Transcription

1 Annual Report 2012

2 Annual Report 2012

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4 Annual Report

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6 Business Review and Results 1. Highlights of 2012 and early Business line segmentation 6 3. Statement of income and balance sheet 6 4. Outlook / Strategies 10 Risk Management 1. Introduction Risk Management missions, organisation and governance Credit risk Market risk, Assets & Liabilities Management Operational risk Regulatory capital adequacy - Pillar Internal capital adequacy - Pillar 2 21

7 Business Review and Results 1. Highlights of 2012 and early 2013 Following the signing of the Share Purchase Agreement (SPA) on April 5, 2012, Precision Capital and the Grand Duchy of Luxembourg announced, on October 5, 2012, the closing of the acquisition of % of the share capital of Banque Internationale à Luxembourg (BIL). Precision Capital holds % of BIL and the Grand Duchy of Luxembourg holds 9.99 %, with a transaction price at EUR 730 million (all amounts below in EUR). The terms of the final agreement remain consistent with the consolidated financial statements as at December 31, In accordance with the requirements of the SPA, Dexia increased BIL s shareholders equity by 204 million on October 2, 2012, in order to partly offset the impact of the losses generated in This capital increase was calibrated in order to enable the Bank to achieve a 9 % Core Tier 1 ratio, under fully-applied Basel III rules, at the closing of the transaction. The finalisation of BIL s sale to Precision Capital and the Grand Duchy of Luxembourg strengthened its financial and business profile. The Bank s operational autonomy was achieved by mid and all strategic decisions are now taken in Luxembourg. Stand-alone status enables BIL to develop its four business lines, namely Retail Banking, Corporate & Institutional Banking, Private Banking and Treasury & Financial Markets. Since the signature of the SPA, the Standard & Poor s and Fitch rating agencies have confirmed their long-term ratings as A-, with stable outlooks. Following the public announcement in December 2011 of the signature of a binding memorandum of understanding, Retail, Corporate and Private Banking commercial activities turned in particularly good performances: Customer deposits went up by 22.4 % to 11.4 billion (versus 9.3 billion at year-end 2011) especially in Luxembourg (1.1 billion in current accounts and 0.8 billion in savings accounts). Customer funds (assets under management) went up by 10.4 % to 29.9 billion (versus 27.1 billion at year-end 2011, on a comparable basis) of which approximatively 75 % was cash. Customer loans went up by 4.3 % to 9.6 billion (versus 9.3 billion at year-end 2011, on a comparable basis). BIL continued to support the local economy, especially in the SME sector and in real estate financing. 2. Business line segmentation In 2012, BIL amended its business line segmentation as follows: - "Legacy Portfolio Management" and "Asset Management & Services" divisions not maintained in 2012 following their derecognition at the end of December "Retail, Corporate and Private Banking" (prior to 2012 known as "Retail and Commercial Banking") was reorganised around three business lines, Retail Banking, Corporate and Institutional Banking and Private Banking, in order to improve synergies between the three pillars, based on client needs. - "Treasury and Financial Markets" became a full-fledged business around three pillars: Treasury, Assets and Liabilities Management (ALM), and Financial Markets, with dedicated desks supporting the commercial business lines. In terms of analysis and in order to reflect the new scope of the Bank, the income statement is split as follows: "Core New BIL", subdividing results into: - Retail, Corporate and Private Banking - Treasury and Financial Markets - Group Center "Non-core activities" varying between 2011 and 2012: - In 2011, "divested subsidiaries" encompassing the deconsolidated Dexia Asset Management, RBC Dexia Investor Services, Popular Banca Privada, Dexia LdG Banque, Parfipar and the sale of Dexia LdG Banque covered bonds; - In 2012, limited to non recurring items and BIL Finance, considered as a non-strategic entity. The breakdown of 2011 figures has been amended in order to reflect these organisational changes and to identify the "Treasury and Financial Markets" contribution. 3. Statement of income and balance sheet The Group s consolidated annual accounts for the year 2012 were prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. Accounting principles and regulations are described in Note 1. 1 See the Annual Report Generated by the sale of Legacy portfolio, DLG covered bonds and the subsidiaries Dexia Asset Management, RBC Dexia Investor Services, Dexia LdG Banque, Parfipar and Popular Banca Privada 6 BIL Annual Report 2012

8 Analysis of the statement of income Statement of income - Global view (in EUR millions) 31/12/11 31/12/12 Income (1,236) 360 Expenses (811) (331) Gross operating income (2,047) 29 Cost of risk and provisions for legal litigation (174) (7) Income before tax (2,221) 22 Tax expense Net Income (1,921) 30 Minority Interest 28 0 Net Income Group share (1,949) 30 Statement of Income on "Core NEW BIL" and "Non-core Activities" (in EUR millions) Core New BIL Non-core Activities Legacy Portfolio TOTAL Management 1 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Income (60) (1,981) 0 (1,236) 360 Expenses (332) (325) (475) (6) (4) 0 (811) (331) Gross Operating Income (163) (65) (1,984) 0 (2,047) 29 Cost of risk and provisions for legal litigation (22) (16) (5) 9 (147) 0 (174) (7) Income before tax (168) (56) (2,131) 0 (2,221) 22 Tax expense Minority interest 28 0 Net Income (1,949) 30 In 2012, consolidated income for BIL group totalled 360 million, with 420 million generated by "Core New BIL" activities, whereas the "Non-core Activities" contributed negatively to income by 60 million. "Core New BIL" can be further broken down between Commercial Activities, Financial Markets and Group Center. Contribution to "Core New BIL" Statement of income by business line (in EUR millions) Retail, Corporate and Treasury and Group Center TOTAL Private Banking Financial Markets Core New BIL 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Income (19) (2) Expenses (298) (291) (29) (31) (5) (3) (332) (325) Gross Operating Income (48) (33) Cost of risk and provisions for legal litigation (31) (17) 10 0 (2) 1 (22) (16) Income before tax (38) (33) See the Annual Report 2011 BIL Annual Report

9 Income Expenses "Core New BIL" income decreased by 12 million, due mainly to the sale of Dexia Securities France (DSF) in June 2012 (11 million income contributed in 2011); excluding the DSF contribution in 2011, the income was in line with that of "Retail, Corporate and Private Banking" activities generated income of 391 million, i.e. 30 million down. Of that amount, 11 million related to DSF and 19 million were attributable to recurring activities (-5 %), due to a business decrease located mainly in Luxembourg. Dexia s crisis caused in 2011 a 4.4 billion drop in client assets under management (AuM) to 27.1 billion at the end of December Since the signing of the binding memorandum of outstanding in December 2011, client AuM have increased by 10.4 % but this good performance did not compensate for 2011 AuM losses. On average, client AuM in 2012 stayed 1.6 billion below the 2011 average. This negatively affected fee and commissions income by approximately 15 million. The interest margin achieved in 2012 is at the same level as the previous year, the decreasing income on saving accounts has been compensated by an improved margin on the loan book. "Treasury and Financial Markets" activities generated income of -2 million, 17 million up compared to In a transitional year, "Treasury and Financial Markets" activities benefited progressively from the reinvestments in the new bond portfolio (28 million in 2012) whereas the ALM and the Treasury desks continued to suffer in 2012 due to having very limited room for action (Dexia related divestments and constraints on position taking up to closing and the absence of any transformation opportunity due to the very low interest-rate environment). Foreign exchange contribution decreased by 8 million as Belfius and RBC stopped routing their Forex volumes to the market (Forex Luxembourg was the center of expertise for Dexia) via BIL. "Group Center" generated a 30 million income, in line with 2011; the income included dividends from unconsolidated shareholdings, the income generated by the reinvestment of shareholders equity and the results generated by nonoperational entities. "Non-core Activities" generated income of -60 million in 2012 compared to million in In 2012, the negative result is mainly due to non-recurring items such as -56 million on the sale of the Bank s Portuguese exposure and a negative exchange rate impact of -17 million relating to the conversion into euro of the losses arising from the sale of the Legacy portfolio. These losses were partly offset by an 18 million dividend paid by Dexia Asset Management. General expenses amounted to 331 million in 2012, of which 325 million were attributable to "Core New BIL" and 6 million to "Non-core Activities". The substantial reduction in expenses related to "Core New BIL" (325 million versus 332 million in 2011) can be explained by the sale of DSF (13 million expenses contribution in 2011). Excluding the DSF contribution, expenses increased by 6 million. In 2012, the Bank had to hire approximatively 100 new employees to enable it to carry on its activities on a stand-alone basis. This staff increase allowed cutting definitely services provided and invoiced by Dexia group thus mitigating the total impact on the cost base. Effective cost controls allowed the reduction of recurring administrative expenses and provided room for manoeuvre for the Bank s rebranding, and for several marketing campaigns in the fourth quarter as part of the "BIL is Back" programme while containing the overall cost growth at 2 %. "Non-core" expenses amounted to -6 million in 2012 compared to -475 million in 2011 (including the "Asset Management & Services" division). Expenses for 2012 are explained by the reclassification of BIL Finance and costs generated by the Bank s strategic review. Gross operating income Gross operating income amounted to 29 million, of which 95 million was "Core New BIL", down by 5 million compared to 2011, and -65 million associated with "Non-core Activities". Cost of risk and impairment In 2012, BIL group booked net provisions of 7 million. The risk cost remains very limited and fell by 6 million for "Core New BIL" activities compared to 2011 (16 million versus 22 million in 2011) compensated by the write back of 11 million of "Madoff" litigation under "Non-core Activities". Net income before tax Despite a transitional context marked by challenging economic and financial conditions, "Core New BIL" generated a net income before tax for 2012 of 78 million, in line with million in 2011 were attributable to the "Asset Management and Investor Services" division, which generated 616 million; Group Center reported -305 million, mainly due to the 163 million loss resulting from the disposal of the subsidiaries and a 191 million loss arising from the transfer of covered bond positions to the Dexia group. 8 BIL Annual Report 2012

10 Tax The impact of taxable income from the various BIL group entities, in jurisdictions with varying taxation rates, was a net 8 million tax credit in This net tax credit is mainly due to BIL SA, as a result of the appreciation of certain deferred tax assets, following Luxembourg s income tax rate increase. Net Income At the end of 2012, net income stood at 30 million due to encouraging results from "Core Activities" which permitted the compensation of the non-recurring results. Analysis of the consolidated balance sheet (in EUR billions) 31/12/11 31/12/12 Change Assets % Loans and advances to credit institutions % Loans and advances to customers % Loans and securities available for sale % Positive value of derivative products % Other assets % Liabilities % Amounts owed to credit institutions % Customer Deposits % Negative value of derivative products % Debt securities % Subordinated and convertible debt % Other liabilities % Shareholders' equity % 2011 balance sheet was significantly affected by the derecognition of the legacy portfolio and the subsidiaries sold / transferred to Dexia. As of December 31, 2011, this transaction had not yet given rise to any payment, resulting in a claim as at that date, presented under "Other assets" for a total amount of 7.4 billion. The payment of this claim in 2012 reduced "Other assets" accordingly and permitted: Reinvestment in a new bond portfolio (+3.1 billion). Redemption of cash drawn from the Luxembourg Central Bank (-2 billion) and reimbursement of Dexia group funding (0.5 billion Belfius, 1.3 billion with DLG and 0.4 billion RBC), leading to a drop of 4 billion in "Amounts owed to credit institutions". BIL Annual Report

11 Asset movements The 2.9 billion reduction in assets mainly booked under "Other asset items", as described above, is offset by "Loans and securities available for sale", "Loans and advances to credit institutions" and "Loans to customers". "Loans and advances to credit institutions" increased by 1.4 billion in This evolution is the corollary of the disappearance of Dexia LdG Banque funding (-1 billion) and a significant increase of the outstanding balance with the Swiss and Luxembourg central banks (+2.4 billion). These oustandings are expected to decrease over 2013 as the Bank will continue to develop its investment portfolio and to expand its loan book. "Advances to customers" increased by 60 million, or 0.4 billion if the refinancing of Parfipar, paid out in 2012, is excluded. The Bank continued to develop its retail mortgage activities in Luxembourg. In 2012, outstanding mortgage loans rose by 222 million (+7.8 %) and current account credit lines rose by 202 million (+5 %), counterbalanced by a decrease of advances and credit cash (-34 million). "Loans and securities available for sale" went up by 3.1 billion. This heading covers in particular the strategic shareholding and the new investment portfolio. This new portfolio reached a nominal amount of 3.1 billion at the end of December It is mainly composed of assets eligible for the main refinancing operations of the European Central Bank and qualifies as liquidity reserves under Basel III. Movements in liabilities On the liability side, the reduction in the balance sheet was mainly driven by the "Amounts owed to credit institutions" offset by "Customer deposits" and "Shareholders equity". "Amounts owed to credit institutions" went down by 4.1 billion (-62 %) as explained above. "Customer deposits" showed an encouraging increase of 2 billion (21 %), mainly in Luxembourg (1.9 billion). Given the uncertain market environment and more specifically the sovereign debt situation and pressure on long-term interest-rates, customers preferred to deposit their money rather than invest in equities or in bonds. This growth in deposits was driven by growth in saving accounts (+23 % in 2012), in which area the Bank launched a new savings plan, BIL Top Plus (173 million) and in current accounts (+39 %). In a very low interest-rate environment, this type of product will continue to be developed, in order to offer customers more attractive returns. "Shareholders equity" went up by 370 million (50 %). This change was mainly due to a 204 million in shareholders equity paid out by Dexia on October 2, 2012, to the increase of revaluation reserves on the available for sale portfolio for 103 million, and to the 30 million net profit in Outlook / Strategies For BIL, 2012 marked a turning point for the Bank with its renewed independence, which was a crucial step towards its future strategic development. During the first half of the year, the Bank was able to accomplish the projects required to allow it to function autonomously, following the settlement of the transaction. Functions which were previously centralised within Dexia were resumed locally. New, autonomous IT systems were put into place and have been operational since July 1, The new organisation is now fully established, allowing the Bank to develop its strategy on a stand-alone basis. The arrival of Precision Capital and the Grand Duchy of Luxembourg as shareholders offers BIL new growth opportunities, both on the local market and internationally. During the fourth quarter, the Bank confirmed and reinforced its strategic partnership with Luxembourg by running several customer-oriented campaigns. To support this development, on December 5, 2012, the Board of Directors approved an ambitious but achievable strategic growth plan for , taking into account the current economic slowdown. By 2015, the Bank seeks to make BIL a universal bank, solidly anchored in the Luxembourg market, active on targeted international markets and distinguished by the quality of its products and services. With this in mind, the Bank s various business lines will have as main missions to increase market share, to develop an integrated multi-channel offering and to grow the product range to target revenue activities. This plan will involve a complete review of operating costs, in order to free up the resources required to ensure the implementation of its strategy and the success of the "BIL is Back" programme. One of the key elements of the new road map, to which the Bank accords very particular importance, is the excellence of its products and services. In offering clients attractive products, tailored to their needs, at the right time and the place of their choosing, BIL will be able to distinguish itself from its competitors and to win back market share. 10 BIL Annual Report 2012

12 Risk Management 1. Introduction 1.1. Key events The Dexia group s disposal of BIL had a major impact on the Risk Management support line. Indeed, the Dexia group Risk Management organisation was based on expertise centres upon which subsidiaries could rely, in accordance with Service Level Agreements (SLAs) concluded in As a result, BIL had to take over all the functions, tools and processes concerned in order to put in place a Risk Management structure enabling the Bank to continue applying the A-IRB approach and to deal with the implementation of the new Basel III rules. The transition has been carried out progressively, by temporarily maintaining some SLAs, making it possible to put into place a solid Risk Management structure at BIL group level. Following this reorganisation, a new risk business line, Strategic Risk Analytics (SRA), was created in SRA implements the Basel II requirements for credit risk: Pillar 1 (modelling and model management of internal rating systems, control of bank process integration, regulatory reporting); Pillar 2 (establishment and assessment of the risk cartography, building the Internal Capital Adequacy Assessment Process, proposal and monitoring of key indicators of risk appetite), proposing stress test scenarios and presenting the results to the Bank s management; and the Pillar 3 disclosures. Moreover, the department maintains a regulatory watch on subjects related to Risk Management. As of December 31, 2012, almost all the SLAs have been terminated and BIL oversees an efficient and independent management of its risks Basel framework (Pillar 1, Pillar 2 and Pillar 3) Basel II refers to the revision of the 1988 regulatory framework defining the capital requirements for banking institutions. The main objectives of the capital agreement ("Basel II framework") put in place by the Basel Committee on Banking Supervision are to improve the regulatory framework in order to: further strengthen the soundness and stability of the international banking system; promote the adoption of stronger risk management practices by the banking industry; prevent any competitive regulatory inequality among internationally active banks. To achieve these objectives, the Basel framework is based on three pillars: The first pillar minimum capital requirements defines how banking institutions calculate their regulatory capital requirements in order to cover credit, market and operational risks. The second pillar supervisory review provides national regulators with a framework to help them in assessing the adequacy of Banks internal capital for covering credit risk, market risk and operational risk, but also other risks not identified in the first pillar, such as concentration risk. The third pillar market discipline encourages market discipline by developing a set of qualitative and quantitative disclosures allowing market participants to make a better assessment of capital, risk exposure, risk assessment processes, and hence the capital adequacy of the institution. BIL will publish the Pillar 3 document every year on its internet site Changes in the regulatory framework (from Basel 2.5 to Basel 3) The BIL group has implemented all the measures associated with Basel II regulations and the associated European directives (i.e. Capital Requirements Directives or CRD II & III). Since January 1, 2008, BIL has been using the Advanced Internal Rating Based Approach (AIRBA) to calculate its capital adequacy and solvency ratios. These methodologies were inherited from the Dexia group, following the group s dismantling in Credit, market and operational risk teams as well as model management teams have been strengthened to be able to independently manage and measure BIL s risks. BIL is also closely monitoring Basel III developments and the developments of these issues at the European level (i.e. CRR / CRD IV). This results in implementing a specific project structure where risk and finance teams are actively involved. The first estimates of the Basel III measures impact on the Bank were produced for the closing of the deal between Precision Capital, the Grand Duchy of Luxembourg and Dexia group on October 5, This results in a strong Tier 1 common equity ratio of 9 % under the Basel III framework. The other aspects of the Basel III reform are also monitored closely by the project structure and are expected to be implemented progressively in IT systems during 2013 (i.e. Liquidity, Credit Value Adjustment (CVA), Asset Value Correlation (AVC), etc.) BIL Annual Report

13 2. Risk Management missions, organisation and governance 2.1. Missions The main missions of the risk support line are: To ensure that all risks are under control by detecting, identifying and addressing emerging risks. Risk Management puts in place independent and integrated risk measures, and sets limits for material risks; To ensure risk oversight by developing general risk policies and procedures under the supervision of the Management Board and managing the function of risk monitoring and decision-making processes; To propose and implement the Bank s risk appetite, i.e. the level of risk the Bank is ready to take, in order to achieve its strategic and financial objectives, and to translate risk appetite into a series of ratios, which define risk limits to be respected; To ensure compliance with banking regulation requirements by submitting regular reports to the CSSF, participating in regulatory discussions and analysing all new requirements related to Risk Management that could affect the Bank s activities (a regulatory watch) Organisation To reflect a sound management of risk and develop an integrated risk culture, the Bank set up an effective Risk Management organisation, adequate to its activities, and encompassing the relevant risks associated with the activities. The functions of Chief Risk Officer ("CRO") are carried out by an executive management member. The overall Risk Management framework is under the CRO s responsibility, and the CRO is responsible for providing any relevant information on risks to the executive management, enabling the capture and management of the Bank s overall risk profile. Three departments run the overall Risk Management framework and processes: Credit Risk Management: the department implements the credit risk framework and processes. Credit Risk Management covers the process, including granting of loans, counterpart analyses and scoring, credit exposure follow-up, processing defaults. The Credit Management framework is set out under the Credit Policy: "Manuel des Politiques et des Procédures de Crédit" (MPPC - Loan Policy and Procedures Manual). Financial & Operational Risk Management: the department implements the frameworks and processes associated with market risk, counterpart risk and operational risk. The department is in charge of implementing the market internal model, making sure that the requirements are reached. The framework is set out under the market risk policy and a set of guidelines by desk in Treasury and Financial Markets. Moreover, the department is responsible for operational risk management, covered by the Global Operational Risk Policy. Furthermore, the department also covers corporate information security, governed by a set of procedures ("notes de service") and the implementation and coordination of the business continuity plans within the Bank. Strategic Risk Analytics: the department implements Basel II requirements for credit risk: Pillar 1 (modelling and model management of internal rating systems, control of the Bank process integration, and regulatory reporting); Pillar 2 (establishment and assessment of the risk cartography, building the Internal Capital Adequacy Assessment Process (ICAAP) to be approved and owned by the Board of Directors and executive management, monitoring of the adequacy of the risks associated with the Bank s processes, and the proposal and monitoring of key indicators of risk appetite, with that appetite determined by the Board of Directors), proposing stress test scenarios and presenting the results to the Bank s management; with Pillar 3 being disclosure. Moreover, the department maintains a risk regulatory watch. Client risk management is also part of the functions of this department. All these activities are governed by a set of policies, guidelines and procedures, and formalised committees Governance Each of the previously described departments ensures that the CRO and executive management have an accurate understanding of every type of risk within the Bank, and are aware of major issues concerning sources of risk within the Bank (or any major potential risk). Each of these departments is involved in risk governance and is responsible for defining policies, guidelines and procedures encompassing risks within its scope. The Management Board ensures, by and large, that risk taking and Risk Management standards comply with the principles and targets set by the Board of Directors. Risk Management committees do not relieve the Board of Directors or Management Board of the general supervision of the Bank s operations and risks. They have very specific remits and help to develop and implement good governance and decision-making practices. The Board Risk Committee is a specialised committee supporting the Board of Directors on subjects related to risk. Among its roles, the Board Risk Committee reviews and recommends the BIL group 12 BIL Annual Report 2012

14 Risk Management framework and the global risk limits and capital allocation to the Board of Directors; reviews the global BIL group risk exposure, major Risk Management issues and capital adequacy requirements covering all the group s risks; reviews, assesses and discusses annually with the independent auditor any significant risk or exposure and relevant risk assessments; and reports to the Board of Directors on a regular basis and makes such recommendations with respect to any of the above or other matters. Risk committees are constituted and receive their mandate from executive management within a precise and defined scope. They facilitate the development and implementation of sound practices of governance and decisions. They are described in more detail hereinafter. 3. Credit risk 3.1. Definition Credit risk represents the potential loss (reduction in value of an asset or payment default) that BIL may incur as a result of deterioration in the solvency of any counterpart Risk Policy BIL s Risk Management department has established a general policy and procedure framework in line with the Bank s risk appetite. This framework guides the management of credit risk from an analysis, decision-making and risk monitoring perspective. The Risk Management department manages the loan issuance process by delegating, within the limits set by the Bank s management, and by chairing credit and risk committees. As part of its credit risk monitoring tasks, Credit Risk Management supervises changes in its portfolios credit risks by regularly analysing loan applications and by reviewing ratings. The Risk Management department also draws up and implements the policy on provisions, decides on specific provisions, and assesses defaults Organisation and Governance BIL s Risk Management department oversees the Bank s credit risk, under the supervision of the Management Board and specialist committees. The Risk Policy Committee defines the general risk policies, as well as specific credit policies in different areas or for certain types of counterpart, and sets up the rules for granting loans, supervising counterpart rating and monitoring exposures. The Risk Policy Committee validates all changes in procedures or risk policy, internal rating systems, and principles and methods of calculation referring to risk. To streamline the decision-making process, the Management Board delegates its decision-making authority to credit committees or joint powers. This delegation is based on specific rules, which depend on the counterpart s category, rating level and credit risk exposure. The Board of Directors remains the ultimate decision-making body for the largest loan applications or those presenting a level of risk deemed to be significant. The Credit Risk Management department carries out an independent analysis of each application presented to the credit committees, determining the counterpart s rating, and stating the main risk indicators; it also carries out a qualitative analysis of the transaction. Alongside supervision of the issuance process, different committees are tasked with overseeing specific risks. The Default Committee identifies and tracks counterparts in default, in accordance with Basel II regulations by applying the rules in force at BIL, determines the amount of allocated provisions and monitors the cost of risk. The same committee supervises assets deemed "sensitive" and placed under surveillance by being filed as "Special Mention" or put on "Watchlists". The Rating Committee ensures that the internal rating systems are correctly applied and that rating processes meet predefined standards Risk Measurement Credit risk measurement is primarily based on internal systems introduced pursuant to Basel II. Each counterpart is assigned an internal rating by the credit risk analysts, using dedicated rating tools. This internal rating corresponds to an evaluation of the level of default risk presented by the counterpart, expressed by means of an internal rating scale. It is a key factor in the loan issuance process. Ratings are reviewed at least once a year, making it possible to identify counterparts requiring the close attention of the Default Committee. To control the general credit risk profile and limit concentration of risk, credit risk limits are set for each counterpart, establishing the maximum acceptable level for each one. Limits by economic sector and by product may also be imposed by the Risk Management department. The latter actively monitors limits, which it can reduce at any time, in light of changes in related risks. The Risk Management department may freeze specific limits at any time to take the latest events into account. BIL Annual Report

15 3.5. Risk Exposure Exposure by geographic region as at December 31, 2012 Individuals, SME & Self Employed % Credit risk exposure includes: The net carrying value of balance sheet assets other than derivative products (i.e the carrying value after deduction of specific provisions); The mark-to-market valuation of derivative products; Total Others off-balance sheet commitments. The total commitment Financial 0.19 % Central Institutions Governments corresponds to unused lines of liquidity or to the maximum 5.58 % % amount that BIL is committed to as a result of guarantees issued to third parties. The substitution principle applies where the credit risk exposure is guaranteed by a third party whose risk weighting is less. Therefore, counterparts presented hereafter are final counterparts, i.e. after taking into account the eligible guarantees. Public Sector The Bank s total credit risk exposure amounted Entities to billion 4.19 % as at December 31, Project Finance Corporate % 0.56 % Exposure by type of counterpart as at December 31, 2012 The transfer of the legacy portfolio to Dexia Crédit Local (DCL), mainly concentrated on financial institutions, and the constitution of the new Assets & Liabilities Management (ALM) portfolio, more BB+ government to BB- bond-oriented, sharply modified 8.72 % the exposure breakdown. Indeed, the proportion of central B+ to B- government counterparts increased % to % at year-end 2012 as against 8.43 % at year-end 2011; the proportion of financial institutions decreased to 5.58 CCC % at year-end % against % at year-end The central government D1 & D % exposure increase is also due to a 3 billion deposit at the Swiss Not rated Central Bank % BBB+ to BBB % As at December 31, 2012, the Bank s exposure continued to be mainly concentrated in Europe (97.74 %, EUR 19.3 billion): primarily in Luxembourg (48.16 %), France (9.36 %) and Belgium (6.02 %). Others 1.68 % Other EU Countries 9.83 % Individuals, SME & Self Employed % Rest of Europe % United States and Canada 0.59 % Belgium 6.02 % France 9.36 % Luxembourg % Germany 4.34 % Exposure by internal rating as at December 31, 2012 As at December 31, 2012, Project % of the Corporate Bank s exposure is Finance % AAA-rated (compared Client to 7.40 Products 0.56 % Damage % as at todecember 31, 2011). More & Business Assets & Public than a half is rated in Practices the range Safety [AAA-A]. The proportion of "not 4 % 1 % rated" exposure decreased to 1.37 % at year-end 2012 against 2.40 % at Internal year-end Fraud % Others Financial 0.19 % Institutions 5.58 % BBB+ to BBB % BB+ to BB % Central Governments % B+ to B % Public Sector Entities 4.19 % A+ to A % Individuals, SME & Self Employed % Others Financial 0.19 % Institutions 5.58 % AA+ to AA % AAA+ to AAA % Central Governments % External Fraud 13 % A+ to A % Others 1.68 % Rest of Europe % AA+ to AA- Other EU 1.69 % Countries AAA+ to AAA % % United States and Canada CCC 0.59 % Belgium 1.71 % 6.02 % D1 & D % France Not rated 9.36 % 1.37 % Information Technology 1 % Execution, Delivery & Process Management 62 % Germany 4.34 % Public Sector Entities 4.19 % Project Finance 0.56 % Corporate % Luxembourg % 14 BIL Annual Report 2012 BB+ to BB % Client Products & Business Practices 4 % Damage to Assets & Public Safety 1 % BBB+ to BBB % B+ to B % Internal Fraud 19 %

16 Exposure to PIIGS at December 31, 2012 Breakdown of the government bond portfolio for sensitive European countries at December 31, 2012 (in EUR millions) MCRE 4 Total o / w banking o / w trading Italy Ireland Spain Greece Portugal Large exposures At the request of the Bank, the CSSF has granted a total exemption for its exposure towards its subsidiaries (BIL group) and towards its sister company (KBL European Private Bankers SA) and its subsidiaries in the calculation of large exposure limits, in accordance with Part XVI, point 24 of Circular 06 / 273, as amended. The amount of exposure covered by this exemption is 3.3 million as at December 31, This exemption was granted on November 22, Asset quality The Bank s impaired loans amounted to million as at December 31, 2012, i.e. a year-on-year increase of 10.6 million, which led to a worsening of the asset quality ratio (2.76 % in 2012 against 2.67 % in 2011). The portfolio provisions (+11.7 million) increased faster than the amount of impaired loans: the coverage ratio rose to %. (in EUR millions) 31/12/11 31/12/12 Gross amount of non impaired loans 9, , Impaired loans to customers Specific provisions Asset quality ratio % 2.76 % Coverage ratio % % 1 Impaired loans as a percentage of total loans outstanding. 2 The coverage ratio measures specific provisions recognised for loans and receivables in relation to total outstanding impaired loans and advances to customers. 4. Market risk, Assets & Liabilities Management (ALM) 4.1. Definitions Market risk is the risk of losses in positions arising from adverse movements in market prices. It mainly comprises interest-rate risk, equity price risk and foreign exchange risk. The interest-rate risk consists of a general interest-rate risk resulting from market development and a specific interestrate risk (credit spread) linked to the issuer. The latter arises from variations in the spread of a specific signature within a rating class. The risk associated with the equity price represents the risk arising from the reduction in value of equity. As for the foreign exchange risk, this represents the potential decrease of the value due to currency exchange rate movements. Assets & Liabilities Management covers all the structural risks of the banking book, namely interest-rate risk, foreign exchange risk and liquidity risk. Liquidity risk measures BIL s ability to meet its current and future liquidity requirements, both expected and unexpected, and whether the situation deteriorates Risk Policy For integrated market and ALM risk management, BIL defines a framework based on the following: An exhaustive risk measurement approach, which is an important part of BIL s risk profile monitoring and control process; A firm set of limits and procedures governing risk-taking; The system of limits must be consistent with the whole risk measurement and management process, and be proportionate to the capital position. These limits are integrated and set for the broadest possible scope; and An efficient Risk Management structure for identifying, measuring, monitoring, controlling and reporting risks: BIL s development of a general Risk Management framework is suited to the type of challenges it faces. This approach offers assurance that market risks have been managed in accordance with BIL s objectives and strategy, and within general risk appetite. 4 MCRE = Maximum Credit Risk Exposure. BIL Annual Report

17 4.3. Organisation and Governance Financial Risk Management (FRM) oversees market risk under the supervision of the Management Board and specialist risk committees. FRM is a support line integrated into the Risk Department. On the basis of its global risk management approach, it is responsible for identifying, analysing, monitoring and reporting on risks and results (including the valuation of assets) associated with financial market activities. The policies, directives and procedures documenting and governing each of the activities are defined within BIL and applied to all the Bank s entities. Head Office FRM teams define risk measurement methods for the whole group, report and monitor the risks of the activities they are responsible for, at a consolidated level. Head Office and local FRM teams follow day-to-day activity, implement policies and directives, monitor risks (calculation of risk indicators, control limits and triggers, frame new activities / new products and so on) and report to their own Management Board, as well as to local supervisory and regulatory bodies. The ALM Committee decides on the structural balance sheet positioning regarding rates, foreign exchange and liquidity. It defines and revises market risk limits. FRM, in its day-to-day activity, is supported by two operational committees: The MOC (Monthly Operational Committee) and the CRO&NP (Operational Risk and New Products Committee), which are detailed in part Risk Measurement and exposures Market Risk Risk measurement The Bank has adopted sensitivity and Value-at-Risk (VaR) measurement methodologies as key risk indicators. Risk sensitivity measurements reflect the balance sheet exposure to a parallel movement of 1 % on the rate curve. VaR measures the maximal expected potential loss that can be experienced with a 99 % confidence interval, within a 10 day holding period. BIL applies multiple VaR approaches to accurately measure the market risk inherent in the different portfolios and activities. General interest-rate risk and currency risk are measured through a parametric VaR. Trading portfolio equity risk is measured through a historical VaR. Non-linear risks are measured through a historical VaR, for a better evaluation of the exposure to market volatility. Specific interest-rate risk (spread risk) was measured through a historical VaR until September 30, Since this date, the specific interest-rate risk (spread risk) is measured through sensitivities. The Bank applies the internal VaR model to calculate the regulatory capital requirement for the general interest-rate risk and currency risk within trading activities. As a complement to VaR measures and income statement triggers, the Bank applies a broad range of other measures aimed at assessing risks associated with the different business lines and portfolios (nominal limits, maturity limits, markets limits, sensitivity to different risk factors and so on.) In 2012, hypothetical back-testing did not reveal any downward exceptions for interest-rate and currency risks (internal model), testifying to the quality of the tools in place. Stress testing is intended to explore a range of low probability events that lie outside the predictive capacity of VaR measurement techniques. As such, VaR measures evaluate market risk in a daily market environment, while stress testing measures risks in a distorted market environment. stress tests results and their analysis are presented to the Management Board each quarter. Risk exposure The detailed IR&FX VaR use of market activities (ALM portfolio not included) is disclosed in the table below. The average Value at Risk was 1.94 million in 2012, against 1.64 million in 2011, for BIL. 16 BIL Annual Report 2012

18 Var (10 days, 99 %) (in EUR millions) By Risk factor Global Var (10 days, 99 %) (in EUR millions) By Risk factor Global Treasury Investment Portfolio After the sale of the Bank to its new shareholders, and consequently the sale of the legacy portfolio, BIL had to build a new investment portfolio, split between Treasury and ALM activity. The Treasury bonds portfolio amounted to 0.86 billion as at December 31, The interest-rate risk is managed by the Treasury department and limited with a VaR limit. Accounting-wise, the Treasury bonds portfolio is classified in Available for Sale (AFS). The bpv (basis point value) sensitivity to interest-rate amounted to million. The bpv (basis point value) sensitivity to credit spread amounted to million. ALM Risk measurement Interest-rate The role of ALM in terms of interest-rate risk management consists in reducing the volatility of the statement of income, thereby safeguarding the gross margin generated by the business lines. The sensitivity of the net present value of ALM positions to a change in interest-rates is currently used as the main indicator for setting limits and monitoring risks IR 1 & FX 2 (Trading and Banking 3 ) EQT 4 Trading Spread Trading T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 Average Maximum Average 1.64 Maximum 4.03 End of period 1.81 Limit IR 1 & FX 2 (Trading and Banking 3 ) EQT 4 Trading Spread Trading 5 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 Average Maximum Average 1.94 Maximum 7.67 End of period Limit 6.00 BIL s interest-rate risk is concentrated on European long-term interest-rates and results from the structural imbalance between BIL s assets and liabilities. Credit spread Credit spread risk is defined as the specific interest-rate risk attached to an issuer. It is due to spread variations for a given issuer within a rating class and is measured on the basis of sensitivity expressed in basis points. Equities The equity portfolio size being limited, the sensitivity to equities is low. (Structural) Foreign exchange Although BIL s reporting currency is the euro, assets, liabilities, income and expenses may also be denominated in other currencies. The ALM Committee evaluates the opportunity of hedging the risk associated with the development of these results in foreign currencies. The structural risks of financing shares (equity) in foreign currencies as well as the volatility of the Bank s solvency ratio are also monitored regularly. 1 IR: interest-rate. 2 FX: foreign exchange. 3 IR & FX: excluding Assets & Liabilities Management (ALM). 4 EQT: equity. 5 Spread Trading VaR calculated up to 30/09/12. BIL Annual Report

19 Risk exposure ALM exposure to interest-rate risk (sensitivity) As at December 31, 2012, long-term ALM sensitivity amounted to -120 million (versus +41 million as at December 31, 2011). This development is due to the creation of the new ALM portfolio. The limit of interest-rate sensitivity was 190 million (in absolute value) per percent as at December 31, 2012 (versus 70 million as at December 31, 2011). ALM exposure to credit spread risk ALM manages bond portfolios with a total nominal exposure of 2.3 billion as at December 31, As far as the ALM AFSclassified bonds portfolio is concerned, the sensitivity of fair value (and the AFS reserve), to a one basis point widening of the spread, was -1.9 million (compared with million per basis point as at December 31, 2011). ALM Equity Exposure (quoted shares) The equity portfolio size being limited, the sensitivity to equities is low. Liquidity The liquidity management process is based on covering the funding requirements with available liquidity reserves. Funding requirements are assessed prudently, dynamically and comprehensively by taking existing and planned on- and off- Assets & Liabilities transactions into consideration; reserves are constituted with assets eligible for refinancing with central banks to which BIL has access (European Central Bank). Regular information channels have been established for management bodies. A daily report is sent to the CEO, the CRO, ALM Committee members, Risk Management, Cash & Liquidity Management and TFM teams. An analysis of the balance sheet evolution (customer deposits, etc.) is presented and commented upon during the ALM Committee. Risk measurement The internal liquidity management framework includes indicators enabling the assessment of BIL s resistance to liquidity risk. These indicators include liquidity ratios, which compare liquidity reserves to liquidity deficits. All these indicators are assessed according to different scenarios, in the main currencies. These ratios are sent to the CSSF and to the BCL respectively on a daily and a weekly basis. Risk exposure BIL s disposal led to a decrease of the Bank's balance sheet and a modification of its structure: Share disposal and transfer of the legacy portfolio to Dexia Crédit Local (DCL), of which part was not central bank eligible, increased the Bank s liquidity situation; The Bank s cash collateral (on derivatives) shifted from a payer position to a receiver position, thanks to mirror swaps that BIL had placed with DCL for disposed-of legacy assets; and Dexia LdG Banque SA (DLG) disposal led to an early closing of the intercompany's operations between BIL and DLG (on assets and liabilities). Due to the combination of these factors, as of the closing of the deal, BIL was able to present a significant liquidity surplus. After the deal closed, BIL started to invest the excess cash into a new bonds portfolio. This portfolio will be composed of central bank eligible bonds, and will be compliant with the future Basel III liquidity requirements, i.e. the Liquidity Coverage Ratio (LCR) and the Net Stable Funding ratio (NFSR). These ratios are already respected. Therefore this portfolio also serves as a liquidity cushion for the Bank. BIL s cash position has also improved during the year, generating a surplus of cash. This improvement came from two developments, on one hand an increase in client deposits, and on the other hand, a moderate growth in the loan portfolio. This evolution has strengthened the robustness of the Bank s liquidity position. Additional funding needed to reach 100 % base-case ratio (in EUR millions) -6,000-5,000-4,000-3,000-2,000-1,000 0 Dec.11 Jan.12 Feb.12 Mar.12 Apr.12 May 12 June 12 The negative amount of additional funding needed to reach 100 % base-case ratio shows that the bank presents a surplus of liquidity situation. July 12 Aug.12 Sept.12 Oct.12 Nov.12 Dec BIL Annual Report 2012

20 Individuals, SME & Self Employed % A+ to A % 5. Operational risk 5.1. Definition Operational risk is the risk of direct or indirect losses resulting from the unsuitability or failure of internal processes, staff or systems, or due to external events. This definition includes legal risk, but excludes strategic risk. It also excludes losses resulting from commercial decisions Risk Policy BIL s operational risk management policy consists of identifying and regularly assessing the existing risks and current controls Others in Financial order 0.19 to % check that the acceptance Central level defined per activity Institutions Governments is 5.58 respected. % If not, adequate governance % in place must lead to rapid corrective or improvement actions permitting a return to an acceptable situation. This framework is implemented by a prevention policy, particularly with regard to information security, business continuity and, whenever it is necessary, by the transfer of certain risks through insurance. In terms of information security, including business continuity management, BIL s Management Board has validated and implemented an Information Security Policy. Public Sector This document and Entities its related instructions, standards and practices 4.19 % are aimed at securing BIL s information assets. Project Finance 0.56 % Corporate % 5.3. Organisation and governance BIL s operational risk management framework relies on strong governance with clearly defined roles and responsibilities. BB+ to BB- The following committees 8.72 % are responsible for operational risk at BIL: B+ to B- The Operational Risk and New Products % Committee (OR&NPC) is in charge of supervising operational risks at BIL, its subsidiaries and branches. To this end, CCC the committee takes 1.71 % decisions on risks that have been identified D1 & D2 and analysed, as 2.16 % well as on suitable measures to be taken Not rated in order to improve 1.37 % processes and monitors any action taken. It approves Risk & Control Self-Assessments. It also supervises launches of new products and examines their operational aspects, taking decisions on any project that could have an operational impact on BIL activities. The Monthly Operational Committee (MOC), part of the TFM business line, supervises BIL s TFM projects and operational risks, % takes decisions in terms of tackling day-to-day problems and monitors other risks related to TFM Luxembourg s activities. BBB+ to BBB % AA+ to AA % AAA+ to AAA- The Security Committee (SC) is mandated by the Management Board to oversee the risks to BIL s information security and to that of its subsidiaries, as well as all risks of the loss of confidentiality, the availability, or the integrity of the Bank s information assets. It is also in charge of overseeing security incidents involving BIL, taking decisions on any project with the potential to have an impact on the security of BIL s information assets and ensuring that the implementation and support of a global Business Continuity Plan (BCP) follows the strategy defined by the BIL Management Committee Risk measurement and management The operational risk framework relies on the following elements. United States and Canada 0.59 % Belgium Operational Risk Event Data Collection 6.02 % France 9.36 % According to the Basel Committee, the systematic recording and Germany monitoring of operational incidents is a fundamental 4.34 aspect % of risk management: "historical data on banking losses may provide Others 1.68 % significant information for assessing the Bank s operational risk exposure and establishing a policy to limit / manage risk". Other EU Rest of Europe % Regardless Countries of the approach used to calculate capital (standard 9.83 % or Advanced Measurement Approach), data collection is required. Having a relevant procedure in place ensures that BIL complies with the Basel Committee s requirements. At the same time, recording incidents provides information Luxembourgthat may % be used to improve the internal control system and determine the operational risk profile. The breakdown of the total amount of losses by nature of incident for continuing activities is displayed in the chart below: External Fraud 13 % Internal Fraud 19 % Client Products & Business Practices 4 % Damage to Assets & Public Safety 1 % Information Technology 1 % Execution, Delivery & Process Management 62 % BIL Annual Report

21 The execution, delivery and process incidents represent 62 % of the total. Losses related to these incidents are usually due to human errors. In second place, 32 % of losses occurring in 2012 came from internal and external frauds. While there are few incidents of this type, the amounts involved are significant. Information technology incidents generally do not generate financial losses even if they tend to occur rather often. In terms of reporting, an exhaustive monthly document is produced for each line manager (head office, subsidiaries and branches). It covers all incidents that have arisen in their business over the previous month, based on reports filed. Recipients analyse the report and verify that all incidents brought to their attention have been included. ORM sends a quarterly report on operational risk to members of the Management Board at the end of each quarter and also presents it to the OR&NPC. Self-assessment of risks and associated controls A Risk Control Self Assessment (RCSA) is performed yearly in order to identify the most important risk areas for the Bank. This assessment provides a good overview of the various activities and existing controls and can lead to the definition of mitigation actions. The results of the assessment are reported to management during the Operational Risk and New Products Committee. Definition and follow-up of action plans As part of operational risk management, corrective action plans linked to major risks and events are monitored closely. Two types of action plans are managed by operational risk management: Action plans incidents: following a significant incident, the management may implement action plans. Action plans RCSA: in the event of unacceptable risk exposure, the management may identify action plans. Calculation of the regulatory capital requirement BIL applies the standard Basel II approach to calculate regulatory capital for operational risk. This approach consists principally in applying a percentage (called the "beta factor", ranging from 12 % to 18 %) to an appropriate activity indicator, calculated for each of the eight business lines defined by the Basel Committee (Corporate Finance, Commercial Banking, Retail Banking, Trading and Sales, Asset Management, Agency Services, Retail Brokerage, Payment and Settlement). The relevant indicator is defined by the regulator and is based on the operational results of the underlying business, using an average over the last three years. The calculation is updated at the end of each year. The capital requirement for operational risk was EUR million at year-end 2012, as compared to million at year-end This decrease is mainly explained by the decrease of the Bank s net banking income. Capital requirements (in EUR millions) Regulatory capital adequacy - Pillar Weighted risks Since January 1, 2008, the Bank has used the Basel II framework to calculate its capital requirements with respect to credit, market and operational risk, and to publish its solvency ratios. At the end of 2012, the Bank s total weighted risk amounted to 4.21 billion, compared to 7.57 billion at the end of This decrease was mainly due to a reduction in weighted credit risks (97.43 % of the decrease). This reduction came from the sale of stakes in RBC Dexia Investor Services, Dexia Asset Management and Popular Banca Privada, on the one hand, and from the sale of the Legacy portfolio to Dexia Crédit Local as part of the deal between Precision Capital, the Grand Duchy of Luxembourg and Dexia group, on the other hand. The sale of stakes in RBC Dexia Investor Services, Dexia Asset Management and Popular Banca Privada was recorded in the 2011 accounts and was represented by a receivable in the balance sheet. This receivable generated weighted credit risks for a total amount of 382 million. In addition to these weighted credit risks, an add-on of 172 million in capital requirements corresponding to the risks associated with the Legacy portfolio was generating around 2.15 billion of weighted credit risks. These risks were no longer present after the effective sale of the portfolio, which occurred at the closing. It therefore explained % of the decrease in the weighted credit risks % of the decrease in the weighted credit risk is explained by the reduction in the exposure to financial institutions and corporates, due to the decrease in BIL s business scope and market uncertainties. There were also increases in 20 BIL Annual Report 2012

22 weighted credit risks, which accounted negatively for 8.47 % and mainly came from increases in sovereign and retail exposures. The remainder of the decrease in weighted risk was explained by an % decrease in the weighted operational risks which accounted for 2.77 % of the global reduction in the total weighted risks. Finally, there was a 4.8 % increase in the weighted market risks. This change was mainly explained by the set-up of the new strategy and of the new ALM and Treasury portfolios within TFM business line. (in EUR millions) 30/06/11 31/12/11 30/06/12 31/12/12 Weighted credit risks 9,158 6,646 7,033 3,367 Weighted market risks Weighted operational risks 2, Total Weighted Risks 11,295 7,572 7,958 4, Capital adequacy ratios (in EUR millions) 30/06/11 31/12/11 30/06/12 31/12/12 Core shareholders' equity (Tier 1) 2,493 (96) Total Regulatory capital 2,981 (129) Weighted Risks 11,295 7,572 7,958 4,207 Core shareholders' equity (Tier 1) ratio % (1.27 %) 5.44 % % Capital adequacy ratio % (1.71 %) 9.25 % % At the end of 2012, core shareholders' equity amounted to 605 million. This increase compared with 2011 is explained by BIL s recapitalisation following the closing of the deal between Precision Capital, the Grand Duchy of Luxembourg and Dexia group. BIL got fresh capital for a total amount of 204 million. The cancellation of the deduction of some deconsolidated holdings (i.e. Dexia Asset Management, RBC Dexia Investor Services, Dexia LdG Banque, Popular Banca Privada and Parfipar) also improved the core shareholders' equity. Therefore the Tier 1 ratio improved to a healthy % while the Capital Adequacy (CAD) ratio increased from % to %. 7. Internal capital adequacy - Pillar 2 BIL group is rebuilding its Internal Capital Adequacy Assessment Process following the dismantling of the Dexia group. BIL has had regular meetings and contacts with the Luxembourg regulator (the CSSF) in order to set up an independent Pillar II approach (capital adequacy in relation to risks taken, mainly based on the economic capital approach) compliant with BIL s business profile. The Bank s departure from the Dexia group was not neutral, as it had an impact on its balance between concentration and diversification. In 2012, the Bank has begun to adapt its management process to its new configuration and strategy. The result of this work will result in 2013 in an independent ICAAP report. According to CSSF Circular 07 / 301 ICAAP (Internal Capital Adequacy Assessment Process), the Bank has to set up "healthy, efficient and exhaustive strategies and processes, allowing institutions to assess and keep at any time the amount, type and allocation of internal equity capital they deem appropriate to cover the type and level of risks which they are or could be exposed to". The ICAAP document describes the identification and management processes of the various risks facing the Group, whether described in Pillar 1 of the Basel agreements or not (e.g. liquidity, profitability, etc.). The methodology used to quantify the different risks is based on adjustments and supplements to regulatory methods as well as on the valuation of risks not considered by Pillar 1. In this process, the Bank has to completely review its Pillar 2 process through the redefinition of its risk appetite, its economic capital and its economic capital adequacy Risk appetite Risk appetite expresses the level of risk that an institution is prepared to take, in light of the expectations of principal stakeholders (shareholders, creditors, regulators, rating agencies, clients, etc.), in order to meet its strategic and financial targets. Based on a global approach, risk appetite is a reference point for: guiding strategy and planning; regulating performance in terms of adding value; and making day-to-day investment or disposal decisions easier. BIL Annual Report

23 The Bank s risk appetite is demonstrated by a series of ratios constituting a key component for defining limits in terms of financial fundamentals. This framework is based on a mix of accounting (gearing), regulatory (Tier 1, weighted risks) and economic (economic capital) ratios and also includes liquidity and funding structure ratios, as well as credit concentration limits. Limits are set for each of these ratios and are approved by the Board of Directors each year. The Risks and Finance businesses are responsible for monitoring these ratios, if necessary offering the Management Board suggestions on how to ensure limits are respected. The risk appetite approach will be reviewed in 2013 according to BIL s new business model and will be rolled out to the main subsidiaries in 2013 and validated by their governing bodies Economic capital Economic capital can be seen as the methods or practices allowing banks to consistently assess risk and attribute capital to cover the economic effects of risk-taking activities. Economic capital is defined as the potential deviation between the Group s economic value and its expected value, with a given confidence interval and time horizon. The process for quantifying economic capital is organised into three stages: Risk identification (definition and mapping updated annually up to local level), a complete risk identification exercise was developed during 2012 in order to produce risk identification in line with BIL s business profile. Measurement (essentially on the basis of statistical methods inherited from Dexia group but also involving new statistical methods developed by BIL or Pillar 1 method) Aggregation based on an inter-risk diversification matrix. Most risks are capitalised according to a measure of expected loss; however, some risks are not capitalised, if other management approaches (limits, scenarios, governance) are deemed more suited to covering them. Capitalised risks are assessed at a high level of severity (99.93 % in one year). The Pillar 2 process is carried out by BIL s new Risk Management teams. Initial estimates of economic capital will be produced for BIL s ICAAP report. These estimates will be produced on the basis of the BIL s new risk cartography, and included in the Bank s Quarterly Risk Report (QRR) and sent to the CSSF in due time. basis, the EPAC will examine the (regulatory and economic) ratios, limits and triggers defined in the risk appetite policy and the budgetary framework, along with any deviations from forecasts. It will assess the Bank s ability to absorb these and will examine proposed courses of action. The information coming from the EPAC will be established jointly by the Risk and Finance departments; the Management Board learns of this information through BIL s Quarterly Risk Report Economic capital adequacy The Bank will set up an Economic Performance Analysis Committee (EPAC) to manage the capital adequacy process and to propose solutions tailored to BIL s strategy. On a quarterly 22 BIL Annual Report 2012

24 BIL Annual Report

25

26 Report of the Réviseur d entreprises agréé 27 balance sheet 28 statement of income 30 statement of changes in equity 31 statement of comprehensive income 33 cash flow statement 34 Notes to the consolidated 35

27 26 BIL Annual Report 2012

28 Report of the Réviseur d entreprises agréé To the Board of Directors of Banque Internationale à Luxembourg SA Report on the consolidated Following our appointment by the Board of Directors, we have audited the accompanying consolidated of Banque Internationale à Luxembourg SA, which comprise the consolidated balance sheet as at December 31, 2012, the consolidated statement of income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Responsibility of the Board of Directors for the consolidated The Board of Directors is responsible for the preparation and fair presentation of these consolidated in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated that are free from material misstatement, whether due to fraud error. Responsibility of the Réviseur d entreprises agréé Our responsibility is to express an opinion on these consolidated based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. These procedures selected depend on the Réviseur d entreprises agréé s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the Réviseur d entreprises agréé considers internal control relevant to the entity s preparation and fair presentation of the consolidated in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the consolidated give a true and fair view of the financial position of Banque Internationale à Luxembourg SA as of December 31, 2012, and of its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards adopted by the European Union. Report on other legal and regulatory requirements The consolidated, which is the responsibility of the Board of Directors, is consistent with the consolidated. For Deloitte Audit, Cabinet de révision agréé Martin Flaunet, Réviseur d entreprises agréé Partner March 28, 2013 BIL Annual Report

29 balance sheet ASSETS (in EUR) Notes 31/12/11 31/12/12 I. Cash and balances with central banks ,004,557 3,358,966,568 II. Loans and advances to credit institutions 7.3 2,900,162,889 1,856,457,339 III. Loans and advances to customers 7.4 / 7.7 9,496,522,669 9,554,192,423 IV. Financial assets measured at fair value through profit and loss 7.5 / ,664, ,171,032 V. Financial investments ,271,255 3,894,147,186 VI. Derivatives 9.1 1,897,644,097 1,709,753,839 VII. Fair value revaluation of portfolios hedged against interest-rate risk 28,916,690 25,452,345 VIII. Investments in associates IX. Tangible fixed assets 7.9 / ,026, ,952,075 X. Intangible fixed assets and goodwill ,983,146 65,392,495 XI. Tax assets 7.11 / ,952, ,398,296 XII. Other assets ,381,675,396 56,490,415 TOTAL ASSETS 24,218,824,178 21,301,374, BIL Annual Report 2012

30 LIABILITIES (in EUR) Notes 31/12/11 31/12/12 I. Amounts owed to credit institutions 8.1 6,706,638,352 2,578,571,093 II. Amounts owed to customers 8.2 9,509,672,584 11,546,279,875 III. Financial liabilities measured at fair value through profit and loss 8.3 2,999,163,442 2,672,791,875 IV. Derivatives 9.1 1,967,399,639 1,573,878,656 V. Fair value revaluation of portfolios hedged against interest-rate risk 68,157,796 91,611,929 VI. Debt securities ,179, ,234,370 VII. Subordinated debt ,352, ,562,232 VIII. Provisions and other obligations ,559,237 62,881,808 IX. Tax liabilities 8.7 / ,170,036 37,673,536 X. Other liabilities ,570, ,776,696 TOTAL LIABILITIES 23,479,864,238 20,193,262,070 SHAREHOLDERS' EQUITY (in EUR) Notes 31/12/11 31/12/12 XI. Subscribed capital ,224, ,224,090 XII. Additional paid-in capital 617,668, ,297,160 XIII. Treasury shares (1,455,000) (1,455,000) XIV. Reserves and retained earnings 1,887,809,361 76,020,994 XV. Net income for the period (1,948,660,693) 30,177,288 CORE SHAREHOLDERS' EQUITY 696,586, ,264,532 XVI. Gains and losses not recognised in the statement of income 42,033, ,847,411 a) AFS reserve 60,752, ,307,820 b) Other reserves (18,718,828) (10,460,409) GROUP EQUITY 738,619,795 1,108,111,943 XVII. Non-controlling interests 340,145 0 TOTAL SHAREHOLDERS' EQUITY 738,959,940 1,108,111,943 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 24,218,824,178 21,301,374,013 BIL Annual Report

31 statement of income (in EUR) Notes 31/12/11 31/12/12 I. Interest received ,351,649, ,778,618 II. Interest paid 11.1 (1,032,781,652) (774,157,491) III. Dividends ,737,382 22,075,603 IV. Net income from associates ,260,878 0 V. Net trading income and net result of hedge accounting 11.4 (647,004,197) 4,363,972 VI. Net income on investments 11.5 (1,553,027,636) (53,281,481) VII. Fee and commission income ,159, ,463,630 VIII. Fee and commission expense 11.6 (176,581,073) (20,117,361) IX. Other net income 11.8 (3,681,781) 19,517,121 INCOME (1,236,268,544) 359,642,611 X. Staff expense 11.9 (470,692,836) (188,275,168) XI. General and administrative expenses (291,511,912) (120,090,630) XII. Amortisation of tangible and intangible fixed assets (48,407,191) (22,292,441) EXPENSES (810,611,939) (330,658,239) GROSS OPERATING INCOME (2,046,880,483) 28,984,372 XIII. Impairment of loans and provisions for credit commitments (173,109,575) (18,430,898) XIV. Impairment of tangible and intangible fixed assets (5,333,719) 0 XV. Provisions for legal litigation ,726,387 11,184,137 NET INCOME BEFORE TAX (2,221,597,390) 21,737,611 XVI. Tax expenses ,416,330 8,439,677 NET INCOME (1,921,181,060) 30,177,288 Attributable to non-controlling interests 27,479,634 0 Net income-group share (1,948,660,694) 30,177,288 Earnings per share basic (966.35) diluted (966.35) BIL Annual Report 2012

32 statement of changes in equity CORE SHAREHOLDERS' EQUITY, GROUP 2011 Subscribed capital Additional paid-in capital Treasury shares Reserves and retained earnings Net income for the period Core shareholders' equity (in EUR) AS AT 01/01/11, IFRS 141,224, ,668,312 (1,437,000) 1,680,146, ,560,606 2,645,162,567 Stock option 100, ,384 Purchase of treasury shares (18,000) (18,000) Classification of income ,560,606 (207,560,606) Changes in scope of consolidation 1,812 1,812 Net income for the period (1,948,660,693) (1,948,660,693) AS AT 31/12/11, IFRS 141,224, ,668,312 (1,455,000) 1,887,809,361 (1,948,660,693) 696,586,070 GAINS AND LOSSES NOT RECOGNISED IN THE STATEMENT OF INCOME (in EUR) Securities (AFS) Derivatives (CFH) Associates Unrealised income - non-current assets held for sale - gross Translation adjustments 1 Gains and losses not recognised in the statement of income AS AT 01/01/11, IFRS (384,869,846) (9,874,315) 0 0 (7,360,732) (402,104,893) Net change in fair value through equity - Available for sale investments (329,273,973) (329,273,973) Net change in fair value through equity - Cash flow hedges (16,442,507) (2,902,814) (19,345,321) Translation adjustments 6,911,031 (7,809,096) (898,065) Reimbursements for the period, disposals or maturities 8,597,154 8,597,154 Changes in scope of consolidation 91,141,891 8,664,206 2,902,814 (4,318,185) 98,390,726 Cancellation of fair value following AFS disposals 525,851, ,851,291 Cash flow hedge - Break in hedging 18,421,801 18,421,801 Amortisation of premiums and discounts 19,868,646 19,868,646 Fair value recognised through profit and loss following the recognition of impairments 122,526, ,526,359 AS AT 31/12/11, IFRS 60,752, , (19,488,013) 42,033,725 1 As at December 31, 2011, translation adjustments comprise an amount of EUR -35,431,536 relating to net investment hedges linked to foreign exchange differences in consolidated investments (as at December 31, 2010: EUR -30,758,044). BIL Annual Report

33 NON-CONTROLLING INTERESTS Core shareholders' equity Gains and losses not recognised in the statement of income Non-controlling interests (in EUR) AS AT 01/01/11, IFRS 164,335,279 2,354, ,689,982 Dividends (39,040,726) (39,040,726) Changes in scope of consolidation (152,444,383) 1,564,044 (150,880,339) Net change in fair value through equity (3,918,747) (3,918,747) Stock option 10,342 10,342 Net income for the period 27,479,633 27,479,633 AS AT 31/12/11, IFRS 340, ,145 CORE SHAREHOLDERS' EQUITY, GROUP 2012 Subscribed capital Additional paid-in capital Treasury shares Reserves and retained earnings Net income for the period Core shareholders' equity (in EUR) AS AT 01/01/12, IFRS 141,224, ,668,312 (1,455,000) 1,887,809,361 (1,948,660,693) 696,586,070 Classification of income 2011 (113,217,609) (1,835,443,084) 1,948,660,693 0 Capital increase Dexia 203,846, ,846,457 Classification of income to hybrid capital 1 23,804,569 23,804,569 Changes in scope of consolidation (149,852) (149,852) Net income for the period 30,177,288 30,177,288 AS AT 31/12/12, IFRS 141,224, ,297,160 (1,455,000) 76,020,994 30,177, ,264,532 GAINS AND LOSSES NOT RECOGNISED IN THE STATEMENT OF INCOME (in EUR) Securities (AFS) Derivatives (CFH) Associates Unrealised income - non-current assets held for sale - gross Translation adjustments 2 Gains and losses not recognised in the statement of income AS AT 01/01/12, IFRS 60,752, , (19,488,013) 42,033,725 Net change in fair value through equity - Available for sale investments 69,571,600 69,571,600 Net change in fair value through equity - Cash flow hedges 735, ,442 Translation adjustments (3,817) 8,396,340 8,392,523 Reimbursements for the period, disposals or maturities (1,593,219) (1,593,219) Cancellation of fair value following AFS disposals 35,580,703 35,580,703 Cash flow hedge - Break in hedging (873,363) (873,363) AS AT 31/12/12, IFRS 164,307, , (11,091,673) 153,847,411 NON-CONTROLLING INTERESTS Core shareholders' equity Gains and losses not recognised in the statement of income Non-controlling interests (in EUR) AS AT 01/01/12, IFRS 340, ,145 Changes in scope of consolidation (340,145) (340,145) AS AT 31/12/12, IFRS Amount net of tax. 2 As at December 31, 2012, translation adjustments comprise an amount of EUR -36,297,941 relating to net investment hedges linked to foreign exchange differences in consolidated investments (as at December 31, 2011: EUR -35,431,536). 32 BIL Annual Report 2012

34 statement of comprehensive income statement of comprehensive income 1 (in EUR) 31/12/11 30/06/12 31/12/12 NET INCOME RECOGNISED IN THE STATEMENT OF INCOME (1,921,181,060) 18,143,701 30,177,288 Unrealised gains (losses) on available for sale financial investments 552,372,645 43,340, ,883,325 Gains / (losses) on cash flow hedges 15,119,623 1,623,256 (129,535) Translation adjustments (13,228,571) 8,959,533 8,396,340 Gains / (losses) on net investments hedges (170,886) (89,501) (58,915) Unrealised gains / (losses) on associates Tax on components of income not recognised in the statement of income (112,308,899) (13,739,275) (40,277,529) GAINS /(LOSSES) NOT RECOGNISED IN THE STATEMENT of income 441,783,912 40,094, ,813,686 TOTAL GLOBAL INCOME FOR THE FINANCIAL YEAR (1,479,397,148) 58,238, ,990,974 Attributable to equity holders (1,504,522,076) 58,238, ,990,974 Attributable to non-controlling interests 25,124, Including changes in the AFS reserves for the period. BIL Annual Report

35 cash flow statement (in EUR) 31/12/11 31/12/12 Cash flow from operating activities Net income after tax (1,948,660,693) 30,177,288 Attributable to non-controlling interests 27,479,633 0 Adjustment for: - Depreciation, amortisation and other impairment 64,467,652 33,927,407 - Impairment on bonds, equities and other assets 159,351,084 13,174,970 - Net gains / (losses) on investments 162,572,596 1,780,872 - Charges for provisions (52,314,403) (29,152,755) - Unrealised gains or (losses) 30,480,230 (1,602,280) - Income / (expense) from associates (2,260,878) 0 - Deferred taxes (328,497,350) (24,709,484) - Other adjustments 110,726 0 Changes in operating assets and liabilities (2,294,178,435) 1,965,405,836 Net cash flow provided (used) by operating activities (4,181,449,838) 1,989,001,854 Cash flow from investing activities Purchase of fixed assets (49,245,334) (25,132,631) Sale of fixed assets 3,456,804 66,207 Purchase of non-consolidated shares (3,414,270) (2,163,553) Sale of non-consolidated shares 1,311,791 3,617,292 Acquisitions of subsidiaries 1,316,620 (490,000) Sale of subsidiaries / branch closures (4,605,704,468) (4,904,426) Net cash flow provided (used) by investing activities (4,652,278,857) (29,007,111) CASH FLOW FROM FINANCING ACTIVITIES Capital increase 0 203,846,457 Reimbursement of subordinated debts (144,471,780) 0 Purchase of treasury shares (18,000) 0 Dividends paid (50,327,838) 0 NET CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES (194,817,618) 203,846,457 NET CASH PROVIDED (9,028,546,313) 2,163,841,200 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 11,217,465,200 2,245,590,078 Net cash flow from operating activities (4,181,449,838) 1,989,001,854 Net cash flow from investing activities (4,652,278,857) (29,007,111) Net cash flow from financing activities (194,817,618) 203,846,457 Effect of change in exchange rate and in scope of consolidation on cash and cash equivalents 56,671,191 3,461,944 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 2,245,590,078 4,412,893,222 ADDITIONAL INFORMATION Taxes paid (20,390,121) (1,039,991) Dividends received 11,737,382 22,075,603 Interest received 1,450,780, ,970,225 Interest paid (1,074,031,288) (865,835,606) The BIL group decided to classify operations relating to core shareholders' equity, treasury shares and other elements eligible to be considered regulatory capital as financing activities. Investing activities are limited to tangible and intangible fixed assets and to transactions on consolidated or non-consolidated available for sale shares. Financing activities are not split between those attributable to equity holders and those attributable to non-controlling interests. The amounts indicated include cash flows attributable to the Group and third parties. 34 BIL Annual Report 2012

36 Notes to the consolidated Preliminary note: Presentation of the consolidated If the balance of an item is nil for the financial year under review as well as for the comparative year, this item is not included in the. This rule applies to the presentation of the balance sheet, the statement of income and the notes to the, as well as to the statement of changes in equity and the cash flow statement. Note 1 Accounting principles and rules of the consolidated financial statements Note 2 Material changes in scope of consolidation and list of subsidiaries and associates Note 3 Business and geographic reporting Note 4 Material items in the statement of income Note 5 Post-balance sheet events Note 6 Litigations Note 7 Notes on the assets of the consolidated balance sheet 7.1. Cash and cash equivalents 7.2. Cash and balances with central banks 7.3. Loans and advances to credit institutions 7.4. Loans and advances to customers 7.5. Financial assets measured at fair value through profit and loss 7.6. Financial investments 7.7. Reclassification of financial assets (IAS 39) 7.8. Investments in associates 7.9. Tangible fixed assets Intangible fixed assets and goodwill Tax assets Other assets Leasing Quality of financial assets Note 8 Notes on the liabilities of the consolidated balance sheet 8.1. Amounts owed to credit institutions 8.2. Amounts owed to customers 8.3. Financial liabilities measured at fair value through profit and loss 8.4. Debt securities 8.5. Subordinated debt 8.6. Provisions and other obligations 8.7. Tax liabilities 8.8. Other liabilities Note 9 Other notes on the consolidated balance sheet 9.1. Derivatives 9.2. Deferred tax 9.3. Share-based payments 9.4. Related parties transactions 9.5. Securitisation 9.6. Acquisitions and disposals of consolidated companies 9.7. Shareholders' equity 9.8. Exchange rates 9.9. Contribution of joint ventures in the annual Independant auditor s fees Note 10 Notes on off-balance sheet items Regular way trade Guarantees Loan commitments Other commitments Note 11 Notes on the consolidated statement of income Interest received Interest paid Dividends Net income from associates Net trading income and net result of hedge accounting Net income on investments (assets and liabilities not designated at fair value through profit and loss) Fees and commissions income and expenses Independent auditors' fees Other net income Staff expenses General and administrative expenses Amortisation on tangible and intangible fixed assets Impairment on loans and provisions for credit commitments Impairment on tangible and intangible fixed assets Tax expenses Earnings per share Provisions for legal litigation Note 12 Notes on risk exposure Fair value Credit risk exposure Pledged assets Interest-rate risk: breakdown by maturity until next interest-rate repricing date Market risk and Assets & Liabilities Management (ALM) Liquidity risk: breakdown by residual maturity Currency risk Solvency ratios BIL Annual Report

37 Note 1: Accounting principles and rules of the consolidated financial statements General information The holding company of the BIL group is Banque Internationale à Luxembourg, a Luxembourg public limited company (hereafter "BIL" or "the Bank"). Its registered office is situated at 69, route d Esch, L-2953 Luxembourg. The BIL group is integrated in the consolidated financial statements of Precision Capital SA, comprising the smallest body of undertakings of which BIL forms part as a subsidiary. The registered office of Precision Capital SA is located in Luxembourg at 15, Boulevard Franklin Roosevelt L-2450 Luxembourg and its consolidated accounts are available at the same address. The object of BIL is to undertake all banking and financial operations, for its own account or for the account of third parties, in Luxembourg or abroad including the establishment of subsidiaries, branches and representative offices and to carry out all financial, industrial and commercial operations, as well as to take deposits of funds and to hold items of value on deposit. These were approved for publication by the Board of Directors on March 1, 2013, and signed by François Pauly, Chairman of the Management Board of the BIL group and Chief Executive Officer. Notes to the consolidated The principal accounting policies adopted in the preparation of these consolidated are set out below. The common used abbreviations below are: IASB: International Accounting Standards Board IFRIC: International Financial Reporting Interpretations Committee IFRS: International Financial Reporting Standards 1. ACCOUNTING RULES AND METHODS 1.1. Basis of accounting General information BIL s consolidated are prepared in accordance with the IFRS, as adopted by the European Union (EU). The European Commission (EC) published Regulation EC 1606 / 2002 on July 19, 2002, requiring listed groups to apply IFRS as from January 1, This regulation has been updated several times since BIL s consolidated have therefore been prepared "in accordance with all IFRSs as adopted by the EU" and endorsed by the EC up to December 31, 2012, including the conditions of application of interest-rate portfolio hedging and the ability to hedge core deposits. Our accounting principles include only elements where an IFRS text allows a choice. The consolidated are prepared on a "goingconcern basis" and are given in euro (EUR) unless otherwise stated Accounting estimates and judgements In preparing the consolidated, management is required to make estimates and assumptions that affect the amounts reported. To make these assumptions and estimates, management uses information available at the date of preparation of the and exercises its judgement. While management believes that it has considered all available information in developing these estimates, actual results may differ from the estimates and the differences could be material to the. Judgements are made principally in the following areas: Classification of financial instruments into the appropriate category ( loans and receivables, held to maturity, available for sale, held for trading and fair value option ) for measurement purposes based on the instrument s characteristics and BIL s intention (see 1.6); Financial instruments for which no quoted market prices in active markets are available are valued by means of valuation techniques. The determination as to whether or not there is an active market is based on criteria such as volume traded, market liquidity, bid offer spread, etc. (see 1.7); Determination of fair value for financial instruments measured at fair value by means of valuation techniques (see 1.7); Determination on whether BIL controls the investee, including special purpose entities (see 1.3); The appropriateness of designating derivatives as hedging instruments (see 1.12); Existence of a present obligation with probable outflows in the context of litigation (see 1.24); and Identification of impairment triggers (see 1.6.5). These judgements are entered into the corresponding sections (as referenced above) of the accounting policies. Estimates are principally made in the following areas: The measurement of hedge effectiveness in hedging relations (see 1.12); Determination of the market value correction to adjust for market value and model uncertainty (see 1.7); Determination of the useful life and the residual value of 36 BIL Annual Report 2012

38 property, plant and equipment, investment property and intangible assets (see 1.14.,1.15); Actuarial assumptions related to the measurement of employee benefits obligations and plan assets (see note 8.6); Estimation of future taxable profit for the recognition and measurement of deferred tax assets (see 1.21); and Estimation of the recoverable amount of cash-generating units for goodwill impairment (see ) Changes in accounting policies since the previous annual publication that may impact BIL group The overview of the texts below is made up to the reporting date of December 31, IASB and IFRIC texts endorsed by the European Commission and applied as from January 1, The following standards, interpretations or amendments have been endorsed by the European Commission and are applied as from January 1, Amendment to IFRS 7 "IFRS Disclosures Transfers of Financial Assets". This amendment will impact BIL by requiring more detailed disclosures on transferred assets IASB and IFRIC texts endorsed by the European Commission during the current year but not yet applicable as from January 1, Amendment to IAS 19 "Employee Benefits" mainly changes the recognition and measurement of defined benefit pension plans (notably with the abolition of the "corridor" mechanism) and enhances the disclosures on such plans required in the notes. The amendment to IAS 19 will apply from January 1, 2013, and will impact BIL. As a result of this amendment, BIL will have to present the net assets or liabilities of defined benefits in its. BIL will no longer be permitted to use the corridor method because, under this amendment, the total amount of actuarial gains or losses shall be recognised in gains / losses not recognised in the statement of income. Net remuneration on defined benefit liabilities will be calculated using a discount rate corresponding to the interest-rate on high-quality corporate bonds. Lastly, taxes payable in respect of the scheme for contributions related to services before the reporting date or for benefits resulting from these services will be included in the valuation of obligations in respect of defined benefits. Based on the figures as at December 31, 2012, the impact of the transfer to the income statement of deferred actuarial profits and losses is EUR -9.3 million and related taxes are EUR -5.8 million. Amendment to IAS 1 "Presentation of Items of Other Comprehensive Income" clarifies the requirements for the presentation of the statement of comprehensive income and introduces a presentation of items in other comprehensive income (OCI) on the basis of recyclability. This amendment is effective as from January 1, 2013 and will impact the Bank s presentation of other comprehensive income. IFRIC 20 "Stripping Costs in the Production Phase of a Surface Mine". This interpretation has no impact on BIL. Amendments to IAS 12 "Income Taxes - Deferred Tax: Recovery of Underlying Assets". These amendments will not impact BIL s. Amendments to IAS 32 "Financial Instruments Presentation: Offsetting Financial Assets and Financial Liabilities" clarify the application of the offsetting rules of financial instruments and remove certain aspects of diversity in application. The amended IAS 32 will be applicable as from January 1, 2014 and could impact BIL depending on the offsetting conditions. Amendments to IFRS 7 "Financial Instruments: Disclosures: Offsetting Financial Assets and Financial Liabilities" require additional disclosures of recognised financial instruments that are set off and of recognised financial instruments subject to enforceable master netting arrangements and similar agreements even if they are not set off under IAS 32. The amended IFRS 7 will be applicable as from January 1, 2013 and will expand BIL s disclosures regarding offsetting of financial instruments in annual and interim reporting. IFRS 13 "Fair Value Measurement" describes how to measure fair value under IFRS and introduces new and enhanced disclosure requirements. IFRS 13 will be applicable as from January 1, 2013 and will impact BIL in how fair value is measured. A package of five new and revised standards on the accounting treatment and disclosure requirements of interests in other entities will be applicable as from January 1, This publication comprises the following: - IFRS 10 " Financial Statements" introduces one single consolidation model for all entities, based on control and regardless the nature of the investee. BIL does not expect a material impact from this standard on its financial reporting. - IFRS 11 "Joint Arrangements" will no longer allow the proportionate consolidation method when accounting for jointly controlled entities. This standard has no impact on BIL. - IFRS 12 "Disclosures of Interests in Other Entities" will require enhanced disclosures about BIL s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities in which BIL has an involvement. - Revised IAS 27 "Separate Financial Statements" continues to be a standard, dealing solely with separate financial statements: the existing guidance is unchanged. - Revised IAS 28 "Investments in Associates and Joint Ventures" is amended to incorporate changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12. Amendments to IFRS 1 "First-time Adoption of International Financial Reporting Standards - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters". These amendments have no impact on BIL. BIL Annual Report

39 New IFRS standards, IFRIC interpretations and amendments issued during the current year but not yet endorsed by the European Commission Amendments to IFRS 9 and IFRS 7 "Mandatory Effective Date and Transition Disclosures" defer the mandatory effective date of IFRS 9 to January 1, 2015 and require modified disclosures on transition from IAS 39 to IFRS 9 which vary upon the date of transition. The amendments also require reclassification disclosures to allow reconciliations between the measurement categories in accordance with IAS 39 and IFRS 9 and individual line items in the or classes of financial instruments. This amendment will affect BIL. Amendment to IFRS 1 "Government Loans" (issued by IASB in March 2012). This amendment is effective as from January 1, 2013 and will not impact the of the Bank, which is no longer a first-time adopter. "Annual Improvements cycle" (issued by IASB in May 2012), which are a collection of amendments to existing International Financial Reporting Standards. These amendments are effective as from January 1, The Bank does not expect these amendments to have a material impact on its. Transition guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) (issued June 28, 2012) have no impact on the Bank. Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (issued on October 31, 2012). These amendments have no impact on the Bank Consolidation Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred by BIL, the liabilities incurred by BIL to former owners of the acquiree and the equity interests issued by BIL in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date. Non-controlling interests may be initially measured either at fair value or at the present ownership instruments proportionate share in the recognised amounts of the acquiree s identifiable net assets. The choice of measurement basis is made on a transactionby-transaction basis. The equity and net income attributable to the non-controlling interests are shown separately in the balance sheet and statement of income respectively. When the consideration transferred by BIL in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the consideration transferred in a business combination. Subsequent changes in the fair value of the contingent consideration are typically recognised in profit or loss. When a business combination is achieved in stages, BIL s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date (i.e. the date on which BIL obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of Subsidiaries Subsidiaries are those entities over whose financial and operating policies BIL may, directly or indirectly, exercise control. Subsidiaries are fully consolidated as of the date upon which effective control is transferred to BIL and are no longer consolidated as of the date upon which BIL s control ceases. Intercompany transactions, balances and unrealised gains and losses on transactions among the BIL group s companies have been eliminated. Where necessary, the subsidiaries accounting policies have been amended to ensure consistency with the policies BIL has adopted. Changes in BIL's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity. When BIL loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between: The aggregate of the fair value of the consideration received and the fair value of any retained interest; and The previous carrying amount of the assets (including goodwill) and liabilities of the subsidiary and any noncontrolling interests. The fair value of any investment retained in the former subsidiary as of the date on which control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 "Financial Instruments: Recognition and Measurement" or, where applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity Special purpose entities (SPEs) An SPE shall be consolidated when the substance of the relationship between BIL and the SPE indicates that the SPE is controlled by BIL. Control may arise through the predetermination of the activities of the SPE (operating on autopilot or otherwise). The following circumstances require judgement and may indicate a 38 BIL Annual Report 2012

40 relationship through which BIL controls an SPE (which it should consequently consolidate): The activities of the SPE are being conducted on behalf of BIL, according to its specific business needs; BIL has the decision-making powers or has delegated these powers to obtain the majority of the benefits of the activities of the SPE; BIL has the right to obtain the majority of the benefits of the SPE and may be exposed to its risks; or BIL retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities offsetting financial assets and financial liabilities Financial assets and financial liabilities are offset (and consequently, only the net amount is reported) when BIL has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously Foreign currency translations and transactions Foreign currency translation On consolidation, the statements of income and cash flow statements of foreign entities that have a functional currency different from BIL s presentation currency are translated into BIL s presentation currency (EUR) at the average exchange rates for the year (annual reporting) or the period (interim reporting) and their assets and liabilities are translated at the respective year-end or quarter-end exchange rates. Exchange differences arising from the translation of the net investment in foreign subsidiaries and of borrowings and other currency instruments designated as hedges of such investments, are recorded as a cumulative translation adjustment within shareholders' equity. On disposal of a foreign entity, such exchange differences are recognised in the statement of income as part of the gain or loss upon disposal. Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate Foreign currency transactions For individual BIL entities, foreign currency transactions are accounted for using the approximate exchange rate at the date of the transaction. Outstanding balances denominated in foreign currencies at period- or year-end are translated at period- or yearend exchange rates for monetary items and non-monetary items carried at fair value. Historical rates are used for non-monetary items carried at cost. The resulting exchange differences from monetary items are recorded in the consolidated statement of income; except for the foreign exchange impact related to fair value adjustments on available for sale bonds, which is recorded under "Other comprehensive income". For non-monetary items carried at fair value, the exchange differences are governed by the same accounting treatment as for fair value adjustments Financial assets and liabilities Management uses judgement on the criteria mentioned in the paragraphs below in determining the appropriate classification of its investments at initial recognition. However, under certain conditions, financial assets could subsequently be reclassified Recognition and derecognition of financial instruments BIL recognises and derecognises financial assets held for trading on trade date. For these financial assets, BIL recognises in the statement of income and on the trade date any unrealised gains or losses arising from revaluing the contract to fair value at the reporting date. BIL recognises these unrealised gains and losses under "Net income from financial instruments at fair value through profit or loss". All other "regular way" purchases and sales of financial assets are recognised and derecognised on the settlement date, which is the date of delivery to or by BIL. BIL recognises the financial liabilities on its balance sheet when it becomes party to the contractual provisions of the instrument. BIL derecognises financial liabilities only when they are extinguished, i.e. when the obligation specified in the contract is discharged, cancelled or expires Loans and advances due from banks and customers BIL classifies non-derivative financial assets with fixed or determinable payments that are not quoted on an active market into this category (labelled by IAS 39 as "Loans and Receivables" L&R) except for: those that BIL intends to sell immediately or in the near term, which are classified as held for trading, and those that BIL, upon initial recognition, designates as being at fair value through profit or loss; those that BIL, upon initial recognition, designates as available for sale; or those for which BIL might not substantially recover all of its initial investment, for other reasons than credit deterioration, such L&R then being classified as available for sale. BIL recognises interest-bearing loans and advances initially at fair value plus transaction costs and subsequently at amortised cost, less any allowance for impairment. Interest is calculated using the effective interest-rate method and recorded under "Net interest income". BIL Annual Report

41 The effective interest-rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset Financial instruments measured at fair value through profit or loss Loans and securities held for trading BIL reports loans held for trading purposes in the line "Financial assets held for trading" at their fair value, with unrealised gains and losses recorded in the statement of income under "Net income from financial instruments at fair value through profit or loss". Interest income is accrued using the effective interestrate method and is recorded under "Net interest income". Trading securities are securities acquired for generating a profit from short-term fluctuations in price or dealer margins, or are securities included in a portfolio in which a pattern of short-term profit-taking exists. BIL initially recognises trading securities at fair value and subsequently re-measures them at fair value. All realised and unrealised gains and losses are recorded under "Net income from financial instruments at fair value through profit or loss". Interest earned is recorded under "Interest income", and dividends received under "Dividend income" Liabilities held for trading Liabilities held for trading are subject to the same accounting rules as those for "Loans and securities held for trading" Loans and securities designated at fair value through profit or loss ("FVO") In some cases, and if appropriately documented, BIL can designate a financial asset, a financial liability or a group of financial instruments as "at fair value through profit or loss" where: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or an instrument contains a non-closely related embedded derivative: - that significantly modifies the cash flows that otherwise would be required by the contract; or - for which it is not clear, with little or no analysis, that the separation of the embedded derivative is prohibited Liabilities designated at fair value through profit or loss (FVO) For subsequent measurement, these financial liabilities are subject to the same accounting principles as described earlier under the heading "Financial instruments measured at fair value through profit or loss" Derivatives Trading portfolio When a derivative is not designated in a hedge relationship, it is deemed to be held for trading. The main types of derivatives are the currency and the interest-rate derivatives. BIL, which also makes use of credit derivatives and equity derivatives, initially and subsequently measures all derivatives at the fair value obtained from quoted market prices, discounted cash flow models or pricing models, as appropriate. All changes in fair value are recognised in the statement of income. BIL reports derivatives as assets when fair value is positive and as liabilities when fair value is negative. BIL treats certain derivatives embedded in other financial instruments as separate derivatives: when their risks and characteristics are not closely related to those of the host contract; and when the hybrid contract is not carried at fair value with unrealised gains and losses reported in the statement of income Financial investments Held to maturity BIL classifies the interest-bearing financial assets with fixed maturity quoted in an active market as held to maturity (HTM) when management has both the intent and the ability to hold the assets to maturity. BIL recognises such interest-bearing financial assets initially at fair value plus transaction costs and subsequently at amortised cost, less any allowance for impairment. Interest is recognised based on the effective interest-rate method and recorded under "Net interest income" Available for sale BIL classifies financial assets intended to be held for an indefinite period of time, but which may be sold in response to needs for liquidity or changes in interest-rates, exchange rates or equity prices, as available for sale (AFS). BIL recognises financial assets initially at fair value plus transaction costs. Interest is recognised based on the effective interest-rate method and recorded under "Net interest income". BIL recognises dividend income from equities under "Dividend income". BIL subsequently re-measures AFS financial assets at fair value (see 1.7. "Fair value of financial instruments"). Unrealised gains and losses arising from changes in the fair value of financial assets classified as AFS are recognised within equity, under the heading "Gains and losses not recognised in the statement of income". When securities are disposed of, or impaired, BIL recycles the related accumulated fair value adjustments in the statement of income as "Net income on investments". 40 BIL Annual Report 2012

42 Impairments on financial assets BIL records allowances for impairment losses when there is objective evidence that a financial asset or group of financial assets is impaired as a result of one or more events occurring after initial recognition and is evidencing (a) a decline in expected cash flows and (b) an impact on estimated future cash flows that can be reliably estimated Financial assets valued at amortised cost BIL first assesses whether objective evidence of impairment exists individually for financial assets. If no such evidence exists, the financial assets is included in a group of financial assets with similar credit risk characteristics and collectively assessed for impairment. Determination of the impairment Specific impairments If there is objective evidence that loans or other receivables or financial assets classified as held to maturity are impaired, the amount of the impairment on specifically identified assets is calculated as the difference between the carrying amount and the estimated recoverable amount, being the present value of expected cash flows, including judgements on the amounts recoverable from guarantees and collateral, discounted at the financial instrument s original effective interest-rate (except for reclassified assets, see below). Assets with small balances that share similar risk characteristics follow the principles as described below. Collective impairments Losses incurred where there is no specific impairment but objective evidence of losses in segments of the portfolio or other lending-related commitments at the balance sheet date are covered by collective impairments. BIL estimates them based upon the historical patterns of losses in each segment, the credit ratings allocated to the borrowers and reflecting the current economic environment in which the borrowers operate. BIL develops, for that purpose, creditrisk models using an approach combining appropriate default probabilities and loss-given defaults that are subject to regular back-testing and are based on Basel II data and risk models, consistent with the "incurred-loss" model. Assumptions are made to define the way inherent losses are modelled and to determine the required parameters, based on historical experience. Accounting treatment of the impairment BIL recognises changes in the amount of impairment losses in the statement of income and reports them as "Impairment on loans and provisions for credit commitments". The impairment losses are reversed through the statement of income if the increase in fair value relates objectively to an event occurring after the impairment was recognised. When an asset is determined by management to be uncollectable, the outstanding specific impairment is reversed via the statement of income under the heading "Impairment on loans and provisions for credit commitments" and the net loss is recorded under the same heading. Subsequent recoveries are also accounted for under this heading Available for sale assets BIL recognises the impairment of available for sale (AFS) assets on an individual basis if there is objective evidence of impairment as a result of one or more events occurring after initial recognition. Determination of the impairment Equities For equities quoted in an active market, any significant decline in their price (more than 50 % at reporting date) or a prolonged decline (5 years) compared to the acquisition price is considered as objective evidence of impairment. In addition, management can decide to recognise impairment losses should other objective evidence be available. Interest-bearing financial instruments In the case of interest bearing financial instruments, impairment is triggered based on the same criteria as applied to individually impaired financial assets valued at amortised cost (see ). Accounting treatment of the impairment When AFS financial assets are impaired, the total AFS reserve is recycled and these impairment losses are reported by BIL in the statement of income as "Net income on investments". Additional decline in fair value is recorded under the same heading for equity securities. When an impairment loss has been recognised on interestbearing financial instruments, any subsequent decline in fair value is recognised in "Net income on investments", if there is objective evidence of impairment. In all other cases, changes in fair value are recognised in "Other comprehensive income". Impairments on equity securities cannot be reversed in the statement of income due to later recovery of quoted prices. Please refer to note "Credit risk exposure" for further information on how credit risk is monitored by BIL Off-balance sheet exposures BIL usually converts off-balance sheet exposures such as credit substitutes (e.g. guarantees and standby letters of credit) and loan commitments into on-balance sheet items when they are called. However, there may be circumstances, such as uncertainty about the counterpart, where the off-balance sheet exposure should be regarded as impaired. BIL classifies loan commitments as impaired when the creditworthiness of the client has deteriorated to such an extent as to make the repayment of any loan and associated interest payments doubtful Borrowings BIL recognises borrowings initially at fair value, generally at their issue proceeds, net of any transaction costs incurred. Subsequently, borrowings are stated at amortised cost. BIL recognises any difference between their initial carrying amount and the redemption value in the statement of income over the period of the borrowings using the effective interest-rate method. BIL Annual Report

43 The distinction between interest-bearing instruments and equity instruments issued is based on the substance of their underlying contracts, rather than their legal form Fair value of financial instruments Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s-length transaction. Quoted market prices in an active market (such as a recognised stock exchange) are to be used as fair value, as they are the best evidence of the fair value of a financial instrument. Quoted market prices are not, however, available for a significant number of financial assets and liabilities held or issued by BIL. If a financial instrument is not traded on an active market, recourse is provided by valuation models. A valuation model reflects what the transaction price would have been on the measurement date in an arm s length exchange motivated by normal business considerations, i.e. the price that would be received by the holder of the financial asset in an orderly transaction that is not a forced liquidation or forced sale. The valuation model should take into account all factors that market participants would consider when pricing the asset. Measuring the fair value of a financial instrument requires consideration of current market conditions. To the extent that observable inputs are available, they should be incorporated into the model. BIL s approach to the valuation of its financial instruments (direct profit or loss, AFS and disclosures) can be summarised as follows: Financials instruments measured at fair value (trading, FVO, AFS, derivatives) Financial instruments measured at fair value for which reliable quoted market prices are available If the market is active meaning that bid-offer prices are available representing effective transactions concluded on an arm s length basis between willing counterparts these market prices provide the most reliable evidence of fair value and therefore shall be used for valuation purposes. The use of market prices quoted in an active market for identical instruments with no adjustments qualifies for inclusion in level 1 within IFRS 7 s fair value hierarchy, in contrast to the use of quoted prices in inactive markets or the use of quoted spreads. Financial instruments measured at fair value for which no reliable quoted market prices are available and for which valuations are obtained by means of valuation techniques Financial instruments for which no quoted market prices in active markets are available are valued by means of valuation techniques. The models that BIL uses range from standard market models (discount models) to valuation models developed in-house. In order for a fair value to qualify for inclusion in level 2, only observable market data should be used. The market data that BIL incorporates into its valuation models are either directly observable data (prices), indirectly observable data (spreads) or its own assumptions about unobservable market data. Fair value measurements that rely significantly on BIL s own assumptions qualify for level 3 disclosure. Bonds for which no active market exists are valued using BIL s mark-to-model approach. The valuation price consists of a market price component and a model price component. The weight attributed to the model price component reflects an assessment of the level of the market activity considering the bond characteristics. For its mark-to-model price, BIL uses a discount cash flow model, based on a discounted spread that incorporates both CDS / credit spread and cash / CDS bases. The credit spread is estimated from the security specific characteristics (sector, rating, Loss Given Default, etc.) and from the level of some liquid CDS indices. A cash / CDS component is added to the credit component to obtain the bond s spread Interest income and expense Interest income and expense are recognised in the statement of income for all interest-bearing instruments on an accrual basis, using the effective interest-rate method based on the initial carrying value (including transaction costs) for financial instruments not valued at fair value through P&L. Transaction costs are the incremental costs directly attributable to the acquisition of a financial asset or liability and are included in the calculation of the effective interest-rate. An incremental cost is one that would not have been incurred if the entity had not acquired the financial instrument. Accrued interest is reported in the same line as the related financial asset or liability in the balance sheet. Once an interest-bearing financial asset has been written down to its estimated recoverable amount, interest income is thereafter recognised based on the interest used to discount the future cash flows for measuring the recoverable amount Fees and commissions: income and expenses Commissions and fees arising from most of BIL s activities are recognised on an accrual basis over the life of the underlying transaction. Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of loans, equity securities or other securities or the purchase or sale of businesses, are recognised when the significant act has been completed. 42 BIL Annual Report 2012

44 For asset management operations, revenue consists principally of unit trust and mutual fund management and administration fees. Revenue from asset management is recognised as earned when the service is provided. Performance fees are recognised when all underlying conditions are met and thus acquired. Loan commitment fees are recognised as part of the effective interest-rate if the loan is granted, and recorded as revenue on expiry, if no loan is granted Insurance and reinsurance activities Insurance BIL s main activity is banking products. It does not sell any insurance products Reinsurance BIL s reinsurance contracts with third parties containing enough insurance risk to be classified as an insurance contract continue to be accounted for in accordance with local GAAP. A reinsurance asset is impaired if, and only if: there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the cedant may not receive all amounts due to it under the terms of the contract; and that the event has a reliably measurable impact on the amounts that the cedant will receive from the reinsurer. To measure the solvency of a reinsurer, BIL refers to its attributed credit rating and the impairment rules Hedging derivatives Hedging derivatives are categorised as either: a hedge of the fair value of a recognised asset or liability or a firm commitment (fair value hedge); or a hedge of a future cash flow attributable to a recognised asset or liability or a forecast transaction (cash flow hedge); or a hedge of a net investment in a foreign operation. BIL designates derivatives as hedging instruments if certain criteria are met: formal documentation of the hedging instrument, hedged item, hedging objective, strategy and relationship is available before hedge accounting is applied; the hedge is documented in such a way as to show that it is expected to be highly effective (within a range of 80 % to 125 %) in offsetting changes in the fair value or cash flows attributable to the hedged risk in the hedged item throughout the reporting period; and the hedge is effective at inception and on an ongoing basis. BIL records changes in the fair value of derivatives that are designated, and qualify as fair value hedges in the statement of income, along with the corresponding change in fair value of the hedged assets or the liabilities that are attributable to that specific hedged risk. If the hedge no longer meets the criteria for a fair value hedge, BIL amortises the adjustment to the carrying amount of a hedged interest-bearing financial instrument to the statement of income over the remaining life of the hedged or hedging instrument, if shorter by an adjustment of the yield of the hedged item. BIL recognises the effective part of the changes in the fair value of derivatives that are designated and qualify as cash flow hedges, in "Other comprehensive income" under the heading "Gains and losses not recognised in the statement of income" (see " statement of changes in equity"). Any noneffective portion of the changes in fair value of the hedging instrument is recognised in the statement of income. Amounts deferred in equity are transferred to the statement of income and classified as revenue or expense in the periods during which the hedged firm commitment or forecast transaction affects the statement of income hedge of the interest-rate risk exposure of a portfolio As explained in "General information", BIL makes use of the provisions in IAS 39 as adopted by the European Union ("IAS 39 carve-out") because it better reflects the way in which BIL manages its financial instruments. Hedge accounting is intended to reduce the interest-rate risk exposure stemming from the selected category of assets or liabilities designated as the qualifying hedged items. BIL performs an overall analysis of interest-rate risk exposure. It involves assessing fixed-rate exposure, taking into account all the exposure coming from balance sheet and off-balance sheet items. This global analysis may exclude certain components of the exposure, such as financial market activities, provided that the risk exposure stemming from the excluded activities is monitored on an activity-by-activity basis. BIL applies the same methodology to select which assets and / or liabilities will be entered into the portfolio s hedge of interestrate risk exposure. Assets and liabilities are included in all the time buckets of the portfolio. Hence, when they are removed from the portfolio, they must be removed from all the time buckets in which they had an impact. Demand deposits and savings accounts may be included in the portfolio, based on behavioural study to estimate expected maturity date. BIL may designate as qualifying hedged items different categories of assets or liabilities such as available for sale (AFS) assets or loan portfolios. On the basis of this gap analysis, which is carried out on a net basis, BIL defines, at inception, the risk exposure to be hedged, the length of the time-bucket, the test method and the frequency of the tests. BIL Annual Report

45 The hedging instruments are a portfolio of derivatives, which may contain offsetting positions. BIL recognises the hedging items at fair value with adjustments accounted for in the statement of income. BIL reports hedged interest-rate risk revaluation of elements carried at amortised cost on the balance sheet under the line "Fair value revaluation of portfolio hedges" Day one profit or loss The day one profit or loss is applicable to all transactions measured at fair value through profit or loss. The day one profit or loss is the difference between: the transaction price and the quoted market price; in cases where the transaction is quoted; or the transaction price and the fair value determined by using a valuation technique, (mark-to-model) adjusted with some market value adjustments, such as a liquidity adjustment, model adjustment or credit adjustment, in cases where the transaction is not quoted. If BIL considers the main parameters of the model as observable and if Risk Management validates the model, the day one profit or loss will be recognised immediately in the statement of income. If BIL does not consider the main parameters as observable or if Risk Management does not validate the model, the day one profit or loss will be amortised linearly over the expected life of the transaction. However, if the data becomes observable subsequently, BIL will recognise the remaining portion of day one profit or loss in the statement of income. In cases of early termination, the remaining portion of day one profit or loss will be recognised in the statement of income. In cases of partial early termination, BIL will recognise in the statement of income the part of the day one profit or loss relating to the partial early termination Tangible fixed assets Tangible fixed assets include property, plant & equipment and investment properties. All property, plant and equipment are stated at their cost less accumulated depreciation and impairments. Subsequent costs are, where necessary, included in the carrying amount of the asset or recognised as a separate component, if it is probable that future economic benefits will flow to the Group and the cost of the asset can be reliably measured. Depreciation is calculated using the straight-line method to write down the cost of such assets to their residual values over their estimated useful lives. Typical useful lives are linked to asset categories as follows: Buildings (including acquisition costs and non-deductible taxes): 20 to 50 years; Computer equipment: 3 to 6 years; Leasehold improvements, equipment and furniture: 2 to 12 years; Vehicles: 2 to 5 years. An item of property, plant & equipment can be composed of significant parts with individually varying useful lives. In such a case, each part is depreciated separately over its estimated useful life. The following parts have been defined: Structure of the building: 50 years; Roof and frontage: 30 years; Technical installations: 10 to 20 years; Fixtures and fittings: 10 to 20 years. As borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset, they are capitalised. Other borrowing costs are recognised as an expense. Tangible fixed assets are tested for impairment when an indication of impairment loss exists. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount. Where the recoverable amount of an asset cannot be determined individually, the Group determines the recoverable amount of the cash generating unit (CGU) or group of CGUs to which the asset belongs. Gains and losses on disposals of property and equipment are determined by reference to their carrying amount and are included under "Net income on investments". Investment properties are those properties held to earn rentals or appreciate in capital. BIL may also partly use such properties. If the "own use" portions can be sold separately or leased out separately under finance lease, then these portions are accounted for separately. If the "own use" portions cannot be sold separately, the property will be considered as an investment property only if BIL holds an insignificant portion for its own use. Investment properties are recorded at their cost less accumulated depreciation and impairments. The investment properties are depreciated over their useful lives on a straight-line basis. Depreciation on buildings and other assets given in operating lease are booked under "Other net income" Intangible assets Intangible assets consist mainly of (a) internally-generated and (b) acquired software. Costs associated with maintaining computer software programs are recognised as expenses as incurred. However, expenditure that enhances or extends the benefits of computer software programs beyond one year is used to increase the original cost of the software. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives, from the time the software is available for use. This amortisation period is usually between three and five years, except for core business applications, for which the amortisation period can be up to 10 years. As borrowing costs directly attributable to the acquisition, 44 BIL Annual Report 2012

46 construction or production of a qualifying asset form part of the cost of that asset, they are capitalised. Other borrowing costs are recognised as an expense. Intangible assets (other than goodwill) are tested for impairment when an indication of impairment loss exists. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount. Gains and losses on disposals of intangible assets are determined by reference to their carrying amount, and are included under "Net income on investments" non-current assets held for sale and discontinued operations (IFRS 5) If the carrying amount of a non-current asset (or disposal group) is recovered principally through a sale transaction, rather than through continuing use, it will be classified as "held for sale" or as "discontinued operations", if the disposal group represents a segment of activities. BIL measures a non-current asset (or disposal group) classified as held for sale at its carrying amount or at its fair value less costs to sell (whichever is the lower). Non-current assets (or disposal groups) classified as held for sale are presented separately in the balance sheet, without restatement for previous periods. These assets are no longer depreciated once they qualify as assets (or disposal groups) held for sale. Intercompany accounts between the continuing activities and the disposal group held for sale continue to be eliminated. A discontinued operation is defined as a component of an entity that either has been disposed of or is classified as held for sale and represents a separate major line of business or geographical area of operation. Post-tax profit or loss of discontinued operations is presented under a separate line in the income statement. A restatement for the previous period is performed. When a disposal group is classified in held for sale or discontinued operations, the related elements of its Other Comprehensive Income (OCI) are isolated in a separate publication line of the equity. The carrying amount of a disposal group, being the difference of assets less liabilities and non-controlling interests, is composed of the group part of the equity. If this equity included OCI elements, this OCI part is recycled in profit and loss at the sale of the disposal group. It may therefore happen that the result of the sale of a disposal group is recorded in two different periods, mainly when the fair value less cost to sell is lower than the carrying amount and the carrying amount includes negative OCI, like AFS reserves of cumulative translation adjustments, that will be recorded in the following accounting period, when the disposal is realised. The disposal groups held for sale and discontinued operations consist mostly of financial assets, as the group is active in financial activities. If the disposal group s fair value less costs to sell is lower than its carrying amount after impairing the noncurrent assets that are in the measurement scope of IFRS 5, the difference is allocated to the other assets of the disposal group, including financial assets, and is accounted for in the result for the period. In order to recognise, in the result for the period, the total loss relating to the assets classified in loans, the frozen AFS reserve related to the loans that were reclassified from AFS in 2008 has been recycled. The difference will be adjusted at each reporting period until the sale. If a non-current asset ceases to be classified as held for sale, due to a change in market conditions, the impossibility of selling it because of a lack of counterparts or other reasons, it will be restated in its original portfolio at the value at which it would have been recognised if it had never been classified as held for sale. In this case, the difference between the fair value less cost to sell and the value, if no reclassification had taken place, is reversed in the result for the period. For AFS bonds reclassified in Loans, the frozen reserve will not be reconstituted Goodwill Measurement of goodwill Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. It is measured as the difference between: the sum of the following elements: - Consideration transferred; - Amount of any non-controlling interests in the acquiree, and; - Fair value of the acquirer s previously held equity interest in the acquiree (if any) and the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, this difference is negative ("negative goodwill"), it is recognised immediately in profit or loss as a bargain purchase gain. Variations in the percentage of ownership in fully-consolidated companies are considered to be transactions with shareholders. Therefore, neither fair value adjustments nor goodwill adjustments are made whenever percentage increases or decreases take place without any change in the consolidation method. The difference between the purchase or the sale of a net asset and the purchase or sale price is directly recorded in equity Impairment of goodwill The carrying amount of goodwill is reviewed at year-end. For the purpose of this impairment testing, BIL allocates goodwill to cash-generating units (CGUs) or groups of such units. When circumstances or events indicate that there may be uncertainty about the carrying amount, goodwill is written down for impairment when the recoverable amount of the CGU or group of CGUs to which it has been allocated is lower than the carrying value. BIL Annual Report

47 The recoverable amount is the "fair value less cost to sell" or the "value in use" (whichever is higher). The "value in use" is the sum of the future cash flows expected to be derived from a CGU, expected cash flows used by BIL are those of the 3-year management-improved financial plan. The calculation of the "value in use" shall also reflect the time value of money (current market risk-free rate of interest) adjusted for the price for bearing the uncertainty inherent in the asset. This is reflected in the discount rate. For subsidiaries operating in economically mature and financially stable markets, the discount rate used is BIL s Cost of Equity defined under a dividend discount model. For subsidiaries operating in emerging markets, a specific discount rate is applied on a case-by-case basis Other assets Other assets mainly include accrued income (non-interest related), prepayments, operational taxes and other accounts receivable as well as insurance products (reinsurance, insurance premiums receivable, etc.), construction contracts, inventories and plan assets relating to employee benefit obligations. These other assets are measured in accordance with the applicable standard, less any allowance for impairment if applicable or following the applicable standard. Plan assets are recognised in accordance with IAS 19 requirements Leases A finance lease is one that transfers substantially all the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease BIL is the lessee BIL grants operating leases principally for the rental of equipment or real estate. Lease rentals are recognised in the statement of income on a straight-line basis over the lease term. When an operating lease is terminated before the lease period has expired, any payment to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. If the lease agreement substantially transfers the risk and rewards of the asset s ownership, the lease is recorded as a finance lease and the related asset is capitalised. At inception, the asset is recorded as the present value of the minimum lease payments or the fair value (whichever is lower) and is depreciated over its estimated useful life unless the lease term is short and the title is not expected to be transferred to BIL. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policies applicable to that asset. The corresponding rental obligations are recorded as borrowings and interest payments are recorded using the effective interestrate method BIL is the lessor BIL grants both operating and finance leases. Revenue from operating leases is recognised in the statement of income on a straight-line basis over the lease term. The underlying asset is accounted for in accordance with the accounting policies applicable to this type of asset. For finance leases, BIL recognises "leases receivable" at an amount equal to the net investment in the lease, which can be different from the present value of minimum lease payments. The interest-rate implicit in the lease contract acts as the discount rate. Interest income is recognised over the term of the lease using the interest-rate implicit in the lease sale and repurchase agreements and lending of securities Securities sold subject to a linked repurchase agreement ("repos") are not derecognised and remain in their original category. The corresponding liability is entered under "Due to banks" or "Customer borrowings and deposits", as appropriate. The asset is reported as "pledged" in the notes. Securities purchased under agreements to resell ("reverse repos") are recorded as off-balance sheet items and the corresponding loans recorded as "Loans and advances due from banks" or "Loans and advances to customers". The difference between the sale and the repurchase price is treated as interest income or expense and is accrued over the life of the agreements using the effective interest-rate method. Securities lent to counterparts are not derecognised but, rather, recorded in the in the same heading. Securities borrowed are not recognised in the. If they are sold to third parties, the gain or loss is entered under "Net income from financial instruments at fair value through profit or loss" and the obligation to return them is recorded at fair value under "Financial liabilities measured at fair value through profit or loss" Deferred income tax Deferred income tax is recognised in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the. The principal temporary differences arise from the depreciation of property, plant & equipment, the revaluation of certain financial assets and liabilities (including derivative contracts, provisions for pensions and other post-retirement benefits), provisions for loans and other impairments and, in relation to 46 BIL Annual Report 2012

48 acquisitions, from the difference between the fair value of the net assets acquired and their tax base. The rates enacted or substantively enacted at the balance sheet date are used to determine the deferred income tax. Deferred tax assets and liabilities are not discounted. Deferred tax assets on deductible temporary differences and tax loss carry-forwards are recognised to the extent that it is probable that future taxable profit will be available, against which the temporary differences and tax losses can be utilised. Deferred tax liability is provided on taxable temporary differences arising from investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax related to the fair value re-measurement of available for sale investments and cash flow hedges, and other transactions recorded directly in equity, are also credited or charged directly to equity Employee benefits Short-term benefits Expenses relating to bonus which is payable at a future date subject only to the requirement for continued employment for a further period (the 'loyalty' period) is recognised as the employees render the service that increases the amount to be paid. As the amount of the bonus does not increase after the earning period, BIL measures the obligation - for the full amount expected to be paid taking into consideration the expected forfeitures - in its entirety as from the end of the earning period Post-employment benefits If BIL has a legal or constructive obligation to pay postemployment benefits, the plan is either classified as a "Defined benefit" or "Defined contribution" plan. BIL offers a number of defined benefit and defined contribution plans throughout the world, the assets of which are generally held by insurance companies or pension funds. These pension plans are generally funded by payments from both BIL and its employees. In some cases, BIL provides post-retirement health care benefits to its retirees Defined benefit plans Employee benefit obligations are measured at the present value of the estimated future cash outflows using the interest-rates of AA-rated corporate bonds, which have terms to maturity approximating the terms of the related liability. The valuation technique for the assessment of pension expenses incorporates actuarial assumptions including both demographic assumptions and financial assumptions such as the inflation rate. Pension costs are determined based on the projected units credit method, under which each period of service gives rise to an additional unit of benefit entitlement and each unit is measured separately to build up the final obligation. Net cumulative unrecognised actuarial gains and losses exceeding the corridor (greater than 10 % of the present value of the gross defined benefit obligation and 10 % of the fair value of any plan assets) are recognised in income over the average remaining working lives of the plan participants. The amount recognised in the balance sheet is the present value of the defined benefit obligation (i.e., the present value of the expected future payments required to settle the obligation resulting from the employee service in the current and prior periods), as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and reduced by the fair value of plan assets at the balance sheet date. The defined obligation is presented net of plan assets as a liability or an asset. Therefore, an asset may arise where a plan has been overfunded and is recorded separately, if those assets are held by a group entity. Any asset recognised is limited to the total of any cumulative unrecognised net actuarial losses and the cost of past service, and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. Qualified internal and external actuaries carry out valuations of these obligations. All the valuations assumptions and results are reviewed and validated by an external actuary for BIL, which ensures that all calculations are harmonised and calculated in compliance with IAS Defined contribution pension plans BIL s contributions to defined contribution pension plans are charged to the statement of income for the year to which they relate. Under such plans, BIL s obligations are limited to the contributions that BIL agrees to pay into the fund on behalf of its employees Post-employment medical care The entitlement to these benefits is usually based on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment, using a methodology similar to that for defined benefit pension plans Other long-term benefits These mainly include provisions for jubilee premiums that employees receive after completion of specified periods of service. Unlike defined benefit plans, actuarial gains and losses relating to these benefits are immediately recognised. All past service costs are recognised immediately in the statement of income. Employee entitlement to annual leave or long-service leave is recognised when it is granted to the employee. A provision is made for the estimated liability for annual leave and longservice leave as a result of services rendered by employees up to the balance sheet date. BIL Annual Report

49 Termination benefits A termination benefit provision is only recorded when BIL is obliged to terminate the employment before the normal date of retirement or to provide benefits as a result of an offer made in order to encourage voluntary redundancy. In such cases BIL has a detailed formal plan and no realistic possibility of withdrawal Provisions Provisions are mainly recognised for litigations claims, restructuring, and loan commitments. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. The discount rate is the pre-tax rate that reflects current market assessments of the time value of money. Provisions are recognised when: BIL has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. Provisions on loan commitments are recognised when there is uncertainty about the creditworthiness of the counterpart Share capital and treasury shares Share issue costs External incremental costs directly attributable to the issue of new equity securities, other than as part of a business combination, are deducted from equity, net of any related income tax Dividends on BIL s ordinary shares BIL recognises its dividends on its ordinary shares as a liability from the date upon which they are declared. Any dividends for the year declared post-balance sheet date are disclosed in the subsequent events note Preferred shares BIL classifies preferred shares that are non-redeemable and upon which dividends are declared, at the directors discretion, as equity Treasury shares Where BIL or one of its subsidiaries purchase BIL s share capital or is obliged to purchase a fixed number of treasury shares for a fixed amount of cash, the consideration paid including any attributable transaction costs net of income taxes is shown as a deduction from total shareholders equity. Gains and losses on sales of own equity securities are charged or credited to the treasury share account in equity Fiduciary activities Assets and income arising thereon, together with related undertakings to return such assets to customers, are excluded from these in cases where BIL acts in a fiduciary capacity such as nominee, trustee or agent Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents comprise balances with a maturity of less than 3 months, included within cash and balances with central banks, interbank loans and advances, and available for sale financial assets Earnings per share The "Basic earnings per share" are calculated by dividing the net income available to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares purchased by BIL and held as treasury shares. For the "Diluted earnings per share", the weighted average number of ordinary shares in issue and the net income are adjusted to assume conversion of all dilutive potential ordinary shares, such as the convertible debt and share options granted to employees. Potential or contingent share issuances are treated as dilutive when the derivatives are "in the money" and their conversion to shares would decrease net earnings per share. 2. RELATED PARTIES TRANSACTIONS Two parties are considered to be related if one party has the ability to control the other party, or exercises significant influence over the other party in making financial or operational decisions. The ultimate parent of the Group is BIL, incorporated in Luxembourg. Relations with equity-accounted companies, as well as with the directors, are reported in these consolidated annual. 48 BIL Annual Report 2012

50 3. SEGMENT REPORTING B. Main changes in the Group s interest percentage See note 3. "Business and geographic reporting". 4. RISK MANAGEMENT POLICIES AND HEDGING ACTIVITIES See "Risk Management" section of the consolidated management report. Note 2: Material changes in scope of consolidation and list of subsidiaries and associates 2.1. Changes compared with 2011: From To BIL Auto Lease Luxembourg SA C. Changes in corporate names BIL Auto Lease Luxembourg SA (formerly Dexia Auto Lease Luxembourg SA) BIL Asia Singapore Ltd (formerly Dexia BIL Asia Singapore Ltd) BIL Finance SA (formerly Dexia Securities France Holding SA) A. Companies consolidated for the first time or no longer consolidated Companies fully consolidated for the first time N / A Companies no longer fully consolidated Dexia Securities France SA Companies proportionally consolidated for the first time N / A Companies no longer proportionally consolidated N / A Companies accounted for by the equity method for the first time N / A Companies no longer accounted for by the equity method N / A BIL Annual Report

51 2.2. List of subsidiaries, companies accounted for by the equity method, associates and companies in which the Group holds a participating interest of at least 10 % of the subscribed capital A. Fully consolidated subsidiaries Name Head office % of capital held Banque Internationale à Luxembourg Bank Danmark A/S Gronningen 17 DK-1270 Copenhagen Banque Internationale à Luxembourg (Suisse) SA Beethovenstrasse 48 PO Box 2192 CH-8022 Zürich BIL Asia Singapore Ltd 9 Raffles Place #29-01 Republic Plaza Singapore BIL Auto Lease Luxembourg SA BIL Finance SA 136, route d'arlon L-1150 Luxembourg rue de Berri F Paris BIL Invest N.V. Pietermaai 15 PO Box 4905 Curaçao Nederlandse Antilles BIL Part Investments N.V. Pietermaai 15 PO Box 4905 Curaçao Nederlandse Antilles BIL RE SA Experta Corporate and Trust Services SA Experta Immobilien A.G. I.B. Finance SA Société Luxembourgeoise de Leasing - BIL Lease SA 69, route d'esch L-2953 Luxembourg 42, rue de la Vallée L-2661 Luxembourg c / o Banque Internationale à Luxembourg (Suisse) SA Steinengraben 22 P.O. Box 2652 CH-4002 Basel 69, route d'esch L-2953 Luxembourg 136, route d'arlon L-1150 Luxembourg BIL Annual Report 2012

52 B. Non consolidated subsidiaries Name Head office % of capital held Reason for exclusion Audit-Trust SA 42, rue de la Vallée L-2661 Luxembourg BIL Trust Ltd Canada Court 14 PO Box 48 St Peter Port Guernsey GY1 3BQ, Channel Islands Compagnie Financière BIL SA & Cie S.e.c.s. Koffour SA Lannage SA Private II Wealth Management SARL Tendril Inc. 1 Valon SA 69, route d'esch L-2953 Luxembourg 42, rue de la Vallée L-2661 Luxembourg 42, rue de la Vallée L-2661 Luxembourg 42, rue de la Vallée L-2661 Luxembourg Arango - Orillac Building, 2 nd floor East 54 th Street PO Box W.T.C. Panama, Republic of Panama 42, rue de la Vallée L-2661 Luxembourg C. Associates not accounted for by the equity method 100 insignificant 100 insignificant 100 in liquidation 100 insignificant 100 insignificant 100 insignificant 100 insignificant 100 insignificant Name Head office % of capital held Reason for exclusion CD-PME, Société Luxembourgeoise de Capital-Développement pour les PME SA Europay Luxembourg S.C. Luxair, Société Luxembourgeoise de Navigation Aérienne SA Société de la Bourse de Luxembourg SA Visalux S.C. 7, rue du Saint-Esprit L-1475 Luxembourg 10, Parc d'activité Syrdall L-5365 Munsbach Aéroport de Luxembourg L-2987 Luxembourg 11, avenue de la Porte-Neuve L-2227 Luxembourg 10, Parc d'activité Syrdall L-5365 Munsbach 10 insignificant insignificant insignificant insignificant insignificant 1 This company will be liquidated as it does not correspond anymore to BIL strategy. BIL Annual Report

53 Note 3: Business and geographic reporting A segment is a distinguishable component of BIL that is engaged either in providing specific products or services (business segment) or in providing specific products or services within a particular economic environment (geographic segment), which is subject to risks and returns that differ from those of other segments. Segments for which a majority of their revenue is earned from sales to external customers and for which income, income before tax or assets represent 10 % or more of the total are reported separately. In 2012, BIL amended its business line segmentation as follows: "Legacy Portfolio Management" and "Asset Management & Services" divisions not reported in 2012 following their Income (in EUR thousands) Income derecognition at the end of December 2011; "Retail, Corporate and Private Banking" (prior to 2012 known as "Retail and Commercial Banking") was reorganised around three business lines: Retail Banking, Corporate and Institutional Banking and Private Banking, in order to improve synergies between the three pillars, based on client needs; "Treasury and Financial Markets" became a full-fledged business around three pillars: Treasury, Assets and Liabilities Management (ALM), and Financial Markets, with dedicated desks supporting the commercial business lines. of which net income from associates 31/12/11 of which interest income Income before tax Retail, Corporate and Private Banking 421,480 2, ,303 92,843 Treasury and Financial Markets (18,895) 0 (31,505) (38,004) Group Center (274,599) 0 69,035 (283,149) Core 29, ,130 21,167 Non-core (304,316) 0 47,905 (304,316) Asset Management and Services 616, , ,129 Asset Management 187, ,592 60,477 Investor Services 428, ,751 77,652 Legacy Portfolio Management (1,980,533) 0 (6,570) (2,131,416) TOTAL (1,236,269) 2, ,606 (2,221,597) Profit before tax (2,221,597) Taxes 300,416 Minority Interests (27,480) NET RESULT (1,948,661) Income of which net income from associates 31/12/12 of which interest income Income before tax Retail, Corporate and Private Banking 391, ,603 83,252 Treasury and Financial Markets (1,629) 0 (28,700) (33,200) Group Center (29,788) 0 38,794 (28,314) Core 30, ,794 28,071 Non-core (59,800) 0 12,000 (56,385) Asset Management and Services Asset Management Investor Services Legacy Portfolio Management TOTAL 359, ,697 21,738 Profit before tax 21,738 Taxes 8,440 Minority Interests 0 NET RESULT 30, BIL Annual Report 2012

54 ASSETS AND LIABILITIES (in EUR thousands) Other segment information (in EUR thousands) Capital expenditures Depreciation and amortisation 31/12/11 Impairments 1 Other non cash expenses 2 Retail, Corporate and Private Banking 0 0 (24,712) 7,958 Treasury and Financial Markets ,051 0 Group Center 15,191 (48,407) 881 8,156 Core 8,704 (28,528) 881 8,156 Non-core 6,487 (19,879) 0 0 Asset Management and Services 0 0 (5,323) (5,578) Asset Management ,072 Investor Services 0 0 (5,323) (6,650) Legacy Portfolio Management 0 0 (132,502) 0 TOTAL 15,191 (48,407) (151,604) 10,536 Capital expenditures 31/12/11 31/12/12 Assets Liabilities Assets Liabilities Retail, Corporate and Private Banking 9,196,523 9,509,673 9,554,192 11,546,280 Treasury and Financial Markets 6,274,388 13,506,891 10,666,159 8,287,650 Group Center 1 8,747, ,300 1,081, ,332 Total 24,218,824 23,479,864 21,301,374 20,193,262 Depreciation and amortisation 31/12/12 Impairments 2 Other non cash expenses 3 Retail, Corporate and Private Banking 0 0 (18,814) 2,106 Treasury and Financial Markets 0 0 (187) 0 Group Center 9,625 (22,292) 228 (1,883) Core 9,625 (22,292) 228 (10,966) Non-core ,083 Asset Management and Services Asset Management Investor Services Legacy Portfolio Management TOTAL 9,625 (22,292) (18,773) 223 Some amounts may not add up due to rounding off. Relations between product lines, in particular commercial product lines, financial markets and production and service centers are subject to retrocessions and / or analytical transfers, carried out according to market conditions. The results of each product line also include: earnings from commercial transformation, including the management costs of this transformation and the equity Geographic Breakdown (in EUR thousands) capital allocated to this activity on the basis of medium and long-term assets; cost of financing. Tangible and intangible fixed assets are allocated to the "Group Center" segment, except when they are directly managed by a commercial or financial product line. Luxembourg Belgium Singapore Canada France United Kingdom As at 31/12/11 Income (608,413) 56,565 (1,099,287) 135,140 57,375 66, ,351 (1,236,268) As at 31/12/12 Income 281, , , , ,643 Other Total The geographic zone is determined by the country of the company concluding the transaction and not by the country of the transaction s counterpart Group Center including the pre-sale transactions booked in 2011 (EUR 7.4 billion). 2 include impairments on tangible and other intangible assets, impairments on securities, impairments on loans and provisions for credit commitments and impairments on goodwill. 3 include IFRS2 costs, net allowances to provisions for restructuring costs, net allowances to provisions related to IAS 19 and capital losses on exchange of assets. BIL Annual Report

55 Note 4: Material items in the statement of income These items are included in the consolidated. Note 5: Post-balance sheet events BIL announced on January 7, 2013 calls for offers to tender notes for purchase, with the objective of optimising regulatory capital. The offers expired on January 18, 2013 with a good participation, with total offers accepted by the Bank of around 186 million; these transactions had no impact on the There were no other occurrences of significant post-balance sheet events likely to have a major impact on the financial statements of BIL other than those referred to in the consolidated. Note 6: Litigations 6.1. Banque Internationale à Luxembourg SA and Banque Internationale à Luxembourg (Suisse) SA Following the bankruptcy of Bernard L. Madoff Investment Securities ("BLMIS"), the official receivers of BLMIS and certain investment funds linked to B. Madoff instituted legal proceedings against numerous financial institutions and institutional investors that had purchased Madoff securities and investment products linked to B. Madoff. In accordance with the "clawback principle", they are claiming the return of profits and redemptions obtained on these investments over a period of several years until the discovery of the fraudulent set-up put in place by BLMIS that culminated in its collapse. Some of these clawback actions were brought against Banque Internationale à Luxembourg SA and its subsidiary Banque Internationale à Luxembourg (Suisse) SA, the plaintiffs claiming the reimbursement of an amount in principal estimated at approximately USD 68 million, most of which corresponds to investments made by Banque Internationale à Luxembourg SA on behalf of third parties. At this time, Banque Internationale à Luxembourg SA is not able to express a reasonable opinion on the duration or outcome of actions sub judice or on any financial impact. As at December 31, 2012, no provision for clawback actions had been made. Some clients who invested in products linked to Mr Madoff have also brought legal proceedings against Banque Internationale à Luxembourg SA Banque Internationale à Luxembourg Bank Danmark A/S A Danish bank, EBH BANK, went bankrupt in the turbulent conditions of the 2008 crisis, and people connected with this bank were charged with fraud and market manipulation as part of transactions involving EBH BANK shares and those of other listed companies. As part of this case, complaints were lodged with the police by the Danish regulator against Banque Internationale à Luxembourg Bank Danmark A/S and one of its traders for aiding EBH BANK in allegedly manipulating the market. This trader and, subsequently, Banque Internationale à Luxembourg Bank Danmark A/S, as a legal entity, were investigated for this alleged aid. The police investigation is still in progress and is likely to result in Banque Internationale à Luxembourg Bank Danmark A/S and its trader being charged. Banque Internationale à Luxembourg Bank Danmark A/S firmly denies any involvement in any alleged criminal acts. The Bank is not involved in any other legal litigation, where adequate provisions have not been funded, that readers may need to consider in evaluating the risks related to possible credit risks or current or potential litigation. Note 7: Notes on the assets of the consolidated balance sheet (in EUR) 7.1. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents may be broken down as follows (balances with less than 90 days remaining until maturity): 54 BIL Annual Report 2012

56 A. ANALYSIS BY NATURE 31/12/11 31/12/12 Cash and balances with central banks 884,939,736 3,358,957,980 Loans and advances to credit institutions 1,360,353, ,043,664 Financial assets available for sale 297, ,891,579 TOTAL 2,245,590,078 4,412,893,223 B. OF WHICH RESTRICTED CASH 31/12/11 31/12/12 Mandatory reserves 1 779,350, ,657,527 TOTAL RESTRICTED CASH 779,350, ,657,527 Cash collateral is primarily paid or received based on the market value of collateralised derivatives. The collateralised derivatives used by BIL are interest-rate derivatives that hedge fixed-rate assets. Should interest-rate fall, the fair value of the assets increases and the value of the hedging derivatives decreases. This decrease generates a cash 7.2. Cash and balances with central banks collateral payment. Against the backdrop of a general decline in interest-rate years, cash collateral remains at a high level and can no longer be considered as a cash equivalent that fluctuates in the short term. It has therefore been excluded from cash equivalents. Financial assets designated at fair value and financial assets held for trading have also been excluded. ANALYSIS BY NATURE 31/12/11 31/12/12 Cash in hand 44,454,791 47,345,003 Balances with central banks other than mandatory reserve deposits 61,177,637 3,071,964,038 Mandatory reserve deposits 779,372, ,657,527 TOTAL 885,004,557 3,358,966,568 of which included in cash and cash equivalents 884,939,736 3,358,957, Loans and advances to credit institutions A. ANALYSIS BY NATURE 31/12/11 31/12/12 Nostro accounts and cash collateral 1,429,768,011 1,177,245,572 Reverse repurchase agreements 453,194, ,001,944 Loans and other advances 1,017,200, ,210,180 Less: Collective impairment 0 (357) TOTAL 2,900,162,889 1,856,457,339 of which included in cash and cash equivalents 1,360,353, ,043,664 B. QUALITATIVE ANALYSIS see note 7.14 C. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 D. ANALYSIS OF THE FAIR VALUE see note Mandatory reserves: minimum reserves deposited by credit institutions with Central Bank of Luxembourg or other central banks. BIL Annual Report

57 7.4. Loans and advances to customers A. ANALYSIS BY COUNTERPART 31/12/11 31/12/12 Public sector 154,165, ,677,366 Other (primarily fixed advances and property loans) 9,317,040,583 9,397,792,596 Impaired loans 252,782, ,391,729 Less: Specific impairment on impaired loans and debt instruments (207,563,910) (219,266,623) Collective impairment (19,901,646) (21,402,645) TOTAL 9,496,522,669 9,554,192,423 of which included in the finance lease 1 170,233, ,637,143 B. ANALYSIS BY NATURE 31/12/11 31/12/12 Cash collateral 31,115,857 17,663,348 Loans and other advances 9,440,089,866 9,513,806,614 of which financial leases 170,233, ,637,143 of which securitised loans 0 30,577,703 of which consumer credit 293,605, ,674,672 of which mortgage loans 2,964,586,908 3,217,654,161 of which term loans 4,054,994,590 3,976,439,738 of which current accounts 1,953,986,042 1,818,453,273 of which other loans and advances 2,683,218 1,369,924 Impaired loans 252,782, ,391,729 Less: Specific impairment on impaired loans and debt instruments (207,563,910) (219,266,623) Collective impairment (19,901,646) (21,402,645) TOTAL 9,496,522,669 9,554,192,423 of which included in the finance lease 170,233, ,637,143 C. QUALITATIVE ANALYSIS see note 7.14 D. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 E. ANALYSIS OF THE FAIR VALUE see note See note BIL Annual Report 2012

58 7.5. Financial assets measured at fair value through profit and loss Financial assets held for trading A. ANALYSIS BY COUNTERPART 31/12/11 31/12/12 Public sector 9,501,147 5,288,195 Credit institutions 48,719,190 50,688,010 Other 5,199,700 31,350,217 TOTAL 63,420,037 87,326,422 B. ANALYSIS BY NATURE 31/12/11 31/12/12 Bonds issued by public bodies 8,867,749 4,719,099 Other bonds and fixed-income instruments 53,918,890 82,038,227 Equities and other variable-income instruments 633, ,096 TOTAL 63,420,037 87,326,422 C. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 D. ANALYSIS OF THE FAIR VALUE see note 12.1 Financial assets designated at fair value A. ANALYSIS BY COUNTERPART 31/12/11 31/12/12 Other 34,244,485 36,844,610 TOTAL 34,244,485 36,844,610 B. ANALYSIS BY NATURE 31/12/11 31/12/12 Equities and variable-rate instruments 34,244,485 36,844,610 TOTAL 34,244,485 36,844,610 C. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 D. ANALYSIS OF THE FAIR VALUE see note 12.1 BIL primarily uses the fair value option (FVO) to eliminate or at least significantly reduce the measurement or recognition inconsistency (also known as the accounting mismatch) that would arise from measuring financial assets or liabilities or recognising the gains and losses on these assets and liabilities on a different basis. In the case of financial assets, the FVO may be used as an alternative valuation method for certain assets (e.g. loans) in order to reduce volatility in profit or loss when there is a risk at the acquisition date that the hedge accounting requirements will not be met. The fair value of unlisted financial instruments classified under the FVO is determined by Group Risk Management using pricing tools. The pricing tools used are discounted cash flow models whereby the discounted cash flow is determined by an interestrate based on the available market rates that are applicable to similar securities and to issuers with a similar credit rating. BIL Annual Report

59 7.6. Financial investments A. ANALYSIS BY COUNTERPART 31/12/11 31/12/12 Public sector 432,138,659 3,206,496,732 Credit institutions 119,499, ,493,645 Other 209,122, ,683,105 Impaired financial investments 22,959,355 24,061,314 TOTAL BEFORE IMPAIRMENT 783,719,448 3,914,734,796 Specific and collective impairments on financial investments (20,448,193) (20,587,610) TOTAL 763,271,255 3,894,147,186 of which included in cash and cash equivalents 297, ,891,579 B. QUALITATIVE ANALYSIS see note 7.14 C. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 D. ANALYSIS BY NATURE Loans and available for sale securities Loans and securities held to maturity 31/12/11 31/12/12 31/12/11 31/12/12 Bonds issued by public bodies 397,294,110 3,175,906,370 34,810,376 30,556,315 Other bonds and fixed-income instruments 130,862, ,748,113 15,830,503 15,830,838 Equities and other variable-income instruments 1 204,921, ,693,160 n.a. n.a. TOTAL BEFORE IMPAIRMENT 733,078,569 3,868,347,643 50,640,879 46,387,153 Specific and collective impairments on financial investments (20,448,193) (20,587,610) 0 0 TOTAL 712,630,376 3,847,760,033 50,640,879 46,387,153 1 The amount of variable-income securities recorded at cost amounted to EUR 9.7 million as at December 31, 2012 (EUR 9.4 million as at December 31, 2011). 58 BIL Annual Report 2012

60 7.7. Reclassification of financial assets (IAS 39) Carrying value of reclassified assets as at October 1, 2008 Carrying value of reclassified assets as at December 31, 2011 Fair value of reclassified assets as at December 31, 2011 Gross amount not recognised in the statement of income (1&2) (1) From the "Assets held for trading" portfolio to "Loans and advances" 219,554, (2) From the "Assets held for trading" portfolio to "Loans and available for sale securities" 293,649, (3) From the "Loans and available for sale securities" portfolio to "Loans and advances" 7,668,594, n.a. Gross amount not recognised in the AFS reserve (3) Amortisation of premiums / discounts in the statement of income in 2011 Amortisation of premiums / discounts in the AFS reserve in 2011 (1) From the "Assets held for trading" portfolio to "Loans and advances" n.a. (1,006,147) n.a. (2) From the "Assets held for trading" portfolio to "Loans and available for sale securities" n.a. 625,832 n.a. (3) From the "Loans and available for sale securities" portfolio to "Loans and advances" 0 n.a. 183,985,568 Carrying value of reclassified assets as at October 1, 2008 Carrying value of reclassified assets as at December 31, 2012 Fair value of reclassified assets as at December 31, 2012 Gross amount not recognised in the statement of income (1&2) (1) From the "Assets held for trading" portfolio to "Loans and advances" 219,554, (2) From the "Assets held for trading" portfolio to "Loans and available for sale securities" 293,649, (3) From the "Loans and available for sale securities" portfolio to "Loans and advances" 7,668,594, n.a. Gross amount not recognised in the AFS reserve (3) Amortisation of premiums / discounts in the statement of income in 2012 Amortisation of premiums / discounts in the AFS reserve in 2012 (1) From the "Assets held for trading" portfolio to "Loans and advances" n.a. 0 n.a. (2) From the "Assets held for trading" portfolio to "Loans and available for sale securities" n.a. 0 n.a. (3) From the "Loans and available for sale securities" portfolio to "Loans and advances" 0 n.a. 0 Due to the exceptional circumstances in 2008 and in particular to the fact that the prices observed for certain financial assets were no longer representative of a "fair value" - but rather of prices that reflected the stressed situation or guide prices generated by brokers - BIL decided to apply the amendment of IAS 39 and IFRS 7 "Reclassification of Financial Assets" to certain assets. This relates to the reclassification of certain assets included under "Financial assets held for trading" as "Investments available for sale" or "Loans and advances" on the one hand, and the reclassification of certain assets included under "Investments available for sale" as "Loans and advances" on the other. These reclassifications were carried out on October 1, BIL Annual Report

61 Transfer from "Financial assets held for trading" to "Loans and advances" and "Investments available for sale". These financial assets had initially been recognised as "Financial assets held for trading" as BIL had intended to trade them before long. Due to the above-mentioned exceptional circumstances, market illiquidity, lack of availability of representative prices and market inactivity, BIL has reclassified those high credit quality bonds which it no longer holds for short-term selling and which it intends and is able to hold for the foreseeable future. The impact on the income statement related to these securities is shown in the table above. This refers to amortisation of discounts and premiums on instruments recognised henceforth in "Loans and advances" and in "Investments available for sale". As at December 31, 2011, these positions were sold. However, amortisation of discounts and premiums have continued to be recorded in the course of the 2011 financial year. Transfer from "Investments available for sale" to "Loans and advances". BIL has an unusual "Investments available for sale" portfolio in the sense that it is composed of very long-dated securities Investments in associates The result is that minor variations in spreads cause significant changes in value. The transfer to "Loans and advances" only relates to those financial assets for which no active market price was available, subject to the additional condition that BIL intends and has the ability to hold them for the foreseeable future. The change in the AFS reserve that would have been recorded if reclassification had not taken place is calculated according to valuation models taking into account the changes in liquidity in the different markets in the absence of representative market prices. The impact of this reclassification as at December 31, 2011 and 2012 is shown in the table above. This relates to losses not realised on the transfer date gradually being recognised in the statement of income, i.e. over the residual holding period. As at December 31, 2011, these positions were sold. The impact on the 2011 financial year consists of the amortisation of the balance of the AFS reserve which was frozen at the time of the transfer. A. CARRYING VALUE CARRYING VALUE AS AT JANUARY 1 50,179, Disposals (758,548) 0 - Changes in the scope of consolidation (departures) (21,798,741) 0 - Share of pre-tax income 2,260, Change in goodwill (see below) (26,980,702) 0 - Gains and losses not recognised in the statement of income (2,902,815) 0 CARRYING VALUE AS AT DECEMBER B. POSITIVE GOODWILL INCLUDED IN CARRYING VALUE CARRYING VALUE AS AT JANUARY 1 32,773, Changes in the scope of consolidation (departures) (32,773,258) 0 CARRYING VALUE AS AT DECEMBER 31 (A) 0 0 ACCUMULATED IMPAIRMENTS AS AT JANUARY 1 (5,792,556) 0 - Changes in the scope of consolidation (departures) 5,792,556 0 ACCUMULATED IMPAIRMENTS AS AT DECEMBER 31 (B) 0 0 NET CARRYING VALUE AS AT DECEMBER 31 (A)+(B) 0 0 C. LIST OF MAIN ASSOCIATES As at December 31, 2011 and 2012, the BIL group did not have any holdings in associates. 60 BIL Annual Report 2012

62 7.9. Tangible fixed assets A. NET CARRYING VALUE Land and buildings Own use owner Office furniture and other equipment Own use owner Financing lease Investment property ACQUISITION COST AS AT 01/01/11 451,008, ,187,358 3,708,671 99,224, ,128,860 - Acquisitions 10,832,587 2,382, ,940,956 15,156,344 - Disposals (2,700,884) (1,158,056) 0 (1,184,097) (5,043,037) - Changes in the scope of consolidation (additions) 487,691 2, ,324 - Changes in the scope of consolidation (departures) (35,060,964) (29,557,759) 0 0 (64,618,723) - Transfers and cancellations (120,571,791) (6,208,762) 3,595, ,100,488 (3,085,025) - Translation adjustments 440, , ,375 - Other 0 (482,194) 0 0 (482,194) ACQUISITION COST AS AT 31/12/11 (A) 304,435, ,594,152 7,303, ,081, ,414,924 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 01/01/11 (211,796,852) (133,443,377) (1,274,649) (15,654,462) (362,169,340) - Booked (11,225,863) (5,294,420) (733,634) (10,621,009) (27,874,926) - Recognised 0 45, ,000 - Write-off 1,987,772 1,214, ,202,610 - Changes in the scope of consolidation (additions) (250,286) (648) 0 0 (250,934) - Changes in the scope of consolidation (departures) 10,685,183 19,868, ,553,694 - Transfers and cancellations 15,938,093 3,874,857 (1,259,398) (16,190,753) 2,362,799 - Translation adjustments (136,474) (370,434) 0 0 (506,908) - Other 0 249, ,168 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 31/12/11 (B) (194,798,427) (113,856,505) (3,267,681) (42,466,224) (354,388,837) NET CARRYING VALUE AS AT 31/12/11 (A)+(B) 109,637,054 8,737,647 4,036, ,615, ,026,087 Land and buildings Own use owner Office furniture and other equipment Own use owner Financing lease Investment property ACQUISITION COST AS AT 01/01/12 304,435, ,594,152 7,303, ,081, ,414,924 - Acquisitions 4,958,047 1,920, ,746,600 9,625,258 - Disposals 0 (270,172) 0 0 (270,172) - Transfers and cancellations (6,715,722) (789,908) 0 (3,443,429) (10,949,059) - Translation adjustments 0 95, ,215 - Other 0 (2,324,751) 0 0 (2,324,751) ACQUISITION COST AS AT 31/12/12 (A) 302,677, ,225,147 7,303, ,384, ,591,415 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 01/01/12 (194,798,427) (113,856,505) (3,267,681) (42,466,224) (354,388,837) - Booked (9,240,900) (1,971,663) (745,239) (10,889,727) (22,847,529) - Write-off 0 125, ,413 - Transfers and cancellations 3,796, ,390 0 (291,084) 4,297,079 - Translation adjustments 0 (87,245) 0 0 (87,245) - Other 0 2,261, ,261,779 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 31/12/12 (B) (200,242,554) (112,736,831) (4,012,920) (53,647,035) (370,639,340) NET CARRYING VALUE AS AT 31/12/12 (A)+(B) 102,435,252 8,488,316 3,290, ,737, ,952,075 Total Total BIL Annual Report

63 B. FAIR VALUE OF INVESTMENT PROPERTIES 31/12/11 31/12/12 Fair value not subject to an independant valuation 1 191,743, ,743,622 The Esch-Belval property was revalued as at December 31, Its fair value is estimated at EUR 203 million. Only the fair value corresponding to the part of this property not allocated to the Group's own use is shown above Intangible fixed assets and goodwill Positive goodwill Internallydeveloped software Other intangible fixed assets 2 ACQUISITION COST AS AT 01/01/11 327,839, ,899, ,127, ,867,029 - Acquisitions 0 28,115,213 5,973,776 34,088,989 - Disposals 0 (1,308,730) (51,770) (1,360,500) - Changes in the scope of consolidation (additions) 0 0 1,960 1,960 - Changes in the scope of consolidation (departures) (285,923,205) (104,431,209) (83,162,062) (473,516,476) - Transfers 0 (5,062,509) (2,185,432) (7,247,941) - Translation adjustments 466, ,917 71,059 1,424,651 ACQUISITION COST AS AT 31/12/11 (A) 42,383,450 89,098,906 59,775, ,257,712 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 01/01/11 (46,918,682) (81,386,791) (82,416,402) (210,721,875) - Booked 0 (22,766,518) (13,871,208) (36,637,726) - Changes in the scope of consolidation (additions) 0 0 (1,960) (1,960) - Changes in the scope of consolidation (departures) 35,336,996 37,166,902 37,884, ,388,099 - Disposals / Write-offs ,323 38,323 - Transfers 0 5,062,509 2,185,432 7,247,941 - Translation adjustments (152,505) (365,309) (69,554) (587,368) ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 31/12/11 (B) (11,734,191) (62,289,207) (56,251,168) (130,274,566) NET CARRYING VALUE AS AT 31/12/11 (A)+(B) 30,649,259 26,809,699 3,524,188 60,983,146 Positive goodwill Internallydeveloped software Other intangible fixed assets 2 ACQUISITION COST AS AT 01/01/12 42,383,450 89,098,906 59,775, ,257,712 - Acquisitions 0 13,409,186 2,098,187 15,507,373 - Transfers 0 0 (43,495,843) (43,495,843) - Translation adjustments 0 11,795 4,241 16,036 - Other 0 0 (937,279) (937,279) ACQUISITION COST AS AT 31/12/12 (A) 42,383, ,519,887 17,444, ,347,999 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 01/01/12 (11,734,191) (62,289,207) (56,251,168) (130,274,566) - Booked 0 (9,588,794) (1,491,083) (11,079,877) - Transfers ,495,843 43,495,843 - Translation adjustments 0 (8,114) (6,340) (14,454) - Other , ,550 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 31/12/12 (B) (11,734,189) (71,886,115) (13,335,200) (96,955,504) NET CARRYING VALUE AS AT 31/12/12 (A)+(B) 30,649,261 30,633,772 4,109,462 65,392,495 Total Total 1 The fair value of investment properties is revalued every five years. 2 Other intangible fixed assets include, inter alia, software purchased. 62 BIL Annual Report 2012

64 7.11. Tax assets 31/12/11 31/12/12 Deferred tax assets (see note 9.2) 406,952, ,398,296 Total 406,952, ,398, Other assets 31/12/11 31/12/12 Other assets * 7,379,428,664 54,213,803 Other assets specific to insurance activities 2,246,732 2,276,612 TOTAL 7,381,675,396 56,490,415 * Analysis by nature 31/12/11 31/12/12 Receivables 1,093,098 1,389,722 Prepaid fees 725, ,652 Other receivables 1 7,344,322,825 28,597,731 Plan assets 4,157,770 4,892,539 Operating tax 16,793,680 4,749,687 Other assets 2 12,336,031 14,218,472 TOTAL 7,379,428,664 54,213, Leasing 1. BIL as lessor A. FINANCE LEASES Gross investment in finance leases: 31/12/11 31/12/12 Less than 1 year 62,640,927 71,914,206 More than 1 year and less than 5 years 231,990, ,291,110 More than 5 years 10,028,753 0 SUBTOTAL (A) 304,659, ,205,316 UNEARNED FUTURE FINANCE INCOME ON FINANCE LEASES (B) (134,425,867) (139,568,173) NET INVESTMENT IN FINANCE LEASES (A)-(B) 170,233, ,637,143 Net investment in finance lease may be analysed as follows: 31/12/11 31/12/12 Less than 1 year 15,511,333 21,663,110 More than 1 year and less than 5 years 147,493, ,974,033 More than 5 years 7,229,273 0 TOTAL 170,233, ,637,143 31/12/11 31/12/12 Amount of irrecoverable debts on finance leases included in the loan loss provision at the end of the financial year 4,461,074 3,928,827 Estimated fair value of finance leases 170,233, ,637,143 Accumulated provision for irrecoverable minimum lease payments 3,676,673 3,234,238 1 As at December 31, 2011, this amount corresponds to the receivable from Dexia SA, resulting from the effects of the derecognition of the Legacy portfolio in the amount of EUR 6.2 billion and equities in the amount of EUR 1.1 billion. For further information, see the Transactions linked to current business awaiting settlement. BIL Annual Report

65 Overview of the significant provisions of leasing contracts (see IFRS 7) The assets managed by BIL Lease may be broken down as follows: % of the assets is composed of vehicles, mainly passenger cars but also commercial vehicles; % is composed of IT equipment; % is composed of industrial equipment: machinery, medical equipment, etc % of the assets is composed primarily of office furniture. B. OPERATING LEASES BIL is the financial lessor of certain land and buildings, the amounts of which are indicated in the balance sheet and detailed in the note 7.9. Future net minimum lease payments under operating leases: 31/12/11 31/12/12 Less than 1 year 6,638,000 6,638,000 More than 1 year and less than 5 years 26,552,000 19,914,000 TOTAL 33,190,000 26,552,000 No contingent rents were recognised in 2011 and BIL as lessee A. FINANCE LEASES BIL is the financial lessee of certain land and buildings, the amounts of which are indicated in the balance sheet and detailed in note 7.9. Given that the total amounts are below materiality, additional information has not been provided in this note. B. OPERATING LEASES Future net minimum lease payments under non-cancellable operating leases: 31/12/11 31/12/12 Less than 1 year 7,134,333 5,668,497 More than 1 year and less than 5 years 8,766,541 7,889,721 More than 5 years 2,574,178 1,440,789 TOTAL 18,475,052 14,999,007 Lease and sublease payments recognised as an expense during the financial year: - minimum lease payments 5,604,561 5,066,693 TOTAL 5,604,561 5,066, BIL Annual Report 2012

66 7.14. Quality of financial assets Analysis of normal loans and securities on an individual basis Gross amount (A) 31/12/11 31/12/12 Normal loans and advances to credit institutions 2,900,162,889 1,856,457,696 Normal loans to customers 9,471,205,723 9,531,469,962 Normal financial investments held to maturity 50,640,879 46,387,153 Normal financial investments available for sale 710,119,214 3,844,286,329 of which bonds and fixed-income instruments 528,156,811 3,653,654,483 of which equities and other variable-income instruments 181,962, ,631,847 Collective impairment of normal loans on an individual basis (19,901,646) (21,403,002) TOTAL 13,112,227,059 15,257,198,138 Analysis of impaired loans and securities on an individual basis Gross amount (B) Specific loan loss allowance - Net amount (B+C) individual basis (C) 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Impaired loans and advances to customers 252,782, ,391,729 (207,563,910) (219,266,623) 45,218,592 44,125,106 Impaired financial assets available for sale 22,959,355 24,061,314 (20,448,193) (20,587,610) 2,511,162 3,473,704 of which equities and other variable-income instruments 22,959,355 24,061,314 (20,448,193) (20,587,610) 2,511,162 3,473,704 TOTAL 275,741, ,453,043 (228,012,103) (239,854,233) 47,729,754 47,598,810 Analysis of normal and impaired loans and securities on an individual basis Gross amount (A+B) Specific loan loss allowance - Net amount (A+B+C) individual basis (C) 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Loans and advances to credit institutions 2,900,162,889 1,856,457, ,900,162,889 1,856,457,696 Loans and advances to customers 9,723,988,225 9,794,861,691 (207,563,910) (219,266,623) 9,516,424,315 9,575,595,068 Financial investments held to maturity 50,640,879 46,387, ,640,879 46,387,153 Financial investments available for sale 733,078,569 3,868,347,643 (20,448,193) (20,587,610) 712,630,376 3,847,760,033 of which bonds and fixedincome instruments 528,156,811 3,653,654, ,156,811 3,653,654,483 of which equities and other variable-income instruments 204,921, ,693,161 (20,448,193) (20,587,610) 184,473, ,105,551 Collective impairment of normal loans on an individual basis 1 (19,901,646) (21,403,002) n.a. n.a. (19,901,646) (21,403,002) TOTAL 13,387,968,916 15,544,651,181 (228,012,103) (239,854,233) 13,159,956,813 15,304,796,948 1 For the counter value in profit and loss, see note BIL Annual Report

67 Note 8: Notes on the liabilities of the consolidated balance sheet (in EUR) 8.1. Amounts owed to credit institutions A. ANALYSIS BY NATURE 31/12/11 31/12/12 On demand 235,154, ,009,681 Term 154,481, ,689,100 Repurchase agreements 2,101,483, ,183,435 Central banks 2,091,180,566 28,883,463 Other borrowings 1 2,124,339,136 1,485,805,414 TOTAL 6,706,638,352 2,578,571,093 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note Amounts owed to customers A. ANALYSIS BY NATURE 31/12/11 31/12/12 Demand deposits 3,348,394,209 4,501,125,569 Savings deposits 3,200,879,927 3,947,053,084 Term deposits 2,681,025,113 3,054,037,243 Other customer deposits 30,146,829 41,005,167 TOTAL CUSTOMER DEPOSITS 9,260,446,078 11,543,221,063 Repurchase agreements 241,362,957 0 Other borrowings 7,863,549 3,058,812 TOTAL CUSTOMER BORROWINGS 249,226,506 3,058,812 TOTAL 9,509,672,584 11,546,279,875 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note Other borrowings represent day-to-day cash management operations. 66 BIL Annual Report 2012

68 8.3. Financial liabilities measured at fair value through profit and loss Financial liabilities held for trading A. ANALYSIS BY NATURE 31/12/11 31/12/12 Bonds issued by public bodies Other bonds 2,720, ,323 TOTAL 2,721, ,323 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note 12.1 Financial liabilities designated at fair value A. ANALYSIS BY NATURE 31/12/11 31/12/12 Non-subordinated liabilities 2,996,442,313 2,671,889,552 TOTAL 2,996,442,313 2,671,889,552 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note 12.1 The BIL group primarily uses the fair value option (FVO) to eliminate or at least significantly reduce the measurement or recognition inconsistency (also known as the accounting mismatch) that would arise from measuring financial assets or liabilities or recognising the gains and losses on these assets and liabilities on a different basis. The fair value of unlisted financial instruments was determined using pricing tools and procedures established by Group Risk Management. These pricing tools are discounted cash flow models that allow the current value to be determined on the basis of an interest-rate curve that is applicable to similar securities and takes into account the Bank's own credit rating Debt securities A. ANALYSIS BY NATURE 31/12/11 31/12/12 Certifcates of deposit 139,587,713 96,919,701 Non-convertible bonds 823,591, ,314,669 TOTAL 963,179, ,234,370 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note 12.1 BIL Annual Report

69 8.5. Subordinated debt A. ANALYSIS BY NATURE 31/12/11 31/12/12 Non-convertible subordinated debt 1 575,279, ,194,004 Hybrid capital and redeemable preferred shares 2 227,073, ,368,228 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note Provisions and other obligations A. ANALYSIS BY NATURE 31/12/11 31/12/12 Litigations 3 24,663,353 10,116,813 Restructuring 23,863,393 16,799,313 Defined benefit plans 21,496,693 19,218,990 Other long-term employee benefits 13,903,994 13,710,621 Provision for off balance sheet credit commitments 250, ,500 Onerous contracts 6,000,000 0 Other provisions 4,381,804 2,704,571 TOTAL 94,559,237 62,881,808 B. ANALYSIS BY MOVEMENT Litigations Restructuring Pensions and other benefits employee Provision for off-balance sheet credit commitments Onerous contracts Other provisions AS AT 01/01/11 36,663,259 38,977, ,606, , ,758 11,470,460 Exchange differences 357,640 20, ,473 0 (4,849) 9,450 Additional provisions 11,599,147 3,066,725 12,463, ,240 6,000, ,386 Unused amounts reversed (10,115,597) (9,617,003) (12,341,971) (221,240) 0 (664,749) Used during the year (6,963,263) (5,594,041) (9,593,310) 0 (233,909) (4,945,897) Changes in the scope (departures) (7,010,678) (2,989,752) (16,477,359) 0 0 (1,359,900) Transferts 132,845 0 (66,432,597) 0 0 (21,423) Other movements (798,523) AS AT 31/12/11 24,663,353 23,863,393 35,400, ,000 6,000,000 4,381,804 AS AT 01/01/12 24,663,353 23,863,393 35,400, ,000 6,000,000 4,381,804 Exchange differences (112,883) (3,222) 4, ,297 Additional provisions 5,284,079 3,352,430 7,326,627 81,500 (6,000,000) 1,091,016 Unused amounts reversed (17,256,093) (1,541,548) (7,904,612) 0 0 (1,135,226) Used during the year (1,726,942) (8,605,090) (2,313,118) 0 0 (989,593) Transferts (461,527) (259,000) 505, Other movements (273,174) (7,650) (89,531) 0 0 (663,726) AS AT 31/12/12 10,116,813 16,799,313 32,929, , ,704,572 1 List available upon request. 2 In first instance, 2011 loss has been allocated to all available reserves. In accordance with the "Loss Participation" clause, as defined in the hybrid capital prospectus issued by BIL, the amount of loss exceeding the available reserves has been shared on a prorata basis, between the amount of hybrid capital (for EUR 34 million), on the one hand, and the sum of the share capital and share premium adjusted for the amount of own shares, on the other hand. 3 Provisions for legal litigations, including those for staff and tax-related litigations. 68 BIL Annual Report 2012

70 C. ANALYSIS BY MATURITY see note 12.6 D. PROVISIONS FOR PENSIONS AND OTHER LONG-TERM BENEFITS Employees hired on or after November 1, 2007 partake in a defined-contribution pension plan, while employees hired prior to November 1, 2007 partake either a defined-contribution or defined-benefit pension plan. All these commitments are shown in the table below. a. Change in benefit obligation 31/12/11 31/12/12 Benefit obligation at beginning of year 341,963, ,038,000 Current service cost 9,285,000 9,497,000 Interest cost 10,372,000 9,638,000 Plan participants' contributions 775, ,000 Actuarial gains / losses 6,430,000 6,855,000 Benefits paid from plan / company (20,768,000) (22,495,000) Premiums paid (472,000) (371,000) Net transfer in / out (including the effect of all business combinations / divestitures) (93,232,392) 1,831,000 Plan curtailments 76, ,000 Exchange differences 609, ,000 BENEFIT OBLIGATION AS AT END OF YEAR 255,038, ,097,000 b. Change in plan assets 31/12/11 31/12/12 Fair value of plan assets at beginning of year 212,387, ,023,000 Expected return of plan assets 6,583,000 8,848,000 Actuarial gains / (losses) on plan assets (8,218,000) 16,622,000 Employer contributions 12,890,000 12,383,000 Member contributions 775, ,000 Benefits paid from plan / company (13,566,000) (20,463,000) Premiums paid (472,000) (371,000) Acquisitions / divestitures / transfers (5,946,837) 1,574,000 Exchange differences 590, ,000 FAIR VALUE OF PLAN ASSETS AS AT END OF YEAR 205,023, ,557,000 c. Amounts indicated in the balance sheet 31/12/11 31/12/12 Wholly-unfunded plans or wholly- or partly-funded plans Present value of funded obligations 241,855, ,100,000 Fair value of plan assets 205,023, ,557,000 Deficit / surplus for funded plans 36,832,000 23,543,000 Present value of unfunded obligations 13,183,000 12,995,000 Unrecognised net actuarial gain / loss (19,614,000) (9,304,000) NET ASSETS / LIABILITIES 30,401,000 27,234,000 Amounts indicated in the balance sheet Liabilities 34,559,000 32,127,000 Assets (4,158,000) (4,893,000) TOTAL LIABILITIES RELATING TO INSIGNIFICANT PLANS 841, ,000 NET ASSETS / LIABILITIES 31,242,688 28,037,000 BIL Annual Report

71 d. Components of pension expense 31/12/11 31/12/12 Amounts indicated in the statement of income Current service cost 9,285,000 9,497,000 Interest paid 10,372,000 9,638,000 Expected return on plan assets (6,583,000) (8,849,000) Expected return on reimbursement assets (3,170,000) 0 Amortisation of net gain / loss incl. paragraph 58 (a) 448, ,000 Effect of the limit of paragraph 58 (b) (11,000) 0 Curtailment gain / loss recognised 76, ,000 TOTAL PENSION EXPENSE RECOGNISED IN THE STATEMENT OF INCOME 10,417,000 11,015,000 Actual return on assets Actual return on plan assets (1,635,000) 25,470,000 Actual return on reimbursement assets 1,476,000 0 e. Balance sheet reconciliation 31/12/11 31/12/12 Balance sheet liabilities / assets 116,298,150 30,401,000 Pension expense recognised in the statement of income during the financial year 10,417,000 11,014,000 Employer contributions made during the financial year (12,890,000) (12,383,000) Benefits paid directly by the company during the financial year (7,202,000) (2,033,000) Credit to reimbursements 1,476,000 0 Net transfer in / out (including the effect of any business combinations / divestitures) (77,631,150) 257,000 Exchange rate adjustment - gain / loss (67,000) (22,000) BALANCE SHEET LIABILITIES / ASSETS AT THE END OF THE FINANCIAL YEAR 30,401,000 27,234,000 f. Range of assumptions used to determine pension expense Discount rate 1 Inflation Salary increase rate Expected return on bonds Expected return on shares Expected return on assets Assumptions set on 31/12/11 for the calculation of 2012 pension expense Europe 4.25 % 2.00 % 3.50 % 4.25 % 7.25 % 5.03 % Switzerland 2.75 % 0.80 % 1.50 % 2.00 % 6.00 % 2.75 % Assumptions set on 31/12/12 for the calculation of 2013 pension expense Europe 3.34 % 2.00 % 3.00 % n.a. n.a % 2 Switzerland 2.50 % 0.50 % 1.00 % n.a. n.a % 2 Comment on assumptions Until 2011, to determine the discount rate applicable for International Accounting Standard (IAS) 19, BIL applied the methodology set by the Dexia group. The index used for determining the discount rate was Iboxx Corp AA, for pension plans in EUR. From 2012, BIL has to set up its own policy for setting the discount rate, in line with Precision Capital and its subsidiaries. IAS 19 states that the discount rate shall be determined by reference to market yields on high quality corporate bonds for which a deep market should exist. The continued turbulence in the financial markets and in the bond market in particular, has drawn particular attention to the "high quality corporate bonds" term used to select the discount rate. Due to the financial crisis, the number of corporate bonds rated AAA or AA (AA-Bonds) has decreased significantly and they are traded less frequently. In particular, the bond universe underpinning the Iboxx Corp AA index sharply decreased in By contrast, as of year-end 2012, the bond universe underpinning Iboxx Corp A has grown over four times larger than the former in terms of both the number and volume of bonds. In that context, BIL has been inclined to select the discount rate by reference to the A rated corporate bonds market as from 2012 and has decided to change the index used for determining the discount rate from Iboxx Corp AA to Iboxx Corp A, for pension plans in EUR. By considering A-rated bonds as high quality bonds, BIL has chosen to derive the discount rate from an index based on a broader population, because it leads to a more reliable discount rate. If BIL had kept the former index, the defined benefit obligation would have been about 4.7 % higher. 1 For employee benefit plans with a remaining term of 10 years or more. 2 As from 2013 (IAS 19 revised), expected return on assets is set equal to discount rate. 70 BIL Annual Report 2012

72 g. Reconciliation with 31/12/11 31/12/12 Long-term obligations Outstanding liability relating to defined benefit plans 21,496,693 19,218,990 Outstanding liability relating to other long-term employee benefits 13,903,994 13,710,621 TOTAL OUTSTANDING LIABILITIES INDICATED IN THE FINANCIAL STATEMENTS 35,400,687 32,929,611 see note 8.6.A & B TOTAL LIABILITIES CALCULATED BY ACTUARIES 34,559,000 32,127,000 TOTAL LIABILITIES RELATING TO INSIGNIFICANT PLANS 841, ,611 OUTSTANDING NET ASSETS RELATING TO DEFINED BENEFIT PLANS INDICATED IN THE FINANCIAL STATEMENTS 4,157,770 4,892,539 see note 7.12 TOTAL NET ASSETS ANALYSED BY ACTUARIES 4,157,770 4,892,539 E. DEFINED CONTRIBUTION PLANS State pension contributions are not included in the amounts. The amounts recorded as expenses in respect of defined contribution plans for 2011 and 2012 are EUR 9 million and EUR 0.2 million respectively. F. BREAKDOWN OF PLAN ASSETS Breakdown of assets Plan assets 31/12/11 31/12/12 Securities % % Bonds % % Other 6.82 % 6.35 % TOTAL % % G. ESTIMATE OF CONTRIBUTIONS DEEMED LIKELY TO BE PAYABLE INTO PENSION PLANS FOR 2013: EUR 12,563,224 H. INFORMATION ON REIMBURSEMENT RIGHTS: value as at December 31, 2012: EUR 0 I. RECONCILIATION OF REIMBURSEMENT RIGHTS 31/12/11 31/12/12 Fair value of reimbursement rights at beginning of year 73,447,000 0 Expected return on reimbursement rights 3,170,000 0 Actuarial gain / loss on reimbursement rights (1,694,000) 0 Benefits (5,428,000) 0 Acquisitions / divestitures / transfers (69,495,000) 0 FAIR VALUE OF REIMBURSEMENT RIGHTS AT THE END OF THE YEAR Tax liabilities ANALYSIS BY NATURE 31/12/11 31/12/12 Current income tax 1,265,066 16,441,235 Deferred tax liabilities (see note 9.2) 23,904,970 21,232,301 TOTAL 25,170,036 37,673,536 BIL Annual Report

73 8.8. Other liabilities 31/12/11 31/12/12 Other liabilities * 342,990, ,807,396 Other liabilities specific to insurance activities 580, ,300 TOTAL 343,570, ,776,696 * ANALYSIS BY NATURE 31/12/11 31/12/12 Accrued costs 8,218,470 8,291,197 Deferred income 4,252,990 6,094,457 Other payables 1 222,567, ,409,540 Other granted amounts received 1,387,511 1,378,057 Salaries and social security costs (payables) 25,693,856 24,650,718 Other operating tax 60,264,766 43,631,147 Other liabilities 20,605,283 9,352,280 TOTAL 342,990, ,807,396 Note 9: Other notes on the consolidated balance sheet (in EUR) 9.1. Derivatives A. ANALYSIS BY NATURE 31/12/11 31/12/12 Assets Liabilities Assets Liabilities Derivatives held for trading 1,654,458,688 1,762,742,231 1,445,637,375 1,352,729,236 Derivatives designated as fair value hedge 4,488,791 4,349,960 3,371,776 25,011,602 Derivatives designated as cash flow hedge 166,843, ,981, ,028, ,207,712 Derivatives designated as portfolio hedge against interest-rate 71,853,446 31,325,576 97,716,246 26,930,106 total 1,897,644,097 1,967,399,639 1,709,753,839 1,573,878,656 B. detail OF DERIVATIVES HELD FOR TRADING 31/12/11 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives 11,537,637,865 11,528,843, ,114, ,444,020 FX forward 8,149,962,776 8,170,839, ,817, ,701,554 FX future 103,041, ,266,560 2,698,589 2,744,467 Cross currency swap 2,677,081,083 2,635,258, ,336, ,923,263 FX options 607,552, ,479,048 12,261,372 20,074,736 Interest-rate derivatives 25,431,778,200 25,486,511,422 1,143,994,428 1,156,204,949 Options-Caps-Floors-Collars-Swaptions 134,037, ,870,668 1,245,750 1,249,914 IRS 25,296,640,754 25,296,640,754 1,142,745,769 1,154,952,126 Interest futures 1,100,000 1,000,000 2,909 2,909 Equity derivatives 563,768, ,296,609 12,152,037 43,928,164 Equity future 5,793,001 5,979, , ,902 Equity options 34,456,732 30,994,332 2,242,654 0 Warrants 0 3,005, ,025 0 Other equity derivatives 523,518, ,317,776 9,049,530 43,670,262 Credit derivatives 84,094,358 79,466,502 29,197,800 29,165,098 Credit default swaps 84,094,358 79,466,502 29,197,800 29,165,098 total 37,617,279,014 37,657,118,183 1,654,458,688 1,762,742,231 1 As at December 31, 2011 and 2012, the heading "Other payables" mainly comprises the amounts of the coupons to be paid to clients, the amounts of stock exchange transactions and transactions being liquidated. 72 BIL Annual Report 2012

74 31/12/12 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives 9,242,624,631 9,227,947, ,094, ,526,282 FX forward 6,816,063,801 6,825,567,374 36,047,610 46,540,867 FX future 56,497,590 57,358, ,806 1,122,456 Cross currency swap 1,826,746,711 1,803,430, ,757, ,443,349 FX options 543,316, ,590,850 9,051,818 9,419,610 Interest-rate derivatives 11,536,754,372 11,619,369,880 1,081,264,570 1,030,674,706 Options-Caps-Floors-Collars-Swaptions 144,889, ,642,072 1,245,750 1,249,913 IRS 11,390,865,152 11,390,865,152 1,080,016,848 1,029,422,536 Interest futures 1,000,000 27,862,656 1,972 2,257 Equity derivatives 335,756, ,200,495 21,984,846 12,249,755 Equity future 718,620 2,800,792 11,315 12,577 Equity options 43,984,052 22,345,453 12,391,238 0 Warrants 2,952,421 2,952, ,627 0 Other equity derivatives 288,101, ,101,829 9,000,666 12,237,178 Credit derivatives 18,766,000 14,469,000 1,293,666 1,278,493 Credit default swaps 18,766,000 14,469,000 1,293,666 1,278,493 total 21,133,901,925 21,177,986,568 1,445,637,375 1,352,729,236 C. detail OF DERIVATIVES DESIGNATED AS FAIR VALUE HEDGE 31/12/11 Notional Amount Assets Liabilities To be received To be delivered Interest-rate derivatives 16,797,558 16,797, ,940 3,777,243 IRS 16,797,558 16,797, ,940 3,777,243 Equity derivatives 0 0 4,274, ,717 Other equity 0 0 4,274, ,717 total 16,797,558 16,797,558 4,488,791 4,349,960 31/12/12 Notional Amount Assets Liabilities To be received To be delivered Interest-rate derivatives 542,211, ,211,065 2,351,690 24,967,472 IRS 542,211, ,211,065 2,351,690 24,967,472 Equity derivatives 0 0 1,020,086 44,130 Other equity 0 0 1,020,086 44,130 total 542,211, ,211,065 3,371,776 25,011,602 BIL Annual Report

75 D. detail OF DERIVATIVES DESIGNATED AS CASH FLOW HEDGE 31/12/11 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives Cross currency swap Interest-rate derivatives 2,626,794,706 2,626,794, ,843, ,981,872 IRS 2,626,794,706 2,626,794, ,843, ,981,872 TOTAL 2,626,794,706 2,626,794, ,843, ,981,872 31/12/12 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives 23,580,002 23,565,986 36,197 0 Cross currency swap 23,580,002 23,565,986 36,197 0 Interest-rate derivatives 2,162,290,000 2,162,290, ,992, ,207,712 IRS 2,162,290,000 2,162,290, ,992, ,207,712 TOTAL 2,185,870,002 2,185,855, ,028, ,207,712 Cash flows in respect of the hedging instruments relating to the statement of income are recorded therein on a continual basis as interest is paid. Interest generated by derivatives designated as cash flow hedges amounted to EUR -3.7 million in 2012 (EUR million in 2011). E. detail OF DERIVATIVES DESIGNATED AS PORTFOLIO HEDGE AGAINST interest-rate 31/12/11 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives 185,243, ,798,250 2,202,397 5,395,049 Interest-rate derivatives 1,376,449,944 1,376,449,944 69,651,049 25,930,527 TOTAL 1,561,693,848 1,503,248,194 71,853,446 31,325,576 31/12/12 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives 167,865, ,269,239 1,467,235 2,130,497 Interest-rate derivatives 1,225,517,108 1,225,517,108 96,249,011 24,799,609 TOTAL 1,393,382,459 1,371,786,347 97,716,246 26,930, Deferred tax A. ANALYSIS 31/12/11 31/12/12 Deferred tax - assets (liabilities) recognised 383,047, ,165,995 of which: Deferred tax - liabilities (23,904,970) (21,232,301) Deferred tax - assets 406,952, ,398,296 Deferred tax 1 569,908, ,026,650 1 of which unrecognised deferred tax assets 186,860, ,860, BIL Annual Report 2012

76 B. movements AS AT JANUARY 1 201,483, ,047,900 Movements during the financial year: - Amounts recognised in the statement of income 332,421,215 18,655,171 - Items directly computed by equity (64,927,445) (49,566,809) - Effect of change in tax rates - statement of income (334,469) 5,692,080 - Effect of change in tax rates - equity 8,877,374 (529,295) - Changes in consolidation scope (94,892,576) (1,771,362) - Exchange differences (984,581) (361,690) - Other movements 1,404,468 0 AS AT DECEMBER ,047, ,165,995 Deferred tax coming from balance sheet assets 31/12/11 31/12/12 Balance sheet P&L Balance sheet P&L Cash, loans and loan loss provisions 4,427,534 (402,100) 5,973,673 1,546,140 Securities 4,608,903 (9,048,182) (29,658,496) 6,399,531 Derivatives (551,525) (667,230) (521,718) 0 Tangible and intangible fixed assets 6,681,666 (152,507) 6,425,849 (260,297) Other - non-allocated (877,676) 1,224,382 (1,035,618) (151,374) TOTAL 14,288,902 (9,045,637) (18,816,310) 7,534,000 Deferred tax coming from balance sheet liabilities 31/12/11 31/12/12 Balance sheet P&L Balance sheet P&L Derivatives 0 674, Provisions (24,323,840) 470,863 (26,576,437) (438,190) Pensions 9,267,269 (1,662,660) 8,539,253 (708,421) Legal tax free provisions (12,224,996) 253,878 (510,976) 11,714,020 Other - non-allocated (14,640,510) (774,157) (16,604,206) (2,038,122) TOTAL (41,922,077) (1,037,987) (35,152,366) 8,529,287 Deferred tax coming from other items 31/12/11 31/12/12 Balance sheet P&L Balance sheet P&L Tax losses carried forward 410,681, ,175, ,880,030 11,035,077 TOTAL 410,681, ,175, ,880,030 11,035,077 Considering that: a large part of the unused tax losses results from identifiable causes which are unlikely to recur (the significant amount of 2011 losses result indeed from the sale of the Legacy portfolio, from sales of participations and from deleveraging impacts); BIL decided to re-focus on its historical business which is unlikely to generate such losses in the future, but rather an increasing profitability over the next years; BIL new strategies are clear with a limited risk appetite, which again limits the risk that significant unexpected losses may occur in the future; our analysis on future taxable profit over the next years will enable to use the unused tax losses over a medium term period (no time restriction applied in Luxembourg). Based on these considerations, BIL Luxembourg has recognised the full amount of unused tax losses. BIL Annual Report

77 9.3. Share-based payments There is no stock option plan settled in BIL shares Related parties transactions A. RELATED PARTIES TRANSACTIONS Key management Parent company Subsidiaries (in EUR thousands) 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Loans 1 7,695 7, Interest received Receivables ,088, Deposits 5,724 10,450 2, Interest paid (12) (1) Other income fee and commission expense Guarantees and commitments given by the Group Guarantees and commitments given to the Group Associates Other related parties 31/12/11 31/12/12 31/12/11 31/12/12 Loans ,129,144 7 Interest received ,956 0 Receivables ,217,010 0 Deposits 4,248 4,898 1,844,728 10,213 Interest paid (10) (7) (5,525) (1) Other income fee and commission expense (695) 0 (10,669) 0 Guarantees and commitments given by the Group 0 0 3,395, Guarantees and commitments given to the Group ,406 0 B. REMUNERATION OF BOARD MEMBERS AND PERSONNEL MANAGEMENT (see note 11.9 "Staff expenses") 9.5. Securitisation As at December 31, 2012, the BIL group has no securitisation vehicles included in its scope of consolidation. The relevant accounting rules are described in of note Acquisitions and disposals of consolidated companies A. MAIN ACQUISITIONS Year 2011 There were no significant acquisitions in Year 2012 On April 3, 2012, BIL acquired 49 % of BIL Auto Lease Luxembourg SA owned by Dexia Auto Lease Belgium SA. Following to this transaction, BIL owns 100 % of this company's capital. The cost of this transaction amounts to EUR 490,000. The impact of the acquisition on consolidated shareholders' equity amounts to EUR -149, All loans were granted at market conditions. No depreciation was recorded on the loans granted to the dependent companies. 2 As at December 31, 2011, this amount corresponds to the receivable from Dexia SA, resulting from the effects of the derecognition of the Legacy portfolio and equities. 76 BIL Annual Report 2012

78 B. MAIN DISPOSALS Year 2011 Dexia Private Bank Monaco SAM was sold on July 19, 2011 to Banque Havilland SA Luxembourg. The assets and liabilities sold, as at June 30, 2011, were as follows: Dexia Private Bank Monaco SAM Cash and cash equivalents 1,335,427 Loans and advances to credit institutions 7,348,859 Loans and advances to customers 1,752,078 Other assets 1,365,655 Amounts owed to credit institutions (2,319,287) Amounts owed to customers (3,284,857) Other liabilities (682,635) NET ASSETS 5,515,240 Proceeds from the sale 4,783,680 Less: Transaction cost (808,904) Less: Cash and cash equivalents of subsidiaries sold (1,335,427) NET PROCEEDS ON THE SALE 2,639,349 Year 2012 On June 20, 2012, BIL Finance SA (ex-dexia Securities France Holding SA) sold its subsidiary Dexia Securities France SA to CMS SA Shareholders' equity By share category 31/12/11 31/12/12 Number of shares authorised and not issued 1 1,553,942 1,553,942 Number of shares issued and fully paid up 2,017,487 2,017,487 Value per share (accounting par value) EUR 70 EUR 70 Number of treasury shares Exchange rates 31/12/11 31/12/12 Closing rate Average rate Closing rate Average rate Australian dollar AUD Canadian dollar CAD Swiss franc CHF Danish krone DKK Pound sterling GBP Hong Kong dollar HKD Japanese yen JPY Norwegian krone NOK Polish zloty PLN Swedish krone SEK Singapore dollar SGD US dollar USD As at December 31, 2012, the subscribed and paid-up capital of the Bank is EUR 141,224,090 (2011: EUR 141,224,090) represented by 2,017,487 shares (2011: 2,017,487 shares) with a par value of EUR 70 (2011: EUR 70). Following the general meeting of November 16, 2010, and in accordance with the articles of incorporation, the Board of Directors of the Bank is authorised to increase the share capital to a maximum of EUR 250 million, without prejudice to possible renewals, until September 30, BIL Annual Report

79 9.9. Contribution of joint ventures in the 31/12/11 31/12/12 Total assets 0 0 Total liabilities /12/11 31/12/12 Income 428,475,592 0 Expenses (345,275,355) 0 GROSS OPERATING INCOME 83,200,237 0 NET INCOME 61,418,907 0 Attributable to non-controlling interests 436,175 0 Attributable to equity holders 60,982, Independant auditor's fees This table gives an overview of the fees paid to the Independant auditor for its services performed for the BIL group. DELOITTE Services performed for the BIL group 31/12/11 31/12/12 a) Account auditing mission 1,838,149 1,845,659 b) Certification mission 23,033 19,033 c) Tax consultancy 7,413 9,151 d) Due diligence 0 0 e) Other missions (not certification) 232, ,073 TOTAL 2,100,798 2,644,916 Note 10: Notes on the off-balance sheet items (in EUR) Regular way trade 31/12/11 31/12/12 Loans to be delivered 1,831,241,092 1,450,094,561 Borrowings to be received 2,982,344,799 1,449,094, Guarantees 31/12/11 31/12/12 Guarantees given to credit institutions 1,117,897, ,888,422 Guarantees given to customers 1,070,706, ,036,278 Guarantees received from credit institutions 268, ,237 Guarantees received from customers 67,901, BIL Annual Report 2012

80 10.3. Loan commitments 31/12/11 31/12/12 Unused lines granted to credit institutions 1,128,552, ,601 Unused lines granted to customers 3,255,548,893 3,160,392, Other commitments 31/12/11 31/12/12 Banking activity - Commitments given 35,830,600,252 27,277,944,112 Banking activity - Commitments received 1 30,720,035,121 29,752,106,922 Note 11: Notes on the consolidated statement of income (in EUR) Interest received - Interest paid 31/12/11 31/12/12 INTEREST RECEIVED 1,351,649, ,778,618 a) Interest received on assets not measured at fair value through profit and loss 859,550, ,503,603 Cash and balances with central banks 5,120,627 1,035,489 Loans and advances to credit institutions 143,370,994 17,308,103 Loans and advances to customers 433,869, ,130,330 Financial assets available for sale 268,125, ,558,612 Investments held to maturity 8,887,152 5,471,069 Interest on impaired assets 172,250 0 Other 4,080 0 b) Interest received on assets measured at fair value through profit and loss 492,099, ,275,015 Financial assets held for trading 1,815,008 1,874,587 Financial assets designated at fair value 2,011,754 1,112,408 Derivatives held for trading 277,181, ,544,374 Derivatives used for hedging purposes 211,091, ,743,646 INTEREST PAID (1,032,781,652) (774,157,491) a) Interest paid on liabilities not measured at fair value through profit and loss (254,456,709) (108,760,026) Amounts owed to credit institutions (47,558,560) (28,386,997) Amounts owed to customers (126,651,889) (61,230,011) Debt securities (55,398,909) (9,782,202) Subordinated debt (10,403,081) (9,198,991) Interest on preferred shares and hybrid capital (12,181,144) (144,638) Charges relating to state-guaranteed amounts 2 (1,697,861) 0 Other (565,265) (17,187) b) Interest paid on liabilities measured at fair value through profit and loss (778,324,943) (665,397,465) Financial liabilities held for trading (621) 0 Financial liabilities designated at fair value (87,182,882) (59,945,423) Derivatives held for trading (359,872,429) (505,523,630) Derivatives used for hedging purposes (331,269,011) (99,928,412) NET INTEREST RECEIVED 318,868, ,621,127 1 Commitments received are composed of assets held on behalf of third parties, which amounted to EUR 24 billion as at December 31, 2011 and EUR 24 billion as at December 31, See the. BIL Annual Report

81 11.2. Dividends 31/12/11 31/12/12 Financial assets available for sale 11,649,133 22,055,512 Financial assets held for trading 88,249 20,091 total 11,737,382 22,075, Net income from associates 31/12/11 31/12/12 Income from associates before tax 2,260, Net trading income and net result of hedge accounting 31/12/11 31/12/12 Net income from transactions (745,737,632) 18,712,889 of which income from trading securities 7,380,935 9,178,482 of which income from trading derivatives (753,118,567) 9,534,407 Net result of hedge accounting (30,480,230) 1,602,280 Net result of financial instruments designated at fair value through profit and loss * (1,986,959) 1,343,287 Change in own credit risk 1 7,500,000 (11,170,000) Net foreign exchange gain / (loss) 123,700,624 (6,124,484) TOTAL (647,004,197) 4,363,972 31/12/11 31/12/12 * including derivatives used for the purpose of hedging and classified in the accounts as trading derivatives (accounting mismatch). 51,448,477 45,602,815 Result of hedge accounting 31/12/11 31/12/12 Net gain /(loss) Net gain /(loss) Fair value hedge (4,609,810) 198,426 Change in the fair value of the hedged item attributable to the hedged risk (282,658,849) (1,061,154) Change in the fair value of the hedging derivatives 278,049,039 1,259,580 Hedging of net investments in a foreign business 2,897 0 Change in the fair value of the hedging derivatives - ineffectiveness 2,897 0 Portfolio hedge against interest-rate risk 0 177,220 Change in the fair value of the hedged item (39,720,800) (27,015,428) Change in the fair value of the hedging derivatives 39,720,800 27,192,648 Discontinuation of cash flow hedge accounting (cash flows still expected to occur) - amounts recorded in interest margin (25,873,317) 1,226,634 TOTAL (30,480,230) 1,602,280 Interest paid and received on assets, liabilities and derivatives are recorded in the interest margin. Consequently, the net trading income resulting from hedge accounting only includes changes in the valuation of derivatives, the revaluation of assets and liabilities involved in a hedge relationship and the revaluation of the trading portfolio, as well as the ineffectiveness of hedge relationships. 1 For liabilities revalued at fair value through profit and loss, our own credit risk was determined on the basis of changes in financing costs. Own credit risk refers to changes in the issue costs under current conditions compared to initial conditions (see note 12.2.H) 80 BIL Annual Report 2012

82 11.5. net income on investments (assets and liabilities not designated at fair value through profit and loss) 31/12/11 31/12/12 Gains on loans and advances 7,090,745 1,061,355 Gains on financial assets available for sale 336,065,893 8,819,389 Gains on investments held to maturity 1,451,197 0 Gains on tangible fixed assets 484,140 21,444 Other gains 11,472 0 TOTAL GAINS 345,103,447 9,902,188 Losses on loans and advances (583,696,592) (6,736) Losses on financial assets available for sale (1,340,968,541) (62,734,305) Losses on investments held to maturity (87,260) 0 Losses on tangible fixed assets (189,938) (99,997) Losses on liabilities (27,907) 0 TOTAL LOSSES (1,924,970,238) (62,841,038) NET IMPAIRMENT 26,839,155 (342,631) TOTAL (1,553,027,636) (53,281,481) The impact of net income on financial assets available for sale of EUR -53,914,916 as at December 31, 2012 (EUR -1,004,902,648 as at December 31, 2011) should be compared with the EUR 50,269,430 impact of the sale of securities on the AFS reserves as at December 31, 2012 (EUR 556,859,861 as at December 31, 2011). Net impairment Specific Risk Total Allowances Write-backs AS AT DECEMBER 31, 2011 Available for sale securities (184,426,910) 211,266,065 26,839,155 TOTAL (184,426,910) 211,266,065 26,839,155 AS AT DECEMBER 31, 2012 Available for sale securities (1,235,896) 893,265 (342,631) TOTAL (1,235,896) 893,265 (342,631) Fees and commissions income and expenses 31/12/11 31/12/12 Income Expenses Net Income Expenses Net Management of unit trusts and mutual funds 246,627,238 (104,651,796) 141,975,442 20,677,887 (4,338,940) 16,338,947 Administration of unit trusts and mutual funds 129,705,662 (11,610,561) 118,095,101 37, ,036 Insurance activity 13,609, ,609,077 12,013, ,013,931 Credit activity 15,561,329 (1,900,430) 13,660,899 13,595,783 (218,634) 13,377,149 Purchase and sale of securities 31,461,433 (4,371,031) 27,090,402 20,283,191 (3,421,878) 16,861,313 Purchase and sale of unit trusts and mutual funds 5,869,513 (803,331) 5,066,182 4,508,239 (349,527) 4,158,712 Payment services 33,201,825 (2,460,130) 30,741,695 29,159,243 (961,108) 28,198,135 Commissions to non-exclusive brokers 0 (1,328,154) (1,328,154) 7,693 (671,091) (663,398) Financial engineering 10,045,673 (101,434) 9,944,239 8,332,812 (173,258) 8,159,554 Services on securities other than safekeeping 42,580,461 (2,998,373) 39,582,088 3,349,843 (327,344) 3,022,499 Custody 187,789,703 (30,415,313) 157,374,390 16,622,966 (2,846,721) 13,776,245 Issues and placements of securities 6,904,300 (466,142) 6,438,158 4,586,823 (263,169) 4,323,654 Private banking 29,542,892 (3,277,071) 26,265,821 30,440,638 (4,347,926) 26,092,712 Clearing and settlement 2,596,876 (2,086,422) 510,454 1,685,296 (1,820,968) (135,672) Securities lending 42,898,838 (8,500,398) 34,398, ,548 (137,481) 22,067 Other 12,764,846 (1,610,487) 11,154,359 4,002,701 (239,316) 3,763,385 TOTAL 811,159,666 (176,581,073) 634,578, ,463,630 (20,117,361) 149,346,269 BIL Annual Report

83 11.7. Independant auditors' fees The fees payable to the independant auditors of the BIL group for the years 2011 and 2012 are as follows: Legal control of annual 1,871,729 1,859,344 Other audit services 23,033 19,033 Tax services 7,413 9,151 Other 232, ,073 TOTAL 2,134,378 2,658, Other net income 31/12/11 31/12/12 Operating taxes 0 5,036,216 Rental income 14,608,680 15,689,724 Other banking income ¹ 1,578, ,276 Other income on other activities ² 20,530,332 34,107,240 OTHER INCOME 36,717,186 54,989,456 Operating taxes (5,090,826) (2,896,855) Maintenance and repair of investment property (3,986,855) (4,059,192) Other bank charges (1,557,048) 0 Other expenses in relation to other activities 3 (29,764,238) (28,516,288) OTHER EXPENSES (40,398,967) (35,472,335) TOTAL (3,681,781) 19,517,121 Advances paid to the AGDL in 2008: 37,876,176 Reimbursements received from the AGDL in 2009: (11,572,127) Reimbursements received from the AGDL in 2010: (4,951,593) Reimbursements received from the AGDL in 2011: (2,322,004) Reimbursements received from the AGDL in 2012: (2,187,355) Reimbursements expected from the AGDL in 2013: 0 Actual loss (amount effectively owed to the AGDL): 16,843,097 In 2008, in order to pay advances to the AGDL, an expense of EUR 37.9 million was recorded in the statement of income (tax deductible expense). Reimbursements were made in 2009, 2010, 2011 and 2012 of EUR 21 million and recorded under "Other net operating income". This income is taxable. Since the Glitnir and Landsbanki cases are now closed, a EUR 1.6 million write-back was recorded under "Other operating income" in Lastly, no reimbursements are expected from the AGDL in This consists primarily of the recovery of AGDL (Association pour la Garantie des Dépôts, Luxembourg) payments made in 2008 following the bankruptcies of Icelandic banks. 2 This consists primarily of write-backs of provisions for litigation and extraordinary operating income. 3 This consists primarily of depreciation of investment property for EUR million (EUR million in 2011), provisions for legal litigation for EUR -2.8 million (EUR -0.4 million in 2011) and extraordinary loss from previous years for EUR million (EUR -7.7 million in 2011). 82 BIL Annual Report 2012

84 11.9. Staff expenses a. Staff expenses 31/12/11 31/12/12 Wages and salaries (374,478,901) (154,629,206) Social security and insurance costs (60,617,465) (20,031,073) Staff benefits (26,615,999) (10,245,106) Restructuring expenses 7,440,793 (623,150) Other expenses (16,421,264) (2,746,633) TOTAL (470,692,836) (188,275,168) Workforce (Average FTE) Fully consolidated 31/12/11 31/12/12 Proportionally Total Fully Proportionally consolidated consolidated consolidated Senior management Employees 2,448 2,724 5,172 1, ,915 Other TOTAL 2,507 2,754 5,261 1, ,958 (Average FTE) 1 as at 31/12/11 France Belgium Luxembourg Italy Spain Other Europe Other non- Europe b. Remuneration of BIL group's administrative and managerial bodies During the financial year, the Group granted emoluments to current members of its administrative and financial bodies and has made contributions in respect of retirements pensions on their behalf as follows: Total Total BIL Senior management Employees , ,496 5,172 Other TOTAL , ,509 5,261 (Average FTE) 1 as at 31/12/12 France Belgium Luxembourg Italy Spain Other Europe Other non- Europe Total BIL Senior management Employees , ,915 Other TOTAL , , Remuneration Retirement pensions Members of the administrative bodies 285, , Members of the managerial bodies 2 20,554,026 7,350,191 3,083,104 1,041,380 TOTAL 20,839,563 7,756,162 3,083,104 1,041,380 1 Breakdown by subsidiary's country of implementation. 2 Remuneration of members of BIL's Management Board amounted to EUR 2.7 million in 2012, including pension expenses (EUR 3.5 million in 2011). BIL Annual Report

85 General and administrative expenses 31/12/11 31/12/12 Occupancy (16,756,558) (11,263,016) Operating leases (25,102,503) (4,099,208) Professional fees (47,899,667) (21,108,810) Marketing, advertising and public relations (12,485,388) (6,527,289) Technology and system costs (82,344,693) (28,537,954) Software costs and maintenance expenses (21,855,781) (7,072,805) Repair and maintenance expenses (1,373,040) (359,451) Operating taxes 380,554 (2,488,026) Other general and administrative expenses 1 (84,074,836) (38,634,071) TOTAL (291,511,912) (120,090,630) Amortisation on tangible and intangible fixed assets 31/12/11 31/12/12 Depreciation on land and buildings (11,204,776) (9,240,900) Depreciation on other tangible fixed assets (3,875,451) (1,307,475) Depreciation on IT equipment (1,418,969) (664,188) Depreciation on intangible fixed assets (31,907,995) (11,079,878) TOTAL (48,407,191) (22,292,441) Impairment on loans and provisions for credit commitments Collective impairment 31/12/11 31/12/12 Allowances Write-backs Total Allowances Write-backs Total LOANS (28,104,630) 43,471,693 15,367,063 (4,340,679) 2,836,859 (1,503,820) Specific impairment 31/12/11 Allowances Write-backs Losses Recoveries Total Loans and advances to credit institutions (5,014,008) 5,224, ,882 Loans and advances to customers (224,841,768) 37,131,513 (15,174,208) 4,886,489 (197,997,974) Other receivables 2 (1,208,058) 11,109,803 (501,291) 0 9,400,454 Commitments (311,240) 221,240 n.a. n.a. (90,000) TOTAL (231,375,074) 53,687,446 (15,675,499) 4,886,489 (188,476,638) Specific impairment 31/12/12 Allowances Write-backs Losses Recoveries Total Loans and advances to customers (27,915,874) 14,670,824 (3,781,571) 2,950 (17,023,671) Other receivables 2 (419,960) 832,670 (234,617) 0 178,093 Commitments (81,500) 0 n.a. n.a. (81,500) TOTAL (28,417,334) 15,503,494 (4,016,188) 2,950 (16,927,078) 1 This heading primarily comprises the cost of financial information, various types of insurance cover and the transport of valuables. 2 Is published in heading XII. of the assets. 84 BIL Annual Report 2012

86 Impairment on tangible and intangible fixed assets 31/12/11 31/12/12 Impairment on other tangible fixed assets 45,000 0 Impairment on intangible fixed assets 1 (5,378,719) 0 TOTAL (5,333,719) 0 Value adjustments are recorded when criteria for establishing such adjustments are met. Market and sale conditions are reviewed on a regular basis, at least once per year. If the expected loss on the sale is lower than the existing value adjustments, a write-back of the value adjustment is recorded Tax expenses 31/12/11 31/12/12 Income tax for current financial year (30,393,517) (15,854,464) Deferred taxes 326,863,728 24,734,272 Tax on current financial year result (A) 296,470,211 8,879,808 Income tax for previous year 2,050,047 (415,343) Deferred taxes for previous year 1,633,622 (24,788) Provision for tax litigations 262,450 0 Other tax expenses (B) 3,946,119 (440,131) TOTAL (A)+(B) 300,416,330 8,439,677 Effective corporate income tax rate The standard tax rate applicable in Luxembourg as at December 31, 2011 and at December 31, 2012 was %. The effective BIL tax rate was % in The difference between both rates may be analysed as follows: 31/12/11 31/12/12 NET INCOME BEFORE TAX (2,221,597,390) 21,737,611 Profit and loss from companies accounted for by the equity method 2,260,878 0 Tax base (2,223,858,268) 21,737,611 Applicable tax rate at year-end % % Theoretical corporate income tax at standard rate (640,471,181) 6,260,432 Effect of different tax rates in other countries 130,544,779 (5,147,779) Tax effect of non-deductible expenses 1,409, ,049 Tax effect of non-taxable income (23,467,963) (8,616,047) Items taxed at a reduced rate (178,810) 0 Effect of change in tax rates 2 834,741 (5,644,822) Tax effect on the use of previous tax losses not recognised in the assets (3,917,004) (11,659) Unrecognised deferred tax assets (tax loss carried forward) 3 234,871,824 2,751,114 Other 3,903,555 1,290,904 Tax on current financial year result (296,470,211) (8,879,808) EFFECTIVE TAX RATE % n.a. 1 As at December 31, 2011, BIL accelerated the amortisation of some intangible fixed assets following its departure from the Dexia group. 2 In 2011, the effect of changes in tax rates mainly related to the revaluation of the stock of deferred taxes in relation to our Singapore branch (from 12 % to 17 %). In 2012, the effect of changes in tax rates mainly related to the revaluation of the stock of deferred taxes in relation to BIL (from % to %). 3 This tax effect was mainly due to the loss booked by our Singapore branch in BIL does not consider these deferred tax assets to be recoverable in the near future. BIL Annual Report

87 Earnings per share Basic Basic earnings per share are calculated by dividing the net income attributable to equity holders by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares purchased by the company and held as treasury shares. 31/12/11 31/12/12 Net income-group share (1,948,660,694) 30,177,288 Weighted average number of ordinary shares 2,016,517 2,016,517 Basic earnings per share (expressed in EUR per share) (966.35) Provisions for legal litigation The charges recognised under this item in 2012 mainly comprised legal fees, provisions for existing litigation and write-backs of provisions. Note 12: Notes on risk exposure (in EUR) Fair value A. BREAKDOWN OF FAIR VALUE A.1. Fair value of assets 31/12/11 31/12/12 Carrying value Fair value Difference Carrying value Fair value Difference Cash and balances with central banks 885,004, ,004, ,358,966,568 3,358,966,568 0 Loans and advances to credit institutions 2,900,162,889 2,900,004,314 (158,575) 1,856,457,339 1,859,181,013 2,723,674 Loans and advances to customers 9,496,522,669 9,583,842,718 87,320,049 9,554,192,423 9,672,730, ,537,837 Financial assets held for trading 63,420,037 63,420, ,326,422 87,326,422 0 Financial assets designated at fair value 34,244,485 34,244, ,844,610 36,844,610 0 Financial assets available for sale 712,630, ,630, ,847,760,033 3,847,760,033 0 Investments held to maturity 50,640,879 49,402,273 (1,238,606) 46,387,153 47,356, ,080 Derivatives 1,897,644,097 1,897,644, ,709,753,839 1,709,753,839 0 Fair value revaluation of portfolios hedged against interest-rate risk 28,916,690 28,916, ,452,345 25,452,345 0 Investments in associates Other assets 8,149,637,499 8,149,637, ,233, ,233,281 0 TOTAL 24,218,824,178 24,304,747,046 85,922,868 21,301,374,013 21,423,604, ,230, BIL Annual Report 2012

88 A.2. Fair value of liabilities 31/12/11 31/12/12 Carrying value Fair value Difference Carrying value Fair value Difference Amounts owed to credit institutions 6,706,638,352 6,743,914,160 (37,275,808) 2,578,571,093 2,585,007,761 (6,436,668) Amounts owed to customers 9,509,672,584 9,509,947,819 (275,235) 11,546,279,875 11,548,432,593 (2,152,718) Financial liabilities held for trading 2,721,129 2,721, , ,323 0 Financial liabilities designated at fair value 2,996,442,313 2,996,442, ,671,889,552 2,671,889,552 0 Derivatives 1,967,399,639 1,967,399, ,573,878,656 1,573,878,656 0 Fair value revaluation of portfolios hedged against interest-rate risk 68,157,796 68,157, ,611,929 91,611,929 0 Debt securities 963,179, ,874,903 (2,695,208) 619,234, ,487,478 (9,253,108) Subordinated debt 802,352, ,669,310 (93,316,805) 751,562, ,619,026 (79,056,794) Other liabilities 463,300, ,300, ,332, ,332,040 0 TOTAL 23,479,864,238 23,613,427,294 (133,563,056) 20,193,262,070 20,290,161,358 (96,899,288) In accordance with our valuation rules, the fair value of certain items is equal to their carrying value (see note 1.7). With the exception of the items "Financial liabilities held for trading" and "Financial liabilities designated at fair value", the yield differential due to our own credit quality was deemed unchanged for the purpose of calculating the fair value. B. ANALYSIS OF THE FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The table below provides an analysis of the fair value of financial instruments measured at fair value after their initial recognition, grouped in three levels from 1 to 3, according to the degree of observability of the fair value: Level 1: fair value measurements are based on (unadjusted) prices quoted on active markets for similar assets or liabilities. Level 2: fair value measurements are based on data other than the quoted prices included in Level 1, which are observable for the assets or liabilities, either directly (e.g. prices) or indirectly (e.g. price derivatives). Level 3: fair value measurements are based on valuation techniques that include assets or liabilities data that are not based on observable market data (non-observable data). B.1. Assets 31/12/11 Level 1 Level 2 Level 3 Total Financial assets held for trading 13,018,697 22,168,832 28,232,508 63,420,037 Financial assets designated at fair value - equities 0 34,244, ,244,485 Financial assets available for sale - bonds 292,015, ,602,096 8,538, ,156,811 Financial assets available for sale - equities 1 51,205,508 96,731,399 27,186, ,122,940 Derivatives 3,855,350 1,737,765, ,023,019 1,897,644,096 TOTAL 360,095,539 2,118,512, ,980,291 2,698,588,369 31/12/12 Level 1 Level 2 Level 3 Total Financial assets held for trading 45,224,445 13,247,449 28,854,528 87,326,422 Financial assets designated at fair value - equities ,844,610 36,844,610 Financial assets available for sale - bonds 3,653,654, ,653,654,483 Financial assets available for sale - equities 1 117,982,942 39,792,871 26,593, ,369,578 Derivatives 287,290 1,495,414, ,051,884 1,709,753,839 TOTAL 3,817,149,160 1,548,454, ,344,787 5,671,948,932 Fair value may also be calculated by the interpolation of market prices. 1 Excludes variable securities recorded at cost (amounted to EUR 9.7 million as at December 31, 2012 and EUR 9.4 million as at December 31, 2011). BIL Annual Report

89 B.2. Liabilities 31/12/11 Level 1 Level 2 Level 3 Total Financial liabilities held for trading 2,622,464 98, ,721,129 Financial liabilities designated at fair value 0 2,296,913, ,528,736 2,996,442,313 Derivatives 3,005,278 1,834,746, ,648,011 1,967,399,638 TOTAL 5,627,742 4,131,758, ,176,747 4,966,563,080 31/12/12 Level 1 Level 2 Level 3 Total Financial liabilities held for trading 902, ,323 Financial liabilities designated at fair value 0 2,182,030, ,858,585 2,671,889,552 Derivatives 1,137,291 1,387,727, ,013,598 1,573,878,656 TOTAL 2,039,614 3,569,758, ,872,183 4,246,670,531 Fair value may also be calculated by the interpolation of market prices. C. TRANSFER BETWEEN LEVEL 1 AND LEVEL 2 C.1. Assets 31/12/11 31/12/12 From Level 1 to Level 2 From Level 2 to Level 1 From Level 1 to Level 2 From Level 2 to Level 1 Financial assets held for trading ,130,171 Financial assets available for sale - bonds 19,275, TOTAL 19,275, ,130,171 C.2. Liabilities 31/12/11 31/12/12 From Level 1 to Level 2 From Level 2 to Level 1 From Level 1 to Level 2 From Level 2 to Level 1 Financial liabilities held for trading TOTAL BIL Annual Report 2012

90 D. LEVEL 3 RECONCILIATION D.1. Assets 31/12/11 Opening balance Purchase Sale Settlement Total gains and losses in the income statement Total gains and losses in OCI Financial assets held for trading 54,311,115 (1,463,690) 0 19,911,970 (42,045,789) (2,460,118) Financial assets designated at fair value - equities 127,978,608 (6,590,253) 0 0 (121,388,355) 0 Financial assets available for sale - bonds 5,147,589,091 (288,313,511) 72,677,302 65,547,981 (4,793,679,897) (171,270,567) Financial assets available for sale - equities 206,224,212 (1,062,651) (31,335,818) 508,688 (863,394) 0 Derivatives 85,636,297 52,611,127 (1,416,338) 0 (12,546,158) 0 TOTAL 5,625,301,290 (244,818,978) 39,925,146 85,968,639 (4,970,523,593) (173,730,685) Transfer to Level 3 Transfer from Changes in Level 3 the method of consolidation 31/12/11 Conversion differences Departure from the scope of consolidation Financial assets held for trading 0 (20,980) ,232,508 Financial assets designated at fair value - equities Financial assets available for sale - bonds 0 (121,849,461) 0 (136,344,454) 234,182,247 8,538,731 Financial assets available for sale - equities 0 (129,792,260) 1,400 10,052 (16,504,196) 27,186,033 Derivatives ,738, ,023,019 TOTAL 0 (251,662,701) 1,400 (104,596,311) 217,678, ,980,291 Opening balance Total gains and losses in the income statement Total 31/12/12 Total gains Purchase Sale Settlement and losses in OCI Financial assets held for trading 28,232,508 2,907, ,130 (527,840) (2,641,338) Financial assets designated at fair value - equities 0 3,340, Financial assets available for sale - bonds 8,538, Financial assets available for sale - equities 27,186,033 (700,000) 36, ,848 (2,354) 0 Derivatives 156,023,019 71,341,560 9,090, (22,766,948) TOTAL 219,980,291 76,889,303 9,127,598 1,478,978 (530,194) (25,408,286) Transfer to Level 3 Transfer from Changes in Level 3 the method of consolidation 31/12/12 Conversion differences Departure from the scope of consolidation Financial assets held for trading ,854,528 Financial assets designated at fair value - equities 33,503, ,844,610 Financial assets available for sale - bonds 0 (7,489,172) 0 (1,049,559) 0 0 Financial assets available for sale - equities (521,426) 0 26,593,765 Derivatives 370,646 (7,326) ,051,885 TOTAL 33,874,581 (7,496,498) 0 (1,570,985) 0 306,344,788 Total BIL Annual Report

91 D.2. Liabilities 31/12/11 Opening balance Purchase Sale New issues Settlement Opening balance Total gains and losses in the income statement Total gains and losses in the income statement Total gains and losses in OCI 31/12/12 Purchase Sale New issues Settlement Financial liabilities designated at fair value 699,528,736 (13,512,688) 0 0 (111,400,697) 103,425,899 (176,667,931) Derivatives 129,648,011 98,899, (41,909,331) TOTAL 829,176,747 85,386, (111,400,697) 103,425,899 (218,577,262) Transfer to Level 3 Total gains and losses in OCI Financial liabilities held for trading 30, (30,703) Financial liabilities designated at fair value 1,459,636,918 25,303, ,129,890 (217,211,505) Derivatives 102,842,081 42,225, (22,078,599) 0 0 TOTAL 1,562,509,702 67,529, (22,078,599) 289,129,890 (217,242,208) Transfer to Level 3 Transfer from Changes in Level 3 the method of consolidation Transfer from Changes in Level 3 the method of consolidation 31/12/11 31/12/12 Conversion differences Conversion differences Departure from the scope of consolidation Financial liabilities held for trading Financial liabilities designated at fair value 23,916,415 (2,568,222) 0 1,061,696 (879,740,295) 699,528,736 Derivatives 0 (1,815,754) 0 6,658,583 1,815, ,648,011 TOTAL 23,916,415 (4,383,976) 0 7,720,279 (877,924,541) 829,176,747 Departure from the scope of consolidation Financial liabilities designated at fair value 0 (11,514,734) ,858,585 Derivatives 0 (1,624,335) ,013,598 TOTAL 0 (13,139,069) ,872,183 Total Total Changes in the amounts declared under Level 3 in 2011 and 2012 can be explained as follows: the "Total gains and losses in the statement of income" column cannot be analysed separately as such. Indeed, certain assets and liabilities at amortised cost or classified under Level 1 or 2 may be hedged by derivatives classified under Level 3. We refer to note 11.4 "Net result of hedge accounting" for an economic view of the impact in the statement of income; improvements in internal models and satisfactory back-testing results led to transfers between levels, primarily from Level 3 to Level 2; the detailed revision of complex structured issues carried out by local Risk Management also explains the transfers from Level 3 of financial liabilities designated at fair value due to the observable nature of the data used for their measurement. However, the impact on the statement of income is relatively limited as the structured financial instruments are fully hedged against interest-rate risk as well as against the risks linked to the structure via the use of fully-backed derivatives. It should be noted that Level 3 financial instruments held for trading are the result of buybacks of BIL issues. 90 BIL Annual Report 2012

92 E. sensitivity OF LEVEL 3 VALUATION TO ALTERNATIVES SCENARIOS BIL uses a discounted cash flow model to determine the mark-to-model price. Sensitivity is a measurement of the fair value impact of alternative scenarios relating to the model's unobservable parameters at the closing date. With regard to the spread valuation, in cases where BIL uses its own models, alternative scenarios relating to unobservable parameters were taken into consideration, in particular for: credit spreads: by considering credit spreads available on a single counterpart or, failing that, on similar counterparts or counterparts belonging to similar sectors, or by using credit spreads indexed to liquid CDS indices; liquidity premiums: by considering the different levels of premiums primarily used in determining the fair value of bonds, and which depend in particular on the eligibility of the security for refinancing with the central banks; the illiquidity of the financial instrument: by considering a change in the estimated liquidity of the market for a single instrument or similar products, and / or by incorporating an analysis of the bid-ask spread for real transactions. Tests were carried out on all financial instruments classified under Level 3. The effects of sensitivity are mainly felt at the level of structured issues recognised at fair value through profit and loss. These effects are, however, offset by a reverse sensitivity at the level of activity-related hedging derivatives Credit risk exposure A. ANALYSIS OF BIL EXPOSURE Counterpart and geographical exposures are indicated in the consolidated. Geographical zone is determined according to the country of residence of the counterpart. Credit risk includes counterpart risk in relation to balance sheet items and confirmed off-balance sheet items. Risks are evaluated after taking into account the effect of guarantees and impairment. The risks relate to all entities in which BIL is a majority shareholder. Exposures by geographic region (in EUR millions) 31/12/11 31/12/12 Belgium 2,045 1,187 France 8,636 1,847 Germany Greece 3 1 Ireland Italy Luxembourg 11,550 9,501 Spain Portugal Other EU countries 1, Rest of Europe 381 3,952 Turkey United States and Canada Central and South America South-east Asia Japan Other TOTAL 26,378 19,730 Exposures by counterpart category (in EUR millions) 31/12/11 31/12/12 State 2,223 7,386 Local public sector Corporate 3,355 3,101 Project Finance Individuals, SMEs, self-employed 6,902 7,168 Financial institutions 12,987 1,101 Other TOTAL 26,378 19,730 1 Including supranational entities such as the ECB. BIL Annual Report

93 Credit risk exposure is shown as follows: balance sheet assets other than derivative contracts are valued at their net value (i.e. the carrying value after deduction of the specific provision); derivative contracts are recorded at their mark-to-market value plus add-on ("add-on" is an estimate of potential future exposure; this value is not recorded but is added on for regulatory purposes); off-balance sheet items are shown in terms of total commitment. The total amount of off-balance sheet commitments corresponds to unused lines of credit or to the maximum amount of guarantees granted by BIL to third parties. Exposure to credit risk is broken down by geographic region and counterpart category, bearing in mind guarantees received. B. CREDIT RISK EXPOSURE BY CLASS OF FINANCIAL INSTRUMENT (in EUR millions) 31/12/11 31/12/12 Credit risk exposure Financial effect of Credit risk exposure Financial effect of the collateral the collateral Available for sale portfolio (excluding variable-income securities) 1, ,643 0 Financial assets at fair value through profit and loss (excluding variable-income securities) Held for trading portfolio (excluding variable-income securities) Loans and advances (at amortised cost) 11, , Financial assets held to maturity Derivatives ,110 Other financial instruments at cost 6, Commitments in respect of loans granted 3, , Commitments in respect of guarantees given 2,495 2, TOTAL 26,378 3,265 19,730 2, BIL Annual Report 2012

94 C. CREDIT QUALITY OF NORMAL FINANCIAL ASSETS (in EUR millions) AAA to AA- The quality of financial assets is determined using internal credit ratings, or external ratings in the event that internal ratings are not available. Prior to being taken into account in the table, external ratings are converted into internal ratings by means of a correlation table based on default probabilities. The classification based on ratings was reviewed following the revision of the Basel II classification. 31/12/11 Credit quality of normal financial assets A+ to BBB- Non-investment Unlisted grade Available for sale portfolio (excluding variableincome securities) ,283 Held for trading portfolio (excluding variableincome securities) Loans and advances (at amortised cost) 1,738 5,749 3, ,283 Financial assets held to maturity Derivatives Other financial instruments at cost 0 6, ,927 Commitments in respect of loans granted 388 1, ,359 Commitments in respect of guarantees given 180 1, ,476 Total 2,687 18,022 4, ,947 (in EUR millions) AAA to AA- 31/12/12 Credit quality of normal financial assets A+ to BBB- Non-investment Unlisted grade Available for sale portfolio (excluding variableincome securities) 2, ,643 Held for trading portfolio (excluding variableincome securities) Loans and advances (at amortised cost) 3,915 4,914 3, ,966 Financial assets held to maturity Derivatives Other financial instruments at cost Commitments in respect of loans granted ,682 Commitments in respect of guarantees given TOTAL 7,219 7,010 4, ,305 Total Total BIL Annual Report

95 D. PAST DUE OR IMPAIRED FINANCIAL ASSETS 31/12/11 1 Past-due but not impaired assets < 90 days > 90 days < 180 days > 180 days Carrying amount of individually impaired financial assets Guarantees held for past-due or individually impaired assets and debt instruments Available for sale portfolio (excluding variableincome securities) Loans and advances (at amortised cost) 173,397,476 73,015, ,738, ,782, ,897,029 Financial assets held to maturity Other financial instruments at cost ,377,587 0 TOTAL 173,397,476 73,015, ,738, ,160, ,897,029 31/12/12 Past-due but not impaired assets < 90 days > 90 days > 180 days < 180 days Carrying amount of individually impaired financial assets Guarantees held for past-due or individually impaired assets and debt instruments Available for sale portfolio (excluding variableincome securities) Loans and advances (at amortised cost) 231,598,592 68,328, ,781, ,391, ,587,537 Financial assets held to maturity Other financial instruments at cost TOTAL 231,598,592 68,328, ,781, ,391, ,587,537 BIL has defined three types of past-due loans: "technical" past-due financial assets "operational" past-due financial assets "credit" past-due financial assets For reporting purposes, the financial assets in question have exceeded the payment deadline by more than 14 days for an amount of more than EUR figures have been reviewed in order to integrate guarantees and to reflect a higher quality of information. 94 BIL Annual Report 2012

96 E. COLLATERAL AND OTHER CREDIT ENHANCEMENTS OBTAINED BY TAKING POSSESSION OF THE GUARANTEES HELD Type of assets obtained during the period by taking possession of the guarantees held Carrying value 31/12/11 31/12/12 Cash 74,246,734 20,435,805 Debt instruments 9,153, ,813 TOTAL 83,400,575 21,100,618 In general, guarantees obtained are immediately converted into cash by BIL. F. MOVEMENTS IN ALLOWANCES FOR CREDIT LOSSES As at 01/01/11 Utilisation Allowances Write-backs Specific allowances for financial assets individually assessed for impairment (317,824,223) 83,275,259 (414,282,686) 227,845,375 Loans and advances to credit institutions 0 0 (5,014,008) 5,015,555 Loans and advances to customers (203,906,763) 15,199,008 (224,841,768) 21,933,768 Financial assets available for sale (113,917,460) 68,076,251 (184,426,910) 200,896,052 of which fixed-income instruments (92,760,676) 66,090,776 (183,119,562) 200,896,052 of which equities (21,156,784) 1,985,475 (1,307,348) 0 Allowances for incurred but not reported losses on financial assets and specific allowances for financial assets collectively assessed for impairment (36,933,183) 0 (28,104,630) 42,380,588 TOTAL (354,757,406) 83,275,259 (442,387,316) 270,225,963 Other adjustments As at 31/12/11 Recoveries recorded directly in profit and loss Charges recorded directly in profit and loss Specific allowances for financial assets individually assessed for impairment 192,974,172 (228,012,103) 4,886,489 (15,174,208) Loans and advances to credit institutions (1,547) Loans and advances to customers 184,051,845 (207,563,910) 4,886,489 (15,174,208) Financial assets available for sale 8,923,874 (20,448,193) 0 0 of which fixed-income instruments 8,893, of which equities 30,464 (20,448,193) 0 0 Allowances for incurred but not reported losses on financial assets and specific allowances for financial assets collectively assessed for impairment 2,755,579 (19,901,646) 0 0 TOTAL 195,729,751 (247,913,749) 4,886,489 (15,174,208) BIL Annual Report

97 As at 01/01/12 Utilisation Allowances Write-backs Specific allowances for financial assets individually assessed for impairment (228,012,103) 9,160,340 (29,151,770) 6,403,749 Loans and advances to credit institutions Loans and advances to customers (207,563,910) 8,267,075 (27,915,874) 6,403,749 Financial assets available for sale (20,448,193) 893,265 (1,235,896) 0 of which fixed-income instruments of which equities (20,448,193) 893,265 (1,235,896) 0 Allowances for incurred but not reported losses on financial assets and specific allowances for financial assets collectively assessed for impairment (19,901,646) 0 (4,340,679) 2,836,859 TOTAL (247,913,749) 9,160,340 (33,492,449) 9,240,608 Other adjustments As at 31/12/12 Recoveries recorded directly in profit and loss Charges recorded directly in profit and loss Specific allowances for financial assets individually assessed for impairment 1,745,550 (239,854,234) 0 0 Loans and advances to credit institutions Loans and advances to customers 1,542,336 (219,266,624) 2,950 (3,781,571) Financial assets available for sale 203,214 (20,587,610) 0 0 of which fixed-income instruments of which equities 203,214 (20,587,610) 0 0 Allowances for incurred but not reported losses on financial assets and specific allowances for financial assets collectively assessed for impairment 2,463 (21,403,003) 0 0 TOTAL 1,748,013 (261,257,237) 2,950 (3,781,571) The other adjustments correspond to exchange rate variations over the period affecting provisions recognised in other currencies as well as the deconsolidation of entities. 96 BIL Annual Report 2012

98 G. CREDIT RISK LINKED TO FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS Carrying value As at 31/12/11 Variation in fair value due to change in credit risk During the period Aggregate amount Difference between the carrying value of the financial liability and the contractual amount due on maturity 1 Banque Internationale à Luxembourg 2,996,442,313 (7,500,000) (18,500,000) (63,267,050) Carrying value As at 31/12/12 Variation in fair value due to change in credit risk During the period Aggregate amount Difference between the carrying value of the financial liability and the contractual amount due on maturity 1 Banque Internationale à Luxembourg 2,671,889,552 11,170,000 (7,330,000) 321,945 In 2011 and 2012, no change in the fair value of BIL's financial liabilities is attributable to changes in the credit risk relating to liabilities, except for liabilities designated at fair value through profit and loss. For liabilities revalued at fair value against profit and loss, our own credit risk was determined on the basis of changes in financing costs. Own credit risk refers to changes in the issue costs under current conditions compared to initial conditions. I. INFORMATION ON SOVEREIGN DEBTS H. EXEMPTION ASSOCIATED WITH MAJOR RISKS At the request of the Bank, the CSSF has granted a total exemption for its exposure towards its subsidiaries (BIL group) and towards its sister company (KBL European Private Bankers SA and its subsidiaries) in the calculation of large exposure limits, in accordance with Part XVI, point 24 of Circular 06 / 273, as amended. The amount of exposure covered by this exemption is EUR 3.3 million as at December 31, This exemption was granted on November 22, As at 31/12/11 Available for sale Held to maturity Held for trading Net carrying Of which Of which Carrying Carrying Of which amount fair value fair value related amount amount fair value Country in OCI to hedging in P&L Maturity date Austria More than 5 years 209,829,290 3,526,873 Denmark Between 1 and 5 years 36,700 (21) Faroe Islands Between 1 and 5 years 8,829,984 27,520 Finland More than 5 years 23,430,330 1,842,515 France More than 5 years 56,781,508 2,825,319 Germany Between 1 and 5 years 1, Italy Between 1 and 5 years 34,810,375 Portugal More than 5 years 100,376,917 (49,544,665) Singapore Less than 1 year 2,352,458 9,897 Between 1 and 5 years 9,218,531 (50,916) As at 31/12/11, no sovereign debt is impaired. 1 This amount includes premiums / discounts and the fair value adjustment. BIL Annual Report

99 As at 31/12/12 Available for sale Held to maturity Held for trading Net carrying Of which amount fair value Of which Carrying Carrying Of which Country in OCI fair value related amount amount fair value Maturity date to hedging in P&L Austria More than 5 years 186,625,172 17,039,365 49,764 (1,500) Belgium More than 5 years 723,071,738 19,997,711 Bulgaria Between 1 and 5 years 55,444 4,175 Faroe Islands Between 1 and 5 years 54, Finland More than 5 years 24,817,709 3,381,632 France More than 5 years 684,987,172 17,370,541 (683,089) Germany Less than 1 year 208,922 (184) Ireland Between 1 and 5 years 110,393,996 (349,333) Italy Between 1 and 5 years 240,953,745 4,701,037 30,556,315 20,098 More than 5 years 239,022,577 4,846,904 Luxembourg Less than 1 year 919,203 (4,988) More than 5 years 55,624,899 3,915,504 (7,671) 1,576,221 8,951 Poland Between 1 and 5 years 30,111, ,394 More than 5 years 521,587 6,250 Qatar Between 1 and 5 years 40,563,168 (102,342) 31,822 More than 5 years 22,277, ,773 (231,650) Singapore Between 1 and 5 years 5,764,738 40,276 Slovakia More than 5 years 28,828, ,967 (138,269) Supranational Between 1 and 5 years 193,150,181 2,225, , More than 5 years 435,145,764 14,621,906 (316,272) 31, As at 31/12/12, no sovereign debt is impaired. 98 BIL Annual Report 2012

100 12.3. Pledged assets A. GUARANTEES THAT MAY BE SOLD OR REPLEDGED Type of assets held as guarantees Guarantees received as at 31/12/11 Guarantees received as at 31/12/12 Fair value of guarantees held Fair value of guarantees sold or repledged Fair value of guarantees held Fair value of guarantees sold or repledged Debt instruments 440,768, ,445,780 0 Cash collateral 171,119, ,119,538 1,181,682,452 1,181,682,452 TOTAL 611,887, ,119,538 1,382,128,232 1,181,682,452 Guarantees are obtained within the framework of repo / reverse repo and securities lending activities. The conditions for using and returning pledged assets are defined either in standard Overseas Securities Lending Agreements B. FINANCIAL ASSETS PLEDGED AS GUARANTEES Assets are pledged primarily to provide collateral for repurchase agreements. (OSLA), amended, where appropriate, by the Legal department, or in agreements drafted directly by this department. Cash collateral is obtained within the framework of Credit Support Annex (CSA) agreements. Carrying value of financial assets pledged as at 31/12/11 For liabilities For contingent liabilities Carrying value of financial assets pledged as at 31/12/12 For liabilities For contingent liabilities Loans and securities 6,504,455, ,551,006 0 Other ,962,550 Cash collateral 1,190,764,978 n.a. 1,052,790,154 n.a. TOTAL 7,695,220, ,881,341,160 11,962,550 C. FINANCIAL ASSETS PLEDGED AS COLLATERAL: DERECOGNITION AND FINANCIAL LIABILITIES ASSOCIATED WITH TRANSFERRED FINANCIAL ASSETS Transferred financial assets entirely recognised as at 31/12/12 Transferred assets Associated liabilities Carrying amount Of which: repurchase agreements Carrying amount Of which: repurchase agreements Available for sale financial assets 249,031, ,031, ,183, ,183,435 TOTAL 249,031, ,031, ,183, ,183,435 BIL Annual Report

101 12.4. Interest-rate risk: breakdown by maturity until next interest-rate repricing date 1 A. ASSETS 31/12/11 At sight or on demand 2 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Cash and balances with central banks 884,939, Loans and advances to credit institutions 1,927,567, ,949, ,988,587 7,294,629 Loans and advances to customers 3,929,151, ,042, ,119, ,054,137 4,289,990,795 Financial assets held for trading 34,747,787 1,930,144 6,365,106 16,695,990 3,551,475 Financial assets designated at fair value Financial assets available for sale 66,973, ,061 14,876,468 47,105, ,827,679 Investments held to maturity ,953,061 0 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. TOTAL 6,843,379,820 1,397,219, ,361,293 1,024,797,065 4,797,664,578 Undetermined maturity At sight or on demand 2 Accrued interest Less than 3 months 31/12/11 Fair value adjustment 31/12/12 Between 3 months and 1 year Impairment Cash and balances with central banks 0 64, ,004,557 Loans and advances to credit institutions 0 2,362, ,900,162,889 Loans and advances to customers 0 14,484, ,714 (227,465,556) 9,496,522,669 Financial assets held for trading 0 118,509 11, ,420,037 Financial assets designated at fair value 33,503, , ,244,485 Financial assets available for sale 42,103,870 15,796,238 49,098,445 (20,448,193) 712,630,376 Investments held to maturity 0 1,687, ,640,879 Derivatives n.a. 132,908,745 1,764,735, ,897,644,097 Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. 28,916, ,916,690 TOTAL 75,607, ,423,197 1,843,646,779 (247,913,749) 16,069,186,679 Between 1 year and 5 years More than 5 years Cash and balances with central banks 3,358,957, Loans and advances to credit institutions 1,458,926, ,604, ,135, ,000 Loans and advances to customers 3,883,198, ,500, ,921, ,272,639 4,599,232,175 Financial assets held for trading 33,829,787 2,218,532 5,716,834 26,576,484 16,994,702 Financial assets designated at fair value Financial assets available for sale 357,423,396 49,891,579 14,821, ,149,059 2,506,462,444 Investments held to maturity ,803,770 0 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. TOTAL 9,092,335, ,214, ,459,166 1,617,936,952 7,123,249,321 Total 1 Excluding derivatives and off-balance sheet items. 2 Demand deposits and savings deposits are declared in the "At sight or on demand" column as the information shown above takes into account the remaining maturity until the next date on which interest-rates are repriced on an accounting basis rather than according to assumptions based on observed behavioral data. The latter approach is used in the context of ALM sensitivity (see note 12.5). 100 BIL Annual Report 2012

102 Undetermined maturity Accrued interest 31/12/12 Fair value adjustment Impairment Cash and balances with central banks 0 8, ,358,966,568 Loans and advances to credit institutions 0 1,231,665 0 (357) 1,856,457,339 Loans and advances to customers 0 10,709,766 27,418 (240,669,269) 9,554,192,423 Financial assets held for trading 0 732,113 1,257, ,326,422 Financial assets designated at fair value 33,503, ,340, ,844,610 Financial assets available for sale 157,996 50,389, ,052,733 (20,587,610) 3,847,760,033 Investments held to maturity 0 1,583, ,387,153 Derivatives n.a. 134,834,514 1,574,919, ,709,753,838 Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. 25,452, ,452,345 TOTAL 33,661, ,489,444 1,797,050,465 (261,257,236) 20,523,140,732 B. LIABILITIES 31/12/11 At sight or on demand 1 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years Total More than 5 years Amounts owed to credit institutions 3,760,084,644 2,730,342, ,667,803 54,761,150 Amounts owed to customers 6,944,533,882 2,043,024, ,334,994 13,010,347 3,956,564 Financial liabilities held for trading 203,612 97, ,841 1,641,948 Financial liabilities designated at fair value 276,835, ,559, ,788,249 1,585,353, ,521,532 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. Debt securities 252,575,521 57,362,524 92,445, ,150, ,567,287 Subordinated debt 474,718, ,000, ,861,943 TOTAL 11,708,951,925 4,982,387,458 1,437,568,320 1,979,923, ,310,424 Undetermined maturity 31/12/11 Accrued interest Fair value adjustment Amounts owed to credit institutions 0 10,782, ,706,638,352 Amounts owed to customers 0 25,811, ,509,672,584 Financial liabilities held for trading 0 35, ,721,129 Financial liabilities designated at fair value 0 14,278,011 (37,893,642) 2,996,442,313 Derivatives n.a. 190,822,167 1,776,577,472 1,967,399,639 Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. 68,157,796 68,157,796 Debt securities 0 5,078, ,179,695 Subordinated debt 0 2,771, ,352,505 TOTAL 0 249,580,753 1,806,841,740 23,016,564,013 Total 1 Demand deposits and savings deposits are declared in the "At sight or on demand" column as the information shown above takes into account the remaining maturity until the next date on which interest-rates are repriced on an accounting basis rather than according to assumptions based on observed behavioral data. The latter approach is used in the context of ALM sensitivity (see note 12.5). BIL Annual Report

103 At sight or on demand 1 Less than 3 months 31/12/12 Between 3 months and 1 year Between 1 year and 5 years More than 5 years Amounts owed to credit institutions 2,203,018, ,489,985 19,529, ,207 4,750,000 Amounts owed to customers 8,817,784,732 2,062,020, ,877,608 1,312,320 15,731,356 Financial liabilities held for trading 133,653 1, , ,782 Financial liabilities designated at fair value 350,578, ,458, ,570,479 1,181,391, ,232,886 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. Debt securities 69,664,489 30,498,974 84,562, ,004, ,070,070 Subordinated debt 472,009, ,368, ,658,147 TOTAL 11,913,189,627 2,630,468,913 1,526,907,657 1,383,545, ,017,241 Undetermined maturity 31/12/12 Accrued interest Fair value adjustment Amounts owed to credit institutions 0 113, ,578,571,093 Amounts owed to customers 0 20,553, ,546,279,875 Financial liabilities held for trading 0 7,499 17, ,323 Financial liabilities designated at fair value 0 12,465,925 22,191,911 2,671,889,552 Derivatives n.a. 122,494,940 1,451,383,716 1,573,878,656 Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. 91,611,929 91,611,929 Debt securities 0 3,434, ,234,370 Subordinated debt 0 526, ,562,232 TOTAL 0 159,596,275 1,565,204,868 19,833,930,031 C. NET POSITION 31/12/11 At sight or on demand 1 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Total Undetermined maturity Balance sheet sensitivity gap (4,865,572,104) (3,585,167,566) (1,270,207,027) (955,126,329) 3,946,354,154 75,607,805 At sight or on demand 1 Less than 3 months 31/12/12 Between 3 months and 1 year Between 1 year and 5 years More than 5 years Undetermined maturity Balance sheet sensitivity gap (2,820,853,933) (1,978,253,918) (1,258,448,491) 234,391,502 6,468,232,080 33,661,931 Derivatives are used to hedge the balance sheet sensitivity gap. 1 Demand deposits and savings deposits are declared in the "At sight or on demand" column as the information shown above takes into account the remaining maturity until the next date on which interest-rates are repriced on an accounting basis rather than according to assumptions based on observed behavioral data. The latter approach is used in the context of ALM sensitivity (see note 12.5). 102 BIL Annual Report 2012

104 12.5. market risk and Assets & Liabilities Management (ALM) Risk measure at December 31, : a. Treasury and Financial Markets (TFM) Risk on trading activity: general rate risk, forex risk, equities and spread risk are limited by value at risk (VaR) limit and / or sensitivity limit. Treasury management - banking - subject to VaR limit and interest-rate sensitivity limit. A. treasury AND FINANCIAL MARKETS (TFM) ACTIVITIES BIL's Treasury and Financial Markets activities support the bank's commercial activities. a. Value at Risk - 99 %, 10 days (in EUR millions) In 2012, BIL calculated: an interest-rate VaR and a Forex VaR based on a parametrical VaR (99 %, 10 days), except for the Fx derivatives desk which is a historical VaR. an equity VaR based on a historical VaR "full Valuation". b. Assets & Liabilities Management The interest-rate risk is followed by an interest-rate sensitivity limit. For information, the investment portfolio is measured by a credit spread sensitivity measure. VaR (10 days, 99 %) 2011 (in EUR millions) IR 2 & FX 3 (Trading and Banking) 4 EQT 5 Trading Spread Trading Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 By risk factor Average Maximum Global Average 1.64 Maximum 4.03 End of period 1.81 Limit 8.00 VaR (10 days, 99 %) 2012 (in EUR millions) IR 2 & FX 3 (Trading and Banking) 4 EQT 5 Trading Spread Trading 6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 By risk factor Average Maximum Global Average 1.94 Maximum 7.67 End of period 3.32 Limit 6.00 The details of the calculation are detailed below: The treasury activity is also subject to sensitivity limit (on December 31, 2012, the sensitivity (+1 %) is EUR million, for a limit of EUR 31.3 million). 1 The measures applied on December 31, 2012 are described in BIL's 2012 Annual Report. 2 IR: interest-rate. 3 FX: forex. 4 IR and FX: without ALM. 5 EQT: equity. 6 Spread trading VaR calculated till 30/09/12. BIL Annual Report

105 b. Investment Treasury Portfolio (in EUR millions) Exposure Investment Treasury Portfolio - AFS Interest-rate sensitivity (+1bp) The portfolio's interest-rate is managed by ALM Investment Treasury Portfolio - AFS 0 (0.20) Credit spread sensitivity This measure estimates the portfolio sensitivity if the spread increases by 1bp Investment Treasury Portfolio - AFS 0 (0.27) B. ALM interest-rate RISK, EQUITY AND CREDIT SPREAD RISK a. ALM ALM is managed by the ALCO. Sensitivity is the measure of the change in fair value due to a 1 % change in the interest-rate position of ALM activities. (in EUR millions) 2011 Interest-rate 1 2 Equity 4 Credit spread 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ALM Sensitivity (1) (1) (1) (1) VaR 10 days 99 % (in EUR millions) 2012 Interest-rate 1 3 Equity 4 Credit spread 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ALM Sensitivity (60) (120) - - (1) (2) VaR 10 days 99 % Sensitivity (+1 %). 2 On December , the interest-rate sensitivity limit for BIL ALM reached EUR 70 million per percent. 3 On December 31, 2012, the interest-rate sensitivity limit for BIL ALM reached EUR 190 million per percent. 4 The equity risk is detailed later. 5 Sensitivity (+1bp). 104 BIL Annual Report 2012

106 b. Investment Portfolio (in EUR millions) Exposure Investment ALM Portfolio - AFS 1,330 2,380 Interest-rate sensitivity (+1bp) The portfolio's interest-rate is managed by the ALM Investment ALM Portfolio - AFS (0.32) (1.57) Credit spread sensitivity This measure estimates the portfolio sensitivity if the spread increases by 1bp Investment ALM Portfolio - AFS (0.77) (1.90) c. ALM equity - Sensitivity of listed equities The Value at Risk (VaR) evaluates the potential development in market value. The VaR is calculated with a confidence level of 99 %, over a 10 days time horizon. ALM Equity Portfolio 1 Market Value VaR % VaR December 31, % December 31, % December 31, % 1 The management of financial establishment shares put in run-off was assigned to TFM. BIL Annual Report

107 12.6. Liquidity risk: breakdown by residual maturity 1 BIL's approach to liquidity risk management is described under point 4. "Market risk, Assets & Liabilities Management" of the. A. ASSETS 31/12/11 Breakdown of gross amount and premium / discount At sight or on demand 2 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Undetermined maturity Cash and balances with central banks 884,939, Loans and advances to credit institutions 2,168,482, ,978,645 5,000,000 35,988, ,351,091 0 Loans and advances to customers 2,070,178,384 1,499,078, ,531, ,246,248 4,567,591, ,731,969 Financial assets held for trading 790,258 3,570,592 7,432,176 47,642,120 3,855,356 0 Financial assets designated at fair value ,503,935 Financial assets available for sale 0 297,061 9,382,969 52,598, ,791, ,114,009 Investments held to maturity ,953, Derivatives n.a. n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. n.a. TOTAL 5,124,390,832 1,926,924, ,346,954 1,080,428,805 5,325,588, ,349,913 At sight or on demand 2 31/12/12 Breakdown of gross amount and premium / discount Less than 3 months 31/12/11 Breakdown of gross amount and premium / discount Accrued interest Between 3 months and 1 year Fair value adjustment Between 1 year and 5 years Impairment Cash and balances with central banks 64, ,004,557 Loans and advances to credit institutions 2,362, ,900,162,889 Loans and advances to customers 14,484, ,714 (227,465,556) 9,496,522,669 Financial assets held for trading 118,509 11, ,420,037 Financial assets designated at fair value 0 740, ,244,485 Financial assets available for sale 15,796,238 49,098,445 (20,448,193) 712,630,376 Investments held to maturity 1,687, ,640,879 Derivatives 132,908,745 1,764,735, ,897,644,097 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 28,916, ,916,690 TOTAL 167,423,197 1,843,646,779 (247,913,749) 16,069,186,679 More than 5 years Undetermined maturity Cash and balances with central banks 3,358,957, Loans and advances to credit institutions 1,411,668, ,362,302 2,500,000 28,135, ,001 0 Loans and advances to customers 2,096,894,734 1,304,365, ,646, ,385,606 5,134,047, ,784,739 Financial assets held for trading 125,718 2,567,582 32,361,368 33,286,969 16,994,702 0 Financial assets designated at fair value ,503,935 Financial assets available for sale 0 289,891,579 9,112, ,469,910 2,512,171, ,260,441 Investments held to maturity ,803, Derivatives n.a. n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. n.a. TOTAL 6,867,647,160 2,009,186, ,619,537 1,376,081,255 7,663,774, ,549,115 Total 1 Residual maturity, excluding derivatives and off-balance sheet items. 2 Sight deposits and savings accounts are included in this item even though the reimbursement date is undetermined. 106 BIL Annual Report 2012

108 31/12/12 Breakdown of gross amount and premium / discount Accrued interest Fair value adjustment Impairment Cash and balances with central banks 8, ,358,966,568 Loans and advances to credit institutions 1,231,665 0 (357) 1,856,457,339 Loans and advances to customers 10,709,766 27,418 (240,669,269) 9,554,192,423 Financial assets held for trading 732,113 1,257, ,326,422 Financial assets designated at fair value 0 3,340, ,844,610 Financial assets available for sale 50,389, ,052,733 (20,587,610) 3,847,760,033 Investments held to maturity 1,583, ,387,153 Derivatives 134,834,514 1,574,919, ,709,753,839 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 25,452, ,452,345 TOTAL 199,489,444 1,797,050,466 (261,257,236) 20,523,140,732 B. LIABILITIES 31/12/11 Breakdown of gross amount and premium / discount At sight or on demand 1 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Total Undetermined maturity Amounts owed to credit institutions 1,477,818,990 4,085,363, ,729, ,321,622 64,622,678 0 Amounts owed to customers 6,902,752,253 2,079,987, ,174,693 14,989, ,564 0 Financial liabilities held for trading 67,953 29, ,135 1,845,193 0 Financial liabilities designated at fair value 0 158,401, ,507,358 1,853,627, ,521,532 0 Derivatives n.a. n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. n.a. Debt securities 0 74,180, ,789, ,786, ,343,646 0 Subordinated debt ,820, ,760,142 0 TOTAL 8,380,639,197 6,397,963,014 1,970,200,998 2,924,288,557 1,287,049, /12/11 Breakdown of gross amount and premium / discount Accrued interest Fair value adjustment Amounts owed to credit institutions 10,782, ,706,638,352 Amounts owed to customers 25,811, ,509,672,584 Financial liabilities held for trading 35, ,721,129 Financial liabilities designated at fair value 14,278,011 (37,893,642) 2,996,442,313 Derivatives 190,822,167 1,776,577,472 1,967,399,639 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 68,157,796 68,157,796 Debt securities 5,078, ,179,695 Subordinated debt 2,771, ,352,505 TOTAL 249,580,753 1,806,841,740 23,016,564,013 Total 1 Sight deposits and savings accounts are included in this item even though the reimbursement date is undetermined. BIL Annual Report

109 At sight or on demand 1 31/12/12 Breakdown of gross amount and premium / discount Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Undetermined maturity Amounts owed to credit institutions 1,784,724, ,588,911 9,723, ,208 4,750,000 0 Amounts owed to customers 8,820,824,985 2,061,891, ,044,455 3,556,305 13,409,287 0 Financial liabilities held for trading 1, , ,435 0 Financial liabilities designated at fair value 0 209,258, ,124,418 1,385,616, ,232,886 0 Derivatives n.a. n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. n.a. Debt securities 14,796,530 51,770,926 84,562, ,600, ,070,070 0 Subordinated debt ,009, ,026,375 0 TOTAL 10,620,347,798 3,101,508,930 1,447,454,466 2,095,620, ,197, /12/12 Breakdown of gross amount and premium / discount Accrued interest Fair value adjustment Amounts owed to credit institutions 113, ,578,571,093 Amounts owed to customers 20,553, ,546,279,875 Financial liabilities held for trading 7,499 17, ,323 Financial liabilities designated at fair value 12,465,925 22,191,911 2,671,889,552 Derivatives 122,494,940 1,451,383,716 1,573,878,656 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 91,611,929 91,611,929 Debt securities 3,434, ,234,370 Subordinated debt 526, ,562,232 TOTAL 159,596,275 1,565,204,868 19,833,930,031 C. NET POSITION 31/12/11 At sight or on demand 1 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Total Undetermined maturity Net liquidity gap (3,256,248,365) (4,471,038,024) (1,437,854,044) (1,843,859,752) 4,038,539, ,349,913 At sight or on demand 1 Less than 3 months 31/12/12 Between 3 months and 1 year Between 1 year and 5 years More than 5 years Undetermined maturity Net liquidity gap (3,752,700,638) (1,092,322,044) (900,834,929) (719,539,386) 6,819,577, ,549,115 1 Sight deposits and savings accounts are included in this item even though the reimbursement date is undetermined. 108 BIL Annual Report 2012

110 Asset liquidity and the refinancing of assets are not taken into account in this table; some long-term assets may be sold in the event that liquidity is required. A bank's liquidity position is the result of the difference between the contractual maturities of its assets and liabilities. For this reason, the Group publishes an analysis of its assets even though this is not required by IFRS 7. This allows the liquidity spread to be presented. Banks use derivatives to hedge risks. Cash flows therefore depend on movements in the underlying indices (interest-rates, exchange rates, credit spreads, etc.) for which expected cash flows may vary significantly. As the Group uses derivatives in its transactions and banking operations, the inclusion of such expected cash flows in the table would reduce the relevance of the figures for readers. Consequently, the Group publishes the market value of its derivatives by including it in the fair value column, in exactly the same way as fair value adjustments on other financial assets and liabilities are published Currency risk EUR Other EU currencies 31/12/11 USD Other Total Assets 19,362,448, ,839,590 1,907,727,878 2,432,808,546 24,218,824,178 Liabilities 19,824,593, ,695,247 2,287,887,313 1,619,647,752 24,218,824,178 NET ON-BALANCE SHEET POSITION (462,145,702) 29,144,343 (380,159,435) 813,160,794 0 Off-balance sheet receivable 4,041,826, ,835,391 4,564,902,635 3,988,160,726 13,311,725,576 Off-balance sheet payable 4,125,896, ,474,555 4,245,679,923 4,124,420,545 13,243,471,950 NET OFF-BALANCE SHEET POSITION (84,070,103) (30,639,164) 319,222,712 (136,259,819) 68,253,626 EUR Other EU currencies 31/12/12 USD Other Total Assets 16,170,531, ,182, ,642,074 4,120,017,628 21,301,374,014 Liabilities 17,421,104, ,328,578 1,956,156,623 1,497,784,544 21,301,374,014 NET ON-BALANCE SHEET POSITION (1,250,572,285) (125,146,250) (1,246,514,549) 2,622,233,084 0 Off-balance sheet receivable 3,701,281, ,310,457 4,386,406,490 2,368,015,041 10,834,013,602 Off-balance sheet payable 2,518,107, ,804,836 3,190,561,952 4,835,124,034 10,795,597,894 NET OFF-BALANCE SHEET POSITION 1,183,174, ,505,621 1,195,844,538 (2,467,108,993) 38,415,708 BIL Annual Report

111 12.8. Solvency ratios Regulatory capital, total amount of weighted risks and solvency ratios 31/12/11 31/12/12 TOTAL REGULATORY CAPITAL (AFTER ALLOCATION) (129,719,877) 819,763,873 Regulatory capital in the strict sense, including hybrid capital (95,957,015) 605,211,660 Core shareholders' equity 696,586, ,595,444 Translation adjustments - Group (19,488,011) (11,091,671) Non-controlling interests (eligible as Core shareholders' equity) 340,145 0 Deductions and prudential filters (878,811,822) (307,292,113) Hybrid capital eligible as Core shareholders' equity 1 105,416,603 0 TIER 2 CAPITAL (33,762,862) 214,552,213 Fixed-term subordinated loans 305,228, ,740,037 Deductions and prudential filters (338,991,116) 43,812,176 31/12/11 31/12/12 WEIGHTED RISKS 7,571,880,838 4,206,851,250 Credit risk 6,645,592,263 3,367,163,188 Market risk 138,412, ,058,075 Operational risk 787,875, ,629,988 SOLVENCY RATIOS Tier 1 ratio (1.27 %) % Capital Adequacy Ratio (1.71 %) % As at December 31, 2011, we did not achieve the mimimum requirements in terms of solvency ratio (4 % Tier 1 ratio and 8 % CAD ratio). This was mainly due to: the additional deduction of some deconsolidated holdings (Dexia Asset Management, RBC Dexia Investor Services, Dexia LdG Banque, Popular Banca Privada and Parfipar); the recognition through profit and loss of the negative impacts of the derecognition of investment disposals and of the sale of the Legacy portfolio within the context of the MOU, although these portfolios continue to be weighted in terms of risk. On October 5, 2012 due to the completion of all conditions relating to the sale of the BIL group by Dexia SA to Precision Capital and to the Luxembourg government, we now meet regulatory requirements again. 1 This amount is the result of a single operation: it consists of hybrid capital issued by BIL on July 6, 2001, in the amount of EUR 225 million entered in the financial statements under subordinated debt. In 2011, so as to adhere to the 15 % Tier 1 hybrid capital ceiling, we only include this issue in the amount of EUR 105,416,603. The nature of Hybrid Tier 1 has been modified on September 14, 2012 following General Meeting and in consequence, it has to be assimilated under lower Tier 2 within the lower Tier 2 limits imposed by the regulatory authorities. 110 BIL Annual Report 2012

112 BIL Annual Report

113

114 1. Highlights of 2012 and early Business line segmentation Statement of income and balance sheet Movements in share capital Research and development Post-balance sheet events Outlook / Strategies 118

115 1. Highlights of 2012 and early 2013 On this point, please consult the. Following the signature of the binding memorandum of understanding in December 2011, Retail, Corporate and Private Banking commercial activities turned in particularly good performances in Luxembourg: Customer deposits went up by 22.2 % to 11 billion (9 billion at year-end 2011) of which 1.1 billion in current accounts and 0.8 billion in savings accounts. Customer funds (assets under management) went up by 9.2 % to 27.8 billion (versus 25.5 billion at year-end 2011, on a comparable basis). Customer loans went up by 4.8 % to 9.3 billion (8.9 billion at year-end 2011, on a comparable basis). BIL continued to support the local economy, especially in the SME sector and in real estate financing. 2. Business line segmentation On this point, please consult the. 3. Statement of income and balance sheet PERIMETER Banque Internationale à Luxembourg SA (BIL) comprises the company s head office in Luxembourg and its two branches in Singapore and Bahrain. BIL s annual accounts for the year 2012 were prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. Accounting principles and regulations are described in Note 1 of the consolidated. All amounts are expressed in euro (EUR) unless otherwise specified. 114 BIL Annual Report 2012

116 Analysis s statement of income Statement of income - Global view (in EUR millions) 31/12/11 31/12/12 Income (1,765) 312 Expenses (276) (289) Gross operating income (2,041) 23 Cost of risk and provisions for legal litigation 6 (5) Income before tax (2,035) 18 Tax expense Net Income (1,704) 31 Statement of income on "Core new bil" and "Non-core Activities" (in EUR millions) Core New BIL Non-core Activities Legacy Portfolio TOTAL Management 1 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Income (154) (62) (1,980) 0 (1,765) 312 Expenses (273) (285) 0 (4) (4) 0 (276) (289) Gross Operating Income (154) (65) (1,984) 0 (2,041) 23 Cost of risk and provisions for legal litigation (26) (16) (5) Income before tax (154) (54) (1,951) 0 (2,035) 18 Tax expense Net Income (1,704) 31 In 2012, BIL s statutory income totalled 312 million, with 373 million generated by "Core New BIL" activities, whereas the "Non-core Activities" contributed negatively to income by 62 million. Contribution to "Core New BIL" statement of income by business line (in EUR millions) Retail, Corporate and Treasury and Group Center TOTAL Private Banking Financial Markets Core New BIL 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Income (19) (2) Expenses (242) (251) (29) (31) (2) (3) (273) (285) Gross Operating Income (48) (33) Cost of risk and provisions for legal litigation (30) (16) 10 0 (6) 0 (26) (16) Income before tax (38) (33) See the Annual Report BIL Annual Report

117 Income Expenses "Core New BIL" income increases by 4 million (+1.1 %) compared with 2011 (373 million versus 369 million). "Retail, Corporate and Private Banking" generated an income of 355 million in 2012 compared with 374 million at the end of 2011 (-19 million or -5 %). This fall resulted mainly from a decline in net commissions following the reduction in assets under management observed in 2011 as a result of the problems encountered by Dexia group. The average assets under management for the year 2012 were 1.6 billion lower, compared to 2011 average, with an impact by approximatively 15 million in terms of fees and commissions. In terms of interest income, we observed stability in 2012 as the decrease of margins on savings accounts was offset by a significant increase in mortgage revenues. Following the announcement of the sale of the Bank to Precision Capital and the Grand Duchy of Luxembourg State in December 2011, the commercial franchises showed particularly encouraging and solid results; at the end of 2012, the Bank recovered 58 % of assets under management and 69 % in terms of deposits, compared to the end of "Treasury and Financial Markets" activities generated income of -2 million, 17 million up compared to In a transitional year, "Treasury and Financial Markets" activities benefited progressively from the reinvestments in the new bond portfolio (28 million in 2012) whereas the ALM and the Treasury desks continued to suffer in 2012 due to having very limited room for action (Dexia related divestments and constraints on position taking up to closing and the absence of any transformation opportunity due to the very low interest-rate environment). Foreign exchange contribution decreased by 8 million as Belfius and RBC stopped routing their Forex volumes to the market (Forex Luxembourg was the center of expertise for Dexia) via BIL. "Group Center" generated a 20 million income, 6 million up compared to The income mainly included dividends from unconsolidated shareholdings (5.6 million in 2012), capital gains related to a partial sale of Luxempart (0.51 %) and the income generated by the reinvestment of shareholders equity. The "Non-core activities" generated a negative result of -62 million in 2012 compared to million in In 2012, the negative result is mainly due to non-recurring items such as a loss of -56 million on the sale of the Bank s Portuguese exposures and a negative exchange rate impact of -17 million in connection with conversion into euro of the losses arising from the sale of legacy portfolio. These losses were partly offset by an +18 million dividend paid by Dexia Asset Management. General expenses amounted to 289 million in 2012, of which 285 million in "Core New BIL" and 4 million in "Non-core Activities". The increase in expenses related to "Core New BIL" (285 million versus 273 million) is attributable to "Retail, Corporate and Private Banking" (9 million) and "Treasury and Financial Market" (2 million). Despite effective cost control and the disappearance of costs resulting from services rebilled by Dexia group, the Bank had to hire new employees necessary to enable it to operate on a stand-alone basis. It also incurred additional expenses in connection with the Bank s rebranding, as well as several campaigns in the fourth quarter 2012 (marketing costs) as part of the "BIL is Back" programme. Some non-recurring costs as for instance the strategic review of the Bank are not directly related to the "Core Activities". Therefore, a total expense of 4 million has been included under "Non-core Activities". Gross operating income Gross operating income amounted to 23 million, of which 88 million were attributable to "Core New BIL", down by 8 million compared to 2011, and -65 million associated with "Non-core Activities". Cost of risk and impairment Over the year 2012, the Bank booked net provisions for 5 million. Under "Core New BIL", the cost of risk remains limited and fell by 10 million compared to the same period in 2011 (16 million versus 26 million). Under "Non-core Activities", BIL included the write-back of 11 million of "Madoff" litigation claims related provisions after the Bank got confirmation that this claim would be covered by its insurer. Net Income before tax Pre-tax income of 18 million in 2012 breaks down as follows: 72 million in respect of "Core New BIL" activities, with an encouraging growth of 3 % compared to 2011 (70 million). -54 million in 2011 for "Non-core Activities". 116 BIL Annual Report Which came from -52 million in sales of our participating interests, the -191 million transfer of covered bonds positions to Dexia Crédit Local and 62 million in dividends relating to subsidiaries sold.

118 Tax The net tax credit of 13 million is a result of the appreciation of certain deferred tax assets, following Luxembourg s income tax rate increase (from % to %) and the Bank s net taxable income. Net Income For the year 2012, net income reached 31 million due to encouraging results from "Core Activities" which permitted the compensation of the impact of non-recurring results. Analysis s balance sheet (in EUR billions) 31/12/11 31/12/12 Change Assets (12 %) Loans and advances to credit institutions % Loans and advances to customers % Loans and securities available for sale % Positive value of derivative products (10 %) Other assets (89 %) Liabilities (12 %) Amounts owed to credit institutions (59 %) Customer deposits % Negative value of derivative products (20 %) Debt securities (17 %) Subordinated and convertible debt (6 %) Other liabilities (16 %) Shareholders' equity % 2011 balance sheet was significantly affected by the derecognition of the legacy portfolio and the subsidiaries sold / transferred to Dexia. As of December 31, 2011, this transaction had not yet given rise to any payment, resulting in a claim as at that date, presented under "Other assets" for a total amount of 7.4 billion. The finalisation of the transaction in 2012 and the payment of this claim permitted: Reinvestment in a new bond portfolio (+3.1 billion) explaining the increase in "Loans and securities available for sale"; Redemption of cash drawn from the Luxembourg Central Bank (-2 billion) and reimbursement of Dexia group funding (0.5 billion with Belfius, 1.3 billion with DLG, 0.4 billion with RBC), leading to a drop of 4 billion in "Amounts owed to credit institutions". Excluding Parfipar refinancing (0.3 billion) redeemed in 2012, "Loans and advances to customers" increased by 0.4 billion (+4.8 %) of which mortgages loans accounted for +222 million. BIL Annual Report

119 "Customer deposits" progressed by 2 billion of which +744 million in savings accounts (+23 %) and +1.1 billion in current accounts (+34 %). Excess liquidity stemming from client deposit increases is placed with the Swiss and Luxembourg central banks and increases in "Loans and advances to credit institutions" by 1.4 billion (37 %). Assets & Liabilities movements On this point, please consult the. Change in shareholders' equity "Shareholders equity" went up by 366 million (58 %). This change was mainly due to a 204 million in shareholders equity paid out by Dexia on October 2, 2012, to the increase of revaluation reserves on the available for sale portfolio for 100 million, and to the 31 million net profit in Movements in share capital At the end of December 2012, the Bank s share capital stood at EUR 141,224,090 represented by 2,017,487 treasury shares (no change compared with 2011). During 2012, the Bank held 970 BIL treasury shares, representing a stock exchange value of EUR 1,455,000. No shares were sold during the financial year under review. 5. Research and development Products and services are continuously adapted to ensure that customers' needs are met as closely as possible and that portfolios match individual risk profiles. The Bank is continuing its research in terms of developing alternative savings products (such as BIL Top Plus) that combine a low risk profile, guaranteed capital at maturity and an attractive return. In 2012, the Bank defined a strategic growth through the "BIL is Back" programme, oriented to clients in terms of quality of service, range of products and solutions in each of the Bank s business lines, depending on the current and future operational locations of the Bank in Europe, the Middle East or Asia. 6. Post-balance sheet events BIL announced on January 7, 2013 calls for offers to tender notes for purchase, with the objective of optimising regulatory capital. The offers expired on January 18, 2013 with a good participation, with total offers accepted by the Bank of around 186 million; these transactions had no impact on the Outlook / Strategies On this point, please consult the. 118 BIL Annual Report 2012

120 BIL Annual Report

121

122 Report of the Réviseur d entreprises agréé 123 Parent company s balance sheet 124 Statement of income 126 Statement of changes in equity 127 Statement of comprehensive income 129 Cash flow statement 130 Notes to the 131 Proposed allocation of 2012 income 191

123 122 BIL Annual Report 2012

124 Report of the Réviseur d entreprises agréé To the Board of Directors of Banque Internationale à Luxembourg SA Report on the Following our appointment by the Board of Directors, we have audited the accompanying annual of Banque Internationale à Luxembourg SA, which comprise the balance sheet as at December 31, 2012, the statement of income, the statement of changes in equity and the cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Responsibility of the Board of Directors for the financial statements The Board of Directors is responsible for the preparation and fair presentation of these in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal controls as the Board of Directors determines is necessary to enable the preparation of financial that are free from material misstatement, whether due to fraud error. Responsibility of the Réviseur d entreprises agréé Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the Réviseur d entreprises agréé s judgement, including the assessment of the risks of material misstatement of the, whether due to fraud or error. In making those risk assessments, the Réviseur d entreprises agréé considers internal control relevant to the entity s preparation and fair presentation of the in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the give a true and fair view of the financial position of Banque Internationale à Luxembourg SA as of December 31, 2012, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards adopted by the European Union. Report on other legal and regulatory requirements The, which is the responsibility of the Board of Directors, is consistent with the. For Deloitte Audit, Cabinet de révision agréé Martin Flaunet, Réviseur d entreprises agréé Partner March 28, 2013 BIL Annual Report

125 Parent company's balance sheet ASSETS (in EUR) Notes 31/12/11 31/12/12 I. Cash and balances with central banks ,410,994 3,256,328,704 II. Loans and advances to credit institutions 7.3 2,998,988,901 1,981,535,108 III. Loans and advances to customers 7.4 / 7.7 9,305,510,811 9,377,534,847 IV. Financial assets measured at fair value through profit and loss 7.5 / ,003, ,012,000 V. Financial investments ,796,824 3,885,439,436 VI. Derivatives 9.1 1,894,960,542 1,709,892,229 VII. Fair value revaluation of portfolios hedged against interest-rate risk 28,916,690 25,452,345 VIII. Tangible fixed assets 7.9 / ,519, ,757,431 IX. Intangible fixed assets and goodwill ,639,411 34,166,278 X. Tax assets 7.11 / ,954, ,889,455 XI. Other assets ,371,567,909 45,956,559 TOTAL ASSETS 24,014,269,731 21,090,964, BIL Annual Report 2012

126 LIABILITIES (in EUR) Notes 31/12/11 31/12/12 I. Amounts owed to credit institutions 8.1 6,819,649,130 2,786,848,819 II. Amounts owed to customers 8.2 9,351,211,952 11,282,762,217 III. Financial liabilities measured at fair value through profit and loss 8.3 3,008,222,236 2,683,165,361 IV. Derivatives 9.1 1,966,440,056 1,573,710,808 V. Fair value revaluation of portfolios hedged against interest-rate risk 68,157,796 91,611,929 VI. Debt securities ,179, ,234,370 VII. Subordinated debt ,352, ,562,232 VIII. Provisions and other obligations ,762,674 56,728,277 IX. Tax liabilities 8.7 / 9.2 7,733,972 16,467,071 X. Other liabilities ,880, ,343,135 TOTAL LIABILITIES 23,387,590,621 20,098,434,219 SHAREHOLDERS' EQUITY (in EUR) Notes 31/12/11 31/12/12 XI. Subscribed capital ,224, ,224,090 XII. Additional paid-in capital 617,668, ,297,160 XIII. Treasury shares (1,455,000) (1,455,000) XIV. Reserves and retained earnings 1,565,801,915 (1,675,473) XV. Net income for the period (1,704,499,564) 30,669,088 CORE SHAREHOLDERS' EQUITY 618,739, ,059,865 XVI. Gains and losses not recognised in the statement of income 7,939, ,470,308 a) AFS reserve 60,291, ,591,605 b) Other reserves (52,351,680) (45,121,297) TOTAL SHAREHOLDERS' EQUITY 626,679, ,530,173 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 24,014,269,731 21,090,964,392 BIL Annual Report

127 Statement of income (in EUR) Notes 31/12/11 31/12/12 I. Interest received ,303,855, ,712,948 II. Interest paid 11.1 (1,080,033,198) (777,049,533) III. Dividends ,618,969 23,604,727 IV. Net trading income and net result of hedge accounting 11.3 (731,850,373) 1,759,912 V. Net income on investments 11.4 (1,451,001,919) (57,542,457) VI. Fee and commission income ,458, ,943,647 VII. Fee and commission expense 11.5 (18,680,916) (18,153,246) VIII. Other net income 11.7 (3,631,931) 13,298,813 INCOME (1,765,265,018) 311,574,811 IX. Staff expense 11.8 (149,378,115) (160,719,583) X. General and administrative expenses 11.9 (100,389,455) (106,621,506) XI. Amortisation of tangible and intangible fixed assets (26,692,015) (21,548,618) EXPENSES (276,459,585) (288,889,707) GROSS OPERATING INCOME (2,041,724,603) 22,685,104 XII. Impairment of loans and provisions for credit commitments ,969,375, (17,899,716) XIII. Provisions for legal litigation ,435,642 13,052,947 NET INCOME BEFORE TAX (2,035,319,586) 17,838,335 XIV. Tax expense ,820,022 12,830,753 NET INCOME (1,704,499,564) 30,669,088 Earnings per share basic (845.27) diluted (845.27) BIL Annual Report 2012

128 Statement of changes in equity CORE SHAREHOLDERS' EQUITY Subscribed capital Additional paid-in capital Treasury shares Reserves and retained earnings Net income for the period Core shareholders' equity (in EUR) AS AT 01/01/11, IFRS 141,224, ,668,312 (1,437,000) 1,436,361, ,350,630 2,323,167,698 Purchase of treasury shares (18,000) (18,000) Classification of income ,350,630 (129,350,630) Stock Option 89,619 89,619 Net income for the period (1,704,499,564) (1,704,499,564) AS AT 31/12/11, IFRS 141,224, ,668,312 (1,455,000) 1,565,801,915 (1,704,499,564) 618,739,753 GAINS AND LOSSES NOT RECOGNISED IN THE STATEMENT OF INCOME (in EUR) Securities (AFS) Derivatives (CFH) Associates Unrealised income - non-current assets held for sale - gross Translation adjustments 1 Gains and losses not recognised in the statement of income AS AT 01/01/11, IFRS (372,079,456) (9,874,319) 0 0 (37,421,353) (419,375,128) Net change in fair value through equity - Available for sale investments (249,419,898) (249,419,898) Net change in fair value through equity - Cash flow hedges (7,778,301) (7,778,301) Translation adjustments 7,034,978 (15,699,508) (8,664,530) Reimbursements for the period, disposals or maturities 8,568,357 8,568,357 Cancellation of fair value following AFS disposals 525,410, ,410,234 Cash flow hedge - Break in hedging 18,421,801 18,421,801 Amortisation of premiums and discounts 18,250,463 18,250,463 Fair value recognised through profit and loss following the recognition of impairments 122,526, ,526,359 AS AT 31/12/11, IFRS 60,291, , (53,120,861) 7,939,357 1 As at December 31, 2011, translation adjustments comprise an amount of EUR -35,431,536 relating to net investment hedges linked foreign exchange differences in consolidated investments (as at December 31, 2010: EUR -31,934,781). BIL Annual Report

129 CORE SHAREHOLDERS' EQUITY Subscribed capital Additional paid-in capital Treasury shares Reserves and retained earnings Net income for the period Core shareholders' equity (in EUR) AS AT 01/01/12, IFRS 141,224, ,668,312 (1,455,000) 1,565,801,915 (1,704,499,564) 618,739,753 Capital increase Dexia 203,846, ,846,457 Classification of income to hybrid capital 1 23,804,567 23,804,567 Classification of income 2011 (113,217,609) (1,591,281,955) 1,704,499,564 Net income for the period 30,669,088 30,669,088 AS AT 31/12/12, IFRS 141,224, ,297,160 (1,455,000) (1,675,473) 30,669, ,059,865 GAINS AND LOSSES NOT RECOGNISED IN THE STATEMENT OF INCOME (in EUR) Securities (AFS) Derivatives (CFH) Associates Unrealised income - non-current assets held for sale - gross Translation adjustments 2 Gains and losses not recognised in the statement of income AS AT 01/01/12, IFRS 60,291, , (53,120,861) (7,939,357) Net change in fair value through equity - Available for sale investments 66,314,152 66,314,152 Net change in fair value through equity - Cash flow hedges 735, ,442 Translation adjustments (1,068) 7,368,304 7,367,236 Reimbursements for the period, disposals or maturities (1,593,219) (1,593,219) Cancellation of fair value following AFS disposals 35,580,703 35,580,703 Cash flow hedge - Break in hedging (873,363) (873,363) AS AT 31/12/12, IFRS 160,591, , (45,752,557) 115,470,308 1 Amount net of tax. 2 As at December 31, 2012, translation adjustments comprise an amount of EUR -36,297,941 relating to net investment hedges linked foreign exchange differences in consolidated investments (as at Dcember 31, 2011: EUR -35,431,536). 128 BIL Annual Report 2012

130 Statement of comprehensive income parent company's statement of comprehensive income 1 (in EUR) 31/12/11 30/06/12 31/12/12 NET INCOME RECOGNISED IN THE STATEMENT OF INCOME (1,704,499,564) 24,167,094 30,669,088 Unrealised gains (losses) on available for sale financial investments 535,156,797 40,813, ,446,553 Gains / (losses) on cash flow hedges 15,119,623 1,623,256 (129,535) Translation adjustments (15,699,508) 7,389,828 7,368,305 Gains / (losses) on net investments hedges (170,886) (89,501) (58,915) Tax on components of income not recognised in the statement of income (107,091,541) (13,106,247) (39,095,455) Gains /(losses) not recognised in the statement of income 427,314,485 36,630, ,530,953 TOTAL GLOBAL INCOME FOR THE FINANCIAL YEAR (1,277,185,079) 60,797, ,200,040 1 Including changes in the AFS reserves for the period. BIL Annual Report

131 Cash flow statement (in EUR) 31/12/11 31/12/12 Cash flow from operating activities Net income after income taxes (1,704,499,564) 30,669,088 Adjustment for: - Depreciation, amortisation and other impairment 38,046,658 33,183,584 - Impairment on bonds, equities and other assets (8,305,121) 17,155,169 - Net (gains) / losses on investments 59,834,252 (3,186,560) - Charges for provisions (38,164,012) (26,047,807) - Unrealised (gains) or losses 27,234,705 (1,602,280) - Deferred taxes (330,782,771) (27,429,029) - Other adjustments 89,620 5,542,628 Changes in operating assets and liabilities (1,926,714,342) 1,943,871,527 Net cash flow provided (used) by operating activities (3,883,260,575) (1,972,199,320) Cash flow from investing activities Purchase of fixed assets (20,517,796) (24,594,928) Sale of fixed assets 2,214,887 9,125 Purchase of non-consolidated shares (8,428,912) (8,120,553) Sale of non-consolidated shares 902,145 3,617,292 Acquisitions of subsidiaries 859,767 0 Sale of participating interests / branch closures (197,120,557) 0 Net cash flow provided (used) by investing activities (222,090,466) (29,089,064) CASH FLOW FROM FINANCING ACTIVITIES Capital increase 0 203,846,457 Reimbursement of subordinated debts (144,471,780) 0 Purchase of treasury shares (18,000) 0 NET CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES (144,489,781) 203,846,457 NET CASH PROVIDED (4,249,840,822) 2,146,956,713 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 6,533,149,950 2,284,650,824 Net cash flow from operating activities (3,883,260,575) 1,972,199,320 Net cash flow from investing activities (222,090,466) (29,089,064) Net cash flow from financing activities (144,489,781) 203,846,457 Effect of change in exchange rate on cash and cash equivalents 1,341,696 3,137,900 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 2,284,650,824 4,434,745,437 ADDITIONAL INFORMATION Taxes paid 37,251 54,197 Dividends received 68,618,969 23,604,727 Interest received 1,394,991, ,515,275 Interest paid (1,121,045,487) (868,167,065) 130 BIL Annual Report 2012

132 Notes to the Preliminary note: Presentation of the accounts If the balance of an item is nil for the financial year under review as well as for the comparative year, this item is not included in the. This rule applies to the presentation of the balance sheet, the statement of income and the notes to the, as well as to the statement of changes in equity and the cash flow statement. Note 1 Accounting principles and rules of the Note 2 Changes in branches and list of main subsidiaries and associates Note 3 Business and geographic reporting Note 4 Material items in the statement of income Note 5 Post-balance sheet events Note 6 Litigations Note 7 Notes on the assets of the balance sheet 7.1 Cash and cash equivalents 7.2. Cash and balances with central banks 7.3. Loans and advances to credit institutions 7.4. Loans and advances to customers 7.5. Financial assets measured at fair value through profit and loss 7.6. Financial investments 7.7. Reclassification of financial assets (IAS 39) 7.8. Investments in participating interests 7.9. Tangible fixed assets 7.10 Intangible fixed assets and goodwill Tax assets Other assets Leasing Quality of financial assets Note 8 Notes on the liabilities of the balance sheet 8.1. Amounts owed to credit institutions 8.2. Amounts owed to customers 8.3. Financial liabilities measured at fair value through profit and loss 8.4. Debt securities 8.5. Subordinated debt 8.6. Provisions and other obligations 8.7. Tax liabilities 8.8. Other liabilities Note 9 Other notes on the balance sheet 9.1. Derivatives 9.2. Deferred tax 9.3 Share-based payments 9.4. Related parties transactions 9.5. Securitisation 9.6. Shareholders' equity 9.7. Exchange rates Note 10 Notes on off-balance sheet items Regular way trade Guarantees Loan commitments Other commitments Note 11 Notes on the statement of income Interest received Interest paid Dividends Net trading income and net result of hedge accounting Net income on investments (assets and liabilities not designated at fair value through profit and loss) Fees and commissions income and expenses Independent auditors' fees Other net income Staff expenses General and administrative expenses Amortisation on tangible and intangible fixed assets Impairment of loans and provisions for credit commitments Impairment on tangible and intangible fixed assets Tax expenses Earnings per share Provisions for legal litigation Note 12 Notes on risk exposure Fair value Credit risk exposure Pledged assets Interest-rate risk: breakdown by maturity until next interest-rate repricing date Market risk and Assets & Liabilities Management (ALM) Liquidity risk: breakdown by residual maturity Currency risk Solvency ratios BIL Annual Report

133 Note 1: Accounting principles and rules of As the parent company's annual have been published using IFRS since 2008, the accounting principles and rules applying to the parent company's are explained in detail in note 1 of the consolidated financial statements herein. Specific information relating to the of the parent company: participating interests are recorded at cost in accordance with IAS 27. Note 2: Changes in branches and list of main subsidiaries and associates 2.1. Changes in branches Additions N / A Departures N / A 2.2. List of main subsidiaries and associates As at December 31, 2012, the Bank has a participating interest of at least 10 % in the capital of the following undertakings: Name Head office % of capital held Banque Internationale à Luxembourg Bank Danmark A/S Gronningen 17 DK-1270 Copenhagen Banque Internationale à Luxembourg (Suisse) SA Beethovenstrasse 48 PO Box 2192 CH-8022 Zürich BIL Asia Singapore Ltd 9 Raffles Place #29-01 Republic Plaza Singapore BIL Auto Lease Luxembourg SA BIL Finance SA 136, route d'arlon L-1150 Luxembourg rue de Berri F Paris BIL Invest N.V. Pietermaai 15 PO Box 4905 Curaçao Nederlandse Antilles BIL RE SA 69, route d'esch L-2953 Luxembourg BIL Trust Ltd Canada Court 14 PO Box 48 St Peter Port Guernsey GY1 3BQ, Channel Islands CD-PME, Société Luxembourgeoise de Capital- Développement pour les PME SA Compagnie Financière BIL SA & Cie S.e.c.s Europay Luxembourg S.C. 7, rue du Saint-Esprit L-1475 Luxembourg 69, route d Esch L-2953 Luxembourg 10, Parc d Activité Syrdall L-5365 Munsbach BIL Annual Report 2012

134 Experta Corporate and Trust Services SA I.B. Finance SA Luxair, Société Luxembourgeoise de Navigation Aérienne SA Private II Wealth Management SARL Société de la Bourse de Luxembourg SA Société Luxembourgeoise de Leasing - BIL Lease SA Visalux S.C. Note 3: Business and geographic reporting A segment is a distinguishable component of BIL that is engaged either in providing specific products or services (business segment) or in providing specific products or services within a particular economic environment (geographic segment), which is subject to risks and returns that differ from those of other segments. Segments for which a majority of their revenue is earned from sales to external customers and for which NBI, net income or assets represent 10 % or more of the total are reported separately. Income (in EUR thousands) 42, rue de la Vallée L-2661 Luxembourg 69, route d Esch L-2953 Luxembourg Aéroport de Luxembourg L-2987 Luxembourg 42, rue de la Vallée L-2661 Luxembourg 11, Avenue de la Porte-Neuve L-2227 Luxembourg 136, route d Arlon L-1150 Luxembourg 10, Parc d Activité Syrdall L-5365 Munsbach Income In 2012, BIL amended its business line segmentation as follows: "Legacy Portfolio Management" divisions not reported in 2012 following their de-recognition at the end of December "Retail, Corporate and Private Banking" (prior to 2012 known as "Retail and Commercial Banking") was reorganised around three business lines, Retail Banking, Corporate and Institutional Banking and Private Banking, in order to improve synergies between the three pillars, based on client needs. "Treasury and Financial Markets" became a full-fledged business around three pillars: Treasury, Assets & Liabilities Management (ALM), and Financial Markets, with dedicated desks supporting the commercial business lines. of which net income from associates 31/12/ of which interest income Profit before tax Retail, Corporate and Private Banking 374, , ,086 Treasury and Financial Markets (18,913) 0 (31,505) (38,021) Group Center (140,687) 0 116,764 (148,438) Core 13, ,664 5,762 Non-core (154,200) 0 89,100 (154,200) Legacy Portfolio Management (1,979,778) 0 (6,436) (1,950,946) TOTAL (1,765,265) 0 292,442 (2,035,320) Profit before tax (2,035,320) Taxes 330,820 Minority Interests 0 NET RESULT (1,704,500) BIL Annual Report

135 Income (in EUR thousands) Income of which net income from associates 31/12/12 of which interest income Profit before tax Retail, Corporate and Private Banking 354, ,745 87,246 Treasury and Financial Markets (1,629) 0 (28,700) (33,200) Group Center (41,502) 0 38,223 (36,208) Core 20, ,223 18,074 Non-core (61,526) 0 12,000 (54,282) Legacy Portfolio Management TOTAL 311, ,268 17,838 Profit before tax 17,838 Taxes 12,831 Minority Interests 0 NET RESULT 30,669 ASSETS AND LIABILITIES (in EUR thousands) 31/12/11 31/12/12 Assets Liabilities Assets Liabilities Retail, Corporate and Private Banking 9,005,511 9,351,212 9,377,535 11,282,762 Treasury and Financial Markets 6,222,942 13,628,001 10,598,865 8,506,134 Group Center 1 8,785, ,377 1,114, ,538 TOTAL 24,014,270 23,387,591 21,090,964 20,098,434 Some amounts may not add up due to rounding off. Other segment information (in EUR thousands) Capital expenditures Depreciation and amortisation 31/12/11 Impairments 2 Other non cash expenses 3 Retail, Corporate and Private Banking 0 0 (24,162) 4,195 Treasury and Financial Markets 10,051 Group Center 6,999 (26,692) (17,129) 11,586 Core 6,999 (26,692) (17,129) 11,586 Non-core Asset Management and Services Asset Management Investor Services Legacy Portfolio Management ,135 0 TOTAL 6,999 (26,692) 22,895 15, Group Center including the pre-sale transactions booked in 2011 (EUR 7.4 billion). 2 include impairments on tangible and other intangible assets, impairments on securities, impairments on loans and provisions for credit commitments, impairments on goodwill. 3 i nclude IFRS2 costs, net allowances to provisions for restructuring costs, net allowances to provisions related to IAS 19, capital losses on exchange of assets. 134 BIL Annual Report 2012

136 Other segment information (in EUR thousands) Some amounts may not add up due to rounding off. Capital expenditures Depreciation and amortisation 31/12/12 Impairments 1 Other non cash expenses 2 Retail, Corporate and Private Banking 0 0 (18,136) 2,095 Treasury and Financial Markets (,181) Group Center 9,126 (21,549) (7,921) 2,232 Core 9,126 (21,549) (7,921) (8,726) Non-core ,958 Asset Management and Services Asset Management Investor Services Legacy Portfolio Management TOTAL 9,126 (21,549) (26,238) 4,327 Relations between product lines, in particular commercial product lines, financial markets and production and service centers are subject to retrocessions and / or analytical transfers, carried out according to market conditions. The results of each product line also include: earnings from commercial transformation, including the management costs of this transformation and the equity capital allocated to this activity on the basis of medium and long-term assets; cost of financing. Tangible and intangible fixed assets are allocated to the "Group Center" segment, except when they are directly managed by a commercial or financial product line. Geographic Breakdown Luxembourg Singapore Bahrain Total (in EUR thousands) As at 31/12/11 Income (660,422) (1,105,107) 264 (1,765,265) As at 31/12/12 Income 260,073 50, ,575 The geographic zone is determined by the country of the company concluding the transaction and not by the country of the transaction s counterpart. Note 4: Material items in the statement of income These items are included in point 1 's. Note 5: Post-balance sheet events There were no other occurrences of material post-balance sheet events likely to have a major impact on BIL s accounts, other than those referred to in point 6 entitled "Post-balance sheet events" in the. 1 include impairments on tangible and other intangible assets, impairments on securities, impairments on loans and provisions for credit commitments, impairments on goodwill. 2 i nclude IFRS2 costs, net allowances to provisions for restructuring costs, net allowances to provisions related to IAS 19, capital losses on exchange of assets. BIL Annual Report

137 Note 6: Litigations Following the bankruptcy of Bernard L. Madoff Investment Securities ("BLMIS"), the official receivers of BLMIS and certain investment funds linked to B. Madoff instituted legal proceedings against numerous financial institutions and institutional investors that had purchased Madoff securities and investment products linked to B. Madoff. In accordance with the "clawback principle", they are claiming the return of profits and redemptions obtained on these investments over a period of several years until the discovery of the fraudulent set-up put in place by BLMIS that culminated in its collapse. Some of these clawback actions were brought against Banque Internationale à Luxembourg SA and its subsidiary Banque Internationale à Luxembourg (Suisse) SA, the plaintiffs claiming the reimbursement of an amount in principal estimated at approximately USD 68 million, most of which corresponds to investments made by Banque Internationale à Luxembourg SA on behalf of third parties. At this time, Banque Internationale à Luxembourg SA is not able to express a reasonable opinion on the duration or outcome of actions sub judice or on any financial impact. As at December 31, 2012, no provision for clawback actions had been made. Some clients who invested in products linked to Mr Madoff have also brought legal proceedings against Banque Internationale à Luxembourg SA. The Bank is not involved in any other legal litigation, where adequate provisions have not been funded, that readers may need to consider in evaluating the risks related to possible credit risks or current or potential litigation. Note 7: Notes on the assets of the balance sheet (in EUR) 7.1. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents may be broken down as follows (balances with less than 90 days remaining until maturity): A. ANALYSIS BY NATURE 31/12/11 31/12/12 Cash and balances with central banks 826,389,358 3,256,328,704 Loans and advances to credit institutions 1,457,964, ,525,154 Financial assets available for sale 297, ,891,579 TOTAL 2,284,650,824 4,434,745,437 B. OF WHICH RESTRICTED CASH 31/12/11 31/12/12 Mandatory reserves 1 779,115, ,412,694 TOTAL RESTRICTED CASH 779,115, ,412,694 Cash collateral is primarily paid or received based on the market value of collateralised asset. The collateralised derivatives used by BIL are interest-rate derivatives that hedge fixed-rate assets. Should interest-rate fall, the fair value of the assets increases and the value of the hedging derivatives decreases. This decrease generates a cash collateral payment. Against the backdrop of a general decline in interest-rates years, cash collateral remains at a high level and can no longer be considered as a cash equivalent that fluctuates in the short term. It has therefore been excluded from cash equivalents. Financial assets designated at fair value and financial assets held for trading have also been excluded. 1 Mandatory reserves: minimum reserves deposited by credit institutions with Central Bank of Luxembourg or other central banks. 136 BIL Annual Report 2012

138 7.2. Cash and balances with central banks ANALYSIS BY NATURE 31/12/11 31/12/12 Cash in hand 41,844,852 45,458,474 Balances with central banks other than mandatory reserve deposits 5,428,742 2,971,457,536 Mandatory reserve deposits 779,137, ,412,694 TOTAL 826,410,994 3,256,328,704 of which included in cash and cash equivalents 826,389,358 3,256,328, Loans and advances to credit institutions A. ANALYSIS BY NATURE 31/12/11 31/12/12 Nostro accounts 1,359,675,549 1,146,381,616 Reverse repurchase agreements 453,194, ,001,944 Loans and other advances 1,186,118, ,151,905 Less: Collective impairment 0 (357) TOTAL 2,998,988,901 1,981,535,108 of which included in cash and cash equivalents 1,457,964, ,525,154 B. QUALITATIVE ANALYSIS see note 7.14 C. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 D. ANALYSIS OF THE FAIR VALUE see note Loans and advances to customers A. ANALYSIS BY COUNTERPART 31/12/11 31/12/12 Public sector 154,165, ,677,366 Other (primarily fixed advances and property loans) 9,126,554,999 9,220,870,746 Impaired loans 248,325, ,233,163 Less: Specific impairment on impaired loans and debt instruments (203,912,036) (211,802,646) Collective impairment (19,622,369) (20,443,782) TOTAL 9,305,510,811 9,377,534,847 B. ANALYSIS BY NATURE 31/12/11 31/12/12 Cash collateral 31,115,857 17,663,348 Loans and other advances 9,249,604,282 9,336,884,764 of which securitised loans 0 2,273,575 of which consumer credit 293,605, ,674,672 of which mortgage loans 2,939,697,654 3,164,063,413 of which term loans 4,167,198,889 4,132,967,090 of which current accounts 1,849,102,527 1,746,906,013 Impaired loans 248,325, ,233,163 Less: Specific impairment on impaired loans and debt instruments (203,912,036) (211,802,646) Collective impairment (19,622,369) (20,443,782) TOTAL 9,305,510,811 9,377,534,847 BIL Annual Report

139 C. qualitative analysis see note 7.14 D. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 E. ANALYSIS OF THE FAIR VALUE see note Financial assets measured at fair value through profit and loss Financial assets held for trading A. ANALYSIS BY COUNTERPART 31/12/11 31/12/12 Public sector 37,765 4,665,080 Credit institutions 48,521,750 50,152,092 Other 5,199,700 31,350,218 TOTAL 53,759,215 86,167,390 B. ANALYSIS BY NATURE 31/12/11 31/12/12 Bonds issued by public bodies 37,765 4,665,080 Other bonds and fixed-income instruments 53,721,450 81,502,310 TOTAL 53,759,215 86,167,390 C. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 D. ANALYSIS OF THE FAIR VALUE see note 12.1 Financial assets designated at fair value A. ANALYSIS BY COUNTERPART 31/12/11 31/12/12 Other 34,244,485 36,844,610 TOTAL 34,244,485 36,844,610 B. ANALYSIS BY NATURE 31/12/11 31/12/12 Equities and variable-rate instruments 34,244,485 36,844,610 TOTAL 34,244,485 36,844,610 C. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 D. ANALYSIS OF THE FAIR VALUE see note BIL Annual Report 2012

140 BIL primarily uses the fair value option (FVO) to eliminate or at least significantly reduce the measurement or recognition inconsistency (also known as the accounting mismatch) that would arise from measuring financial assets or liabilities or recognising the gains and losses on these assets and liabilities on a different basis. In the case of financial assets, the FVO may be used as an alternative valuation method for certain assets (e.g. loans) in order to reduce volatility in profit or loss when there is a risk at the acquisition date that the hedge accounting requirements will not be met. The fair value of unlisted financial instruments classified under the FVO is determined by Group Risk Management using pricing tools. The pricing tools used are discounted cash flow models whereby the discounted cash flow is determined by an interestrate based on the available market rates that are applicable to similar securities and to issuers with a similar credit rating Financial investments A. ANALYSIS BY COUNTERPART 31/12/11 31/12/12 Public sector 432,104,486 3,205,372,716 Credit institutions 0 344,889,157 Other 321,662, ,713,067 Impaired financial investments 229,474, ,043,445 TOTAL BEFORE IMPAIRMENT 983,241,138 4,106,018,385 Specific impairment on financial investments (212,444,314) (220,578,949) TOTAL 770,796,824 3,885,439,436 of which included in cash and cash equivalents 297, ,891,579 B. QUALITATIVE ANALYSIS see note 7.14 C. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 D. ANALYSIS BY NATURE Loans and available for sale securities Loans and securities held to maturity 31/12/11 31/12/12 31/12/11 31/12/12 Bonds issued by public bodies 397,294,110 3,174,816,401 34,810,376 30,556,315 Other bonds and fixed-income instruments 51,528, ,125,303 15,830,503 15,830,838 Equities and other variable-income instruments 1 483,777, ,689,528 n.a. n.a. TOTAL BEFORE IMPAIRMENT 932,600,259 4,059,631,232 50,640,879 46,387,153 Specific impairment on financial investments (212,444,314) (220,578,949) 0 0 TOTAL 720,155,945 3,839,052,283 50,640,879 46,387,153 1 The amount of variable-income securities recorded at cost, excluding consolidated participating interests, amount to EUR 9.7 million as at December 31, 2012 (EUR 9.4 million as at December 31, 2011). BIL Annual Report

141 7.7. Reclassification of financial assets (IAS 39) Carrying value of reclassified assets as at October 1, 2008 Carrying value of reclassified assets as at December 31, 2011 Fair value of reclassified assets as at December 31, 2011 Gross amount not recognised in the statement of income (1&2) (1) From the "Assets held for trading" portfolio to "Loans and advances" 219,554, (2) From the "Assets held for trading" portfolio to "Loans and available for sale securities" 293,649, (3) From the "Loans and available for sale securities" portfolio to "Loans and advances" 5,978,854, n.a. Gross amount not recognised in the AFS reserve (3) Amortisation of premiums / discounts in the statement of income in 2011 Amortisation of premiums / discounts in the AFS reserve in 2011 (1) From the "Assets held for trading" portfolio to "Loans and advances" n.a. (1,006,147) n.a. (2) From the "Assets held for trading" portfolio to "Loans and available for sale securities" n.a. 625,832 n.a. (3) From the "Loans and available for sale securities" portfolio to "Loans and advances" 0 n.a. 180,160,737 Carrying value of reclassified assets as at October 1, 2008 Carrying value of reclassified assets as at December 31, 2012 Fair value of reclassified assets as at December 31, 2012 Gross amount not recognised in the statement of income (1&2) (1) From the "Assets held for trading" portfolio to "Loans and advances" 219,554, (2) From the "Assets held for trading" portfolio to "Loans and available for sale securities" 293,649, (3) From the "Loans and available for sale securities" portfolio to "Loans and advances" 5,978,854, n.a. Gross amount not recognised in the AFS reserve (3) Amortisation of premiums / discounts in the statement of income in 2012 Amortisation of premiums / discounts in the AFS reserve in 2012 (1) From the "Assets held for trading" portfolio to "Loans and advances" n.a. 0 n.a. (2) From the "Assets held for trading" portfolio to "Loans and available for sale securities" n.a. 0 n.a. (3) From the "Loans and available for sale securities" portfolio to "Loans and advances" 0 n.a. 0 Due to the exceptional circumstances in 2008 and in particular to the fact that the prices observed for certain financial assets were no longer representative of a "fair value" - but rather of prices that reflected the stressed situation or guide prices generated by brokers - BIL decided to apply the amendment of IAS 39 and IFRS 7 "Reclassification of Financial Assets" to certain assets. This relates to the reclassification of certain assets included under "Financial assets held for trading" as "Investments available for sale" or "Loans and advances" on the one hand, and the reclassification of certain assets included under "Investments available for sale" as "Loans and advances" on the other. These reclassifications were carried out on October 1, BIL Annual Report 2012

142 Transfer from "Financial assets held for trading" to "Loans and advances" and "Investments available for sale". These financial assets had initially been recognizd as "Financial assets held for trading" as BIL had intended to trade them before long. Due to the above-mentioned exceptional circumstances, market illiquidity, lack of availability of representative prices and market inactivity, BIL has reclassified those high credit quality bonds which it no longer holds for short-term selling and which it intends and is able to hold for the foreseeable future. The impact on the income statement related to these securities is shown in the table above. This refers to amortisation of discounts and premiums on instruments recognised henceforth in "Loans and advances" and in "Investments available for sale". As at December 31, 2011, these positions were sold. However, amortisation of discounts and premiums have continued to be recorded in the course of the 2011 financial year. Transfer from "Investments available for sale" to "Loans and advances". BIL has an unusual "Investments available for sale" portfolio in the sense that it is composed of very long-dated securities Investments in participating interests The result is that minor variations in spreads cause significant changes in value. The transfer to "Loans and advances" only relates to those financial assets for which no active market price was available, subject to the additional condition that BIL intends and has the ability to hold them for the foreseeable future. The change in the AFS reserve that would have been recorded if reclassification had not taken place is calculated according to valuation models taking into account the changes in liquidity in the different markets in the absence of representative market prices. The impact of this reclassification as at December 31, 2011 and 2012 is shown in the table above. This relates to losses not realised on the transfer date gradually being recognised in the statement of income, i.e. over the residual holding period. As at December 31, 2011, these positions were sold. The impact on the 2011 financial year consists of the amortisation of the balance of the AFS reserve which was frozen at the time of the transfer. 31/12/11 31/12/12 Net carrying value 236,987, ,908,832 A. analysis by counterpart (net carrying value) 31/12/11 31/12/12 Banks 112,065, ,219,940 Other 124,921,987 72,688,892 TOTAL 236,987, ,908,832 B. analysis by nature (net carrying value) 31/12/11 31/12/12 Unlisted equities and variable-rate instruments 179,773, ,908,832 Listed equities and variable-rate instruments 57,214,200 0 TOTAL 236,987, ,908,832 BIL Annual Report

143 7.9. Tangible fixed assets A. NET CARRYING VALUE Land and buildings Own use owner Office furniture and other equipment Own use owner Financing lease Investment property ACQUISITION COST AS AT 01/01/11 323,500, ,934,251 7,417, ,175, ,027,349 - Acquisitions 4,324, , ,940,956 6,998,642 - Disposals (1,724,827) (463,351) 0 (1,184,097) (3,372,275) - Changes in the scope of consolidation (additions) 487,691 2, ,324 - Transfers (22,152,423) 113,065 (113,631) 22,149,178 (3,811) - Translation adjustments 0 8, ,560 ACQUISITION COST AS AT 31/12/11 (A) 304,435, ,328,014 7,303, ,081, ,148,789 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 01/01/11 (187,258,543) (102,089,282) (2,549,297) (31,252,922) (323,150,044) - Booked (8,341,420) (1,424,502) (733,634) (10,621,009) (21,120,565) - Write-off 1,180, , ,619,412 - Changes in the scope of consolidation (additions) (250,286) (648) 0 0 (250,934) - Transfers (128,426) (12,947) 15,250 (592,292) (718,415) - Translation adjustments 108 (9,059) 0 0 (8,951) ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 31/12/11 (B) (194,798,427) (103,097,166) (3,267,681) (42,466,223) (343,629,497) NET CARRYING VALUE AS AT 31/12/11 (A)+(B) 109,637,057 7,230,848 4,036, ,615, ,519,292 Land and buildings Own use owner Office furniture and other equipment Own use owner Financing lease Investment property ACQUISITION COST AS AT 01/01/12 304,435, ,328,014 7,303, ,081, ,148,789 - Acquisitions 4,958,047 1,420, ,746,600 9,125,593 - Disposals 0 (16,559) 0 0 (16,559) - Transfers (6,715,725) (121,200) 0 (3,443,429) (10,280,354) - Translation adjustments 0 28, ,753 ACQUISITION COST AS AT 31/12/12 (A) 302,677, ,639,954 7,303, ,384, ,006,222 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 01/01/12 (194,798,427) (103,097,166) (3,267,681) (42,466,223) (343,629,497) - Booked (9,240,900) (1,361,570) (745,239) (10,889,727) (22,237,436) - Write-off 0 16, ,560 - Transfers 3,796, ,682 0 (291,084) 3,628,371 - Translation adjustments 0 (26,790) 0 0 (26,790) ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 31/12/12 (B) (200,242,554) (104,346,283) (4,012,920) (53,647,034) (362,248,791) NET CARRYING VALUE AS AT 31/12/12 (A)+(B) 102,435,252 7,293,671 3,290, ,737, ,757,431 B. FAIR VALUE OF INVESTMENT PROPERTIES 31/12/11 31/12/12 Fair value not subject to an independant valuation 1 191,743, ,743,622 Total Total The Esch-Belval property was revalued as at December 31, Its fair value is estimated at EUR 203 million. Only the fair value corresponding to the part of this property not allocated to the Group's own use is shown above. 1 The fair value of investment properties is revalued every five years. 142 BIL Annual Report 2012

144 7.10. Intangible fixed assets and goodwill Internallydeveloped software Other intangible fixed assets ACQUISITION COST AS AT 01/01/11 76,780,471 54,662, ,442,612 - Acquisitions 12,312,912 1,206,242 13,519,154 - Translation adjustments 5, ,525 ACQUISITION COST AS AT 31/12/11 (A) 89,098,908 55,868, ,967,291 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 01/01/11 (51,904,669) (46,492,127) (98,396,796) - Booked (10,379,546) (6,546,547) (16,926,093) - Translation adjustments (4,991) 0 (4,991) ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 31/12/11 (B) (62,289,206) (53,038,674) (115,327,880) NET CARRYING VALUE AS AT 31/12/11 (A)+(B) 26,809,702 2,829,709 29,639,411 Internallydeveloped software Other intangible fixed assets ACQUISITION COST AS AT 01/01/12 89,098,908 55,868, ,967,291 - Acquisitions 13,409,186 2,060,149 15,469,335 - Transfers 0 (43,495,843) (43,495,843) - Translation adjustments 11, ,795 ACQUISITION COST AS AT 31/12/12 (A) 102,519,889 14,432, ,952,578 ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 01/01/12 (62,289,206) (53,038,674) (115,327,880) - Booked (9,588,794) (1,357,354) (10,946,148) - Transfers 0 43,495,843 43,495,843 - Translation adjustments (8,115) 0 (8,115) ACCUMULATED DEPRECIATION AND IMPAIRMENT AS AT 31/12/12 (B) (71,886,115) (10,900,185) (82,786,300) NET CARRYING VALUE AS AT 31/12/12 (A)+(B) 30,633,774 3,532,504 34,166, Tax assets 31/12/11 31/12/12 Deferred tax assets (see note 9.2) 400,954, ,889,455 TOTAL 400,954, ,889,455 Total Total BIL Annual Report

145 7.12. Other assets 31/12/11 31/12/12 Other assets * 7,371,567,909 45,956,559 TOTAL 7,371,567,909 45,956,559 * Analysis by nature 31/12/11 31/12/12 Receivables 5,574 4,406 Prepaid fees 101,497 95,384 Other receivables 1 7,343,715,336 27,317,212 Plan assets 647, ,066 Other operating tax 16,185,672 3,482,982 Other assets 10,912,764 14,306,509 TOTAL 7,371,567,909 45,956, Leasing 1. BIL as lessor operating LEASES BIL is the financial lessor of certain land and buildings, the amounts of which are indicated in the balance sheet and detailed in the note 7.9. Future net minimum lease payments under operating leases: 31/12/11 31/12/12 Less than 1 year 6,638,000 6,638,000 More than 1 year and less than 5 years 26,552,000 19,914,000 TOTAL 33,190,000 26,552, BIL as lessee A. FINANCIAL LEASES BIL is the financial lessee of certain land and buildings, the amounts of which are indicated in the balance sheet and detailed in the note 7.9. Given that the total amounts are below materiality, additional information has not been provided in this note. B. OPERATING LEASES Future net minimum lease payments under operating leases: 31/12/11 31/12/12 Less than 1 year 2,133,319 2,828,978 More than 1 year and less than 5 years 1,170, ,896 TOTAL 3,303,529 3,641,874 Lease and sublease payments recognised as an expense during the financial year: - minimum lease payments 1,629,816 1,876,591 TOTAL 1,629,816 1,876,591 1 As at December 31, 2011, this amount corresponds to the receivable from Dexia SA, resulting from the effects of the derecognition of the Legacy portfolio in the amount of EUR 6.2 billion and equities in the amount of EUR 1.1 billion. 144 BIL Annual Report 2012

146 7.14. Quality of financial assets Analysis of normal loans and securities on an individual basis Gross amount (A) 31/12/11 31/12/12 Normal loans and advances to credit institutions 2,998,988,901 1,981,535,465 Normal loans to customers 9,280,720,139 9,354,548,111 Normal financial investments held to maturity 50,640,879 46,387,153 Normal financial investments available for sale 703,125,773 3,823,587,787 of which bonds and fixed-income instruments 448,822,516 3,564,941,704 of which equities and other variable-income instruments 254,303, ,646,083 Collective impairment of normal loans on an individual basis (19,622,369) (20,444,139) TOTAL 13,013,853,323 15,185,614,377 Analysis of impaired loans and securities on an individual basis Gross amount (B) Specific loan loss allowance - Net amount (B+C) individual basis (C) 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Impaired loans and advances to customers 248,325, ,233,163 (203,912,036) (211,802,646) 44,413,041 43,430,517 Impaired financial assets available for sale 229,474, ,043,445 (212,444,314) (220,578,949) 17,030,172 15,464,496 of which equities and other variable-income instruments 229,474, ,043,445 (212,444,314) (220,578,949) 17,030,172 15,464,496 TOTAL 477,799, ,276,608 (416,356,350) (432,381,595) 61,443,213 58,895,013 Analysis of normal and impaired loans and securities on an individual basis Gross amount (A+B) Specific loan loss allowance - Net amount (A+B+C) individual basis (C) 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Loans and advances to credit institutions 2,998,988,901 1,981,535, ,998,988,901 1,981,535,465 Loans and advances to customers 9,529,045,216 9,609,781,274 (203,912,036) (211,802,646) 9,325,133,180 9,397,978,628 Financial investments held to maturity 50,640,879 46,387, ,640,879 46,387,153 Financial investments available for sale 932,600,259 4,059,631,232 (212,444,314) (220,578,949) 720,155,945 3,839,052,283 of which bonds and fixedincome instruments 448,822,516 3,564,941, ,822,516 3,564,941,704 of which equities and other variable-income instruments 483,777, ,689,528 (212,444,314) (220,578,949) 271,333, ,110,579 Collective impairment of normal loans on an individual basis 1 (19,622,369) (20,444,139) n.a. n.a. (19,622,369) (20,444,139) TOTAL 13,491,652,886 15,676,890,985 (416,356,350) (432,381,595) 13,075,296,536 15,244,509,390 1 For the counter value in profit and loss, see note BIL Annual Report

147 Note 8: Notes on the liabilities of the balance sheet (in EUR) 8.1. Amounts owed to credit institutions A. ANALYSIS BY NATURE 31/12/11 31/12/12 On demand 246,008, ,783,797 Term 154,597, ,763,680 Repurchase agreements 2,101,483, ,183,435 Central banks 2,089,783,853 28,608,621 Other borrowings 1 2,227,776,112 1,669,509,286 TOTAL 6,819,649,130 2,786,848,819 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note Amounts owed to customers A. ANALYSIS BY NATURE 31/12/11 31/12/12 Demand deposits 3,176,498,667 4,225,220,622 Savings deposits 3,197,442,336 3,940,830,505 Term deposits 2,705,761,163 3,075,705,922 Other customer deposits 30,146,829 41,005,168 TOTAL CUSTOMER DEPOSITS 9,109,848,995 11,282,762,217 Repurchase agreements 241,362,957 0 TOTAL CUSTOMER BORROWINGS 241,362,957 0 TOTAL 9,351,211,952 11,282,762,217 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note Other borrowings represent day-to-day cash management operations. 146 BIL Annual Report 2012

148 8.3. Financial liabilities measured at fair value through profit and loss Financial liabilities held for trading A. ANALYSIS BY NATURE 31/12/11 31/12/12 Bonds issued by public bodies Other bonds 2,720, ,323 TOTAL 2,721, ,323 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note 12.1 Financial liabilities designated at fair value A. ANALYSIS BY NATURE 31/12/11 31/12/12 Non-subordinated liabilities 3,005,501,107 2,682,263,038 TOTAL 3,005,501,107 2,682,263,038 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note 12.1 The BIL group primarily uses the fair value option (FVO) to eliminate or at least significantly reduce the measurement or recognition inconsistency (also known as the accounting mismatch) that would arise from measuring financial assets or liabilities or recognising the gains and losses on these assets and liabilities on a different basis. The fair value of unlisted financial instruments was determined using pricing tools and procedures established by Group Risk Management. These pricing tools are discounted cash flow models that allow the current value to be determined on the basis of an interest-rate curve that is applicable to similar securities and takes into account the Bank's own credit rating Debt securities A. ANALYSIS BY NATURE 31/12/11 31/12/12 Certifcates of deposit 139,587,713 96,919,701 Non-convertible bonds 823,591, ,314,669 TOTAL 963,179, ,234,370 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note 12.1 BIL Annual Report

149 8.5. Subordinated debt A. ANALYSIS BY NATURE 31/12/11 31/12/12 Non-convertible subordinated debt 1 575,279, ,194,004 Hybrid capital and redeemable preferred shares 2 227,073, ,368,228 B. ANALYSIS BY MATURITY AND interest-rate see notes 12.4, 12.5 and 12.6 C. ANALYSIS OF THE FAIR VALUE see note Provisions and other obligations A. ANALYSIS BY NATURE 31/12/11 31/12/12 Litigations 3 23,294,435 7,571,547 Restructuring 23,726,390 15,529,800 Defined benefit plans 20,780,000 18,684,000 Other long-term employee benefits 12,981,419 12,659,769 Provision for off balance sheet credit commitments 250, ,500 Onerous contracts 0 0 Other provisions 2,730,430 1,951,661 TOTAL 83,762,674 56,728,277 B. ANALYSIS BY MOVEMENT Litigations Restructuring Pensions and other benefits employee Provision for off-balance sheet credit commitments Onerous contracts Other provisions AS AT 01/01/11 30,028,698 33,413, ,030, , ,758 5,112,693 Exchange differences 295, (4,849) 6,200 Additional provisions 2,320,194 95,222 5,982, , ,136 Unused amounts reversed (8,278,631) (5,500,000) (11,164,114) (221,240) 0 (193,861) Used during the year (734,731) (4,282,736) (2,239,996) 0 (233,909) (2,668,738) Transferts (336,430) 0 (68,847,696) AS AT 31/12/11 23,294,435 23,726,390 33,761, , ,730,430 AS AT 01/01/12 23,294,435 23,726,390 33,761, , ,730,430 Exchange differences (114,688) ,852 Additional provisions 3,258,258 1,192,917 7,104,387 81, ,071 Unused amounts reversed (17,076,093) (1,497,198) (7,714,462) 0 0 (944,763) Used during the year (1,328,838) (7,633,309) (2,313,118) 0 0 (405,928) Transferts (461,527) (259,000) 505, AS AT 31/12/12 7,571,547 15,529,800 31,343, , ,951,662 1 List available upon request. 2 In first instance, 2011 loss has been allocated to all available reserves. In accordance with the "Loss Participation" clause, as defined in the hybrid capital prospectus issued by BIL, the amount of loss exceeding the available reserves has been shared on a prorata basis, between the amount of hybrid capital (for EUR 34 million), on the one hand, and the sum of the share capital and share premium adjusted for the amount of own shares, on the other hand. 3 Provisions for legal litigations, including those for staff and tax-related litigation. 148 BIL Annual Report 2012

150 C. ANALYSIS BY MATURITY see note 12.6 D. PROVISIONS FOR PENSIONS AND OTHER LONG-TERM BENEFITS Employees hired on or after November 1, 2007 partake in a defined-contribution pension plan, while employees hired prior to November 1, 2007 partake either a defined-contribution or defined-benefit pension plan. All these commitments are shown in the table below. a. Change in benefit obligation 31/12/11 31/12/12 Benefit obligation at beginning of year 218,677, ,966,000 Current service cost 8,015,000 8,203,000 Interest cost 9,505,000 8,802,000 Actuarial gains / losses 6,890,000 4,826,000 Benefits paid from plan / company (16,301,000) (19,178,000) Net transfer in / out (including the effect of all business combinations / divestitures) 139, ,000 Plan curtailments 41, ,000 BENEFIT OBLIGATION AS AT END OF YEAR 226,966, ,703,000 b. Change in plan assets 31/12/11 31/12/12 Fair value of plan assets at beginning of year 108,428, ,159,000 Expected return of plan assets 5,652,000 8,033,000 Actuarial gains / (losses) on plan assets (6,303,000) 16,086,000 Employer contributions 10,883,000 10,336,000 Benefits paid from plan / company (9,099,000) (17,164,000) Acquisitions / divestitures / transfers 69,598, ,000 FAIR VALUE OF PLAN ASSETS AS AT END OF YEAR 179,159, ,120,000 c. Amounts indicated in the balance sheet 31/12/11 31/12/12 Wholly-unfunded plans or wholly- or partly-funded plans Present value of funded obligations 214,624, ,716,000 Fair value of plan assets 179,159, ,119,000 Deficit / surplus for funded plans 35,466,000 21,597,000 Present value of unfunded obligations 12,343,000 11,987,000 Unrecognised net actuarial gain / loss (15,295,000) (3,663,000) NET ASSETS / LIABILITIES 32,514,000 29,921,000 Amounts indicated in the balance sheet Liabilities 33,161,000 30,671,000 Assets (647,000) (750,000) TOTAL LIABILITIES RELATING TO INSIGNIFICANT PLANS 600, ,000 NET ASSETS / LIABILITIES 33,114,419 30,594,000 d. Components of pension expense 31/12/11 31/12/12 Amounts indicated in the statement of income Current service cost 8,015,000 8,203,000 Interest paid 9,505,000 8,802,000 Expected return on plan assets (5,652,000) (8,033,000) Expected return on reimbursement assets (3,170,000) 0 Amortisation of net gain / loss incl. paragraph 58 (a) 449, ,000 Curtailment gain / loss recognised 41, ,000 TOTAL PENSION EXPENSE RECOGNISED IN THE STATEMENT OF INCOME 9,188,000 9,501,000 Actual return on assets Actual return on plan assets 825,000 24,118,000 BIL Annual Report

151 e. Balance sheet reconciliation 31/12/11 31/12/12 Balance sheet liabilities / assets 109,392,000 32,514,000 Pension expense recognised in the statement of income during the financial year 9,188,000 9,501,000 Employer contributions made during the financial year (10,883,000) (10,336,000) Benefits paid directly by the company during the financial year (7,202,000) (2,014,000) Credit to reimbursements 1,476,000 0 Net transfer in / out (including the effect of any business combinations / divestitures) (69,457,000) 256,000 BALANCE SHEET LIABILITIES / ASSETS AT THE END OF THE FINANCIAL YEAR 32,514,000 29,921,000 f. Range of assumptions used to determine pension expense Discount rate 1 Inflation Salary increase rate Expected return on bonds Expected return on shares Expected return on assets Assumptions set on 31/12/11 for the calculation of 2012 pension expense Europe 4.25 % 2.00 % 3.50 % 4.25 % 7.25 % See note 8.6.I. Assumptions set on 31/12/12 for the calculation of 2013 pension expense Europe 3.34 % 2.00 % 3.00 % n.a. n.a % 2 Comment on assumptions Until 2011, to determine the discount rate applicable for International Accounting Standard (IAS) 19, BIL applied the methodology set by the Dexia group. The index used for determining the discount rate was Iboxx Corp AA, for pension plans in EUR. From 2012, BIL has to set up its own policy for setting the discount rate, in line with Precision Capital and its subsidiaries. IAS 19 states that the discount rate shall be determined by reference to market yields on high quality corporate bonds for which a deep market should exist. The continued turbulence in the financial markets and in the bond market in particular, has drawn particular attention to the "high quality corporate bonds" term used to select the discount rate. Due to the financial crisis, the number of corporate bonds rated AAA or AA (AA-Bonds) has decreased significantly and they are traded less frequently. In particular, the bond universe underpinning the Iboxx Corp AA index sharply decreased in By contrast, as of year-end 2012, the bond universe underpinning Iboxx Corp A has grown over four times larger than the former in terms of both the number and volume of bonds. In that context, BIL has been inclined to select the discount rate by reference to the A rated corporate bonds market as from 2012 and has decided to change the index used for determining the discount rate from Iboxx Corp AA to Iboxx Corp A, for pension plans in EUR. By considering A-rated bonds as high quality bonds, BIL has chosen to derive the discount rate from an index based on a broader population, because it leads to a more reliable discount rate. If BIL had kept the former index, the defined benefit obligation would have been about 4.7 % higher. g. Reconciliation with 31/12/11 31/12/12 Long-term obligations Outstanding liability relating to defined benefit plans 20,780,000 18,684,000 Outstanding liability relating to other long-term employee benefits 12,981,419 12,659,769 TOTAL OUTSTANDING LIABILITIES INDICATED IN THE FINANCIAL STATEMENTS 33,761,419 31,343,769 see note 8.6.A & B TOTAL LIABILITIES CALCULATED BY ACTUARIES 33,161,000 30,671,000 TOTAL LIABILITIES RELATING TO INSIGNIFICANT PLANS 600, ,769 OUTSTANDING NET ASSETS RELATING TO DEFINED BENEFIT PLANS INDICATED IN THE FINANCIAL STATEMENTS 647, ,066 see note 7.12 TOTAL NET ASSETS ANALYSED BY ACTUARIES 647, ,066 1 For employee benefit plans with a remaining term of 10 years or more. 2 As from 2013 (IAS 19 revised), expected return on assets is set equal to discount rate. 150 BIL Annual Report 2012

152 E. DEFINED CONTRIBUTION PLANS State pension contributions are not included in the amounts. F. BREAKDOWN OF PLAN ASSETS AND EXPECTED RETURN Breakdown of assets Deferred tax liabilities originate with our Singapore branch. For 2011, no current tax was recorded in the Bank's accounts. Tax integration under article 164 bis The Bank is no longer included in the scope of fiscal integration as at December 31, 2011 nor as at December 31, The fact that the Bank is no longer part to the fiscal integration system has no impact on the presentation of the. Pension fund (ASSEP - pension savings association) plan assets G. ESTIMATE OF CONTRIBUTIONS DEEMED LIKELY TO BE PAYABLE INTO PENSION PLANS FOR 2013 Pension fund (ASSEP - pension savings association): EUR 10.7 million. Group pension fund: EUR 0. H. INFORMATION ON REIMBURSEMENT RIGHTS: value as at December 31, 2012: EUR 0. Group pension fund plan assets 31/12/11 31/12/12 31/12/11 31/12/12 Securities % % 6.88 % 1.95 % Bonds % % % % Other 3.79 % 1.73 % 0.97 % 3.23 % TOTAL % % % % Expected return % 3.34 % 3.69 % 3.34 % I. RECONCILIATION OF REIMBURSEMENT RIGHTS 31/12/11 31/12/12 Fair value of reimbursement rights at beginning of year 73,447,000 0 Expected return on reimbursement rights 3,170,000 0 Actuarial gain / loss on reimbursement rights (1,694,000) 0 Benefits (5,428,000) 0 Acquisitions / divestitures / transfers (69,495,000) 0 FAIR VALUE OF REIMBURSEMENT RIGHTS AT THE END OF THE YEAR Tax liabilities ANALYSIS BY NATURE 31/12/11 31/12/12 Current income tax 0 14,598,107 Deferred tax liabilities (see note 9.2) 7,733,972 1,868,964 TOTAL 7,733,972 16,467,071 BIL Annual Report

153 8.8. Other liabilities ANALYSIS BY NATURE 31/12/11 31/12/12 Accrued costs 124, ,507 Deferred income 3,177,807 4,953,578 Other payables 1 214,876, ,550,815 Other granted amounts received 1,387,511 1,378,057 Salaries and social security costs (payable) 22,285,027 22,500,870 Other operating tax 55,875,924 40,254,316 Other liabilities 19,153,538 7,550,992 TOTAL 316,880, ,343,135 Note 9: Other notes on the balance sheet (in EUR) 9.1. Derivatives A. ANALYSIS BY NATURE 31/12/11 31/12/12 Assets Liabilities Assets Liabilities Derivatives held for trading 1,652,661,157 1,761,782,648 1,445,811,962 1,352,561,388 Derivatives designated as fair value hedge 4,488,791 4,349,960 3,371,776 25,011,602 Derivatives designated as cash flow hedge 165,957, ,981, ,992, ,207,712 Derivatives designated as portfolio hedge against interest-rate 71,853,446 31,325,576 97,716,246 26,930,106 total 1,894,960,542 1,966,440,056 1,709,892,229 1,573,710,808 B. detail OF DERIVATIVES HELD FOR TRADING 31/12/11 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives 11,603,458,272 11,595,412, ,587, ,745,249 FX forward 8,304,189,029 8,325,416, ,875, ,551,434 Cross currency swap 2,677,081,083 2,635,258, ,336, ,923,263 FX options 622,188, ,737,957 12,375,507 20,270,552 Interest-rate derivatives 25,431,778,200 25,486,511,422 1,143,991,518 1,156,202,040 Options-Caps-Floors-Collars-Swaptions 134,037, ,870,668 1,245,750 1,249,914 IRS 25,296,640,754 25,296,640,754 1,142,745,768 1,154,952,126 Interest futures 1,100,000 1,000, Equity derivatives 566,773, ,296,609 11,884,209 43,670,262 Equity future 5,793,001 5,979, Equity options 34,456,732 30,994,332 2,242,654 0 Warrants 3,005,201 3,005, ,025 0 Other equity derivatives 523,518, ,317,776 9,049,530 43,670,262 Credit derivatives 84,094,358 79,466,502 29,197,800 29,165,097 Credit default swaps 84,094,358 79,466,502 29,197,800 29,165,097 total 37,686,104,622 37,723,687,437 1,652,661,157 1,761,782,648 1 As at December 31, 2011 and 2012, the heading "Other payables" mainly comprises the amounts of the coupons to be paid to clients, the amounts of stock exchange transactions and transactions being liquidated. 152 BIL Annual Report 2012

154 31/12/12 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives 9,422,587,352 9,407,481, ,282, ,373,268 FX forward 6,905,487,494 6,915,653,034 36,205,112 46,916,590 Cross currency swap 1,826,746,711 1,803,430, ,757, ,443,348 FX options 690,353, ,398,480 9,319,996 10,013,330 Interest-rate derivatives 11,536,754,372 11,619,369,880 1,081,262,598 1,030,672,449 Options-Caps-Floors-Collars-Swaptions 144,889, ,642,072 1,245,750 1,249,913 IRS 11,390,865,152 11,390,865,152 1,080,016,848 1,029,422,536 Interest futures 1,000,000 27,862, Equity derivatives 335,756, ,200,495 21,973,531 12,237,178 Equity future 718,620 2,800, Equity options 43,984,052 22,345,453 12,391,238 0 Warrants 2,952,421 2,952, ,627 0 Other equity derivatives 288,101, ,101,829 9,000,666 12,237,178 Credit derivatives 18,766,000 14,469,000 1,293,666 1,278,493 Credit default swaps 18,766,000 14,469,000 1,293,666 1,278,493 total 21,313,864,646 21,357,521,072 1,445,811,962 1,352,561,388 C. detail OF DERIVATIVES DESIGNATED AS FAIR VALUE HEDGE 31/12/11 Notional Amount Assets Liabilities To be received To be delivered Interest-rate derivatives 16,797,558 16,797, ,940 3,777,243 IRS 16,797,558 16,797, ,940 3,777,243 Equity derivatives 0 0 4,274, ,717 Other equity 0 0 4,274, ,717 total 16,797,558 16,797,558 4,488,791 4,349,960 31/12/12 Notional Amount Assets Liabilities To be received To be delivered Interest-rate derivatives 542,211, ,211,065 2,351,690 24,967,472 IRS 542,211, ,211,065 2,351,690 24,967,472 Equity derivatives 0 0 1,020,086 44,130 Other equity 0 0 1,020,086 44,130 total 542,211, ,211,065 3,371,776 25,011,602 BIL Annual Report

155 D. detail OF DERIVATIVES DESIGNATED AS CASH FLOW HEDGE 31/12/11 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives Cross currency swap Interest-rate derivatives 2,626,794,706 2,626,794, ,957, ,981,872 IRS 2,626,794,706 2,626,794, ,957, ,981,872 TOTAL 2,626,794,706 2,626,794, ,957, ,981,872 31/12/12 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives Cross currency swap Interest-rate derivatives 2,162,290,000 2,162,290, ,992, ,207,712 IRS 2,162,290,000 2,162,290, ,992, ,207,712 TOTAL 2,162,290,000 2,162,290, ,992, ,207,712 Cash flows in respect of the hedging instruments relating to the statement of income are recorded therein on a continual basis as interest is paid. Interest generated by derivatives designated as cash flow hedges amounted to EUR -3.7 million in 2012 (EUR million in 2011). E. detail OF DERIVATIVES DESIGNATED AS PORTFOLIO HEDGE AGAINST interest-rate 31/12/11 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives 185,243, ,798,250 2,202,397 5,395,049 interest-rate derivatives 1,376,449,944 1,376,449,944 69,651,049 25,930,527 TOTAL 1,561,693,848 1,503,248,194 71,853,446 31,325,576 31/12/12 Notional Amount Assets Liabilities To be received To be delivered Foreign exchange derivatives 167,865, ,269,239 1,467,235 2,130,497 interest-rate derivatives 1,225,517,108 1,225,517,108 96,249,011 24,799,609 TOTAL 1,393,382,459 1,371,786,347 97,716,246 26,930, Deferred tax A. ANALYSIS 31/12/11 31/12/12 Deferred tax - assets (liabilities) recognised 393,220, ,020,491 of which: Deferred tax - liabilities (7,733,972) (1,868,964) Deferred tax - assets 400,954, ,889,455 Deferred tax 1 580,081, ,881,146 1 of which unrecognised deferred tax assets 186,860, ,860, BIL Annual Report 2012

156 B. movements AS AT JANUARY 1 169,825, ,220,685 Movements during the financial year: - Amounts recognised in the statement of income 330,782,772 21,179,890 - Items directly computed by equity (106,249,422) (48,392,997) - Effect of change in tax rates - statement of income 0 5,886,906 - Effect of change in tax rates - equity 0 (520,115) - Exchange differences (1,138,503) (353,878) AS AT DECEMBER ,220, ,020,491 Deferred tax coming from balance sheet assets 31/12/11 31/12/12 Balance sheet P&L Balance sheet P&L Cash, loans and loan loss provisions 5,651, ,301 5,973, ,431 Securities 4,961,184 (2,654,014) (28,183,971) 6,329,041 Derivatives (551,525) 0 (521,718) 0 Tangible and intangible fixed assets 6,681,666 (152,333) 6,425,849 (260,297) TOTAL 16,742,568 (1,995,046) (16,306,167) 6,391,175 Deferred tax coming from balance sheet liabilities 31/12/11 31/12/12 Balance sheet P&L Balance sheet P&L Provisions (26,490,780) (1,394,545) (26,922,953) (432,295) Pensions 9,083,514 (934,061) 8,408,639 (674,875) Legal tax free provisions (11,721,366) 253, ,721,364 TOTAL (29,128,632) (2,074,728) (18,514,314) 10,614,194 Deferred tax coming from other items 31/12/11 31/12/12 Balance sheet P&L Balance sheet P&L Tax losses carried forward 1 405,606, ,852, ,840,973 10,061,427 TOTAL 405,606, ,852, ,840,973 10,061,427 Considering that: a large part of the unused tax losses results from identifiable causes which are unlikely to recur (the significant amount of 2011 losses result indeed from the sale of the Legacy portfolio, from sales of participations and from deleveraging impacts); BIL decided to re-focus on its historical business which is unlikely to generate such losses in the future, but rather an increasing profitability over the next years; 9.3. Share-based payments There is no stock option plan settled in BIL shares. BIL new strategies are clear with a limited risk appetite, which again limits the risk that significant unexpected losses may occur in the future; our analysis on future taxable profit over the next years will enable to use the unused tax losses over a medium term period (no time restriction applied in Luxembourg). Based on these considerations, BIL Luxembourg has recognised the full amount of unused tax losses. 1 Following losses in the value of Dexia Nederland between 2002 and 2004 and losses on the departure of the Legacy portfolio in 2011, BIL carried forward a tax loss representing a deferred tax asset in the amount of EUR million as at December 31, 2012 (EUR million as at December 31, 2011). BIL Annual Report

157 9.4. Related parties transactions A. RELATED PARTIES TRANSACTIONS Key management Parent company Subsidiaries (in EUR thousands) 31/12/11 31/12/12 31/12/11 31/12/12 31/12/11 31/12/12 Loans 1 4,176 4, , ,368 Interest received ,684 4,034 Receivables ,088, Deposits 4,322 8,537 2, , ,601 Interest paid (5,274) (2,865) Other income fee and commission expense (16) Guarantees and commitments given by the Group ,868 86,208 Guarantees and commitments given to the Group ,000 9,000 Associates Other related parties 31/12/11 31/12/12 31/12/11 31/12/12 Loans ,410,772 3,627 Interest received ,342 0 Receivables ,217,010 0 Deposits 4,248 4,898 1,849,502 12,126 Interest paid (8) (7) (34,059) (1) Other income fee and commission expense ,582 0 Guarantees and commitments given by the Group 0 0 3,395, Guarantees and commitments given to the Group , B. REMUNERATION OF BOARD MEMBERS AND PERSONNEL MANAGEMENT (see note 11.8 "Staff expenses") 9.5. Securitisation As at December 31, 2012, the BIL group has no securitisation vehicles included in its scope of consolidation. The relevant accounting rules are described in of note Shareholders' equity By share category 31/12/11 31/12/12 Number of shares authorised and not issued 3 1,553,942 1,553,942 Number of shares issued and fully paid up 2,017,487 2,017,487 Value per share (accounting par value) EUR 70 EUR 70 Number of treasury shares All loans were granted at market conditions. No depreciation was recorded on the loans granted to the dependent companies. 2 As at December 31, 2011, this amount corresponds to the receivable from Dexia SA, resulting from the effects of the derecognition of the Legacy portfolio and equities. 3 As at December 31, 2012, the subscribed and paid-up capital of the Bank is EUR 141,224,090 (2011: EUR 141,224,090) represented by 2,017,487 shares (2011: 2,017,487 shares) with a par value of EUR 70 (2011: EUR 70). Following the general meeting of November 16, 2010, and in accordance with the articles of incorporation, the Board of Directors of the Bank is authorised to increase the share capital to a maximum of EUR 250 million, without prejudice to possible renewals, until September 30, BIL Annual Report 2012

158 9.7. Exchange rates 31/12/11 31/12/12 Closing rate Average rate Closing rate Average rate Australian dollar AUD Canadian dollar CAD Swiss franc CHF Danish krone DKK Pound sterling GBP Hong Kong dollar HKD Japanese yen JPY Norwegian krone NOK Polish zloty PLN Swedish krone SEK Singapore dollar SGD US dollar USD Note 10: Notes on the off-balance sheet items (in EUR) Regular way trade 31/12/11 31/12/12 Loans to be delivered 1,849,917,725 1,450,637,538 Borrowings to be received 2,977,140,877 1,449,637, Guarantees 31/12/11 31/12/12 Guarantees given to credit institutions 1,186,938, ,888,421 Guarantees given to customers 1,017,263, ,824,541 Guarantees received from credit institutions 9,000,000 9,000,000 Guarantees received from customers 67,901, Loan commitments 31/12/11 31/12/12 Unused lines granted to credit institutions 1,128,552, ,601 Unused lines granted to customers 3,219,677,766 3,090,367, Other commitments 31/12/11 31/12/12 Banking activity - Commitments given 35,866,400,086 27,313,328,414 Banking activity - Commitments received 1 30,670,919,972 29,768,404,589 1 Commitments received are composed of assets held on behalf of third parties, which amounted to EUR 23.9 billion as at December 31, 2011 and EUR 23.9 billion as at December 31, BIL Annual Report

159 Note 11: Notes on the statement of income (in EUR) Interest received - Interest paid 31/12/11 31/12/12 INTEREST RECEIVED 1,303,855, ,712,948 a) Interest received on assets not measured at fair value through profit and loss 666,085, ,973,707 Cash and balances with central banks 3,660,634 1,026,883 Loans and advances to credit institutions 69,861,013 17,771,858 Loans and advances to customers 372,404, ,328,520 Financial assets available for sale 211,100, ,375,377 Investments held to maturity 8,887,152 5,471,069 Interest on impaired assets 172,250 0 b) Interest received on assets measured at fair value through profit and loss 637,770, ,739,241 Financial assets held for trading 1,649,436 1,813,092 Financial assets designated at fair value 2,011,754 1,112,408 Derivatives held for trading 418,106, ,389,238 Derivatives used for hedging purposes 216,002, ,424,503 INTEREST PAID (1,080,033,198) (777,049,533) a) Interest paid on liabilities not measured at fair value through profit and loss (212,712,979) (111,455,201) Amounts owed to credit institutions (78,306,514) (30,870,354) Amounts owed to customers (95,953,843) (61,236,149) Debt securities (14,100,816) (10,005,067) Subordinated debt (10,403,081) (9,198,991) Interest on preferred shares and hybrid capital (12,181,144) (144,638) Charges relating to state-guaranteed amounts 1 (1,697,861) 0 Other (69,720) (2) b) Interest paid on liabilities measured at fair value through profit and loss (867,320,219) (665,594,332) Financial liabilities held for trading (621) 0 Financial liabilities designated at fair value (63,243,668) (59,945,423) Derivatives held for trading (464,493,535) (505,756,994) Derivatives used for hedging purposes (339,582,395) (99,891,915) NET INTEREST RECEIVED 223,822, ,663, Dividends 31/12/11 31/12/12 Financial assets available for sale 68,618,969 23,604,727 total 68,618,969 23,604,727 1 See the consolidated. 158 BIL Annual Report 2012

160 11.3. Net trading income and net result of hedge accounting 31/12/11 31/12/12 Net income from transactions (746,701,027) 18,650,656 of which income from trading securities 6,814,539 9,116,249 of which income from trading derivatives (753,515,566) 9,534,407 Net result of hedge accounting (27,234,705) 1,602,280 Net result of financial instruments designated at fair value through profit and loss * (1,632,608) 1,029,425 Change in own credit risk 1 7,500,000 (11,170,000) Net foreign exchange gain / (loss) 36,217,967 (8,352,449) TOTAL (731,850,373) 1,759,912 31/12/11 31/12/12 * including derivatives used for the purpose of hedging and classified in the accounts as trading derivatives (accounting mismatch). 11,098,735 45,602,815 Result of hedge accounting 31/12/11 31/12/12 Net gain /(loss) Net gain /(loss) Fair value hedge (1,361,388) 198,426 Change in the fair value of the hedged item attributable to the hedged risk (394,761,457) (1,061,154) Change in the fair value of the hedging derivatives 393,400,069 1,259,580 Portfolio hedge against interest-rate risk 0 177,220 Change in the fair value of the hedged item (39,720,800) (27,015,428) Change in the fair value of the hedging derivatives 39,720,800 27,192,648 Discontinuation of cash flow hedge accounting (cash flows still expected to occur) - amounts recorded in interest margin (25,873,317) 1,226,634 TOTAL (27,234,705) 1,602,280 Interest paid and received on assets, liabilities and derivatives are recorded in the interest margin. Consequently, the net trading income resulting from hedge accounting only includes changes in the valuation of derivatives, the revaluation of assets and liabilities involved in a hedge relationship and the revaluation of the trading portfolio, as well as the ineffectiveness of hedge relationships. 1 For liabilities revalued at fair value through profit and loss, our own credit risk was determined on the basis of changes in financing costs. Own credit risk refers to changes in the issue costs under current conditions compared to initial conditions (see note 12.2.H). BIL Annual Report

161 11.4. Net income on investments (assets and liabilities not designated at fair value through profit and loss) 31/12/11 31/12/12 Gains on loans and advances 7,053,879 1,061,355 Gains on financial assets available for sale 199,729,162 6,640,233 Gains on investments held to maturity 1,451,197 0 Gains on tangible fixed assets 480,925 9,126 TOTAL GAINS 208,715,163 7,710,714 Losses on loans and advances (582,810,824) (6,736) Losses on financial assets available for sale (1,106,698,077) (56,908,586) Losses on investments held to maturity (87,260) 0 Losses on tangible fixed assets (18,901) 0 Losses on liabilities (27,907) 0 TOTAL LOSSES (1,689,642,969) (56,915,322) NET IMPAIRMENT 19,925,887 (8,337,849) TOTAL (1,461,001,919) (57,542,457) The impact of net income on financial assets available for sale was a loss of EUR 50,268,353 as at December 31, 2012 (a loss of EUR 906,968,915 as at December 31, 2011). This result should be compared with the EUR 50,269,430 impact of the sale of securities on the AFS reserves as at December 31, 2012 (EUR 557,802,813 as at December 31, 2011). Net impairment Specific Risk Total Allowances Write-backs AS AT DECEMBER 31, 2011 Available for sale securities (200,684,217) 220,610,104 19,925,887 TOTAL (200,684,217) 220,610,104 19,925,887 AS AT DECEMBER 31, 2012 Available for sale securities (9,231,114) 893,265 (8,337,849) TOTAL (9,231,114) 893,265 (8,337,849) Fees and commissions income and expenses 31/12/11 31/12/12 Income Expenses Net Income Expenses Net Management of unit trusts and mutual funds 22,420,442 (5,612,799) 16,807,643 20,377,173 (4,222,214) 16,154,959 Administration of unit trusts and mutual funds 7, ,015 37, ,036 Insurance activity 13,400, ,400,524 11,536, ,536,755 Credit activity 15,400,752 (1,276,743) 14,124,009 13,316,632 (181,634) 13,134,998 Purchase and sale of securities 16,431,203 (2,087,337) 14,343,866 15,436,370 (2,680,519) 12,755,851 Purchase and sale of unit trusts and mutual funds 4,072,902 (838,258) 3,234,644 3,346,062 (544,007) 2,802,055 Payment services 31,840,361 (722,569) 31,117,792 29,010,372 (960,293) 28,050,079 Commissions to non-exclusive brokers 0 (1,304,883) (1,304,883) 7,693 (575,110) (567,417) Financial engineering 2, , Services on securities other than safekeeping 2,959,753 (211,249) 2,748,504 3,218,917 (327,344) 2,891,573 Custody 12,728,240 (917,761) 11,810,479 11,339,278 (2,099,756) 9,239,522 Issues and placements of securities 6,715,504 (461,021) 6,254,483 4,377,976 (261,427) 4,116,549 Private banking 26,157,786 (3,173,471) 22,984,315 27,170,411 (4,277,733) 22,892,678 Clearing and settlement 1,881,410 (1,663,710) 217,700 1,717,663 (1,706,980) 10,683 Securities lending 51,986 (313,585) (261,599) 159,548 (137,481) 22,067 Other 3,388,659 (97,530) 3,291,129 2,891,761 (178,748) 2,713,013 TOTAL 157,458,537 (18,680,916) 138,777, ,943,647 (18,153,246) 125,790, BIL Annual Report 2012

162 11.6. Independant auditors' fees The fees payable to the independant auditors of the BIL group for the years 2011 and 2012 are as follows: Legal control of annual 1,178,506 1,258,500 Other audit services 23,033 19,033 Tax services 7,413 9,151 Other 227, ,124 TOTAL 1,436,877 2,039, Other net income 31/12/11 31/12/12 Operating taxes 0 5,028,473 Rental income 14,608,680 15,689,724 Other banking income ¹ 1,578, ,276 Other income on other activities ² 6,984,878 27,305,571 OTHER INCOME 23,171,732 48,180,044 Operating taxes (2,001,034) (2,807,245) Maintenance and repair of investment property (3,986,855) (4,059,192) Other expenses in relation to other activities 3 (20,815,774) (28,014,794) OTHER EXPENSES (26,803,663) (34,881,231) TOTAL (3,631,931) 13,298,813 Advances paid to the AGDL in 2008: 37,876,176 Reimbursements received from the AGDL in 2009: (11,572,127) Reimbursements received from the AGDL in 2010: (4,951,593) Reimbursements received from the AGDL in 2011: (2,322,004) Reimbursements received from the AGDL in 2012: (2,187,355) Reimbursements expected from the AGDL in 2013: 0 Actual loss (amount effectively owed to the AGDL): 16,843,097 In 2008, in order to pay advances to the AGDL, an expense of EUR 37.9 million was recorded in the statement of income (tax deductible expense). Reimbursements were made in 2009, 2010, 2011 and 2012 of EUR 21 million and recorded under other net operating income. This income is taxable. Since the Glitnir and Landsbanki cases are now closed, a EUR 1.6 million write-back was recorded under "Other operating income" in Lastly, no reimbursements are expected from the AGDL in This consists primarily of the recovery of AGDL (Association pour la Garantie des Dépôts, Luxembourg) payments made in 2008 following the bankruptcies of Icelandic banks. 2 This consists primarily of write-backs for litigation for EUR 3.6 million (EUR 2.9 million in 2011) and extraordinary income from previous year for EUR 23.7 million (EUR 3.7 million in 2011). 3 This consists primarily of depreciation of investment property for EUR million (EUR million in 2011), provisions for legal litigation for EUR -2.8 million (EUR -0.4 million in 2011) and extraordinary loss from previous years for EUR million (EUR -7.7 million in 2011). BIL Annual Report

163 11.8. Staff expenses a. Staff expenses 31/12/11 31/12/12 Wages and salaries (125,890,003) (132,048,460) Social security and insurance costs (17,079,972) (17,427,157) Staff benefits (9,540,114) (8,931,851) Restructuring expenses 5,404, ,281 Other expenses (2,272,804) (2,616,396) TOTAL (149,378,115) (160,719,583) Average number of employees Senior management Employees 1,645 1,699 TOTAL 1,682 1,733 b. Remuneration of the Bank's administrative and managerial bodies During the financial year, the Bank granted emoluments to current members of its administrative and financial bodies and has made contributions in respect of retirement pensions on their behalf as follows: Remuneration Retirement pensions Members of the administrative bodies 181, , Members of the managerial bodies 8,061,570 5,419,428 1,209, ,147 TOTAL 8,242,570 5,770,011 1,209, ,147 Remuneration of members of BIL's Management Board amounted to EUR 2.7 million in 2012, including pension expenses (EUR 3.5 million in 2011) General and administrative expenses 31/12/11 31/12/12 Occupancy (8,918,281) (9,906,497) Operating leases (1,629,816) (1,316,685) Professional fees (21,437,281) (20,689,937) Marketing, advertising and public relations (5,199,751) (5,598,824) Technology and system costs (27,841,291) (26,402,288) Software costs and maintenance expenses (5,721,286) (5,816,358) Repair and maintenance expenses (179,968) (167,461) Operating taxes 0 (1,653,000) Other general and administrative expenses 1 (29,461,781) (35,070,456) TOTAL (100,389,455) (106,621,506) Amortisation on tangible and intangible fixed assets 31/12/11 31/12/12 Depreciation on land and buildings (8,341,420) (9,240,900) Depreciation on other tangible fixed assets (1,053,813) (993,344) Depreciation on IT equipment (370,689) (368,226) Depreciation on intangible fixed assets (16,926,093) (10,946,148) TOTAL (26,692,015) (21,548,618) 1 This heading primarily comprises the cost of financial information, various types of insurance cover and the transport of valuables. 162 BIL Annual Report 2012

164 Impairment on loans and provisions for credit commitments Collective impairment 31/12/11 31/12/12 Allowances Write-backs Total Allowances Write-backs Total LOANS (26,523,764) 43,396,015 16,872,251 (3,658,629) 2,836,859 (821,770) Specific impairment 31/12/11 Allowances Write-backs Losses Recoveries Total Loans and advances to credit institutions (5,014,008) 5,224, ,882 Loans and advances to customers (50,070,505) 36,831,406 (15,172,642) 4,886,265 (23,525,476) Other debtors (589,000) 10,590,323 (499,605) 0 9,501,718 Commitments (311,240) 221,240 n.a. n.a. (90,000) TOTAL (55,984,753) 52,867,859 (15,672,247) 4,886,265 (13,902,876) Specific impairment 31/12/12 Allowances Write-backs Losses Recoveries Total Loans and advances to customers (27,790,619) 18,384,299 (8,179,126) 0 (17,585,446) Other debtors 0 589, ,000 Commitments (81,500) 0 n.a. n.a. (81,500) TOTAL (27,872,119) 18,973,299 (8,179,126) 0 (17,077,946) Impairment on tangible and intangible fixed assets Value adjustments are recorded when criteria for establishing such adjustments are met. Market and sale conditions are reviewed on a regular basis, at least once per year. If the expected loss on the sale is lower than the existing value adjustments, a write-back of the value adjustment is recorded. As at December 31, 2011, the Bank accelerated the amortisation of some intangible fixed assets following its departure from the Dexia group Tax expenses 31/12/11 31/12/12 Income tax for current financial year 0 (14,652,474) Deferred taxes 329,112,557 27,453,818 Tax on current financial year result (A) 329,112,557 12,801,344 Income tax for previous year 37,251 54,197 Deferred taxes for previous year 1,670,214 (24,788) Other tax expenses (B) 1,707,465 29,409 TOTAL (A)+(B) 330,820,022 12,830,753 BIL Annual Report

165 Effective corporate income tax rate The standard tax rate applicable in Luxembourg as at December 31, 2011 and at December 31, 2012 was %. The effective BIL tax rate was % in The difference between both rates may be analysed as follows: 31/12/11 31/12/12 NET INCOME BEFORE TAX (2,035,319,586) 17,838,335 Tax base (2,035,319,586) 17,838,335 Applicable tax rate at year-end % % Theoretical corporate income tax at standard rate (586,172,041) 5,137,440 Effect of different tax rates in other countries 134,739,380 (5,462,301) Tax effect of non-deductible expenses 486, ,302 Tax effect of non-taxable income (66,221,590) (6,896,566) Effect of change in tax rates 1 661,009 (5,886,905) Unrecognised deferred tax assets (tax loss carried forward) 2 186,860,655 0 Other 533,062 94,686 Tax on current financial year result (329,112,557) (12,801,344) EFFECTIVE TAX RATE % n.a Earnings per share Basic Basic earnings per share are calculated by dividing the net income attributable to equity holders by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares purchased by the company and held as treasury shares. 31/12/11 31/12/12 Net income-group share (1,704,499,564) 30,669,088 Weighted average number of ordinary shares 2,016,517 2,016,517 Basic earnings per share (expressed in EUR per share) (845.27) Provisions for legal litigation The charges recognised under this item mainly comprised legal fees and provisions for existing litigation. 1 In 2011, the effect of changes in tax rates mainly related to the revaluation of the stock of deferred taxes in relation to our Singapore branch (from 12 % to 17 %). In 2012, the effect of changes in tax rates mainly related to the revaluation of the stock of deferred taxes in relation to BIL (from % to %). 2 This tax effect was mainly due to the loss booked by our Singapore branch in BIL does not consider these deferred tax assets to be recoverable in the near future. 164 BIL Annual Report 2012

166 Note 12: Notes on risk exposure (in EUR) Fair value A. BREAKDOWN OF FAIR VALUE A.1. Fair value of assets 31/12/11 31/12/12 Carrying value Fair value Difference Carrying value Fair value Difference Cash and balances with central banks 826,410, ,410, ,256,328,704 3,256,328,704 0 Loans and advances to credit institutions 2,998,988,901 2,998,831,754 (157,147) 1,981,535,108 1,984,258,782 2,723,674 Loans and advances to customers 9,305,510,811 9,392,846,259 87,335,448 9,377,534,847 9,495,113, ,578,974 Financial assets held for trading 53,759,215 53,759, ,167,390 86,167,390 0 Financial assets designated at fair value 34,244,485 34,244, ,844,610 36,844,610 0 Financial assets available for sale 720,155, ,155, ,839,052,283 3,839,052,283 0 Investments held to maturity 50,640,879 49,402,273 (1,238,606) 46,387,153 47,356, ,080 Derivatives 1,894,960,542 1,894,960, ,709,892,229 1,709,892,229 0 Fair value revaluation of portfolios hedged against interest-rate risk 28,916,690 28,916, ,452,345 25,452,345 0 Other assets 8,100,681,269 8,100,681, ,769, ,769,723 0 TOTAL 24,014,269,731 24,100,209,426 85,939,695 21,090,964,392 21,212,236, ,271,728 A.2. Fair value of liabilities 31/12/11 31/12/12 Carrying value Fair value Difference Carrying value Fair value Difference Amounts owed to credit institutions 6,819,649,130 6,856,924,938 (37,275,808) 2,786,848,819 2,793,285,487 (6,436,668) Amounts owed to customers 9,351,211,952 9,351,487,187 (275,235) 11,282,762,217 11,284,914,934 (2,152,717) Financial liabilities held for trading 2,721,129 2,721, , ,323 0 Financial liabilities designated at fair value 3,005,501,107 3,005,501, ,682,262,038 2,682,262,038 0 Derivatives 1,966,440,056 1,966,440, ,573,710,808 1,573,710,808 0 Fair value revaluation of portfolios hedged against interest-rate risk 68,157,796 68,157, ,611,929 91,611,929 0 Debt securities 963,179, ,874,903 (2,695,208) 619,234, ,487,478 (9,253,108) Subordinated debt 802,352, ,669,310 (93,316,805) 751,562, ,619,026 (79,056,794) Other liabilities 408,377, ,377, ,538, ,538,483 0 TOTAL 23,387,590,621 23,521,153,677 (133,563,056) 20,098,433,219 20,195,332,506 (96,899,287) In accordance with our valuation rules, the fair value of certain items is equal to their carrying value (see note 1.7 of the section "Accounting policies"). With the exception of the items "Financial liabilities held for trading" and "Financial liabilities designated at fair value", the yield differential due to our own credit quality was deemed unchanged for the purpose of calculating the fair value. BIL Annual Report

167 B. ANALYSIS OF THE FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The table below provides an analysis of the fair value of financial Level 2: fair value measurements are based on data other than instruments measured at fair value after their initial recognition, the quoted prices included in Level 1, which are observable for grouped in three levels from 1 to 3, according to the degree of the assets or liabilities, either directly (e.g. prices) or indirectly observability of the fair value: (e.g. price derivatives). Level 1: fair value measurements are based on (unadjusted) Level 3: fair value measurements are based on valuation prices quoted on active markets for similar assets or liabilities. techniques that include assets or liabilities data that are not based on observable market data (non-observable data). B.1. Assets 31/12/11 Level 1 Level 2 Level 3 Total Financial assets held for trading 3,357,875 22,168,832 28,232,508 53,759,215 Financial assets designated at fair value - equities 0 34,244, ,244,485 Financial assets available for sale - bonds 290,041, ,781, ,822,516 Financial assets available for sale - equities 1 11,020,827 96,716,972 27,081, ,818,955 Derivatives 0 1,738,937, ,023,019 1,894,960,542 TOTAL 304,419,830 2,050,849, ,336,683 2,566,605,713 31/12/12 Level 1 Level 2 Level 3 Total Financial assets held for trading 44,065,413 13,247,449 28,854,528 86,167,390 Financial assets designated at fair value - equities ,844,610 36,844,610 Financial assets available for sale - bonds 3,564,941, ,564,941,704 Financial assets available for sale - equities 1 72,967,217 39,792,872 26,490, ,250,837 Derivatives 0 1,495,840, ,051,885 1,709,892,229 TOTAL 3,681,974,334 1,548,880, ,241,771 5,537,096,770 B.2. Liabilities 31/12/11 Level 1 Level 2 Level 3 Total Financial liabilities held for trading 2,622,464 98, ,721,129 Financial liabilities designated at fair value 0 2,305,972, ,528,736 3,005,501,107 Derivatives 0 1,836,792, ,648,011 1,966,440,056 TOTAL 2,622,464 4,142,863, ,176,747 4,974,662,292 31/12/12 Level 1 Level 2 Level 3 Total Financial liabilities held for trading 902, ,323 Financial liabilities designated at fair value 0 2,192,404, ,858,585 2,682,263,038 Derivatives 0 1,388,697, ,013,598 1,573,710,808 TOTAL 902,323 3,581,101, ,872,183 4,256,876,169 Fair value may also be calculated by the interpolation of market prices. 1 Excludes variable securities recorded at cost such as consolidated participating interests (amounted to EUR 125 million as at December 31, 2012 and EUR 127 million as at December 31, 2011) and other variable-income securities recorded at cost (amounted to EUR 9.7 million as at December 31, 2012 and EUR 9.4 million as at December 31, 2011). Fair value may also be calculated by the interpolation of market prices. 166 BIL Annual Report 2012

168 C. TRANSFER BETWEEN LEVEL 1 AND LEVEL 2 C.1. Assets 31/12/11 31/12/12 From Level 1 to Level 2 From Level 2 to Level 1 From Level 1 to Level 2 From Level 2 to Level 1 Financial assets held for trading ,130,171 TOTAL ,130,171 C.2. Liabilities 31/12/11 31/12/12 From Level 1 to Level 2 From Level 2 to Level 1 From Level 1 to Level 2 From Level 2 to Level 1 Financial liabilities held for trading TOTAL BIL Annual Report

169 D. LEVEL 3 RECONCILIATION D.1. Assets 31/12/11 Opening balance Purchase Sale New issues Total gains and losses in the income statement Total gains and losses in OCI Financial assets held for trading 54,311,115 (1,463,690) 0 19,911,970 (42,045,789) 0 Financial assets designated at fair value - equities 127,978,608 (6,590,253) 0 0 (121,388,355) 0 Financial assets available for sale - bonds 5,164,405,308 (293,955,390) 79,410,721 65,547,981 (4,793,679,897) 0 Financial assets available for sale - equities 1,312,217,180 (1,029,643) (31,352,395) 501,010 (1,150,749,366) 0 Derivatives 85,636,297 52,611,127 (1,416,338) 0 (12,546,158) 0 TOTAL 6,744,548,508 (250,427,849) 46,641,988 85,960,961 (6,120,409,565) 0 Opening balance Settlement Total gains and losses in the income statement Transfer to Level 3 31/12/11 Transfer from Level 3 Conversion differences Financial assets held for trading (2,460,118) (20,980) ,232,508 Financial assets designated at fair value - equities Financial assets available for sale - bonds (77,315,143) 0 (6,876,066) (137,537,514) 0 Financial assets available for sale - equities 0 0 (102,505,630) 0 27,081,156 Derivatives ,738, ,023,019 TOTAL (79,775,261) (20,980) (109,381,696) (105,799,423) 211,336,683 31/12/12 Total gains Purchase Sale New issues and losses in OCI Financial assets held for trading 28,232,508 2,907, ,130 (527,840) 0 Financial assets designated at fair value - equities 0 3,340, Financial assets available for sale - equities 27,081,156 (700,000) 36, ,848 (2,354) 0 Derivatives 156,023,019 71,341,560 9,090, TOTAL 211,336,683 76,889,303 9,127,598 1,478,978 (530,194) 0 Settlement Transfer to Level 3 31/12/12 Transfer from Level 3 Conversion differences Financial assets held for trading (2,641,338) ,854,528 Financial assets designated at fair value - equities 0 33,503, ,844,610 Financial assets available for sale - equities 0 0 (711,471) 191,905 26,490,748 Derivatives (22,766,948) 370,646 (7,326) 0 214,051,885 TOTAL (25,408,286) 33,874,581 (718,797) 191, ,241,771 Total Total 168 BIL Annual Report 2012

170 D.2. Liabilities 31/12/11 Opening balance Purchase Sale New issues Total gains and losses in the income statement Total gains and losses in OCI Financial liabilities held for trading 30, Financial liabilities designated at fair value 775,059,162 (18,203,425) ,536,311 Derivatives 102,842,081 42,225, (22,078,599) 0 TOTAL 877,931,946 24,022, (22,078,599) 122,536,311 Settlement Transfer to Level 3 31/12/11 Transfer from Level 3 Conversion differences Total Financial liabilities held for trading (30,703) Financial liabilities designated at fair value (201,211,505) 23,916,415 (2,568,222) 0 699,528,736 Derivatives ,658, ,648,011 TOTAL (201,242,208) 23,916,415 (2,568,222) 6,658, ,176,747 Opening balance Total gains and losses in the income statement 31/12/12 Total gains Purchase Sale New issues and losses in OCI Financial liabilities designated at fair value 699,528,736 (13,512,688) 0 0 (111,400,697) 103,425,899 Derivatives 129,648,011 98,899, TOTAL 829,176,747 85,386, (111,400,697) 103,425,899 Settlement Transfer to Level 3 31/12/12 Transfer from Level 3 Conversion differences Financial liabilities designated at fair value (176,667,931) 0 (11,514,734) 0 489,858,585 Derivatives (41,909,331) 0 (1,624,335) 0 185,013,598 TOTAL (218,577,262) 0 (13,139,069) 0 674,872,183 Total BIL Annual Report

171 Changes in the amounts declared under Level 3 in 2011 and 2012 can be explained as follows: the "Total gains and losses in the statement of income" column cannot be analysed separately as such. Indeed, certain assets and liabilities at amortised cost or classified under Level 1 or 2 may be hedged by derivatives classified under Level 3. We refer to note 11.3 "Net result of hedge accounting" for an economic view of the impact in the statement of income; improvements in internal models and satisfactory back-testing results led to transfers between levels, primarily from Level 3 to Level 2; the detailed revision of complex structured issues carried out by local Risk Management also explains the transfers from Level 3 of financial liabilities designated at fair value due to the observable nature of the data used for their measurement. However, the impact on the statement of income is relatively limited as the structured financial instruments are fully hedged against interest-rate risk as well as against the risks linked to the structure via the use of fully-backed derivatives. It should be noted that Level 3 financial instruments held for trading are the result of buybacks of BIL issues. E. sensitivity OF LEVEL 3 VALUATION TO ALTERNATIVES SCENARIOS BIL uses a discounted cash flow model to determine the mark-to-model price. Sensitivity is a measurement of the fair value impact of alternative scenarios relating to the model's unobservable parameters at the closing date. With regard to the spread valuation, in cases where BIL uses its own models, alternative scenarios relating to unobservable parameters were taken into consideration, in particular for: credit spreads: by considering credit spreads available on a single counterpart or, failing that, on similar counterparts or counterparts belonging to similar sectors, or by using credit spreads indexed to liquid CDS indices; liquidity premiums: by considering the different levels of premiums primarily used in determining the fair value of bonds, and which depend in particular on the eligibility of the security for refinancing with the central banks; the illiquidity of the financial instrument: by considering a change in the estimated liquidity of the market for a single instrument or similar products, and / or by incorporating an analysis of the bid-ask spread for real transactions. Tests were carried out on all financial instruments classified under Level 3. The effects of sensitivity are mainly felt at the level of structured issues recognised at fair value through profit and loss. These effects are, however, offset by a reverse sensitivity at the level of activity-related hedging derivatives Credit risk exposure A. ANALYSIS OF BIL EXPOSURE Counterpart and geographical exposures are indicated in the consolidated. Geographical zone is determined according to the country of residence of the counterpart. Credit risk includes counterpart risk in relation to balance sheet items and confirmed off-balance sheet items. Risks are evaluated after taking into account the effect of guarantees and impairment. The risks relate to all entities in which BIL is a majority shareholder. Exposures by geographic region (in EUR millions) 31/12/11 31/12/12 Belgium 2,038 1,173 France 8,605 1,808 Germany Greece 3 0 Ireland Italy Luxembourg 11,406 9,468 Portugal Spain Other EU countries 1, Rest of Europe 379 4,005 Turkey 10 9 United States and Canada Central and South America 97 6 South-east Asia Japan Other TOTAL 26,038 19,627 Exposures by counterpart category (in EUR millions) 31/12/11 31/12/12 State 2,192 7,353 Local public sector Corporate 3,270 3,173 Project Finance Individuals, SMEs, self-employed 6,539 6,881 Financial institutions 13,134 1,251 Other 9 32 TOTAL 26,038 19,627 1 Including supranational entities such as the ECB. 170 BIL Annual Report 2012

172 Credit risk exposure is shown as follows: balance sheet assets other than derivative contracts are valued at their net value (i.e. the carrying value after deduction of the specific provision); derivative contracts are recorded at their mark-to-market value plus add-on ("add-on" is an estimate of potential future exposure; this value is not recorded but is added on for regulatory purposes); off-balance sheet items are shown in terms of total commitment. The total amount of off-balance sheet commitments corresponds to unused lines of credit or to the maximum amount of guarantees granted by BIL to third parties. Exposure to credit risk is broken down by geographic region and counterpart category, bearing in mind guarantees received. B. CREDIT RISK EXPOSURE BY CLASS OF FINANCIAL INSTRUMENT (in EUR millions) Credit risk exposure 31/12/11 31/12/12 Financial effect of the collateral Credit risk exposure Financial effect of the collateral Available for sale portfolio (excluding variable-income securities) 1, ,565 0 Held for trading portfolio (excluding variable-income securities) Loans and advances (at amortised cost) 11, , Financial assets held to maturity Derivatives ,110 Other financial instruments at cost 6, Commitments in respect of loans granted 3, , Commitments in respect of guarantees given 2,482 2, TOTAL 26,038 3,217 19,627 2,309 BIL Annual Report

173 C. CREDIT QUALITY OF NORMAL FINANCIAL ASSETS (in EUR millions) AAA to AA- The quality of financial assets is determined using internal credit ratings, or external ratings in the event that internal ratings are not available. Prior to being taken into account in the table, external ratings are converted into internal ratings by means of a correlation table based on default probabilities. The classification based on ratings was reviewed following the revision of the Basel II classification. 31/12/11 Credit quality of normal financial assets A+ to BBB- Non-investment Unlisted grade Available for sale portfolio (excluding variableincome securities) ,206 Financial assets at fair value through profit and loss (excluding variable-income securities) Held for trading portfolio (excluding variableincome securities) Loans and advances (at amortised cost) 1,733 5,813 3, ,166 Financial assets held to maturity Derivatives Other financial instruments at cost 0 6, ,911 Commitments in respect of loans granted 388 1, ,262 Commitments in respect of guarantees given 180 1, ,472 Total 2,633 18,134 4, ,628 (in EUR millions) AAA to AA- 31/12/12 Credit quality of normal financial assets A+ to BBB- Non-investment Unlisted grade Available for sale portfolio (excluding variableincome securities) 2, ,565 Financial assets at fair value through profit and loss (excluding variable-income securities) Held for trading portfolio (excluding variableincome securities) Loans and advances (at amortised cost) 3,886 5,058 3, ,913 Financial assets held to maturity Derivatives Other financial instruments at cost Commitments in respect of loans granted ,614 Commitments in respect of guarantees given TOTAL 7,164 7,208 4, ,203 Total Total 172 BIL Annual Report 2012

174 D. PAST DUE OR IMPAIRED FINANCIAL ASSETS 31/12/11 1 Past-due but not impaired assets < 90 days > 90 days < 180 days > 180 days Carrying amount of individually impaired financial assets Guarantees held for past-due or individually impaired assets and debt instruments Available for sale portfolio (excluding variable-income securities) Loans and advances (at amortised cost) 173,397,476 73,015, ,738, ,325, ,897,029 Other financial instruments at cost ,215,712 0 TOTAL 173,397,476 73,015, ,738, ,540, ,897,029 31/12/12 Past-due but not impaired assets < 90 days > 90 days > 180 days < 180 days Carrying amount of individually impaired financial assets Guarantees held for past-due or individually impaired assets and debt instruments Available for sale portfolio (excluding variable-income securities) Loans and advances (at amortised cost) 231,598,592 68,328, ,781, ,233, ,587,537 Other financial instruments at cost TOTAL 231,598,592 68,328, ,781, ,233, ,587,537 BIL has defined three types of past-due loans: "technical" past-due financial assets "operational" past-due financial assets "credit" past-due financial assets For reporting purposes, the financial assets in question have exceeded the payment deadline by more than 14 days for an amount of more than EUR 25. E. COLLATERAL AND OTHER CREDIT ENHANCEMENTS OBTAINED BY TAKING POSSESSION OF THE GUARANTEES HELD Type of assets obtained during the period by taking possession of the guarantees held Carrying value 31/12/11 31/12/12 Cash 74,246,734 20,435,805 Debt instruments 9,153, ,813 TOTAL 83,400,575 21,100,618 In general, guarantees obtained are immediately converted into cash by BIL figures have been reviewed in order to integrate guarantees and to reflect a higher quality of information. BIL Annual Report

175 F. MOVEMENTS IN ALLOWANCES FOR CREDIT LOSSES As at 01/01/11 Utilisation Allowances Write-backs Specific allowances for financial assets individually assessed for impairment (493,864,094) 92,365,139 (255,768,730) 227,798,164 Loans and advances to credit institutions 0 0 (5,014,008) 5,015,555 Loans and advances to customers (196,583,794) 14,944,849 (50,070,505) 21,886,557 Financial assets available for sale (297,280,300) 77,420,290 (200,684,217) 200,896,052 of which fixed-income instruments (91,417,292) 66,090,776 (183,119,562) 200,896,052 of which equities (205,863,008) 11,329,514 (17,564,655) 0 Allowances for incurred but not reported losses on financial assets and specific allowances for financial assets collectively assessed for impairment (36,553,382) 0 (26,523,764) 42,304,910 TOTAL (530,417,476) 92,365,139 (282,292,494) 270,103,074 Other adjustments As at 31/12/11 Recoveries recorded directly in profit and loss Charges recorded directly in profit and loss Specific allowances for financial assets individually assessed for impairment 13,113,171 (416,356,350) 4,886,265 (15,172,642) Loans and advances to credit institutions (1,547) Loans and advances to customers 5,910,857 (203,912,036) 4,886,265 (15,172,642) Financial assets available for sale 7,203,861 (212,444,314) 0 0 of which fixed-income instruments 7,550, of which equities (346,165) (212,444,314) 0 0 Allowances for incurred but not reported losses on financial assets and specific allowances for financial assets collectively assessed for impairment 1,149,867 (19,622,369) 0 0 TOTAL 14,263,038 (435,978,719) 4,886,265 (15,172,642) As at 01/01/12 Utilisation Allowances Write-backs Specific allowances for financial assets individually assessed for impairment (416,356,350) 8,925,722 (37,021,733) 10,351,843 Loans and advances to credit institutions Loans and advances to customers (203,912,036) 8,032,457 (27,790,619) 10,351,843 Financial assets available for sale (212,444,314) 893,265 (9,231,114) 0 of which fixed-income instruments of which equities (212,444,314) 893,265 (9,231,114) 0 Allowances for incurred but not reported losses on financial assets and specific allowances for financial assets collectively assessed for impairment (19,622,369) 0 (3,658,629) 2,836,859 TOTAL (435,978,719) 8,925,722 (40,680,362) 13,188, BIL Annual Report 2012

176 Other adjustments As at 31/12/12 Recoveries recorded directly in profit and loss Charges recorded directly in profit and loss Specific allowances for financial assets individually assessed for impairment 1,718,924 (432,381,594) 0 (8,179,126) Loans and advances to credit institutions Loans and advances to customers 1,515,710 (211,802,645) 0 (8,179,126) Financial assets available for sale 203,214 (220,578,949) 0 0 of which fixed-income instruments of which equities 203,214 (220,578,949) 0 0 Allowances for incurred but not reported losses on financial assets and specific allowances for financial assets collectively assessed for impairment 0 (20,444,139) 0 0 TOTAL 1,718,924 (452,825,733) 0 (8,179,126) The other adjustments correspond to exchange rate variations over the period affecting provisions recognised in other currencies as well as the deconsolidation of entities. G. CREDIT RISK LINKED TO FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS Carrying value As at 31/12/11 Variation in fair value due to change in credit risk During the period Aggregate amount Difference between the carrying value of the financial liability and the contractual amount due on maturity 1 Banque Internationale à Luxembourg 3,005,501,107 (7,500,000) (18,500,000) (63,267,050) Carrying value As at 31/12/12 Variation in fair value due to change in credit risk During the period Aggregate amount Difference between the carrying value of the financial liability and the contractual amount due on maturity 1 Banque Internationale à Luxembourg 2,682,263,038 11,170,000 (7,330,000) 635,807 In 2011 and 2012, no change in the fair value of BIL's financial liabilities is attributable to changes in the credit risk relating to liabilities, except for liabilities designated at fair value through profit and loss. For liabilities revalued at fair value against profit and loss, our own credit risk was determined on the basis of changes in financing costs. Own credit risk refers to changes in the issue costs under current conditions compared to initial conditions. 1 This amount includes premiums / discounts and the fair value adjustment. BIL Annual Report

177 H. EXEMPTION ASSOCIATED WITH MAJOR RISKS At the request of the Bank, the CSSF has granted a total exemption for its exposure towards its subsidiaries (BIL group) and towards its sister company (KBL European Private Bankers SA) and its subsidiaries in I. INFORMATION ON SOVEREIGN DEBTS As at 31/12/11 Available for sale Held to maturity Held for trading Net carrying Of which amount fair value Of which Carrying Carrying Of which Country in OCI fair value related amount amount fair value Maturity date to hedging in P&L Austria More than 5 years 209,829,290 3,526,873 Denmark Between 1 and 5 years 36,700 (21) Finland More than 5 years 23,430,330 1,842,515 France More than 5 years 56,781,508 2,825,319 Germany Between 1 and 5 years 1, Italy Between 1 and 5 years 34,810,375 Portugal More than 5 years 100,376,917 (49,544,665) Singapore Less than 1 year 2,352,458 9,897 Between 1 and 5 years 9,218,531 (50,916) As at 31/12/11, no sovereign debt is impaired. the calculation of large exposure limits, in accordance with Part XVI, point 24 of Circular 06 / 273, as amended. The amount of exposure covered by this exemption is EUR 819 million as at December 31, BIL Annual Report 2012

178 As at 31/12/12 Available for sale Held to maturity Held for trading Net carrying Of which amount fair value Of which Carrying Carrying Of which Country in OCI fair value related amount amount fair value Maturity date to hedging in P&L Austria More than 5 years 186,625,172 17,039,365 49,764 (1,500) Belgium More than 5 years 723,071,738 19,997,711 Bulgaria Between 1 and 5 years 55,444 4,175 Finland More than 5 years 24,817,709 3,381,632 France More than 5 years 684,987,172 17,370,541 (683,089) Germany Less than 1 year 208,922 (184) Ireland Between 1 and 5 years 110,393,996 (349,333) Italy Between 1 and 5 years 240,953,745 4,701,037 30,556,315 20,098 More than 5 years 239,022,577 4,846,904 Luxembourg Less than 1 year 919,203 (4,988) More than 5 years 54,534,930 3,835,541 (7,671) 1,576,221 8,951 Poland Between 1 and 5 years 30,111, ,394 More than 5 years 521,587 6,250 Qatar Between 1 and 5 years 40,563,168 (102,342) 31,822 More than 5 years 22,277, ,773 (231,650) Singapore Between 1 and 5 years 5,764,738 40,276 Slovakia More than 5 years 28,828, ,967 (138,269) Supranational Between 1 and 5 years 193,150,181 2,225, , More than 5 years 435,145,764 14,621,906 (316,272) 31, As at 31/12/12, no sovereign debt is impaired. BIL Annual Report

179 12.3. Pledged assets A. GUARANTEES THAT MAY BE SOLD OR REPLEDGED Type of assets held as guarantees Guarantees received as at 31/12/11 Guarantees received as at 31/12/12 Guarantees are obtained within the framework of repo / reverse repo and securities lending activities. The conditions for using and returning pledged assets are defined either in standard Overseas Securities Lending Agreements B. FINANCIAL ASSETS PLEDGED AS GUARANTEES Fair value of guarantees held Assets are pledged primarily to provide collateral for repurchase agreements. Fair value of guarantees sold or repledged Fair value of guarantees held Fair value of guarantees sold or repledged Debt instruments 440,768, ,317,252 0 Cash collateral 171,119, ,119,538 1,181,682,452 1,181,682,452 TOTAL 611,887, ,119,538 1,381,999,704 1,181,682,452 (OSLA), amended, where appropriate, by the Legal department, or in agreements drafted directly by this department. Cash collateral is obtained within the framework of Credit Support Annex (CSA) agreements. Carrying value of financial assets pledged as at 31/12/11 For liabilities For contingent liabilities Carrying value of financial assets pledged as at 31/12/12 For liabilities For contingent liabilities Loans and securities 6,554,927, ,680,832 0 Cash collateral 1,190,764,978 n.a. 1,052,790,154 n.a. TOTAL 7,745,692, ,931,470,986 0 C. FINANCIAL ASSETS PLEDGED AS COLLATERAL: DERECOGNITION AND FINANCIAL LIABILITIES ASSOCIATED WITH TRANSFERRED FINANCIAL ASSETS Transferred financial assets entirely recognised as at 31/12/12 Transferred assets Associated liabilities Carrying amount Of which: repurchase Carrying amount Of which: repurchase agreements agreements Available for sale financial assets 249,031, ,031, ,183, ,183,435 TOTAL 249,031, ,031, ,183, ,183, BIL Annual Report 2012

180 12.4. Interest-rate risk: breakdown by maturity until next interest-rate repricing date 1 A. ASSETS 31/12/11 At sight or on demand 2 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Cash and balances with central banks 826,389, Loans and advances to credit institutions 1,857,475,125 1,094,653, ,282 36,661,291 7,294,629 Loans and advances to customers 3,822,115, ,529, ,421, ,690,981 4,285,755,436 Financial assets held for trading 34,747,787 1,930,144 6,365,106 7,894,269 2,752,460 Financial assets designated at fair value Financial assets available for sale 66,973, ,061 6,581, ,455,197 Investments held to maturity ,953,061 0 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. TOTAL 6,607,701,560 1,530,409, ,752, ,199,602 5,091,257,722 Undetermined maturity Accrued interest 31/12/11 Fair value adjustment Impairment Cash and balances with central banks 0 21, ,410,994 Loans and advances to credit institutions 0 2,519, ,998,988,901 Loans and advances to customers 0 14,388, ,714 (223,534,405) 9,305,510,811 Financial assets held for trading 0 89,926 (20,477) 0 53,759,215 Financial assets designated at fair value 33,503, , ,244,485 Financial assets available for sale 0 14,817,760 48,475,317 (212,444,314) 720,155,945 Investments held to maturity 0 1,687, ,640,879 Derivatives n.a. 132,311,767 1,762,648, ,894,960,542 Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. 28,916, ,916,690 TOTAL 33,503, ,836,011 1,840,905,569 (435,978,719) 15,913,588,462 Total 1 Excluding derivatives and off-balance sheet items. 2 Demand deposits and savings deposits are declared in the "At sight or on demand" column as the information shown above takes into account the remaining maturity until the next date on which interest-rates are repriced on an accounting basis rather than according to assumptions based on observed behavioral data. The latter approach is used in the context of ALM sensitivity (see note 12.5). BIL Annual Report

181 At sight or on Less than 3 demand 1 months 31/12/12 Between 3 months and 1 year Between 1 year and 5 years More than 5 years Cash and balances with central banks 3,256,328, Loans and advances to credit institutions 1,429,212, ,800, ,805, ,000 Loans and advances to customers 3,738,138, ,658, ,668, ,603,888 4,599,053,356 Financial assets held for trading 33,829,787 2,218,532 5,716,834 26,576,484 15,845,173 Financial assets designated at fair value Financial assets available for sale 314,205,467 49,891,579 5,708, ,642,583 2,483,684,573 Investments held to maturity ,803,770 0 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. TOTAL 8,771,715, ,568, ,094,380 1,537,431,932 7,099,143,102 Undetermined maturity Accrued interest 31/12/12 Fair value adjustment Impairment Cash and balances with central banks ,256,328,704 Loans and advances to credit institutions 0 1,157,736 0 (357) 1,981,535,108 Loans and advances to customers 0 10,630,818 27,418 (232,246,428) 9,377,534,847 Financial assets held for trading 0 723,420 1,257, ,167,390 Financial assets designated at fair value 33,503, ,340, ,844,610 Financial assets available for sale 325,129,366 49,375, ,992,832 (220,578,949) 3,839,052,283 Investments held to maturity 0 1,583, ,387,153 Derivatives n.a. 134,813,446 1,575,078, ,709,892,229 Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. 25,452, ,452,345 TOTAL 358,633, ,284,687 1,792,149,213 (452,825,734) 20,359,194,669 Total 1 Demand deposits and savings deposits are declared in the "At sight or on demand" column as the information shown above takes into account the remaining maturity until the next date on which interest-rates are repriced on an accounting basis rather than according to assumptions based on observed behavioral data. The latter approach is used in the context of ALM sensitivity (see note 12.5). 180 BIL Annual Report 2012

182 B. LIABILITIES 31/12/11 At sight or on demand 1 Less than 3 months At sight or on Less than 3 demand 1 months Between 3 months and 1 year 31/12/12 Between 3 months and 1 year Between 1 year and 5 years Between 1 year and 5 years More than 5 years Amounts owed to credit institutions 3,767,327,301 2,728,647,524 9,729, ,321,622 64,622,678 Amounts owed to customers 6,770,843,052 2,054,899, ,946,293 11,704,755 3,956,564 Financial liabilities held for trading 203,612 97, ,841 1,641,948 Financial liabilities designated at fair value 276,835, ,559, ,788,249 1,594,353, ,521,532 Derivatives Fair value revaluation of portfolios hedged against interest-rate risk Debt securities 252,575,521 57,362,524 92,445, ,150, ,567,287 Subordinated debt 474,718, ,000, ,861,943 TOTAL 11,542,503,751 4,992,566,574 1,451,909,103 2,075,271, ,171,952 Undetermined maturity 31/12/11 Accrued interest Fair value adjustment Amounts owed to credit institutions 0 11,000, ,819,649,130 Amounts owed to customers 0 25,862, ,351,211,952 Financial liabilities held for trading 0 35, ,721,129 Financial liabilities designated at fair value 0 14,336,805 (37,893,642) 3,005,501,107 Derivatives n.a. 190,330,915 1,776,109,141 1,966,440,056 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 0 68,157,796 68,157,796 Debt securities 0 5,078, ,179,695 Subordinated debt 0 2,771, ,352,505 TOTAL 0 249,416,960 1,806,373,409 22,979,213,370 More than 5 years Amounts owed to credit institutions 2,251,951, ,594,697 34,070, ,166,189 14,689,946 Amounts owed to customers 8,541,279,709 2,067,004, ,852,895 1,312,320 15,731,356 Financial liabilities held for trading 133,653 1, , ,782 Financial liabilities designated at fair value 360,578, ,458, ,570,479 1,181,391, ,232,886 Derivatives Fair value revaluation of portfolios hedged against interest-rate risk Debt securities 69,664,489 30,498,974 84,562, ,004, ,070,070 Subordinated debt 472,009, ,368, ,658,147 TOTAL 11,695,618,229 2,643,557,982 1,549,423,855 1,510,041, ,957,187 Total 1 Demand deposits and savings deposits are declared in the "At sight or on demand" column as the information shown above takes into account the remaining maturity until the next date on which interest-rates are repriced on an accounting basis rather than according to assumptions based on observed behavioral data. The latter approach is used in the context of ALM sensitivity (see note 12.5). BIL Annual Report

183 C. NET POSITION 31/12/11 At sight or on demand Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Undetermined maturity Balance sheet sensitivity gap (4,934,802,191) (3,462,156,600) (1,325,156,295) (1,122,072,019) 4,230,085,770 0 At sight or on demand Less than 3 months 31/12/12 Between 3 months and 1 year Between 1 year and 5 years More than 5 years Undetermined maturity Balance sheet sensitivity gap (2,923,903,127) (1,815,989,297) (1,322,329,475) 27,390,500 6,434,185,915 0 Derivatives are used to hedge the balance sheet sensitivity gap market risk and Assets & Liabilities Management (ALM) Risk measure at December 31, : Undetermined maturity Accrued interest a. Treasury and Financial Markets (TFM) Risk on trading activity: general rate risk, forex risk, equities and spread risk are limited by value at risk (VaR) limit and / or sensitivity limit. Treasury management - banking - subject to VaR limit and interest-rate sensitivity limit. b. Assets & Liabilities Management The interest-rate risk is followed by an interest-rate sensitivity limit. For information, the investment portfolio is measured by a credit spread sensitivity measure. A. treasury AND FINANCIAL MARKETS (TFM) ACTIVITIES BIL's Treasury and Financial Markets activities support the bank's commercial activities. 31/12/12 Fair value adjustment Amounts owed to credit institutions 0 376, ,786,848,819 Amounts owed to customers 0 20,581, ,282,762,217 Financial liabilities held for trading 0 7,499 17, ,323 Financial liabilities designated at fair value 0 12,525,549 22,505,773 2,682,263,038 Derivatives n.a. 122,542,741 1,451,168,068 1,573,710,808 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 0 91,611,929 91,611,929 Debt securities 0 3,434, ,234,370 Subordinated debt 0 526, ,562,232 TOTAL 0 159,993,968 1,565,303,082 19,788,895,735 a. Value at Risk - 99 %, 10 days (in EUR millions) In 2012, BIL calculated: an interest-rate VaR and a Forex VaR based on a parametrical VaR (99 %, 10 days), except for the Fx derivatives desk which is a historical VaR; an equity VaR based on a historical "full Valuation" VaR. Total 1 The measures applied on December 31, 2012 are described in BIL's 2012 Annual Report. 182 BIL Annual Report 2012

184 The details of the calculation are detailed below: VaR (10 days, 99 %) 2011 (in EUR millions) IR 1 & FX 2 (Trading and Banking) 3 EQT 4 Trading Spread Trading Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 By risk factor Average Maximum Global Average 1.58 Maximum 3.88 End of period 1.73 Limit 8.00 VaR (10 days, 99 %) 2012 (in EUR millions) IR 1 & FX 2 (Trading and Banking) 3 EQT 5 Trading Spread Trading 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 By risk factor Average Maximum Global Average 1.92 Maximum 7.65 End of period 3.29 Limit 6.00 The treasury activity is also subject to sensitivity limit (on December 31, 2012, the sensitivity (+1 %) is EUR million, for a limit of EUR 30 million). b. Investment Treasury Portfolio (in EUR millions) Exposure Investment Treasury Portfolio - AFS Interest-rate sensitivity (+1 basis point - bp) The portfolio's interest-rate is managed by ALM Investment Treasury Portfolio - AFS 0 (0.20) Credit spread sensitivity This measure estimates the portfolio's sensitivity, if the spread increases by 1bp Investment Treasury Portfolio - AFS 0 (0.27) 1 IR: interest-rate. 2 FX: forex. 3 IR and FX: without ALM. 4 EQT: equity. 5 Spread trading VaR calculated till 30/09/12. BIL Annual Report

185 B. ALM interest-rate RISK, EQUITY AND CREDIT SPREAD RISK a. ALM ALM is managed by the ALCO. Sensitivity is the measure of the change in fair value due to a 1 % change in the interest-rate position of ALM activities. (in EUR millions) 2011 Interest-rate 1 2 Equity 4 Credit spread 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ALM Sensitivity (1) (1) (1) (1) VaR 10 days 99 % (in EUR millions) 2012 Interest-rate 1 3 Equity 4 Credit spread 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ALM Sensitivity (52) (113) - - (1) (2) VaR 10 days 99 % b. Investment ALM Portfolio (in EUR millions) Exposure Investment ALM Portfolio - AFS 1,250 2,300 Interest-rate sensitivity (+1 bp) The portfolio interest-rate is managed by the ALM Investment ALM Portfolio - AFS (0.30) (1.54) Credit spread sensitivity This measure estimates the portfolio's sensitivity if the spread increases by 1 bp Investment ALM Portfolio - AFS (0.75) (1.87) c. ALM equity - Sensitivity of listed equities The Value at Risk (VaR) evaluates the potential development in market value. The VaR is calculated with a confidence level of 99 %, over a 10 days time horizon. ALM Equity Portfolio 6 Market Value VaR % VaR December 31, % December 31, % December 31, % 1 Sensitivity (+1 %). 2 On December , the interest-rate sensitivity limit for BIL ALM reached EUR 70 million per percent. 3 On December 31, 2012, the interest-rate sensitivity limit for BIL ALM reached EUR 190 million per percent. 4 The equity risk is detailed later. 5 Sensitivity (+1 bp). 6 The management of financial establishment shares put in run-off was assigned to TFM. 184 BIL Annual Report 2012

186 12.6. Liquidity risk: breakdown by residual maturity 1 BIL's approach to liquidity risk management is described under point 4. "Market risk, Assests & Liabilities Management" section of the consolidated. A. ASSETS 31/12/11 Breakdown of gross amount and premium / discount At sight or on demand 2 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Cash and balances with central banks 826,389, Loans and advances to credit institutions 2,098,389, ,682,231 5,385,282 36,661, ,351,091 Loans and advances to customers 1,963,142,964 1,450,065, ,333, ,383,092 4,560,856,097 Financial assets held for trading 790,258 3,570,592 7,432,176 38,840,399 3,056,341 Financial assets designated at fair value Financial assets available for sale 0 297,061 1,087,909 5,493, ,418,574 Investments held to maturity ,953,061 0 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. TOTAL 4,888,712,572 2,045,615, ,238,469 1,046,331,342 5,616,682,103 Undetermined maturity 31/12/11 Breakdown of gross amount and premium / discount Accrued interest Fair value adjustment Impairment Cash and balances with central banks 0 21, ,410,994 Loans and advances to credit institutions 0 2,519, ,998,988,901 Loans and advances to customers 166,731,969 14,388, ,714 (223,534,405) 9,305,510,811 Financial assets held for trading 0 89,926 (20,477) 0 53,759,215 Financial assets designated at fair value 33,503, , ,244,485 Financial assets available for sale 74,010,139 14,817,760 48,475,317 (212,444,314) 720,155,945 Investments held to maturity 0 1,687, ,640,879 Derivatives n.a. 132,311,767 1,762,648, ,894,960,542 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 28,916, ,916,690 TOTAL 274,246, ,836,011 1,840,905,569 (435,978,719) 15,913,588,462 Total 1 Residual maturity, excluding derivatives and off-balance sheet items. 2 Sight deposits and savings accounts are included in this item even though the reimbursement date is undetermined. BIL Annual Report

187 At sight or on demand 1 31/12/12 Breakdown of gross amount and premium / discount Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Cash and balances with central banks 3,256,328, Loans and advances to credit institutions 1,380,804, ,707,750 2,500,000 28,805, ,001 Loans and advances to customers 1,951,085,304 1,326,273, ,393, ,716,854 5,133,869,094 Financial assets held for trading 125,718 2,567,582 32,361,368 33,286,969 15,845,173 Financial assets designated at fair value Financial assets available for sale 0 289,891, ,963,434 2,814,522,886 Investments held to maturity ,803,770 0 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. TOTAL 6,588,344,497 2,186,440, ,254,751 1,295,576,234 7,964,797,155 Undetermined maturity 31/12/12 Breakdown of gross amount and premium / discount Accrued interest Fair value adjustment Impairment Cash and balances with central banks ,256,328,704 Loans and advances to credit institutions 0 1,157,736 0 (357) 1,981,535,108 Loans and advances to customers 171,784,739 10,630,818 27,418 (232,246,428) 9,377,534,847 Financial assets held for trading 0 723,420 1,257, ,167,390 Financial assets designated at fair value 33,503, ,340, ,844,610 Financial assets available for sale 75,884,616 49,375, ,992,832 (220,578,949) 3,839,052,283 Investments held to maturity 0 1,583, ,387,153 Derivatives n.a. 134,813,446 1,575,078, ,709,892,229 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 0 25,452, ,452,345 TOTAL 281,173, ,284,687 1,792,149,213 (452,825,734) 20,359,194,669 Total 1 Sight deposits and savings accounts are included in this item even though the reimbursement date is undetermined. 186 BIL Annual Report 2012

188 B. LIABILITIES 31/12/11 Breakdown of gross amount and premium / discount At sight or on demand 1 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Amounts owed to credit institutions 1,530,898,095 4,145,076, ,729, ,321,622 64,622,678 Amounts owed to customers 6,727,620,686 2,096,327, ,761,132 13,684,347 3,956,564 Financial liabilities held for trading 67,954 29, ,135 1,845,193 Financial liabilities designated at fair value 0 158,401, ,507,358 1,853,627, ,521,532 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. Debt securities 0 74,180, ,789, ,786, ,343,646 Subordinated debt ,820, ,760,142 TOTAL 8,258,586,735 6,474,016,110 1,977,787,437 2,922,982,965 1,290,049,755 31/12/11 Breakdown of gross amount and premium / discount Undetermined maturity Accrued interest Fair value adjustment Amounts owed to credit institutions 0 11,000, ,819,649,130 Amounts owed to customers 0 25,862, ,351,211,952 Financial liabilities held for trading 0 35, ,721,129 Financial liabilities designated at fair value 0 14,336,805 (37,893,642) 3,005,501,107 Derivatives n.a. 190,330,915 1,776,109,142 1,966,440,057 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 0 68,157,796 68,157,796 Debt securities 0 5,078, ,179,695 Subordinated debt 0 2,771, ,352,505 TOTAL 0 249,416,959 1,806,373,410 22,979,213,371 Total 1 Sight deposits and savings accounts are included in this item even though the reimbursement date is undetermined. BIL Annual Report

189 B. LIABILITIES 31/12/12 Breakdown of gross amount and premium / discount At sight or on demand 1 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Amounts owed to credit institutions 1,809,575, ,053,738 34,987, ,166,189 14,689,946 Amounts owed to customers 8,539,719,962 2,066,875, ,619,742 3,556,305 16,409,287 Financial liabilities held for trading 1, , ,435 Financial liabilities designated at fair value 0 209,258, ,124,418 1,395,616, ,232,886 Derivatives n.a. n.a. n.a. n.a. n.a. Fair value revaluation of portfolios hedged against interest-rate risk n.a. n.a. n.a. n.a. n.a. Debt securities 14,796,530 51,770,926 84,562, ,600, ,070,070 Subordinated debt ,009, ,026,375 TOTAL 10,364,092,967 3,127,958,114 1,482,293,983 2,232,116, ,136,999 31/12/12 Breakdown of gross amount and premium / discount Undetermined maturity Accrued interest Fair value adjustment Amounts owed to credit institutions 0 376, ,786,848,819 Amounts owed to customers 0 20,581, ,282,762,217 Financial liabilities held for trading 0 7,499 17, ,323 Financial liabilities designated at fair value 0 12,525,549 22,505,773 2,682,263,038 Derivatives n.a. 122,542,741 1,451,168,068 1,573,710,808 Fair value revaluation of portfolios hedged against interest-rate risk n.a. 0 91,611,929 91,611,929 Debt securities 0 3,434, ,234,370 Subordinated debt 0 526, ,562,232 TOTAL 0 159,993,968 1,565,303,082 19,788,895,735 C. NET POSITION 31/12/11 At sight or on demand 1 Less than 3 months Between 3 months and 1 year Between 1 year and 5 years More than 5 years Total Undetermined maturity Net liquidity gap (3,369,874,163) (4,428,401,038) (1,506,548,968) (1,876,651,623) 4,326,632,348 0 At sight or on demand 1 Less than 3 months 31/12/12 Between 3 months and 1 year Between 1 year and 5 years More than 5 years Undetermined maturity Net liquidity gap (3,775,748,470) (941,517,539) (977,039,232) (936,540,388) 7,107,660,156 0 Asset liquidity and the refinancing of assets are not taken into account in this table; some long-term assets may be sold in the event that liquidity is required. 1 Sight deposits and savings accounts are included in this item even though the reimbursement date is undetermined. 188 BIL Annual Report 2012

190 12.7. Currency risk EUR Other EU currencies 31/12/11 USD Other Total Assets 19,348,027, ,553,506 1,891,749,202 2,275,939,838 24,014,269,731 Liabilities 19,702,768, ,006,755 2,248,843,964 1,590,650,133 24,014,269,731 NET ON-BALANCE SHEET POSITION (354,741,694) 26,546,751 (357,094,762) 685,289,705 0 Off-balance sheet receivable 4,066,114, ,066,044 4,552,569,555 4,041,442,119 13,380,191,998 Off-balance sheet payable 4,147,208, ,709,884 4,277,887,269 4,135,882,026 13,312,688,082 NET OFF-BALANCE SHEET POSITION (81,094,623) (31,643,840) 274,682,286 (94,439,907) 67,503,916 EUR Other EU currencies 31/12/12 USD Other Total Assets 16,181,253, ,403, ,991,324 3,924,316,438 21,090,964,392 Liabilities 17,293,901, ,141,528 1,927,732,715 1,464,188,468 21,090,964,392 NET ON-BALANCE SHEET POSITION (1,112,648,630) (128,737,949) (1,218,741,391) 2,460,127,970 0 Off-balance sheet receivable 3,729,185, ,699,132 4,458,644,920 2,424,409,563 10,990,939,297 Off-balance sheet payable 2,594,426, ,125,923 3,271,918,708 4,825,638,001 10,952,109,274 NET OFF-BALANCE SHEET POSITION 1,134,759, ,573,209 1,186,726,212 (2,401,228,438) 38,830, Solvency ratios Regulatory capital, total amount of weighted risks and solvency ratios 31/12/11 31/12/12 TOTAL REGULATORY CAPITAL (AFTER ALLOCATION) (182,770,304) 773,814,648 Regulatory capital in the strict sense, including hybrid capital (189,226,968) 521,960,852 Core shareholders' equity 618,739, ,390,777 Translation adjustments - Group (53,120,863) (45,752,559) Deductions and prudential filters (846,060,888) (278,677,366) Hybrid capital eligible as Core shareholders' equity 1 91,215,030 0 TIER 2 CAPITAL 6,456, ,853,796 Fixed-term subordinated loans 305,523, ,857,237 Deductions and prudential filters (299,067,290) 81,996,559 1 This amount is the result of a single operation: it consists of hybrid capital issued by BIL on July 6, 2001, in the amount of EUR 225 million entered in the financial statements under subordinated debt. In 2011, so as to adhere to the 15 % Tier 1 hybrid capital ceiling, we only include this issue in the amount of EUR 91,215,030. The nature of Hybrid Tier 1 has been modified on September 14, 2012 following General Meeting and in consequence, it has to be assimilated under lower Tier 2 within the lower Tier 2 limits imposed by the regulatory authorities. BIL Annual Report

191 31/12/11 31/12/12 WEIGHTED RISKS 7,580,635,863 4,185,319,163 Credit risk 6,755,832,975 3,444,313,463 Market risk 135,206, ,792,388 Operational risk 689,595, ,213,313 SOLVENCY RATIOS Tier 1 ratio (2.50 %) % Capital Adequacy Ratio (2.41 %) % As at December 31, 2011, we did not achieve the mimimum requirements in terms of solvency ratio (4 % Tier 1 ratio and 8 % CAD ratio). This was mainly due to: the additional deduction of some deconsolidated holdings (Dexia Asset Management, RBC Dexia Investor Services, Dexia LdG Banque, Popular Banca Privada and Parfipar); the recognition through profit and loss of the negative impacts of the derecognition of investment disposals and of the sale of the Legacy portfolio within the context of the MOU, although these portfolios continue to be weighted in terms of risk. On October 5, 2012 due to the completion of all conditions relating to the sale of the BIL group by Dexia SA to Precision Capital and to the Luxembourg government, we now meet regulatory requirements again. 190 BIL Annual Report 2012

192 Proposed allocation of 2012 income The Board of Directors proposed to the General Meeting of Shareholders that the profit shall be used as follows: EUR Profit / (loss) for the financial year 30,669,088 + Profit bought forward 0 = Profit to be allocated 30,669,088 Allocation to hybrid capital 1 (30,669,088) retained earnings 0 1 In line with the "Loss Participation" clause, as defined in the hybrid capital prospectus issued by BIL, following a reduction of the Contribution Amount, profits shall be allocated to the hybrid capital in order to restore the Contribution to the initial Contribution Amount ("Restoration Allocation"). BIL Annual Report

193 192 BIL Annual Report 2012

194 Banque Internationale à Luxembourg SA 69, route d Esch L-2953 Luxembourg RCS Luxembourg B-6307 T : (+352) F : (+352)