM on 30 April 2014. 2. CHANGED ACCOUNTING POLICIES ETC. IFRS 13 Fair Value Measurement came into effect for application in the EU on 1 January 2013. The standard deals with common principles for fair value measurement of most of the assets and liabilities at fair value in the accounts. The application of IFRS 13 has not affected the valuation of financial instruments to any significant degree. See note 32. On 1 January 2013, the revised IAS 19 Employee benefits came into effect for application within the EU. For Handelsbanken Finans this has no impact on the income statement and balance sheet. However, IAS 19 leads to changed and increased disclosure requirements for pensions. These are shown in note 8. As of the 2013 financial year, disclosures must be made concerning offsetting of financial assets and liabilities, in compliance with IFRS 7 Financial instruments. The does not offset financial assets and liabilities. See note 31. The revised IAS 1 Presentation of financial statements, which came into effect for application in the EU on 1 January 2013, has affected the Bank s presentation of other comprehensive income. Items which will later be reclassified to the income statement are now separated from those items which are not reclassified. No accounting regulatory changes that came into force as of 2013 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 and calculation methods applied in the 2012 annual report. Future amendments to regulations As of the 2014 financial year, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosures of Interest in Other Entities will come into effect for application in the EU. The new regulations mean that the current stipulations in IAS 27 and SIC 12 concerning when a company is to be consolidated in the consolidated annual accounts are being replaced by a number of assessment criteria for when an entity controls another entity. The assessment is that the application of the new regulations will essentially cover the same companies consolidated using the current regulations. IASB is currently revising a number of existing standards. Of these revisions, IFRS 9 Financial Instruments, which is to replace IAS 39 Financial Instruments: Recognition and Measurement and IAS 17 Leases, are expected to have the greatest impact on Handelsbanken Finans s financial reporting. 3. BASIS OF CONSOLIDATION AND PRESENTATION All companies directly or indirectly controlled by Handelsbanken Finans (subsidiaries) have been fully consolidated. 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 valued at fair value at the time of acquisition. The cost of acquisition 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 acquisition exceeding the identifiable net assets on the acquisition balance sheet is recognised as goodwill in the s balance sheet.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. 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 valued at the functional currency s spot price 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. 14 handelsbanken finans annual report 2013
Translation of foreign operations to the s presentation currency When translating the foreign units (including branches) balance sheets and income statements from the functional currency, the current method has been 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 has been translated at the average annual rate. Translation 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 IN 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 in 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 in 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 in 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 recognised 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. Offsetting of financial assets and liabilities is not applied. Information is provided in note 31. The policies for recognising assets and liabilities in the balance sheet are of particular significance when accounting for leases. See the separate sections on these issues 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, in compliance with IAS 39, all financial assets are placed in the following valuation categories: 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 in the balance sheet is independent of the measurement category. Thus different valuation principles may be applied for assets and liabilities carried on the same line in 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 31. Upon initial recognition, all financial assets and liabilities are designated at fair value. For assets and liabilities at fair value through profit or loss, the transaction costs are recognised directly in profit or loss at the time of acquisition. For other financial instruments, the transaction costs are included in the cost price. Credits and receivables Unlisted interest-bearing assets are reported under Credits and receivables. Credits and receivables are carried at amortised cost, i.e. 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. The impairment loss is recognised in the income statement. Credits and receivables are thus recognised at their net amount, after deduction for probable and actual credit losses. Early redemption fees for credits and receivables repaid ahead of time 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 in 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 recognised at fair value in the balance sheet. Changes in the market value of the 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 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. Committed credit offers Committed credit offers are reported off balance 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 listed on an active market, the fair value is the same as the quoted market price. An active market is one where quoted prices are readily and regularly available from a regulated market, multilateral trading facility, reliable news service or equivalent and where the price information received is easily verifiable 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 asking 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. If 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 the risk organisation. The result is compared with the actual outcome so as to identify any need to adapt the forecasting tool. handelsbanken finans annual report 2013 15
Note 1 Cont. Shares and participating interests Equities listed on an active market are valued at market price. Derivatives Derivatives which are traded on an active market are valued at market price. The s derivative contracts comprise interest rate swaps valued using valuation models based on market rates and other market prices. 8. CREDIT LOSSES AND IMPAIRMENT OF FINANCIAL ASSETS Credits and receivables recognised at amortised cost All units with customer and credit responsibility in the regularly perform individual assessments of the need for recognising impairment losses for credits and receivables that are recognised 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. Objective evidence could, according to the circumstances, be late or non-payment, bankruptcy, changed credit rating or a decline in the market value of the collateral. When performing impairment testing, the recoverable amount 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, the valuation of the collateral is based on the quoted price; otherwise the valuation is based on the yield or the estimated market value determined 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 in the balance sheet, either directly (actual loss) or by 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 valued credits in terms of the risk class. 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 there is available information about the impairment in value at an individual level. Collective impairment testing is also performed for homogeneous groups of smaller credits with a similar risk profile. 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 their carrying amount. Objective evidence could, for example, be late or non-payment. 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 the credit has been reduced 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 reported as actual losses. Information about probable and actual 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 amounts of all credits which have been classified as impaired are carried as impaired credits 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 currency risks 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. Interest rate swaps are used to hedge the future interest payments for a required maturity. To eliminate the uncertainty in future refinancing and reinvesting interest rates, interest rate swaps are used with a future value date. Since the future cash flows are contracted, the probability of them occurring is deemed to be high. Interest rate swaps which are hedging instruments in cash flow hedges are measured at fair value. If the swap s value changes are effective that is they correspond to cash flows related to the hedged item they are recognised as a component of Other comprehensive income and accumulated in the hedge reserve in equity. Ineffective components of the swap 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 16. Hedging of net investments in foreign units is applied to protect the from exchange rate differences due to operations abroad. Credits in foreign currency raised to hedge net investments in foreign operations are recognised in the at the exchange rate on the balance sheet date. The effective part of the exchange rate differences for such credits is recognised as a component of Other comprehensive income and in the translation reserve in equity. The ineffective components of the hedge are recognised in the income statement. 10. LEASES The s leases are defined as either finance leases or operating leases. A finance lease transfers substantially all the risks and rewards incidental to legal ownership of the leased asset from the lessor to the lessee. Other lease agreements are treated as operating leases. All leases where the is the lessor have been defined as finance leases. Lease agreements of this kind are carried as credits in the balance sheet, initially for an amount corresponding to the net investment. Lease fees received are recognised on a continual basis as interest income or repayments. Impairment testing on finance leases is performed according to the same principles as for other lending which is reported at amortised cost. Expenses relating to operating leases where the is the lessor are recognised on a straight-line basis as other expenses. 11. INTANGIBLE ASSETS Recognition in the balance sheet An intangible asset is an identifiable non-monetary asset without physical form. An intangible asset is only recognised in the balance sheet if the probable future economic benefits attributable to the asset will flow to the and the cost of acquisition can be reliably measured. This means that internally generated values in the form of goodwill, brands, customer databases and similar are not recognised as assets in the balance sheet. Investments in software developed by the Bank are carried as an expense on a current basis to the extent that the expenditure refers to maintenance of existing business operations or previously capitalised software. In the case of development of new software, or new business operations for existing software, the expenditure incurred is capitalised from the time when it is probable that economic benefit that can be reliably measured will arise. Expenditure arising from borrowing costs is capitalised from the date on which the decision was made to capitalise expenditure for development of intangible assets. 16 handelsbanken finans annual report 2013
Goodwill Goodwill is carried at cost less any impairment losses. These assets are tested annually for impairment when preparing the annual accounts or when there is an indication that the asset is impaired. Impairment testing is performed by calculating the recoverable amount of the assets, i.e. the higher of the value in use and the fair value less costs to sell. As long as the recoverable amount exceeds the carrying amount, no impairment loss needs to be recognised. Impairment losses are recognised directly in the income statement. Material assessments and assumptions in impairment testing of goodwill are described in note 17 and in section 17. Previously recognised goodwill impairment losses are not reversed. Intangible assets with a finite useful life Intangible assets for which it is possible to establish an estimated useful life are amortised. The amortisation is on a straight-line basis over the useful life of the asset. The amortisation period is tested on an individual basis at the time of new acquisition and also continually if there are indications that the useful life may have changed. Intangible assets with a finite useful life are tested for impairment when there is an indication that the asset may be impaired. The impairment test is performed in the same way as for intangible assets with an indefinite useful life, i.e. by calculating the recoverable amount of the asset. 12. EQUIPMENT The s tangible non-current assets consist of equipment that is recorded at cost of acquisition less accumulated depreciation and impairment losses. Depreciation is based on the estimated useful lives of the assets. A linear depreciation plan is usually applied. The estimated useful lives are tested annually. Personal computers are usually depreciated over three years and other equipment is depreciated over five years. Impairment testing of tangible non-current assets is carried out when there is an indication that the asset may have fallen in value. Impairment loss is recognised in cases where the recoverable amount is less than the carrying amount. Any impairment losses are recognised immediately in the income statement. An impairment charge is reversed if there is an indication that there is no longer any impairment loss and there has been a change in the assumptions underlying the estimated recoverable amount. 13. EQUITY Equity comprises share capital, provisions and retained earnings. Retained earnings Retained earnings comprise the profits generated from the current and previous financial years. Hedge reserve Unrealised changes in value on derivative instruments which comprise hedge instruments in cash flow hedges are reported in the hedge reserve. Fair value reserve The fair value reserve comprises unrealised changes in value on financial assets classified as available for sale. Translation reserve The translation reserve comprises unrealised foreign exchange effects arising due to translation of foreign units to the currency of the consolidated accounts. 14. INCOME Income is recognised in the income statement when it is probable that future economic benefits will be gained and these benefits can be reliably measured. The following general principles apply to recognition of income for various types of fees and charges: Fees attributable to a specific service or action are recognised as income at the time the service is performed. Examples of such fees are payment commissions. Fees that constitute part of the effective interest of a financial instrument are amortised in cases where the instrument is valued at amortised cost in accordance with the effective interest method. For financial instruments at fair value, such fees are recognised as income immediately. Net interest income Interest income and interest expense are recognised as Net interest income in the income statement, with the exception of interest flows deriving from held-for-trading financial instruments. Net interest income also includes interest deriving from derivative instruments that hedge items whose interest flows are recognised in Net interest income. In addition to interest income and interest expense, net interest income includes fees for state guarantees such as deposit guarantees and stability fees. Net fee and commission income Income and expense for various kinds of services are recognised in the income statement under Fee and commission income and Fee and commission expense, respectively. This primarily concerns commission related to leasing and conditional sales. Net gains/losses on financial transactions Net gains/losses on financial transactions includes all items with an impact on profit or loss which arise when measuring financial assets and liabilities at fair value in the income statement and when financial assets and liabilities are realised. Specifically, the following items are reported here: Capital gains or losses from the disposal and settlement of financial assets and liabilities. Realised and unrealised changes in value on financial assets and liabilities classified as held for trading. Interest from held-for-trading financial instruments, with the exception of interest originating from derivatives that are hedging instruments whose interest flows are reported in Net interest income. Ineffective component of the value change on derivatives which comprise hedging instruments in cash flow hedges. Ineffective component of the value change on hedging instruments which are hedging net investments in foreign operations. Dividend received Dividends on shares classified as available for sale are recognised in profit and loss as Other dividend income, if such income exists. 15. EMPLOYEE BENEFITS Staff costs Staff costs consist of salaries, pension costs and other forms of direct staff costs including social security costs, special payroll tax on pension costs and other forms of payroll overheads. Accounting for pensions Defined contribution pension plans Post-employment benefits to employees consist of defined contribution plans. Defined contribution pension plans refer to plans where the company s obligations are limited to the contributions the company has undertaken to pay. In such cases, the size of the employee s pension is determined by the contributions the company pays towards the plan or to an insurance company and the return on the capital invested that these contributions generate. Consequently, the employee bears the actuarial risk (that the benefit is lower than expected) and the investment risk (that the assets invested prove to be insufficient to generated the expected benefits). The company s obligations regarding contributions to defined contribution plans are reported as an expense in the profit for the year to the degree such benefits are accumulated as a result of the employee performing services for the company over a period of time. Defined benefit plans Handelsbanken Finans has pension obligations which are guaranteed through insurance with Pensionskassan SHB, Försäkringsförening (pension fund). These obligations are reported according to the IAS 19 rules for defined benefit plans, whereby the company under common control shares the risks related to the pension obligations, since the pension fund s assets are not allocated among the employers who have insurance with the pension fund. According to these rules, Handelsbanken Finans reports the insurance charges which are debited for the period as an expense. 16. TAXES The tax expense for the period consists of current tax and deferred tax. Current tax refers to taxes relating to the period s taxable result and adjustments made to previous years. Deferred tax is tax referring to temporary differences between the carrying amount of an asset or liability handelsbanken finans annual report 2013 17
Note 1 Cont. and its taxable value. Deferred taxes are valued at the tax rate which is deemed to be applicable when the item is realised. Deferred tax assets related to deductible temporary differences and loss carry-forwards are only recognised if it is probable that they will be utilised. Deferred tax liabilities are carried at nominal value. Tax is recognised in the income statement or in other comprehensive income depending on where the underlying transaction is reported. 17. MATERIAL ASSESSMENTS AND ASSUMPTIONS CONCERNING THE FUTURE In certain cases, the application of the s accounting policies means that assessments must be made that may have a material impact on amounts reported. The amounts reported are also affected in a number of cases by assumptions about the future. Such assumptions always imply a risk of adjustment of the carrying amount of assets and liabilities. The assessment and assumptions applied always reflect management s best and fairest assessments and are continually subject to examination and validation. Below follows a report of the assessments and assumptions that have had a material impact on the financial reports. Information on key assumptions is also described in the relevant notes. Assessment of need to recognise an impairment loss for credits and receivables The value of the s receivables is tested at regular intervals. If necessary, the credit is written down to the assessed recoverable amount. The estimated recoverable amount is based on an assessment of the counterparty s financial repayment capacity and assumptions on the realisable value of any collateral. The final outcome may deviate from the original provisions for credit losses. The assessments and assumptions used are subject to regular checks by the internal credit organisation. See also note 2 for a more detailed description of internal risk control and how the manages credit risk. Goodwill impairment testing When performing impairment testing of goodwill, the operations assets which derive from goodwill are valued using the present value calculation of future cash flows. The cash flow forecasts are based on assumptions concerning the operations growth rate, cost development, etc. The assumptions on which the forecast period and discount rate are based are also of importance for the outcome of the impairment testing. To guarantee the reliability of the forecast methods and values applied, a comparison is made between previous forecasts and outcomes in individual years. Future adaptations are based on the comparison. 18. CONTINGENT LIABILITIES A contingent liability is reported when there is a possible commitment related to events which have occurred and whose existence is confirmed only by one or more uncertain future events or where there is a commitment which is not reported as a liability or provision because it is not probable that an outflow of resources will be required. Accounting policies Parent company Statement of compliance The parent company s annual report is prepared in accordance with the Swedish 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. In accordance with the transitional rules in FFFS 2013:24 Regulations amending the Swedish Financial Supervisory Authority s regulations and general guidelines (FFFS 2008:25) concerning annual reports in credit institutions and securities companies, these amendment regulations are applied. The parent company also applies RFR 2 Accounting for Legal Entities and statements from the Swedish Financial Reporting Board. In compliance with the Supervisory Authority s general guidelines, the parent company applies statutory IFRS. This means that the international accounting standards and interpretations of these standards as adopted by the EU have been applied to the extent that is possible within the framework of national laws and directives and the connection between accounting and taxation. The relationship between the parent company s and the s accounting policies The parent company s accounting policies mainly correspond with those of the. The following reports only on the areas where the parent company s policies differ from those of the. In all other respects, please refer to the accounting policies of the. Changed accounting policies The parent company s accounting policies are in all material respects the same as those applied in the 2012 annual report. Presentation The parent company applies the presentation models for the income statement and balance sheet in compliance with the Annual Accounts Act for Credit Institutions and Securities Companies, and the Swedish Financial Supervisory Authority s regulations. This mainly implies the following differences relative to the presentation by the : Dividends received are reported on a separate line in the parent company s income statement. The gain/loss arising when divesting property, equipment and intangible non-current assets in the parent company is reported as other income/expense. Memorandum items are reported in direct conjunction with the parent company s balance sheet. Untaxed reserves that are split into equity share and tax liability in the are reported as a separate balance sheet item in the parent company. Assets and liabilities in foreign currencies Credits in the parent company which are hedging net investments in foreign operations are measured at the historical rate of exchange. Assets held for sale There is no separate distinction of assets heldfor-sale in the balance sheet. Shares and participating interests in subsidiaries Shares and participating interests in subsidiaries are measured at cost. Dividends on shares in subsidiaries are recognised as income in profit or loss under Dividends received. Intangible assets In the parent company, acquisition assets and other intangible assets are amortised in compliance with the provisions of the Annual Accounts Act. The useful life of goodwill on acquisitions in the parent company is judged to be very long and the amortisation period is set at 11 and 20 years respectively. Leases Leases are normally defined as finance or operating leases. A finance lease implies that the lessor transfers substantially all the risks and rewards associated with ownership to the lessee. Operating leases are all non-financial leases. In the, all leases are categorised as finance leases. The Swedish Financial Reporting Board s recommendation RFR 2 allows a lessor the right to classify all leases in the annual accounts of a legal entity as operating leases. This classification has been used in the parent company s annual accounts. The income is thus reported as lease income. The assets are reported as property and equipment, thus permitting the parent company to depreciate them. Lease assets are depreciated according to the annuity method. Since a vendor or other party secures a future residual value, such as when a sale can be made on a functioning secondary market, the asset is depreciated during the lease period at a prudently calculated residual value according to plan. Otherwise the total depreciation during the lease period is equal to the acquisition price of the asset. The depreciation plan is determined individually for each asset. Taxes In the parent company, untaxed reserves are recognised as a separate item in the balance sheet. Untaxed reserves comprise one component which is deferred tax and one component which is equity. contributions are recognised in accordance with the economic substance of the contribution. Contributions which are justified for tax purposes are thus recognised after tax adjustment as an increase/decrease of Retained earnings. 18 handelsbanken finans annual report 2013
Note 2 Risks and risk control RISK AND CAPITAL MANAGEMENT Although there was less turbulence in the financial markets in 2013 than previously, the structural problems that brought on the crisis remain. In many respects, the debt problems of some countries are the same as before, and certain parts of the financial sector are weak. The financial sector and the real economy have been propped up by massive monetary policy initiatives during the crisis years. Sooner or later the players in the economy must adapt to more normal circumstances. For the financial sector, these circumstances also involve relating to significantly more stringent and extensive regulatory requirements not all of which have yet been completed. Handelsbanken s historically low tolerance of risk, sound capitalisation and strong liquidity situation mean that the Bank is well equipped to cope with substantially more difficult market conditions than those experienced during the year. The Handelsbanken Finans is an integrated part of the Handelsbanken (the Bank) and is therefore subject to generally the same challenges as the Bank in terms of external conditions in the form of the economic situation and future regulatory requirements. The economic downturn has not changed the Bank s or Handelsbanken Finans s way of doing business. All business decisions always take into account the risk of changed conditions externally. This has been manifested in the longer term through low credit losses and an even financial performance. Handelsbanken Finans s strict approach to risk means that Handelsbanken Finans deliberately avoids high-risk transactions, even if the remuneration is high at the time. The low risk tolerance is maintained through a strong risk culture that is sustainable in the long term and applies to all areas of the. 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; this requires sound credit capacity and preparedness even in troubled times. Handelsbanken Finans operates in several countries and many different business fields. This entails a variety of risks that are systematically identified, measured, analysed and managed. The liquidity situation is planned so that business operations are not restricted when the financial markets are disrupted. RISKS AT HANDELSBANKEN FINANS Credit risk Market risk Liquidity risk Operational risk Business risk The risk of Handelsbanken Finans facing economic loss because its counterparties cannot fulfil their contractual obligations. Risk arising from price and volatility changes in the financial markets. The risk that Handelsbanken Finans will not be able to meet its payment obligations when they fall due without being affected by unacceptable costs or losses. The risk of loss due to inadequate or failed internal processes, human error, errors in systems or external events. The risk of unexpected changes in earnings that are not attributable to the risk categories described above. Handelsbanken Finans s risk management aims to ensure that Handelsbanken Finans fulfils the strict approach to risk decided by the Board and which applies within the rest of the Handelsbanken. For further information, see note 36, Capital adequacy. RISK ORGANISATION The Board is responsible for assessing and monitoring the risks arising in the s operations. The Board establishes policy documents describing how various risks should be managed and reported. The Chief Executive of Handelsbanken Finans issues instructions for the operations on the basis of policies issued by the Board. The Bank s Central Treasury Department delegates limits for interest rate risk, exchange rate risk and liquidity risk to Handelsbanken Finans whose board then establishes the limits. The independent risk control at Handelsbanken Finans measures, analyses and reports these risks every day to Central Risk Control at the Bank and regularly to the management and Board of Handelsbanken Finans. The independent risk control function at Handelsbanken Finans presents matters to Handelsbanken Finans s risk committee. The risk committee consists of the head of the business area Handelsbanken Direkt which includes Handelsbanken Finans, the Chief Executive of Handelsbanken Finans and Handelsbanken Finans s CFO. In addition to financial risks, other matters relating to risk are reported and Handelsbanken Finans s risk and capital situation according to Pillar II. Credit risks Handelsbanken Finans s credit policy is established by Handelsbanken Finans s Board and is based on the credit policy established by the Bank s Board. This means that the customer unit is responsible for both the evaluation and processing of credit risks. In this way, any available data on the customer, the local market and the finance company product on offer can be put to good use. This also makes processing rapid and efficient. If necessary, expertise from central departments at Handelsbanken Finans can be called upon. With regard to credits generated by the branch office operations, the Board of Handelsbanken Finans has delegated responsibility for credit decisions to the Bank s branches. These decisions follow the guidelines laid down by the Board. The Bank provides an internal guarantee for these credits. As at 31 December 2013 this amounted to SEK 45 billion (47) of total lending of SEK 55 billion (57). In addition to these, there are committed credit offers of SEK 3 billion (3.5) out of a total of SEK 13 billion (14) for committed offers. Credit risk exposure SEK m 2013 2012 Credits to credit institutions 3,338 1,277 of which claim on Handelsbanken 3,338 1,276 Credits to the public 54,610 56,840 Shares and participating interests 5 3 Derivatives 226 480 Other assets 1,268 1,274 of which claim on Handelsbanken 8 11 Committed credit offers 13,367 14,245 Total 72,814 74,119 Credits for which Handelsbanken Finans bears the credit risk are generated mainly from credits in Handelsbanken Finans s Retail Financial Services. These credits are offered via retailers, in the car and home electronic sectors for example. These are largely account-based credits. Most of Handelsbanken Finans s credit cards have been processed in a credit management system developed in-house by Handelsbanken Finans. The credit management system has shown stability in performance and has played an important part in the company s efforts to maintain a low level of credit losses. Credit losses as a proportion of lending for credits where Handelsbanken Finans bears the credit risk are shown in the diagram below. Credit losses % 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5 2009 2010 2011 2012 2013 SEK m 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Average volume 12 mths Gross credit losses, % Recoveries, % Net credit losses, % handelsbanken finans annual report 2013 19
Note 2 Cont. Maturity structure of credits which are not impaired, SEK m Number of days past due Households Corporate The maturity structure for credits that are due for repayment on the balance sheet date, but which are not classified as impaired credits, is given above. In this case, due for payment is defined as credits that have not been paid five days after the due date. The distribution of credit exposure and committed credit offers granted per country is shown in the tables below. Credit exposure by country On-balance, SEK bn 2013 2012 Sweden 6.4 6.3 Denmark 0.6 0.8 Norway 0.0 0.1 Finland 1.9 1.8 Total 8.9 9.0 Committed credit offers by country Off-balance, SEK bn 2013 2012 Sweden 7.7 8.3 Denmark 0.0 0.0 Norway - - Finland 2.5 2.3 Total 10.2 10.6 At the year-end the distribution of the credit portfolio for the counterparty types private and corporate was SEK 8.7 billion (8.7) and SEK 0.2 billion (0.3). At the same date, committed credit offer volumes were SEK 10.2 billion (10.6) for private customers and SEK 0.0 billion (0.0) for corporate customers. Geographical breakdown 2013 of lending, SEK m Public Credit institutions Sweden 41,292 3,114 Denmark 956 15 Finland 10,176 39 Norway 1,491 42 UK 638 78 Poland 11 0 China 46 50 Total 54,610 3,338 Geographical breakdown 2012 of lending, SEK m Public Credit institutions Sweden 43,530 1,127 Denmark 1,100 20 Finland 9,652 34 Norway 1,856 41 UK 614 54 Poland 28 0 China 60 1 Total 56,840 1,277 2013 2012 Public sector municipal companies Households Corporate Public sector municipal companies 30 208 5 0 217 9 0 31 60 34 2 0 44 3 0 61-90 20 1 0 20 1 0 91-360 7 3 0 6 2 0 360 1 0 0 0 0 0 Total 270 11 0 287 15 0 PD distribution of all credits (excluding defaults and semi-inactive) Breakdown, % 35 30 25 20 15 10 5 0 1 2 3 4 5 6 7 PD class 2012 PD class 2013 PD, % Handelsbanken s and Handelsbanken Finans s internal risk classification system enable credit risk in all operations to be measured in a reliable and consistent manner. The system is evaluated annually and the result of the evaluation is reported to the Board. Most of Handelsbanken Finans s credits 82 per cent are calculated for capital adequacy purposes using the IRB approach. Both the advanced and the foundation approach are used depending on the portfolio and counterparty category. The diagram above shows the distribution of the IRB credit volume according to the risk class which in turn is determined by the respective counterparty s probability of default (PD). The capital requirement for some parts of the credit portfolio are calculated according to the standardised approach. These volumes are not included in the above diagram. Nor are credits in default included. The way the Bank and Handelsbanken Finans calculate and classify risks, quantify and validate methods is also an important component in the Swedish Financial Supervisory Authority s review in conjunction with approval of the Bank s application of the IRB method for calculating the statutory capital requirement. Internal Audit regularly examines the risk classification system and its application. Collateral When Handelsbanken and Handelsbanken Finans assess the credit risk of a specific customer, the assessment is mainly based on the borrower s repayment capacity. According to the Bank s credit policy, weak repayment capacity can never be accepted on the grounds that good collateral has been offered to the Bank. Collateral may, however, substantially reduce the Bank s loss if the borrower cannot fulfil his obligations to the Bank. The types of collateral held by Handelsbanken Finans to minimise the credit risk consist of movable property. Credits must therefore normally be adequately secured. Credits without collateral occur for small credits to private individuals with good repayment capacity. Since collateral is not generally utilised until a borrower has serious repayment difficulties, the collateral valuation focuses on its expected value in the case of insolvency. The value of certain types of assets may change considerably from the period before and the time of a forced sale. Funding and financial risk Handelsbanken s funding operations are centralised to the Central Treasury unit at Handelsbanken. A small amount of funding has been obtained from other counterparties than the Bank. Financial risks include interest rate risk, liquidity risk and exchange rate risk. Interest rate risk Interest rate risks arise when the rate adjustment periods for financial assets and liabilities do not coincide. At Handelsbanken Finans, interest rate risk is defined and limited as the difference that arises in the present value of future cash flows if the yield curve experiences a shift of one percentage point. The risk measure includes interest-bearing items both at market value and not at market value and it is therefore not appropriate to assess the effects on the balance sheet and income statement. It does not take into account the equity held by Handelsbanken Finans nor the company s opportunities to adapt to changed interest rate levels. The interest rate risk that is measured and reported at Handelsbanken Finans is partly created through the interest rate swaps which Handelsbanken Finans uses to reduce the volatility on the return on the structured lease agreements at Handelsbanken Finans. These swap agreements are made only with Handelsbanken as the counterparty and they are in turn hedged against an external counterparty. The interest rate risk as at 31 December 2013 was SEK 8 million (63). At the same date, the interest rate risk in the swap agreements with Handelsbanken was SEK 6 million (56). The net interest income effect in the case of interest rate changes is measured as the change in net interest income over a twelvemonth period if there is a general increase in market rates by one percentage point. This effect reflects the differences in interest-fixing periods and volume composition between assets, liabilities and derivatives assuming that the size of the balance sheet is constant. The net interest income effect at year-end was SEK 274 million. Liquidity risk Handelsbanken s Central Treasury has overall responsibility for Handelsbanken Finans s fun- 20 handelsbanken finans annual report 2013
ding and liquidity risk management. Liquidity risk management is completely centralised in the Handelsbanken in what is otherwise a decentralised business model. The basic condition for funding of the operations is that it must promote long-term stable growth in profits by limiting market and liquidity risks. This is achieved by matching cash flows between funding and lending. The Bank thus minimises the economic risks in funding and can determine stable and long-term internal interest rates to the business operating units. Internal interest rates reflect the liquidity risk and the cost of maintaining the required liquidity reserves. Liquidity is planned so that Handelsbanken, and thus Handelsbanken Finans, can manage for at least a twelve-month period without borrowing any new funds in the financial markets, while maintaining operations. Handelsbanken maintains the requisite liquidity reserves for Handelsbanken Finans to ensure access to liquidity, even in extremely negative scenarios. Liquidity risk is measured and limited by carrying out a gap analysis of cash flows for various maturities and all currencies, where the limit states the highest accumulated liquidity deficit Handelsbanken Finans is permitted to have in given time periods. The Maturity analysis table on page 22 shows cash flows on the liabilities and assets side for the contracted payment commitments that are due for payment at the latest within the stated time intervals, including interest and commission flows. Exchange rate risk Handelsbanken Finans has home markets outside Sweden and also operations in a number of other countries. Indirect currency exposure of a structural nature therefore arises, because the s accounts are expressed in Swedish kronor. The structural risk is minimised by matching assets and liabilities in the same currency as much as possible. The exchange rate movements that affect Handelsbanken Finans s equity are stated in Specification of changes in equity. Some foreign exchange exposure also arises in the regular operations. This exchange rate risk is measured and limited with position limits. At year-end, the aggregate net position amounted to SEK 0.5 million (0.2). The exchange rate risk at Handelsbanken Finans does not depend on trends for an individual currency or group of currencies, because the positions are very short and arise in management of customer-driven flows. The total exchange rate risk was SEK -0.0 million (-0.0), measured as the impact on Interest-fixing table Interest-fixing periods for assets and liabilities, 31 December 2013 3 mths 3 6 mths 6 12 mths 1 5 yrs Over 5 yrs Total Credits to credit institutions 3,317 15 6 - - 3,338 Credits to the public and lease assets 47,430 392 152 816 5,820 54,610 Total interest-bearing assets 50,747 407 158 816 5,820 57,948 Due to credit institutions 18,329 244 184 901 5,673 25,331 Borrowing from the public 1,506 - - - - 1,506 Total interest-bearing liabilities 19,835 244 184 901 5,673 26,837 Off-balance-sheet items, net - - - - - - Difference between assets and liabilities including off-balance-sheet items 30,912 163-26 -85 147 31,111 3 mths 3 6 mths 6 12 mths 1 5 yrs Over 5 yrs Total Credits to credit institutions 3,247 - - - - 3,247 Credits to the public and lease assets 44,549 126 83 687 5,820 51,265 Total assets 47,796 126 83 687 5,820 54,512 Due to credit institutions 16,990 21 113 770 5,673 23,567 Borrowing from the public 1,506 - - - - 1,506 Total liabilities 18,496 21 113 770 5,673 25,073 Off-balance-sheet items, net - - - - - - Difference between assets and liabilities including off-balance-sheet items 29,300 105-30 -83 147 29,439 Interest-fixing periods for assets and liabilities, 31 December 2012 3 mths 3 6 mths 6 12 mths 1 5 yrs Over 5 yrs Total Credits to credit institutions 1,277 - - - - 1,277 Credits to the public and lease assets 49,384 514 244 921 5,777 56,840 Total interest-bearing assets 50,661 514 244 921 5,777 58,117 Due to credit institutions 18,876 268 253 732 5,946 26,075 Borrowing from the public 1,555 - - - - 1,555 Total interest-bearing liabilities 20,431 268 253 732 5,946 27,630 Off-balance-sheet items, net -2,800 - - 2,800-0 Difference between assets and liabilities including off-balance-sheet items 27,430 246-9 2,989-169 30,487 3 mths 3 6 mths 6 12 mths 1 5 yrs Over 5 yrs Total Credits to credit institutions 1,229 - - - - 1,229 Credits to the public and lease assets 46,693 240 155 720 5,777 53,585 Total assets 47,922 240 155 720 5,777 54,814 Due to credit institutions 17,644 61 156 534 5,946 24,341 Borrowing from the public 1,555 - - - - 1,555 Total liabilities 19,199 61 156 534 5,946 25,896 Off-balance-sheet items, net -2,800 - - 2,800-0 Difference between assets and liabilities including off-balance-sheet items 25,923 179-1 2,986-169 28,918 handelsbanken finans annual report 2013 21
Note 2 Cont. Handelsbanken Finans s earnings from an instantaneous five per cent change of the Swedish krona against all currencies where positions exist. The sensitivity to a change of the krona against any individual currency was not appreciably larger than the total exchange rate risk. Exchange rate risk is kept to a minimum since conditions for lending largely match conditions for funding. For information about currency risk exposure, see note 34. Comprehensive risk management using the economic capital model Handelsbanken Finans applies a model for calculating economic capital (EC) which is an overall measure to identify the s overall risks and corresponds to the capital which, with very high probability, will cover unexpected losses or decreases in value. EC is calculated with a time horizon of one year and a confidence level that is determined by the Board. Handelsbanken Finans calculates economic capital with a 99.97 per cent confidence level. This confidence interval implies an outcome which is worse than that reported in three out of 10,000 cases. The capital which forms a buffer that can absorb negative outcomes is called Available Financial Resources (AFR). AFR is an estimate of the size of Handelsbanken Finans s equity and other available financial values on and off the balance sheet, with a one-year time horizon. The Board has decided that the ratio between AFR and the capital requirement calculated according to EC must be at least 120 per cent. Credit risk is calculated using simulated outcomes of default for all Handelsbanken Finans s counterparties and exposures. Market risks comprise interest rate risk in the business operations. The non-financial risks are operational risk and business risk. Business risk is related to unexpected variations in income and expenses that may arise if, for example, demand or competition changes unexpectedly, resulting in lower volumes and narrower margins. All calculations show that Handelsbanken Finans s capital situation is more than adequate in relation to its risks, both in terms of the internally calculated capital requirement EC and the statutory capital requirement. Capital planning Handelsbanken Finans s capital planning has the purpose of ensuring that the capital is satisfactory in relation to the existing risk. The capital requirement is a function of an assessment of the operation s performance, the formal capital adequacy regulations, Handelsbanken s EC model and the outcome of stress tests. Maturity analysis of financial assets and liabilities, 2013 Assets, SEK m 3 mths 3 12 mths 1 5 yrs Over 5 yrs Total Credits to credit institutions 1 1 2-4 Credits to the public 3,280 5,055 21,038 24,405 53,778 Internal lending 3,980 101 188-4,269 Interest on lending 353 756 2,659 2,742 6,510 Cash flows, off-balance volumes 221-27 - 248 Liabilities, SEK m 3 mths 3 12 mths 1 5 yrs Over 5 yrs Total Due to credit institutions 5,356 725 - - 6,081 Deposits and borrowing from the public 28 1,489-5 1,522 Internal liabilities 5,595 1,012 4,479 8,928 20,014 Interest on borrowing 180 279 1,431 2,666 4,556 Cash flows, off-balance volumes 15 - - - 15, 2012 Operational risks Operational risk is defined as the risk of loss due to deficient or erroneous procedures and systems, human error on the part of the company s employees or external events. Operational risks and losses linked to these are reported on a regular basis to the management of Handelsbanken Finans and its Board. Identification, management and control of operational risks is a clear and integral part of managerial responsibility at all levels at Handelsbanken Finans. The decentralised method of work at Handelsbanken Finans promotes costconsciousness that results in vigilance against potential loss risk in the daily procedures. As an aid to identification, measurement and handling of operational risk, Handelsbanken Finans has a separate reporting system for operational incidents and losses. As a supplement to the day-to-day control of operational risk, all main departments carry out self-evaluation of operational risk. This review is for the purposes of identifying operational risk and quantifying the losses that may arise. In addition, measures are to be proposed and taken to reduce the risks. New and changes in products, services and IT systems undergo risk analysis that incorporates every conceivable type of risk, including operational risk. Contingency and continuity plans are in place in all parts of the Handelsbanken Finans for dealing with serious disruptions. Assets, SEK m 3 mths 3 12 mths 1 5 yrs Over 5 yrs Total Credits to credit institutions 0 2 3-5 Credits to the public 2,226 5,397 21,544 26,846 56,013 Internal lending 1,924 70 172-2,166 Interest on lending 372 898 3,228 3,384 7,882 Cash flows, off-balance volumes 332-248 - 580 Liabilities, SEK m 3 mths 3 12 mths 1 5 yrs Over 5 yrs Total Due to credit institutions 74 155 1,268 4,883 6,380 Deposits and borrowing from the public 23 24 234 1,283 1,564 Internal liabilities 13,363 589 1,123 5,395 20,470 Interest on borrowing 193 295 1,689 3,350 5,527 Cash flows, off-balance volumes 29 - - - 29 22 handelsbanken finans annual report 2013
Amounts in SEK million unless otherwise stated. Note 3 Net interest income Note 6 Net gains/losses on financial transactions INTEREST INCOME Credit institutions 37 18 36 17 Public 1,550 2,104 570 716 Derivative instruments recognised as hedges 221 332 221 332 Other interest income 76 83 74 80 Total interest income 1,884 2,537 901 1,145 INTEREST EXPENSE Credit institutions -546-732 -530-703 Public -22-93 -22-93 Derivative instruments recognised as hedges -61-157 -61-157 Other interest expense -7-16 -7-16 Total interest expense -636-998 -620-969 Average interest rate on credits to the public 2.8% 3.6% 4.2% 5.1% Net interest income (Interest income+lease income-interest expense-amortisation of lease assets) 1,248 1,539 1,092 1,376 Interest margin 2.3% 2.6% 2.1% 2.5% Interest income received from companies 323 408 257 349 Interest expense paid to companies -535-753 -519-724 Includes interest income on impaired credits SEK 7 million (4). Total interest income in the on assets recognised at amortised cost was SEK 1,663 million (2,205). Total interest expense on liabilities recognised at amortised cost was SEK 568 million (825). Note 4 Lease income Lease income gross - - 4,443 4,957 Lease depreciation according to plan - - -3,632-3,758 Net leases - - 811 1,199 Of which received from companies - - 66 58 Lease depreciation is reported under note 10, Depreciation, amortisation and impairments. Note 5 Net fee and commission income Ineffective portion of cash flow hedges 0 3 0 3 Trading 0-1 0 0 Total 0 2 0 3 Note 7 Other operating income Rental income - 0-0 Services rendered 75 76 82 92 Other income 25 23 24 22 Total 100 99 106 114 Of which received from companies 81 80 88 97 Note 8 Staff costs Salaries and fees -164-170 -123-129 Social security costs -39-38 -37-36 Pension costs 1) -22-23 -14-16 Provision to profit-sharing foundation -31-23 -23-18 Other staff costs -3-4 -2-2 Total -259-258 -199-201 1) The pension cost refers to the charge paid to SHB pensionskassa försäkringsförening (pension fund) for contractual defined contribution pension insurance and the BTPK plan. Salaries and other compensation Chief Executive, Board and other senior management -14-14 -12-11 Other -150-156 -111-118 Total -164-170 -123-129 FEE AND COMMISSION INCOME Payment commissions 33 4 19 4 Lending commissions 244 273 129 143 Lease commissions 20 26 19 22 Other commissions 25 27 18 18 Total fee and commission income 322 330 185 187 Of which received from companies 4 4 3 4 FEE AND COMMISSION EXPENSE Payment commissions -15-18 -8-7 Lease commissions -9-18 -8-18 Other commissions -26-26 -21-21 Total fee and commission expense -50-62 -37-46 Of which paid to companies -21-21 -16-17 Net fee and commission income 272 268 148 141 Average number of employees Sweden 215 224 215 224 Finland 81 81 0 0 Denmark 22 25 22 25 Norway 5 5 1 1 UK 6 6 6 6 Poland 1 1 1 1 China 2 2 - - Total 332 344 245 257 Gender distribution average number of employees 2013 2012 Men Women Men Women Sweden 95 120 101 123 Finland 40 41 40 41 Denmark 9 13 12 13 Norway 2 3 1 4 UK 2 4 4 2 Poland 1-1 - China 0 2 0 2 Total 149 183 159 185 handelsbanken finans annual report 2013 23
Note 8 Cont. Gender distribution average number of employees 2013 2012 Men Women Men Women Sweden 95 120 101 123 Finland - - - - Denmark 9 13 12 13 Norway - 1-1 UK 2 4 4 2 Poland 1-1 - Total 107 138 118 139 2013 Gender distribution % Men Women Men Women Chief Executive and Board 80 20 80 20 Other senior management 64 36 70 30 2012 Gender distribution % Men Women Men Women Chief Executive and Board 80 20 80 20 Other senior management 62 38 64 36 Terms and compensation for senior management Conditions: Handelsbanken Finans has no agreements on termination benefits. The Chief Executive of Handelsbanken Finans and senior managers have a retirement age of 65. A retirement pension is paid amounting to 10 per cent of the annual salary up to 7.5 income base amounts. A retirement pension of 65 per cent of the final salary at the time of retirement is paid on the portion of the salary between 7.5 and 20 income base amounts and a retirement pension of 32.5 per cent of the final salary at the time of retirement is paid on the portion of the salary between 20 and 30 income base amounts. In addition a BTPK premium of two per cent is paid up to 30 income base amounts. A pension under the general national insurance scheme is also paid. Other senior managers are the chief executives/country managers of major subsidiaries and branches and the management group of Handelsbanken Finans. Compensation: During the year, compensation and other benefits amounting to SEK 1.8 million (1.6) were paid to the Chief Executive and the Board, of which other benefits were SEK 0.1 million (0.1). The other 11 (12) senior managers received compensation and other benefits totalling SEK 12.3 million (13.1), including other benefits amounting to SEK 0.9 million (1.4). No variable compensation is paid. The pension fund s obligations totalled SEK 3,557 million (3,959) based on prudential assumptions, where the discount rate has been set in accordance with FFFS 2008:23 (Insurance undertakings chosen rate of interest for calculating technical provisions). The fair value of the pension fund s assets was SEK 10,141 million (8,941). The pension fund s assets are broken down as follows: 31 December 31 December Pension fund s plan assets 2013 2012 Listed shares and participating interests 9,388 8,074 Unlisted shares and participating interests 395 504 Listed interest-bearing securities 230 304 Non-listed interest-bearing securities 67 52 Other plan assets 61 7 Total 10,141 8,941 Further information about the defined benefit pension plan can be found in the 2013 Annual Report for the Handelsbanken in note G8. The Board s compensation Board members who are employees of Handelsbanken Finans or the Handelsbanken receive compensation and pension benefits by reason of their employment. No compensation or pension benefits are paid for serving on the Board. Credits to senior management There are no credits to senior managers at Handelsbanken Finans AB. Credits to chief executives or executive vice presidents of other companies in the Handelsbanken amount to SEK 1 million (1). Note 9 Other expenses Premises -28-32 -23-27 IT -125-135 -94-113 Communication -22-20 -17-17 Travel and marketing -27-29 -21-24 Purchased services -44-47 -35-42 Supplies -8-6 -3-2 Other expenses -68-81 -56-69 Total -322-350 -249-294 Pensions: SEK 0.5 million (0.4) of the s pension costs are in respect of the Chief Executive and the Board and SEK 2.4 million (2.9) in respect of the other 11 (13) senior managers. Pension premiums paid refer to premiums paid to SHB Pensionskassa försäkringsförening (pension fund) for contractual pension insurance and the BTPK plan. Pension obligations to the Chief Executive and the Board are SEK 4.5 million (4.3) and for other senior managers, they are SEK 23.2 million (28.4). Handelsbanken Finans has pension obligations according to the BTP2 agreement which are guaranteed through insurance with Pensionskassan SHB, försäkringsförening. These obligations are reported according to the revised IAS 19 rules for defined benefit plans, whereby companies under common control share the risks related to the pension obligations, since the pension fund s assets are not allocated among the employers who have insurance with the pension fund. According to these rules, Handelsbanken Finans reports the insurance charges which are debited for the period as an expense. The pension fund does not debit the charges calculated on the basis of the revised IAS 19 definition of defined benefit net expense for pensions. The charges are debited in accordance with the rules in the statutes for the pension fund with the purpose of debiting charges corresponding to an expense for pension benefits earned during the period. The rules do not take into account actuarial gains and losses which have occurred. Nor do they take into account fluctuations in real return. Compensation to audit companies Audit Audit Audit assignment, KPMG AB -0.9-0.7-0.5-0.3 Audit costs outside the audit assignment - - - - Internal audit -1.9-2.2-1.5-1.9 Note 10 Depreciation, amortisation and impairments Equipment -3-3 -1-1 Lease assets - - -3,632-3,758 Goodwill - - -6-5 Other depreciation and impairments -2-1 -2-1 Total -5-4 -3,641-3,765 24 handelsbanken finans annual report 2013
Note 11 Credit losses Impaired credits and credits which are overdue by more than 60 days, by sector Specific provision for individually assessed credits The year s provision -22-36 -21-36 Reversal of previous provisions 12 13 12 12 Total -10-23 -9-24 Collective provision The year s net provision for homogeneous credits -39-68 -27-34 The year s net provision for individually assessed credits 2-8 2-8 Total -37-76 -25-42 Write-offs Actual credit losses for the year -84-100 -62-68 Utilised share of previous provisions 76 86 55 55 Recoveries 70 45 56 34 Total 62 31 49 21 Net credit losses 15-68 15-45 Recoveries includes estimated recoveries from defaulted credits still under observation. Impaired credits, etc. Impaired credits 289 321* 156 191* Specific provisions for individually assessed credits -56-59 -53-58 Collective provisions for individually assessed credits -6-8 -6-8 Provisions for collectively assessed homogeneous groups of credits with limited value -92-115 -41-54 Net impaired credits 135 139 56 71 Impaired credits reserve ratio, % 53.4 56.7 64.2 63.1 Proportion of impaired credits, % 0.25 0.24 0.11 0.13 *) Correction due to new information received. Change in provision for probable credit losses 2013 Provision for individually assessed credits Collective provision for individually assessed credits Provision collectively assessed homogeneous credits Provision at beginning of year -59-8 -115 The year s provision -22 2-55 Reversal of previous provisions 12-16 Utilised for actual losses 21-55 Foreign exchange effect -8-7 Provision at end of year -56-6 -92 2012 Provision for individually assessed credits Collective provision for individually assessed credits Provision collectively assessed homogeneous credits Provision at beginning of year -57 - -115 The year s provision -36-8 -81 Reversal of previous provisions 13-13 Utilised for actual losses 20-66 Foreign exchange effect 1-2 Provision at end of year -59-8 -115 Carrying amount of restructured and reclassified credits Restructured credits before restructuring 4 4 4 4 Restructured credits after restructuring 4 4 4 4 2013 Impaired credits Gross Provision Net 1. Of which overdue more than 60 days Credits overdue more than 60 days which are not impaired Construction 0 0 0 0 - Property management - - - - - Retail 1 0 1 1 - Hotel and restaurant - - - - - Agriculture, hunting and forestry 8-6 2 1 2 Private individuals 271-136 135 141 28 Manufacturing 0 0 - - - Transport 0 0 - - - Other 9-6 3 1 3 Total 289-148 141 144 33 Impaired credits and credits which are overdue by more than 60 days, by sector 2012 Impaired credits Gross Provision Net 1. Of which overdue more than 60 days Credits overdue more than 60 days which are not impaired Construction 0 0 0 0 - Property management - - - - - Retail 3-1 2 2 - Hotel and restaurant - - - - - Agriculture, hunting and forestry 10-6 4 2 1 Private individuals 290-157 133 142 26 Manufacturing 1 0 1 - - Transport 1-1 0 0 - Other 16-9 7 6 1 Total 321-174 147 152 28 1) Carrying amount after taking into account specific provisions for individually valued credits and provisions for collectively valued credits but excluding collective provisions for credits which are individually assessed. Note 12 Appropriations 2013 2012 Reversal amortisation in excess of plan, goodwill on acquisitions 3 2 Depreciation/writeback in excess of plan, lease assets 125-270 Provision/writeback, tax allocation reserve 154-154 Total 282-422 Note 13 Credits to credit institutions Banks in Swedish kronor 3,114 1,123 3,113 1,122 Banks in foreign currency 224 154 134 107 Total 3,338 1,277 3,247 1,229 Of which non-current assets 3,338 1,277 3,247 1,229 Of which claims on companies 3,338 1,276 3,247 1,229 handelsbanken finans annual report 2013 25
Note 14 Credits to the public Note 15 Cont. The public Swedish kronor 41,145 43,285 12,356 12,835 The public foreign currency 13,620 13,737 1,203 1,308 Total 54,765 57,022 13,559 14,143 Probable credit losses -155-182 -90-106 Total credits to the public 54,610 56,840 13,469 14,037 Of which non-current assets 54,598 56,822 13,469 14,037 Of which current assets 12 18 - - Repossessed property 12 18 - - Carrying amount repossessed property 12 18 - - Disclosures on gross investment and present value of future minimum lease payments 2013 2012 Gross investment 43,308 47,984 Present value of credits referring to future minimum lease payments at balance sheet date 40,375 44,111 Shares in companies Number of shares Carrying amount Ownership share, % 2013 2012 Foreign credit institutions Handelsbanken Rahoitus Oyj (Helsinki) 0112308-8 37 265 710 100 1,276 1,276 Other foreign subsidiaries Kreditt Inkasso AS (Fredrikstad) 955074203 750 100 13 13 Handelsbanken Finans (Shanghai) Financial Leasing Company Ltd 310101717882194-100 59 59 Other Swedish subsidiaries Kredit-Inkasso AB (Stockholm) 556069-3185 3,000 100 0 0 Total 1,348 1,348 Note 16 Derivative instruments Nominal amount Positive market values Negative market values Distribution of gross investment and minimum lease payments by maturity dates Within 1 yr Between 1 and 5 yrs Over 5 yrs Total 2013 2012 Derivatives for cash flow hedges Interest rate swaps -4,860-9,970 226 480 - - Distribution of gross investment 4,181 15,847 23,280 43,308 Distribution of minimum lease payments calculated at present value 4,157 15,368 20,850 40,375 Unearned finance income 2,932 (3,873) Non-guaranteed residual values accruing to the lessor All Handelsbanken Finans s lease agreements have guaranteed residual values. Provision for impaired credits referring to minimum lease payments The book value of the provision for impaired credits with respect to minimum lease payments is SEK 10.1 million (15.1). Variable part of lease payments included in earnings for the period This amounts to SEK 431 million (765), due to lower interest rates in 2013 than in 2012 and lower volumes. Major lease agreements At the end of the year, there were six lease exposures in the with an individual carrying amount exceeding SEK 1 billion. The total value of these was SEK 18.9 billion (19.8), which corresponds to 34.6 per cent of the s total credit volume as at 31 December 2013. The carrying amount of the largest individual exposure was SEK 8.3 billion (8.7). The average remaining maturity was 6.2 years (7.2). The exposures are in the transport and energy sectors. Note 15 Shares and participating interests Shares Swedish credit institutions 0 0 Shares foreign credit institutions 1,276 1,276 Shares in other foreign subsidiaries 72 72 Other shares and participating interests 5 3 5 3 Total 5 3 1,353 1,351 Of which non-current assets 1,348 1,348 Maturity analysis derivatives up to 1 yr over 1 yr up to 5 yrs over 5 yrs Nominal amount/maturity 4,332 528 - Anticipated cash flows/maturity 2,412 590 - Hedge accounting Handelsbanken Finans uses cash flow hedges in its operations to hedge against the uncertainty of future cash flows. Uncertainty in future cash flows arises when lending and funding is at variable interest rates. Interest rate swaps are used as hedging instruments, with Handelsbanken as the counterparty. Value changes on swaps which are effective, that is they correspond to cash flows related to the hedged item, are recognised in other comprehensive income and accumulated in equity. At the end of the year, the hedge reserve was SEK 16 million (139), after a deduction for deferred tax. Hedge ineffectiveness has affected the income statement by SEK -0.2 million (3.1) For more information about classification and valuation of derivatives, see note 31. Note 17 Intangible assets Goodwill Cost of acquisition at beginning of year 69 69 91 91 Cost of acquisition at end of year 69 69 91 91 Accumulated amortisation at beginning of year - - -37-32 Amortisation for the year - - -6-5 Accumulated amortisation at end of year - - -43-37 Foreign exchange effect -1-3 -7-9 Closing residual value 68 66 41 45 Internally developed software Cost of acquisition at beginning of year 11 11 11 11 Cost of acquisition at end of year 11 11 11 11 Accumulated amortisation at beginning of year -1 0-1 0 Amortisation for the year -2-1 -2-1 Accumulated amortisation at end of year -3-1 -3-1 Foreign exchange effect 0 0 0 0 26 handelsbanken finans annual report 2013
Note 17 Cont. Note 19 Cont. Closing residual value 8 10 8 10 Total intangible assets 76 76 49 55 Amortisation Amortisation is on a straight-line basis, based on the expected useful life. At present, this means that principally the following amortisation rates are applied: Goodwill on acquisitions Not amortised 11 and 20 years Internally developed software 5 yrs 5 yrs Goodwill impairment testing Goodwill impairment testing is performed at the end of the reporting year and when there is an indication of the need for impairment testing. Testing is performed by calculating the recoverable amount for the cash-generating unit to which the goodwill item refers, which is the s business operation in Denmark. As long as the recoverable amount exceeds the carrying amounts, no impairment loss needs to be recognised. The recoverable amount was established by calculating the value in use of the cash-generating unit. The value in use has been calculated by discounting estimated future cash flows using a cash flow period of 20 years. Forecasts have been made of riskweighted assets, income, expenses and credit losses. The year s impairment test is based on a cautious assumption of a long-term cash flow growth of 2 per cent which corresponds to the Riksbank s long-term inflation target. Forecast cash flows have been discounted at a rate based on a risk-free interest rate and a risk adjustment corresponding to the market s average return requirement. In the annual impairment testing, the discount rate was 7.6 per cent (7.9) after tax. The same rate before tax was 10.8 per cent (10.9). In the annual impairment testing the difference between the recoverable amounts and the carrying amounts was deemed to be satisfactory. The value of goodwill is not sensitive to the assumptions on which the calculation of the recoverable amount is based. Note 18 Equipment Cost of acquisition at beginning of year 30 30 11 11 Cost of acquisition of new assets 3 7 1 1 Cost of acquisition of assets sold during the year -12-7 -1-1 Cost of acquisition at end of year 21 30 11 11 Accumulated amortisation according to plan, opening balance -21-18 -7-6 Amortisation for the year -3-3 -1-1 Accumulated amortisation of assets sold during the year 11 0 0 0 Accumulated amortisation at end of year -13-21 -8-7 Closing residual value 8 9 3 4 Of which non-current assets 8 9 3 4 Accumulated amortisation at beginning of year - - -14,103-13,237 Amortisation for the year - - -3,632-3,758 Accumulated amortisation of assets sold during the year - - 2,803 2,917 Accumulated impairments - - -10-25 Depreciation and impairments at end of year - - -14,942-14,103 Closing residual value - - 37,796 39,548 Of which non-current assets - - 37,784 39,530 Of which current assets - - 12 18 Accumulated depreciation in excess of plan - - -30,054-30,179 Net value after depreciation in excess of plan - - 7,742 9,369 Repossessed property - - 12 18 Of which provision for probable losses - - - - Carrying amount repossessed property - - 12 18 SEK 859 million (921) of the parent company s acquisition value is leasing contracts where the basic lease period has not started. For further information, see note 14. Note 20 Other assets Customer receivables 475 673 470 670 Other 17 143 17 143 Total 492 816 487 813 Of which current assets 492 816 487 813 Note 21 Prepaid expenses and accrued income Accrued interest income 231 211 210 192 Other accrued income 166 150 81 66 Prepaid expenses 4 7 4 7 Total 401 368 295 265 Note 22 Due to credit institutions Banks in Swedish kronor 5,665 5,944 5,698 6,020 Banks in foreign currency 13,586 13,751 11,789 11,941 Credit institutions in Swedish kronor 6,080 6,380 6,080 6,380 Total 25,331 26,075 23,567 24,341 Note 19 Lease assets Of which to companies 19,250 19,695 17,487 17,961 Note 23 Borrowing from the public Cost of acquisition at beginning of year - - 53,651 55,595 Cost of acquisition of new assets - - 3,110 3,561 Cost of acquisition of assets sold during the year - - -4,023-5,505 Cost of acquisition at end of year - - 52,738 53,651 Borrowing in Swedish kronor 1,506 1,555 1,506 1,555 Total 1,506 1,555 1,506 1,555 handelsbanken finans annual report 2013 27
Note 24 Other liabilities Note 26 Cont. Accounts payable 162 227 160 224 Liability to parent company, contribution 1,000 200 1,000 200 Other 130 280 106 258 Total 1,292 707 1,266 682 Note 25 Accrued expenses and deferred income Tax recognised in the income statement Nominal tax rate in Sweden, % 22.0 26.3 22.0 26.3 Deviations Tax relating to previous years 1.2-0.1 1.7-0.2 Non-taxable income/ non-deductible expenses 0.0 0.0 0.0 0.0 Effect of lower tax rate - -106.4 - - Effects of foreign taxes and other items 0.9-0.1 0.4 0.0 Effective tax rate, % 24.1-80.3 24.1 26.1 The deferred taxes booked in the income statement in the are related to the untaxed reserves in the parent company. As of 2013, Swedish corporate tax has been changed from 26.3 per cent to 22 per cent. Deferred taxes in the balance sheet for 2012 have been recalculated to the new tax rate. Accrued interest expenses 159 219 155 214 Other accrued expenses 83 96 38 45 Deferred income 142 80 142 80 Total 384 395 335 339 Note 27 Untaxed reserves Note 26 Taxes Deferred taxes Deferred tax assets Goodwill on acquisitions 5 5 - - Total 5 5 - - Deferred tax liabilities Credits to the public (leases) 6,612 6,639 - - Derivative instruments 5 39 5 39 Hedging of net investment in subsidiaries 7 17 - - Goodwill on acquisitions 6 7 - - Tax allocation reserve - 34 - - Total 6,630 6,736 5 39 Net deferred tax liabilities 6,625 6,731 5 39 Change in deferred taxes 2013 Opening balance Recognised in income statement Recognised in other comprehensive income Closing balance Credits to the public (leases) 6,639-27 - 6,612 Derivative instruments 39 - -34 5 Hedging of net investment in subsidiaries 17 - -10 7 Goodwill on acquisitions 7-1 - 6 Other 29-34 - -5 Net 6,731-62 -44 6,625 2012 Opening balance Recognised in income statement Recognised in other comprehensive income Closing balance Credits to the public (leases) 7,866-1,227-6,639 Derivative instruments 82-1 -42 39 Hedging of net investment in subsidiaries 7-10 17 Goodwill on acquisitions 9-2 - 7 Other -7 36-29 Net 7,957-1,194-32 6,731 Tax recognised in the income statement Current tax Tax expense for the year -300-209 -265-175 Adjustment of tax relating to previous years -21 1-21 1 Deferred tax Changes in temporary differences 62 1,194 - - Total -259 986-286 -174 2013 2012 Lease assets 30,054 30,179 Goodwill on acquisitions 28 31 Provision to tax allocation reserve - 154 Total 30,082 30,364 Note 28 Related-party disclosures Claims on and liabilities to related parties Other related parties Other related Subsidiaries parties 2013 2012 Credits to credit institutions 3,338 1,276 - - 3,246 1,229 Derivatives 226 480 - - 226 480 Other assets 13 12 - - 13 12 Total 3,577 1,768 - - 3,485 1,721 Due to credit institutions 19,250 19,695 - - 17,487 17,961 Derivatives - - - - - - Other liabilities 1,137 350 0 0 1,133 345 Total 20,387 20,045 0 0 18,620 18,306 Derivatives, nominal value - - - - -4,860-9,970 Related parties income and expense Other related parties Other related Subsidiaries parties 2013 2012 Interest income 323 408 - - 257 349 Interest expense -535-753 - - -519-724 Fee and commission income 4 4 - - 3 4 Fee and commission expense -21-21 - - -16-17 Other income 81 80 8 17 80 80 Other expenses -196-199 -1-1 -172-179 Total -344-481 7 16-367 -487 During the year, normal business transactions have been carried out between the parent company and subsidiaries, and with counterparties within the Handelsbanken. A list of Handelsbanken Finans s subsidiaries is presented in note 15. The group Other related parties includes Handelsbanken AB, its foreign branches and subsidiaries and also Pensionskassan SHB. At parent company level, Handelsbanken Finans AB s branches are also included. For salaries, other compensation and pensions to key persons in the senior management, see note 8, Staff costs. 28 handelsbanken finans annual report 2013
Note 29 Contingent liabilities The contingent liability relates to VAT and is SEK 9 million (8), which in the case of a negative outcome would incur an expense for the of the same amount. Note 30 Other commitments Committed credit offers 3,373 3,965 3,227 3,817 Unutilised part of granted overdraft facilities 9,994 10,280 7,492 7,977 Total 13,367 14,245 10,719 11,794 Contracted future operating lease charges and rental charges allocated to the periods during which they fall due for payment. 2014 10 18 9 18 2015 9 18 9 18 2016 9 18 9 18 2017 9 18 9 18 2018 9-9 - Total 46 72 45 72 Operating lease charges for SEK 23 million were recognised as an expense in 2013. Note 31 Classification of financial assets and liabilities 2013 Derivatives designated as hedging instruments Credits and other receivables Available-for-sale financial assets Other financial assets/liabilities Total carrying amount Fair value Assets Credits to credit institutions 3,338 3,338 3,338 Credits to the public 54,610 54,610 56,058 Shares and participating interests 5 5 5 Derivative instruments 226 226 226 Other assets 492 492 492 Total financial assets 226 58,440 5 58,671 60,119 Non-financial assets 776 Total assets 59,447 Liabilities Due to credit institutions 25,331 25,331 26,225 Borrowing from the public 1,506 1,506 1,504 Other liabilities 1,293 1,293 1,293 Total financial liabilities 28,130 28,130 29,022 Non-financial liabilities 7,014 Total liabilities 35,144 2012 Derivatives designated as hedging instruments Credits and other receivables Available-for-sale financial assets Other financial assets/liabilities Total carrying amount Fair value Assets Credits to credit institutions 1,277 1,277 1,277 Credits to the public 56,840 56,840 59,461 Shares and participating interests 3 3 3 Derivative instruments 480 480 480 Other assets 816 816 816 Total financial assets 480 58,933 3 59,416 62,037 Non-financial assets 458 Total assets 59,874 Liabilities Due to credit institutions 26,075 26,075 28,517 Borrowing from the public 1,555 1,555 1,557 Other liabilities 707 707 707 Total financial liabilities 28,337 28,337 30,781 Non-financial liabilities 7,140 Total liabilities 35,477 For more information concerning derivatives, see note 16. handelsbanken finans annual report 2013 29
Note 31 Cont. Calculation of fair value for financial assets and liabilities For means of payment, receivables and liabilities with a variable interest rate, and short-term receivables and liabilities, the fair value is considered to be the same as the carrying amount. Receivables and liabilities with the final maturity date or the date for next interest rate fixing falling within 30 days are defined as short-term. Other lending and borrowing is valued at the current market rate for the equivalent maturity with an adjustment for credit and liquidity risk. The credit and liquidity risk premium by which the market rate has been adjusted is assumed to be the same as the average margin for new lending at the time of the measurement. Offsetting of financial assets and liabilities is not applied. Note 32 Fair value measurement of financial assets and liabilities 2013 SEK m Level 1 Level 2 Level 3 Total Shares and participating interests - 5-5 Derivative instruments - 226-226 Total financial assets at fair value - 231-231 2012 SEK m Level 1 Level 2 Level 3 Total Shares and participating interests - 3-3 Derivative instruments - 480-480 Total financial assets at fair value - 483-483 The tables above show the valuation technique applied for financial assets and liabilities at fair value. Level 1 comprises instruments for which there are listed prices on an active market. Level 2 comprises instruments which have been indirectly valued using market information. Level 3 consists of instruments whose valuation depends materially upon a variable that is not directly available on the market. Note 33 Geographical breakdown of income 2013 Sweden Denmark Finland Norway UK Poland China Total Interest income 1,543 48 188 76 23 1 5 1,884 Fee and commission income 172 11 131 8 0 0-322 Net gains/losses on financial transactions 0 0-0 0 0 0 0 Other income 75 5 2 12 5 1-100 Total income 1,790 64 321 96 28 2 5 2,306 2013 Sweden Denmark Finland Norway UK Poland Total Interest income 845 29 1 3 23 0 901 Lease income 3,422 152 315 534 4 16 4,443 Fee and commission income 173 11 0 1 0 0 185 Net gains/losses on financial transactions 0 0 - - 0 0 0 Other income 84 5-12 4 1 106 Total income 4,524 197 316 550 31 17 5,635 2012 Sweden Denmark Finland Norway UK Poland China Total Interest income 2,103 57 252 95 22 2 6 2,537 Fee and commission income 161 23 136 9 1 0-330 Net gains/losses on financial transactions 2 0-0 0 0 0 2 Other income 77 4 3 15 0 - - 99 Total income 2,343 84 391 119 23 2 6 2,968 2012 Sweden Denmark Finland Norway UK Poland Total Interest income 1,082 36 3 3 21 0 1,145 Lease income 3,846 160 336 593 4 18 4,957 Fee and commission income 162 23 1 0 1 0 187 Net gains/losses on financial transactions 3 0-0 0 0 3 Other income 96 4-14 0-114 Total income 5,189 223 340 610 26 18 6,406 30 handelsbanken finans annual report 2013
Note 34 Assets and liabilities in foreign currencies 2013 USD EUR DKK NOK GBP Assets Other currencies Credits to credit institutions 0 39 16 42 78 49 224 Credits to the public 33 10,379 972 1,491 638 107 13,620 Other assets 5 246 77 92 4-48 376 Total assets 38 10,664 1,065 1,625 720 108 14,220 Liabilities Due to credit institutions 19 10,218 1,022 1,500 709 118 13,586 Deposits and borrowing from the public - 0 0 - - - 0 Other liabilities and equity 0 102 43 121 11-10 267 Total liabilities and equity 19 10,320 1,065 1,621 720 108 13,853 Total Net foreign currency position 19 344 0 4 0 1 367 2012 USD EUR DKK NOK GBP Assets Other currencies Credits to credit institutions 2 37 20 41 54 0 154 Credits to the public 31 10,026 1,123 1,856 614 88 13,738 Other assets 4 216 73 90 1 2 386 Total assets 37 10,279 1,216 1,987 669 90 14,278 Liabilities Due to credit institutions 31 9,940 1,169 1,845 665 101 13,751 Deposits and borrowing from the public - 0 0 - - - 0 Other liabilities and equity - 105 46 136 4-11 280 Total liabilities and equity 31 10,045 1,215 1,981 669 90 14,031 Total Net foreign currency position 6 234 1 6 0 0 247 Net positions consist mainly of accumulated profits in foreign subsidiaries. 2013 USD EUR DKK NOK GBP Assets Other currencies Credits to credit institutions 0 15 16 25 78 0 134 Credits to the public 19 64 490 0 631 0 1,204 Other assets 5 7,148 559 1,581 10 12 9,315 Total assets 24 7,227 1,065 1,606 719 12 10,653 Liabilities Due to credit institutions 19 8,453 1,022 1,489 709 97 11,789 Deposits and borrowing from the public - 0 0 - - - 0 Other liabilities and equity - -1,220 43 117 10-85 -1,135 Total liabilities and equity 19 7,233 1,065 1,606 719 12 10,654 Net foreign currency position 5-6 0 0 0 0-1 Total 2012 USD EUR DKK NOK GBP Assets Other currencies Credits to credit institutions 2 9 20 22 54 0 107 Credits to the public 23 35 644-606 - 1,308 Other assets 3 6,904 551 1,944 10 29 9,441 Total assets 28 6,948 1,215 1,966 670 29 10,856 Liabilities Due to credit institutions 31 8,131 1,169 1,845 665 100 11,941 Deposits and borrowing from the public - 0 0 - - - 0 Other liabilities and equity - -1,180 46 120 4-71 -1,081 Total liabilities and equity 31 6,951 1,215 1,965 669 29 10,860 Net foreign currency position -3-3 0 1 1 0-4 Total handelsbanken finans annual report 2013 31
Note 35 Pledged assets for own debt All pledged assets refer to credits to the public SEK 12,725 million (13,134*). *Correction due to new information received. Note 36 Capital adequacy Capital base SEK m Tier 1 capital Equity 1) 24,303 24,397 23,915 24,138 Deducted items Goodwill and other intangible assets -46-41 -19-21 Deferred tax asset -5-5 - - Adjustments in accordance with stability filter Cash flow hedges -16-139 -16-139 Unrealised accumulated gains/losses, equities -5-3 -5-3 Total tier 1 capital 24,231 24,209 23,875 23,975 Tier 2 capital Additional items Unrealised accumulated gains/losses, equities 5 3 5 3 Total tier 2 capital 5 3 5 3 Total capital base for capital adequacy purposes 24,236 24,212 23,880 23,978 1) Tier 1 capital has been affected by the Board s proposed appropriations. Capital requirement SEK m Credit risk according to IRB approach 337 363 164 200 Credit risk according to standardised approach 74 87 171 187 Operational risk 290 271 246 229 Total capital requirement according to Basel II 701 721 581 616 Adjustment according to transitional rules 272 282 273 289 Total capital requirement according to Basel II, transitional rules 973 1,003 854 905 Risk-weighted assets according to Basel I 15,216 15,687 13,362 14,153 Capital requirement according to Basel I (8% of risk-weighted assets) 1,217 1,255 1,069 1,132 Lowest permitted capital requirement according to transitional rules 973 1,003 855 905 Capital adequacy analysis Capital requirement in Basel II compared with Basel I, % 57.6 57.5 54.4 54.4 Capital requirement in Basel II compared with transitional rules, % 72.0 71.9 68.0 68.1 Capital ratio according to Basel II, % 276.7 268.5 328.6 311.3 Capital ratio according to Basel I, % 159.3 154.3 178.7 169.4 Capital ratio according to transitional rules, % 199.3 193.0 223.5 211.9 Tier 1 ratio according to Basel II, % 276.7 268.4 328.5 311.2 Tier 1 ratio according to Basel I, % 159.2 154.3 178.7 169.4 Tier 1 ratio according to transitional rules, % 199.3 193.0 223.5 211.9 Capital base in relation to capital requirement Basel II 34.6 33.6 41.1 38.9 Capital base in relation to capital requirement Basel I 19.9 19.3 22.3 21.2 Capital base in relation to capital requirement according to transitional rules 24.9 24.1 27.9 26.5 Credit risks IRB Exposure after credit risk protection (EAD) Average risk weight, % Capital requirement SEK m 2013 2012 Institutions 0 0 63 64 0 0 Corporate 73 137 87 103 5 11 of which advanced approach 32 31 87 119 2 3 of which foundation approach 42 106 86 99 3 8 Households 18,136 16,477 26 27 332 352 Total IRB 18,209 16,614 26 27 337 363 Corporate 55 90 82 103 3 7 of which advanced approach 19 10 76 76 1 0 of which foundation approach 36 80 84 107 2 7 Households 13,844 13,437 16 18 161 193 Total IRB 13,899 13,527 16 18 164 200 Credit risks standardised approach Exposure after credit risk protection (EAD) Average risk weight, % Capital requirement SEK m 2013 2012 Sovereign and central banks 287 2 - - - - Municipalities 147 147 - - - - Institutions 51,499 52,395 - - 2 0 Corporate 175 220 100 100 14 18 Households 596 918 75 75 36 55 Past due items 5 11 150 150 1 1 Other 267 166 100 100 21 13 Total standardised approach 52,976 53,859 2 2 74 87 Sovereign and central banks 286 1 - - - - Municipalities 1 2 - - - - Institutions 49,967 50,887 - - - - Corporate 175 205 100 100 14 16 Households 605 918 75 75 36 55 Past due items 5 11 150 150 1 1 Other 1,499 1,432 100 100 120 115 Total standardised approach 52,538 53,456 4 4 171 187 32 handelsbanken finans annual report 2013
Note 36 Cont. CAPITAL REQUIREMENT Banking group All companies in the Handelsbanken Finans are included in the banking group and are thus subject to the Basel II capital adequacy rules. Capital base The capital base for the banking group consists of tier 1 capital and tier 2 capital. Tier 1 capital includes restricted and unrestricted equity in accordance with the specification for equity. Items that may be deducted from tier 1 capital include goodwill, unrealised gains on shares classified as availablefor-sale, deferred tax assets and the impact of cash flow hedges on equity. Tier 2 capital consists of the unrealised gains on shares classified as available-for-sale. In general, Handelsbanken Finans is able to re-allocate capital among the companies, to the extent that is permitted by legislation, for example capital adequacy requirements and restrictions in corporate law. Credit risks The capital requirement for credit risks is calculated by calculating a riskweighted exposure amount being calculated for all Handelsbanken Finans s exposures. The risk-weighted exposure amount for credit risk is partly calculated according to the IRB foundation and advanced approach, and partly according to the standardised approach. Handelsbanken Finans uses the advanced IRB approach for retail exposures (households and small companies) in Sweden, and in its subsidiary Handelsbanken Rahoitus Oyj. The foundation IRB approach has been used for corporate exposures in Sweden and in the subsidiary Handelsbanken Rahoitus Oyj. The IRB foundation approach has also been used for certain large corporate, household and small company exposures at Handelsbanken Finans s international branches. The standardised approach has been used for other exposures. 82 per cent of the capital requirement for credit risk has been calculated according to the IRB methods and the remainder according to the standardised approach. Handelsbanken Finans does not prepare its own Pillar III report according to Basel II. Instead, please refer to Handelsbanken s document entitled Risk and capital management Information according to Pillar III for 2013, which covers the entire Handelsbanken banking group. Operational risks Handelsbanken uses the standardised approach according to which calculation of the capital requirement is based on the company s income in various business segments. handelsbanken finans annual report 2013 33
Recommendation for appropriation of profits Recommendation for appropriation of profits and statement from the Board In accordance with the balance sheet for the parent company, the following profits after deduction for a paid contribution of SEK 780 million are at the disposal of the annual general meeting: Retained earnings Fair value fund Profit for the year Total SEK -657 million SEK 18 million SEK 900 million sek 261 million The Board proposes that the profits be carried forward to the next year. When assessing the amount of the company s paid contribution, account has been taken of the nature of operations, their scope, consolidation requirements and risk-taking. Our assessment is that the above appropriation of profits is prudent and well-adapted to the operations as a going concern. Unrealised changes in value of assets and liabilities at fair value have had a net impact of SEK 21 million on equity. The s capital base exceeded the statutory capital requirement by SEK 23,263 million at the year-end and in the parent company by SEK 23,025 million. We hereby declare that the consolidated accounts were prepared in accordance with international financial reporting standards as referred to in the Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards to the extent that this is possible within the confines of national laws and directives, that the parent company s annual accounts were prepared in accordance with sound accounting practices for listed companies, that the annual accounts and consolidated accounts give a fair presentation of the s and the parent company s financial position and performance and that the statutory administration report provides a fair view of the parent company s and s operations, financial position and performance and describes material risks and uncertainties to which the parent company and other companies in the are exposed. STOCKHOLM 18 MARCH 2014 Yonnie Bergqvist Chairman of the Board Peter Gustafsson Employee Representative Marie Lundberg Chief Executive Göran Holgerson Kai Jokitulppo 34 handelsbanken finans annual report 2013
Auditor s report Auditor s report To the annual meeting of the shareholders of Handelsbanken Finans AB Corporate identity no. 556053-0841 Report on the annual report and consolidated accounts We have audited the annual accounts and the consolidated accounts of Handelsbanken Finans AB for the year 2013, included in the printed version of this document on pages 1 34. The Board s and Chief Executive s responsibility for the annual report and consolidated accounts The Board of Directors and the Chief Executive are responsible for the preparation and fair presentation of the annual accounts in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies, and for the fair presentation of the consolidated accounts in accordance with the International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act of Credit Institutions and Securities Companies, and for such internal control as the Board of Directors and the Chief Executive determine is necessary to enable the preparation of annual accounts and the consolidated accounts that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and the consolidated accounts are free from material misstatements. During the year, the Bank s internal audit department has continuously examined the internal controls and accounts. We have received the reports that have been prepared. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and the consolidated accounts. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the annual accounts and the consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company s preparation and fair presentation of the annual accounts and the consolidated accounts 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 company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Chief Executive, as well as evaluating the overall presentation of the annual accounts and the consolidated accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Opinions In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and present fairly, in all material respects, the financial position of the parent company as of 31 December 2013 and of its financial performance and cash flows for the year then ended in accordance with the Annual Accounts Act of Credit Institutions and Securities Companies. The consolidated accounts have been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies, and present fairly, in all material respects, the financial position of the group as of 31 December 2013 and of its financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act of Credit Institutions and Securities Companies. The Board of Directors report is consistent with the other parts of the annual accounts and the consolidated accounts. We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet of the parent company and the group. Report on other legal and regulatory requirements In addition to our audit of the annual accounts and the consolidated accounts, we have also audited the proposed appropriations of the company s profit or loss and the administration of the Board of Directors and the Chief Executive of Handelsbanken Finans AB for the year 2013. Responsibilities of the Board of Directors and the Chief Executive The Board of Directors is responsible for the proposal for appropriations of the company s profit or loss, and the Board of Directors and the Chief Executive are responsible for administration under the Companies Act and the Banking and Financing Business Act. Auditor s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors proposed appropriations of the company s profit or loss, we examined whether the proposal is in accordance with the Companies Act. As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and the consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Chief Executive is liable to the company. We also examined whether any member of the Board of Directors or the Chief Executive has, in any other way, acted in contravention of the Companies Act, the Banking and Financing Business Act, the Annual Accounts Act for Credit Institutions and Securities Companies, or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Opinions We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the Board of Directors report and that the members of the Board of Directors and the Chief Executive be discharged from liability for the financial year. Stockholm 24 March 2014 KPMG AB Stefan Holmström Public Authorised Accountant handelsbanken finans annual report 2013 35
Adresses Addresses handelsbanken.se/finans Handelsbanken Finans AB in Sweden Postal address: SE-106 35 Stockholm Phone: +46 8 701 46 00 Office address: Torsgatan 12 Kredit-Inkasso AB Postal address: SE-106 35 Stockholm Phone: +46 8 701 47 00 Office address: Torsgatan 12 Handelsbanken Finans s branch in Denmark Vestergade 2, DK-7430 Ikast Phone: +45 97 15 57 77 Handelsbanken Finans s branch in Finland and Handelsbanken Rahoitus Oyj Postal address: PB 900, 00101 Helsinki Phone: +358 9 133 71 Office address: Kluuvikatu 6 A Handelsbanken Finans s branch in Norway Postal address: Postboks 1342 Vika, 0113 Oslo Phone: +47 22 39 70 00 Office address: Tjuvholmen Allé 11 Kreditt-Inkasso AS Postal address: Postboks 435, NO-1601 Fredrikstad Phone: +47 69 39 47 40 Office address: Stortorvet 4/8 Handelsbanken Finans s branch in the UK 4M Building Malaga Avenue, Manchester Airport Manchester M90 3RR Phone: +44 161 020 260 Handelsbanken Finans s branch in Poland Mokotow Nova Building 22 Woloska Str., 02-675 Warsaw Phone: +48 22 381 7300 Handelsbanken Finans (Shanghai) Financial Leasing Co., Ltd Room 47, Area B, 1st Floor of No. 23, 4999 Hongmei (S) Road, Minhang District, Shanghai 201109, P.R.C. Phone: +86 21 6323 9881 36 handelsbanken finans annual report 2013
Glossary Glossary Adjusted equity per share Equity at the end of the year reduced by the equity effects of cash flow hedges and the minority share of equity. Adjusted equity is then divided by the number of ordinary shares at the year-end, reduced by buybacks. Where applicable, the dilution effect is taken into account. CAPITAL BASE Comprises the sum of tier 1 and tier 2 capital. CAPITAL RATIO The capital ratio is the capital base in relation to risk-weighted volume. The Swedish Capital Adequacy and Large Exposures Act stipulates that the capital ratio should be at least 8 per cent. C/I RATIO Total expenses in relation to total income. The C/I ratio is calculated before and after credit losses. CREDIT LOSS RATIO Credit losses as a percentage of the opening balance for credits to the public and credit institutions (excl. banks). Earnings per share The profit for the year attributable to holders of ordinary shares divided by the average number of outstanding shares. Where applicable, the dilution effect is taken into account. IMPAIRED CREDIT A credit where contracted cash flows will probably not be fulfilled. The full amount of all receivables which give rise to a specific provision is included in impaired credits even if parts are covered by collateral. A credit is not impaired if there is collateral which covers the principal amount, interest and penalties for late payments by a satisfactory margin. IMPAIRED CREDITS RESERVE RATIO Provision for probable credit losses as a percentage of gross impaired credits. NON-PERFORMING CREDIT A credit where interest, repayments or overdrafts have been due for payment for more than 60 days. PROPORTION OF IMPAIRED CREDITS Impaired credits (net) in relation to total credits to the public, credit institutions (excluding banks) and lease assets. Impaired credits are reported without deduction for the collateral which exists to secure the claim. Restructured credits Credits where some kind of concession has been made due to the borrower s inadequate payment capacity. RETURN ON EQUITY The profit for the year after appropriations and tax in relation to average equity after adjustments for dividends. RISK-WEIGHTED ASSET The total risk-weighted amount from each credit risk exposure. The risk-weighted amount is the same as the risk weight of the exposure multiplied by its exposure amount. The risk weight is based on a number of factors such as the repayment capacity and debt-servicing of the counterparty, type of product and the value of any collateral. TIER 1 CAPITAL Consists of equity. A deduction is made for goodwill and other intangible assets. TIER 1 RATIO Tier 1 capital in relation to risk-weighted assets. TIER 2 CAPITAL Consists of the unrealised accumulated result on available-for-sale shares. handelsbanken finans annual report 2013 37
handelsbanken.se/finans +46 8 701 46 00 SE-106 35 Stockholm, Sweden