Annual report and consolidated financial statements for 2012 for FOREX BANK AB

Transcription

1 Annual report and consolidated financial statements for 2012 for FOREX BANK AB Org.nr FOREX Annual report

2 2 FOREX Bank Annual report 2012

3 CONTENTS Contents 3 Statutory administration report 4 Consolidated income statement 11 Consolidated statement of comprehensive income 11 Consolidated balance sheet 12 Consolidated statement of changes in equity 13 Consolidated cash flow statement 14 Parent company income statement 15 Parent company statement of comprehensive income 15 Parent company balance sheet 15 Parent company statement of changes in equity 18 Parent company cash flow statement 19 Notees to the financial statements 20 Note 1 Disciosures about Group and Parent Company 20 Note 2 Accounting principles 20 Note 3 Financial risks 31 Note 4 Net interest income/expense 35 Note 5 Dividends received 36 Note 6 Commission income 37 Note 7 Commission expenses 37 Note 8 Net income from financial transactions 38 Note 9 Other operating expenses 39 Note 10 General administrative expenses 40 Note 11 Other operating expenses 47 Note 12 Loan losses, net 47 Note 13 Impairment of financial assets 48 Note 14 Reversal of impairment of financial assets 48 Note 15 Appropriations 48 Note 16 Taxes 49 Note 17 Treasury bills eligible as collateral 52 Note 18 Loans to the credit institutions 52 Note 19 Loans to teh general public 53 Note 20 Bonds and other interest-bearing securities 53 Note 21 Shares and participations in Group companies 54 Note 22 Participations in associated companies 55 Note 23 Other shares and participations 56 Note 24 Intangible assets 57 Note 25 Property, plant and eguipment 59 Note 26 Receivables from and liabilities to Group companies 63 Note 27 Other assets 63 Note 28 Prepaid expenses and accrued income 64 Note 29 Deposits from the general public 64 Note 30 Liabilities to Group companies 64 Note 31 Other creditors 65 Note 32 Accrued expenses and prepaid income 66 Note 33 Provisions 66 Note 34 Untaxed reserves 67 Note 35 Contingent liabilities 67 Note 36 Commitments 67 Note 37 Related parties 68 Note 38 Geographic distribution of income 68 Note 39 Financial assets and liabilities 69 Note 40 Cash flow statement. 76 Note 41 Important estimates and assessments 77 Note 42 Capital adequacy. 77 Signatures of the board of directors 80 Audit report 81 Governance 83 List of branches 84 FOREX Annual report

4 STATUTORY ADMINISTRATION REPORT The Board of Directors and Managing Director of FOREX Bank AB (FOREX) hereby submit the annual report and consolidated financial statements for the 2012 financial year. Ownership FOREX Bank AB, CIN , is one of the family Friberg s wholly owned joint-stock banks. Organization and business activities FOREX is the Parent Company of a Group that is comprised of its bank branches in Finland, Denmark and Norway as well as the wholly owned subsidiary, X-change in Sweden AB (X-change). The Group conducts banking business consisting primarily of loans to and deposits from the general public, remittance services and supplying means of payment in local and foreign currencies. During the year the sub-subsidiary, X-change Valuta Specialisten Europe AB, merged with the subsidiary, X-change in Sweden AB. In addition, during the year the subsidiary, Forex Sweden International Ltd, was liquidated and the subsidiary, Svensk Valutahantering AB, was divested. On September 5, the associated company, Panaxia AB (publ) (Panaxia), listed as NGM Equity, filed for bankruptcy. FOREX owned 27.7 percent of the company at the time of bankruptcy. Significant events during the year The year to a large extent has been affected by the developments within the associated company, Panaxia. During the spring of 2011 the Board of Directors of FO- REX Decided to invest in Panaxia by participating in a new share issue where FOREX subscribed for SEK 38 million, corresponding to 24.7 percent of the company. The purpose of the investment was, together with Sparbanken 1826, to participate in an industrial change in the cash management market while at the same time giving a third party continued possibilities for working in this market. The Board of Directors of FOREX considered it important for strategic reasons to secure value transports as well as the handling of cash through its own Cash Center, which was established on Panaxia s premises. The operations in Panaxia generated a loss during the first six months of 2012, which was compounded by large impairment losses on old, past-due receivables of low quality. Since the Board of Directors of FOREX was committed to keeping Panaxia operational, a new share issue was prepared that was guaranteed by the two primary owners, FOREX and Sparbanken 1826, with SEK 75 million each. Before the new share issue could be executed, Panaxia s bank credit was withdrawn, forcing Panaxia into bankruptcy. Panaxia s losses during the first half of the 2012 burdened Group earnings by SEK 40 million in the form of a negative share in profits from associated companies. Panaxia s bankruptcy has resulted in an additional expense for the Group totaling SEK 134 million since the daily receipts that were submitted to Panaxia for counting were lost. As a result, FOREX prepared an action plan with the aim of strengthening the internal control in the company. The action plan since then has been reported regularly to Finansinspektionen. ANoteher effect of Panaxia s bankruptcy was that the FOREX Cash Center, which was located adjacent to Panaxia s premises, terminated delivery of foreign currency to the Group s branches in Sweden. Following the bankruptcy, Cash Center is exclusively focusing until further Noteice on delivering currency to external customers. The Group s branches once again purchase currency from external parties. The idea of delivering currency to the entire Group via an in-house Cash Center lives on, however, and will continue to be evaluated. Despite the course of events in Panaxia, 2012 was a year of expansion for the Group. The major banks unwillingness to handle cash has increased interest in the FOREX Bank s operations. The Bank s opening hours and wide presence via an extensive network of branches are a competitive advantage. The number of branches increased during the year by 18 and at year-end the operations included 127 (109) bank branches. During the year 16 branches were acquired from Western Union. One of these branches was closed. Of the existing branches that were acquired, one is in Sweden, one is in Finland and thirteen are in Norway. These branches primarily performed remittance services during the year, but in the future they will provide the other services offered by FOREX. Six new branches were also opened during the year and three branches were closed. The reorganization of the subsidiary, X-change, continued in During the year three X-change branches were changed into FOREX branches and two X-change branches were closed. In the future, only branches that are 4 FOREX Bank Annual report 2012

5 located at major travel hubs will be operated as X-change branches. As of January 1, 2012, the subsidiary, X-change, will act as an agent for FOREX with regard to all products and services offered to customers. Efforts to outsource the banking platform and operations of IT-related activities continued during the year. The operation of IT-related activities was taken over in 2011 by a third party. Efforts to outsource the banking platform are in an intensive phase and it is estimated that they will be concluded during Changes in management The Group s CFO and Deputy Managing Director left FO- REX in conjunction with the Panaxia bankruptcy. Thomas Högväg was named Deputy Managing Director in Group results For the financial year, the Group reported an operating profit of SEK 47 million (231) and profit after tax of SEK 8 million (165). The primary explanation for why the operating profit is much lower in 2012 than the previous year is related to the counted daily receipts (SEK 134 million) in conjunction with the bankruptcy of the associated company, Panaxia. Operating income consists mainly of net income from financial transactions (currency exchange for the most part) but also net interest income/expense and net commissions. Operating income during the year totaled SEK 1,284 million (1,223), which is an increase of 5 percent compared to the previous year. Net interest income/expense increased during the year by 34 percent to SEK 149 million (111) due to a combination of growth in the volume of granted loans and an increased interest margin. Net commission increased by 9 percent to SEK 199 million (183). The single largest explanatory factor behind the improved net commission is that the number of foreign transfers increased sharply during the year. This is partly a consequence of the acquisition during the year of all of Western Union s Nordic branches and partly due to the fact that the effects from the change that was made in December 2011 to a new supplier of international remittance services began to be felt during the year. Net income from financial transactions increased during the year by 1 percent to SEK 924 million (916). Consolidated operating expenses during the year totaled SEK 1,163 million (932), which represents an increase of 25 percent. General administrative expenses increased 7 percent to SEK 851 million (796) due to more branches and therefore also more employees, continued large investments in skills development and continued development within IT. Depreciation, amortization and impairment Decreased by 23 percent to SEK 29 million (37) due to the recovery during the year of a previously reported impairment loss of SEK 15 million on property. Other operating expenses increased from SEK 98 million to SEK 283 million. The most important explanation is the loss of counted daily receipts in conjunction with the bankruptcy of Panaxia. ANoteher explanation is increased marketing activities. Loan losses were SEK 74 million (60). Verified loan losses amounted to 1 percent (1) of loans granted. Group position Total assets were SEK 7,240 million (6,574). The increase is due primarily to the continued sharp increase during the period in the volume of both loans to the general public and deposits from the general public. Loans to the general public increased by 35 percent to SEK 3,464 million (2,564). Deposits from the general public increased from SEK 5,513 million to SEK 6,150 million, which is an increase of 12 percent. Cash equivalents in the form of cash, loans to credit institutions, treasury bills eligible as collateral, bonds and other debt securities with a maturity of up to 3 months totaled SEK 3,071 million (2,657). The Group s equity at year-end was SEK 804 million (813). The equity ratio was 11.0 percent (12.4) and the capital adequacy ratio was 1.45 (1.72). Parent Company results For the financial year, the Parent Company reported an operating profit of SEK 68 million (203) and profit after tax of SEK 72 million (145). The lower operating profit is explained by the loss of counted daily receipts in conjunction with the bankruptcy of Panaxia AB (SEK 118 million) and an impairment loss on the shares in the associated company, Panaxia (SEK 43 million). Operating income consists mainly of net income from financial transactions (currency exchange for the most part) but also net interest income/expense and net commissions. Operating income during the year totaled SEK 1,282 million (1,098), which is an increase of 17 percent yearon-year. Net interest income/expense increased during FOREX Annual report

6 the year by 35 percent to SEK 148 million (110) due to growth in the volume of granted loans in conjunction with an increased interest margin. Dividends received during the year totaled SEK 89 million (-). This amount is comprised of dividends received and Group contributions from the subsidiary, X-change. Net commissions Decreased by 37 percent to SEK 103 million (163). The Decrease is due primarily to the fact that the Parent Company paid commissions during the year to the subsidiary, X-change, for its services as an agent for FOREX. Commission income from international transfers also increased sharply during the year due to the larger number of transfers resulting partly from the acquisition during the year of all of Western Union s Nordic branches and partly to the fact that the effects of the change in December 2011 to a new supplier of international remittance services began to be felt during the year. Net income from financial transactions increased during the year by 15 percent to SEK 926 million (804) primarily as a result of the inflow of income during the year from currency sales in the subsidiary, X- change, via an agent agreement. The Parent Company s operating expenses during the year totaled SEK 1,085 million (836), which represents an increase of 30 percent. General administrative expenses increased 11 percent to SEK 796 million (718) due to more branches and therefore also more employees, continued large investments in skills development and continued development within IT. Depreciation, amortization and impairment Decreased by 14 percent to SEK 27 million (32) primarily due to the recovery during the year of a previously reported impairment loss of SEK 15 million on property. Other depreciation and amortization for the year increased as a result of increased investments in the branch network. Other operating expenses increased from SEK 86 million to SEK 261 million. The explanation is the loss of counted daily receipts in conjunction with the bankruptcy of Panaxia. ANoteher explanation is increased marketing activities. Loan losses were SEK 74 million (60). Verified loan losses amounted to 1 percent (1) of loans granted. The operating profit was also burdened by impairment losses on financial assets of SEK 55 million. These consist of an impairment loss on the shares of the associated company, Panaxia (SEK 43 million), and an impairment loss on shares in subsidiaries (SEK 12 million). Parent Company s position Total assets were SEK 7,201 million (6,477). The increase is due primarily to the continued sharp increase during the period in the volume of both loans to the general public and deposits from the general public. Loans to the general public increased by 35 percent to SEK 3,464 million (2,564). Deposits from the general public increased from SEK 5,513 million to SEK 6,150 million, which is an increase of 12 percent. Cash equivalents in the form of cash, loans to credit institutions, treasury bills eligible as collateral, bonds and other debt securities with a maturity of up to 3 months totaled SEK 2,995 million (2,515). The Parent Company s equity at year-end was SEK 733 million (679). The equity ratio was 10.2 percent (10.5) and the capital adequacy ratio was 1.70 (1.88). Future development The Bank continues to develop its operations in accordance with the current business plan with the establishment of new branches. Decisions have been made to open a total of seven new branches in Four of these will be in Sweden, two in Denmark and one in Finland. The goal is to maintain the high market share in Sweden and enhance the Bank s presence in locations where there is large demand for the Bank s products. Efforts will be made to increase the market share in Finland, Denmark and Norway. Deliveries of currency to the Group s branches in Sweden have been made via the Bank s own Cash Center since This service was terminated in 2012 due to Panaxia s bankruptcy. These operations will most likely be resumed in 2013 with the Bank s new transporter. Consequently, the work to sign contracts for the delivery of currency with suppliers outside of Sweden will continue in Considerable resources were committed for a long period of time to the prevention of money laundering. This work will continue with the same high level of priority. A strategic Decision was made in 2012 to also establish banking operations in the Bank s branches. To date, the operations in Finland, Denmark and Norway only included currency exchange and remittance services. The first phase of this project will be to supplement the operations in Finland with the Pay and Save products. The goal is to be able to offer customers these two products in 2013 and gradually broaden the selection of products. These products will also be offered in the Danish and Norwegian markets in the future. 6 FOREX Bank Annual report 2012

7 Events after the closing date IFollowing the bankruptcy of Panaxia, the cooperation in Sweden with the transporter, Panaxia, was terminated. An agreement with a new supplier was signed in In 2013 an agreement with the same supplier was signed for the operations in Norway. In conjunction with an investigation into the separation funds in Panaxia s bankruptcy, and to avoid extended legal proceedings, FOREX accepted a settlement in 2013 in which it received SEK 15 million. Business risks The Bank is exposed on a daily basis to different types of risks associated with the business, such as credit risks, liquidity risks, market risks (interest rate risks and currency risks) and operational risks. A more detailed description of these risks is provided in Notee 3. FOREX Annual report

8 Key figures Group Key figures Volume Loans to the general public Change during the year, % 35% 48% 57% 63% 20% Deposits from the general public Change during the year, % 12% 43% 29% -1% 63% Equity Equity ratio Taxed equity as a % of total assets Capital adequacy ratio 1) Own funds/capital adequacy requirement Net profit Investment margin Net interest income/expense as a % of average total assets Return on equity Operating profit as a % of average equity Cost/income ratio before loan losses Total expenses excluding loan losses in relation to operating income Cost/income ratio after loan losses Total expenses including loan losses in relation to operating income Doubtful debts and loan losses Percentage doubtful debts Net doubtful debts as a % of total loans granted to the general public Loan loss ratio Loan losses as a % of the opening balance for loans to the general public Other information 11,1% 12,4% 14,3% 12,5% 9,6% 1,42 1,72 1,67 1,28 1,04 2,16% 1,93% 1,62% 1,40% 0,72% 5,9% 30,6% 58,2% 35,7% -12,3% 0,9 0,8 0,7 0,8 1,0 1,0 0,8 0,7 0,9 1,1 4,4% 4,5% 4,3% 6,0% 2,2% 2,7% 3,3% 0,4% 10,6% 2,0% Average number of employees Number of branches FOREX Bank Annual report 2012

9 Income statements and balance sheets Group SEK thousand Income statement Net interest income/expense Dividends received Commissions, net Net income from financial transactions Other operating income Total income General administrative expenses Other operating expenses 1) Credit losses and impairment of financial assets Total expenses Operating profit (loss) Share in profits, associated companies Tax Net profit (loss) for the year Balance sheet Cash Treasury bills eligible as collateral Loans to credit institutions Loans to the general public Interest-bearing securities Shares and participations Intangible assets Property, plant and equipment Other assets TOTAL ASSETS Liabilities to credit institutions Deposits from the general public Other liabilities Provisions Total liabilities and provisions Equity TOTAL LIABILITIES, PROVISIONS AND EQUITY ) Including depreciation/amortization and impairment of property, plant and equipment and intangible assets FOREX Annual report

10 Proposal for appropriation of the Parent Company s profit The following earnings are at the disposal of the Annual General Meeting: accumulated profit profit for the year kr The Board proposes that the earnings be carried forward. For further information on the profit and financial position of the Parent Company and the Group, please refer to the accompanying income statement, balance sheet and Notees to the financial statements. 10 FOREX Bank Annual report 2012

11 CONSOLIDATED INCOME STATEMENT SEK thousand Note Interest income Interest expenses Net interest income/expense Dividends received Commission income Commission expenses Net income from financial transactions Other operating income Total operating income General administrative expenses Depreciation/amortization and impairment of PP&E and intangible assets 24, Other operating expenses Total expenses before loan losses Net profit (loss) before loan losses Loan losses, net Impairment of financial assets Operating profit (loss) Share in profits, associated companies Tax Net profit (loss) for the year CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME SEK thousand Note Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Other comprehensive income, net after tax Total comprehensive income FOREX Annual report

12 CONSOLIDATED BALANCE SHEET SEK thousand Note 31 Dec Dec 2011 Assets Cash Treasury bills eligible as collateral Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Participations in associated companies Other shares and participations Intangible assets 24 - Goodwill Other intangible assets PP&E 25 - Equipment Capitalized reconstruction costs Buildings Current tax assets Deferred tax assets Other assets Prepaid expenses and accrued income TOTAL ASSETS Liabilities, provisions and equity Liabilities and provisions Deposits from the general public Deferred tax liabilities Other liabilities Accrued expenses and prepaid income Provisions Total liabilities and provisions Equity Share capital Reserves Earned profits including net profit (loss) for the year Total equity TOTAL LIABILITIES, PROVISIONS AND EQUITY FOREX Bank Annual report 2012

13 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY SEK thousand Share capital 1) Reserves 2) Accrued earnings Total equity Opening balance, Jan 1, Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Dividends Closing balance, Dec 31, Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Dividends Closing balance, Dec 31, ) Specification share capital Number of shares Class A shares Class B shares Total number of shares Quotient value 10 kr All shares have been paid in full 2) Specification Reserves Reserv för verkligt värde Reserv för omräkningsdifferenser Reservfond Totalt reserver Opening balance, 1 Jan Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity 3 3 Closing balance, Dec 31, Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Closing balance, Dec 31, FOREX Annual report

14 CONSOLIDATED CASH FLOW STATEMENT SEK thousand Note Operating profit (loss) (+) Adjustments for non-cash items - Depreciation/amortization and impairment (+) Loan losses (+) Interest Note paid (+) Capital gains/losses on intangible assets and PP&E (+) Other non-cash items (+/-) Taxes paid (-) Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Increase/Decrease in loans to the general public (-/+) Increase/Decrease in bonds and other interest-bearing securities (-/+) Increase/Decrease in deposits from the general public (+/-) Increase/Decrease in other assets and liabilities (+/-) Cash flow from operating activities Investing activities Acquisition of participations in associated companies (-) Sale of intangible assets (+) Acquisition of intangible assets (-) Sale of PP&E (+) Acquisition of PP&E (-) Cash flow from investing activities Financing activities Dividends paid (-) Cash flow from financing activities Cash flow for the year Cash equivalents at the beginning of the year Exchange rate differences on cash equivalents Cash equivalents at year-end Cash and cash equivalents is comprised of the following items: Cash Treasury bills eligible as collateral payable on demand Loans to credit institutions payable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Bank Annual report 2012

15 PARENT COMPANY INCOME STATEMENT SEK thousand Note Interest income Interest expenses Net interest income/expense Dividends received Commission income Commission expenses Net income from financial transactions Other operating income Total operating income General administrative expenses Depreciation/amortization and impairment of PP&E and intangible 24, assets Other operating expenses Total expenses before loan losses Net profit (loss) before loan losses Loan losses, net Impairment of financial assets Reversal of impairment of financial assets Operating profit (loss) Appropriations Tax Net profit (loss) for the year PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME SEK thousand Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Other comprehensive income, net after tax Total comprehensive income FOREX Annual report

16 PARENT COMPANY BALANCE SHEET SEK thousand Note 31 Dec Dec 2011 Assets Cash Treasury bills eligible as collateral Loans to credit institutions Loans to the general public Bonds and other interest-bearing securities Shares and participations in Group companies Participations in associated companies Other shares and participations Intangible assets 24 - Other intangible assets PP&E 25 - Equipment Capitalized reconstruction costs Buildings Receivables from Group companies Current tax assets Deferred tax assets Other assets Prepaid expenses and accrued income TOTAL ASSETS Liabilities, provisions and equity Liabilities and provisions Deposits from the general public Liabilities to Group companies Deferred tax liabilities Other liabilities Accrued expenses and prepaid income Provisions Total liabilities and provisions Untaxed reserves Equity Restricted equity Share capital Statutory reserve Non-restricted equity Profit (loss) brought forward Net profit (loss) for the year Total equity TOTAL LIABILITIES, PROVISIONS AND EQUITY FOREX Bank Annual report 2012

17 CONT. PARENT COMPANY BALANCE SHEET SEK thousand Note 31 Dec Dec 2011 Memorandum items Contingent liabilities Commitments FOREX Annual report

18 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY SEK thousand Restricted equity Share capital 1) Statutory reserve Non-restricted equity Profit/loss carryforward Profit/loss carryforward Total equity Opening balance, Jan 1, Appropriation of profits Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Dividends Closing balance, Dec 31, Appropriation of profits Net profit (loss) for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Dividends Closing balance, Dec 31, ) Specification share capital Number of shares Class A shares Class B shares Total number of shares Quotient value All shares have been paid in full 10 kr 18 FOREX Bank Annual report 2012

19 PARENT COMPANY CASH FLOW STATEMENT SEK thousand Note Operating activities Operating profit (loss) (+) Adjustments for non-cash items - Depreciation/amortization and impairment (+) Loan losses (+) Impairment of financial assets (+) Interest Note paid (+) Capital gains/losses on intangible assets and PP&E (+/-) Dividends Note paid (-) Other non-cash items (+/-) Taxes paid (-) Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Increase/Decrease in loans to the general public (-/+) Increase/Decrease in bonds and other interest-bearing securities (-/+) Increase/Decrease in deposits from the general public (+/-) Increase/Decrease in other assets and liabilities (+/-) Cash flow from operating activities Investing activities Sale of shares in Group companies (+) 35 - Acquisition of shares in Group companies (-) Acquisition of shares in associated companies (-) Sale of intangible assets (+) Acquisition of intangible assets (-) Sale of PP&E (+) Acquisition of PP&E (-) Cash flow from investing activities Financing activities Dividends paid (-) Cash flow from financing activities Cash flow for the year Cash equivalents at the beginning of the year Exchange rate differences on cash equivalents Cash equivalents at year-end Cash and cash equivalents is comprised of the following items: Cash Treasury bills eligible as collateral payable on demand Loans to credit institutions payable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Annual report

20 NOTES TO THE FINANCIAL STATEMENTS Note 1 Disclosures about the Group and Parent Company The annual report as at December 31, 2012, refers to the Group where FOREX Bank AB, a joint-stock bank, is the Parent Company, with registered office in Stockholm. The head office s address is Kornhamnstorg 4, Stockholm. A list of all wholly-owned subsidiaries is provided in Note 21. On March 19, 2013, the Board of Directors approved this annual report for FOREX Bank AB and the annual report will be brought forth for adoption at the Bank s Annual General Meeting. Note 2 Accounting principles (a) Accordance with norms and legislation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) along with interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) as adopted by the EU. Additions to these standards have also been provided by the Annual Accounts Act for Credit Institutions and Securities Companies, the Swedish Financial Supervisory Authority s regulations and guidelines (FFFS 2008:25) on annual reports issued by credit institutions and securities companies, and the Swedish Financial Reporting Board s Supplementary Accounting Rules for Groups, RFR 1, as well as their interpretations, UFR. The Parent Company applies the same accounting principles as the Group, except for situations where the Annual Accounts Act for Credit Institutions and Securities Companies limits the ability to apply IFRS to legal entities. Additionally, consideration has been given to the relationship between accounting and taxation. More information is provided in section (v) Parent Company Accounting Principles, below. Unless otherwise stated, the accounting principles (discussed below) were consistently applied to each period presented in the financial statements. New and revised accounting standards and interpretations that are obligatory for accounting periods as of January 1, 2012 (a) New and changed standards applied by the Group None of the IFRS or IFRIC interpretations that are obligatory for the first time for the financial year starting January 1, 2012, have had a significant effect on the Group (b) New standards, amendments and interpretations of existing standards that the Group has not applied in advance. A number of new standards and amendments to the interpretations and existing standards enter into force for financial years commencing after January 1, None of these are expected to have a significant effect on the Group s financial statements with the exception of those listed below: I IAS 1 Presentation of financial statements has introduced amendments with regard to other comprehensive income. The most significant change in the modified IAS 1 is the requirement that the items reported under other comprehensive income be presented in two groups. This breakdown is based on whether or not the items may be reclassified to profit and loss (reclassification adjustments). The amendment does not address the issue of which items should be included in other comprehensive income. The Group intends to apply the amendments in IAS 1 to the financial year commencing January 1, IFRS 10 Consolidated financial statements uses already existing principles when it identifies control as the Deciding factor for determining if a company should be included in the consolidated accounts. The standard provides additional guidance to assist in the determination of control when this is hard to assess. The Group intends to apply IFRS 10 to the financial year starting January 1, 2013, and has not yet evaluated the full effect on the financial statements. IFRS 12 Disclosures of interests in other entities covers disclosure requirements for subsidiaries, joint arrangements, associated companies and unconsolidated structured entities. The Group intends to apply IFRS 12 to the financial year starting January 1, 2013, and has not yet evaluated the full effect on the financial statements. IFRS 13 Fair value measurement aims to make fair value measurements more consistent and less complex by providing an exact definition and a shared framework in IFRS for fair value measurements and related disclosures. The standard provides guidance for fair 20 FOREX Bank Annual report 2012

21 value measurements of all types of assets and liabilities, both financial and non-financial. The requirements do not expand the scope for when fair value should be applied but rather provide guidance regarding how it should be applied in situations where IFRS already requires or permits a fair value measurement. IAS 19 Employee benefits was amended in June Employment costs from previous years will be reported immediately. Interest expenses and expected return on plan assets will be replaced by a net interest rate that is calculated using the discount rate, based on the net surplus or net deficit in the defined-benefit plan. The Group has not yet evaluated the full effect on the financial statements. None of the other IFRS or IFRIC interpretations that have not yet entered into force are expected to have a significant effect on the Group. (b) Functional currency and reporting currency The Parent Company s functional currency is SEK, which is also the reporting currency for both the Parent Company and the Group. Accordingly, the financial statements are presented in SEK. Unless otherwise stated, all amounts have been rounded to the nearest thousand. (c) Valuation principles used when preparing the company s financial statements Assets and liabilities are reported at historical cost. Financial assets and liabilities are reported at amortized cost, with the exception of certain financial assets and liabilities that are valued at fair value. Financial assets and liabilities reported at fair value consist of derivative instruments, financial instruments classified as financial assets valued at fair value in the income statement, financial liabilities valued at fair value in the income statement or available-for-sale financial assets. factors that are deemed to be reasonable under the current circumstances. The outcome of these estimates and assumptions is then used when determining the carrying amounts of assets and liabilities when such amounts are not otherwise clearly provided by other sources. The actual results may deviate from these estimates and assessments. These estimates and assumptions are regularly reviewed. Changes to estimates are reported in the period the change was made if the change only affects that period. Otherwise, it is reported in the current period and future periods, if the change affects the current period as well as future periods. Assessments made by the management team when applying IFRS that have a significant impact on the financial statements, and estimates that were made that could result in significant adjustment to the next year s financial statements, are described in more detail in Note 41. (e) Changes in accounting principles During the year, no changes were made to accounting principles that affect the Group s or Parent Company s financial statements. (f) Consolidation principles The consolidated financial statements include the Parent Company and its branches, subsidiaries and associated companies. (i) Branches The Bank s business activities in other Nordic countries are conducted through bank branches of Forex Bank AB. The business activities of the branches are consolidated as part of the Parent Company s business and the Parent Company s financial statements in the same way as foreign subsidiaries are consolidated as part of the Group s financial statements. (d) Assessments and estimates used to prepare the financial statements In order to prepare the financial statements in accordance with IFRS, it is necessary for the Bank s management team to make assessments and estimates, as well as assumptions, that affect how the accounting principles are applied and the reported amounts for assets, liabilities, income and expenses. The estimates and assumptions are based on historical experiences and several other (ii) Subsidiaries Subsidiaries refer to the companies in which FOREX Bank has a controlling influence. A controlling influence means that ownership directly or indirectly exceeds 50 percent or that there are other conditions entitling the Parent Company to formulate a company s financial or operating strategies in order to reap financial benefits. Subsidiaries are reported in accordance with the purchase accounting method. Consolidated cost is determined FOREX Annual report

22 through an acquisition analysis in conjunction with the business acquisition. The analysis is used to determine the identifiable assets that have been acquired, as well as the liabilities and contingent liabilities that have been assumed. The cost of acquisition of the subsidiary s shares and its business is determined by the fair value as at the transfer date for the assets, assumed/newly arisen liabilities and newly issued equity instruments that were given as consideration in exchange for the acquired net assets. Any transaction costs that are directly related to the acquisition are directly reported in the income statement. In business acquisitions where the acquisition cost exceeds the net value of the acquired assets and assumed liabilities/contingent liabilities, the difference is shown as goodwill. If the difference is negative, this difference is reported directly in the income statement. The financial reports of subsidiaries are included in the consolidated financial statements as of the acquisition date and until such time as the controlling influence no longer exists. (iii) Associated companies Associated companies are all companies in which the Group has a significant but not controlling influence, which as a rule applies to shareholdings that include between 20 percent and 50 percent of the votes. Holdings in associated companies are reported using the equity method and are measured initially at cost. The Group s reported value of holdings in associated companies includes goodwill that is identified at the acquisition, net after any impairment losses. When the Group s participation in an associated company s losses totals or exceeds its holding in the associated company, the Group does not report additional losses if the Group has not undertaken any commitments or made payments on behalf of the associated company. (iv) Transactions to be eliminated on consolidation Intra-Group receivables, liabilities, revenues or expenses attributable to intra-group transactions between Group companies are fully eliminated when the consolidated financial statements are prepared. This also applies to the same types of transactions between the Parent Company in Sweden and the foreign branches, as well as such transactions between branches, when preparing the Parent Company s annual report. (g) Foreign currency (i) Transactions in foreign currency Transactions in foreign currency are translated to the functional currency using the exchange rate on the transaction date. Functional currency is the currency primarily used where the company or its branches conduct their operations. Monetary assets and liabilities in foreign currency are translated to the functional currency using the exchange rate on the balance sheet date. Exchange differences that arise upon translation are reported in the income statement. Non-monetary assets and liabilities that are reported at historical cost are translated using the exchange rate on the transaction date. Non-monetary assets and liabilities that are reported at fair value are translated to the functional currency using the prevailing exchange rate at the point in time when valuation to fair value is made. (ii) Financial statements concerning foreign operations The assets and liabilities of foreign operations, including goodwill and other Group surplus values, are translated into SEK using the exchange rate on the closing date. The income and expenses of foreign operations is translated to SEK using the average exchange rate. Translation differences that arise from currency translations of foreign operations are reported as part of other comprehensive income. (iii) Net investments in foreign operations Translation differences that arise in conjunction with the translation of a net investment in foreign operations are reported directly under other comprehensive income. When an investment in foreign operations is divested, the Group recognizes the accumulated translation differences after the deduction of any currency hedging. Accumulated translation differences are presented in a separate equity category that comprises translation differences as of January 1, Accumulated translation differences from periods prior to January 1, 2006, are allocated to other equity categories and are not reported separately. For information on the reconciliation of the change in translation differences that is reported as part of equity, please see the Consolidated Statement of Changes in Equity. 22 FOREX Bank Annual report 2012

23 (h) Interest income, interest expenses and dividends Interest income on receivables and interest expense on liabilities are calculated and reported using the effective interest method. The effective rate is the interest rate that renders the present value of all future cash receipts and disbursements during the anticipated remaining fixed interest term equal to the carrying amount of the receivable or liability. Interest income and interest expense includes the accrued amounts of any fees that have been received that have been included in the effective interest rate, transaction expenses and any discounts, premiums and any differences between the original value of the receivable/ liability and the amount that is settled on the due date. Interest expenses include the direct transaction costs associated with entering into new loan agreements. The interest income and interest expenses that are presented in the income statement consist of: -- Interest on financial assets and liabilities valued at amortized cost using the effective interest method, including interest on doubtful debts -- Interest on financial assets that are classified as available-for-sale -- Dividends from shares and participations are recognized when the right to receive payment has been established. (i) Income from commissions and fees Income from commissions and fees is recognized when (i) the amount of income can be measured reliably, (ii) it is probable that the future economic benefits that are attributable to the transaction will flow to the company, (iii) the percentage of completion as of the closing date can be measured reliably and (iv) the fees that have arisen and the fees that remain in order to complete the service assignment can be measured reliably. Income is valued at the fair value of the amount that has been received or that is expected to be received. The Bank receives fees and commissions for services rendered. The following two methods are used when recognizing revenue: (ii) Commissions and fees that are calculated using the effective interest rate Commissions and fees that are an integrated portion of the effective interest rate are not recognized as income from commissions. This type of income is recognized by adjusting the effective interest rate on the profit/loss item, interest income. These types of fees primarily consist of the fees associated with setting up new loans. (ii) Commissions and fees that are earned through rendering a particular service These types of fees and commissions consist of administration fees, charge/credit card fees in instances when the service is performed over a period of time that does not extend past the quarterly closing, payment for remittance services, money transfers and commissions for counting daily receipts, etc. These commissions and fees are typically related to a completed transaction and they are immediately recognized as income. (j) Commission expenses These are expenses associated with services that have been received, to the extent that they are not considered interest. For example, they consist of the expenses associated with clearing and bankgiro, charge/credit cards, payment to loan brokers and fees to UC (credit information agency). Transaction costs that are taken into consideration when calculating the effective interest rate are not reported here. (k) Net income from financial transactions The item, Net income from financial transactions, includes the realized and unrealized changes in value that have arisen when conducting financial transactions, primarily trade in foreign currency. Net income from financial transactions consists of: - Realized and unrealized changes in the fair value of the assets and liabilities that are held for trading purposes - Capital gains/losses from the disposal of financial assets and liabilities that are held for trading purposes - Capital gains/losses from available-for-sale financial assets - Changes in exchange rates (l) Financial instruments FFinancial instruments that are reported in the balance sheet and classified as financial assets include: cash, treasury bills eligible as collateral, loans granted to credit institutions, loans granted to the general public, bonds and other interest-bearing securities, other shares and participations and other assets. Financial liabilities inclu- FOREX Annual report