FOREX Bank AB. FOREX Annual Report 2011

Transcription

1 FOREX Bank AB Annual Report 2011 FOREX Annual Report

2 2 FOREX Bank Annual Report 2011

3 Contents Contents 3 Statutory administration report 4 Consolidated income statement 10 Consolidated statement of comprehensive income 10 Consolidated balance sheet 11 Consolidated statement of changes in equity 12 Consolidated cash flow statement 13 Parent company income statement 14 Parent company statement of comprehensive income14 Parent company balance sheet 15 Parent company statement of changes in equity 17 Parent company cash flow statement 18 Notees to the financial statements 19 Note 1 Information about Group and parent company 19 Note 2 Accounting principles 19 Note 3 Financial risks 30 Note 4 Net interest income/expense 33 Note 5 Dividends received 34 Note 6 Commission income 35 Note 7 Commission expenses 35 Note 8 Net profit (loss) from financial transactions36 Note 9 Other operating income 37 Note 10 General administrative expenses 38 Note 11 Other operating expenses 46 Note 12 Loan losses, net 45 Note 13 Impairment of financial assets 46 Note 14 Reversal of impairment of financial assets 46 Note 15 Appropriations 46 Note 16 Taxes 47 Note 17 Loans to credit institutions 50 Note 18 Loans to the general public 50 Note 19 Bonds and other interest -bearing securities 51 Note 20 Shares and participations in group companies 51 Note 21 Participations in associated companies 52 Note 22 Other shares and participations 54 Note 23 Intangible assets 55 Note 24 Property, plant and equipment 57 Note 25 Receivables from group companies 61 Note 26 Other assets 61 Note 27 Prepaid expenses and accrued income 62 Note 28 Deposits from the general public 62 Note 29 Liabilities to group companies 63 Note 30 Other creditors 63 Note 31 Accrued expenses and prepaid income 64 Note 32 Provisions 64 Note 33 Untaxed reserves 65 Note 34 Contingent liabilities 65 Note 35 Commitments 66 Note 36 Related parties 66 Note 37 Geographic distribution of income 67 Note 38 Financial assets and liabilities 68 Note 39 Cash flow statement 75 Note 40 Acquisitions 76 Note 41 Important estimates and assessments 76 Note 42 Dividends 76 Note 43 Capital adequacy 76 Signatures of the board of directors 79 Audit report 80 Governance 82 List of branches 83 FOREX Annual Report

4 Statutory administration report The Board of Directors and Managing Director of FOREX Bank AB hereby submit the annual report and consolidated financial statements for the 2011 financial year. Ownership FOREX Bank AB, CIN , is one of the family Friberg s wholly owned joint-stock banks. Organization and business activities FOREX Bank AB conducts banking operations consisting of deposits from and loans to the general public, remittance services and the provision of payment services in SEK and foreign currencies. The bank is the parent company of Group that is comprised of its bank branches in Finland, Denmark and Norway, the wholly-owned subsidiary X-change in Sweden AB (with subsidiaries) and Svensk Valutahantering AB. The subsidiary FOREX Sweden International Ltd in Great Britain is in the process of being liquidated. During the year, 27.7% of Panaxia AB (publ), listed on NGM Equity, was acquired for SEK 43 million. The business is conducted in the Nordic countries and at the end of the year there were 109 (113) bank branches. During 2009, four branches were established in Group, of which three were in FOREX Bank s Swedish organization and one was in the Danish organization. During the year, one branch in Sweden, one branch in Finland and six branches belonging to the X-change business were closed. During 2012, a large number of X-change branches will be transferred to FOREX Bank. The branches that will subsequently remain within X-change will be concentrated in airports and railway hubs. During the year, the volume of currency exchange continued to decline, which, among other things, is due to the increased use of credit cards. The volume of both loans to and deposits from the general public increased substantially, however, which is an indication of the market s continued confidence in the bank. The trend for the number of bill payments continued in a positive direction. The volume and number of brokered foreign transfers, though, decreased in all of the bank s markets. An agreement was entered into during the year entailing the representation of Western Union throughout the entire FOREX group as of 6 December 2011 for remittance services to private individuals. The agreement also entails that all of Western Union s 16 branches in Sweden, Finland and Norway will be taken over in Extensive skills development efforts continued throughout the year in order to obtain a higher overall level of competency within Group. Efforts to outsource the banking platform started in 2010 and continued during the year. The transfer is expected to be completed in An internal function for the management and supply of foreign currency, Cash Center, was established and has been operational since April The function has continued to progress and it is estimated that it will take over the entire supply of Group s need for foreign currency during The appeal regarding the size of the penalty fee (SEK 50 million) handed down by the Swedish Financial Supervisory Authority in 2008 was dismissed by the Supreme Administrative Court during the year and, as a result, Forex settled the payment. In December, the Swedish Financial Supervisory Authority approved an agency agreement between Forex Bank and X-change in Sweden, which entails that, in the future, X-change will be an agent for all of Forex Bank s bank products. Group results For the financial year, Group reported an operating profit of SEK 231 (340) million and profit after tax of SEK 165 (255) million. Most of the operating profit is comprised of the net profit from financial transactions, primarily currency exchange and commission income, but net interest income s share of revenue continued to increase during the year. Operating income was SEK 1,223 (1, 202) million, which is an increase of 2 percent year-on-year. Net interest income increased by 58 percent to SEK 111 (70) million due to growth in the volume of loans granted in conjunction with an increased interest margin. Net income from financial transactions decreased by 1 percent to SEK 916 (925) million due to lower volumes as a result of the increased use of credit cards. Net commissions increased by 8 percent to SEK 183 (198) million. General administrative expenses increased by 8 percent to SEK 796 (740) million due to continued large investments in skill development and IT development. Depreciation/amortization and impairment decreased by 3 percent to SEK 37 (38) million. Other operating expenses 4 FOREX Bank Annual Report 2011

5 increased by 24 percent to SEK 98 (79) million, which is primarily attributable to increased marketing activities. Loan losses were SEK 60 (5) million. Verified loan losses amounted to 1 (0) percent of loans granted. Group position Total assets were SEK 6,574 (4, 879) million. Cash equivalents, which include cash, loans to credit institutions and bonds and other interest-bearing securities with up to a 3-month maturity, were SEK 2, 657 (2, 396) million. Loans to the general public increased by 48 percent to SEK 2,564 (1, 734) million. Deposits from the general public increased from SEK 3,854 million to SEK 5,513 million, which is an increase of 43 percent. Group s equity at year-end was SEK 813 (696) million. The equity ratio was 12 (14) percent and the capital adequacy ratio was 1.67 (1.72). Parent company results For the financial year, the parent company reported an operating profit of SEK 203 (355) million and profit after tax of SEK 145 (285) million. Most of the operating profit is comprised of the net profit from financial transactions, primarily currency exchange and commission income, but net interest income s share of revenue continued to increase during the year. Operating income was SEK 1, 098 (1, 118) million, which is a decrease of 2 percent year-on-year. Net interest income increased by 58 percent to SEK 110 (70) million due to growth in the volume of loans granted in conjunction with an increased interest margin. Net income from financial transactions decreased by 2 percent to SEK 804 (823) million due to lower volumes as a result of the increased use of credit cards. Net commissions increased by 3 percent to SEK 163 (168) million. General administrative expenses increased by 9 percent to SEK 718 (660) million due to significantly larger investments in skill development and system development. Depreciation/amortization and impairment was SEK 32 million and is in line with the prior year. Other operating expenses increased by 27 percent to SEK 86 (68) million, which is primarily attributable to increased marketing activities. Loan losses were SEK 60 (5) million. Verified loan losses amounted to 1 (0) percent of loans granted. Parent company s position Total assets were SEK 6, 477 (4, 787) million. Cash equivalents, which include cash, loans to credit institutions and bonds and other interest-bearing securities with up to a 3-month maturity, were SEK 2,515 (2,255) million. Loans to the general public increased by 48 percent to SEK 2,564 (1, 734) million. Deposits from the general public increased from SEK 3,854 million to SEK 5,513 million, which is an increase of 43 percent. The parent company s equity at year-end was SEK 679 (582) million. The equity ratio was 10 (12) percent and the capital adequacy ratio was 1.93 (1.88). Future development Looking forward, the volume of currency exchange in Sweden is expected to decline even further while the volumes for other bank services continue to increase. In Sweden, there is a downward trend in the overall amount of cash in circulation. Various initiatives to achieve a cashfree society enable Group, because of its accessibility, to develop the business as a complement to other banks in the area of cash management For the Finnish, Danish and Norwegian markets, the goal is to significantly increase market share for currency exchange and remittance services over the next few years. Other banking services will be introduced at a later date, once FOREX Bank s brand achieves a higher level of penetration and recognition in these markets. It was decided to set up new branches in all of the markets where Group currently has operations. Due to developments in the banking sector and the decline in cash transactions in society, it is critical to come up with a new branch structure and design that is adapted to both the various markets where Group currently has operations and the nature of the operations being conducted. This may lead to a relocation or shutdown of certain branches. Due to the takeover of Western Union s 13 branches in Norway, efforts there will to a large extent be focused on adapting these branches to the FOREX standard. The Group will continue to invest in training to raise the level of employee expertise. This is necessary to increase market penetration for the products offered by the bank, as well as to ensure that staff have the requisite knowledge of the routines and regulations pertaining to operations. With regard to money laundering, it should be Noteed in particular that extensive efforts are being made on an ongoing basis to increase both the expertise of all employees and their ability to handle different situations. as well FOREX Annual Report

6 as to ensure that staff have the requisite knowledge of the routines and regulations pertaining to operations. With regard to money laundering, it should be Noteed in particular that extensive efforts are being made on an ongoing basis to increase both the expertise of all employees and their ability to handle different situations. Business risks Each day, the bank is exposed to various 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. 6 FOREX Bank Annual Report 2011

7 Five-year Summary Group Key figures 1) Volume Loans to the general public Change during the year, % 48% 57% 63% 20% 27% Deposits from the general public Change during the year, % 43% 29% -1% 63% 23% Equity Equity ratio 12,4% 14,3% 12,5% 9,6% 15,8% Taxed equity as a % of total assets Capital adequacy ratio 2) 1,72 1,67 1,28 1,04 2,26 Capital base/capital adequacy requirement Net profit Investment margin 1,93% 1,62% 1,40% 0,72% 0,69% Net interest income/expense as a % of average total assets Return on equity 30,1% 58,2% 35,7% -12,3% 17,9% Operating profit as a % of average equity Cost/income ratio before loan losses 0,8 0,7 0,8 1,0 0,9 Total costs excluding loan losses and changes in the value of property taken over in relation to net interest income/expense + operating income Cost/income ratio after loan losses 0,8 0,7 0,9 1,1 0,9 Total costs including loan losses and changes in the value of property taken over in relation to net interest income/expense + operating income Doubtful debts and loan losses Reserve ratio for doubtful debts 100,0% 100,0% 100,0% 100,0% 100,0% Write-down for probable losses as a % of doubtful debts, gross Percentage doubtful debts 4,5% 4,3% 6,0% 2,2% 1,9% Net doubtful debts as a % of total loans granted to the general public and credit inst. (excluding banks) Loan loss ratio 3,3% 0,4% 10,6% 2,0% 2,0% Loan losses as a % of the opening balance for loans granted to the general public and credit institutions. (excluding banks and leasing objects, property taken over and credit guarantees) Other information Average number of employees Number of branches ) The capital adequacy ratio for 2007 refers to the parent company FOREX Annual Report

8 Income statements and balance sheets Group SEK thousands Income statement Net interest income/expense Dividends received Commissions, net Net profit from financial transactions Other 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 from associated companies Tax Net profit/loss for the year Balance sheet Cash 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 8 FOREX Bank Annual Report 2011

9 Proposal for appropriation of the parent company s profit The board of directors proposes that accumulated profit profit for the year SEK is appropriated as follows distributed as dividends to shareholders carried forward SEK The proposal to distribute dividends has been made having considered the rules on buffer capital, limitation of risks and transparency in accordance with the Banking and Financing Act and Chapter 17, Section 3 of the Companies Act (Prudence Rule). The parent company s capital adequacy ratio after the proposed appropriation of profits is 1.88 (1.93). The capital adequacy ratio for Group and the financial group after the proposed appropriation of profits is 1.72 (1.67). Consideration of the financial position of Group and parent company does Note lead to any other assessment than that all short-term and long-term obligations are expected to be fulfilled. The board of directors assessment is that the amount of equity, as reported in the annual report, is adequate in relation to the scope of the business and its risks. For further information on the profit and financial position of the parent company and group, please refer to the accompanying income statement, balance sheet and Notees to the financial statements. FOREX Annual Report

10 Consolidated income statement SEK thousands Note Interest income Interest expense Net interest income/expense Dividends received Commission income Commission expenses Net profit from financial transactions Other operating income Total operating income General administrative expenses Depreciation/amortization and impairment of property, plant and equipment and intangible assets 23, Other operating expenses Total expenses before loan losses Net profit before loan losses Loan losses, net Impairment of financial assets Operating profit Share in profits from associated companies Tax Net profit (loss) for the year Consolidated statement of comprehensive income SEK thousands 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 Bank Annual Report 2011

11 Consolidated balance sheet SEK thousands Note 31 Dec Dec 2010 Assets Cash 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 23 - Goodwill Other intangible assets PP&E 24 - 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 Annual Report

12 Consolidated statement of changes in equity SEK thousands Share capital 1) Reserves 2) Accrued earnings Total equity Opening balance, 1 Jan 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, 31 Dec 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, 31 Dec ) Specification of share capital Number of shares Class A shares Class B shares Total number of shares Quotient value 10 kr All shares have been fully paid 2) Specification of reserves Fair value reserve Translation reserve Statutory reserve Total reserves Opening balance, 1 jan Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity Closing balance, 31 Dec Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Transfer within equity 3 3 Closing balance, 31 Dec FOREX Bank Annual Report 2011

13 Consolidated cash flow statement SEK thousands Note Operating profit/loss (+) Adjustments for items Note included in cash flow - Depreciation/amortization and impairment (+) Loan losses (+) Change in provisions (+/-) Capital gains/losses on intangible assets and PP&E (+/-) Interest Note paid (+/-) Other items Note included in cash flow (+/-) 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 liabilities to credit institutions (+/-) 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 Loans to credit institutions repayable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Annual Report

14 Parent company income statement SEK thousands Note Interest income Interest expense Net interest income/expense Dividends received Commission income Commission expenses Net profit from financial transactions Other operating income Total operating income General administrative expenses Depreciation/amortization and impairment of property, plant and equipment and intangible assets 22, Other operating expenses Total expenses before loan losses Net profit before loan losses Loan losses, net Impairment of financial assets Reversal of impairment of financial assets Operating profit Appropriations Tax Net profit for the year The parent company s statement of comprehensive income SEK thousands 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 Bank Annual Report 2011

15 Parent company balance sheet SEK thousands Note 31 Dec Dec 2010 Assets Cash 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 23 - Other intangible assets Property, plant and equipment 24 - 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 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 Annual Report

16 Cont. Parent company balance sheet SEK thousands Note 31 Dec Dec 2010 Memorandum items Pledged assets - - Contingent liabilities Commitments FOREX Bank Annual Report 2011

17 Parent company statement of changes in equity SEK thousands Restricted equity Share capital 1) Statutory reserve Accumulated net profit/ loss Non-restricted equity Year s net profit/ loss Total equity Opening balance, 1 Jan Appropriation of profits Net profit for the year Other comprehensive income Available-for-sale financial assets Exchange rate differences Total other comprehensive income Dividends Closing balance, 31 Dec 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, 31 Dec ) Specification of share capital Number of shares Class A shares Class B shares Total number of shares Quotient value SEK 10 All shares have been fully paid FOREX Annual Report

18 Parent company cash flow statement SEK thousands Note Operating activities Operating profit/loss (+) Adjustments for items Note included in cash flow - Depreciation/amortization and impairment (+) Loan losses (+) Change in provisions (+/-) Capital gains/losses shares and participations Capital gains/losses on intangible assets and property, plant and equipment (+/-) Interest Note paid (+/-) Dividends Note paid (+/-) - Other items Note included in cash flow (+/-) 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 liabilities to credit institutions (+/-) Increase/decrease in other assets and liabilities (+/-) Cash flow from operating activities Investing activities Acquisition of shares in group companies (-) - Acquisition of shares in associated companies (-) Sale of intangible assets (+) Acquisition of intangible assets (-) Sale of Sale of property, plant and equipment(+) Acquisition of Sale of property, plant and equipment (-) 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 ULoans to credit institutions repayable on demand Bonds and other interest-bearing securities - payable on demand Cash equivalents at year-end FOREX Bank Annual Report 2011

19 Notees to the financial statements Note 1 Information about Group and parent company The annual report as of 31 December 2011 is for Group where FOREX Bank AB, a joint-stock bank, is the parent company, with registered office in Stockholm. The main office s address is Kornhamnstorg 4, Stockholm. All of the wholly-owned subsidiaries are listed in note 20. On 21 February 2012, 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 on 22 March 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 (ÅRKL), the Swedish Financial Supervisory Authority s regulations and guidelines on annual reports issued by credit institutions and securities companies, FFFS 2008:25, 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 Group, except for situations where ÅRKL 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 (y) of the parent company s 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 1 January 2011 None of the revisions to existing standards issued by IASB, nor new interpretations issued by IFRIC that apply to accounting periods as of 1 January 2011 and which apply to Forex Bank AB, have had, or are expected to have any significant impact on Group s results or financial position. IAS 24 Related party disclosures (amended). The revised standard clarifies and simplifies the definition of a related party. In accordance with the new definition, related parties also includes associated companies of fellow subsidiaries, companies under the joint deciding influence of the same company/person, companies under the joint deciding influence of the same company that a third company is under the joint deciding influence of and companies controlled by a person who is a member of the key management personnel of another company. Furthermore, the disclosure requirements for transactions with related parties to the Government are limited. IAS 34 Interim Financial Reporting (amended). Provides guidelines regarding how disclosures of significant events or transactions shall be handled in the event these disclosures are required in accordance with other IFRS. Furthermore there are expanded disclosure requirements on conditions that will probably have an effect on the fair value and classification of financial instruments, transfers of financial instruments between different levels in the fair value hierarchy, changes in the classification of financial assets and changes of contingent liabilities and contingent assets. IFRS 7 Financial Instruments Disclosures (amended). Contains mitigations and clarifications of disclosure requirements regarding the maximum credit risk exposure not being required if the carrying amount is the best representation of the maximum credit risk exposure, the carrying amount for renegotiated financial assets not being required, the financial effects of collateral not valued at fair value and that disclosures of collateral taken over only applies to collateral the company still holds at the balance sheet date. IAS 32 Financial Instruments: Classification of Rights Issues (amended), IFRIC 13 Customer Loyalty Programmes, IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (amended) and IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments are not expected to have any effect. New and revised accounting standards and interpretations that are obligatory for accounting periods as of 1 January 2012 or later IFRS 9 Financial Instruments: classification, measurement and reporting of financial assets and liabilities. Replaces the parts of IAS 39 related to classification and measurement of financial instruments. IFRS 9 states that financial assets shall be classified as one of two categories, fair value or amortized cost. Classification FOREX Annual Report

20 is made at the time the financial asset is initially recognized based on the company s business model and the characteristics of the contractual cash flows. No major changes have been made compared to IAS 39 for financial liabilities. The most significant change relates to liabilities identified at fair value. The portion of the change in fair value that is attributable to the credit risk of the liability shall be reported in other comprehensive income instead of profit or loss as long as this does not create a recognition inconsistency (accounting mismatch). Group intends to apply the new standard no later than the financial year starting 1 January 2015 and has not assessed the effects. The standard has not yet been adopted by the EU. IFRS 10 Consolidated Financial Statement. This standard replaces IAS 27 and SIC 12 and builds on existing principles by identifying controls as the determining factor in whether a company should be included in the consolidated financial statements. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. Group intends to apply IFRS 10 as of the financial year starting 1 January The standard has not yet been adopted by the EU. IFRS 12 Disclosure of interest in other entities. Covers disclosure requirements for subsidiaries, joint ventures, associated companies and unconsolidated structured entities. Group has not yet measured the full impact of IFRS 12 on the financial statements. Group intends to apply IFRS 12 for the financial year starting 1 January The standard has not yet been adopted by the EU. IFRS 13 Fair Value Measurement. The purpose of the standard is to make the fair value measurement more consistent and less complex by providing detailed definitions and a single source within IFRS for fair value measurements and related disclosures. The standard will be applied more or less to all assets and liabilities measured at fair value. The requirements do not expand the area of application for when fair value should be applied, but rather provide guidance with regard to how it should be applied when other IFRS already require or allow fair value measurements. Group has not yet measured the full effect of IFRS 13 on the financial statements. Group intends to apply the new standard as of the financial year starting 1 January The standard has not yet been adopted by the EU. None of the other new or amended IFRS or IFRIC interpretations that have not yet entered into force are expected to have a significant impact on 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 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. (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 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 company management team when applying IFRS, which 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 FOREX Bank Annual Report 2011

21 (e) Changes in accounting principles During the year, no changes have been made to accounting principles that affect Group s or parent company s financial statements. (f) Consolidation principles (i) Subsidiaries Subsidiaries are companies in which the parent company is able to exert 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. An assessment of controlling influence involves determining whether the shares with potential voting rights can be used or converted without delay. Subsidiaries are reported in accordance with the purchase accounting method. Using this method, the acquisition of a subsidiary is treated as a transaction through which Group indirectly acquires the subsidiary s assets and assumes responsibility for its liabilities and contingent liabilities. Consolidated cost is determined 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 of 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, it is directly reported 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. (ii) Branches The bank s business activities in other Nordic countries are conducted through bank branches of Forex Bank AB in Sweden. 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 Group s financial statements. (iii) Associated companies Associated companies are all companies in which Group holds a significant but not deciding influence, which by rule applies to share holdings consisting of between 20 and 50 percent of the votes. Holdings in associated companies are reported in accordance with the equity method and are initially valued at cost. Group s carrying amount on holdings in associated companies includes goodwill identified at the acquisition, net after any impairment. The Group s share of profits from the associated company after the acquisition is reported in the income statement and its share of the changes in other comprehensive income. Accumulated changes after the acquisition are reported as a change in the holding s carrying amount. When Group s share in an associated company s losses equals or exceeds its holding in the associated company, including any unsecured claims, Group does not report additional losses as long as Group has not undertaken commitments or made payments on behalf of the associated company. Unrealized profits on transactions between Group and its associated companies are eliminated in relation to Group s holding in the associated company. Unrealized losses are also eliminated if the transaction does not constitute evidence of an impairment loss for the transferred asset. Applied accounting principles in the associated company, where relevant, were changed to guarantee consistent application of Group s principles. Dilution profits/losses in participations in associated companies are reported in the income statement. (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 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 used in the primary economic environments where the company or its branches conduct their operations. Monetary assets and liabilities in foreign currency are translated to the fun- FOREX Annual Report

22 ctional 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. Financial reports 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 revenue 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. 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, 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 1 January Accumulated translation differences from periods prior to 1 January 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: Consolidated statement of changes in equity. (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) Revenue from commissions and fees Revenue from commissions and fees is recognized when (i) the amount of revenue 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. Revenue is valued at the fair value of the amount that has been received or that is expected to be received. Revenue recognition is in accordance with the percentage of completion method, which means that revenue is recognized based on the assignment s or service s percentage of completion on the closing date. The bank receives fees and commissions for services rendered. The following two methods are used when recognizing revenue: (i) 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 revenue from commissions. This type of revenue 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 revenue. 22 FOREX Bank Annual Report 2011

23 (j) Commission expenses These are expenses associated with services that have been received, to the extent that they are not considered as interest. For example, these 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 profit (loss) from financial transactions The item, Net profit (loss) from financial transactions, includes the realized and unrealized changes in value that have arisen when conducting financial transactions. Net profit (loss) 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 purposesl - Capital gains/losses from available-for-sale financial assets - Changes in exchange rates (l) Financial instruments Financial instruments that are reported in the balance sheet and classified as financial assets include: cash and bank balances, 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 include liabilities to credit institutions, deposits from the general public and other liabilities. (i) Items reported in or removed from the balance sheet A financial asset or liability is reported in the balance sheet as soon as the bank has committed to the terms of the contract. A financial asset is removed from the balance sheet when the rights stated in the contract have been realized, have fallen due, or when the company has lost control over them. The same applies to parts of a financial asset. A financial liability is removed from the balance sheet once the obligation under the contract has been fulfilled or otherwise expired. The same applies to parts of a financial liability. Financial assets and liabilities are offset and reported at net amounts in the balance sheet only when there is a legal right to offset the sum and there is an intention to regulate the items with a net sum or at the same time realize the asset and regulate the debt. The acquisition and sale of financial assets are recorded on the trade date, i.e., when the company commits to acquiring or disposing of the asset. Loan commitments are not reported in the balance sheet. Loan receivables are reported in the balance sheet when the loan amount has been paid out to the borrower. (ii)classification and valuation Financial instruments are initially reported at the instrument s fair value plus transaction costs except for instruments that belong to the category financial assets reported at fair value through the income statement. Such instruments are reported at fair value, excluding transaction costs. A financial instrument is classified the first time it is reported partly based on the purpose for which the instrument was acquired, and partly based on the options available in IAS 39. Financial assets valued at fair value via the income statement This category consists of two sub-categories: financial assets held for trading purposes and other financial assets that the company has initially chosen to put in this category. Financial instruments in this category are adjusted to fair value on a continual basis, with changes in value reported in the income statement. For financial instruments held for trading purposes, both realized and unrealized changes in value are reported in the income statement item, Net profit (loss) from financial transactions. Items in the balance sheet that are classified as financial assets valued at fair value via the income statement, and which are held for trading purposes, are cash and bank balances, as well as derivatives with a positive value that are part of other assets. At the end of the financial year, there were no other financial assets that the company initially chose to value at fair value via the income statement. Loan receivables and accounts receivabler Loan receivables and accounts receivable are financial assets that are not derivatives, and which have fixed or determinable payments and are not quoted in an active market. These assets are valued at cost. Accounts receivable and loan receivables are reported at net realizable value, i.e. after the allowance for doubtful accounts. Items in the balance sheet that are classified as loan re- FOREX Annual Report