2004
Annual Report
GE Money Bank
Content 1 5 11 17 21 25 29 33 47
Introduction Basic Information about the Bank Information on Bank Management Board of Directors’ Report Basic Economic Data of Bank Forecast for 2005 Supervisory Board Report and Auditor’s Report Report on Relations with Related Parties Notes to Financial Statements
Introduction
2 CEO Opening Word 4 Financial Results of GE Money Bank, a.s. in 2004
ANNUAL REPORT GE MONEY BANK
1
INTRODUCTION
Dear customers, shareholders, colleagues,
I am delighted to inform that 2004 was a very successful year for GE Money Bank, a.s. Loans to customers increased to CZK 37.2 billion (an increase of 32.5 %), the net profit reached CZK 2,242 billion (an increase of 12.8 %), the capital adequacy is stable at 24.03 %, the number of customers reached 748 528 (an increase of 6.4 %) and the number of current accounts increased by 2.6 % to 924 249. At the beginning of 2005, GE Capital Bank, a.s., GE Capital Leasing, a.s. and GE Capital Multiservis, a.s., were in line with GE Money worldwide strategy re-branded in the Czech Republic to GE Money Bank, a.s., GE Money Auto, a.s. and GE Money Multiservis, a.s. Hereinafter in this Annual Report we will be using only new names.
2
ANNUAL REPORT GE MONEY BANK
INTRODUCTION
2004 was not only successful for the Bank but also for its customers and partners, as well as for the General Electric (GE) Group as a whole. GE, one of the largest global companies based on market capitalization, generated a net profit after taxes of USD 16.6 billion in 2004. The company earnings reached USD 152 billion in 2004. The profit of the financial division, GE Money (GE Consumer Finance), represented in the Czech Republic by GE Money Bank, a.s. together with GE Money Multiservis, a.s. and GE Money Auto, a.s. was USD 2.5 billion in 2004. GE Money provides financial products including credit cards, consumer loans, sales – finance loans, leasing and mortgages to more than 100 million customers in 41 countries all over the world. In the Czech Republic, our Customers focused mainly on the Expres loan – credit for an unspecified purpose approved and provided while you wait, without any guarantor and unsecured. The demand was boosted by the “Loan In Action” promotion in which GE Money Bank, a.s. offered clients an Expres loan of CZK 50,000 or 75,000 and monthly installments of CZK 999 or 1,499 per month, respectively. These were the lowest guaranteed monthly installments on the market. The total volume of provided Expres loans was CZK 13.345 billion as at 31 December 2004, which is 31 % more than the CZK 10.190 billion at the end of 2003. GE Money Bank’s mortgage loans also showed significant growth. The total volume of mortgage loans at the end of 2004 was CZK 7.560 billion, 61.6 % more than at the end of 2003 (CZK 4.679 billion). This growth was mainly driven by good service and low interest rates . In addition, new products were launched including the introduction of guaranteed rates. The mortgage loan interest rates at GE Money Bank, a.s. are guaranteed based on the type of mortgage and the loan amount, and interest rate fixing period selected. The rates are guaranteed for all customers who meet the scoring prerequisites. In this way the client knows from the outset what rate GE Money Bank, a.s. can offer. The use of the Flexikredit overdraft credit also grew in 2004. The total volume was CZK 1.608 billion at the end of the year. Compared to the end of 2003 (CZK 1.343 billion), the use of the Flexikredit overdraft increased by 19.7 %.
The demand for credit for small and medium-sized enterprises also grew dynamically. The entire credit portfolio for this segment amounted to CZK 14.008 billion as at 31 December 2004. Compared to the end of 2003 (CZK 10.334 billion) the portfolio grew by 35.5 %. The small and medium-sized enterprise customers focused their demand mostly on the Universal Business and Flexi Business credits. The volume of credits provided to small and medium-sized enterprises also grew thanks to the changes that GE Money Bank, a.s. made in 2004 to accommodate the customers’ requirements. These included an increase in the maximum amount of the Universal Business credit to CZK 5 million and extension of its maturity to six years. GE Money Bank, a.s. made the changes in early February to accommodate the needs of those companies that needed funds to finance their operations. Customers also showed considerable interest in the Genius accounts that GE Money Bank, a.s. made improvements to in several respects during 2004. The Genius account concept is founded on high flexibility – the customer can choose other products and services as he deems fit along with his current account and can add, remove or change them as needed. The account administration cost is less than if the client opened these services separately. GE Money Bank, a.s. emphasizes recruitment of the best people on the market, their professional development and an enhanced motivation system for existing employees. We invest heavily in training and development opportunities,, coaching, comprehensive feedback and internal traineeships in other departments or abroad. Many former employees of our Czech businesshave been appointed to major leadership positions within GE´s international organization. We are well aware that only good and motivated employees are able to deliver the results anticipated by our clients and shareholders. A team of good employees, product innovation, simplification and improvement of our processes through digital technology are key building blocks of our success. This is only achieved however by the consistent application of Six sigma quality tools and methodology, and our unwavering compliance with our Integrity rules. Fast, simple and accessible services and processes make GE Money Bank, a.s. a bank which is growing, profitable and secure. Thank you for your support and I am looking forward to another successful year in 2005.
The best things are only ahead of us. Gerard Ryan Board of Directors Chairman and General Director
ANNUAL REPORT GE MONEY BANK
3
INTRODUCTION
Number of clients
900 000
800 000
700 000
600 000
500 000
400 000
300 000
200 000
100 000
0
Financial Results of GE Money Bank, a.s. in 2004
748 528 703 484 + 6,4 %
Number of deposit accounts
924 249 900 873 + 2,6 %
Number of payment cards
467 126 458 059
350
300
250
200
150
100
50
0
+ 2,0 %
Number of ATMs
362 330
Expres loans volume
14
12
10
8
6
4
2
0
+ 9,7 %
13,345 10,190
(billions of CZK) + 31 %
Mortgages volume
7,560 4,679
(billions of CZK)
+ 61,6 %
Loans for SMEs
14,008 10,334
(billions of CZK) + 35,5 %
31. 12. 2004
4
ANNUAL REPORT GE MONEY BANK
31. 12. 2003
Year-on-year change
Basic Information about the Bank
6 Description of GE Money Bank, a.s. 7 The Bank’s Shareholders 8 Overview of the Bank’s Operations
ANNUAL REPORT GE MONEY BANK
5
BASIC INFORMATION ABOUT THE BANK
Description of GE Money Bank, a.s. (as at 31. 12. 2004)
Business name:
GE Money Bank, a. s. (GE Capital Bank, a.s. until January 17, 2005)
Registered office:
Vyskočilova 1422/1a, Prague 4 - Michle
Registration No:
25 67 27 20
Legal form:
joint-stock company
Date of incorporation:
9 June, 1998
Date of last change:
22. 6. 2004 (reason: changes in the Supervisory Board and Board of Directors)
Registered Capital:
CZK 510,000,000
Status:
100 % paid up
Type, form, and nominal value of issued shares: 510 registered common stock shares in documentary form, each with a nominal value of CZK 1,000,000 Own shares held, interim documents and other securities with the right to be exchanged for own shares: GE Money Bank, a.s. does not hold any own shares or similar securities. Increase in registered capital: On 25 March 2003 the Registered Capital was increased by CZK 10,000,000. Number of staff, recalculated: Centre: Points of sale: Total:
871 employees 1185 employees 2056 employees
Number of points of sale of the Bank, including booths: 192
6
ANNUAL REPORT GE MONEY BANK
BASIC INFORMATION ABOUT THE BANK
The Bank’s Shareholders (as at 31. 12. 2004)
GE Capital International Holdings Corporation Corporation Trust, 1209 Orange Street, Wilmington, Delaware, the United States of America
100 % stake in the voting rights 100 % direct stake in the Registered Capital of the Bank Subject of business: foundation of subsidiaries with registered offices outside the United States of America, performance of rights related to the respective ownership interests and provision of funds to the founded companies through loans or otherwise.
ANNUAL REPORT GE MONEY BANK
7
BASIC INFORMATION ABOUT THE BANK
Overview of the Bank’s Operations The following activities may be carried out according to the licence to operate as a bank: 1.
accepting deposits from the public;
2.
providing loans;
3.
investments into securities on own account;
4.
financial leasing;
5.
clearing and settlement;
6.
issuing payment instruments such as payment cards, traveller’s cheques;
7.
issuing guarantees;
8.
opening letters of credit;
9.
administering collections;
10. trading on own account or on clients’ account: • with foreign exchange (on own account without limitation, on clients’ account with the exception of foreign securities and currency derivatives); • with futures and options including currency and interest deals (on own account with the exception of the purchase and sale of derivatives on own account for another person) • with transferable securities (trading on own account with the exception of the purchase and sale of securities on own account for another person); 11. financial brokering; 12. consultancy on business matters; 13. safe deposit and administration of securities or other valuables; 14. services as a depository; 15. exchange operations (purchase of FX); 16. provision of banking information; 17. lease of safety boxes; 18. issuing letters of mortgage according to a special legal regulation.
8
ANNUAL REPORT GE MONEY BANK
BASIC INFORMATION ABOUT THE BANK
Overview of basic operations and services carried out by the Bank: Business in crowns: 1.
opening and maintaining current, term and savings accounts denominated in Czech crowns and related services;
2.
cheque administration;
3.
passbooks;
4.
local letters of credit and collections;
5.
credit and commercial services (commercial, consumer, mortgage loans);
6.
bill administration;
7.
bank guarantees;
8.
purchase of receivables.
FX business: 1.
opening and maintenance of FX current and term accounts;
2.
exchange operations;
3.
foreign letters of credit and collections;
4.
clean payments;
5.
cheque services;
6.
bank guarantees;
7.
bill administration;
8.
providing loans;
9.
factoring, forfeiting
Other products and services: 1.
card services (by card types);
2.
information and consultancy services;
3.
providing banking information;
4.
exchange of banknotes and coins.
ANNUAL REPORT GE MONEY BANK
9
Information on Bank Management
12 Supervisory Board, Board of Directors and Management of the Bank 13 Members of the Supervisory Board 14 Members of the Bank’s management 16 Organizational structure of the Bank
ANNUAL REPORT GE MONEY BANK
11
INFORMATION ON BANK MANAGEMENT
Supervisory Board, Board of Directors and Management of the Bank Supervisory Board James Desmond O´Shea Chairman of the Supervisory Board
Susan Elizabeth Crichton Member of the Supervisory Board
Pavel Zídek Member of the Supervisory Board elected by employees
Held since: 22. 10. 2004
Held since: 22. 6. 2004
Held since: 29. 11. 2001
Gerard Ryan Chairman of the Board of Directors
Sonia Slavtcheva Member of the Board of Directors
Miroslav Červenka Member of the Board of Directors
Held since: 03. 12. 2002
Held since: 28. 11. 2002
Held since: 28. 11. 2002
Board of Directors
Jan Rollo Member of the Board of Directors Held since: 29. 10. 2003
Management of the Bank
12
Division
Division Director
Position
Held since
HR
Laila Junge
Chief Human Resources Officer
1. 5. 2004
Risk Management
Pavel Vyhnálek
Chief Risk Officer
1. 7. 2002
Legal
Jaroslava Ritterskamp-Naušová
Chief Legal Counsel
1. 8. 2000
Retail Banking
Jan Rollo
Chief Retail Banking Officer
1. 11. 2003
Commercial Banking
Radomil Štumpa
Chief Commercial Banking Officer
1. 11. 2003
Marketing
Erich Čomor
Chief Marketing Officer
14. 6. 2004
Customer Relationship Management
David Bystrzycki
Chief Customer Relationship Management Officer
Information Systems
Miroslav Červenka
Chief Information Technology Officer
Quality
Charlie Coode
Chief Quality Officer
Finance
Christoph Glaser
Chief Financial Officer
1. 12. 2004
Operations
Jonas Hasselrot
Chief Operating Officer
1. 5. 2003
Compliance
Petr Karel
Chief Compliance Officer
1. 7. 2002
Business Development
Open
Internal Audit
Jana Pěchoučková
ANNUAL REPORT GE MONEY BANK
Internal Audit Manager
1. 5. 2004 1. 12. 2000 1. 8. 2003
22. 11. 2004
INFORMATION ON BANK MANAGEMENT
Members of the Supervisory Board James Desmond O’Shea
Susan Elizabeth Crichton
graduated from the Irish University College in Cork in 1977 and received his doctorate there. After his studies, he began working at Arthur Andersen & Co and in 2000, he qualified as an authorized accountant. In 1981, he began working with Ulster Investment Bank Limited, a subsidiary of Natwest Bank. He held various positions in corporate banking, temporary financing and in international structural financing. He was appointed Director in 1988. In 1991, he joined Cambridge Finance and in 1992, he moved to Woodchester Investments where he held several positions in risk management. The company became part of GE Consumer Finance in 1998 and Des O’Shea was appointed as Risk Management Director for GECF Europe. In 2001, he moved to his present position as growth and business development manager in GECF Europe.
studied LCB (Language and Culture for Business Program) at Birmingham University. She started her carrier in 1979 with the Forward Trust Group, where she worked for the legal department until 1987. In 1987, she was appointed to the position of European Legal Counsel at Avco Trust Ltd. She joined GE Consumer Finance in the United Kingdom in 1999; her first role was Senior Legal Advisor and since 2001, she has been the General Counsel for the entire GE Consumer Finance Europe. In 2004, she became a member of the Supervisory Board of GE Money Bank, a.s.
Pavel Zídek graduated from ČVUT in Prague and worked for several years with various companies as information technology manager. In 1991, he joined Agrobanka, where he held various positions in the IT Department. Following the bank’s acquisition by GE, he became Senior IT Manager and later a member of the Supervisory Board, elected by the Bank’s employees.
ANNUAL REPORT GE MONEY BANK
13
INFORMATION ON BANK MANAGEMENT
Members of the Bank’s management Gerard Ryan
Jan Rollo
graduated from university in Ireland. After his studies, he began working with an Irish consultancy firm. He gained experience while working for several international companies in Ireland and in Great Britain, where he held various positions, mostly focusing on finance. From 1992, he worked with Woodchester Credit Lyonnais Plc, acquired in 1998 by GE. Within the GE Group, he has worked as Finance Director and Business Development Manager. He joined GE Money Bank, a.s. in 2002 as its Chief General Officer and Chairman of the Board of Directors.
graduated from ČVUT in Prague. From 1989, he worked as a specialist in the IT Department at Swissair in Switzerland. He was subsequently project manager of the PHARE Program at the European Union Delegation in Prague. He has worked in the banking industry since 1994, first with Bank Austria where he was responsible for relations with key customers, marketing and direct banking, and then Citibank, where he managed the product management department; he was involved in managing the SME section. He joined GE Money Bank, a.s. as Director of Commercial Sales and since 2000, he has been the Chief Commercial Banking Officer and member of the senior management of GE Money Bank, a.s.
Sonia Slavtcheva graduated from the High College of Economics in Sophia. Since 1991, she has worked for several international companies in the Czech Republic. She joined GE Money Bank, a.s. in 1998 following the acquisition of Agrobanka as Finance Auditor. In 2001, she worked at GE Capital Bank in Germany, then returned to the Czech Republic and accepted the position of Finance Director of GE Money Bank, a.s. She has been a member of the Board of Directors since 2002.
Miroslav Červenka started his career after completing his studies of aviation engineering at LET Kunovice. From 1991, he worked for Andersen Consulting as a project manager. In 1998, following the acquisition of Agrobanka, he accepted the position of project manager in the IT Department. Since 2000, he has been the Chief Information Officer and since 2002, he has been a member of the Bank’s Board of Directors.
Pavel Vyhnálek graduated from the Mendel University in Brno. From 1992, he worked for Československá obchodní banka. Among other positions, he worked as a credit officer responsible for large corporate companies, a branch director, and mortgage banking director; he was involved in the privatization of ČSOB and in the integration of IPB into ČSOB. Ultimately he was responsible for risk solutions in retail loans and mortgage loans across the whole ČSOB group in the CR and the SR. He was engaged in acquiring the mortgage license for ČSOB in the SR and he was the Chairman of the ČMHB Supervisory Board. In 2002, he joined GE Money Bank, a.s. as its Chief Risk Officer.
Jaroslava Ritterskamp-Naušová graduated from the Faculty of Law at Charles University in Prague. After graduation she worked for several international companies. In 1999, she accepted an offer from GE Money Bank, a.s. and began working for the Bank as a lawyer. Since 2000, she has been the Legal Counsel of GE Money Bank, a.s. and the official representative of the GE shareholders.
14
ANNUAL REPORT GE MONEY BANK
Petr Karel graduated from the Faculty of Law at Charles University in Prague and from the Economic College in Prague where he obtained his PhD. From 1995, he worked for a consortium of international consultancy companies involved in consultancy for the Czech Government. From 1999, he worked for GE Money Bank, a.s. as a lawyer. He then worked for two years at Komerční banka as a regional manager where he was responsible for special deals. In 2002, he accepted an offer from GE Money Bank, a.s. and became its Chief Compliance Officer.
Jonas Hasselrot previously worked as a manager in the American Express Travel Centre in Stockholm. He managed more than 100 travel representatives and was responsible for the economic results of the Centre which has a 40 % market share in Scandinavia. Later, he worked as Customer Service Director of the company for Benelux and for Scandinavia where he was responsible for a number of processes in the areas of customer services, cross-selling of new products to existing customers, approval of loans and collection of overdue payments. Since 1 May, 2003, he has been the Chief Operations Officer of GE Money Bank, a.s.
Charlie Coode joined GE Money Bank, a.s. from GE Consumer Products where he worked in Operations from 1998. He is responsible for Six Sigma projects. He designed and redesigned processes in the customer service department. Subsequently, he was involved in e-business development. At GE Consumer Products, he worked as the Quality Leader for Europe, the Middle East, Africa and India. Before joining GE, Charlie spent eight years in the British Army.
INFORMATION ON BANK MANAGEMENT
Radomil Štumpa
Christoph Glaser
graduated from the Faculty of Law at Masaryk University in Brno. Over the course of ten years of legal practice, he gained experience at the Brno Court, the prosecutor’s office in Prague and in 1994, he became a member of the Czech Bar Association. As an attorney he worked for the international legal office of McKenna & Co and of Allen & Overy based in London. In 1997, he joined Citibank as Vice President and Chief Legal Counsel and was responsible for all legal matters relating to Citicorp in the Czech Republic. After the acquisition of Agrobanka, he joined the Bank in 1998 as Chief Legal Counsel of GE Capital Czech and Slovak Republics, and at the same time was an official representative of the GE shareholders. In 2000, he became a member of the senior management of GE Money Auto, a.s. and became its Chief Executive Office and Chairman of the Board. Since 1 November 2003, he has been in charge of the commercial banking division of GE Money Bank, a.s.
joined GE in 1997 on a European Management Development Program. From 1999, he was Executive Audit Manager at GE Corporate Audit ultimately specializing in businesses within the financial division of GE Consumer Finance. Since December 2004, he has been the Financial Director of GE Money Bank, a.s.
David Bystrzycki studied at the Faculty of Mathematics at Charles University. Between 1997 and 2000, he held various positions in the marketing department of Philip Morris, a.s. – his last role there was manager of the market research department. Prior to that he worked for the market research agencies AC Nielsen and AISA. He joined GE Money Bank, a.s. four years ago. In 2001, he became manager of the market research team and from 2002 he was manager of the direct marketing department. He was responsible for cross–selling of products and for telemarketing. Since 1 May 2004, he has been in charge of the customer relations management department, which includes both direct marketing and telesales.
Laila Junge has been working for GE since 1996. Before joining GE, she worked for thirteen years as a teacher at a private school in Norway and later became a headmistress of a school for refugees. Later she became HR manager of a large construction company in Germany which enabled her to gain considerable experience in working with people. In 1996, she returned to Norway and started her carrier in GE – she started as the HR manager with GE Capital Bank Norway. When GE Hydro acquired the Kvaerner company, a traditional producer of water turbines in 1999, Laila Junge became the company‘s HR Manager. In 2000, the transformation of the company was successfully completed and Laila Junge started to work for GE Medical Systems. She then returned back to GE Capital Bank Norway and later came to the Czech Republic. Since May 2004, she has been responsible for human resources at GE Money Bank, a.s.
Jana Pěchoučková graduated from the Faculty of Economic and Administration at the University of Pardubice. After graduation, she worked for Optaglio Company from 2000 until 2001 when she joined GE Money Bank, a.s. as an internal auditor. In December 2004, she was appointed to the position of Manager of Internal Audit at GE Money Bank, a.s.
Erich Čomor graduated from the University of Economics in Prague in 1993. At the end of the nineties he received his MBA from the J. L. Kellogg School of Management in the USA. Erich started his professional carrier with KPMG Consulting, where he worked from 1992 until 1993. He then moved to Procter & Gamble, where he was brand manager until 1996. Before joining GE Money Bank, a.s., Erich spent seven years with McKinsey & Co as an engagement manager. There he was involved in consulting in the area of introducing and selling the bank’s products during which time he acquired a deep knowledge of both the Czech and European banking markets. Since 2004, he has been Manager of marketing at GE Money Bank, a.s.
ANNUAL REPORT GE MONEY BANK
15
INFORMATION ON BANK MANAGEMENT
Organizational structure of the Bank
Supervisory Board D. O´Shea S. Crichton P. Zídek
Chief Executive Officer´s Office
Chief Executive Officer G. Ryan
Retail Banking Division Chief Retail Banking Officer J. Rollo
Commercial Banking Division Chief Commercial Banking Officer R. Štumpa
Risk Division Chief Risk Officer P. Vyhnálek
Legal Division Chief Legal Counsel J. Ritterskamp-Naušová
Finance Division Chief Financial Officer Ch. Glaser
Operations Division Chief Operating Officer J. Hasselrot
Compliance Division Chief Compliance Officer P. Karel
Marketing & Product Development Division Chief Marketing & Product Development Officer E. Čomor
Human Resources Division Chief Human Resources Officer L. Junge
Information Technologies Division Chief Information Officer M. Červenka
Quality Division Chief Quality Officer Ch. Coode
Customer Relationship Management Division Chief Customer Relationship Management Officer D. Bystrzycki
Business Development Division
16
Board of Directors G. Ryan M. Červenka J. Rollo S. Slavtcheva
ANNUAL REPORT GE MONEY BANK
Internal Audit Department Internal Audit Manager J. Pěchoučková
Board of Directors’ Report
18 Board of Directors’ Report on Operations and Assets 19 Economic results of GE Money Bank, a.s.
ANNUAL REPORT GE MONEY BANK
17
BOARD OF DIRECTORS’ REPORT
Board of Directors’ Report on Operations and Assets The business strategy of GE Money Bank, a.s. continues to consist of providing financial services to individuals and small to medium-size enterprises. A portfolio of modern and top-quality products offered at 192 points of sale throughout the Czech Republic is aimed at satisfying our customers’ needs. The success of our strategy and business operations in 2004 can be seen from the economic results of the Bank, which has recorded a significant increase in demand for its credit products – both consumer loans and loans for small to medium-size enterprises. This is evidenced by the year-on-year increase in provided loans of 32.5 %. In 2004, the volume of loans provided to clients was CZK 37.2 billion, while on December 31, 2003 it was CZK 28.1 billion. This trend was positively reflected in the interest margin. The portfolio quality remains high. Thanks to the continued growth in loans provided, the net profit of GE Money Bank, a.s. grew 12.8 % year-on-year to CZK 2.242 billion as at 31 December 2004. At the end of 2003 the bank had achieved a net profit of CZK 1.988 billion, which was reinvested as in previous years. The net profit per employee grew to CZK 1.091 million as at 31 December 2004 compared with CZK 953 thousand at the end of 2003 – an increase of 14.5% year-on-year.
of the local servers with one central server. The successful growth of the Bank required an increase in capacity, reflected in the increase in the number of employees from 1 919 at the end of 2003 to 2 056 at the end of 2004 (a year-on-year increase of 7 %) – however, despite the increased number of employees, the Bank was able to reduce the operating cost per employee by 6 % as a result of higher productivity. GE Money Bank, a.s. had 748,528 clients as at 31 December 2004 (year-on-year growth of 6.4 %), in respect of which it maintained 924,249 deposit accounts (+2.6 %). Total deposits received from clients remained almost unchanged and GE Money Bank, a.s. maintained deposits of CZK 45.428 billion as at 31 December 2004 compared with CZK 45.559 billion as at 31 December 2003. GE Money Bank’s total assets were CZK 59.782 billion as at 31 December 2004. The year-on-year growth amounted to 3.4 %.
Despite the continuing credit expansion, GE Money Bank, a.s. has retained a high rate of capital adequacy - 24.03 % at the end of last year, making GE Money Bank, a.s. one of the most stable financial institutions in the Czech market.
Return on Assets (ROA) reached a value of 3.76 % at the end of 2004. In 2003, this ratio was 3.05 % and it therefore increased by 23.3 %. The Return on Equity (ROE) was 21.56% as at 31 December 2004, which was almost the same as in 2003 – 21.67 %.
GE Money Bank, a.s. invested significantly in 2004. The share in MUZO was sold and seven new branches were opened. At the same time, the bulk of the IT infrastructure was changed, substituting all
The Board of Directors of GE Money Bank, a.s. is satisfied with the Bank’s results for 2004 and thanks all customers who place their trust in the Bank and use its services.
Gerard Ryan, Chairman of the Board of Directors Sonia Slavtcheva, Member of the Board of Directors Miroslav Červenka, Member of the Board of Directors Jan Rollo, Member of the Board of Directors
18
ANNUAL REPORT GE MONEY BANK
BOARD OF DIRECTORS’ REPORT
Economic results of GE Money Bank, a.s.
60 bil.
50 bil.
40 bil.
30 bil.
20 bil.
10 bil.
0
(in thousands of CZK, according to Czech accounting standards)
Total assets
59 781 671 57 806 053 + 3,4 %
Loans to clients (net)
37 238 532 28 114 882 + 32,5 %
Net profit
2 242 175
Net profit per employee
1 mil.
750 thsnd
500 thsnd
0
250 thsnd
1 987 597 + 12,8 %
1 091 953
ROA
30 %
20 %
10 %
0
- 10 %
+ 14,5 %
3,76 % 3,05 % + 23,3 %
Capital adequacy
24,03 % 24,74 % - 2,9 %
31. 12. 2004
31. 12. 2003
Year-on-year change
ANNUAL REPORT GE MONEY BANK
19
Basic Economic Data of Bank
22 Basic Economic Data of Bank
ANNUAL REPORT GE MONEY BANK
21
BASIC ECONOMIC DATA OF BANK
Basic Economic Data of GE Money Bank, a.s.
51 711 *
57 806
59 782
60 000
78 496
80 000
(mil. CZK)
53 560
Total assets
68 729
(according to Czech accounting standards)
2002
2003
2004
*) The reduction compared to 2001 was due to a change in the
40 000
accounting methodology imposed
0
1999
2000
2001
Net profit (mil. CZK)
2 000
2 242
20 000
1 988
by CNB.
843
911
720
1 000
982
1 500
2001
2002
2002
2004
45 428
2001
2003
45 559
40 000
41 411
(mil. CZK)
2000
38 147
Client deposits
1999
33 034
0
42 302
500
2003
2004
30 000 20 000 10 000
60
24,74
24,03
40
30
41
(%)
80
2000
48
Capital Adequacy
1999
74
0
2002
2003
2004
20
0
22
ANNUAL REPORT GE MONEY BANK
1999
2000
2001
2001
2002
2003
2 056
1 919
2000
1 949
1999
2 000
1 955
2 154
Staff numer
2 117
BASIC ECONOMIC DATA OF BANK
1 500
1 000
185
192
200
187
250
191
Number of points of sale
2004
226
0
245
500
2001
2002
2003
2004
150 100 50
0
1999
2000
ANNUAL REPORT GE MONEY BANK
23
Forecast for 2005
26 Forecast for 2005
ANNUAL REPORT GE MONEY BANK
25
FORECAST FOR 2005
Forecast for 2005 The aim of GE Money Bank, a.s. for 2004 was to continue to meet the financial services requirements of our customers and, in so doing, maintain our impressive track record of consistent growth in assets and profitability. The pursuit of our strategic goals ofasset and profitability growth, consistent focus on good customer service, product and service innovation and the development of our people has once again enabled us to exceed our targets for the year. With this in mind, we will continue to execute on this strategy in the year ahead. One of first activities for 2005 will be the re-branding of GE Capital Bank, a.s. to GE Money Bank, a.s. This forms part of the international strategy of GE Consumer Finance to create a worldwide brand for the organisation Under the GE Money brand, GE wants to further expand its core range of financial services in Europe and in other parts of the world through both organic growth and acquisitions. A well-perceived high-quality brand is one of the key success factors for any company. Customers associate the brand with the company’s main characteristics and project their experiences and ideas into it. The brand helps to create the company’s image and unique identity – it no longer is just a tool for differentiation or easy identification: it is also a major asset of the company. Due to the intense competition in the banking sector in the Czech Republic, identity and brand strength can be a key success factor for individual businesses. In a competitive and commoditised market it is often a bank’s image that becomes the tipping point in the customer decision making process as to which institution should be chosen to meet their current requirements. Customers perceive the bank’s characteristics such as credibility, stability, financial strength, and openness through the brand. A change of the brand under which a bank operates can therefore be considered a significant event given the potential impact not only on the client’s perception of the bank as a whole but also on its products, services and other activities. Re-branding, that is the changing of the GE Capital Bank brand in its most basic form, will obviously involve the transformation of the logo and other visual elements through which the bank presents itself. For the transformation process to be successful however, the change should run much deeper. The key prerequisites for a successful re-branding should include a renewed positioning of the bank in the market, a revitalising of its existing products and preferably the launch of new products directly tailored for its established and target customer segment. To complete the picture, all of these changes will be effectively communicated to a wide and diverse list of key stakeholders. The re-branding to GE Money has already taken place in Australia, Germany and France in 2004. This year it will take place in several other European and Asian countries, and later in the US. The GE Money brand replaced GE Capital in the Czech and Slovak markets at the beginning of 2005. The change in the Czech Republic will have the following impact: GE Capital Bank, a.s. will become GE Money Bank, a.s., GE Capital Multiservis, a.s. will become
26
ANNUAL REPORT GE MONEY BANK
GEMoney Multiservis, a.s. and GE Capital Leasing, a.s. will become GE Money Auto, a.s. From the very beginning, the re-branding will involve a marked shift in the positioning of all three GE Money companies in the Czech market so that the brand becomes synomous with speed, flexibility, simplicity and accessibility. GE Money Bank, a.s. sets as its main objective to become the Czech Republic’s leader in innovation and services provided to customers. When GE Capital Bank, a.s. entered the Czech market five years ago, it was able to overcome seemingly impassable obstacles. Before that, no one had been able to offer a loan that was not geared toward a specific purpose or did not require a guarantor and was approved while you waited – until the Osobní půjčka Expres (Personal Loan Express) arrived. Similarly, the bank proved that by taking an educational approach, Czech customers would take a liking to direct banking. I believe that, just as GE Capital Bank did five years ago, GE Money Bank will now play the role of an innovative financial institution that raises the benchmark of the market. What are the pillars of our strategy for 2005?
Growth. In 2005, we will further enhance all synergies between the products and services offered by all GE Money businesses in the Czech Republic. In this way, our more than 1.4 million customers will receive just the right service most suitable for their needs, and when they need it most.
Consistent customer orientation. Every customer is different. At GE Money Bank, a.s. 2005 will therefore be a year of moving from the mass promotion of products to offers tailored for individual market segments. We will pay strong attention both to sales of our products and services, so that it is easy to become our customer, and to relations with our existing customers so that it is beneficial to remain our customer. We will focus on customers who are using any single product (for example a consumer loan) and we will offer them revolving products (the so-called Info-limit is very successful at providing customers at any time and through a number of information channels with information about how much we are able to lend them).
FORECAST FOR 2005
Innovation.
People.
If we want to achieve long-term success in the market we must always be one step ahead our competitors. All competitors are using similar system platforms and to some extent similar products; a competition advantage however can still be seen in having the right employees in an organisation and I am delighted to say that I believe we are a leader in this field. Our teams use their creativity to create new added value products and services that reflect the needs of our customer. Therefore, we will provide maximum support in 2005 to innovation and new ideas and reflect them, as quickly as possible, into the development of new products. We will launch a strong enhancement of our Info-limit service early in 2005 to allow our customers to apply for a loan through our wide network of 362 ATMs. This is yet another innovation we are bringing to the Czech banking market.
As in 2004, we will continue to do our best to find, attract, develop and retain the best people on the market in the Czech Republic. We will do this by using all of the best practices available to us from our worldwide organisation and by maintaining the very strong and positive reputation we have in the market place for being a great business to work for.
Our management team is confident that we will further increase iour market share in 2005 both in consumer loans, mortgages and loans to small to medium-size enterprises. Gerard Ryan
ANNUAL REPORT GE MONEY BANK
27
Supervisory Board Report and Auditor’s Report
30 Supervisory Board Report 31 Auditor’s Report
ANNUAL REPORT GE MONEY BANK
29
SUPERVISORY BOARD REPORT AND AUDITOR’S REPORT
Supervisory Board Report The Supervisory Board have carried out their tasks in compliance with the legislation of the Czech Republic, the Articles of the Bank, and the Rules of Procedure. The Board of Directors of GE Money Bank, a.s., have provided all supporting documents and information necessary for audit activities. The Supervisory Board have discussed the Bank’s operating results for 2004 as they are reported in the financial statements, including the enclosures audited by the auditor and have reached the conclusion presented to the General Meeting of the company: The Supervisory Board recommends that the General Meeting approves the financial statements for 2004.
James Desmond O´Shea Chairman of the Supervisory Board Susan Elizabeth Crichton Supervisory Board member Pavel Zídek Supervisory Board member elected by the employees
30
ANNUAL REPORT GE MONEY BANK
SUPERVISORY BOARD REPORT AND AUDITOR’S REPORT
Auditor’s report
Auditor’s report to the shareholders of GE Money Bank, a.s. On the basis of our audit, on 18 April 2005 we issued an auditor’s report on the Bank’s statutory financial statements, which are included in this annual report, and our report was as follows: “We have audited the accompanying financial statements of GE Money Bank, a.s. for the year ended 31 December 2004. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Act on Auditors and the auditing standards of the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present, in all material respects, a true and fair view of the assets, liabilities, equity and financial position of GE Money Bank, a.s. as of 31 December 2004 and the results of its operations for the year then ended in accordance with the Act on Accounting and relevant legislation of the Czech Republic.” We have reviewed other financial information in the annual report for consistency with the audited financial statements. In our opinion, the information is consistent in all material respects with the audited financial statements. The management of the Bank is responsible for the completeness and accuracy of the report on relations between related parties. Our responsibility is to review the accuracy of the information included in the report. During our review nothing came to our attention that would cause us to believe that the information contained in the report is materially inaccurate.
Prague, 22 April 2005
KPMG Česká republika Audit, s.r.o. Licence number 71
František Dostálek Licence number 176
ANNUAL REPORT GE MONEY BANK
31
Report on Relations with Related Parties
34 Report on Relations with Related Parties
ANNUAL REPORT GE MONEY BANK
33
REPORT ON RELATIONS WITH RELATED PARTIES
Report on Relations with Related Parties In accordance with Article 66a paragraph 9 of Act No. 513/1991 Coll., the Commercial Code, as later amended, a report has been produced on the relations between GE Capital International Holdings Corporation (“the Controlling Entity”), with its registered office in Corporation Trust, 1209 Orange Street, Wilmington, Delaware, USA and GE Money Bank, a.s. (“the Controlled Entity” or “the Bank”), with its registered office in Prague and between the Controlled Entity and other entities controlled by the Controlling Entity for the reporting period 1. 1. 2004 – 31. 12. 2004. The Report has been produced to comply with the reporting obligation according to Article 66a paragraph 9 of Act No. 513/1991 Coll., the Commercial Code, as later amended.
34
ANNUAL REPORT GE MONEY BANK
REPORT ON RELATIONS WITH RELATED PARTIES
GE Structure
General Electric Company
100 %
GE Investments, Inc.
99,8 %
100 %
General Electric Capital Services, Inc.
0,2 %
MRA Systems, Inc.
100 %
General Electric Capital Corporation
100 %
100 %
Global Consumer Finance
GE Capital International Holdings Corporation 100 %
100 %
GE Money Bank, a.s.
100 %
GE Money Multiservis, a.s.
GE Money Auto, a.s.
GE Capital (Czech) Holdings, s. r. o.
GE Money Auto, a.s. (SR)
99 %
1%
GE Money Multiservis, k.s. (SR)
Since 15 December, 2004, GE Money Multiservis, a.s. became shareholder of GE Money Auto, a.s.
1.
2.
Related Parties
List of Other Contracts and Legal Acts
GE Money Bank, a.s. is part of GE Consumer Finance, a multinational corporation focusing on providing financial services particularly to small and medium sized clients. The Bank co-operates with other companies within the GE Group which jointly use its distribution network for providing their services under normal commercial conditions.
(A) LIST OF CONTRACTS Paid contracts - commitments The Bank has concluded the below specified contracts with GE Group companies with the resulting commitments arising from them. Those are mandate contracts with companies with the registered office in the Czech and Slovak Republics according to which the Bank invoices a proportional part of the costs. The Bank has concluded contracts with GE Group companies covering deals made on the money market according to the Bank’s instructions and on the account of the Bank. Another type of contract with attaching commitments is a contract on use of the GE logo and trade mark. In addition, the Bank has concluded contracts on the provision of support from GE companies in Dublin and Stamford to its HQ departments and to the Bank’s management.
ANNUAL REPORT GE MONEY BANK
35
REPORT ON RELATIONS WITH RELATED PARTIES
Contracts with affiliated GE companies GE Money Bank, a.s.,
GE Money Multiservis, a.s.,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Mandate Contract
GE Money Bank, a.s.,
GE Money Multiservis, a.s.,
Contract on business co-operation
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
No financial commitments
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Mandate Contract
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
GE Money Bank, a.s.,
GE Capital (Czech) Holdings, s.r.o.,
Contract on co-operation
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Contract terminated on October 31, 2004
GE Money Bank, a.s.,
GE Money Multiservis, a.s.,
Mandate Contract
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Bottova 7, Bratislava, Post Code 811 09, SLOVAK REPUBLIC
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Bottova 7, Bratislava, Post Code 811 09,
Mandate Contract
SLOVAK REPUBLIC
Contracts with other companies of the GE Group GE Money Bank, a.s.,
GE GesmbH Vienna, Austria
Contract on supplied services
GE Capital Corporation
Contract on treasury services
GE Money Bank, a.s.,
GE Capital Corporation – Global Consumer Finance
Utilization of GE networks
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
GE International Incorporated
GE Money Bank, a.s.,
GE Capital Registry, Inc.
Trade mark utilization
GE Money Bank, a.s.,
GE Corporate Computer Services Limited - Europe
Fees for mediation of services V+
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Station, Kingswood
GE Money Bank, a.s.,
Global Consumer Finance
Contract on support for departments of
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Summer Street 1600, Stamford, U.S.A.
GECB HQs
GE Money Bank, a.s.,
Global Consumer Finance
Contract on support for departments of
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Summer Street 1600, Stamford, U.S.A.
GECB HQs - IT services
GE Money Bank, a.s.,
GE Capital Woodchester Ltd.
Contract on support for departments of
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Golden Lane, Dublin 8, IRELAND
GECB HQs
GE Money Bank, a.s.,
GE Capital International Services
Contract on SW support Contract signed on
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
GE Towers, Sector Road, Sector 53
May 12, 2004
Vyskočilova 1422/1a, Prague 4, Post Code 140 28 GE Money Bank, a.s., Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Gurgaon-122002, INDIA GE Money Bank, a.s.,
GE Capital International Services
Contract on SW support Contract signed on
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
GE Towers, Sector Road, Sector 53
May 14, 2004
Gurgaon-122002, INDIA GE Money Bank, a.s.,
General Electric Company
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
3135 Easton Turnpike, Fairfield
E-mail service
Connecticut 06431, U.S.A. GE Money Bank, a.s.,
GE Capital Global Financial Restructuring
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
201 High Ridge Road,
SW usage (licence fee)
Stamford CT 06927
36
GE Money Bank, a.s.,
GE Capital Woodchester
GE Consumer Finance
Contract on support for departments of
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Ltd.
Europe
GECB HQs
Golden Lane, Dublin 8
Golden Lane, Dublin 8
IRELAND
IRELAND
ANNUAL REPORT GE MONEY BANK
REPORT ON RELATIONS WITH RELATED PARTIES
Paid contracts – receivables The Bank also co-operates with GE Money Multiservis, a.s. (“Multiservis”) concerning the use of the Bank’s distribution channels by clients of Multiservis. Multiservis - OK card holders can withdraw cash at counters at the Bank’s points of sale, in exchange for which Multiservis pays the Bank a fixed fee per transaction. The Bank works with Multiservis on the management, distribution and processing of transactions involving the GE MoneyCard Maestro/MasterCard. The Bank provides a service for individual credit cards. It maintains and administers the whole portfolio in its Vision Plus system. Multiservis pays the Bank a fixed fee for the services for each issued and registered credit card and for each individual transaction using the cards. The costs per card are
re-assessed once a year based on the costs and the profit margin of the Bank. Sub-lease contracts - receivables The Bank has concluded sub-lease contracts with GE Group companies which have their centre in the building of the BB Centre in Vyskočilova street. The Bank recharges the costs related to the rented premises in the BB Centre proportionally to the listed companies on a monthly basis. The Bank has also concluded sub-lease contracts with Multiservis, which uses part of the premises of the Bank in regional cities for the sale of its products. It pays the Bank a rental fee including a proportion of the operating costs of the point of sale.
Sub-lease contracts - receivables GE Money Bank, a.s.,
GE Money Multiservis, a.s.,
Sub-lease contract - in BB Centre,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Prague 4, Vyskočilova 1422/1a
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Sub-lease contract - in BB Centre,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Prague 4, Vyskočilova 1422/1a
GE Money Bank, a.s.,
GE Capital (Czech) Holdings, s.r.o.,
Sub-lease contract - in BB Centre,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Prague 4, Vyskočilova 1422/1a
GE Money Bank, a.s.,
Global Financial Restructuring Czech
Sub-lease contract - in The Park No. 2294/2,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
V Parku 2294/2, Post Code 148 00
Prague 4 - Chodov
GE Money Bank, a.s.,
GE International, Inc.
Sub-lease contract - in BB Centre,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Two Corporate Drive, Shelton, USA
Prague 4, Vyskočilova 1422/1a
GE Money Bank, a.s.,
GE Medical Systems, SA - organizational unit
Sub-lease contract - in BB Centre,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Prague 4, Vyskočilova 1422/1a
GE Money Bank, a.s.,
GE Medical Systems Česká republika, s.r.o.,
Sub-lease contract - in BB Centre,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Prague 4, Vyskočilova 1422/1a
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Sub-lease contract – Plzeň,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Anglické nábřeží 1
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Sub-lease contract – Olomouc,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Opletalova 2
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Sub-lease contract – Hradec Králové,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Karla IV. 502
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Sub-lease contract – Brno,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Lidická 31
GE Money Bank, a.s.,
GE Lighting, s.r.o.,
Sub-lease contract – Brno,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Purkyňova 45/2740, Brno, Post Code 612 00
Lidická 31
GE Money Bank, a.s.,
GE International, Inc.
Sub-lease contract - in The Park Building
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Husova 5, Prague 1, Post Code 110 00
No 2294/2, Prague 4 - Chodov
GE Money Bank, a.s.,
GE Money Multiservis, a.s
Sub-lease contract - in The Park Building
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
No 2294/2, Prague 4 - Chodov
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Sub-lease contract - in The Park Building
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
No 2294/2, Prague 4 - Chodov
GE Money Bank, a.s.,
GE Capital (Czech) Holdings, s.r.o.
Sub-lease contract - in The Park Building
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
No 2294/2, Prague 4 - Chodov
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Sub-lease contract – Jaromeř,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Ve Sladovnách 37
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Sub-lease contract – České Budějovice,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Jírovcova 1863/1
ANNUAL REPORT GE MONEY BANK
37
REPORT ON RELATIONS WITH RELATED PARTIES
Mandate contracts and other contractual receivables The Bank also provides services in the non-retail area to GE companies in the Czech and Slovak Republics. The services are supplied under normal commercial conditions. The Bank has concluded a contract with Global Consumer Finance Ltd on supplying IT (Information Technology) project management services. The Bank provides traditional banking services to affiliated companies under normal commercial conditions, for example the maintenance of accounts.
in favour of a beneficiary (trader) and a further bank guarantee for Global Capital Finance Ltd related to an acquisition in the Slovak Republic.
(B) LIST OF OTHER LEGAL ACTS No legal acts have been concluded during the reporting period in favour of the Controlling Entity or entities controlled by the Controlling Entity outside the scope of legal acts normally performed by the Controlling Entity in exercising its rights as a shareholder of the Controlled Entity. The Bank issued a bank guarantee for Multiservis
During the reporting period, the Controlled Entity did not receive or provide, in favour or at the request of the Controlling Entity or entities controlled by the Controlling Entity, any goods or services or offsets in excess of those normally received from or provided to the Controlling Entity as a shareholder of the Controlled Entity.
3. Other Goods and Services Provided and Offsets Received
Mandate contracts and other contractual receivables GE Money Bank, a.s.,
GE Money Multiservis, a.s.,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Mandate Contract
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
GE Money Bank, a.s.,
GE Money Multiservis, k.s.,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Bottova 7, Bratislava, Post Code 811 09, SR
GE Money Bank, a.s.,
GE Money Auto, a.s.,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Bottova 7, Bratislava, Post Code 811 09, SR
GE Money Bank, a.s.,
GE Money Multiservis, a.s.,
Contract on co-operation – concluding
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
revolving credit contracts On behalf of
Mandate Contract
Mandate Contract
Mandate Contract
Multiservis, withdrawal through O.K. card
38
GE Money Bank, a.s.,
Global Consumer Finance Ltd.
Contract on supplied services for IT projects
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Summer Street 1600, Stamford, U.S.A.
management
GE Money Bank, a.s.,
GE Money Multiservis, a.s.,
Contract on co-operation – concluding
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
OK Karta agreements
GE Money Bank, a.s.,
GE Money Multiservis, a.s.,
Contract on co-operation – concluding loan
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
agreements On behalf of Multiservis
GE Money Bank, a.s.,
GE Money Multiservis, k.s.,
Contract on a movable lease
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Bottova 7, Bratislava, Post Code 811 09, SR
Terminated on January 31, 2004
GE Money Bank, a.s.,
GE Money Multiservis, k.s.,
Contract on a movable lease
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Bottova 7, Bratislava, Post Code 811 09, SR
Terminated on February 29, 2004
GE Money Bank, a.s.,
GE Money Multiservis, k.s.,
Contract on a movable lease
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Bottova 7, Bratislava, Post Code 811 09, SR
Terminated on March 31, 2004
GE Money Bank, a.s.,
GE Money Multiservis, k.s.,
Contract on a movable lease
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Bottova 7, Bratislava, Post Code 811 09, SR
GE Money Bank, a.s.,
GE Money Multiservis, k.s.,
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Bottova 7, Bratislava, Post Code 811 09, SR
GE Money Bank, a.s.,
GE Money Multiservis, a.s.,
Contract on a movable lease
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Terminated on December 31, 2004
GE Money Bank, a.s.,
Capital (Czech) Holdings, s.r.o.,
Contract on a movable lease
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Terminated on October 31, 2004
GE Money Bank, a.s.,
Capital (Czech) Holdings, s.r.o.,
Contract on a movable lease
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Vyskočilova 1422/1a, Prague 4, Post Code 140 28
Terminated on October 31, 2004
ANNUAL REPORT GE MONEY BANK
Contract on a movable lease
REPORT ON RELATIONS WITH RELATED PARTIES
4. GE Money Bank, a.s. Receivables from and Payables to Other Related Parties (as at December 31, 2004) CZK
GE Money Multiservis, Česká republika GE Capital (Czech) Holdings, Česká republika GE International, Stamford GE International, Shelton BUC: M45000 GE International, Česká republika GE ELFUN
Receivables
Payables
696 910 474
4 920 148
1 295 412
145 880 525
449 299
―
25 533 053
3 865 027
179 100
―
―
762 879
19 566 746
―
25 232
―
262 286 546
1 453 585
655
―
20 904
―
4 379 588
―
GE Capital Europe Limited London, UK BUC: 20001X
27 910
367 336
GE Client Business Services Fort Myers FL, USA
67 738
―
GE Capital Global Cons.Finance Stamford, USA BUC: EB7045
11 948 486
5 061 859
GE Capital Global Consumer Finance Leeds, UK BUC: EB0009
1 844 051
6 783 263
4 590
―
GE Global Consumer Finance London, UK
2 850 637
―
GE Company, Easton Turnpike, Fairfield, USA
GE Medical Systems S. A., Česká republika GE Medical Systems, Česká republika GE Money Auto, Česká republika GE Money Auto, Slovenská republika GE Lighting, Česká republika GE Capital Woodcherster Limited Golden Lane, Irsko
GE Corporate Audit Staff, Fairfield, USA
5 666 016
―
GE Corporate Computer Services, Bristol, UK BUC: A13002
―
13 694 474
GE Corporate Component, Philadelphia
―
455 419
―
68 273 943
GE Capital Corporation, Stamford, USA GE Plastic Europe, Bergen, The Netherlands
480 516
―
GE Crotonville Training BUC: A01300
―
181 548
GE Leadership Belgum BUC: A01400
―
36 863
GE Leadership Holand BUC: A01401
―
241 085
GE Nuovo Pignone Holding BUC: RS1011
―
60 930
GE IFO and Other Corporate BUC. F91000
―
6 164
GCF Australia
30 307
―
GCF Brasil
958 328
―
GCF Brusel
27 218
―
GCF Canton, USA
499 316
―
GCF Harrow, UK
8 741
―
GCF Mason, USA
364 557
―
GCF Watford, UK
471 918
―
68 515
―
GFR Stamford
554 162
―
GE Hipotecaria, Mexico
160 614
―
86 356
―
428 429
―
1 188 269
―
5 329
―
21 047
―
3 638
―
ITELCAR Portugal
60 750
―
Nt5 Software Solutions India
29 090
―
1 038 503 537
252 045 048
GE Capital Asia Hong-Kong
GE Housing Bank Poland GE Money Bank AB Stockholm GE Money Bank Hannover GECB Paris, France GECB Stavanger, Norway GEFR Czech
Total
ANNUAL REPORT GE MONEY BANK
39
REPORT ON RELATIONS WITH RELATED PARTIES
5. Assessment The Bank declares that it has not suffered any detriment due to the conclusion of the above listed contracts, above listed legal acts, other goods and services provided and offsets received.
40
ANNUAL REPORT GE MONEY BANK
Financial Statements
Name of the Bank: Registered office: Identification no: Business: Date of preparation: Code of the Bank:
GE Money Bank, a.s. Vyskočilova 1422/1a, Prague 4 25672720 Bank 18. 4. 2005 0600
42 43 44 45 46
Assets Liabilities Off-Balance Sheet Items Profit and loss account Summary of changes in equity
ANNUAL REPORT GE MONEY BANK
41
FINANCIAL STATEMENTS
ASSETS Balance sheet as at 31 December 2004
CZK 000
Note
1
Cash in hand and balances with central banks
2
State zero coupon bonds and other securities eligible for refinancing with the CNB
16
of which: a) securities issued by the government institutions
2004
2003
Gross amount
Adjustment
Net amount
Net amount
3 068 392
0
3 068 392
2 536 478
4 078 227
0
4 078 227
7 778 171
4 078 227
0
4 078 227
7 778 171
0
0
0
13 253 702
0
13 253 702
15 739 403
b) others 3
Receivables from banks and cooperative savings associations
14
of which: a) repayable on demand b) other receivables 4
15
of which: a) repayable on demand b) other receivables Debt securities
17
of which: a) issued by government institutions b) issued by other entities
57 944
30 519
0
13 195 758
15 708 884
41 845 020
4 606 488
37 238 532
28 114 882
409
0
409
11 420
41 844 611
4 606 488
37 238 123
28 103 462
0
0
0
1 297 653
0
0
0
995 285
0
0
0
302 368
6
Shares, mutual fund certificates and other investments
18
16 105
0
16 105
24 699
7
Participation interests with substantial influence
19
240
0
240
0
of which: in banks
0
0
0
0
Participation interests with controlling influence
0
0
0
0
of which: in banks
0
0
0
0
1 101 789
845 633
256 156
235 015
2 045
2 045
0
102
0
0
0
0
1 757 049
915 279
841 770
720 682
278 884
99 194
179 690
181 447
1 042 348
128 500
913 848
1 162 894
0
0
0
0
8
9
Intangible fixed assets
20
of which: a) establishment costs b) goodwill 10
Tangible fixed assets
21
of which: land and buildings for operating activities 11
Other assets
12
Receivables from subscribed registered capital
13
Prepaid expenses and accrued income Total assets
42
0
Receivables from customers - cooperative savings association‘s members
5
57 944 13 195 758
ANNUAL REPORT GE MONEY BANK
22
114 699
0
114 699
196 176
66 277 571
6 495 900
59 781 671
57 806 053
FINANCIAL STATEMENTS
LIABILITIES Balance sheet as at 31 December 2004 CZK 000
1
2004
2003
Due to banks and cooperative savings associations
Note
0
0
of which: a) repayable on demand
0
0
b) other payables 2
0
0
45 428 245
45 558 655
30 847 966
29 218 804
14 580 279
16 339 851
Payables from debt securities
0
0
of which: a) debt securities issued
0
0
Due to customers - cooperative savings association‘s members
23
of which: a) repayable on demand b) other payables 3
b) other payables from debt securities 4
Other liabilities
5
Deferred income and accrued expenses
6
Provisions
24
26
of which: a) provision for pensions and similar obligations b) provision for taxes c) other 7
Subordinated liabilities
8
Registered capital
25
of which: a) registered paid up capital b) own shares
0
0
1 416 629
1 509 674
24 366
78 242
14 447
3 673
0
0
0
0
14 447
3 673
0
0
510 000
510 000
510 000
510 000
0
0
9
Share premium
27
4 701 979
4 701 979
10
Reserve funds and other funds from profit
27
102 000
102 000
102 000
102 000
b) other reserve funds
0
0
c) other funds from profit
of which: a) statutory reserve funds and risk funds
0
0
11
New valuation reserve fund
0
0
12
Capital funds
0
0
13
Gains (losses) from revalution
0
0
of which: a) assets and liabilities
0
0
b) hedging derivatives
0
0
c) participation interests
0
0 3 354 233
14
Retained earnings (or accumulated losses) from previous years
27
5 341 830
15
Profit (loss) for the accounting period
27
2 242 175
1 987 597
59 781 671
57 806 053
Total liabilities
ANNUAL REPORT GE MONEY BANK
43
FINANCIAL STATEMENTS
OFF-BALANCE SHEET ITEMS
CZK 000
Note
2004
2003
29
6 500 297
6 377 278
Off-balance sheet assets 1
Commitments and guarantees granted
2
Collaterals granted
3
Receivables from spot transactions
4
Receivables from fixed term transactions
5
Receivables from options
6
Receivables written-off
7 8
29
0
0
51 619
613 606
6 019 332
8 586 790
0
0
3 050 598
3 438 212
Values placed into custody, administration and deposit
0
0
Values placed under management
0
0
Off-balance sheet liabilities
44
1
Commitments and guarantees received
2
Collaterals and pledges received
3
Payables from spot transactions
4
Payables from fixed term transactions
5
347 674
1 523 141
31 118 750
30 347 059
51 710
613 008
6 105 277
8 755 823
Payables from options
0
0
6
Values taken into custody, administration and deposit
0
0
7
Values taken under management
0
0
ANNUAL REPORT GE MONEY BANK
29
FINANCIAL STATEMENTS
PROFIT AND LOSS ACCOUNT For the Year Ended 31 December 2004 tis. Kč
1
2
Poznámka
2004
2003
Interest income and similar income
4
4 293 912
3 884 348
of which: interest income from debt securities
4
219 916
140 918
Interest expense and similar expense
4
(236 861)
(267 423)
0
0
of which: interest expense from debt securities 3
Income from shares and participation interests:
156 496
24 326
of which: a) income from participation interests with substantial influence
0
0
b) income from participation interests with controlling influence
0
0
c) income from other shares and participation interests
5
5
156 496
24 326
4
Commission and fee income
6
2 583 031
2 203 654
5
Commission and fee expense
6
(393 434)
(331 229)
6
Gain or loss from financial operations
7
114 677
139 423
7
Other operating income
8
646 298
1 933 214
8
Other operating expenses
8
(205 088)
(758 898)
9
Administrative expenses
9
(2 954 459)
(2 913 397)
of which: a) employee expenses
9
(1 226 646)
(1 046 998)
9
(906 517)
(776 907)
9
(320 129)
(270 091)
9
(1 727 813)
(1 866 399)
0
0
(388 949)
(418 882)
586 611
637 635
(1 584 708)
(2 289 948)
0
0
of which: aa) wages and salaries ab) social and health insurance b) other administrative expenses 10
Release of reserves and adjustments to tangible and intangible fixed assets
11
Depreciation, creation and use of reserves and adjustments to tangible
20
and intangible FA 12
Release of adjustments and provisions for receivables and guarantees, income from
26
written-off receivables 13
Write-offs, creation and use of adjustments and provisions for receivables and
26
guarantees 14
Release of adjustments to participation interests with controlling and substantial influence
15
Losses from transfer of participation interests with controlling and substantial influence, creation and use of adjustments to participation interests with controlling and substantial influence
0
0
16
Release of other provisions
0
0
17
Creation and use of other provisions
0
0
18
Share of profits or losses from participation interests with controlling and substantial influence
0
0
2 617 526
1 842 823
Extraordinary income
0
0
21
Extraordinary expenses
0
0
22
Current year profit (loss) from extraordinary activities before tax
0
0
23
Income tax
(375 351)
144 774
24
Net profit (loss) for the accounting period
2 242 175
1 987 597
19
Current year profit (loss) from ordinary activities before tax
20
27
28
ANNUAL REPORT GE MONEY BANK
45
FINANCIAL STATEMENTS
SUMMARY OF CHANGES IN EQUITY IN 2004
Registered capital
Own shares
Share premium
Reserve funds
Capital funds
Revaluation gains (losses)
Profit (loss)
Total
Balance as at 1 January 2003
500 000
0
4 701 979
102 000
0
0
3 354 233
8 658 212
Change in accounting methods
0
0
0
0
0
0
0
0
Corrections of fundamental errors
0
0
0
0
0
0
0
0
statement
0
0
0
0
0
0
0
0
Net profit (loss) for accouning period
0
0
0
0
0
0
1 987 597
1 987 597
Dividends
0
0
0
0
0
0
0
0
Transfers to funds
0
0
0
0
0
0
0
0
Use of funds
0
0
0
0
0
0
0
0
CZK 000
FX gains (losses) and gains (losses) not included in the profit and loss
Issue of shares
10 000
0
0
0
0
0
0
10 000
Reduction in registered capital
0
0
0
0
0
0
0
0
Own shares purchased
0
0
0
0
0
0
0
0
Other changes
0
0
0
0
0
0
0
0
Balance as at 31 December 2003
510 000
0
4 701 979
102 000
0
0
5 341 830
10 655 809
Balance as at 1 January 2004
510 000
0
4 701 979
102 000
0
0
5 341 830
10 655 809
Change in accounting methods
0
0
0
0
0
0
0
0
Corrections of fundamental errors
0
0
0
0
0
0
0
0
statement
0
0
0
0
0
0
0
0
Net profit (loss) for accouning period
0
0
0
0
0
0
2 242 175
2 242 175
Dividends
0
0
0
0
0
0
0
0
Transfers to funds
0
0
0
0
0
0
0
0
Use of funds
0
0
0
0
0
0
0
0
Issue of shares
0
0
0
0
0
0
0
0
Reduction in registered capital
0
0
0
0
0
0
0
0
Own shares purchased
0
0
0
0
0
0
0
0
Other changes
0
0
0
0
0
0
0
0
510 000
0
4 701 979
102 000
0
0
7 584 005
12 897 984
FX gains (losses) and gains (losses) not included in the profit and loss
Balance as at 31 December 2004
46
ANNUAL REPORT GE MONEY BANK
Notes to Financial Statements
48 Notes to Financial Statements
ANNUAL REPORT GE MONEY BANK
47
NOTES TO FINANCIAL STATEMENTS
1. Background GE Money Bank, a.s., formerly GE Capital Bank, a.s., (“the bank”) was established on 9 June 1998 by the contribution of capital by GE Capital International Holding in the amount of CZK 2 000 million. From this initial capital, the bank purchased selected assets and liabilities from Agrobanka, a.s., a bank, which had been previously put under enforced administration by the Czech National Bank. On 22 June 1998, the date of purchase, the assets and liabilities acquired were recorded in the bank’s balance sheet at values determined based upon the Purchase Agreement. On 17 January 2005 the bank was renamed from GE Capital Bank, a.s. to GE Money Bank, a.s. as part of a rebranding initiative, that is implemented by our parent company General Electric Company around the world. The aim is to use the worldwide experience of GE Money not only for uniform communication, but also for improvement of processes and to strengthen our mutual relationships and intensify the successful cooperation with clients.
2. Basis of Preparation The financial statements have been prepared on the basis of accounting maintained in accordance with the Act on Accounting and relevant regulations and decrees of the Czech Republic. They have been prepared under the historical cost convention on the basis of full accrual accounting, except for the selected financial instruments that are stated at fair value. The financial statements have been prepared in accordance with the Czech Ministry of Finance decree on regulating the layout and definition of financial statements and disclosure requirements of banks and certain financial institutions dated 6 November 2002 (N. 501/2002). Numbers in brackets represent negative amounts. These financial statements are non-consolidated financial statements.
3. Significant Accounting Policies The significant accounting policies adopted in the preparation of the financial statements are set out below: (A) TRANSACTION DATE Depending on the type of transaction, the transaction date is defined as the date of payment or collection of cash; the date of purchasing or selling of foreign currency or securities; date of payment or collection from a customer‘s account; date of order to a correspondent to make a payment, settlement date of the bank’s payment orders with the ČNB clearing centre, the value date according to a statement received from a bank’s correspondent (statement means SWIFT statement, bank’s notice, received media, bank statement or other documents); the trade date and settlement date of transactions with securities, foreign currency, options or other derivatives; the date of issue or receipt of a guarantee or opening credit line; the date of acceptance of values into custody.
48
ANNUAL REPORT GE MONEY BANK
Accounting transactions involving the purchase or sale of financial assets with a usual term of delivery (spot transactions) as well as fixed term and option contracts shall be recorded in off-balance sheet accounts from the trade date until the settlement date. A financial asset or its part is derecognised from the balance sheet if the bank loses control over the contractual rights to this financial asset or its part. The bank loses this control if it exercises the rights to the benefits defined in the contract, if these rights expire or these rights are waived by the bank. (B) DEBT SECURITIES, SHARES, UNITS AND OTHER INVESTMENTS Treasury bills, bonds and other debt securities and shares including units and other investments are classified into a portfolio which is held to maturity, held for trading or available for sale, based on the bank’s intention. Only debt securities can be classified into a portfolio held to maturity. Treasury bills, bonds and other debt securities are recorded at amortised/accreted cost. Accrued interest income is part of the carrying amount of these securities. Shares, units and other investments are recorded at acquisition cost. Premiums and discounts on debt securities are amortised/ accreted through the profit and loss account over the period from the date of purchase to the date of maturity using the effective interest rate method. In the case of securities classified into the portfolio held for trading, available for sale and securities which have a residual maturity shorter than 1 year and are included in the portfolio held to maturity, the premium and the discount are amortized/accreted equally through the profit and loss account over the period from the date of purchase to the date of maturity. Debt securities and shares, units and other investments held for trading or available for sale are measured at fair value and gains/losses from this revaluation are charged to the profit and loss account in “Gain or loss from financial operations”. The fair value used for the revaluation of securities is determined based on the market price published as at the date of the fair value measurement, if the bank proves that securities can be sold for that market price. For debt and equity securities traded on the public market, fair values are equal to the price reached on the public market of OECD countries, if, at the same time, the condition of securities liquidity is fulfilled. If it is not possible to determine if the fair value is the market value (i.e. the bank does not prove that it is possible to sell securities for such a market price), the fair value is estimated as an adjusted value of securities. An adjusted value of securities equals the share proportion on equity for shares, the share proportion on a fund’s net assets value for units, and the present value of security for debt securities. Adjustments are established to debt securities held to maturity. Adjustments to these securities are created by an amount, which only reflects the change in the risk of the issuer, but not the change in risk-free interest rates, calculated on an individual basis. Transactions where securities are purchased under a commitment to resell (resale commitment) are treated as collateralised lending transactions. The legal title of securities subject to resale or repurchase commitments is transferred to the lender. Securities received under a resale commitment are recorded in off-balance sheet accounts in “Collaterals and pledges received”. The lending granted under a resale commitment is recorded in ‘Receivables from banks and cooperative savings associations’ or ‘Receivables from customers - cooperative savings association’s members.’ Interest on debt securities received under a resale commitment is not accrued.
NOTES TO FINANCIAL STATEMENTS
Income arising under resale commitments as the difference between the selling and purchase price is accrued over the period of the transaction and recorded in the profit and loss account as “Interest income and other similar income”. (C) PARTICIPATION INTERESTS WITH SUBSTANTIAL INFLUENCE A participation interest with substantial influence is one in which the bank holds at least 20 per cent of a subject’s registered capital. In this case, the bank has substantial influence over the subject’s management, which arises from participation in registered capital, or from agreement or articles of association regardless of the percentage of participation. Participation interests with substantial influence are valued at acquisition cost net of adjustments due to the temporary decrease in the value of the participation interests calculated on an individual basis. (D) RECEIVABLES FROM BANKS AND CUSTOMERS Receivables are carried net of adjustments. Accrued interest income is part of the carrying amount of receivables. Receivables are reviewed for recoverability. Adjustments are created against specific receivables as considered appropriate. The methodology for the creation of adjustments in the appropriate accounting period is included in Note 31 of these notes. Adjustments created by debiting expenses are reported in “Write-offs, creation and use of adjustments and reserves to receivables and guarantees” in sub-ledgers used for the calculation of the income tax liability. The tax-deductible portion of the period charge for the creation of adjustments for credit losses is calculated in accordance with the requirements of section 5 (“Banking reserves and adjustments”) and section 8 (“Adjustments to receivables from debtors subject to bankruptcy or composition proceedings”) of the Act on Reserves N. 593/1992 Coll. Receivables are written off when the bank has determined the receivable to be permanently irrecoverable. The write off of unrecoverable receivables is accounted for as “Write-offs, creation and use of adjustments and reserves to receivables and guarantees” in the profit and loss account. Adjustments and reserves are reduced in an equal amount to the amount written off on the same account in the profit and loss account. Recoveries on loans previously written off are included in the profit and loss account in “Release of adjustments and provisions for receivables and guarantees, income from written-off receivables”. The bank also accrues interest income from classified receivables. Adjustments to accrued interest income are established in accordance with the appropriate requirement of the ČNB. Receivables from customers purchased from third party are initially recorded at discounted values from the gross receivables actually due under the contracts with customers. To the extent that a customer repays any portion of the receivable in excess of the discounted value originally assigned to the receivable, this difference is recorded as operating income. (E) CREATION OF RESERVES A reserve represents a probable cash outflow of uncertain timing and amount. Reserves are established if the following criteria are met: • a duty (legal or factual) to perform exists, resulting from past events, • it is probable that the event will occur and that it will require a cash outflow representing economic benefits; “probable” meaning a probability exceeding 50 %
(F) INTANGIBLE AND TANGIBLE FIXED ASSETS Tangible and intangible fixed assets are stated at historical cost and are depreciated using the straight-line method over their estimated useful lives. The annual depreciable lives for each category of intangible and tangible fixed asset are as follows: Software
5 years
Cars
4 years
Building
40 years
Fixture and fittings
10 years
Equipment
5 years
Establishment costs - other intangible fixed assets
5 years
PCs and servers
3 years
Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease terms or their remaining useful lives. Intangible fixed assets costing less than CZK 60 000 and tangible fixed assets costing less than CZK 40 000 having useful life less than 1 year are charged to the profit and loss account in the period in which they are acquired. (G) FOREIGN CURRENCY TRANSLATION Transactions denominated in foreign currencies are recorded in the local currency at actual exchange rates on the date of the transaction. Assets and liabilities denominated in foreign currencies together with unsettled spot foreign exchange transactions are translated into the local currency at the ČNB foreign exchange rate prevailing on the balance sheet date. Foreign exchange gains or losses arising from the translation of assets and liabilities denominated in foreign currencies are recognized in the profit and loss account as “Gain or loss from financial operations”. (H) FINANCIAL DERIVATIVES Trading instruments Financial derivatives held for trading are carried at fair value. Gains (losses) from the changes in fair value are recorded in the profit and loss account in “Gain or loss from financial operations”. The bank uses all its trading financial derivatives for macrohedging purposes. The fair value of financial derivatives is determined as the present value of expected cash flows from these transactions, using valuation models generally accepted on the market. The parameters ascertained on the active market, such as foreign exchange rates, yield curves, volatility of financial instruments, etc. are used in these models. (I) TAXATION Tax non-deductible expenses are added to and non-taxable income is deducted from the profit for the period to arrive at the taxable income that is further adjusted by tax allowances and relevant credits. Deferred tax is provided on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes multiplied by the enacted income tax rate for the period when the timing difference is expected to reverse. A deferred tax asset is recognized only to the extent that there are no doubts that there will be future taxable profits available against which this asset can be utilized.
• the amount of such a performance can be reliably estimated.
ANNUAL REPORT GE MONEY BANK
49
NOTES TO FINANCIAL STATEMENTS
(J) FINANCIAL LEASING Assets acquired under financial leases shall be recorded in “Tangible fixed assets” when the legal ownership is transferred to the bank. Lease payments are recorded in “Other operating expenses”.
4. 2004
2003
3 884 348
56 325
67 234
4 017 671
3 676 196
219 916
140 918
Interest expense
(236 861)
(267 423)
from deposits
(233 975)
(264 160)
(2 886)
(3 263)
4 057 051
3 616 925
from deposits from loans from debt securities
from loans Net interest income
CZK 000
The bank waived or did not claim default interest of CZK 7 950 thousand (CZK 120 732 thousand in 2003).
(1 381)
(9 809)
(69 914)
(47 252)
55 498
16 362
Foreign exchange rate differences
130 474
180 122
Total
114 677
139 423
8. Other Operating Income and Expense CZK 000
2004
2003
Other income
646 298
1 933 214
Service revenues
115 796
103 226
Commissions from third parties
70 103
69 429
Rent
33 421
34 261
8 343
8 004
Sale of fixed assets
Income related to purchased loans Corrections
Income from Shares and Participation Interests
Other Income from sale of participation interests Income from dividends Total
2004
2003
156 496
0
0
24 326
156 496
24 326
6. 2004
2003
547 605
534 703
1 806 986
1 335 099
other
228 440
333 852
Total
2 583 031
2 203 654
payment processing
(262 069)
(234 137)
other
(131 365)
(97 092)
Total
(393 434)
(331 229)
lending activities
Fee and commission expense from
50
ANNUAL REPORT GE MONEY BANK
Deposit insurance Receivables write-offs
218
53
17 026
1 155 015
395 048
544 379
6 343
18 847
205 088
758 898
89 015
42 973
236
2 057
73 616
62 389
Expenses related to purchased loans
9
575 027
Contractual penalties
5
29 244
Royalties
Other
Fee and commission income from payment processing
Other expenses
Withholding tax
Fees and Commissions CZK 000
2003
Gain/(loss) from derivative transactions
Damages
5. CZK 000
2004
Gain/(loss) from securities transactions
transactions
4 293 912
Interest income
Gain or Loss from Financial Operations
Gain/(loss) from foreign exchange
Net Interest Income CZK 000
7.
9 587
8 170
32 620
39 038
NOTES TO FINANCIAL STATEMENTS
9.
10.
Administrative Expenses
Extraordinary Income and Expense
CZK 000
Employee expenses
2004
2003
1 226 646
1 046 998
Wages and salaries
906 517
776 907
Social and health insurance
320 129
270 091
CZK 000
Of which wages and salaries paid to: and executives
Other administrative expenses
28 436
27 005
0
289
Total
1 727 813
1 866 399
28 197
33 442
2 954 459
2 913 397
2004
Members of the Supervisory Board Other Executives
0
0
0
2004
2003
Fee and commission expense
8 865
4 704
Total
8 865
4 704
12.
The average number of bank employees during the period was as follows:
Members of the Board of Directors
0
Extraordinary expenses
CZK 000
The bank did not pay any bonuses tied to equity in 2004 and 2003.
Employees
Extraordinary income
Income and Expenses Resulting from Participation Interests with Substantial Influence
of which expenses for audit, legal and tax advisory
2003
11.
Members of the Board of Directors Members of the Supervisory Board
2004
Transactions with Related Parties CZK 000
2003
Receivables
2004
2003
1 053 362
126 821
2 056
1 919
4
6
Payables
275 206
346 760
3
Income
180 117
152 560
15
Expense
421 771
335 617
3 15
13. Income and Expense According to Segments A) BUSINESS SEGMENTS Retail Banking CZK 000
Corporate Banking
2004
2003
2004
2003
Interest income
3 033 012
2 937 504
1 260 900
946 844
Interest expense
(157 105)
(197 212)
(79 756)
(70 211)
Fee and commission income
1 994 962
1 698 514
588 069
505 140
Fee and commission expense
(361 951)
(255 302)
(31 483)
(75 927)
51 023
99 943
63 654
39 480
Gain or loss from financial operations
B) GEOGRAPHICAL SEGMENTS Czech Republic CZK 000
European union
Other
2004
2003
2004
2003
2004
2003
Interest income
4 264 638
3 861 512
13 010
3 775
16 264
19 061
Interest expense
(235 222)
(265 324)
(765)
(392)
(874)
(1 707)
Fee and commission income
2 564 475
2 186 363
7 790
3 228
10 766
14 063
Fee and commission expense
(390 700)
(328 630)
(1 039)
(485)
(1 695)
(2 114)
112 787
138 307
822
198
1 068
918
Gain or loss from financial operations
ANNUAL REPORT GE MONEY BANK
51
NOTES TO FINANCIAL STATEMENTS
14.
15.
Receivables from Banks
Receivables from Customers
(A) CLASSIFICATION OF RECEIVABLES FROM BANKS
(A) CLASSIFICATION OF RECEIVABLES FROM CUSTOMERS
CZK 000
2004
2003
Standard
13 253 702
15 739 403
Standard
Net receivables from banks
13 253 702
15 739 403
Special mentioned
(B) ANALYSIS OF RECEIVABLES FROM BANKS BY TYPE OF SECURITY RECEIVED CZK 000
Security held by the bank Unsecured Total
2004
2003
11 364 463
13 893 233
1 889 239
1 846 170
13 253 702
15 739 403
CZK 000
2004
2003
34 038 646
24 947 922
2 352 806
2 217 103
Sub-standard
914 807
623 465
Doubtful
285 783
367 445
4 252 978
3 744 862
Loss Adjustment to potential losses from receivables
(4 606 488)
(3 785 915)
Net receivables from customers
37 238 532
28 114 882
During 2004 the bank created an adjustment of CZK 264 618 thousand to the portfolio of consumer loans, bringing the total adjustments created on a portfolio basis to CZK 1 792 667 thousand. The bank determined the amount of these adjustments using a statistical model derived from its past experience on overdue receivables (see Note 31d). During 2004 the bank restructured receivables from customers totalling CZK 146 755 thousand (2003: CZK 182 400 thousand). (B) ANALYSIS OF RECEIVABLES FROM CUSTOMERS BY SECTOR CZK 000
2004
2003
362 142
111 671
9 950 722
9 444 868
26
129
Government sector
75 533
1 287 517
Non-profit organisations
11 509
13 255
5 670 039
3 973 452
25 771 415
17 019 678
Financial institutions Non-financial institutions Insurance institutions
Self-employed Resident individuals Non-residents Total
52
ANNUAL REPORT GE MONEY BANK
3 634
50 227
41 845 020
31 900 797
NOTES TO FINANCIAL STATEMENTS
(C) ANALYSIS OF RECEIVABLES FROM CUSTOMERS BY SECTOR AND TYPE OF SECURITY RECEIVED As at 31 December 2004 CZK 000
Financial institutions Non financial institutions
Personal guarantee
Bank guarantee
Mortgage
Performance guarantee
Bill of exchange
Held by Bank
Unsecured
Total
0
0
11 577
0
0
0
350 565
362 142 9 950 722
300
17 662
8 318 407
158 568
2
94 995
1 360 788
Insurance institutions
0
0
0
0
0
0
26
26
Government sector
0
0
56 376
1 000
0
0
18 157
75 533
Non profit organizations
0
0
1 522
0
0
244
9 743
11 509
Self employed Resident individuals Non resident individuals Total
0
2 519
2 725 412
82 715
4
29 839
2 829 550
5 670 039
16
0
5 792 671
0
0
0
19 978 728
25 771 415
0
0
0
0
0
0
3 634
3 634
316
20 181
16 905 965
242 283
6
125 078
24 551 191
41 845 020
Personal guarantee
Bank guarantee
Mortgage
Performance guarantee
Bill of exchange
Held by Bank
Unsecured
Total
As at 31 December 2003 CZK 000
Financial institutions
0
159
9 192
0
0
0
102 320
111 671
633
957 147
6 501 019
69 393
2
83 359
1 833 315
9 444 868
Insurance institutions
0
0
0
0
0
0
129
129
Government sector
0
0
58 529
0
0
0
1 228 988
1 287 517
Non profit organizations
0
0
1 993
0
0
0
11 262
13 255
Self employed
0
127 864
2 013 048
11 198
3
27 051
1 794 288
3 973 452
102
1 190
2 787 500
0
0
0
14 230 886
17 019 678
0
0
4 190
0
0
0
46 037
50 227
735
1 086 360
11 375 471
80 591
5
110 410
19 247 225
31 900 797
Non financial institutions
Resident individuals Non resident individuals Total
(D) NET RECEIVABLES FROM CUSTOMERS WRITTEN-OFF AND RECOVERED CZK 000
2004
(E) RECEIVABLES FROM PERSONS WITH A SPECIAL RELATIONSHIP TO THE BANK 2003
Write-offs Financial institutions
0
297
Non-financial institutions
217 796
557 274
Non-profit organisations
0
4
Self-employed
25 823
142 262
Resident individuals
59 665
80 570
12
3 848
0
469
Non-residents Companies without ICO Unallocated Total
0
1 461
303 296
786 185
142 614
1 110
Board of directors
Executives
Supervisory board
At 31 December 2003
9 776
8 180
0
At 31 December 2004
3 242
11 617
0
CZK 000
Above mentioned loans were provided under standard employee conditions. (F) RECEIVABLES FROM PARTICIPATION INTERESTS WITH CONTROLLING AND SUBSTANTIAL INFLUENCE Total amount of receivables from participation interests with controlling and substantial influence at 31 December 2004 was CZK 0 thousand (2003: CZK 7 705 thousand).
Recoveries Non-financial institutions Non-profit organisations Total
2 747
0
145 361
1 110
ANNUAL REPORT GE MONEY BANK
53
NOTES TO FINANCIAL STATEMENTS
16.
18.
State Zero Coupon Bonds and Other Securities Eligible for Refinancing with the ČNB
Shares, Units and Other Investments
(A) NET BOOK VALUE OF STATE ZERO COUPON BONDS AND OTHER SECURITIES ELIGIBLE FOR REFINANCING WITH THE ČNB
(A) CLASSIFICATION OF SHARES, UNITS AND OTHER INVESTMENTS INTO INDIVIDUAL PORTFOLIOS BASED ON THE BANK’S INTENTION CZK 000
CZK 000
State treasury bills State bonds Net book value
2004
2003
4 078 227
7 725 972
0
52 199
4 078 227
7 778 171
As at 31 December 2004 the bank held state zero coupon bonds under resale commitments with market value of CZK 11 364 463 thousand (2003: CZK 13 893 233 thousand), which are reported in the off-balance sheet in “Collaterals and pledges received”.
Shares, units and other investments
CZK 000
2004
2003
available for sale securities
4 078 227
7 778 171
Net book value
4 078 227
7 778 171
State zero coupon bonds and other
17. Debt Securities (A) CLASSIFICATION OF DEBT SECURITIES INTO INDIVIDUAL PORTFOLIOS BASED ON THE BANK’S INTENTION CZK 000
2004
2003
Available for sale debt securities
0
1 297 653
Total
0
1 297 653
(B) ANALYSIS OF DEBT SECURITIES AVAILABLE FOR SALE Market Value CZK 000
2004
2003
0
302 368
Issued by financial institutions - Listed on a recognized Czech Republic exchange Issued by government institutions - Listed on a recognized Czech Republic exchange Total
54
ANNUAL REPORT GE MONEY BANK
0
995 285
0
1 297 653
2003
16 105
24 699
16 105
24 699
available for sale Total
(B) ANALYSIS OF SHARES, UNITS AND OTHER INVESTMENTS AVAILABLE FOR SALE Market Value CZK 000
2004
2003
15 724
15 312
0
9 387
Issued by financial institutions - Unlisted
(B) CLASSIFICATION OF STATE ZERO COUPON BONDS AND OTHER SECURITIES ELIGIBLE FOR REFINANCING WITH THE ČNB INTO INDIVIDUAL PORTFOLIOS BASED ON THE BANK’S INTENTION
2004
Issued by non-financial institutions - Listed elsewhere - Unlisted Total
381
0
16 105
24 699
Securities listed elsewhere are traded in particular on RMS.
NOTES TO FINANCIAL STATEMENTS
19. Participation Interests with Substantial Influence CZK 000 Name
Other categories of equity
Share in equity
Share of voting rights
Book value
20 %
20 %
240
Registered office
Business activity
Registered capital
Víta Nejedlého 509/15,
service databank, SW,
1 200
2
Prague 3
HW and network 1 200
2
1 200
(3 404)
1 200
(3 404)
At 31 December 2004 Czech Banking Credit Bureau Total
240
At 31 December 2003 Czech Banking Credit Bureau
Víta Nejedlého 509/15,
service databank, SW,
Prague 3
HW and network
Total
20 %
20 %
0 0
20. Intangible Fixed Assets (A) MOVEMENTS IN INTANGIBLE FIXED ASSETS Software
Establishment Costs
Assets not yet in use
Low value intangible fixed assets
Total
As at 1 January 2003
798 956
2 045
23 528
220
824 749
Additions
117 797
0
116 715
58
234 570
Disposals
8 572
0
117 797
278
126 647
As at 31 December 2003
908 181
2 045
22 446
0
932 672
As at 1 January 2004
908 181
2 045
22 446
0
932 672
Additions
141 514
0
166 739
207
308 460
Disposals
968
0
138 226
149
139 343
1 048 727
2 045
50 959
58
1 101 789
As at 1 January 2003
497 361
1 534
0
0
498 895
Charge for the period
206 925
409
0
0
207 334
CZK 000
Cost
As at 31 December 2004 Amortization
Disposals
8 572
0
0
0
8 572
As at 31 December 2003
695 714
1 943
0
0
697 657
As at 1 January 2004
695 714
1 943
0
0
697 657
Charge for the period
148 795
102
0
0
148 897
921
0
0
0
921
843 588
2 045
0
0
845 633
As at 31 December 2003
212 467
102
22 446
0
235 015
As at 31 December 2004
205 139
0
50 959
58
256 156
Disposals As at 31 December 2004 Net book value
(B) ESTABLISHMENT COSTS The bank’s first year period of operations was 1998 and it capitalized the following establishment costs incurred during the period between its foundation and incorporation: travel of CZK 0,181 million and other costs of CZK 1,864 million. Establishment costs were amortised over 5 years.
ANNUAL REPORT GE MONEY BANK
55
NOTES TO FINANCIAL STATEMENTS
21. Tangible Fixed Assets (A) MOVEMENTS IN TANGIBLE FIXED ASSETS
Equipment
Low value tangible fixed assets
Fixed Assets not yet in use
Total
110 889
875 943
6 970
64 548
1 218 884
92 384
51 903
189 477
26 373
296 807
656 944
1 954
22 725
32 234
32 719
331 852
421 484
As at 31 December 2003
250 964
140 067
1 033 186
624
29 503
1 454 344
As at 1 January 2004
Land and Buildings
Furniture and Fittings
160 534
Additions Disposals
CZK 000
Cost As at 1 January 2003
250 964
140 067
1 033 186
624
29 503
1 454 344
Additions
32 754
22 302
235 434
28 941
347 833
667 264
Disposals
4 834
11 272
39 736
18 227
290 490
364 559
278 884
151 097
1 228 884
11 338
86 846
1 757 049
As at 1 January 2003
49 574
38 420
478 007
0
0
566 001
Charge for the period
21 897
25 787
176 758
0
0
224 442
As at 31 December 2004 Amortization
Disposals
1 954
22 594
32 233
0
0
56 781
As at 31 December 2003
69 517
41 613
622 532
0
0
733 662
As at 1 January 2004
69 517
41 613
622 532
0
0
733 662
Charge for the period
32 211
25 197
181 025
0
0
238 433
Disposals
2 534
2 095
52 187
0
0
56 816
99 194
59 031
757 054
0
0
915 279
As at 31 December 2003
181 447
98 454
410 654
624
29 503
720 682
As at 31 December 2004
179 690
92 066
471 830
11 338
86 846
841 770
Paid during 2004
Due within 1 year
Due within 1 to 5 years
Due in following years
Total lease payments remaining
30
80
0
0
80
Other fixed assets
2 458
6 717
0
0
6 717
Total
2 488
6 797
0
0
6 797
As at 31 December 2004 Net book value
(B) TANGIBLE FIXED ASSETS HELD UNDER FINANCE LEASES The bank is committed to payments under finance leases for fixed assets (not included in the tangible fixed assets of the bank) as follows:
CZK 000
Office equipment
56
ANNUAL REPORT GE MONEY BANK
NOTES TO FINANCIAL STATEMENTS
22.
(B) DUE TO PERSONS WITH A SPECIAL RELATIONSHIP TO THE BANK
Other Assets CZK 000
Other debtors Inventory Other cash values Clearing account for payments Clearing accounts Other Positive fair value of derivatives Accruals Net deferred tax assets Less: Adjustments Total
CZK 000 2004
2003
312 526
314 124
Additions
0
154
Disposals
341 123
167 932
0
44 733
1 179
3 914
232
812
8 683
21 931
33 379
15 360
345 226
720 576
(128 500)
(126 642)
913 848
1 162 894
Government sector Non-profit organisations Self-employed Resident individuals Non-residents Total
2 544
0
0
0
112
At 31 December 2003
2 856
7 632
2 839
At 1 January 2004
2 856
7 632
2 839
Additions
1 100
8 275
459
At 31 December 2004
3 956
15 907
3 298
(C) DUE TO PARTICIPATION INTEREST WITH SUBSTANTIAL INFLUENCE The bank had no amounts due to participation interests with substantial influence at 31 December 2004 and 31 December 2003.
2004
2003
2004
2003
Other creditors
987 661
885 384
Other payables
428 968
624 290
303 916
357 871
Of which: Accruals
Due to customers repayable on demand
Insurance institutions
2 951
940
CZK 000
(A) ANALYSIS OF DUE TO CUSTOMERS BY SECTOR
Non-financial institutions
Supervisory board
5 088
Other Liabilities
Due to Customers
Financial institutions
Executives
1 916
At 1 January 2003
24.
23.
CZK 000
Board of directors
139 738
374 630
6 551 658
7 708 498
6 716
58 997
2 272 093
1 538 385
661 363
696 421
5 423 584
4 835 930
15 433 533
13 692 306
359 281
313 637
30 847 966
29 218 804
Other payables to clients
12 085
71 141
Fair value of fixed term contracts
94 628
190 965
Clearing technical account
18 134
0
205
4 313
1 416 629
1 509 674
Other Total
Other creditors includes CZK 327 million payable to GE Capital International Holdings Corporation as at 31 December 2004 (2003: CZK 327 million). GE Capital International Holdings Corporation intends to use this amount to increase registered capital of the bank.
Due to customers with fixed maturity Financial institutions
44 570
47 128
1 818 953
2 241 873
76 194
83 136
Government sector
286 698
333 970
Non-profit organisations
256 251
282 739
Non-financial institutions Insurance institutions
Self-employed Resident individuals Non-residents Total
541 593
407 776
8 520 474
9 321 170
91 604
68 202
11 636 337
12 785 994
Due to customers with a notice period Non-financial institutions Self-employed Resident individuals Non-residents
40
0
1 786
1 397
2 928 246
3 536 584
13 870
15 876
Total
2 943 942
3 553 857
Total
45 428 245
45 558 655
25. Registered Capital In order to establish the bank, GE Capital International Holdings Corporation subscribed 500 shares of original capital in nominal value CZK 1 000 000 per one share and paid up for them CZK 2 000 million. During 1998 the bank issued 10 ordinary shares with nominal value CZK 1 000 000 each. Each share was issued at a premium of CZK 1 970 750 thousand and was fully paid up. The increase in registered capital was recorded in the Commercial Register at 25 March 2003. From 25 March 2003 the registered capital of GE Capital Bank, a.s. is CZK 510 million. During 2004 the bank did not issue any ordinary shares. The shareholders of the bank as at 31 December 2004 are: Name
GE Capital Int‘l Holdings Total
Seat
Number
Ownership %
U.S.A.
510
100
510
100
No person with a special relationship to the bank held any shares as at 31 December 2004 or 2003. ANNUAL REPORT GE MONEY BANK
57
NOTES TO FINANCIAL STATEMENTS
26.
(B) ADJUSTMENTS TO CLASSIFIED RECEIVABLES
Reserves and Adjustments for Possible Credit Losses
CZK 000
(A) RESERVES FOR POSSIBLE CREDIT AND GUARANTEE LOSSES
Tax deductible adjustments for credit losses
CZK 000
2003
Balance as at 1 January 2003 Creation during current year Guarantees Use during current year Standard loans Guarantees Release of reserves no longer considered necessary
34 045
Creation during current year
523 441
4 370
Write-off of loans and advances
1 669
Cover of losses from loans sold
1 669 0 0 0 (4 370)
Balance of tax deductible reserves as at 31 December 2003
Balance as at 1 January 2003
Use during current year
Tax deductible reserves for credit losses
1 669
Release of adjustments no longer considered necessary
Balance as at 1 January 2003
as at 31 December 2003
Creation during current year Guarantees Use during current years
2 004 2 004 0
Standard loans
0
Guarantees
0
Release of reserves no longer considered necessary
(867)
(146 254) 0 0 411 232
Non tax deductible adjustments for credit losses Balance as at 1 January 2003 FX rate differences
Use during current year 867
(146 254)
Balance of tax deductible adjustments
Creation during current year Non tax deductible reserves for credit losses
2003
2 870 163 94 974 839 (288 012)
Write-off of loans and advances
(84 001)
Cover of losses from loans sold
(204 011)
Release of adjustments no longer considered necessary Balance of non tax deductible adjustments
(182 401) 3 374 683
as at 31 December 2003 Total adjustments for credit losses as at 31 December 2003
3 785 915
Balance of non tax deductible reserves as at 31 December 2003
2 004
Total
3 673
CZK 000
2004
Tax deductible adjustments for credit losses CZK 000
2004
Tax deductible reserves for credit and guarantee losses Balance as at 1 January 2004 Creation during current year Guarantees Use during current year
1 669 1 608 1 608 0
Standard loans
0
Guarantees
0
Release of reserves no longer considered necessary
(516)
Balance of tax deductible reserves as at 31 December 2004
2 761
Creation during current year Guarantees Use during current years
2 004 10 152 10 152 0
Standard loans
0
Guarantees
0
Release of reserves no longer considered necessary
(470)
Balance of non tax deductible reserves
58
as at 31 December 2004
11 686
Total
14 447
ANNUAL REPORT GE MONEY BANK
411 232
Creation during current year
658 667
Use during current year
(63 196)
Write-off of loans and advances Cover of losses from loans sold Release of adjustments no longer considered necessary
(63 196) 0 (23 344)
Balance of tax deductible adjustments as at 31 December 2003
983 359
Non tax deductible adjustments for credit losses Balance as at 1 January 2004 FX rate differences Creation during current year Use during current year
Non tax deductible reserves for credit and guarantee losses Balance as at 1 January 2004
Balance as at 1 January 2003
3 374 683 (7 195) 596 201 (326 890)
Write-off of loans and advances
(18 215)
Cover of losses from loans sold
(308 675)
Release of adjustments no longer considered necessary Balance of non tax deductible adjustments
(13 670) 3 623 129
as at 31 December 2004 Total adjustments for credit losses
4 606 488
NOTES TO FINANCIAL STATEMENTS
(C) OTHER ADJUSTMENTS TO LOSSES FROM RECEIVABLES (TAX NON-DEDUCTIBLE) CZK 000
Balance as at 1 January 2003 Creation during current year Use during current year Release of adjustments no longer considered necessary
2003
139 692 1 571 (14 621) 0
Balance of other adjustments as at 31 December 2003 CZK 000
126 642 2004
Balance as at 1 January 2004
126 642
Creation during current year
14 783
Use during current year Release of adjustments no longer considered necessary
0 (12 925)
Balance of other adjustments as at 31 December 2004
128 500
27. Retained Earnings, Reserve Funds and Other Funds Allocated from Profit The bank proposes to allocate the 2004 profit as follows: CZK 000
Profit
Balance at 31 December 2004 before allocation of 2004 profit Profit for the year 2004
Retained earnings
Statutory reserve fund
Capital funds and other funds from profit
5 341 830
102 000
4 701 979
2 242 175
0
0
7 584 005
102 000
4 701 979
2 242 175
Proposed allocation of 2004 profit: Transfer to retained profits
(2 242 175)
ANNUAL REPORT GE MONEY BANK
59
NOTES TO FINANCIAL STATEMENTS
28.
29.
Income Tax and Deferred Tax Asset / Liability
Off-Balance Sheet
(A) CURRENT INCOME TAX During 2002 the Financial Authority conducted a tax inspection covering the years 1998-2000. As a result of the inspection the Financial Authority assessed the bank additional taxes of CZK 114 494 thousand for 1999. The bank has filed an appeal against the decision of the Financial Authority. Currently additional taxes are stated as a part of other liabilities.
(A) IRREVOCABLE CONTINGENT LIABILITIES ARISING FROM ACCEPTANCES AND ENDORSEMENTS, OTHER WRITTEN CONTINGENT LIABILITIES AND ASSETS PLEDGED AS COLLATERAL CZK 000
2004
2003
6 402 701
5 969 972
Customers
(B) DEFERRED TAX LIABILITY / ASSET Deferred income taxes are calculated on all temporary differences using the tax rate in the year of the expected reversal of the timing difference.
Notes, acceptances and endorsements Payables resulting from guarantees
15 182
11 790
Letters of credit and financial guarantees
82 414
395 516
6 500 297
6 377 278
Total
Deferred income tax assets and liabilities are attributable to the following items: CZK 000
Deferred tax assets
2004
2003
1 028 771
1 637 363
Credit provisions
378 381
615 814
Tax loss carry-forward
508 839
835 477
Tangible and intangible fixed assets
141 551
186 072
Deferred tax liability
(683 546)
(916 787)
Discounted loans receivable
(683 546)
(916 787)
345 225
720 576
Net deferred tax asset
Deferred tax expense of CZK 375 351 thousand (2003: benefit CZK 144 774 thousand) results from the change in the balance of the net deferred tax asset calculated as at 31 December 2004 and 2003. Deferred tax assets arising from tax loss carry-forwards were recorded up to the amount of estimated tax profits until 2005, which is the year that carryforward amounts will expire. Bank management believes that it is highly probable that the bank will fully realise its recorded net deferred tax asset as at 31 December 2004 based upon the bank’s current and expected future level of taxable profits. (C) INCOME TAX EXPENSE CZK 000
60
2004
2003
Deferred income tax
375 351
(144 774)
Income tax expense (benefit)
375 351
(144 774)
ANNUAL REPORT GE MONEY BANK
(B) GUARANTEES ISSUED IN FAVOUR OF PERSONS WITH A SPECIAL RELATIONSHIP TO THE BANK The bank did not issue guarantees in favour of persons with a special relationship to the bank as of 31 December 2004 and 31 December 2003. (C) GUARANTEES ISSUED IN FAVOUR OF PARTICIPATION INTERESTS WITH SUBSTANTIAL INFLUENCE The bank did not issue any guarantees in favour of participation interests with substantial influence as of 31 December 2004 and 31 December 2003.
NOTES TO FINANCIAL STATEMENTS
(D) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS Contractual amounts CZK 000
Fair value
2004
2003
2004
2003
Interest rate swap contracts
6 016 000
8 580 728
(85 945)
(169 033)
Total
6 016 000
8 580 728
(85 945)
(169 033)
Trading instruments
(E) RESIDUAL MATURITY OF FINANCIAL DERIVATIVES CZK 000
Up to 3 months
3 mths to 1 year
1 year to 5 years
Over 5 years
Without specification
Total
34 000
533 800
5 448 200
0
0
6 016 000
0
107 528
8 473 200
0
0
8 580 728
At 31 December 2004 Trading instruments Interest rate swap contracts At 31 December 2003 Trading instruments Interest rate swap contracts
(F) BORROWING FACILITIES The bank has available overdraft facilities up to USD 100 million from ABN AMRO Bank N. V. in accordance with agreement No 98/50000004BM/1 dated 1 July 1998.
30. Financial Instruments – Market Risk The bank is exposed to market risks arising from the open positions of transactions with interest rates, equity and currency instruments, which are sensitive to the changes in conditions on financial markets. (A) TRADING The bank holds trading positions in certain financial instruments including financial derivatives. The bank’s business strategy is concentrated on closing of open positions and consequently purchases and sells financial derivatives for macro-hedging purposes. The majority of financial assets are held to maturity. The bank manages risks associated with its trading activities on the level of individual risks and individual types of financial instruments. The basic instruments used for risk management are the volume limits of individual transactions, stop loss limits and Value at Risk (VaR) limits. The quantitative methods applied to risk management are included in “Risk management methods” below. The majority of derivatives are contracted on the OTC market as a result of the non-existence of the public market with financial derivatives in the Czech Republic.
(B) RISK MANAGEMENT The selected risks to which the bank is exposed as a result of its activities, management of positions arising as a result of these activities and the bank’s approach to the management of these risks are described below. More details on the procedures used by the bank to measure and manage these risks are included in “Risk management methods”. Liquidity risk Liquidity risk arises as a result of the type of financing of the bank’s activities and management of its positions. It includes both the risk of being able to finance the bank’s assets using the instruments with the appropriate maturity and the bank’s ability to dispose of / sell its assets for an appropriate price within an appropriate time frame. The bank has access to diversified sources of funds, which comprise deposits and other savings, securities issued, loans accepted and equity. This diversification makes the bank flexible and limits its dependency on one financing source. The bank regularly evaluates liquidity risk, in particular by monitoring changes in the structure of its financing and comparing these changes with the bank’s liquidity risk management strategy, which is approved by the bank’s board of directors. The bank also holds, as part of its liquidity risk management strategy, a portion of its assets in highly liquid funds, such as state treasury bills and similar bonds.
ANNUAL REPORT GE MONEY BANK
61
NOTES TO FINANCIAL STATEMENTS
Residual maturity of the bank’s assets and liabilities CZK 000
Up to 3 months
3 mths to 1 year
1 year to 5 years
Over 5 years
Unspecified
Total
At 31 December 2004 Cash and balances with central bank
2 240 441
0
0
0
827 951
3 068 392
State zero coupon bonds
2 392 939
1 685 288
0
0
0
4 078 227
Receivables from banks
13 253 702
0
0
0
0
13 253 702
5 736 676
8 824 246
12 850 374
6 362 733
3 464 503
37 238 532
Shares, units
0
0
0
0
16 105
16 105
Participation interests with subst. influence
0
0
0
0
240
240
102 874
365 499
0
0
1 543 401
2 011 774
0
0
0
0
114 699
114 699
Total
23 726 632
10 875 033
12 850 374
6 362 733
5 966 899
59 781 671
Due to customers
42 979 074
1 722 329
625 513
10 934
90 395
45 428 245
1 010 424
25 033
0
0
13 293 603
14 329 060
0
0
0
0
24 366
24 366
Total
43 989 498
1 747 362
625 513
10 934
13 408 364
59 781 671
Gap
(20 262 866)
9 127 671
12 224 861
6 351 799
(7 441 465)
0
Cumulative Gap
(20 262 866)
(11 135 195)
1 089 666
7 441 465
0
0
2 536 478
Receivables from customers
Other assets Prepaid expenses and accrued income
Other liabilities and equity Accrued expenses and deferred income
At 31 December 2003 Cash and balances with central bank
2 181 843
0
0
0
354 635
State zero coupon bonds
2 169 926
5 608 245
0
0
0
7 778 171
Receivables from banks
15 739 403
0
0
0
0
15 739 403
Receivables from customers
4 250 369
7 521 561
9 341 857
3 661 980
3 339 115
28 114 882
Debt securities
1 297 653
0
0
0
0
1 297 653
0
0
0
0
24 699
24 699
125 555
179 637
0
0
1 813 399
2 118 591
0
0
0
0
196 176
196 176
Total
25 764 749
13 309 443
9 341 857
3 661 980
5 728 024
57 806 053
Due to customers
43 052 449
1 686 078
677 915
15 450
126 763
45 558 655
1 025 353
54 909
0
0
11 088 894
12 169 156
0
0
0
0
78 242
78 242
Total
44 077 802
1 740 987
677 915
15 450
11 293 899
57 806 053
Gap
(18 313 053)
11 568 456
8 663 942
3 646 530
(5 565 875)
0
Cumulative Gap
(18 313 053)
(6 744 597)
1 919 345
5 565 875
0
0
Shares, units and other investments Other assets Prepaid expenses and accrued income
Other liabilities and equity Accrued expenses and deferred income
The above table shows the residual maturity of the accounting value of the items, not the total expected cash flows.
62
ANNUAL REPORT GE MONEY BANK
NOTES TO FINANCIAL STATEMENTS
Interest rate risk The bank is exposed to interest rate risk since the interest-bearing assets and liabilities have different maturity dates, periods of changes / adjustments of interest rates and volumes during these periods. In the case of variable interest rates, the bank is exposed to a basis risk that is based on the difference in the mechanism of adjusting individual types of interest rates, such as Pribor, announced interest on deposits, etc. The bank’s interest rate risk management activities are aimed at optimising net interest income in accordance with the bank’s strategy approved by the board of directors. Interest rate derivatives are generally used to manage the incongruity between the interest sensitivity of assets and liabilities. These transactions are carried out in accordance with the bank’s strategy for the management of assets and liabilities approved by the board of directors. The carrying amounts of assets and liabilities and the nominal (notional) values of interest rate derivatives are recorded either in the period in which they are due or in the period in which the interest rate changes, whichever occurs earlier. Certain assets or liabilities are allocated to individual periods on the basis of an expert judgement due to the expected preliminary repayment or non-defined maturity dates. Currency risk Assets and liabilities denominated in foreign currency including off-balance sheet exposures represent the bank’s exposure to currency risks. Both realised and unrealised foreign exchange gains and losses are reported directly in the profit and loss account. (C) RISK MANAGEMENT METHODS Interest rate risk The bank uses an “Interest rate sensitivity model“ for interest rate risk measurement and monitoring expressing sensitivity to the change of market interest rates. The model is based on the classification of interest rate sensitive assets and liabilities into particular time buckets with regard to maturity, meaning the residual maturity in case of fixed rate items and the re-pricing period, meaning the residual re-pricing period in case of floating rate items. The model works with 1-month time buckets up to 10 years and one time bucket over 10 years. The bank’s strategy of interest rate risk management is based on the “Matched-funding” principle, which presents the intention of the bank to maintain the amount of the interest rate sensitive assets equal to the interest rate sensitive liabilities in a particular time bucket. Potential mismatches are caused by: a) generation of new interest rate sensitive assets b) generation of new interest rate sensitive liabilities c) natural movement of interest rate sensitive assets from one time bucket to another d) natural movement of interest rate sensitive liabilities from one time bucket to another The “Earnings-at Risk” model is a supplement to the Interest rate sensitivity model. This model quantifies the impact of various developments of interest rates on earnings of the bank. The bank does not realize any speculative transactions.
Currency risk The bank has set currency risk limits based on its net currency exposure in individual currencies. The bank has determined a currency risk limit of 1 % of the bank’s capital with respect to individual currencies and a limit of 5 % of the capital with respect to the total net currency exposure of the bank. The bank does not realize any speculative transactions. Value at Risk The bank applies Value at Risk method. Value at Risk (“VaR”) represents a potential loss from an unfavourable movement on the market within a certain time period on 99 % confidence level. This method is used as an addition to the “Interest rate sensitivity model” in case of interest rate risk and to the method of management open position in case of currency risk. At 31 December 2004
Average for 2004
VaR of interest rate instruments
939
1 295
VaR of currency instruments
148
283
At 31 December 2003
Average for 2003
1 114
909
258
300
CZK 000
CZK 000
VaR of interest rate instruments VaR of currency instruments
Stress Testing Stress testing of interest and currency risk is done on regular basis using historical scenarios of important movements on the financial markets and other internally defined improbable scenarios. The results of the testing show the impact of the scenarios on the bank’s profit and loss statement.
31. Financial Instruments – Credit Risk The bank is exposed to credit risks as a result of its trading activities, providing loans, hedging transactions, investment and mediation activities. Credit risks associated with trading and investment activities are managed using the methods and instruments applied for the management of the bank’s market risks. (A) CLASSIFICATION OF RECEIVABLES The bank classifies receivables into individual categories in accordance with the ČNB decree No. 9 issued on 6 November 2002, which sets the rules for creation of specific adjustments and reserves for receivables from financial services and procedures of acquiring specific categories of assets. The classification is as follows: Standard receivables A standard receivable is a receivable in which there is no doubt that it will be fully repaid. Principal, interest and fees are consistently paid and are not more than 30 days past the due payment date. None of the receivables from the debtor has been restructured in the last two years due to any deterioration in its financial situation. The following can also be considered as standard receivables:
ANNUAL REPORT GE MONEY BANK
63
NOTES TO FINANCIAL STATEMENTS
• a receivable from a debtor who has, pursuant to a special regulation of the Czech National Bank, been assigned a zero risk weight and where no payment of principal, interest or fees is more than 540 days past the due payment date; • a receivable supported in full by high-quality security and where no payment of principal, interest or fees is more than 540 days past the due payment date. Special mentioned receivables A special mentioned receivable is a receivable which, given the financial and economic condition of the debtor, is likely to be fully repaid. Principal, interest and fees are paid, with some problems, but are no more than 90 days past the due date of payment. None of the receivables from the debtor has been restructured in the last six months due to any deterioration in its financial situation. The following can also be considered as special mentioned receivables: • a receivable from a debtor who has, pursuant to a special regulation of the Czech National Bank, been assigned a zero risk weight and where one or more payment of principal, interest or fees is more than 540 days past the due payment date; • a receivable fully secured by a person who has, pursuant to a special regulation of the Czech National Bank, been assigned a zero risk weight and where one or more payments of principal, interest or fees is more than 540 days past the due payment date. Substandard receivables A substandard receivable is a receivable which, given the financial and economic condition of the debtor, might not be fully repaid, but is most likely to be repaid in part. Principal, interest and fees are paid, with some problems, but are no more than 180 days past the due payment date. Doubtful receivables A doubtful receivable is a receivable which, given the financial and economic condition of the debtor, is unlikely to be fully repaid, but may be, and is likely to be, repaid in part. Principal, interest and fees are paid, with some problems, but are no more than 360 days past the due payment date. Loss receivables A “loss receivable” is a receivable which, given the financial and economic condition of the debtor, cannot be fully repaid. The expectation is that such a receivable will not be recovered or will be recovered in part only, in a very small amount. Principal, interest and fees are more than 360 days past the due payment date. The following are also considered as loss receivables: • a receivable from a debtor in composition proceedings; • a receivable from a debtor who has been declared bankrupt, except in the case of a receivable against assets arising after the declaration of bankruptcy. This classification is maintained on a monthly basis. The main criteria for classification are the following: • financial condition of the debtor and the fulfilling of agreed upon repayment schedules • providing requested information by the debtor • restructuring (or non restructuring) the receivable • declaration of bankruptcy or compensation proceedings
64
ANNUAL REPORT GE MONEY BANK
In addition, the bank uses an internal rating system of receivables. This system comprises 9 categories, of which the first seven correspond to the classification of standard receivables in accordance with the ČNB’s classification. Other categories correspond to the categorisation in accordance with the ČNB’s classification. The internal rating system also assesses, apart from the overdue period, the quality of management, market position of the debtor, external environment, collateral structure and financial ratios and indicators, such as the balance sheet structure, operating cash flow, productivity, liquidity, etc. The bank does not include the following receivables in the above system of categorisation: • consumer overdraft loans (Flexikredit) with accrued interest • unapproved overdrafts on current accounts (B) EVALUATION OF COLLATERAL The bank generally requires collateral for loans granted to certain debtors before the provision of these loans. As acceptable collateral, which reduces gross credit exposure for the purpose of calculation of adjustments, the bank considers the following types of collateral: • Cash • Securities • First-class receivables • Bank guarantees • Guarantees provided by reputable third parties • Real estates • Machinery and equipment The bank’s assessment of the net realisable value of the collateral is based on an expert appraisal or internal evaluation prepared by the bank’s specialist department. The net realisable value of the collateral is determined using this value and the correction coefficient, which reflects the bank’s ability to realise the collateral when necessary. The bank performs regular semi-annual updates of the collateral’s value and correction coefficients. (C) CALCULATION OF ADJUSTMENTS When calculating adjustments, the bank considers the gross book value of individual receivables reduced by the net realisable value of the collateral. To these net receivables, which are determined as described above, the bank creates the following adjustments in accordance with ČNB Decree No. 9 issued on 6 November 2002: • Special mentioned
1 – 19,99 %
• Sub-standard
20 – 49,99 %
• Doubtful
50 – 99,99 %
• Loss
100 %
Adjustments for consumer overdraft loans are calculated using results obtained from the bank’s Markov model.
(D) CREDIT RISK MEASUREMENT MODELS FOR CONSUMER LOANS For consumer loans, which are not written off in accordance with US GAAP rules (based strictly on days overdue), credit risk is monitored by the bank using models that enables prediction of future losses linked to these deals. GRR (Gross Roll Rate) model is used for revolving loans. The Markov model, which is based on Markov chain theory, is used for other types of loan. The Markov model, which
NOTES TO FINANCIAL STATEMENTS
is based on Markov chain theory, is used for other types of loan. Future losses on loans, which are not written off in accordance with US GAAP rules, are predicated on the basis of loan deals movements between model individual statuses (group of accounts with similar behavior). To establish parameters for the GRR model, the yearly history is applied. To establish parameters for the Markov model, two years history is applied. The source of expected future losses calculation and of model parameters calculation is the bank’s database. The reserve calculation is based on expected future losses that occur during the following 12-month period. These future losses are reduced by the expected payment amounts (recoveries) received during the following 12-month period from loans already written off according to US GAAP rules. Revolving loans use 12-month recovery history as a base for recovery determination. (E) CONCENTRATION OF CREDIT RISK The concentration of credit risk arises as a result of the existence of loans with similar economic characteristics affecting the debtor’s ability to meet his obligations. The bank treats a receivable from a debtor or an economically connected group of debtors that exceeds 3 % of the bank’s capital as a significant exposure. The bank has created a system of internal limits for individual countries, industries and debtors in order to prevent significant concentration of credit risks. At the balance sheet date the bank did not have any significant concentration of credit risk with respect to any individual debtor. Sector analysis The analysis of concentration of credit risks according to individual industries / sectors is included in Notes 15b and 15c. Analysis by geographical areas (receivables from customers) CZK 000
Czech Republic Slovakia Germany
2004
2003
41 841 386
31 881 087
3 387
18 432
193
1 263
Other
54
15
Total
41 845 020
31 900 797
Adjustments are not analysed by geographical area. (F) CLAIMING OF DEBTORS’ RECEIVABLES The bank established a “Collections” department that manages certain receivables, the recovery of which is threatened. This department undertakes legal steps, performs restructuring of receivables, etc. in order to receive the maximum recovery, including the realization of collateral, and represents the bank on creditors’ committees if bankruptcy is imposed on the debtors. The collections department is divided into Early and Late Collections. The Early Collections division is responsible for managing of collection up to 90 days overdue. After expiration of this period the receivable is moved automatically to the Late Collections department.
32. Operational, Legal and Other Risks The bank defines operational risk as the risk of possible losses which occurs due to the internal or external fraud, system outage, other external events or legal and documentary risks. Internal processes are controlled and improved on an ongoing basis by the bank’s Internal Audit department and through implementation of requirements under the Sarbanes Oxley Act. Operational risks and information about losses from them are managed and monitored on a delegated basis. Direct losses on property or losses influenced by employees are the responsibility of the bank’s damage commission. External and internal frauds, their monitoring and prevention are subject to interest of the Anti Fraud Officer. The problems connected with IT systems failures are solved by IT security and the impact of negative external events is minimized by physical security. Legal and documentation risk is minimized by standardization of legal conditions and by external legal assessment of contracts with significant impact on the banking portfolio.
33. Litigation Three lawsuits are currently pending against the bank as defendant, which contest the validity of the Agreement on the Sale of a Part of the Enterprise of Agrobanka Praha, a.s., dated June 22, 1998. In the case of Václav Sládek, a shareholder of Agrobanka Praha, a.s., in liquidation, and of the members of the Supervisory Board of Agrobanka Praha, a.s., in liquidation, the lawsuits are conducted for the declaration of invalidity of the Agreement. The lawsuit conducted by HZ, spol. s r.o., the liquidator of Agrobanka Praha, a.s., in liquidation, is conducted for the declaration of validity of the Agreement. In all the lawsuits, the bank insists on, and has furnished the court with its position based on extensive legal analyses supporting, the validity of the Agreement on the Sale of a Part of the Enterprise, and, in addition, has objected procedural defects on the side of the plaintiffs, which procedural legal defects alone constitute grounds for dismissing the actions. However, should the plaintiffs be successful in having the original purchase and sale contract declared null and void, the impact could be significant to the bank’s financial position. At this point in time the impact of such an outcome is undeterminable and management is convinced that the plaintiffs are unlikely to be successful in their actions.
34. Subsequent Events There have been no events subsequent to the balance sheet date that require adjustment of or disclosure in the financial statements or notes thereto.
(G) QUALITY OF THE CREDIT PORTFOLIO Quality of the credit portfolio is regularly monitored in the bank’s Risk Department on a monthly basis. The quality of the bank’s portfolio is stable and the percentage of classified receivables is also stable around 20 %. The share of the commercial and retail portfolios of total credit receivables is similar to prior years. The share of mortgages within the bank’s total lendings increased to 19 % and it is expected that this trend will continue in the future.
ANNUAL REPORT GE MONEY BANK
65
GE Money Bank, a.s. BBCentrum Vyskočilova 1422/1a 140 28 Prague 4 - Michle Tel.: +420 224 443 636, 224 443 632 Fax: +420 224 441 500 Information line: 844 844 844 Visit our website www.gemoney.cz
Graphic design, production: FG Forrest, a. s., tel.: +420 222 242 204, e-mail:
[email protected], www.fg.cz
