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2007-07-19 16:57:20 CEST 2007-07-19 16:57:20 CEST REGULATED INFORMATION Nordea Pankki Suomi Oyj - Half Year financial reportNordea Bank Finland Plc: Interim Report January-June 2007Nordea Bank Finland Plc is a wholly owned subsidiary of Nordea Bank AB (publ), the listed parent company of the whole Nordea Group. This statutory interim report covers the operations of the legal entity Nordea Bank Finland Plc with its subsidiaries in Finland and abroad. The figures include various intragroup transactions against other entities of the Nordea Group. The business operations of the Nordea Group have been organised in three business areas, all of which operate across national boundaries: Retail Banking, Corporate and Institutional Banking and Asset Management & Life. The consolidated interim report of Nordea Bank AB (publ) embraces all the activities of the Nordea Group and provides the most complete and fair view. The Finnish Asset Management & Life operations are included in the interim report of the Nordea Group. Nordea Bank Finland Group Result summary January-June 2007 The first six months of 2007 were characterised by continued strong volume growth and increased deposit margins. NBF's total income increased by 2% to EUR 1,179m (1,158) and total expenses by 6% to EUR 452m (428). (The comparison figures in brackets refer to the first six months of 2006.) NBF's operating profit was down by 2% compared to the same period in 2006 and amounted to EUR 743m (759). Return on equity was 9.4% (9.3%) and the cost/income ratio 38% (37%). Loan losses were positive at EUR 16m (26). Net profit decreased by 5% to EUR 552m (579). Market development in the first half of 2007 The Finnish economy continued its robust growth during the first months of the year. The broad-based economic growth improved the employment situation, and the unemployment rate continued to come down. The favourable labour market development and consumers' high confidence boosted both household consumption and the demand for credits despite a rise in interest rates. Income Total income increased by 2% to EUR 1,179m mainly as a result of the favourable development in net interest income. The strong lending growth continued with double-digit volume growth in most segments, which largely compensated for the margin pressure still present in certain areas. Total lending to the public increased by 17% year-on-year to EUR 56.4bn. Deposits and borrowings from the public increased by 8% year-on-year to EUR 37.1bn driven by both personal and corporate customers. Deposit margins in Retail Banking continued to improve following higher market interest rates. Net commission income increased by 3% to EUR 159m. Lending-related commissions increased by 7% to EUR 72m, reflecting the volume growth as well as the ongoing centralisation of Trade Finance products to NBF. Savings-related commissions income grew by 13% in total. Total payment commissions were stable despite strong competition. Total commission expenses increased by 17% partly explained by the strong sales of cards. Net gains/losses at fair value decreased by 31% to EUR 185m (270). Income from equity and interest rate related products came down from the high level in the previous year. FX-related income developed positively and so did other items driven by commodity and credit derivatives. Profit from companies accounted for under the equity method decreased to EUR -1m (24). The reduction mainly reflects the divestment of the holding in International Moscow Bank in the second half of 2006. Other operating income totalled EUR 39m (60) comprising mainly capital gains and other miscellaneous operating income. Expenses Total operating expenses increased by 6% and amounted to EUR 452m (428). The increase is a result of Nordea's growth ambition and prioritised investments in certain areas with sizeable potential, as well as an increase in variable salaries. Staff costs increased by 4% to EUR 254m (244), which is mainly explained by general wage increases, higher variable salaries and the higher number of employees. The average number of FTEs increased by approximately 100 year-on-year, largely in the Baltic area. Variable salaries account for approximately half of the total increase in staff costs. Other operating expenses totalled EUR 184m (172), up by 7% compared to last year. The higher activity level and investments in strategic projects mainly explain the increase. Depreciation of tangible and intangible assets increased slightly to EUR 14m (12). The cost/income ratio was 38% compared to 37% in the first half of 2006. Loan losses Net loan losses were positive at EUR 16m (26) reflecting recoveries maintained at a high level and limited new provisions. NBF is confident in the overall credit quality of its credit portfolio. Taxes The effective tax rate for the first half 2007 was approximately 26%. In the first half 2006, the effective tax rate was approximately 24%. Net profit Net profit decreased by 5% to EUR 552m (579) corresponding to a return on equity of 9.4% compared to 9.3% in the first half of last year. Balance sheet (Comparison figures in brackets refer to December 2006 figures) The total assets of NBF amounted to EUR 137bn (126). The change mainly reflects growth in lending, higher balance sheet values of derivatives as well as decreased intra-group transactions. There was a slight decline in the growth rate of the housing loans stock in Finland but in the Baltic area the growth rate has been very strong. Loans to the public grew by 8% compared with the year-end. The book values of derivatives have increased due to revaluations and volume growth. Deposits and borrowings from the public increased from the year-end level and amounted to EUR 37.1bn (35.7). Basel II Nordea for the first time reports risk-weighted assets according to the new capital adequacy rules (Basel II) following the approval of the internal rating based (IRB) models on 26 June. The final Basel II report will be submitted to the FSAs at a later date and the RWA presented in this report may thus be subject to adjustments. In the internal rating based (IRB) foundation approach to measure credit risk, risk weights are a function of probability of default (PD). Nordea has therefore used its own estimates of the risk parameter PD. Nordea uses the IRB foundation approach for credit risk in the corporate and institutions portfolios in 2007, which cover approx. 50 per cent of Nordea's credit portfolios. The other exposure classes, e.g. Retail and Sovereign are calculated according to the standardised methods. Nordea will gradually apply the advanced IRB approach. The next step will be to start the implementation according to the IRB method for the retail exposure class. Nordea uses internal VaR models for the larger part of the portfolio to measure Market risk. In Basel II, counterparty risk is included under credit risk, whereas this previously was included under market risk. For Operational Risk Nordea uses the standardised approach based on annual revenue of each of the broad business lines for estimating operational risk. At the end of June, NBF's risk-weighted assets (RWA) amounted to EUR 66bn. Before transition rules, which allows for a maximum of 5% reduction of RWA in 2007, RWAs were 65bn. According to Basel I rules, RWA would have been EUR 70bn. The tier 1 ratio was 13.7% and the total capital ratio was 15.5%. Profit for the period has not been included in tier 1. NBF paid back a subordinated loan amounting to USD 150m in January 2007 with the permission of the Finnish Financial Supervision Authority. Permission to pay back a subordinated loan amounting to EUR 200m in August 2007 has been received from the Finnish Financial Supervision Authority. The loan has therefore been deducted from tier 2 capital in the June 2007 capital adequacy calculations. Credit portfolio Total lending was EUR 56.4bn (52.5) and the share of personal customer lending was 47%. Within personal customer lending, mortgage lending accounted for 77%. There was no major change in the composition of the corporate loan portfolio during the first half of the year. Real estate management remains the largest industry exposure in the credit portfolio and amounts to EUR 7.4bn, representing 13% of the total portfolio. The lending portfolio is well diversified. At the end of June 2007, individually assessed impaired loans, net, amounted to EUR 406m (379) representing 0.4% of total loans and receivables before allowances, which was on the same level as at year-end. Off-balance sheet commitments The total amount of off-balance sheet commitments increased to EUR 26.8bn (22.7). The increase mainly related to guarantees and stand-by facilities. The volumes of derivatives have continued to grow and they amounted to EUR 2,714bn (2,259). Changes in the group structure Nordea Finance Finland Ltd, a wholly-owned subsidiary of NBF, sold the real estate company Kiint. Oy Lahden Hansa in February 2007. Nordea Bank Finland Plc invested in the newly founded private equity fund Profita Fund III Ky in May 2007. NBF's share of the total capital invested is 27.7%. Changes in the Board of Directors After Lars G Nordström retired on 13 April 2007, the Board of Directors appointed Christian Clausen Chairman of the Board of Directors on 7 May 2007. Board member Tom Ruud and deputy member Jacob Grinbaum left the Board on 1 May 2007. The extraordinary general meeting on 7 May 2007 confirmed the number of Board members to be five. NBF's Board members Christian Clausen, Markku Pohjola, Carl-Johan Granvik, Arne Liljedahl and Peter Schütze continue in their positions. Long Term Incentive Programme In April 2007, the Annual General Meeting of Nordea Bank AB resolved to introduce a Long Term Incentive Programme (LTIP). The programme grants rights to Nordea Bank AB's shares directly to employees of NBF. The programme comprises up to 400 managers and key employees of the Nordea Group. The main objective of LTIP is to strengthen Nordea's ability to retain and recruit the best talent for key leadership positions. For further information see Note 1. Risks and uncertainties Nordea's revenue base reflects the Group's business with a large and diversified customer base, comprising both retail and corporate customers, representing different geographic areas and industries. Nordea has mainly an exposure to the general and industry specific economic development in the geographical areas in which the Group operates. Nordea's main risk exposure is credit risk. The Group also assumes market risk, liquidity risk and operational risk. There is no major change to the risk composition of the Group compared to what is disclosed in 2006 Annual Report. None of the above exposures and risks is expected to have any significant adverse effect on the Group or its financial position in the next six months. Within the framework of normal business operations, the Group faces claims in civil lawsuits and other disputes, most of which involve relatively limited amounts. None of these disputes is considered likely to have any significant adverse effect on the Group or its financial position in the next six months. Outlook 2007 The organic growth strategy consistently pays off. The strong revenue growth is expected to continue in the second half of 2007. As previously stated, the cost increase in the Nordea Group for the full-year 2007 is expected to be of the same magnitude as in 2006, ie 4-5%, and the gap between revenue and cost growth for the full year 2007 is expected to be 3-4 %-points, excluding banking operations in Russia. The cost increase for the full- year, including Orgresbank and planned investments in Russia, is expected to be approx. 6%. This corresponds to a forecasted gap in the area of 2-3%-points, including Nordea's Russian banking operations. The quality of the credit portfolio in the Nordea Group remains strong. It is however likely that lower recoveries during the latter part of the year will result in actual net charges in the coming quarters. Following the reduction of the corporate tax rate in Denmark the average standard tax rate for the Nordea Group's business is approx. 26%. The effective tax rate for 2007 is expected to be 4-6 %-points lower than this average. Nordea Bank Finland is expected to contribute to the development above. Key financial figures Income statement Jan-Jun Jan-Jun Change Full year EURm 2007 2006 % 2006 Net interest income 797 649 23 1,415 Net fee and commission income 159 155 3 308 Net gains/losses on items at fair value 185 270 -31 408 Equity method -1 24 -104 31 Other income 39 60 -35 292 Total operating income 1,179 1,158 2 2,454 Staff costs -254 -244 4 -504 Other expenses -184 -172 7 -359 Depreciation of tangible and intangible assets -14 -12 17 -18 Total operating expenses -452 -428 6 -881 Loan losses 16 26 -38 63 Impairment of securities held as financial non-current assets 0 0 0 -2 Disposals of tangible and intangible assets 0 3 -100 5 Operating profit 743 759 -2 1,639 Tax expense -191 -180 6 -358 Net profit for the period 552 579 -5 1,281 Business volumes, key items 30 Jun 30 Jun Change 31 Dec Change EURm 2007 2006 % 2006 % Loans and receivables to the public 56,404 48,336 17 52,463 8 Deposits and borrowings from the public 37,067 34,370 8 35,689 4 Equity 10,032 12,779 -21 13,479 -26 Total assets 136,995 125,810 9 131,346 4 Ratios and key figures Jan-Jun Jan-Jun Full year 2007 2006 2006 Return on equity, % 9.4 9.3 10.0 Cost/income ratio, % 38 37 36 Tier 1 capital ratio1,2, % 13.7 17.0 13.8 Total capital ratio1,2, % 15.5 19.1 16.0 Tier 1 capital1,2, EURm 9,107 11,558 8,998 Risk-weighted assets1, EURm 66,460 68,022 65,270 Number of employees (full-time equivalents)1 9,307 9,076 9,060 Average number of employees (full-time equivalents)1 9,127 8,989 9,024 1 End of period. 2 Jan-Jun figures excluding profit for the period. Formulas used Return on equity, %: 100 x (Operating profit after taxes) / (Shareholders' equity (average for beginning and end of year)) Cost/income ratio, %: 100 x (Total operating expenses/Total operating income) Half-year development Jan-Jun Jan-Jun Net fee and commission income, EURm 2007 2006 Asset Management commissions 27 23 Life insurance 7 7 Brokerage 22 25 Custody 19 11 Deposits 2 2 Total savings related commissions 77 68 Payments 73 71 Cards 22 20 Total payment commissions 95 91 Lending 44 43 Guarantees and document payments 28 24 Total lending related commissions 72 67 Other commission income 23 21 Fee and commission income 267 247 Payment expenses -23 -21 Other commission expenses -85 -71 Fee and commission expenses -108 -92 Net fee and commission income 159 155 Jan-Jun Jan-Jun General administrative expenses, EURm 2007 2006 Staff -247 -235 Profit sharing -7 -9 Information technology1 -59 -53 Marketing -15 -13 Postage, telephone and office expenses -19 -18 Rents, premises and real estate expenses -40 -39 Other -51 -49 Total -438 -416 1 Refers to IT operations, service expenses and consultant fees. Total IT-related costs including staff etc, were EUR 77m in the first half of 2007 (EUR 73m in the first half of 2006). Income statement Jan-Jun Jan-Jun Full year EURm Note 2007 2006 2006 Operating income Interest income 2,391 1,646 3,626 Interest expense -1,594 -997 -2,211 Net interest income 797 649 1,415 Fee and commission income 267 247 497 Fee and commission expense -108 -92 -189 Net fee and commission income 159 155 308 Net gains/losses on items at fair value 2 185 270 408 Profit from companies accounted for under the equity method -1 24 31 Dividends 1 2 2 Other operating income 38 58 290 Total operating income 1,179 1,158 2,454 Operating expenses General administrative expenses: Staff costs -254 -244 -504 Other expenses -184 -172 -359 Depreciation, amortisation and impairment charges of tangible and intangible assets -14 -12 -18 Total operating expenses -452 -428 -881 Loan losses 3 16 26 63 Impairment of securities held as financial non-current asset 0 0 -2 Disposals of tangible and intangible assets 0 3 5 Operating profit 743 759 1,639 Tax expense -191 -180 -358 Net profit for the period 552 579 1,281 Attributable to: Shareholders of Nordea Bank Finland Plc 551 578 1,279 Minority interests 1 1 2 Total 552 579 1,281 Balance sheet 30 Jun 31 Dec 30 Jun EURm Note 2007 2006 2006 Assets Cash and balances with central banks 1,965 1,151 1,456 Treasury bills and other eligible bills 2,230 2,877 2,965 Loans and receivables to credit institutions 4 41,365 47,031 44,130 Loans and receivables to the public 4 56,404 52,463 48,336 Interest-bearing securities 1,090 1,161 937 Financial instruments pledged as collateral 25 100 105 Shares 986 603 406 Derivatives 6 30,440 23,692 24,371 Fair value changes of the hedged items in portfolio hedge of interest rate risk -95 -54 -15 Investments in associated undertakings 78 83 223 Intangible assets 23 13 15 Property and equipment 94 89 76 Investment property 4 4 34 Deferred tax assets 332 468 630 Current tax assets 10 12 6 Retirement benefit assets 55 52 53 Other assets 1,421 1,112 1,643 Prepaid expenses and accrued income 568 489 439 Total assets 136,995 131,346 125,810 Liabilities Deposits by credit institutions 22,054 29,233 23,099 Deposits and borrowings from the public 37,067 35,689 34,370 Debt securities in issue 30,208 22,680 25,362 Derivatives 6 30,869 24,057 24,129 Fair value changes of the hedged items in portfolio hedge of interest rate risk -139 -147 -153 Current tax liabilities 40 24 42 Other liabilities 4,264 3,790 3,734 Accrued expenses and prepaid income 907 758 630 Deferred tax liabilities 24 23 14 Provisions 89 39 38 Retirement benefit obligations 46 56 60 Subordinated liabilities 1,534 1,665 1,706 Total liabilities 126,963 117,867 113,031 Equity 7 Minority interests 6 6 6 Share capital 2,319 2,319 2,319 Share premium account 599 599 599 Other reserves 2,899 2,899 2,882 Retained earnings 4,209 7,656 6,973 Total equity 10,032 13,479 12,779 Total liabilities and equity 136,995 131,346 125,810 Assets pledged as security for own liabilities 7,018 8,159 6,338 Other assets pledged 252 488 101 Contingent liabilities 10,675 8,441 7,554 Commitments 2,730,580 2,316,387 2,274,509 Statement of recognised income and expense 30 Jun 30 Jun EURm 2007 2006 Currency translation differences during the period 2 -1 Cash flow hedges: Gains/losses taken to equity - -2 Net income recognised directly in equity 2 -3 Net profit for the period 552 579 Total recognised income and expense for the period 554 576 Attributable to: Shareholders of Nordea Bank Finland Plc 553 575 Minority interests 1 1 Total 554 576 Cash flow statement Jan-Jun Jan-Jun EURm 2007 2006 Operating activities Operating profit 743 759 Adjustments for items not included in cash flow 142 -169 Income taxes paid -55 -42 Cash flow from operating activities before changes in operating assets and liabilities 830 548 Changes in operating assets and liabilities 151 -2,477 Cash flow from operating activities 981 -1,929 Investing activities Sale/acquisition of group undertakings 13 22 Sale/acquisition of associated undertakings 6 - Property and equipment -26 -5 Intangible assets -3 - Cash flow from investing activities -10 17 Financing activities Issued/amortised subordinated liabilities -131 -199 Dividend paid -4,000 - Other changes 2 - Cash flow from financing activities -4,129 -199 Cash flow for the period -3,158 -2,111 Cash and cash equivalents at beginning of period 16,467 12,098 Exchange rate difference - -2 Cash and cash equivalents at end of period 13,309 9,985 Change -3,158 -2,111 Cash and cash equivalents 30 Jun 30 Jun The following items are included in cash and cash equivalents (EURm): 2007 2006 Cash and balances with central banks 1,965 1,456 Loans and receivables to credit institutions, payable on demand 11,344 8,529 Cash comprises legal tender and bank notes in foreign currencies. Balances with central banks consist of deposits in accounts with central banks and postal giro systems under government authority, where the following conditions are fulfilled: - the central bank or the postal giro system is domiciled in the country where the institution is established - the balance on the account is readily available at any time. Loans and receivables to credit institutions, payable on demand include liquid assets not represented by bonds or other interest-bearing securities. Notes Note 1 Accounting policies NBF's consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) endorsed by the EU, the Finnish Accounting Act and to applicable parts according to the Finnish Credit Institutions Act, the Financial Supervision Authority's regulations and Guidelines and the Decree of the Ministry of Finance on the financial statements and consolidated financial statements of credit institutions. These statements have not been prepared in accordance with IAS 34, Interim Financial Reporting and the report is unaudited. Basis for presentation The accounting policies and the basis for calculations are, in all material aspects, unchanged in comparison with the 2006 Annual Report. Share-based payments As mentioned in the text, a share-based payment programme, referred to as the "Long Term Incentive Programme", was introduced in the second quarter. The fair value of the share rights was measured on the grant date and will be recognised as an expense over a period of 24 months. The total number of share rights in Nordea's Long Term Incentive Programme represents a maximum of 3,120,000 ordinary shares, of which 650,000 are Matching Shares and 1,950,000 are Performance Shares. The remaining 520,000 ordinary shares are available to cover mainly social security costs. The value of the rights is recognised in the income statement with a corresponding increase in unrestricted equity. Social expenses are accrued until paid. The exercise prices of Matching Shares and Performance Shares are respectively EUR 4 and EUR 2. On the grant date the market values of the share rights were EUR 8.76 and 10.49 respectively. The expected amount, EUR 18m, is expensed over a period of 24 months. The maximum cost for LTIP 2007 equals approximately EUR 39m. The expenses in NBF, equal to the amount at which the services from the employees are measured, will be met by shareholders' contribution. The current number of outstanding rights is 83,161. The expected cost for the programme amounts to EUR 3m, and is recognised over a period of 24 months. The maximum cost in NBF equals approximately EUR 6m. NBF has expensed EUR 0.1m in the first half of 2007. Jan-Jun Jan-Jun Note 2 Net gains/losses on items at fair value, EURm 2007 2006 Shares/participations and other share-related instruments 15 28 Interest-bearing securities and other interest-related instruments 54 199 Other financial instruments 19 -6 Foreign exchange gains/losses 97 49 Total 185 270 Jan-Jun Jan-Jun Note 3 Loan losses, EURm 2007 2006 Loan losses divided by class, net Loans and receivables to credit institutions 0 - - of which write-offs and provisions 0 - - of which reversals and recoveries - - Loans and receivables to the public 26 26 - of which write-offs and provisions -50 -29 - of which reversals and recoveries 76 55 Off-balance sheet items1 -10 0 - of which write-offs and provisions -11 0 - of which reversals and recoveries 1 0 Total 16 26 Specification of loan losses Changes of allowance accounts in the balance sheet 6 21 - of which Loans and receivables 16 21 - of which Off-balance sheet items1 -10 0 Changes directly recognised in the income statement 10 5 - of which realised loan losses -1 -4 - of which realised recoveries 11 9 Total 16 26 1 Included in Provisions in the balance sheet. Note 4 Loans and receivables and their impairment Total 30 Jun 31 Dec 30 Jun EURm 2007 20061 20061 Loans and receivables, not impaired 97,458 99,228 92,214 Impaired loans and receivables: 606 651 669 - Performing 401 457 454 - Non-performing 205 194 215 Loans and receivables before allowances 98,064 99,879 92,883 Allowances for individually assessed impaired loans -200 -263 -290 - Performing -116 -163 -185 - Non-performing -84 -100 -105 Allowances for collectively assessed impaired loans -95 -122 -127 Allowances -295 -385 -417 Loans and receivables, book value 97,769 99,494 92,466 Credit instit- The utions public 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun EURm 2007 2006 2006 2007 20061 20061 Loans and receivables, not impaired 41,366 47,031 44,130 56,092 52,197 48,084 Impaired loans and receivables: - - - 606 651 669 - Performing - - - 401 457 454 - Non-performing - - - 205 194 215 Loans and receivables before allowances 41,366 47,031 44,130 56,698 52,848 48,753 Allowances for individually assessed impaired loans - - - -200 -263 -290 - Performing - - - -116 -163 -185 - Non-performing - - - -84 -100 -105 Allowances for collectively assessed impaired loans -1 - - -94 -122 -127 Allowances -1 - - -294 -385 -417 Loans and receivables, book value 41,365 47,031 44,130 56,404 52,463 48,336 1 Restated Reconciliation of allowance accounts for impaired loans Credit instit- The utions public Total Indivi- Collec- Indivi- Collec- Indivi- Collec- Loans and dually tively dually tively dually tively receivables, asse- asse- asse- asse- asse- asse- EURm ssed ssed ssed ssed ssed ssed Total Opening balance at 1 Jan 2007 - - -263 -122 -263 -122 -385 Provisions - 0 -12 -37 -12 -37 -49 Reversals - - 48 18 48 18 66 Changes through the income statement - 0 36 -19 36 -19 17 Allowances used to cover write-offs - - 10 0 10 0 10 Currency translation differences and reclassifications2 - -1 17 47 17 46 63 Closing balance at 30 Jun 2007 - -1 -200 -94 -200 -95 -295 Opening balance at 1 Jan 2006 - - -333 -130 -333 -130 -463 Provisions - - -9 -15 -9 -15 -24 Reversals - - 32 13 32 13 45 Changes through the income statement - - 23 -2 23 -2 21 Allowances used to cover write-offs - - 23 - 23 - 23 Currency translation differences - - -3 5 -3 5 2 Closing balance at 30 Jun 2006 - - -290 -127 -290 -127 -417 2 Mainly reclassification to off-balance sheet items Note 4, continued Allowances and provisions 30 Jun 31 Dec 30 Jun EURm 2007 2006 2006 Allowances for items in the balance sheet -295 -385 -417 Provisions for off balance sheet items -73 - - Total allowances and provisions -368 -385 -417 Key ratios 30 Jun 31 Dec 30 Jun 2007 2006 2006 Impairment rate, gross1, % 0.6 0.7 0.7 Impairment rate, net2, % 0.4 0.4 0.4 Total allowance rate3, % 0.3 0.4 0.4 Allowance rate, impaired loans4, % 33.0 40.4 43.3 Non-performing loans and receivables, not impaired5, EURm 5 5 5 1 Individually assessed impaired loans and receivables before allowances divided by total loans and receivables before allowances, % 2 Individually assessed impaired loans and receivables after allowances divided by total loans and receivables before allowances, % 3 Total allowances divided by total loans and receivables before allowances, % 4 Allowances for individually assessed impaired loans and receivables divided by individually assessed impaired loans and receivables before allowances, % 5 Past due loans and receivables, not impaired due to future cash flows (included in Loans and receivables, not impaired). Note 5 Classification of financial instruments, EURm Deriv- atives 30 Jun Loans Held Held Assets used Avai- 2007 and to for at for lable Financial rece- matu- trad- fair hed- for assets ivables rity ing value ging sale Total Cash and balances with central banks 1,965 1,965 Treasury bills andother eligible bills 2,230 2,230 Loans and receivables to credit institutions 40,144 1,221 41,365 Loans and receivables to the public 56,404 56,404 Interest -bearing securities 350 735 5 1,090 Financial instruments pledged as collateral 25 25 Shares 967 19 986 Derivatives 30,222 218 30,440 Fair value changes of the hedged items in portfolio hedge of interest rate risk -95 -95 Other assets 1,405 1,405 Prepaid expenses and accrued income 452 452 Total 100,275 - 35,015 754 218 5 136,267 Lia- Deri- 30 Jun bilities vatives 2007 Held at used Other Financial for fair for financial liabilities trading value hedging liabilities Total Deposits by credit institutions 22,054 22,054 Deposits and borrowings from the public 37,067 37,067 Debt securities in issue 4,979 25,229 30,208 Derivatives 30,624 244 30,868 Fair value changes of the hedged items in portfolio hedge of interest rate risk -139 -139 Other liabilities 17 4,236 4,253 Accrued expenses and prepaid income 616 616 Subordinated liabilities 1,534 1,534 Total 35,620 - 244 90,597 126,461 Note 6 Derivatives, EURm Total Assets Liabilities nom. Fair Fair 30 Jun 2007 value value amount Derivatives held for trading Interest rate derivatives 22,370 22,848 2,005,625 Equity derivatives 1,551 1,906 24,873 Foreign exchange derivatives 4,699 4,305 555,220 Credit derivatives 664 634 85,695 Other derivatives 938 932 10,563 Total 30,222 30,625 2,681,976 Derivatives used for hedging Interest rate derivatives 152 112 27,756 Equity derivatives - - - Foreign exchange derivatives 66 132 4,710 Other derivatives - - - Total 218 244 32,466 Derivatives, total Interest rate derivatives 22,522 22,960 2,033,381 Equity derivatives 1,551 1,906 24,873 Foreign exchange derivatives 4,765 4,437 559,930 Credit derivatives 664 634 85,695 Other derivatives 938 932 10,563 Total 30,440 30,869 2,714,442 Of which contracts with Nordea Group undertakings 931 913 91,937 Lia- Assets bilities Total nom. Fair Fair 31 Dec 2006 value value amount Derivatives held for trading Interest rate derivatives 15,734 15,840 1,675,489 Equity derivatives 950 1,117 15,185 Foreign exchange derivatives 5,177 5,314 479,796 Credit derivatives 655 655 82,746 Other derivatives 905 894 11,359 Total 23,421 23,820 2,264,575 Derivatives used for hedging Interest rate derivatives 225 112 29,492 Equity derivatives - - - Foreign exchange derivatives 46 125 6,185 Other derivatives - - - Total 271 237 35,677 Derivatives, total Interest rate derivatives 15,959 15,952 1,704,981 Equity derivatives 950 1,117 15,185 Foreign exchange derivatives 5,223 5,439 485,981 Credit derivatives 655 655 82,746 Other derivatives 905 894 11,359 Total 23,692 24,057 2,300,252 Of which contracts with Nordea Group undertakings 421 481 73,141 Note 6, continued Liab- Total Assets ilities nom. Fair Fair 30 Jun 2006 value value amount Derivatives held for trading Interest rate derivatives 16,918 16,686 1,619,756 Equity derivatives 642 672 13,582 Foreign exchange derivatives 4,788 4,791 500,371 Credit derivatives 424 418 71,172 Other derivatives 1,361 1,360 9,860 Total 24,133 23,927 2,214,741 Derivatives used for hedging Interest rate derivatives 201 119 41,146 Equity derivatives - - - Foreign exchange derivatives 37 83 3,478 Other derivatives - - - Total 238 202 44,624 Derivatives, total Interest rate derivatives 17,119 16,805 1,660,902 Equity derivatives 642 672 13,582 Foreign exchange derivatives 4,825 4,874 503,849 Credit derivatives 424 418 71,172 Other derivatives 1,361 1,360 9,860 Total 24,371 24,129 2,259,365 Of which contracts with Nordea Group undertakings 612 595 65,914 Note 7 Equity, EURm Attributable to shareholders of Nordea Bank Finland Plc Ret- Mino- Share ained rity Share Premium Other earn- inte- Total capital1 account reserves ings Total rests equity Opening balance at 1 Jan 2007 2,319 599 2,899 7,656 13,473 6 13,479 Currency translation differences 2 2 2 Net income recognised directly in equity - - - 2 2 - 2 Net profit for the period 551 551 1 552 Total recognised income and expense in equity - - - 553 553 1 554 Share-based payment / Contribution 0 0 0 Dividend for 2006 -4,000 -4,000 -4,000 Other changes - -1 -1 Closing balance at 30 Jun 2007 2,319 599 2,899 4,209 10,026 6 10,032 Attributable to shareholders of Nordea Bank Finland Plc Share Share Premium Other Retained Minority Total capital1 account reserves earnings Total interests equity Opening balance at 1 Jan 2006 2,319 599 2,884 6,396 12,198 6 12,204 Net change in cash flow hedges, net of tax -2 -2 -2 Currency -1 translation differences -1 -1 Net income -3 recognised directly in - equity - - -2 -1 -3 Net profit 579 for the period 578 578 1 Total 576 recognised income and expense in equity - - -2 577 575 1 Other - -1 -1 changes Closing balance at 30 Jun 2006 2,319 599 2,882 6,973 12,773 6 12,779 1 Total shares registered was 1,030.8 million (31 Dec 2006: 1,030.8 million, 30 Jun 2006: 1,030.8 million). Jan-Jun Jan-Jun Note 2 Net gains/losses on items at fair value, EURm 2007 2006 Shares/participations and other share-related instruments 15 28 Interest-bearing securities and other interest-related instruments 54 199 Other financial instruments 19 -6 Foreign exchange gains/losses 97 49 Total 185 270 Jan-Jun Jan-Jun Note 3 Loan losses, EURm 2007 2006 Loan losses divided by class, net Loans and receivables to credit institutions 0 - - of which write-offs and provisions 0 - - of which reversals and recoveries - - Loans and receivables to the public 26 26 - of which write-offs and provisions -50 -29 - of which reversals and recoveries 76 55 Off-balance sheet items1 -10 0 - of which write-offs and provisions -11 0 - of which reversals and recoveries 1 0 Total 16 26 Specification of loan losses Changes of allowance accounts in the balance sheet 6 21 - of which Loans and receivables 16 21 - of which Off-balance sheet items1 -10 0 Changes directly recognised in the income statement 10 5 - of which realised loan losses -1 -4 - of which realised recoveries 11 9 Total 16 26 1 Included in Provisions in the balance sheet. Note 4 Loans and receivables and their impairment Total 30 Jun 31 Dec 30 Jun EURm 2007 20061 20061 Loans and receivables, not impaired 97,458 99,228 92,214 Impaired loans and receivables: 606 651 669 - Performing 401 457 454 - Non-performing 205 194 215 Loans and receivables before allowances 98,064 99,879 92,883 Allowances for individually assessed impaired loans -200 -263 -290 - Performing -116 -163 -185 - Non-performing -84 -100 -105 Allowances for collectively assessed impaired loans -95 -122 -127 Allowances -295 -385 -417 Loans and receivables, book value 97,769 99,494 92,466 Credit The institutions public 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun EURm 2007 2006 2006 2007 20061 20061 Loans and receivables, not impaired 41,366 47,031 44,130 56,092 52,197 48,084 Impaired loans and receivables: - - - 606 651 669 - Performing - - - 401 457 454 - Non-performing - - - 205 194 215 Loans and receivables before allowances 41,366 47,031 44,130 56,698 52,848 48,753 Allowances for individually assessed impaired loans - - - -200 -263 -290 - Performing - - - -116 -163 -185 - Non-performing - - - -84 -100 -105 Allowances for collectively assessed impaired loans -1 - - -94 -122 -127 Allowances -1 - - -294 -385 -417 Loans and receivables, book value 41,365 47,031 44,130 56,404 52,463 48,336 1 Restated Reconciliation of allowance accounts for impaired loans Credit institutions The public Total Indivi- Collec- Indivi- Collec- Indivi- Collec- Loans and dually tively dually tively dually tively receivables, asse- asse- asse- asse- asse- asse- EURm ssed ssed ssed ssed ssed ssed Total Opening balance at 1 Jan 2007 - - -263 -122 -263 -122 -385 Provisions - 0 -12 -37 -12 -37 -49 Reversals - - 48 18 48 18 66 Changes through the income statement - 0 36 -19 36 -19 17 Allowances used to cover write-offs - - 10 0 10 0 10Currency translation differences and reclassifications2 - -1 17 47 17 46 63 Closing balance at 30 Jun 2007 - -1 -200 -94 -200 -95 -295 Opening balance at 1 Jan 2006 - - -333 -130 -333 -130 -463 Provisions - - -9 -15 -9 -15 -24 Reversals - - 32 13 32 13 45 Changes through the income statement - - 23 -2 23 -2 21 Allowances used to cover write-offs - - 23 - 23 - 23 Currency translation differences - - -3 5 -3 5 2 Closing balance at 30 Jun 2006 - - -290 -127 -290 -127 -417 2 Mainly reclassification to off-balance sheet items Note 4, continued Allowances and provisions 30 Jun 31 Dec 30 Jun EURm 2007 2006 2006 Allowances for items in the balance sheet -295 -385 -417 Provisions for off balance sheet items -73 - - Total allowances and provisions -368 -385 -417 Key ratios 30 Jun 31 Dec 30 Jun 2007 2006 2006 Impairment rate, gross1, % 0.6 0.7 0.7 Impairment rate, net2, % 0.4 0.4 0.4 Total allowance rate3, % 0.3 0.4 0.4 Allowance rate, impaired loans4, % 33.0 40.4 43.3 Non-performing loans and receivables, not impaired5, EURm 5 5 5 1 Individually assessed impaired loans and receivables before allowances divided by total loans and receivables before allowances, % 2 Individually assessed impaired loans and receivables after allowances divided by total loans and receivables before allowances, % 3 Total allowances divided by total loans and receivables before allowances, % 4 Allowances for individually assessed impaired loans and receivables divided by individually assessed impaired loans and receivables before allowances, % 5 Past due loans and receivables, not impaired due to future cash flows (included in Loans and receivables, not impaired). Note 5 Classification of financial instruments, EURm Deriv- atives Loans Held Assets used Ava- 30 Jun and to Held at for ilable 2007 recei- matu- for fair hed- for Financial assets vables rity trading value ging sale Total Cash and balances with central banks 1,965 1,965 Treasury bills and other eligible bills 2,230 2,230 Loans and receivables to credit institutions 40,144 1,221 41,365 Loans and receivables to the public 56,404 56,404 Interest-bearing securities 350 735 5 1,090 Financial instruments pledged as collateral 25 25 Shares 967 19 986 Derivatives 30,222 218 30,440 Fair value changes of the hedged items in portfolio hedge of interest rate risk -95 -95 Other assets 1,405 1,405 Prepaid expenses and accrued income 452 452 Total 100,275 - 35,015 754 218 5 136,267 Deri- vatives 30 Jun 2007 Liabilities used Held at for Other Financial for fair hed- financial liabilities trading value ging liabilities Total Deposits by credit institutions 22,054 22,054 Deposits and borrowings from the public 37,067 37,067 Debt securities in issue 4,979 25,229 30,208 Derivatives 30,624 244 30,868 Fair value changes of the hedged items in portfolio hedge of interest rate risk -139 -139 Other liabilities 17 4,236 4,253 Accrued expenses and prepaid income 616 616 Subordinated liabilities 1,534 1,534 Total 35,620 - 244 90,597 126,461 Note 6 Derivatives, EURm Assets Liabilities Total nom. 30 Jun 2007 Fair value Fair value amount Derivatives held for trading Interest rate derivatives 22,370 22,848 2,005,625 Equity derivatives 1,551 1,906 24,873 Foreign exchange derivatives 4,699 4,305 555,220 Credit derivatives 664 634 85,695 Other derivatives 938 932 10,563 Total 30,222 30,625 2,681,976 Derivatives used for hedging Interest rate derivatives 152 112 27,756 Equity derivatives - - - Foreign exchange derivatives 66 132 4,710 Other derivatives - - - Total 218 244 32,466 Derivatives, total Interest rate derivatives 22,522 22,960 2,033,381 Equity derivatives 1,551 1,906 24,873 Foreign exchange derivatives 4,765 4,437 559,930 Credit derivatives 664 634 85,695 Other derivatives 938 932 10,563 Total 30,440 30,869 2,714,442 Of which contracts with Nordea Group undertakings 931 913 91,937 Assets Liabilities Total nom. 31 Dec 2006 Fair value Fair value amount Derivatives held for trading Interest rate derivatives 15,734 15,840 1,675,489 Equity derivatives 950 1,117 15,185 Foreign exchange derivatives 5,177 5,314 479,796 Credit derivatives 655 655 82,746 Other derivatives 905 894 11,359 Total 23,421 23,820 2,264,575 Derivatives used for hedging Interest rate derivatives 225 112 29,492 Equity derivatives - - - Foreign exchange derivatives 46 125 6,185 Other derivatives - - - Total 271 237 35,677 Derivatives, total Interest rate derivatives 15,959 15,952 1,704,981 Equity derivatives 950 1,117 15,185 Foreign exchange derivatives 5,223 5,439 485,981 Credit derivatives 655 655 82,746 Other derivatives 905 894 11,359 Total 23,692 24,057 2,300,252 Of which contracts with Nordea Group undertakings 421 481 73,141 Note 6, continued Liab- Total Assets ilities nom. Fair Fair 30 Jun 2006 value value amount Derivatives held for trading Interest rate derivatives 16,918 16,686 1,619,756 Equity derivatives 642 672 13,582 Foreign exchange derivatives 4,788 4,791 500,371 Credit derivatives 424 418 71,172 Other derivatives 1,361 1,360 9,860 Total 24,133 23,927 2,214,741 Derivatives used for hedging Interest rate derivatives 201 119 41,146 Equity derivatives - - - Foreign exchange derivatives 37 83 3,478 Other derivatives - - - Total 238 202 44,624 Derivatives, total Interest rate derivatives 17,119 16,805 1,660,902 Equity derivatives 642 672 13,582 Foreign exchange derivatives 4,825 4,874 503,849 Credit derivatives 424 418 71,172 Other derivatives 1,361 1,360 9,860 Total 24,371 24,129 2,259,365 Of which contracts with Nordea Group undertakings 612 595 65,914 Note 7 Equity, EURm Attributable to shareholders of Nordea Bank Finland Plc Min- Share Other Retained ority Share Premium rese- earn- inter- Total capital1 account rves ings Total ests equity Opening balance at 1 Jan 2007 2,319 599 2,899 7,656 13,473 6 13,479 Currency translation differences 2 2 2 Net income recognised directly in equity - - - 2 2 - 2 Net profit for the period 551 551 1 552 Total recognised income and expense in equity - - - 553 553 1 554 Share-based payment / Contribution 0 0 0 Dividend for 2006 -4,000 -4,000 -4,000 Other changes - -1 -1 Closing balance at 30 Jun 2007 2,319 599 2,899 4,209 10,026 6 10,032 Attributable to shareholders of Nordea Bank Finland Plc Min- Share Retained ority Share Premium Other earn- inter- Total capital1 account reserves ings Total ests equity Opening balance at 1 Jan 2006 2,319 599 2,884 6,396 12,198 6 12,204 Net change in cash flow hedges, net of tax -2 -2 -2 Currency -1 translation differences -1 -1 Net income -3 recognised directly - in equity - - -2 -1 -3 Net profit 579 for the period 578 578 1 Total 576 recognised income and expense in equity - - -2 577 575 1 Other - -1 -1 changes Closing balance at 30 Jun 2006 2,319 599 2,882 6,973 12,773 6 12,779 1 Total shares registered was 1,030.8 million (31 Dec 2006: 1,030.8 million, 30 Jun 2006: 1,030.8 million). Note 8 Capital Adequacy In 2007 new regulations for calculating capital adequacy, referred to as Basel II, have been implemented. The new capital framework is based on a three-pillar approach, namely Pillar 1, minimum capital requirements, Pillar 2, the supervisory review, and Pillar 3, market discipline. The main change compared to the former regulations, referred to as Basel I, is the introduction of a new risk type, operational risk. Moreover, different levels of sophistication for calculating credit risk and operational risk exist and incentives for the more advanced and risk sensitive methods are given. Further, the minimum capital requirement should be assessed in an Internal Capital Adequacy Assessment Process (ICAAP) to ensure that the institution under supervision is adequately capitalised and will remain so over the foreseeable future. Basel II will not immediately become fully effective from a capital adequacy perspective since a transition period is stipulated, in which capital floors calculated based on Basel I set limits to the potential capital decrease. In 2007, the lowest accepted amount for RWA is 95% of the amount calculated in accordance with the Basel I regulations, for 2008 it is limited to 90% and 2009 to 80%. The transition period will end in 2010. Nordea will gradually implement the more advanced methods to calculate minimum capital requirements. For credit risk, Nordea has been approved to use foundation Internal Rating Based (IRB) methods for the Corporate and Institutions exposure classes from the second quarter 2007, which cover more than 50% of Nordea's credit portfolios. The other exposure classes, e.g. Retail and Sovereign are calculated according to the standardised methods. Nordea will gradually apply the advanced IRB approach. The next step will be to start the implementation according to the IRB method for the Retail exposure class. The foundation IRB method allows the institution to use its internal rating system and own estimates of Probability of Default (PD) whereas the advanced IRB method also allows the institution to use internal models and estimates of Loss Given Default (LGD) and Credit Conversion Factors (CCF). For market risk, Nordea received the approval Q4 2006 under Basel I for using the internal VaR models for calculating general and specific risk for the larger part of the trading book portfolio. Under a transition period the remaining part of the market risk in the trading book is calculated using the standardised methods. For operational risk, Nordea has chosen to use the standardised approach for calculating the minimum capital requirement. The method and the operational risk management framework have been reviewed by the supervisors and assessed to fulfil all requirements for using the standardised approach. Nordea has for several years been collecting data on operational risk events, but no outright date for applying for the advanced measurement approach has been set. In May 2007 Nordea submitted an ICAAP report to the supervisors, i.e. a report stating and explaining Nordea's required and available capital including stressed scenarios. The required capital is calculated based on Nordea's Economic Capital framework with adjustments for stressed scenarios and other input, such as strategic objectives. The available capital is calculated as the capital base. The conclusion in the report is that Nordea is well capitalised even under stressed scenarios. The supervisors will review the report under the Supervisory Review and Evaluation Process. The final Basel II report will be submitted to the FSAs at a later date and the RWAs presented in this report may be subject to adjustments. Note 8, continued Cap- ital 30 30 31 30 Base Jun Jun Dec Jun 2007 2007 2006 1 1 2006 1 Basel Basel Basel Basel EURm II I I I Tier 1 capital 9,107 9,107 8,998 11,558 Total capital base 10,332 10,306 10,433 13,002 1 Excl- uding the result for the period Cap- ital req- uire- 30 30 30 31 30 ments Jun Jun Jun Dec Jun 2007 2007 2007 2006 2006 Basel Basel Basel Basel II I I I Cap- ital requir- EURm ement RWA RWA RWA RWA Credit risk 4,843 60,532 63,016 59,151 55,307 IRB foun- dation 1,922 24,027 na na na - of which corp- orate 1,496 18,704 na na na - of which instit- utions 394 4,927 na na na - of which other 32 396 na na na Stand- ardised 2,921 36,505 na na na - of which retail 1,183 14,787 na na na - of which sover- eign 8 95 na na na - of which other 1,730 21,623 na na na Basel I na na na 59,151 na Ma- rket risk 85 1,063 6,600 6,119 12,715 - of which trading book, VaR 60 752 na 842 na - of which trading book, non- VaR 25 311 na 5,277 na - of which FX, non- VaR 0 0 na 0 na Opera- tional risk 272 3,403 na na na Stand- ardised 272 3,403 na na na Total 5,200 64,998 69,616 65,270 68,022 Adjust- ment for floor rules 117 1,462 na na na Total repo- rted 5,317 66,460 69,616 65,270 68,022 Cap- ital 30 30 31 30 ratio Jun Jun Dec Jun 2007 2007 20062 20062 Tier I ratio, %, incl. profit 14.5 13.9 13.8 17.8 Capital - ratio, %, incl. profit 16.4 15.6 16.0 19.9 Tier I ratio, %, excl. profit 13.7 13.1 11.8 17.0 Capi- tal ratio, %, excl. profit 15.5 14.8 14.0 19.1 2 No floor app- lied for 2006 Anal- ysis of capital requir- ements Ave- Cap- rage ital Exp- risk requir- osure weight, ement class % EURm Corp- orate 57 1,496 Insti- tutions 21 394 Retail 51 1,183 Sovereign 1 8 Other 43 1,762 Total 4,843 credit risk Note 9 Off-balance sheet commitments, EURm 30 31 30 Jun Dec Jun EURm 2007 2006 2006 Guarantees 8,609 6,628 5,886 Other contingent liabilities 2,066 1,813 1,668 Stand-by facilities 7,914 6,645 6,389 Unused credit lines 7,853 8,994 8,152 Other commitments 371 488 603 Total 26,813 24,568 22,698 Of which on behalf of associated companies 20 13 13 Note 10 Assets pledged, EURm Other Ple- Mor- coll- 30 Jun 2007 dges tgages ateral Total Assets pledged as security for own liabilities - - 20 20 Assets pledged on own behalf for other purposes - - 6,998 6,998 Assets pledged on behalf of Nordea group undertakings - - - - Assets pledged on behalf of other parties - - 252 252 - of which to related party management - - - - Total - - 7,270 7,270 31 Dec 2006 Assets pledged as security for own liabilities - - - - Assets pledged on own behalf for other purposes - - 8,159 8,159 Assets pledged on behalf of Nordea group undertakings - - 100 100 Assets pledged on behalf of other parties - - 388 388 - of which to related party management - - - - Total - - 8,647 8,647 30 Jun 2006 Assets pledged as security for own liabilities - - - - Assets pledged on own behalf for other purposes - - 6,335 6,335 Assets pledged on behalf of Nordea group undertakings - - 101 101 Assets pledged on behalf of other parties - - - - - of which to related party management - - - - Total - - 6,436 6,436 In addition to the above commitments, NBF had sold EUR 3m debt securities with repurchase agreements. Stockholm, 18 July 2007 Board of Directors |
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